December 10, 2024

By: Sri Vedachalam, Ph.D. and Lisa O’Fiesh, CIS, LLC; Christine Curtis, Ph.D. and Morgan Shimabuku, Pacific Institute

Key Takeaways:

• The final workshop brought together utilities and nonprofits to explore how water affordability is measured and evaluated.
• Utilities use a mix of outcome-based metrics and program implementation metrics, with some applying both. 
• Refined metrics are needed to account for local variations in the cost of living and better reflect the financial challenges faced by low-income households.
• Utilities choose metrics for their affordability programs based on multiple factors including accuracy, time, cost, simplicity, regulation, grant requirements, and accessibility for customers and decision-makers. 
• Utilities need more support to measure and improve their affordability programs through better water sector affordability benchmarks, allowances for data sharing, and tools to enable low-capacity utilities. 

Project Overview

This blog is part of The Water Research Foundation (WRF) project 5179: Feasibility and Applicability of Emerging Utility-Led Innovations in Addressing Affordability. The project, led by the Pacific Institute, CIS, UCLA Luskin Center for Innovation, and UNC Environmental Finance Center, seeks to document and advance innovative strategies that utilities can use to improve affordability programs in the United States. The project aims to help utilities nationwide improve engagement, reach, and impact of their affordability programs.

Overview of Workshop 4

In September 2024, 15 water professionals from 10 organizations gathered virtually for the fourth and final project workshop, Measuring Outcomes in Affordability Efforts (see also the blogs summarizing workshops 1, 2, and 3). Participants included representatives from six water utilities and four nonprofits across the U.S. The virtual workshop included breakout groups to foster conversation and incorporate participants’ experiences. Participants discussed how their organizations define affordability, the benchmarks they use, and the metrics they track to evaluate the success of their various affordability interventions (e.g., assistance programs, leak repair, etc.). This blog highlights key insights from the workshop. The findings will be analyzed in a final report to be published by WRF in 2025.

How Utilities Measure Water and Wastewater Affordability

Affordability metrics fall into two primary categories. Program implementation metrics evaluate the effectiveness of affordability programs through factors such as participation rates, administrative efficiency, and procedural equity. Outcome-based metrics assess the broader financial burden of utility bills on households. 

Program implementation metrics are particularly useful for driving immediate improvements in program design and accessibility. For instance, tracking participation rates or application outcomes can reveal procedural barriers, enabling utilities to refine their processes and enhance program reach.

Outcome-based metrics, on the other hand, provide a complementary perspective by focusing on whether affordability programs achieve their intended long-term impacts. Metrics such as delinquency rates and shutoffs directly measure customer ability to consistently pay bills, offering a practical way to evaluate broader program impact. However, measures like the average utility bill as a percentage of Median Household Income (MHI) are less useful for assessing more nuanced affordability challenges, particularly for lower-income households. This type of metric is more valuable for tracking trends and evaluating general utility rate affordability broadly for customers.

While program implementation metrics help utilities make immediate adjustments, outcome-based metrics offer insights into the long-term effectiveness of interventions. Both types of metrics are used by utilities and were key topics of discussion in the workshop.

Program Implementation Metrics

Participation Rates: High participation rates in affordability programs are often seen as indicators of accessibility and effectiveness. However, enrollment data alone cannot fully capture the impact of a program. Several workshop participants noted that this metric is most useful when compared to the number of eligible customers. Yet, accurately identifying the number of eligible customers remains a challenge.

Application Acceptance Rates: Acceptance and denial rates can reveal barriers to program access, such as overly complex applications. Some utilities address these challenges by simplifying enrollment processes by reducing documentation requirements or auto-enrolling households already participating in programs like the Supplemental Nutrition Assistance Program (SNAP). However, legal challenges related to privacy and data-sharing often limit the feasibility of these efforts.

Time to Receive Benefits: The speed at which customers receive assistance after applying is another critical metric. Fast delivery of benefits indicates program effectiveness, while delays can discourage participation and reduce the program’s impact. Workshop discussions highlighted that outsourcing program administration can help improve efficiency, but may also lead to delays, particularly if third-party administrators face backlogs or funding gaps.

Outcome-Based Metrics

Water Expenditures Relative to Household Income: An approach to evaluating utility affordability is comparing average water and sewer bills to household income, typically using percent MHI or Area Median Income (AMI). A commonly cited affordability threshold for combined water and sewer services using this approach is 4.5%. For water services alone, lower thresholds of 1.5% to 2.5% are more commonly used. Workshop participants highlighted concerns that percent MHI or AMI overlooks factors like cost of living and income inequality. However, many utilities continue using these metrics due to the lack of an accepted alternative industry standard, particularly to communicate with decision-makers and to meet funding eligibility requirements for certain grant programs. To address its limitations, alternatives such as the 20th percentile of income (i.e., the lowest quintile), rather than MHI or AMI, were discussed as more effective for assessing affordability.

Affordability Ratios: An affordability ratio compares average utility bills to estimated disposable income, subtracting non-discretionary expenses (e.g., housing, healthcare) from household income. Some utilities use Manny Teodoro’s suggested affordability ratio threshold of 10% of disposable income, though no broadly accepted standard exists. Workshop participants emphasized that thresholds should be tailored to fit local contexts, accounting for variations in cost of living and income distribution. Several participants mentioned using similar approaches (such as the self-sufficiency standard), to assess affordability. However, participants expressed recognition that smaller utilities may face challenges in applying this method due to limited resources and data availability.

Delinquency and Shutoff Rates: Tracking delinquency rates and account shutoffs were identified as key indicators of the effectiveness of affordability interventions by the participants. These metrics directly measure whether households are able to pay their water bills on time and avoid penalties like shutoffs, reflecting the real-world impact of affordability programs. Comparing delinquency and shutoff rates before and after implementation and adjustment an affordability program can help utilities determine whether the intervention achieved its intended goals. However, some participants noted that smaller utilities may face administrative challenges in collecting and analyzing this data too. Despite these hurdles, delinquency and shutoff rates remain critical for evaluating program outcomes and identifying areas where additional support may be needed.

Hours at Minimum Wage: Several workshop participants discussed using the number of hours of minimum wage work required to pay a water bill as an intuitive affordability metric. The threshold, often set at eight hours of work per month, is easy for customers and decision makers to understand. While participants appreciated the simplicity of this method, they also noted that smaller utilities may face challenges in collecting the necessary data for consistent tracking.

Insights from Workshop Polls of Utility Use of Affordability Metrics

Polls from the workshop provide further insight into how utilities assess affordability. The results from Poll 1 (Figure 1, top) indicated that most respondents use a combination of outcome-based and implementation-based metrics, although some rely solely on outcome-based metrics. Non-utility workshop participants (such as nonprofits) accounted for the “N/A” responses as these questions were not relevant to their organizations. 

Results from Poll 2 (Figure 1, middle) indicated that most respondents prefer comparing current data to past performance when evaluating their affordability interventions. This approach highlights the importance of tracking progress over time. Monitoring trends enables utilities to adjust programs for long-term success, emphasizing the need for flexible affordability measurement methods.

Results from Poll 3 (Figure 1, bottom) indicated varied responses regarding the use of thresholds for benchmarking affordability efforts. Some respondents have set thresholds, and some are unsure if their organizations use a specific threshold. Participants noted that the technical and political complexities of affordability thresholds often make them challenging to establish. 

Figure 1. Results from three poll questions conducted during the virtual workshop (N= 15). 

Importance of Data Collection and Transparency in Reporting

Comprehensive data collection is crucial for understanding program performance and identifying opportunities for improvement. Equally important is making data publicly available through transparent reporting. Transparent reporting is essential for program accountability and trust-building, yet many utilities still fall short in this area. By sharing data with the public, utilities can highlight successes, address challenges, promote community engagement, and build confidence in their programs.

Although data reporting and transparency were not primary topics at the workshop, they remain leading practices to ensure utility accountability to effective affordability efforts. 

Data Reporting and Transparency in Philadelphia

Data collection and reporting are built in to the Philadelphia Water Department’s Tiered Assistance Program (TAP). Through its annual reporting, the Philadelphia Water Department provides detailed information on TAP enrollment, application acceptance rates, and payment agreements, offering a clear picture of its progress and challenges (Figure 2). This level of reporting not only supports internal program adjustments but also fosters external accountability and strengthens community trust.

(a)

(b)

Figure 2. Figures adapted from the Philadelphia Tiered Assistance Program (TAP) 2022 Annual Report illustrate outcome-based metrics through the Federal Poverty Line percentage (Figure 2a) and program implementation metrics via customer assistance application outcomes (Figure 2b).

Conclusion and Next Steps

In the fourth workshop, participants highlighted utilities’ approaches to measuring water affordability. Across the industry, the affordability of water bills and the impact of interventions are being evaluated relative to MHI and hours of minimum wage work to provide a clearer picture of affordability and facilitate communication with decision-makers. Despite the growing use of these metrics, the lack of standardization continues to pose challenges for utilities in implementing them. The discussions emphasized the need to incorporate local economic factors, improve data collection, and address challenges faced by resource-constrained utilities in measuring affordability. 

These findings support work to improve water sector affordability benchmarks, facilitate data sharing, and advance tools that utilities with limited capacity can use to evaluate their affordability programs. 

Watch for the full analysis and synthesis of the project in the final report, to be published by WRF in 2025.