Understanding the 'Why' Behind Utility Rate Structures and Customer Affordability Programs

SUMMARY The New York City Department of Environmental Protection (DEP) is currently engaged in a multi-year effort to evaluate its water and sewer rate structure and enhance its customer assistance programs (CAPs). A key component of the effort has been gaining an understanding of how other utilities structure their rates and CAPs and, importantly, why utilities have chosen their various rate structures and assistance programs. To facilitate this understanding, the City engaged our project team to conduct an analysis of the rate and CAP practices of ten utilities across the United States. The key focus of the analysis was to not only collect data regarding the current rate structures and CAPs, but also to gain an understanding of the local challenges and policy objectives to help explain how each utility arrived at their current rate structure and CAP and what lessons were learned along the way. ABSTRACT One of the most common questions utility managers hear when they speak with key stakeholders is, 'how do we compare with our peers?' Utility managers are typically able to compare their rates and average customer bills with local and national utility providers. However, the follow up question inevitably will be, 'why are utility rates for those other utilities different?' This question is always more difficult to answer, as the details behind the rates for comparison utilities are often not available and, as a result, the stakeholders are not satisfied. To make matters even more interesting, what if you are the largest water and sewer provider in the United States, in terms of population served? How can your water and sewer rates be compared to other utilities? These issues and many more are currently being evaluated by the New York City Department of Environmental Protection (DEP) as part of a multi-year effort to evaluate how it structures water and sewer rates and provides customers assistance. In 2020, DEP engaged Stantec to complete a Sustainable Rate Structure Analysis. One of the key components of the effort has been gaining an understanding of how other utilities structure their rates and customer assistance programs. To facilitate this understanding, Stantec completed a comparative analysis report for ten utilities across the United States. Utilities were carefully selected based on having one or more characteristics relevant to DEP's objectives. The key focus of the analysis was to not only collect data documenting current rate structures, CAPs, and typical customer bills, but also to understand how each utility arrived at their current rate structure and CAP and what lessons were learned along the way. This information will allow DEP to answer the tough questions regarding differences in bills as well as best practices for rate structures and CAPs. To facilitate the understanding of rate structures and CAPs, in-depth interviews were conducted with management of each of the utilities included in the study. The analysis revealed the key challenges facing each utility, how each utility addresses the challenges with their rate structures and CAPs, and lessons learned along the way. Some of the key challenges identified and addressed include: - Revenue stability - Capital infrastructure funding - Customer affordability, including hard-to-reach customers - Funding of stormwater infrastructure - Long-term planning Our presentation will provide insights into = The diverse approaches to rate and funding issues being used, = The drivers behind these differing approaches, = The development and management of CAPs, and Key lessons learned to help participants make the most informed decisions possible in their own communities.