Authors: Katie Cromwell and Vanessa Waller

Utilities Should Develop a Strategy for Federal Funding to Help Past Due Water Bills

The most recent COVID-19 spending bill allocated $638 million to the U.S. Department of Health and Human Services (HHS) to carry out a Low-Income Household Drinking Water and Wastewater Emergency Assistance Program. Money will be coming through the states, but what can utilities do to understand how this program is structured, advocate for their customers, and get their fair share of this funding?

Understanding the Program: Background and Framework

The bill provides funding directly to states and tribes to “prevent, prepare for, and respond to coronavirus,” provided they will “assist low-income households, particularly those with the lowest incomes, that pay a high proportion of household income for drinking water and wastewater services.” This is the first time federal assistance has been provided to water and wastewater utilities to deal with the assistance needs of lower income customers. Despite the unique circumstances surrounding the bill, similar legislation adopted by HHS provide guidance on how this will work. The new emergency assistance program laid out in the spending bill seems to be based heavily on the Low Income Home Energy Assistance Program (LIHEAP).

LIHEAP has been around since the 1980s. In 2020, the congressional budget for LIHEAP was $3.32 billion, most of which went to provide assistance for heating and cooling bills.[1] The Edison Electric Institute reported that in 2019 there were about 35 million households that fell below 150% of the federal poverty level and are eligible for LIHEAP, but just 6.8 million households received assistance for their energy bills, indicating that the funding provided is insufficient to meet demand for this assistance.[2] Although LIHEAP is a federal program, it is administered at the state or tribal level through block grants from Congress. Individual grantees then administer their own programs and distribute monies.

For the new program, states and tribes will be given a portion of the $638 million based on the percentage of households with income equal to or less than 150% of the federal poverty level, and the percentage of households that spend more than 30% of monthly income on housing. States and tribes will then determine how to distribute the funds. We expect that states will use avenues already established through LIHEAP.

This could provide a challenge for water and wastewater utilities because in many states the agencies responsible for LIHEAP may be unfamiliar with public water and wastewater utilities and their customer billing practices.  It will be important for utilities to work together in their states to rapidly partner with these state agencies to advocate for how funds should be distributed to eligible households.

Advocating for Customers and Obtaining Funding: Setting Up a Program

Given that the spending bill requires that funds be provided “to owners or operators of public water systems or treatment works to reduce arrearages of and rates charged to such households for such services…” and “as appropriate and to the extent practicable, use existing processes, procedures, policies, and systems in place to provide assistance to low-income households…”, utilities should view this additional funding program not as all-encompassing, but rather as a supplement to their existing affordability efforts.

As a result, for utilities to have the best opportunity to obtain funds that will benefit their customers, a customer assistance program within the utility needs to be modified (or developed) to meet the requirements laid out in the spending bill. This program needs to be put in place quickly so that utilities are positioned to pursue the funding as soon as it becomes available from their state. There are some key considerations that utilities should think about as they develop these programs.

• Utilities should use existing processes to determine eligibility and distribute funds
  • For utilities that have an existing customer assistance program (CAP), this task may be relatively simple, as the existing program can be used as a precedent for eligibility and fund distribution.
  • For utilities that do not currently have a CAP, now may be the time to prioritize CAP development, especially as many utilities across the country are facing higher bill delinquency rates due to the economic impacts of COVID-19.
  • If implementing a CAP in a short time period is not an option, utilities can partner with other programs that support customers that might meet the eligibility criteria such as the United Way or other local assistance programs. Determining how LIHEAP funds are distributed in your service area is another good resource and may provide a framework for reaching eligible customers.
• Utilities should require customers to apply for assistance, but use targeted communication to encourage eligible customers to apply
  • Research shows that if applying for aid is incumbent on customers, then affordability program participation tends to be lower than the actual need. As a result, some utilities may consider proactively enrolling or applying for assistance on behalf of the customers to meet the eligibility requirements.
    • Should utilities pursue a proactive enrollment approach, they will need to decide how to distribute the limited funds fairly and equitably among eligible customers. For many utilities this is a less than ideal position to be in for a variety of reasons.
    • Many utilities may not have access to adequate customer level data to determine eligibility, making this option simply not feasible.
    • The benefit of this approach ensures that all of the funds are utilized and reach customers as quickly as possible.
  • Alternatively, utilities may require customers to apply to receive assistance.
    • As mentioned previously, we expect fewer eligible customers would complete the application and would be left without needed assistance.
    • An application process does help ensure that customers receiving assistance are in fact eligible under the provisions laid out in the spending bill.
    • Proactive, targeted communication about the program will be important to ensuring that eligible customers apply and apply in a timely fashion.
  • Utilities should evaluate their financial standing to determine whether using funds to reduce arrearages or to reduce rates for eligible customers is preferable
    • The spending bill requires that utilities use funds to reduce arrearages or to reduce rates for eligible customers. These options have two very different impacts on the utility and the customer.
      • For the customer, a reduction in arrearages does not provide much immediate financial relief. Many of these customers have limited cash flows and reducing arrearages while their water bill stays about the same does little to provide them with additional cash on hand to address other essential needs. Reducing arrearages does help alleviate penalty or interest costs which would help customers in the long term.
      • For the utility, a reduction in arrearages provides an immediate positive financial impact by lowering their accounts receivable. A recent Raftelis survey found that for many utilities, account delinquency has increased over the course of the pandemic and as a result, their accounts receivable has steadily increased. [3] Reducing arrearages may also mean that the utility will have fewer write-offs than they would otherwise.
      • A reduction in rates would have an immediate financial impact on the customer. Lower bills would immediately increase a customer’s access to cash to fund other essential needs. However, customers still might not have the funds available to pay their bills which would only increase their arrearages.
      • A reduction in rates would have a long-term impact on the utility and may be more difficult to implement. Utilities may have to wait until customers pay their bills for the funding to be realized by the utility. Also, implementation of reduced rates for some customers may be challenging depending upon the billing software utilized by the utility.

Thinking Ahead

Unfortunately, $638 million in assistance is in no way sufficient to provide support to all of the eligible water and wastewater customers in the U.S. As a result, once the funding runs out, it is gone. Because the funding is so limited, utilities should be thinking ahead to what happens next.

• Be thoughtful about current funding sources and think long-term about customer assistance
  • Utilities have an opportunity to modify, update, and/or create customer assistance programs that can help support customers now and after the pandemic is over.
  • If a utility is just establishing a customer assistance program for the first time to obtain access to this funding, consider continuing to operate the customer assistance program into the future.
  • Thinking about eligibility, customer outreach, and program administration in ways that advocates for customers, and minimizes administrative burden, will help to improve a utility’s reputation and help ensure financial sustainability in the long-term.
  • Utilities may want to specifically look at low-income customers that may not be eligible for funding through this assistance program. Specifically, renters that live in units served by a master meter. Thinking about how to reach these “hard to reach” customers will be helpful to ensuring the effectiveness of your customer assistance programs.
• Be ready for future rounds of funding
  • While future rounds of funding may not happen, utilities should be prepared in case funding does become available. Establish a strong program now so that if future funding becomes available, your utility is ready.
• Be vocal about how this assistance and the program has worked for your utility
  • This funding offers utilities a chance to see if a federal aid program like LIHEAP would work for your utility and your customers.
  • There are many important lessons that we can learn from this opportunity to test out a LIHEAP-like program for water and wastewater utilities. Some of these potential lessons were documented in 2018 in an affordability article series for Water World Magazine. [4]
  • Providing feedback through utility industry organizations and other industry groups is a great way to make your voice heard and help make progress towards a well-designed federal aid program for the water and wastewater industry.