- We deliver an essential service–to every living organism and every working person in every place we deliver the service, which is everywhere. This by itself is not a problem–in fact it is the awesome nature of our service, except when considering the next 4 points.
- Our infrastructure is in horrible shape. Our infrastructure–which includes our pipes, valves, pumps and meters–receives nearly failing grades from engineering professionals. If we truly deliver an essential service, then how can this be?
- Most of our customers don’t know us. Most people don’t know what it takes to deliver water to their homes and treat it once it leaves their homes. Water just arrives at the faucet and disappears at the drain. Everything else is taken for granted, a seemingly almost magical feat.
- Our financial structure is broken. We rarely charge the true cost of our services and our customers are used to artificially low prices. The simple fact of the matter is that costs have been kept low by deferring maintenance and desperately needed capital projects. Hence issue #2.
- We are an industry resistant to change. If we have old pipes that must deliver life-giving resources without enough money – we better stick to what we know. There is no room for experimentation or error. Being conservative in practice is absolutely right given #1-4.
When I arrived at DC Water six years ago, I almost panicked at the thought of this iron fist coming at us. Yet I quickly realized there is a helping hand of five points that can deliver salvation. The key starting point, though, is the first and second fingers on that helping hand:
- We must communicate with our customers better about the best product on earth; and
- We must charge the true cost of service delivery, including capital upgrade costs. If we can gain a customer base that knows and values our services, and understands what we are charging and why – then we can gain the revenue to improve, innovate – and modernize our infrastructure.
Communication Comes First
Only by communicating to our customers about what it takes to deliver our essential service, the value of our people and the need for infrastructure modernization can we generate the support that’s required to raise the revenue needed. I have written extensively about our efforts to communicate with the people we serve. As I have said so many times, there is no more important priority than communication. Everything is premised on that foundation. I will come back to that topic in a moment.
Yet no matter how well we communicate, we still come back to the reality of mounting costs to upgrade and maintain our water and sewer infrastructure, and the burden that places on our ratepayers. Here in Washington, DC, half of our water pipes were installed prior to 1936 and some date back to the Civil War! Many older cities are in the same leaking boat.
In addition, even while our city is adding tens of thousands of new residents, water consumption is declining thanks to water smart fixtures including low-flow shower heads and toilets and more environmentally conscious customers. Again, this is a trend being felt throughout the country. But, our costs don’t always go down when people use less water. We still have to keep those water mains, valves and meters in the streets in good working order, with the capacity for peak demand. Whether they use a lot or a little, people want the infrastructure to be ready.
Most of our revenue has historically come from volumetric rates – meaning the amount a consumer gets charged depends on how much water they use. Certainly, this principle should always be an important part of the rate structure. However, the utility’s costs are fixed and do not change much depending on how much consumers use. Charging by volume when consumption is decreasing while costs are the same, means rates need to go up just to keep pace with the prior year. And that is before we seek to increase rates to cover deferred maintenance and capital improvements.
At DC Water we decided we needed to solve these two issues at the same time – stable funding and capital replacement.
Like so many other utilities, we need a stable funding source that does not fluctuate based on consumption, and is dedicated solely to replacing our aging water pipes. There is simply no other way to provide high quality service and minimize disruptions to our customers. So our Board approved a plan that beginning in October 2015, will include an infrastructure charge that’s separate from the general consumption charges. We call it the Water System Replacement Fee (WSRF). Based on the size of the water meter, the fee will be used to replace at least one percent of the district’s water mains every year in perpetuity!
The WSRF is dedicated funding for infrastructure improvement and replacement that’s not dependent on volume.
One Size Does Not Fit All
Currently, DC Water charges all of its customers the same rates for water and sewer services. Yet our analysis indicates that we do not have the same costs for each rate category. In short, those customers that have high peaks of use require us to upsize the system to cover their usage spikes. Other customers that do not have high peaks allow us to build a smaller system. So a “peaking factor” can be used to differentiate customer groups – and allocate costs more fairly.
With this thought in mind, the Board in January also established a new rate structure that is designed to better allocate system costs across our three customer classes: Residential, Multi-Family, and Non-Residential. This means each customer class will have their own water rate, but there will continue to be a uniform rate for sewer services. Non-residential (commercial) users have higher peaking factors – so will pay higher rates. Fair is fair.
Then we faced a last challenge–at least at this juncture. When a larger percentage of the bill is fixed, we are guaranteed revenue for costs that are fixed, which is good. On the other hand, customers have fewer opportunities to reduce their bill by conserving water, which is not so good. DC Water always wants to incentivize water conservation–both for the our customers’ pocketbooks and the heath of the environment.
So the Board proposed another innovation: a Lifeline Rate. Every residential customer will pay a steeply discounted rate for the first 4 Ccfs (400 cubic feet or about 3000 gallons) of drinking water each month. Customers that can keep their monthly water consumption below 4 Ccfs will be charged a lower rate for the water used. (I hope that this incentivizes every customer to conserve more than before even as we institute the WSRF.)
By the way, we also continue to offer the most generous discount program for low-income customers in our region–the Customer Assistance Program (CAP). CAP provides eligible low-income customers with a discount on their water and sewer bills, and the Board proposed in January to exempt CAP customers from the new fixed infrastructure fee.
Clearly, our rate structure is undergoing a fundamental change, within the context of an average rate increase across all customer classes that is near 16% (lower for residential, higher for commercial.) We all know we need to explain these changes to our customers in every way we can, in every venue and at every moment.
Our outreach efforts began in earnest in the spring when we hosted town hall meetings in every Ward of the city. I presented and explained the proposed changes and rate increases, listened to residents’ concerns, and answered their questions as best I could. Hundreds of residents attended and asked good, tough questions. The discussions were very constructive and I continue to value those annual meetings as a way to communicate directly with our customers.
The town hall meetings are held in partnership with the council members in each Ward. Their offices help spread the word to their constituents. I also record a message that we use to robocall every customer who has contacted us over the past year – many for billing or service complaints – and invite them to the meetings. I think that is an unparalleled level of outreach or foolishness – I’m not sure which! Staff from all of our departments attend the meetings as well, so customers can get immediate assistance, and if we can’t resolve their issues or answer their questions on the spot, we take their information and contact them soon afterwards.
We are now following up on that foundation with additional outreach to make sure our customers know what their bill will look like when the changes take effect this fall. All of our customers will get a letter from me in the coming weeks detailing what I’ve shared here, and they have already begun to receive information included with their bills about the WSRF, the Lifeline Rate, and our new rate structure.
We’re also thankful to the media outlets who have given us a chance to tell our story and explain why investing in our infrastructure is so critical. Some of that coverage is included below. Our approach is to be honest and transparent – even when some of what we’re saying might sting – because at the end of the day we need the support of our customers to continue with this work. People are willing to pay for what they value, and our job is to make sure they understand the value of the service we provide.
By the way, after this comprehensive outreach process and public meetings, on July 2, 2015 the Board approved this rate structure for implementation in October. I hugely appreciate and admire their leadership and courage in taking the steps necessary to secure our water future. And the rate structure itself owes most of its formation to our superb Chief Financial Officer Mark Kim. Explaining the changes to our ratepayers falls to our very talented staff in External Affairs and Customer Service. It’s a team effort and we have a fantastic team yielding some fantastic results!
Washington Post – D.C. residents, businesses to face higher water and sewer bills
Kojo Nnamdi Show – Bigger Bills? D.C. Water’s George Hawkins On The Cost Of Infrastructure
NBC – Water Bills Increase Again This Fall in D.C.
WAMU Story – D.C. Water Bills Will Be Higher Starting This Fall