Full Cost Pricing of Utility Services

High-quality drinking water and wastewater systems are essential to public health, business, and quality of life in the United States. The American Water Works Association (AWWA) and others have documented that our water and wastewater infrastructure is aging and that many communities must begin to increase their levels of investment in the repair and rehabilitation of water infrastructure in order to protect public health and safety and to maintain environmental standards

No doubt some water utilities are waiting for the dawn of a new era of federal public works programs with outright grants to provide for the upkeep of their pipes, pumps and treatment facilities. The federal treasury is a far-off solution, one that raises many issues of efficiency and equity on a national scale, pitting the older systems of the Northeast and upper Midwest against the newer systems of the Sunbelt and West.

AWWA has long believed that Americans are best served by water systems that are self sustaining through rates and other local charges. However, we recognize that at present, some communities need assistance due to hardship or special economic circumstances. According to the US Conference of Mayors, in 2004-2005 Americans invested $84 billion in water and wastewater infrastructure, of which more than 95 percent represented state and local funds without subsidies or federal assistance. However, a case can be made that rate payers are not anywhere near paying for the full cost of our nation's water and wastewater infrastructure.

The primary federal role in water infrastructure is one of leadership. Among other things, that role includes demonstrating and encouraging:

• Utility use of modern asset management tools and full-cost pricing;
• Use of rate structures that accommodate low and fixed-income customers as much as practical;
• Adoption of green technologies and approaches such as water and energy conservation, water reuse, and non-traditional stormwater management;
• Use of cost-saving watershed and regional strategies, such as system consolidation, regional management, and cooperative approaches among water, wastewater, and highway agencies within a region; and
• Use of advanced procurement and project delivery methods.

However, there is also an important role for the federal government in lowering the cost of capital for water and wastewater investments. Almost 70 percent of American communities use bonds to finance local infrastructure. They pay billions of dollars in interest costs each year.

 

Lowering the cost of borrowing for water and wastewater infrastructure is an important way to leverage local funding and help America rebuild and rehabilitate our aging water infrastructure.

 

A Federal Water Infrastructure Bank

To lower the cost of infrastructure investments and to increase the availability of lower-cost capital, AWWA urges Congress to create a federal Water Infrastructure Bank. AWWA commissioned a study of water infrastructure finance tools and developed a model for an infrastructure bank that would lower the cost of capital for water utilities while having no or little effect on the federal budget deficit. Our model would have the Water Infrastructure Bank obtain loans from the U.S. Treasury at Treasury rates and pass those savings onto local water utilities or state revolving funds.

Park's revenue requirements, the amount of money needed for us to operate and maintain facilities, cover capital expenses, and provide an opportunity to earn a return on our investment, are evaluated. Rates to collect that revenue are set by the CPUC.

Park's rates reflect the true cost of water and are not subsized by property taxes or other outside funding.