Charging Water and Wastewater Customers Fairly
Fairness is an important consideration for setting water and sewer rates. No group of customers should be subsidizing another group. The 12-month billing summary for the water department is shown in Table 1 below.
The finance director calculated percentages for each rate classification and made the comparisons shown in Table 2 below.
Since the percent consumption and percent revenue columns in Table 2 closely match within a few percentage points, staff decided that the current rate structure treats customer groups fairly. No structural changes would be needed to the current rates. If expense data per customer group is available it could be included in the fairness test.
The fairness test was repeated for the sewer rate structure with similar results.
Water Billing Summary by Customer Class
|
Number of Bills
|
Consumption (Gallons/Year)
|
Revenues/Year
|
|
| Residential Inside |
4,000
|
30,000,000
|
$630,000
|
| Residential Outside |
1,000
|
6,000,000
|
$163,000
|
| Commercial Inside |
100
|
20,000,000
|
$428,109
|
| Commercial Outside |
12
|
4,000,000
|
$150,000
|
| Utility Districts |
1
|
12,000,000
|
$350,000
|
| Industrial |
7
|
7,200,000
|
$176,870
|
| Total |
5,120
|
79,200,000
|
$1,897,979
|
Water Usage Versus Revenue by Customer Class
|
Consumption (Gallons/Year)
|
%
|
Annual Revenues
|
%
|
|
| Residential Inside |
30,000,000
|
38%
|
$630,000
|
33%
|
| Residential Outside |
6,000,000
|
8%
|
$163,000
|
9%
|
| Commercial Inside |
20,000,000
|
25%
|
$428,109
|
23%
|
| Commercial Outside |
4,000,000
|
5%
|
$150,000
|
8%
|
| Utility Districts |
12,000,000
|
15%
|
$350,000
|
18%
|
| Industrial |
7,200,000
|
9%
|
$176,870
|
9%
|
| Total |
79,200,000
|
100%
|
$1,897,979
|
100%
|
Note: Multiple step declining block rate structures are likely to lead to fairness issues. In such rate structures, large volume users are usually found to be paying less than their fair share. Many cities decide on lower water and sewer rates for large volume users, such as manufacturing facilities, because of the benefits they add to the city, such as jobs. A better approach is a uniform rate structure where the first 1,000 gallons costs the same as the 101,000 gallon.