Trends in Wastewater Rate Design
The rates dependent on water usage
Sewer utilities typically use rate structures designed to ensure cost recovery, promote fairness among customer classes, and encourage water conservation. Unlike water utilities, which can meter usage directly, sewer utilities often rely on estimates or indirect methods to determine customer discharge volumes. Common rate structures include the following:
1. Flat Rate:
Under a flat rate structure, customers pay a fixed monthly fee regardless of how much wastewater they generate. This approach is simple to administer but may be viewed as inequitable, especially by customers who use less water or generate less sewage. Flat rates are more common in small systems or in areas where metering is not feasible.
2. Uniform Volume Rate:
This structure charges customers based on a fixed rate per unit of water consumed, typically assuming that all metered water use is returned to the sewer system. The charge is often based on potable water usage data from the local water utility. While easy to administer, this method can overstate actual discharge volumes, particularly for customers who use water for irrigation or other non-sewer uses.
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3. Inclining Block Rate:
This approach applies higher rates as consumption increases, typically using tiered thresholds (e.g., the first 5,000 gallons at one rate, the next 5,000 at a higher rate, etc.). Inclining block rates are less common for sewer services than for water, since sewer utilities often rely on winter water consumption or average monthly usage to estimate discharge volumes. Still, they may be used to encourage conservation and promote equity.
4. Base/Extra Strength Rate (for Commercial and Industrial Customers):
For non-residential customers, rate structures may include a base charge for standard strength wastewater, with surcharges applied for discharges with higher levels of BOD (biochemical oxygen demand), TSS (total suspended solids), or other parameters. This structure ensures that customers who impose a higher treatment burden on the system pay proportionately more.
5. Winter Averaging:
To improve accuracy, some sewer utilities calculate monthly sewer bills based on the average water usage during winter months, when outdoor irrigation is minimal. This helps avoid charging customers for water that doesn’t enter the sewer system.
6. Fixed + Variable Rate Structure:
A common hybrid model includes a fixed monthly service charge plus a variable charge based on estimated or actual discharge. The fixed charge recovers costs that don’t vary with usage, such as debt service and system maintenance.
Each structure balances simplicity, equity, and cost recovery, with the optimal approach depending on local conditions, metering capabilities, and customer mix.
How I Can Assist
If your electric co-op or utility is looking to update rates—whether for traditional structures or innovative designs that align with the evolving energy landscape—I’m here to help. Let’s connect to explore solutions tailored to your needs. Please contact me with any questions to discuss your goals in more detail.
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About Russ Hissom - Article Author
Russ Hissom, CPA is a principal of Utility Accounting & Rates Specialists a firm that provides power and utility cost of service and rate studies, expert witness, and consulting services, and online/on-demand courses on accounting, rates, FERC/RUS construction accounting, financial analysis, and business process improvement services. Russ was a partner in a national accounting and consulting firm for 20 years. He works with electric investor-owned and public power utilities, electric cooperatives, broadband providers, and gas, water, and wastewater utilities. His goal is to share industry best practices to help your business perform effectively and efficiently and meet the challenges of the changing power and utilities industry.
Find out more about Utility Accounting & Rates Specialists here, or you can reach Russ at russ.hissom@uarsconsulting.com.
The material in this article is for informational purposes only and should not be taken as legal or accounting advice provided by Utility Accounting & Rates Specialists, LLC. You should seek formal advice on this topic from your accounting or legal advisor.