Can Customer Assistance Programs Address Water Affordability Concerns: Insights from California’s Bay Area

Randall Dobkin, Water Policy Intern

COVID-19 has stressed and tested every sector of the world economy. Its emergence has uncovered underlying faults in industry ranging from healthcare to utility services. Fraught with recession, water utility bills continue to rack up across the country. In California, households owe nearly $1 billion to utilities for delinquent payments. Since 2012, water rates in Chicago have risen 166% and water debt has soared nearly 300% to more than $330 million. With mounting water rates nationally and corresponding increases in customer debt, governments and water utilities have established customer assistance programs. However, their implementation has been plagued with inefficiencies.

In a new report, “Keeping the Water On”, author Laura Feinstein of the San Francisco Planning and Urban Renewal Association (SPUR) highlights the issues underlying these programs in California. Although unique state legislation can have drastic impacts on water utility operations, this report underscores problems facing customer assistance programs across the country. The report analyzes five utilities (four water and one electric) in California’s Bay Area region and draws recommendations based on observations of the effectiveness of each customer assistance program. Three of the four water utilities are public-owned, the remaining is investor-owned. The one electric utility analyzed is the investor-owned PG&E.

In the three public water utilities, participation rates in their customer assistance program hover in the single digits. In the single investor-owned water utility, participation rates are estimated to be in the 50%-60% range. Similarly, the investor-owned electric utility also has a high participation rate of 84%. The discrepancies in these participation rates are alarming and may be attributed to inadequate state legislation, the complex application process, and insufficient marketing of these programs by public water utilities. Data-sharing among investor-owned water and electric utilities allows water utilities, like San Jose Water, to have high participation rates since they can link the application process with energy utilities. Another advantage among investor-owned utilities is their ability to use ratepayer revenue to assist the funding of customer assistance programs. Public water utilities lack this ability due to state legislation.

In 1996, California passed Proposition 218 with the intent to limit local governments’ ability to collect revenues through taxes. It effectively blocked the use of rate revenues to fund public water utility customer assistance programs. As a result, customer assistance programs in California are now funded primarily through nonprofits and voluntary contributions. The lack of reliable funding dampens the scope and restricts the potency of these programs. However, even with the ability to use ratepayer revenues to fund customer assistance programs, smaller systems and systems that serve disadvantaged populations lack the resources to sufficiently fund these programs. Due to local funding constraints, the report stresses the importance of state and federal funding of these programs.

Equally important to securing funding is the removal of obstacles put into place by utility companies. Key policies used by utility companies are counter-intuitive and create a foundation for increasing customer debt. In San Francisco, SFPUC had in place layers of fees that increased with continued delinquency. Rather than incentivize timely bill payments in the future, this policy was exacerbating hardships. As stated in the report,

the fees started with a “$55 notice fee, a $55 shutoff fee when water was turned off, and a $55 reconnection fee for restoring service. In all, a customer who owed $50 for 70 days and failed to arrange a payment plan would owe an additional $165 in penalties.”

An alternative method that incentivizes payment has already been in place for investor-owned energy utilities. Under the supervision of the California Public Utility Commission, large California energy utilities are required to forgive all past due balance after 12 on-time payments.

Additionally, barriers often impede participation in customer assistance programs and ignore local circumstances. Many of the successes experienced by investor-owned water utilities in participation rates could very easily be carried over to public water utilities. Similar to data sharing among investor-owned utilities, public water utilities could share information about their vulnerable customers with other programs. One such opportunity would be to share customer information with the food assistance program, CalFresh. The application process could also be streamlined to only require additional documentation upon request and use technology to allow e-signatures.

One of the largest potential barriers is how utilities determine eligibility for assistance programs. In four out of the five utilities analyzed, the income limit was set using the federal poverty line. In California, the cost of living is far greater than 200% of the federal poverty level. Using local measures to capture the cost of living would eliminate discrepancies between urban and rural poverty lines and intra-urban levels. The report lays out these recommendations and anticipates that the prominence of unpaid bills, further exacerbated by the COVID-19 economy, will potentially be the catalyst for a political response.

Customer assistance programs in California vary across utilities on who qualifies, the types of assistance offered, and how funding is secured. The current advantages of investor-owned utilities highlight the potential for public water utilities. Despite the obstacles, urgent legislation is needed to allow public water utility companies to use rates for funding customer assistance programs.

Given the need to set up assistance programs across hundreds of utilities, policy experts recommend a statewide customer assistance programs that can generate revenues through rates and secure state or federal funding to serve low-income consumers without increasing rates in demographically vulnerable areas. Furthermore, a statewide assistance program can streamline the application process for eligible consumers. By linking the application process with other assistance programs like energy, food, and housing, participation rates would start to mirror investor-owned utility successes.

Currently no statewide customer assistance program exists in the country. California is attempting to be an exception to this. A proposed bill in the California legislature, Senate Bill 222, introduced by Sen. Bill Dodd, seeks to establish the Water Affordability Assistance Fund in the State Treasury. This bill comes on the heels of Assembly Bill 401 which required the state water board to develop a plan for the funding and implementation of a low-income water rate assistance program by 2018. The findings of the report concluded that revenues for a statewide customer assistance program should come from four main sources: a proposed soda tax, a bottled water sales tax, a water user surcharge, and a business tax. Senate Bill 222 offers these funding methods as a solution to finance the statewide assistance program. The first test for Senate Bill 222 is the Senate Appropriations Committee where the full costs of the program will be calculated.

Short of legislation setting up a statewide program or offering flexibility for utilities in structuring their rate assistance programs, continued reliance on overstretched general funds and charity creates volatility in an area that needs stability. Additional analysis of the difference in participation rates and enrollment processes in other states could illuminate potential solutions at the federal level.