Water utilities must start educating consumers about the true cost of their product much as electricity utilities did in the 1970s, according to new research by a Rutgers University–Camden finance scholar.
In “Electricity in the 1970s, Water in the 2020s,” published by The Electricity Journal, Richard Michelfelder of Rutgers and Gary Shambaugh of Shambaugh Utility Consulting LLC encourage utilities to invest in the research necessary to provide consumers with data on rates and usage.
“America’s water utility industry is in a capacity crisis due to a history of inadequate investment that will last for years,” Michelfelder said in an Aug. 15 statement. “The industry has no choice but to invest in large capacity additions in order to meet our surging national demand for water which, in turn, will result in substantial rate increases for the consumer.”
Dramatically higher rates will lead the public to demand that utilities justify in increases. The operators should conduct load studies to determine water and wastewater treatment costs by customer class — a residential or commercial — to figure out who should bear the brunt of higher costs.
“The processes currently in place to justify cost allocations simply aren’t going to be acceptable when the dollars at stake surge,” Michelfelder said. “In such a situation, it wouldn’t be surprising for a utility to be obliged to conduct a load study to gauge the impact of the rate shock. And the utility will be required to pick up the cost of that study.”
Michelfelder advises water utilities to avoid repeating the errors electric companies made in the 1970s under similar circumstances. The companies should begin collecting data before the rate shock sets in.
“Water utilities should prepare the data to make the case for the capital expenditures that are inevitable to ensure that clean water continues to flow to our communities,” Michelfelder said. “Hourly information about how water is used will allow households, municipalities, and businesses to budget for their water expenses. Moreover, this data can be used to justify the need for capital additions.”