Sewer utilities and their operations, including their rates, tend to get less press than their more glamorous water utility cousins.  Perhaps this is because there are just 16,000 sewer utilities in the US as compared to some 52,000 drinking water systems, or perhaps it is because the topic of sewer treatment and collection is, well, uncomfortable for some.  Regardless of the reasons, when it comes to financial issues, sewer utilities have as many or even more pressing times ahead than water utilities.  Sewer utilities face the same infrastructure replacement issues as water utilities, and they even tend to have higher regulatory requirements to meet from EPA and local authorities.

We have spent some time on this blog pointing out the accelerating rate of increase of utility rates in general.  Usually, those comments were related to both water and sewer increases, but today we’re talking only about sewer rates and it’s a topic we will continue into the future.

Today, we will talk about some of the basic elements of sewer rates.  As usual, we have a recent example to frame the discussion.  Customers in Scranton, PA were recently notified that their sewer rate structure will change from one based partly on usage (which we call ‘flow’ in sewer parlance) to one that is a fixed amount every three months.  The net effect is to reduce rates for those who were causing more than 6,000 gallons of flow per month, while increasing rates for everyone contributing less than 6,000 gallons.  If you read the article, you’ll see that many customers in Scranton are angry over the change; the utility is receiving a steady stream of complaints.  Some of the complaints are listed at the link provided above.

Many sewer utilities use flat-rate billing for residential customers.  However, when the costs of the utility start to increase, customers tend to prefer a system that causes customers pay in proportion to flows.  What Scranton has done is to move from proportionality to flat while costs are increasing, which will lead to customer dissatisfaction.  It will lead to dissatisfaction because the rate departs from what we call “cost-of-service principles” which generally speak to the need to charge customers proportionately based on the costs that those customers cause the utility to incur.  The two principles in play here are “causation” and “proportionality.”  Scranton has abandoned both with the proposed rate structure.  Customers have a strong sense for causation and proportionality and therefore have a strong sense for when those things have been ignored.  Hence the problem.

Luckily there are methods for determining causation and proportionality in sewer rates.  StepWise Utility Advisors is a firm that specializes in preparing cost-of-service studies in these kinds of situations, and there are others.  The bottom line is that where cost differences exist, rates should be designed to match them.  When you don’t do that, you are very likely to end up with angry customers and even unstable rates leading to other financial problems.