
In January 2025, the Environmental Advisory Board (EFAB) published “Advancing Water Affordability Nationwide: A Framework for Action,” a detailed report on the current state of water affordability in the U.S. The full report is 103 pages, and can be accessed here.
The Environmental Financial Advisory Board (EFAB) has been advising EPA for over 30 years to provide guidance on financial issues. They have been much more than cursory recommendations and often suggest many different activities EPA can take. This advice is just that, advice, and EPA is free to move forward with some, all, or none of the recommendations. However, the EPA usually will move forward with at least some of the items. (In full disclosure, the author of this blog post served as an expert witness to the board for many years and was a board member for several years. However, the author is not currently a board member or expert witness to the board and has not been directly affiliated with EFAB for 5 years.)
Affordability, or how individuals and communities pay for their water services, is a complex problem. We will break it down into two levels:
- Community-level affordability relates to the ability of the entire community to pay for its water, wastewater, and/or stormwater infrastructure. Communities cannot always afford loans for infrastructure improvements and may not be able to pay all of their bills for services such as labor, utilities, laboratory analysis, and rent/leases or related expenses. These communities need assistance, likely in the form of grants. These systems are usually, but not always, small communities, often less than 1,000 people served. They may also be in communities hard hit by economic circumstances (e.g., closure of a major employer, high unemployment) or by a natural disaster (e.g., wildfire, earthquake, flood, drought).
- Household-level affordability refers to the ability of an individual who is connected to a centralized system to be able to pay the rate charged by that system. EFAB defines an affordable water bill as one in which the customer can pay “in full and on time without jeopardizing the customer’s ability to pay for other essential expenses.” (EFAB Report 1/15/2025) While in some cases–especially in small, disadvantaged communities–both issues can be occurring simultaneously, in larger communities, the issue generally relates only to household affordability. In these cases, the system is able to manage its infrastructure and pay its bills by charging a sustainable rate (one that allows the utility to properly maintain its infrastructure for the long term) but that rate may pose a hardship on some customers. This hardship is a “household level affordability” concern; not a community level affordability concern. The EFAB report does not delve into community level affordability, but rather it focuses on household level affordability.
In the EFAB study, the board wished to examine household water affordability in cases in which the larger community as a whole did not experience an overall affordability issue, so they focused on systems serving over 10,000 in population. While most water systems in the U.S. are small, most individuals are served by a large system. For example, in the U.S. there are approximately 50,000 total community water systems, but only 4,300 of them serve 83% of the population. Over 90 percent of systems are considered “small,” serving less than 10,000. While the focus of the report is systems above 10,000 in population, the information can still be informative to systems of all sizes.
The EFAB Report investigated 5 elements of affordability:
- Capital Investments: The ability to use particular types of capital investments to benefit those customers that are least able to pay for services.
- Barriers to Implementing Customer Assistance Programs (CAPs): Some states impose barriers (or at least are perceived to be barriers) on the implementation of CAPs to help low-income customers. Are there actions EPA could take to help address the most common barriers?
- Rate Structure/Design: The use of rate structures, and innovative rate structure alternatives to assist lower-income customers.
- State Revolving Fund (SRF) Subsidies: Examine the potential for SRF dollars to be used for increased subsidization to assist customers for whom capital projects would cause an undue burden.
- EPA Support: Examine the potential for EPA to issue guidance and provide support for systems or states in implementing actions to help customers with low ability to pay.
To address the five elements, EFAB developed an affordability framework that included the following components: capital investments, operational efficiency, federal financial support, rate structures and design, and customer assistance programs. Each of these elements included a variety of recommendations to EPA.
Capital Investments
In terms of capital investments, the report was looking at potential practices that could be more resilient to future climate change impacts as well as potentially less costly overall to implement. Several actions were suggested to EPA to address the concerns. These eight actions include:
- Study relative costs of alternative Infrastructure investments: The study should look at the costs of green, distributed, nature-based, digital, and regional water infrastructure options implemented nation-wide to provide useful information on how these options have been implemented in other communities.
- Identify standardized approach for assessing the life cycle benefits and costs of distributed and nature-based water infrastructure alternatives: This effort is meant to provide a way to make apples to apples comparison of the costs and benefits of alternative options (including water use efficiency, source water protection, watershed restoration, green infrastructure, and water reuse) to conventional approaches.
- Elevating and highlighting tools that have been developed for quantifying and valuing the co-benefits of nature-based infrastructure.
- Create a comprehensive EPA affordability website.
- Expand EPA Integrated Planning Guidance and related policy to include drinking water regulations: This action is intended to incorporate more of a one-water approach and balance compliance timelines with affordability and prioritize projects with the most benefit to ratepayers.
- Develop metrics and an affordability screening tool to help utilities integrate affordability into capital planning/investment decisions.
- Develop a biennial publication highlighting case studies of non-traditional water infrastructure.
- Create PISCES and TAURUS awards for non-traditional water infrastructure: These awards would recognize the most innovative, non-traditional water and wastewater infrastructure projects funded by the Drinking Water and Clean Water State Revolving Funds (DW and CW SRFs.)
Alternate Delivery Models: The “How” of Project Design, Bid, and Build
Another suggested approach is to consider alternative delivery models, namely how the entity designs, bids, and builds their projects. The project development process may be made more affordable by adopting a holistic approach that emphasizes all phases of project planning, design, and construction. Because different delivery methods may have a significant impact on ratepayers, the following actions are suggested:
- Study impact of alternative project delivery models on lifecycle costs of water infrastructure.
- Evaluate legal barriers to alternative project delivery models.
- Highlight long-term capabilities needed to effectively implement and maintain water infrastructure projects.
- Initiate a series of workforce development studies.
Operational Efficiencies
Utility operations offer opportunities to explore the ability to lower the costs of providing water service with the intent to improve positive outcomes for affordability. Several approaches have already been promoted by EPA, including Effective Utility Management (EUM) and asset management and there is considerable information out in the water sector regarding these options. (The EFCN has a wealth of information on this topic available at the following links: https://swefc.unm.edu/iamf and https://swefc.unm.edu/home/resources/?_sft_specialty_area=asset-management) The two recommendations under this topic are:
- Develop case studies to highlight successful asset management programs.
- Develop federal incentives for utility asset management programs.
Federal Financial Support (SRF Additional Subsidy)
While federal funding only represents a small fraction of total utility funding, with the majority coming from state and local sources, there are ways in which federal funding can benefit household level affordability. The Clean Water and Drinking Water State Revolving Funds (SRFs) are loan programs that allow the state agencies that administer the funds to offer additional subsidies in the form of principal forgiveness. These subsidies act as a grant since, since a portion of the loan principal does not need to be repaid. There is the possibility under the CWSRF that additional subsidy can be provided to communities who do not otherwise meet the official disadvantaged criteria, if specific metrics are met, including the prospect of severe hardship to low-income ratepayers. There may be underutilization of this provision that can be explored more by states. The same provision is not included in the DWSRF so only communities meeting the state’s definition of disadvantaged can receive additional subsidy. The recommendations in the report related to this category include:
- Create a pilot program to implement the CWSRF Additional Subsidy for low-income households: Find water utilities that may be willing to partner with state CW SRF programs to pilot the approach of additional subsidy to communities that are not eligible with the initial criteria but may be if it poses a severe hardship to some ratepayers.
- Develop guidance toolkit to help SRFs implement the additional subsidy for low-income households.
- Continue to explore approaches for defining disadvantaged communities under the DWSRF.
Rate Structures and Design
Utilities collect the vast majority of their revenue through user rates. Rate structures and designs may be restricted by state laws that make it difficult to use rate structures to assist low-income customers. There may be value in recognizing water as a public good within rate structure design and potentially considering human health and/or affordability as core utility functions. The recommendations in this category include:
- Develop a policy statement that recognizes the benefits of expanding the cost-of-service framework to incorporate affordability/public health.
- Incorporate utility affordability actions/efforts into federal funding decisions.
- Provide examples of state statutes that may allow for funding CAPs and/or incorporating public health/affordability into cost-of-service rate practices.
- Provide enhanced technical assistance for utility rate development.
- Study the effect of alternative rate structures on affordability.
Customer Assistance Programs (CAPs)
There are many types of CAPs, but while utilities have implemented them, the ability of the programs to truly address the problem is limited. There may be several challenges that prevent them from working as well as they could, including: real or perceived legal barriers, relatively low rates of participation, and low levels of funding or other resources to implement CAPs. Another big issue is that many of the country’s low-income customers, especially in larger systems, do not pay their bill directly to the utility but rather pay through rent or similar fees, which means they will not benefit from a traditional CAP. Recommendations include:
- Offer planning grants to help utilities develop affordability programs/initiatives.
- Articulate key principles and evaluate alternative pathways for a federal water customer assistance program.
- Develop compendium of best practices and case studies of successful utility-led CAPs.
- Study the costs of nonpayment, shutoffs, and other aspects of unaffordable bills for utilities.
This blog post offers a summary of the major components of the EFAB report. For more detail and information on each of these affordability components, you can view the whole report here. EPA’s Affordability Page can be accessed here.