Strategic rate design for a growing city: Securing equitable cost-of-service for over one million Austin residents

Austin Water (AW) is a municipal utility providing water, wastewater, and reclaimed water service to the City of Austin and surrounding areas. AW serves approximately one million residents across a 544-square-mile service area, with a diverse customer base that includes residential, commercial, industrial, and wholesale customers. AW operates as an enterprise fund of the City of Austin, employing more than 1,170 people and managing some of the most complex utility infrastructure in Texas—including four water treatment plants with a combined rated capacity of 335 million gallons per day (MGD), two wastewater treatment plants, and one of the largest reclaimed water systems in the United States. 

Managing rates for a utility of AW's scale requires rigorous, transparent analysis. AW serves a wide spectrum of customer classes—from individual households to major industrial users and wholesale partners—each placing different demands on the system. Recovering the cost of service equitably across these classes requires a comprehensive, methodologically sound cost-of-service (COS) study conducted every six to eight years. 

By 2016, AW's existing rate models needed significant updates. The utility required new cost-of-service models that were more transparent; that clearly delineated costs shared between retail and wholesale customers from those borne solely by retail customers, and that could support robust stakeholder engagement. At the same time, AW sought to maintain financial stability while serving a growing region with significant capital investment needs on the horizon. 

Nearly a decade later—with a $2.3 billion capital improvement program (CIP) underway, six years without rate increases, and a major expansion of the Walnut Creek Wastewater Treatment Plant (WWTP) beginning, AW again needed independent, expert analysis for its FY 2025 COS study. This time, Raftelis was retained in a distinct and critical role: the Residential Rate Advocate, tasked with independently representing the interests of single-family residential (SFR) customers throughout the rate-setting process. 

Raftelis has served Austin Water across two landmark cost-of-service engagements spanning nearly a decade. 

Beginning in June 2016, Raftelis led a comprehensive, year-long cost-of-service study for both AW's water and wastewater systems. The engagement was built around four primary objectives: 

• Updating the cost-of-service analysis and assessing the customer class cost of service compared to the existing model. 

• Developing new cost-of-service models with supporting information that clearly and concisely illustrates budget, cost-of-service, and rate results. 

• Establishing a transparent, stepwise process to identify costs shared between retail and wholesale customers and those borne solely by retail customers. 

• Engaging AW's customer base through dedicated Public Involvement (PIC) and Wholesale Involvement (WIC) Committees. 

Raftelis developed entirely new water and wastewater cost-of-service rate models from the ground up. These models allocated the full revenue requirement—approximately $298.5 million for water and $271.5 million for wastewater—across all retail and wholesale customer classes using industry-standard methodologies. The resulting rate structures included updated fixed and volumetric user charges for residential, multi-family, commercial, large-volume, and wholesale customers for both water and wastewater services. 

Transparency and community engagement were equally central to the project. Raftelis conducted 13 meetings with the PIC and 12 meetings with the WIC, providing detailed presentations, electronic model access, and clear explanations of all key decision points. AW also launched a dedicated study website for broader public participation. 

For the FY 2025 COS study, Raftelis was selected to serve as the independent Residential Rate Advocate, a dedicated role focused exclusively on protecting the interests of single-family residential customers, including those enrolled in AW's Customer Assistance Program (CAP) for low-income residents. 

Raftelis' scope in this role included: 

• Independent review of all financial planning, revenue requirement forecasting, COS analysis, and rate design work completed by AW's primary rate consultant. 

• Evaluation of AW's $2.3 billion CIP, including a detailed assessment of the Walnut Creek WWTP expansion and its rate implications for residential customers. 

• Review of cash reserve targets, debt service coverage ratios, and the General Fund Transfer paid by AW to the City of Austin. 

• Active participation in 10 Public Involvement Committee (PIC) meetings and facilitation of community engagement sessions. 

• Assessment of SFR rate structure design, bill affordability, and the Community Benefit Charge (CBC) for AW's Customer Assistance Program. 

Across both engagements, Raftelis delivered an independent, technically rigorous analysis that Austin Water could rely on to set defensible, equitable rates for one of Texas's largest utilities. In 2017, Raftelis built the analytical foundation AW would use for years to come and modern cost-of-service models that were more transparent, better documented, and more accessible to the community. These new models validated the allocation of a combined $570 million revenue requirement across customer classes. A notable finding from this improved methodological rigor was a more accurate recognition of lower-intensity system demands by the Customer Assistance Program (CAP) residential class, which resulted in an 11.7% reduction in their allocated water costs. 

In 2024, Raftelis provided the independent voice that residential customers needed at the table, helping ensure that the significant rate increases driven by AW's capital program were fair, well-supported, and balanced against affordability concerns. As the Residential Rate Advocate, Raftelis evaluated AW's $2.3 billion capital program and validated the FY 2025 revenue requirements of $353.7 million for water and $324.9 million for wastewater. Raftelis endorsed the proposed rate increases—which translated to estimated monthly increases of $3.17 for water and $3.05 for wastewater for a typical single-family residential customer—and supported doubling the Community Benefit Charge (from $0.15 to $0.30 per 1,000 gallons) to fund low-income assistance. Furthermore, noting that projected cash reserves exceeded policy minimums, Raftelis recommended calibrating future rate increases to move closer to the City Council-approved 180-day target rather than maintaining excess reserves at the cost of higher customer rates. 

Together, these engagements reflect Raftelis' deep expertise in utility rate-setting, financial planning, and community engagement, and its long-standing commitment to Austin Water and the residents it serves. 

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