Contributed by Kim Kastens, Chair, Green Acton Water Committee
The cost of delivering clean tap water is rising around the world, including in Acton. Public water suppliers across Massachusetts are seeking ways to balance competing demands to cover the costs of infrastructure and operations, to encourage water conservation, and to provide the essential good of clean, safe water to at an affordable price to those least able to pay. This article explores how this balancing act is playing out in Acton.
Setting water rates presents challenges and conundrums, as articulated by the Massachusetts Water Resources Commission’s website on Water Pricing, the Financing Sustainable Water website of the Alliance for Water Efficiency, and the Water Rates website of the Massachusetts Division of Ecological Restoration. At a time when populations are growing and droughts are predicted to become more severe, water regulators are requiring water suppliers to encourage water conservation. Yet, if water suppliers are successful in their conservation efforts, they sell less water, bring in less revenue, and can find themselves unable to cover their fixed costs. Water suppliers’ short-term fixed costs (such as those for infrastructure maintenance, debt service, regulatory compliance, administration, and source protection) can represent 90% or more of total costs. If suppliers try to cover some or all of their fixed costs through a fixed fee per water-taker, they weaken the price signal that would otherwise encourage water conservation. Public water suppliers also have an obligation to protect public safety by providing firefighting water, and to protect public health by providing enough affordable water to each household for drinking and hygiene. These obligations must be paid for by distributing the costs among other water-takers — but there is no universally accepted, fair, and transparent way to do so.
The Financing Sustainable Water website summarizes the situation: “Water utility managers today face a daunting set of challenges as they seek to fulfill their mission to provide reliable, safe, and affordable water services that sustain communities and businesses. . . . Today’s water challenges require courageous leaders who are willing to implement rates that reflect the true value of water and send a signal to customers about the consequences of wasteful use. They must embrace their role within the community and engage the public openly to change the way we think about water.” This post attempts to prepare us the Acton public to hold up our end of this engagement.
How Water Pricing Works in Acton Now
More than 95% of the properties in Acton get their tap water from the Acton Water District (AWD). Some parcels along the southern side of Great Road are served by the Concord Water Department, and some households in the northeast corner of Acton get their tap water from private wells. This discussion deals with the large majority of Acton residents and businesses who pay the AWD for their water, either directly via quarterly bills, or indirectly in their rents.
Despite the “ActonWater.com” URL, the Acton Water District is not a commercial business. Unlike the parts of the country served by privatized water systems, all of the money collected by the AWD is spent on providing tap water in Acton; there is no need to provide a profit to distant shareholders or owners. Rather, the AWD is a municipal government entity, chartered by the Commonwealth of Massachusetts through Chapter 326 of the Acts of 1912. The AWD is governed by an elected Board of Commissioners (analogous to the Town’s Select Board) and the residents of Acton via an Annual District Meeting (analogous to Acton Town Meeting).
At present, the AWD uses two pricing strategies to encourage conservation. First, it charges more per gallon of water in the summer months (June–September) than in the winter. In the summer, the water system is stressed by higher demand (every summer) and drought conditions (many summers). Some of that summer demand is for “non-essential uses,” such as lawn watering. The AWD incentivizes summer conservation by charging higher summer rates. Although the seasonal pricing nudges water-takers in the direction of conservation, it doesn’t nudge very hard. The My Water Bill page on the AWD website includes a handy calculator that will, if you enter your per-quarter water use, show you the difference between your household’s summer and winter charges. This calculator shows that a customer who uses 1,400 cubic feet (cu ft) of water per quarter (see Note 1) in the winter would pay $131.00, while the same amount of water in the summer would cost $142.20. The extra $11, spread across three months, may not be sufficiently persuasive for some households to conserve more water.
Second, the AWD has a progressively tiered structure for that portion of the bill that covers water usage. This means that water-takers who use less water are charged less per gallon for the water usage part of their bill than water-takers who use more water (see Note 2). Like the seasonal pricing, the tiered volume pricing is intended to encourage water-takers to conserve.
On average, the tiered structure and the seasonal pricing also tend to benefit lower-income households, which are generally not indulging in non-essential summer water uses. In the lowest pricing tier (0–300 cu ft per quarter), the water usage charge is zero, to provide an affordable minimum of water to every household. In the second pricing tier (300–1,500 cu ft per quarter), the cost of water is less than the cost to the AWD to produce the water, and is subsidized by water-takers in the higher-usage tiers (see Note 3).
For multifamily-dwellings without separate water meters, the landlord is billed for all of the water used by the property. But rather than billing according to the higher-priced tier that aligns with the property’s total water use, the AWD uses a tier obtained by dividing the total water used by the number of housing units. For example, a four-unit dwelling that collectively used 8,000 cubic feet in the quarter (2,000 cu ft per unit) would be charged at the usage rate for “between 1,501 and 3,000 cu ft” rather than at the much higher rate for “greater than 6,000 cu ft.”
The AWD also offers a Senior Citizen Water Bill Discount program for low-income seniors. Under this program, residents above age 65 who qualify for the real estate property tax abatement from the Town of Acton can receive a water bill abatement in the same percentage as their property tax abatement. Non-seniors cannot qualify for this abatement, nor can people who do not own their residence (see Note 4). Despite the name, non-citizens can take advantage of the “Senior Citizen” program if they meet the residency and income requirements.
In addition to the fee per volume of water used, AWD bills also include a “Debt Fee” charge, which covers each water-taker’s share of the cost of repaying the long-term debt that the district took on to provide clean drinking water. At present, the debt fee is $60 per housing unit per quarter. For multifamily dwellings without individual water meters, the debt fee charged to the landlord is the per-unit debt fee ($60/unit/quarter) multiplied by the number of units in the dwelling. When the debt fee was first initiated, to finance construction of the North Acton Treatment Plant in (approximately) 2007, the fee was $15 per quarter (see Note 5). That fee has grown as the complexity of Acton’s water infrastructure has grown.
An advantage of the debt fee structure for AWD customers is that it is transparent. One knows what one is paying for, and the details are there for all to see on the My Water Bill page of the AWD website. An advantage of the debt fee structure for the AWD is that with each passing quarter, the district collects exactly the amount of debt fee needed to service the debt charges coming due that quarter. This reliable income is attractive to lenders; as a result, the AWD has been able to obtain lower interest rates than it could have if income were more volatile. This works to everyone’s benefit.
A disadvantage of the debt fee from the point of view of environmental justice is that it is not progressively structured. Every housing unit — from the smallest apartment to the largest McMansion — pays the same debt fee. For lower-volume users, the debt fee can represent the largest component of their total water bill. At the summer rate, the crossover point is 937 cu ft per quarter (7,009 gallons per quarter, or approximately 78 gallons per day). A water-taker who takes this amount of water in a summer quarter pays $120, of which half is the debt fee (see Note 6). For water-takers who use less than this amount of water, more than half of their bill is in the debt fee. Another disadvantage of the uniform debt fee is that it dilutes the price signal that would otherwise encourage water conservation.
Commercial water-takers pay the same debt fee and usage rates as residential customers, with the same seasonal differential and same tiered usage charges. A reduced municipal rate of $0.052 per cu ft of water used is charged to Acton’s municipal properties, the Acton-Boxborough Regional School District (ABRSD), and the Acton Housing Authority (AHA). The municipal rate has no financial incentive for conservation. Municipal water-takers also pay debt fees, one per building or unit; for example, Town Hall, each ABRSD school, each Acton fire station, and each unit of AHA-owned housing are charged one $60 debt fee per quarter. Water from fire hydrants, used for firefighting, is not charged.
In addition to the revenue raised from water-takers, the AWD has been able to draw on the “WR Grace Fund.” This fund was established with the AWD’s share of the legal settlement over the WR Grace Superfund site. By investing these funds and drawing strategically on interest and principal, the AWD has been able to spend, gradually, more than $5M from the fund on expenses related to water quality. The end of this era is in sight, however; in the budget projected for the coming fiscal year, the balance of the fund is projected to dip below $500,000.
As directed by the founding Charter, the AWD Board of Commissioners is responsible for setting “just and equitable prices and rates for the use of water.” Actonians have several avenues through which to influence decisions about water rates. All Acton citizens can vote for Water District Commissioners during the municipal election in May, regardless of whether they are AWD customers. The Commissioners meet twice per month, and all meetings include an opportunity for public comment. The Commissioners are advised by the AWD Finance Committee, a three-person appointed board, which also holds open meetings, though at irregular intervals. All major expenses, including all borrowing for capital expenses, are put before the voters at the Annual District Meeting. The 2023 Annual District Meeting is scheduled for March 15 at 6pm in the Junior High School auditorium. All Acton citizens can speak and vote at the Annual District meeting regardless of whether they are AWD customers.
Higher Costs Are Coming
Like other public water suppliers around the country, the AWD is facing rapidly escalating costs for the energy, materials, and personnel that both make our water safe to drink and deliver it to our homes and businesses. The draft budget for the fiscal year of July 1, 2023 through June 30, 2024, reviewed by the Commissioners at their December 6, 2022 meeting, anticipates that the cost of the chemicals used in water treatment will be up by 33% over the amount budgeted for the current year, and the cost of lights/power/fuel will be up by 71%.
In addition, Acton faces new costs brought on by the discovery of PFAS in Acton’s groundwater. These compounds are the so-called “forever chemicals” that have been associated with a variety of harms to human health. During this past summer’s drought, when groundwater was not being replenished by rainwater, the level of PFAS in AWD’s water supply exceeded the maximum contaminant level for PFAS — set by the Massachusetts Department of Environmental Protection — several times.
The AWD has been aggressively pursuing technical and operational solutions, both short-term and long-term, to keep the level of PFAS in Acton’s water below the legal maximum contaminant level (MCL). The district has developed a new well (Assabet 3), is nearing the final design for a PFAS treatment system for the North Acton Water Treatment Plant, and will soon pilot treatment systems for the South Acton and Central Acton treatment plants. The AWD has also joined with surrounding towns in discussions about connecting with the Massachusetts Water Resources Authority (MWRA), the system that supplies Boston and other communities with low-PFAS water from large reservoirs in the center of the state.
All of these measures are very expensive. At the November 17, 2022 meeting of the AWD Finance Committee (AWD FinCom), committee members reviewed potential warrant articles to be put before the voters at the next AWD Annual Meeting (slated for spring 2023, to consider expenses for fiscal year 2024). Among the draft warrant articles are those requesting approval to borrow $8.7 million and $5.4 million to add PFAS treatment capacity to, respectively, the South Acton and Central Acton water treatment plants. In addition, voters at the AWD annual meeting may be asked to approve borrowing of $2.4 million for construction of new bedrock wells at 549 Main Street (a source expected to offer low-PFAS water and some drought resiliency), plus nearly $1M for improvement to the filtration system in West Acton (see Note 7). This $17+ million of new borrowing would be on top of the $35 million of long-term debt carried over from previous years, which represents investments in land acquisitions and construction of the North, South, and Central Acton water treatment plants.
The cost of connecting Acton to the MWRA system is unknown at this time, but a guesstimate that dwarfed the AWD’s current debt load was recently contemplated by the Water Resources Advisory Committee (WRAC) (see WRAC Discussion of 11.3.22). Unfortunately, simply connecting to the MWRA and skipping the cost of upgrading local treatment capacity to handle PFAS is not an option. According to the update presented to AWD Commissioners at their Dec. 6, 2022 meeting, three different regional consortia are negotiating connection to the MWRA system, and there is not enough capacity to service all three. Even if the MetroWest consortium (of which Acton could become a member) does win access to the MWRA, the timeline for MWRA water delivery to Acton lies 10 or more years into the future, and the AWD is obligated to provide water that is within the legally mandated MCLs for all regulated contaminants for every day of those 10+ years.
What Next?
All of the future dollar numbers in this article are estimates, and many have large uncertainties. However, it seems inevitable that the numbers will be big. The AWD Finance Committee, the AWD Commissioners, and the Town Water Resources Advisory Committee have had multiple discussions about how to handle these daunting new costs. The conundrum is how to raise enough money to keep the system operating, continue to encourage conservation, and yet not unduly burden households that really can’t afford to pay more for their water. Other important considerations are to remain in compliance with the terms of the loans that financed existing debt, maintain an attractive credit rating for any necessary future borrowing, pay fair and competitive wages and benefits to the AWD staff, and ensure that the district can budget for all necessary preventive maintenance to be performed in a timely manner.
Among the many questions that Acton stakeholders may want to address in the coming years are: What summer/winter price differential would be ideally effective for incentivizing conservation during the most water-stressed time of the year? Could a steeper tiering system for water usage do more to encourage conservation, especially among the majority of users who are currently clustered in tiers 2 and 3 (usage of 300–3,000 cu ft per quarter)? Would a “drought rate,” which adjusts rates based on the declared drought level be useful for Acton? Once the WR Grace Fund is spent down, how should the kind of expenses that fund has been paying for be covered? Are there fair and transparent ways to lessen the financial impact of water costs on Actonians who are low-income but don’t meet the eligibility requirements for the existing senior abatement program? What is the appropriate balance of costs among residential, commercial, and municipal users (including firefighting)? How will climate change affect all this, given the forecast of increased volatility of precipitation and increased likelihood of brush fires?
The elephant in the fiscal room, however, is the question of how to fund the looming capital expenses, especially the costs associated with PFAS and, potentially, with other emerging contaminants. This question will be considered in a follow-on post.
Our answers to this suite of tough questions will reflect our values and priorities as a community.
Acknowledgments:
Several members of the AWD staff, Board of Commissioners, and FinCom were helpful in assembling this complicated article and the related Perspectives piece that will soon follow. Members of the Green Acton Water Committee and Green Acton Directors provided valuable critiques, insights, and links to relevant information sources. Any errors, however, remain the responsibility of the author.
Notes:
(1) Quarterly usage of 1,400 cu ft was chosen for this example because that was the modal (most frequent) water usage in a graph of AWD usage (based on July 2021 billing) presented by AWD FinCom Chair Ron Parenti at the AWD Commissioners meeting of December 6, 2022. Note that 1,400 cu ft per quarter equals 14,473 gallons per quarter, or approximately 116 gallons per day for the household. For context, the standard for residential water consumption set by the Massachusetts Department of Environmental Protection is 65 gallons per person per day, and the average usage in Acton in recent years has been around 55 gallons per person per day (and decreasing).
(2) Acton water bills are charged in units of cubic feet (cu ft). One cubic foot equals 7.48 U.S. gallons. The lowest tier in the pricing structure is “less than 300 cu ft per quarter,” which equates to less than 2,244 gallons per quarter, or roughly 25 gallons per day. For comparison, the United Nations Special Rapporteur on the Human Right to Safe Drinking Water and Sanitation states that 20 liters (5.3 gallons) per person per day is the minimum quantity of water for essential needs, but that 50–100 liters (13.2–26.4 gallons) is needed to ensure “full realization of the right to water.” The highest tier in the AWD pricing structure is “greater than 6,000 cu ft” per quarter, which equates to 44,883 gallons per quarter, or roughly 500 gallons per day. The vast majority of AWD residential water-takers fall in Tiers 2 and 3, between 300 and 3,000 cu ft per quarter.
(3) The insight that the AWD is providing water at less than cost in the lowest tiers of the usage rate structure was pointed out recently by a member of the AWD FinCom. This insight is confirmed by the following rough estimate: In Fiscal Year (FY) 2022, the AWD’s expenses totaled $5,353,247, according to the budget reviewed by the AWD FinCom on Nov. 17, 2022. Of this, long-term debt expenses comprised $1,459,219, leaving $3,894,028 for non-long-term debt expenses. AWD’s FY2022 ran from July 2021 through June 2022; during those months, the AWD pumped a total of 494.6 million gallons of water, which equates to 66,118,623 cu ft. Dividing $3,894,028 of non-long-term-debt expense by 66,118,623 cu ft yields $0.059 per cubic foot. For the 300–1,500 cu ft per quarter tier, the usage charge is $0.040 per cu ft per winter quarter and $0.048 per summer quarter, well under the approximately $0.059 that it took the AWD to produce and deliver each cubic foot. A more-accurate estimate of the AWD’s cost per gallon would encompass multiple years of data, and would account appropriately for expenses that are covered by service fees, demand fees, and mitigation fees rather than out of the usage fees.
(4) The FY2023 income cutoff for the Town of Acton Tax Relief for Persons over 65 years of age is $41,754 for single homeowners and $62,631 for married homeowners. (There is also a limit on the value of applicant assets apart from the Acton primary residence.) According to age and income data from the 2014–2018 American Community Survey — shown in Figure 10 in the 2020 Acton Housing Production Plan — Acton householders aged 65+ were much more like to fall into these lower-income ranges than were householders in younger demographics, but plenty of younger Actonians also qualify. For single-person households, approximately 10% of 24–44 year olds, 11% of 45–64 year olds, and 28% of people 65 and older would qualify. For married households, approximately 18% of those with a 25–44 year old householder, 14% of those with a 45–64 year old member, and 40% of those with a householder 65 and older would qualify. (The numbers are approximate because the tiers in the American Community Survey don’t exactly match Acton’s tax relief cutoff; also, the American Community Survey is several years old.) The Housing Production Plan also reports that 27% of Acton housing stock is non-owner occupied, and that the younger age groups and the oldest senior residents are the cohorts most likely to rent.
(5) The $15 per water-taker initial debt fee comes from a white paper by Ron Parenti, Chair of the AWD Finance Committee and former AWD Commissioner, titled “Thoughts on Billing Options for AWD Residential Customers,” dated November 10, 2022, and distributed at the AWD Finance Committee meeting of November 17, 2022; it is not available online. Parenti recalls “When this charge was first approved by the Commissioners the fee was only $15, and it was argued that it was a modest infrastructure cost that should be paid by every user.”
(6) Calculated using the calculator on the My Water Bill page of the AWD website.
(7) The “approval to borrow” warrant articles described in this paragraph total to $17,475,000. In addition, the draft warrant requests approval to borrow $4.9M for a major land acquisition for groundwater source protection. Funds for some of the land acquisition cost might be raised from sources other than borrowing, so that cost was not included in this calculation.