United States Office of Water EPA

Environmental Protection Washington, DC 20460 September 1999

Agency

CONSOLIDATED WATER RATES:

Issues and Practices in

Single-Tariff Pricing

September 1999

A Joint Publication of the

U.S. Environmental Protection Agency and

the National Association of Regulatory

Utility Commissioners
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Acknowledgment and Disclaimer

This document is a collaborative effort of the United States Environmental Protection

Agency (USEPA) and the National Association of Regulatory Utilities Commissioners

(NARUC). USEPA is responsible for the implementation of Safe Drinking Water Act

provisions. NARUC represents state public utility commissions that have jurisdiction for

investor-owned and other water utilities.

This report does not constitute polices, positions, or views of the USEPA, NARUC, or

NARUC-member commissions.

The report was prepared by Janice A. Beecher, Ph.D., Beecher Policy Research, Inc., who

conducted an independent survey of commission staff members in 1996 on behalf of the

staff of the Florida Public Service Commission and subsequent verifications and updates

through contacts with the commissions.
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Contents

1. Introduction ..................................................................................................................... 1

Definition

2. Background...................................................................................................................... 9

The Municipal-Unit Doctrine............................................................................................ 9

Spatial Pricing ................................................................................................................. 13

Spatial Pricing and the Telephone Industry..................................................................... 16

Counterpoint.................................................................................................................... 17

3. Spatial Pricing and Ratemaking Theory..................................................................... 18

Theoretical Issues............................................................................................................ 18

Evaluation Issues............................................................................................................. 19

Ratemaking Criteria ........................................................................................................ 20

The Efficiency Criterion.................................................................................................. 22

Other Criteria................................................................................................................... 23

Pricing in Practice ........................................................................................................... 24

4. Structural Issues in the Water Industry...................................................................... 26

Systems v. Utilities.......................................................................................................... 26

Multi-System Water Utilities.......................................................................................... 27

Pricing and Structural Change......................................................................................... 28

Incentives for Restructuring ............................................................................................ 28

5. Cost Profile of the Water Industry .............................................................................. 31

Trends in Water Costs..................................................................................................... 31

Economies of Scale ......................................................................................................... 32

Capacity Development .................................................................................................... 34

Consumer Affordability .................................................................................................. 35

6. Examples of Single-Tariff Pricing................................................................................ 37

Basic Single-Tariff Pricing.............................................................................................. 37

Variations of Single-Tariff Pricing.................................................................................. 39

Two Recent Cases........................................................................................................... 41

Single-Tariff Pricing in Great Britain ............................................................................. 45

7. The Public Utility Commission Role............................................................................ 48

Number of Regulated Utilities ........................................................................................ 48

Capacity-Development Policies...................................................................................... 50
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8. Commission Survey....................................................................................................... 52

Relevance of Single-Tariff Pricing.................................................................................. 52

General Findings............................................................................................................. 53

Specific Findings............................................................................................................. 54

Characteristics of Single-Tariff Utilities......................................................................... 55

9. Arguments in Favor and Against Rate Consolidation............................................... 57

Arguments in Favor of Single-Tariff Pricing.................................................................. 57

Arguments Against Single-Tariff Pricing ....................................................................... 58

10. Commission Policies on Rate Consolidation............................................................... 59

Commission Decisions.................................................................................................... 59

Implementation Strategies............................................................................................... 67

Related Strategies............................................................................................................ 68

Commission Authority .................................................................................................... 68

Appendix A

Glossary of Terms ............................................................................................................... 73

Appendix B.

Select Commission Orders on Single-Tariff Pricing ........................................................ 76

Appendix C

Detailed Example of Single-Tariff Pricing ........................................................................ 78

Appendix D

Commission Survey on Single-Tariff Pricing ................................................................... 80

Appendix E

Detailed Findings from Commission Survey on Single-Tariff Pricing........................... 83
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Tables and Figures

Tables

Table 1. Cost Allocation under Zonal Pricing .................................................................. 14

Table 2. Example of Municipal Zonal Rates for Residential Water Customers............... 15

Table 3. Consistency of Single-Tariff Pricing with Ratemaking Criteria......................... 21

Table 4. Monthly Water Bills by System Size and Customer Class................................. 34

Table 5. Sample Calculation of Single-Tariff Pricing ...................................................... 38

Table 6. Pricing Variations for Fixed and Variable Water Charges................................. 40

Table 7. Phase-In Approach to Single-Tariff Pricing ....................................................... 41

Table 8. Metered Water Tariffs for British Water Companies, 1995-1996

(Household Customers) ...................................................................................... 47

Table 9. Commission-Regulated Water and Wastewater Utilities ................................... 49

Table 10. Relevant Sample of State Public Utility Commissions

Regarding the Issue of Single-Tariff Pricing Policy........................................... 53

Table 11. Comparative Analysis of Multi-System Utilities

With and Without Single-Tariff Pricing ............................................................. 56

Table 12. Summary of State Public Utility Commission Policies on

Single-Tariff Pricing for Water Utilities............................................................. 60

Table 13. Pennsylvania Public Utility Commission Policy Statement on

Acquisition Incentives........................................................................................ 70

Table C1. Cost-of-Capital Determination ........................................................................... 78

Table C2. Allocation of Expenses by District and Under Single-Tariff Pricing................. 78

Table C3. District Revenue Requirements and

Effect on Average Residential Water Bill .......................................................... 79

Table C4. Comparison of Tariffs for Selected Districts Before and

After Implementation of Single-Tariff Pricing................................................... 79

Table E1. Commission Policies on Single-Tariff Priding for Water Utilities

(1996 Survey) ..................................................................................................... 84

Table E2. Multi-System Water Utilities and Single-Tariff Pricing (1996 Survey)............. 91

Table E3. Arguments in Favor of Single-Tariff Pricing (1996 Survey)............................ 105

Table E4. Arguments Against Single-Tariff Pricing (1996 Survey)................................. 108

Figures

Figure 1. Water Systems without Physical Interconnection................................................. 2

Figure 2. Water Systems with Physical Interconnection...................................................... 2

Figure 3. Water Systems with Stand-Alone Pricing............................................................. 3

Figure 4. Water Systems with Single-Tariff Pricing............................................................ 3

Figure 5. Illustration of Pricing Practices by Firms........................................................... 12

Figure 6. Revenue Requirements per Equivalent Residential Customers for

Stand-Alone Costs, Common-Management Costs, and

Single-Tariff Pricing........................................................................................... 42

Figure 7. Forecast Revenue Requirements per Equivalent Residential Customers Including

Capital Improvements......................................................................................... 42

Figure 8. Stand-Alone and Consolidated Rates for

Pennicuck Water, New Hampshire..................................................................... 44

Figure 9. Regional Water Utilities in Great Britain ........................................................... 46

Figure 10. Summary of Commission Policies on Rate Consolidation................................. 61
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Consolidated Water Rates: Summary

Purpose

Consolidated rates or single-tariff pricing is the use of a unified rate structure for multiple

water (or other) utility systems that are owned and operated by a single utility, but that

may or may not be contiguous or physically interconnected. The purpose of this report is

to provide policymakers and other stakeholders with an overview of consolidated

ratemaking and an appreciation of the complex trade-offs involve in its implementation.

The report provides a review of historical, theoretical, and practical issues related to

consolidated ratemaking, implementation data, and key decisions by the state public utility

commissions. A detailed survey of state public utility commission staff regarding singletariff pricing is presented. General commission policies are summarized, along with

citations of specific regulatory decisions concerning single-tariff pricing.

How Consolidated Pricing Works

Under consolidated pricing, all customers of the corporate utility pay the same rate for the

same service, even though the individual systems providing service may vary in terms of

operating characteristics and stand-alone costs. In many respects, consolidated rates are

the conceptual opposite of “zonal” or spatially differentiated rates.

Single-tariff pricing is used by many investor-owned water utilities, with the approval of

state regulators, but it also can be implemented by publicly owned utilities. Single-tariff

pricing can be an incentive for larger water utilities to acquire small water systems that

lack capacity because it makes it possible to spread costs over a larger service population

and maintain more stable and affordable rates for customers of some smaller and more

expensive systems. Single-tariff pricing can be used by publicly owned or nonprofit water

utilities that operate satellite systems, but few examples are readily available.

Unfortunately, the literature on utility ratemaking, which leans heavily toward the

conditions and experiences of the energy and telecommunications industries, yields little

theoretical insight or empirical evidence on the implications of single-tariff pricing. Much

of the understanding of this issue is derived from case-specific regulatory proceedings.

However, an analysis of historical and theoretical perspectives suggests that single-tariff

pricing is not necessarily inconsistent with the prevailing principles of ratemaking.

The Tradeoffs

Single-tariff pricing is a provocative issue precisely because of the tradeoffs involved in

its application, including possible tradeoffs among different types of efficiency. Singletariff pricing might lessen some kinds of efficiency (such as those related to spatial

allocation of costs and price signals to customers), while improving other kinds of
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efficiency (such as those related to management and innovation). Of particular

importance, but hardest to gauge, is whether single-tariff pricing and related restructuring

can lead to long-run efficiency improvements in the water industry. Water utilities and

policymakers must consider and weigh the evidence and trade-offs prior to implementing

or approving single-tariff pricing.

A variety of theoretical and practical arguments in favor and against the use of singletariff pricing can be made. Single-tariff pricing tends to stabilize rates and revenues,

mitigate rate shock, and make rates more affordable for the customers of the smallest and

more expensive systems. While achieving certain capacity-development, affordability,

and operation efficiency goals, however, single-tariff pricing also might trade a degree of

economic efficiency by ignoring spatial differences in costs and diluting price signals. A

1996 survey of commission staff members identified several arguments in favor of and

against single-tariff pricing were identified.

Summary of Select Arguments in Favor and Against

Single-Tariff Pricing

Select Arguments in Favor of

Single-Tariff Pricing

Select Arguments Against

Single-Tariff Pricing

r Mitigates rate shock to utility customers (17)

r Lowers administrative costs to the utilities (16)

r Provides incentives for utility regionalization and

consolidation (15)

r Physical interconnection is not considered a

prerequisite (13)

r Addresses small-system viability issues (13)

r Improves service affordability for customers (12)

r Provides ratemaking treatment similar to that for

other utilities (10)

r Facilitates compliance with drinking water

standards (9)

r Overall benefits outweigh overall costs (9)

r Promotes universal service for utility customers (8)

r Lowers administrative cost to the commission (8)

r Promotes ratepayer equity on a regional basis (6)

r Encourages investment in the water supply

infrastructure (5)

r Promotes regional economic development (3)

r Encourages further private involvement in the water

sector (2)

r Other: Can be consistent with cost-of-service

principles (1) and found to be in the public interest

(1)

r Conflicts with cost-of-service principles (14)

r Provides subsidies to high-cost customers (12)

r Not acceptable to all affected customers (10)

r Considered inappropriate without physical

interconnection (8)

r Distorts price signals to customers (7)

r Fails to account for variations in customer

contributions (6)

r Justification has not been adequate in a

specific case (or cases) (6)

r Discourages efficient water use and

conservation (4)

r Encourages growth and development in highcost areas (4)

r Undermines economic efficiency (3)

r Provides unnecessary incentives to utilities (2)

r Not acceptable to other agencies or

governments (2)

r Insufficient statutory or regulatory basis or

precedents (2)

r Overall costs outweigh overall benefits (2)

r Encourages overinvestment in infrastructure

(1)

Source: Author’s construct. See Tables E3 and E4. Numbers in parentheses represent number of mentions

(out of 21 applicable survey responses).
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State Commission Policies

The public utility commissions have provide the central forum in which single-tariff

pricing has been evaluated. Single-tariff pricing is a relevant regulatory policy issue only

for the thirty (30) state public utility commissions with jurisdiction for multi-system

utilities. Given this context, a clear majority of affected state commissions have allowed

regulated water utilities to implement single-tariff pricing (22 state commissions).

Based on the commission survey and subsequent updates, single-tariff pricing is generally

accepted in eight (8) states. A few states (such as Connecticut, Pennsylvania, and Texas)

have recognized single-tariff pricing as a policy tool. Staff members at seventeen (17)

commissions characterized the policies of their commissions as “case-by-case,” indicating

that the single-tariff pricing must be justified for every specific application (even when the

policy is “generally accepted”). Numerous exemplary decisions can be cited.

Summary of State Public Utility Commission Policies on

Single-Tariff Pricing for Water Utilities

Commission Policy State Commissions

Generally Accepted (8) Connecticut

Missouri

North Carolina

Oregon

Pennsylvania

South Carolina

Texas

Washington

Case-By-Case (17) Single-Tariff Pricing Has Been Approved (14)

Arizona

Delaware (a)

Florida

Idaho (not an issue)

Illinois

Indiana (b) (f)

Massachusetts (c) (f)

New Hampshire (d) (f)

New York

New Jersey (e) (f)

Ohio

Vermont

Virginia

West Virginia

Single-Tariff Pricing Has Not Been Approved (3)

California (g)

Maryland (not an issue)

Mississippi (not an issue)

Never Considered (5) Iowa

Kentucky

Louisiana

Maine

Wisconsin

Not Applicable – No MultiSystem Water Utilities (15)Alabama

Alaska

Arkansas

Colorado

Hawaii

Kansas

Montana

Nebraska

Nevada

New Mexico

Oklahoma

Rhode Island

Tennessee

Utah

Wyoming

No Jurisdiction for Water

Utilities (6)

Georgia

Michigan

Minnesota

North Dakota

South Dakota

Washington, D.C.

Source: Author’s construct. See Table 12 for notes.
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 Guide for Readers

1. Introduction. The introductory section defines consolidated ratemaking, discusses

general advantages and disadvantages of this approach, and provides the policy and

regulatory context in which rate consolidation is considered.

2. Background. This section contemplates single-tariff pricing in light of an historical

perspective and the prevailing economic regulatory literature. The concept of spatially

differentiated pricing (or “zonal rates”) also is considered.

3. Spatial Pricing and Ratemaking Theory. Principles of ratemaking and tradeoffs

among efficiency, equity, and other policy goals, are considered. Goals unique to the

water industry are identified. The section also contrasts pricing in theory with pricing in

practice.

4. Structural Issues in the Water Industry. This section identifies ways in which

pricing policies will shape the structural character of the water industry and the future of

small water systems.

5. Cost Profile of the Water Industry. This section considers the cost profile of the

water industry, including the relevance of economies of scale, the challenge of

maintaining affordable water service for consumers, and the means to enhancing water

system capacity.

6. Examples of Single Tariff Pricing. Numerical illustrations of rate consolidation are

provided here, including examples from two recent cases in Indiana and New Hampshire.

7. Public Utility Commission Role. The role of the state public utility commissions is

reviewed in this section, with an emphasis on how commission policies will affect the

structure of the industry through consolidation.

8. Commission Survey. Results of a 1996 survey of commission staff members are

presented. Based on a database derived from the survey, this section also identifies the

characteristics of utilities that have implemented consolidated rates.

9. Arguments in Favor and Against Rate Consolidation. Commission staff views

about the advantages and disadvantages of single-tariff pricing are presented.

10. Commission Policies on Rate Consolidation. This final section summarizes

commission policies on rate consolidation and provides an overview of several key cases,

including regulatory decisions from West Virginia, Pennsylvania, Massachusetts, Florida,

Illinois, New Jersey, Missouri, Indiana, New York, and Connecticut. This section also

considers legal challenges to the authority of regulators to approve consolidated rates.
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1. Introduction

Definition

Consolidated rates or single-tariff pricing is the use of a unified rate structure for multiple

water (or other) utility systems that are owned and operated by a single utility, but that

may or may not be contiguous systems or physically interconnected. Under a system of

single-tariff pricing, all customers of the utility pay the same rate for service, even though

the individual systems providing service may vary in terms of the number of customers

served, operating characteristics, and stand-alone costs. Single-tariff pricing essentially

allows for allocating the average costs of combined systems in the course of ratemaking.

In addition to the term "consolidated rates," the terms “single-rate structure,” “uniform

rates,” “standard-tariff rates,” “unified rates,” and “rate equalization” sometimes are used

in connection with the concept of single-tariff pricing.1 For the purposes of this report, the

terms consolidated rates and single-tariff pricing are used interchangeably.

Single-tariff pricing de-emphasizes spatial distinctions in costs. One of the best examples

of a single tariff across an expansive and multicentric “service territory” is the single rate

used in the United States for first-class postage. Indeed, consolidated rates sometimes are

called “postage-stamp” rates. Conventional wisdom holds that uniform postal rates

historically facilitated the extension of service to rural areas and that they continue to serve

the national interest, provide equity and accessibility, and lower transaction costs.2

Examples of uniform pricing also can be found in the other public utility sectors. Longdistance, cellular-phone, and cable television services typically are priced according to the

single-tariff concept (although the same terminology might not be used). Historically, at

least, energy prices were established for a regional enfranchised service territory, regardless

of the physical proximity of customers to specific utility facilities.3 The other public utility

sectors generally price across larger regional territories than water utilities, although

facilities in the other sectors tend to be physically interconnected through transmission and

distribution networks.

Use of single-tariff pricing by U.S. water utilities continues to be debated in regulatory

policy circles, although many states have approved consolidated rates for one or more

jurisdictional utilities and a few states have actively promoted the use of single-tariff

pricing. A very prominent example of single-tariff pricing in the water sector comes from

“across the pond.” All of Great Britain’s privatized regional water and wastewater utilities,

 

1

 The concept of uniformity is useful, but the term “uniform rates” probably should be reserved for rate

structures that do not vary usage (or volumetric) charges by quantities (or blocks) of water usage.

2

 For a provocative discussion of both sides of the issue, see Ronald H. Coase, “The Economics of Uniform

Pricing Systems,” Manchester School of Economics and Social Studies Vol. 15 (May 1947): 139-56.

3

 In the context of restructuring and partial deregulation, methods for aggregating customers, allocating

costs, and setting prices are changing dramatically. Spatial considerations might become less important in

some instances, as in the purchase of electricity from a far-away generating facility. But market forces

might also tend to group customers with similar cost profiles and undermine the goals of cost averaging.
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and most of the smaller water companies, impose uniform rates for measured (metered)

service, for both household and nonhousehold customers. A summary of recent British

water tariffs is provided later in this report.

Single-tariff pricing can be absolute, applicable to all of the systems comprising the water

utility. However, utilities also sometimes establish rates for regional zones consisting of

subsets of water systems within the larger service territory. Rate consolidation sometimes

is used for water systems that are contiguous but not interconnected, as well as

noncontiguous noninterconnected systems, based on various criteria. Partial rate

consolidation can be a compromise between individualized tariffs and complete single-tariff

pricing, or part of a phase-in plan leading ultimately to a single tariff for the entire utility

and all of its service territories. Figures 1 through 4 provide simple illustrations of the

basic issues involved in rate consolidation for water utilities. A glossary of terms appears

in Appendix A of this report.

Figure 1. Water Systems without Physical Interconnection

Figure 2. Water Systems with Physical Interconnection

A

B

D

C

E

A

B

D

C

E
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A$

B$

D$

C$

E$

A$

B$

D$

C$

E$

Figure 3. Water Systems with Stand-Alone Pricing

Figure 4. Water Systems with Consolidated Pricing
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Key Advantages and Disadvantages

The primary advantages of single-tariff pricing are that it can lower administrative and

regulatory costs, enhance financial capacity and capital deployment, achieve rate and

revenue stability, and improve service affordability for customers of very small (or

extremely small) water systems. The water industry’s rising investment needs correlate

with the interest in rate consolidation. A leading argument for single-tariff pricing made by

multi-system water utilities is that each individual system eventually will require an infusion

of capital for renovations and improvements; only the timing varies. Equalizing rates

smoothes the effect of discrete cost spikes across systems and over time, much like

insurance pooling. Single-tariff pricing also achieves equity to the extent that all customers

of a given utility company pay the same price for comparable service.

Importantly, single-tariff pricing is a pricing strategy, not a costing strategy. Single-tariff

pricing can appear to lower costs when in reality it simply allocates costs differently. In

fact, one of the chief benefits of single-tariff pricing is that it greatly simplifies the

allocation of common costs across separate facilities. Many water utilities believe that

single-tariff pricing is more reflective of the consolidated cost of service. By itself, singletariff pricing may not provide significant economies of scale because only the costs

associated with the pricing process itself (including analytical, administrative, and

regulatory costs) can be considered. Economies of scale in water production and

management are achievable, irrespective of the rate structure implemented by the utility.

Separating the cost side from the price side is crucial to understanding the true nature of

the single-tariff pricing issue.

However, single-tariff pricing can lead to economies of scale in the water industry through

secondary benefits. The secondary advantages are that single-tariff pricing can encourage

industry consolidation, common management of smaller systems, and overall technical,

financial, and managerial capacity. If regionalization eventually includes physical

interconnection among some or all systems managed by a utility, more significant

economies of scale can be realized. Larger utilities view consolidated rates as an incentive

to engage in acquisitions because it can expedite the process and simplify ratemaking. The

single-tariff price also can provide a powerful incentive for small communities as they

contemplate selling their systems to larger utilities.

Other secondary advantages of consolidated rates include improved regulatory compliance

by water utilities, the provision of universal service to customers who desire and need

water service, and coordinated water resource protection, management, and planning.

Even without physical interconnection, regional utilities can play a role in defining regional

communities within which environmental services are provided. A consolidated rate for a

larger community of customers will be more sustainable over time than stand-alone rates

for smaller communities.

Consolidated rates also can improve the overall operational efficiency of a utility. Absent

single-tariff pricing, the utility might be induced to invest in the system facing the highest
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rates, even if this is a suboptimal choice from the standpoint of total system operations and

economic value to the customer base as a whole. In other words, the utility might feel

pressure to lower prices instead of lowering total system costs. With single-tariff pricing,

utilities are induced to invest their available resources in the functional areas where the

greatest improvement can be achieved at the lowest cost, to the benefit of all customers.

The primary disadvantages of single-tariff pricing are that it appears to undermine

economic efficiency, distort price signals to customers, and manifest an inconsistency with

traditional cost-of-service principles.4 Although subsidies through some societal policy

instruments (namely, taxes) are widely accepted, subsidies through utility rates generally

are not.5 Another potentially important equity concern is whether consolidated rates result

in subsidies from the low-income customers in the low-cost area to higher-income

customers in a high-cost area. This effect is mitigated to the extent that water use by lowincome customers tends to be relatively low. Various aspects of the rate design also can

lessen this type of subsidy.

Some communities and large-volume water users have opposed single-tariff pricing

because they believe it is merely a means of subsidizing high-cost users at the expense of

low-cost users. For this reason, single-tariff pricing also seems to be at odds with water

conservation, in that it appears to weaken price signals and thus undermine efficient

production and consumption. If rate consolidation involves a price decrease for some

customers, one concern is that water consumption could increase.6

Secondary disadvantages are that—absent other incentives or safeguards—single-tariff

pricing can provide some water utilities with incentives to overinvest in individual systems,

disincentives for cost control, and a competitive advantage in the course of acquisitions.

The latter concern applies only if one potential acquirer can offer consolidated rates and

another cannot.7

These concerns are fundamental to utility economics, pricing, and regulation. However,

any differences between single-tariff pricing and spatial pricing in terms of efficiency and

other effects have not been well established from either a theoretical or empirical

standpoint. Evaluating the net efficiency effects is especially difficult. Single-tariff pricing

might lessen some kinds of efficiency (such as those related to spatial allocation of costs

and price signals to customers), while improving other kinds of efficiency (such as those

related to management and innovation). Of particular importance, but hardest to gauge, is

whether single-tariff pricing and related restructuring can lead to long-run efficiency

 

4

 Steve H. Hanke, “On Water Tariff Equalization Policies,” Water Engineering and Management 128

(August 1981): 33-34.

5

 The appropriateness of rate differentiation continues to be debated today in the context of both regulation

and deregulation of public utility industries. The potential movement away from cost averaging for some

services will affect customers, as well as the utilities that serve them.

6

 The price elasticity literature, however, is clearer about the usage effects of price increases than the usage

effects of price decreases.

7

 In realty, competition for acquisitions is less a problem in the water industry than finding a single capable

and willing buyer.
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improvements in the water industry. Single-tariff pricing also has been underevaluated in

terms of ratemaking criteria other than economic efficiency.

Single-Tariff Pricing as a Policy Issue

Single-tariff pricing is a public policy issue because it involves tradeoffs among competing

policy objectives. Traditional cost-of-service principles and economic efficiency

arguments, adhered to in the U.S. model of economic regulation as applied by the states to

public utility monopolies, can lead to the conclusion that spatially-differentiated (or

allocated) costs should be used as the basis for pricing utility services. Single-tariff pricing

as a matter of public policy in this context requires an explicit recognition of the tradeoffs

involved.

Specifically, single-tariff pricing involves a tradeoff between conventional ideas about costbased rates, economic efficiency, and other legitimate ratemaking goals. These other goals

include, for example, small-system capacity, rate and revenue stability, universal service,

and compliance with environmental standards. A fine-tuned price signal that appears to be

economically efficient, for example, can result in considerably less rate and revenue

stability. Likewise, a conservation-oriented rate may not be affordable to customers.

Evaluating ratemaking trade-offs can be complex. The decisionmaking process can be

greatly enhanced by information and analysis, and decisions can be made more rational, but

a certain degree of judgment ultimately is required in determining whether a particular

option is in the public interest.

The short-term goals of single-tariff pricing tend to focus on enhancing the financial

capacity of water systems and making rates more affordable for water customers. The

long-term goals, however, are related to structural change in the water industry.

Specifically, single-tariff pricing is regarded as a means to consolidating the management

and operation of water systems, or “regionalization,” to achieve multiple policy goals.

The Regulatory Context

Single-tariff pricing has received more attention in the context of economic regulation by

the state public utility commissions than in context of public ownership (where regulation is

limited or nonexistent). A compilation of citations to selected commission orders on the

issue can be found in Appendix B of this report. As discussed later in this report, the issue

is not equally relevant in every jurisdiction. Not all states regulate water utilities, and for

those that have jurisdiction, multi-system water utilities may not be present. Single-tariff

pricing also has not been raised as an issue for every multi-system water utility

Single-tariff pricing was placed on the regulatory policy agenda by the investor-owned

water industry. Some water industry officials have made a strong case for single-tariff

pricing before regulators. Several of the regional affiliates of the American Water Works
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Company have taken the lead in advocating this method of pricing before the state public

utility commissions, including the commissions in Illinois, Indiana, New Jersey, and

Pennsylvania. However, other multi-system utilities (not affiliated with American Water

Works), commission staff members, and other stakeholders also have raised the potential

use of single-tariff pricing.

The many proceedings (and sequences of proceedings within certain jurisdictions) in which

the issue of single-tariff pricing has been raised is suggestive of the case-by-case manner by

which single-tariff pricing policy has largely developed. This is due in part to the nature of

commission decisionmaking: regulators must rule on the record of evidence put before

them in a given proceeding and each individual utility generally must make its own case for

implementation. However, some commissions have explicitly encouraged the movement

toward single-tariff pricing and a few have incorporated this approach into general policies

and specific policies dealing with acquisitions of smaller systems.

Opponents have argued forcefully before the commissions that single-tariff pricing

contradicts fundamental regulatory principles and conventions, as well as undermines the

commission oversight responsibility:

Tariff consolidation, sometimes called Single Tariff Pricing (STP), breaks the

connection between costs and rates. It is a fundamental tenet of utility ratemaking

policy that the cost causer should also be the cost payer. STP runs counter to this

principle. Under and STP scheme, customers who receive no service from the core

system would receive a considerable subsidy. Likewise, customers who do not

impose a load on the [noncore systems] would be forced to pay a portion of the

cost of providing that service indefinitely. A customer located in the core system

would be encouraged to conserve water to an excessive degree. Conversely, a

[noncore customer] would bear a smaller economic penalty for using more water

than necessary.

It is also important to note that once a regime of subsidies has been initiated, it is

very difficult to discontinue this practice due to customer impact considerations,

even if it has been found to create undesirable consequences. Subsidies are

understandably popular among those who receive them, and it is equally

understandable that they will resist their being terminated. Conversely, subsidies

are understandably unpopular among those who pay them....

If rates were to be consolidated, there would be no reason to maintain separate

books and records for each of the [systems]...8 However, this loss of operating and

financial data would destroy the ability to evaluate the effectiveness and efficiency

of the Company’s operation of the [systems]. As a result, the [public utility

 

8

 This point seems somewhat overstated. Most consolidated utilities maintain detailed cost and other data

on their operating units for planning and management purposes. Under single-tariff pricing, the need for

an acceptable method to allocate common costs across distinct systems for ratemaking purposes is lessened

or eliminated.
USEPA – NARUC Consolidated Water Rates

8

commission] would lose its ability to exercise regulatory oversight and control as it

pertains to these systems.9

Most of the commissions historically shared this predilection for “cost-based” rates. In

numerous recent decisions involving a variety of utilities and issues, however, many of the

state public utility commissions have found that single-tariff pricing is in the public interest

and that it comports with prevailing standards concerning just, reasonable, and

nondiscriminatory rates. Some commissions have found that single-tariff pricing is not

inconsistent with cost-of-service principles or with commission ratemaking authority.

A variety of specific rationales (or combinations thereof) have been put forth by some of

the commissions to justify approval of single-tariff pricing: it addresses pragmatic concerns

affecting utilities and customers (namely, revenue stability and mitigation of rate shock); it

is consistent with consolidated management, operations, financing, and corporate

structures; it reduces regulatory caseload and costs; and it results in comparable prices for

comparable services produced from comparable facilities. Many investor-owned utilities

have strongly urged regulators to recognize that these companies provide all of their

customers the same brand-name product (a safe and reliable supply of potable water) and

that single-tariff pricing will also make the product more affordable. Essentially, singletariff pricing makes it possible for all customers to share in the total economies of scale and

scope achieved by the utility corporation.

Asserting regulatory authority to approve single-tariff pricing in some jurisdictions has not

been an easy task. The issue often arises in the context of other complex regulatory issues

related to water utility rates, management, operations, and acquisition practices.

Regulatory rulings must be within the scope of commission authority and the boundaries

set by state legislatures and the courts; if not, commission decisions can be legally

challenged. Nevertheless, as explored later in this report, the state public utility

commissions have approved the use of single-tariff pricing for many multi-system water

utilities. Several specific regulatory determinations involving single-tariff pricing are

reviewed later in this report.

 

9

 Ernest Harwig, Direct Testimony before the New Hampshire Public Utilities Commission in DR 97-058,

Pennichuck Water Works, Inc. (1997).
USEPA – NARUC Consolidated Water Rates

9

2. Background

With few exceptions, the literature on public utility economics and ratemaking–including

ratemaking for the water industry–sheds little direct light on the issue of single-tariff

pricing. The leading scholarly work on utility economics mainly considers the economic

characteristics of telecommunications and energy industries, where private ownership

prevails, regionalization is pervasive, physical interconnection is the norm, and costs of

transmission are low.10 The leading manuals on water utility ratemaking published by the

American Water Works Association convey little (if any) information about the single-tariff

pricing method, a fact that probably undermines the method’s institutional acceptance.11 A

cursory review of other promising bodies of literature, such as economic geography, does

not readily yield information on this apparently understudied issue.

The limited discussion of the spatial dimension of utility ratemaking appears mainly within

the literature on legal doctrine and in the consideration of zonal pricing.

The Municipal-Unit Doctrine

In the adolescent years of the public utility industries, legal scholars debated whether costs

of providing service should be allocated spatially. Specifically, the debate centered on the

cost differences associated with providing service to urban and rural areas, the latter of

which can be more expensive to serve because of the cost of service-line extensions and

lack of economies of scale (for example, numerous users at the end of the line). The

known result of strictly cost-based pricing would have been to discourage the extension of

“modern” services to rural areas. Based on the essential nature of utility services, the

consequence would have been marked differences in the quality of life between urban and

rural dwellers, as well as underdevelopment of rural communities.

A series of legal precedents seemed to establish municipalities as ratemaking units for

utilities serving multiple cities. The “municipal-unit doctrine” refers to the treatment of a

municipality as a distinct service territory and unit for cost allocation and ratemaking

purposes (that is, “city-based” rates). In a 1934 review, however, Robert D. Armstrong

passionately rejected the “municipal-unit doctrine,” primarily on economic-development

grounds:

System utilities have made service available to the entire public, both urban and

rural, within large areas. This development serves a sound social policy. Any

regulatory policy or rule of law which would curtail it or rob it of its just reward

would be unfortunate and unwise. If each locality were required to stand upon

 

10 See Charles F. Phillips, Jr., The Regulation of Public Utilities (Arlington, VA: Public Utilities Reports,

Inc., 1993).

11 American Water Works Association, Water Rates (M1), Water Rates and Related Charges (M26), and

Alternative Rates (M34) (Denver, CO: American Water Works Association, 1983, 1983, and 1992,

respectively).
USEPA – NARUC Consolidated Water Rates

10

its own bottom, so to speak, rural and village extension and development would

be discouraged, and in many cases existing service abandoned.

This would hurt the larger communities as well as the rural localities. It would

tend to eliminate the rural and village patrons, who now contribute something

to system overhead and return, and thus lessen its burden upon city and town

patrons. It would reverse the process by which large scale production and

distribution have been made possible, with more dependable service and lower

rates for all. It might ultimately require higher rates within the larger

municipalities in order to produce a reasonable unit return.

Moreover, anything that would discourage the development and prosperity of

the tributary rural and village territory would react unfavorably on its economic

center and business capital.12

Armstrong also cites addresses by Governor (and President-to-be) Franklin D. Roosevelt in

1929 and Harvard Professor Philip Cabot in 1932, both of whom advocated “greater

uniformity in public utility rates despite differences in cost on broad grounds of public

policy.”13 At the 1929 State Fair, Roosevelt “attacked the inequality and lack of

standardization” of utility rates and declared the situation “manifestly unfair”:

Now, I am sorry to say that the principle of reasonably equal service at reasonably

equal cost to all the people of the State has not been carried out with regard to the

two latest forms of public service—the telephone and electricity. For some reason

(the history of which it is unnecessary to go into) the original telephone companies

were allowed to charge different kinds of rates, and now, when practically all

telephones are controlled by the greatest of all American mergers, we do not insist

on either uniform service or uniform rate. . .

The other example, and one which is even more glaring in its unfairness, is that of

the use of electricity in the homes. The railroad principle of fairly uniform rates has

been thrown to the winds even by the public regulating body known as the Public

Service Commission. Is it [now] time to stop and ask the question: “Why does

electricity in the home, the electric lights, electric refrigerator, electric sewing

machine, the home machinery, cost as high as from 15 to 20 cents per kilowatt hour

in some localities and as low as from 4 to 6 cents per kilowatt hour in other

localities.” Why should families in one section be so grossly penalized over families

in another section?

 

12 Robert D. Armstrong, “The Municipality as a Unit in Ratemaking and Confiscation Cases, Michigan

Law Review 32 No. 3 (January 1934), footnotes omitted. Armstrong served as a hearing examiner with

the Indiana Commission and thereafter with the Interstate Commerce Commission.

13 Armstrong (1934), 292n.
USEPA – NARUC Consolidated Water Rates

11

This difference in charges is true not merely in its application to regions as large as

counties, but is true in respect to towns adjoining each other and houses separated

only by a mile or two. This is perhaps one reason why even today nearly two-thirds

of all the farm houses in the State of New York have no electricity. I am

wondering whether it is not time for the people of this State to ask for the

application of a more uniform rate and a more uniform system of charging for

installation.14

Utility regulators have a considerable degree of discretion in ratemaking, but their authority

is derived from state legislatures and checked routinely by the courts. In 1933, for

example, the Supreme Court upheld a decision by the Indiana commission to treat

municipalities as separate ratemaking units pursuant to state law. In response, however,

the legislature expressly authorized the commission to prescribe uniform rates on a regional

basis. This section continues to hold a place in the Indiana Code:

Every public utility is required to furnish reasonably adequate service and facilities.

The charge made by any public utility for any service rendered or to be rendered

either directly or in connection therewith shall be reasonable and just, and every

unjust or unreasonable charge for such service is prohibited and declared unlawful.

The commission, in order to expedite the determination of rate questions, or to

avoid unnecessary and unreasonable expense, or to avoid discrimination in rates

between classes of customers, or, whenever in the judgment of the commission

public interest so requires, may, for ratemaking and accounting purposes, or either

of them, consider a single municipality and/or two (2) or more municipalities and/or

the adjacent and/or intervening rural territory as a regional unit where the same

utility serves such region, and may within such region prescribe uniform rates for

consumers or patrons of the same class. . .15

The policy theory deployed to reject the municipal-unit doctrine accepts a fairly sizable

subsidy of rural services in the interest of achieving societal policy goals. Historically, and

for public policy reasons, rural utility services also were subsidized through governmental

grant and loan programs. In the public sector, local governmental subsidies related to

water and wastewater services are relatively common.16

Following the apparent demise of the municipal-unit doctrine, most investor-owned

telecommunications and energy services seemed to price their products on a serviceterritory basis. Today, this issue has been eclipsed by the trend toward competitive pricing.

Price theory suggests that competitive firms will offer the same price, based on marginal

cost, at all locations. Unregulated monopolists will maximize profits by engaging in price

discrimination among markets. According to B. Peter Pashigian, the net

 

14 Ibid.

15 Indiana Code §8-1-2-4 Sec. 4.

16 Another violation of efficiency occurs when subsidies flow from the water system to the municipal

budget.
USEPA – NARUC Consolidated Water Rates

12

price will be lower in the distant market under geographic price discrimination because the

price-discriminating monopolist absorbs the freight costs associated with distant sales.17

Of course, economic regulation tends to reverse this finding, resulting in higher prices to

higher cost areas (namely, distant or rural markets). Pricing theory suggests, however, that

consolidated rates may be consistent with the behavior of competitive firms. The

generalized disparity in pricing among different types of firms is illustrated in Figure 5.

Competition places a greater emphasis on overall efficiency as a determinant of price levels,

rather than on allocating costs according to space or other criteria used in monopoly

ratemaking. Competitive pricing also shifts some attention away from the cost of service

toward the value of service. Pricing flexibility can help firms respond to competitive

forces, focus on service, and improve overall efficiency. When left to their discretion,

many multisystem utilities will opt for the competitive advantage of a consolidated rate.

Absent competition, however, the rate will not achieve efficiency.

 

17 B. Peter Pashigian, Price Theory and Applications (New York: McGraw Hill, 1994), 467.

Figure 5. Illustration of Pricing Practices by Firms

Source: Adapted from B. Peter Pashigian, Price Theory and Applications

(New York: McGraw Hill, 1994), 467.

Price-discriminating

monopoly

Competitive firm

(price = marginal

cost)

Regulated

monopoly

Net price ($/unit)

Local market

Distant market
USEPA – NARUC Consolidated Water Rates

13

Spatial Pricing

Analysts seem to agree that utility costs vary spatially; that is, the cost of serving one area

generally is not matched by the cost of serving another area. For water utilities, differences

in elevation, climate, physical terrain, the age of the infrastructure, the density of the

service population, and a host of other factors will tend to affect costs even for service

territories that otherwise appear similar. Differences in the proximity to water sources, the

type of source (surface water versus groundwater), the quality of source water, and

implemented treatment methods will tend to produce substantial cost differences.

Assumptions about efficiency and concerns about equity in cost allocation also can lead to

zonal pricing, by which utilities vary prices according to spatial variations in costs among

customer groups that are grouped into zones, districts, or service areas. Zonal pricing

recognizes that the location of consumers within a larger service area can affect the cost of

providing service.18

With zonal pricing, rates are differentiated according to substantial differences in the cost

of serving different areas. Zones generally are defined in spatial terms and represent

geographic clusters of customers with similar cost characteristics. Differences in costs

among zones may be attributed to differences in distribution system costs, which may be

due to differences in the physical plant serving the zones (including age). A more

frequently cited reason for spatially differentiated pricing, however, is the variation in

pumping costs caused by differences in the proximity to facilities, density of the service

population, and particularly elevation. For practical purposes, and as used in this report,

zonal pricing is essentially the same as spatially differentiated pricing.

The zonal price can reflect not only the proximity of groups to source and treatment

facilities, and differences in terrain, but also the different peaking characteristics that

service areas might present. Economist Robert Greene describes a situation in which three

zones present alternative distance and peaking characteristics that can be used to guide the

efficient allocation of capacity costs for each zone.19 In this case, customers assume a

greater cost burden when they are further from the treatment plant and when they

contribute to the peak period of water usage. Greene’s example of the cost allocation

based on zonal differences appears in Table 1. The cost allocation reflects the fact that

users impose different capacity costs on water systems based on their location, well as their

contribution to the system’s peak loads.

According to Greene:

 

18 Janice A. Beecher, Patrick C. Mann, and John D. Stanford, Meeting Water Utility Revenue

Requirements: Financing and Ratemaking Alternatives (Columbus, OH: The National Regulatory Research

Institute, 1993).

19 Robert Lee Greene, Welfare Economics and Peak Load Pricing (Gainesville, FL: University of Florida

Press, 1970).
USEPA – NARUC Consolidated Water Rates

14

Table 1

Cost Allocation Under Zonal Pricing

Zone

Distance from the

Treatment Plant

Peak Period

of Usage

Efficient Allocation of the Zone’s Capacity

Costs

Zone A 1 mile Period I All users in Zones A, B, and C

Zone B 1-2 miles Period II All Period II users in Zones B and C

Zone C 2-3 miles Period I Period I users in Zone C

Source: Adapted from Robert Lee Greene, Welfare Economics and Peak Load Pricing (Gainesville, FL:

University of Florida Press, 1970), 60.

The importance of zone pricing rests not only in the proper allocation of

resources in water use. There is considerable significance with respect to land

use and other objectives. In a discussion of improper pricing policies tied to

marginal rents and the constraints imposed by these rents. . . A zone pricing

solution can be used for rate differentials in both seasonal and daily peak load

problems. . . Zone pricing can also be used to adjust rates in accordance with

cost differentials arising from such factors as geographical characteristics and

population density. . .20

The key issue in implementing zonal rates is one of cost justification. If substantial cost

differences exist within a service area, then zonal rates may be an appropriate form of rate

unbundling that ostensibly attains more efficient water rates.

The efficiency gain assumes that the zonal rate is cost-based and that the transaction costs

associated with unbundling are justified by the efficiency gains. Zonal rates that are

arbitrary (for example, rates that bear no relationship to cost variations or rates that are

based solely on geopolitical boundaries) will introduce inefficiencies. The expense of

developing zonal cost data probably has limited the application of zonal pricing. A

prerequisite to efficient zonal pricing is the capability to accurately calculate the cost

differences associated with providing service to different zones within a utility's service

territory.

Economic and engineering arguments against zonal pricing can be made.21 Capitalintensive utility systems should be designed for optimal performance of all utility functions

(supply, treatment, distribution, and so on) within a service territory. Spatial differentiation

within the service territory might subvert this general optimum. In other words, the utility

 

20 Ibid., 61-62.

21 Beecher, et al. (1993).
USEPA – NARUC Consolidated Water Rates

15

does not deploy resources in the most economically beneficial manner. Another potential

disadvantage of zonal pricing is that it can accentuate the problem of localized cost and

rate shock associated with infrastructure replacements. By broadening the customer base,

a uniform or average rate will cushion the shock and temper its adverse effects (such as

revenue instability).

Zonal rates also raise concerns about equity and perceptions of equity. Obviously, zonal

rates usually will be met with considerable resistance from the groups of consumers asked

to pay higher water rates. In some contexts, zonal pricing might constitute an undesirable

form of price discrimination.

Zonal pricing is used by the water industry to some degree, although not necessarily by that

name. Wholesale water rates might qualify as an example because they typically reflect

spatial differences in costs. Utilities that set different retail prices for districts served

include the California-American Water Company and the Los Angeles Suburban Water

Company.22 A more common form of zonal pricing used by publicly owned utilities is the

rate differentiation for service inside and outside municipal boundaries. Fairfield, California

provides an example of spatially differentiated pricing, both within the city and between

residents and nonresidents (see Table 2). As a generalization, municipal utilities are more

likely to use inside-city/outside-city pricing and investor-owned utilities are more likely to

seek approval for rate uniformity across service territories.

Table 2

Example of Municipal Zonal Rates for Residential Water Customers

Residential Water Charges Rate

Service charge $0.50 per day

Water-use charge $1.35 per 100 cubic feet

Zone 3 (200 feet and over) $1.67 per 100 cubic feet

Zone 5 (400 feet and over) $2.00 per 100 cubic feet

Pneumatic Pump Zones

Zones 1 and 2 $1.57 per 100 cubic feet

Zones 3 and 4 $1.89 per 100 cubic feet

Zone 5 $2.22 per 100 cubic feet

Outside City Charge

Service charge $0.75 per day

Water-use charge $2.02 per 100 cubic feet

Source: City of Fairfield California Utility Rates, as of January 1, 1999. 100 cubic feet = 748 gallons.

(http://www-e-v.com/fairfield/government/public_works/rates.htm).

 

22 Raftelis Environmental Consulting Group, 1996 Water and Wastewater Rate Survey (Charlotte, NC:

Raftelis Environmental Consulting Group, 1996).
USEPA – NARUC Consolidated Water Rates

16

For a variety of reasons, zonal pricing does not appear to be the prevailing model for retail

water pricing. Importantly, costs can vary within physically interconnected service

territories by magnitudes as great as they might vary between noninterconnected systems.

By and large, many cost differentials associated with spatial considerations are essentially

disregarded in the ratemaking process for public utility systems.

Spatial Pricing and the Telephone Industry

The rejection of zonal pricing in the debate over statewide telephone rates seems to come

closest to providing a rationale for single-tariff pricing by multi-system water utilities.

According to Charles Phillips:

While each exchange is a distinct unit for rate-quoting purposes, the former Bell

System companies have generally established rates on a statewide basis.

Essentially, the statewide basis provides that the total costs of furnishing telephone

service and the resulting revenue requirements are considered for the state as a unit.

This practice recognizes that telephone service, both exchange and intrastate toll,

furnished by a given company through a state, is, in reality, an integrated whole, all

portions of which are interdependent. The objective is to apply throughout the

state a well-balanced and coordinated pattern of rate treatment, providing rates that

are uniform under substantially like conditions and producing, in the aggregate,

reasonable earnings on the company’s total telephone operations within the state.

The statewide basis has five important advantages over consideration of individual

exchanges. First, the statewide basis permits more people to have better service at

a reasonable price. Some small areas, if forced to pay their own way, might have

no service at all. Needed plant replacements or additions might be postponed if

local customers had to cover their full costs, resulting in deterioration of local

service within the exchange and of toll service to and from it. Second, on the

statewide basis, customers pay like charges for like amounts of service. If each

exchange had to stand on its own feet, customers’ charges would vary with physical

characteristics of the exchange areas, age of plant, type of equipment and other

factors affecting costs, but not necessarily affecting the service rendered. The

statewide basis averages out such factors.

Third, customers seem better satisfied with statewide rates, since the application of

uniform schedules avoids any questions of discrimination or unfair advantage to

pressure groups in individual exchanges. Fourth, the statewide basis tends to

stabilize rate levels by providing a broad rate basis. Risks are shared so that a

community suffering from flood, storm or other natural disaster or from some local

economic difficulty (e.g., the removal of a major industry) need not pay higher

telephone rates such as would be required if telephone operations in that exchange

had to meet these conditions single-handedly. Finally, the statewide basis is more

workable and makes the regulatory process less cumbersome and expensive to both
USEPA – NARUC Consolidated Water Rates

17

the public and the company involved. It avoids multiplicity of rate cases for each

individual exchange. It simplifies handling of questions and complaints by the

regulatory commissions and administration by the companies.

At the same time, it should be pointed out that the statewide basis results in some

subscribers subsidizing other subscribers. Because exchange telephone service is

more valuable to customers in the larger service areas, they are willing to pay more

for their service. Since their average cash incomes are greater, they are able to pay

more. Lower rates in the small towns and rural areas, where average money

incomes are relatively low, encourage telephone use and development in these

places. Once again, this is an example of how rate discrimination has been used to

achieve a socially desirable objective, in this case the widespread development of

telephone usage through the country.23

Phillips also discusses how “nationwide averaging has been used in establishing interstate

toll rates, under which toll rates are the same for equal distances throughout the continental

United States, despite differences in the costs involved”24 A nationwide rate, he

acknowledges, has “all of the advantages of statewide rates, but it results in internal

subsidization” and raises a variety of competitive issues as well.

Counterpoint

In a direct and provocative treatment of the “uniform pricing” issue, economist Ronald

Coase acknowledged that the key arguments favoring uniformity are founded on the view

that certain services (namely, utility services) are considered essential and that the

undertaking as a whole can be “self-supporting.”25 However, Coase notes the intellectual

disagreement among early postmasters (also economists) over whether postage stamp rates

actually served the interests of rural communities.

Absent a governmental subsidy, according to Coase, a uniform price actually might cause a

provider to avoid or delay extending service to high-cost areas, even if the customers in

high-cost areas are willing to cover the additional costs through rates (or surcharges).

Adding high-cost customers to the mix increases the average cost of production and

decreases the economic well-being of the utility. The magnitude of this effect depends on

the relative mix of high-cost and low-cost service. Coase makes, and then relaxes, a

number of assumptions that may or may not be valid but he does not consider the role of

economic regulation. In practice, a forward-looking ratesetting process that accounts for

the total cost of service throughout the consolidated service territory neutralizes the

disincentive Coase identifies. Indeed, the primary and practical purpose of rate

consolidation had been to extend service while maintaining the utility’s financial health.

 

23 Phillips (1993), 517-518.

24 Phillips (1993), 522.

25 Coase, “The Economics of Uniform Pricing Systems.”
USEPA – NARUC Consolidated Water Rates

18

3. Spatial Pricing and Ratemaking Theory

Theoretical Issues

The defining engineering, economic, structural, and institutional characteristics of the water

industry generally are not contemplated in the literature establishing the basic principles of

utility ratemaking. The central issue of whether physical interconnection should be

required for single-tariff pricing by multi-system water utilities is not well addressed.

Because other utility infrastructures—electricity, electricity, natural gas,

telecommunications—have a high degree of interconnection through transmission grids, the

acceptability of cost averaging for non-interconnected systems is a theoretical problem

unique to the water and wastewater industries. Although energy and telecommunications

providers experience spatial differences in cost, these differences are generally not reflected

in prices.

In the prevailing theories used in ratemaking and regulation, the concepts of “due” (or just

and reasonable) and “undue” (or unjust and unreasonable) price discrimination are

contemplated with regard to customers classes but not with regard to spatially defined

systems. Separate prices for separate systems owned by a common entity reflect

assumptions about the implications of the cost allocation for efficiency. It can be argued

that water costs are allocated (and prices are charged) on a spatial basis primarily because

they can be, rather than that they should be for unequivocal theoretical or empirical

reasons. In other words, the costs of providing utility service can be approximated for

individual operations (with corporate common costs allocated among them), but the

benefits and desirability of doing so are contingent on other considerations.

A logical (if not well documented) argument can be made that spatial pricing comports

with cost-of-service principles and enhances allocative efficiency: customers of systems

with higher costs pay higher rates and customers of systems with lower costs pay lower

rates. The degree of subsidy or inefficiency introduced with single-tariff pricing, and

whether or not it is acceptable, depends in part on the differential in costs among systems.

A small differential with a minimal rate impact will be less controversial than a large

differential with a substantial rate impact. Little guidance is available on to what extent of

cost averaging through single-tariff pricing would constitute an inappropriate level of

subsidy, undue price discrimination, or more generally an abuse of monopoly power.

However, with or without single-tariff pricing, utility rates can be more or less efficient

depending on other features of the rate (such as the mix of fixed and variable charges, the

number of rate blocks, rate-block differentials, and seasonal differentials). These features

can promote efficient water use and can do so when used in conjunction with single-tariff

pricing. Moreover, and perhaps more importantly, the cost of service is not the only

guiding principle and efficiency is not the only goal of public utility ratemaking and

policymaking, as discussed later in this report.
USEPA – NARUC Consolidated Water Rates

19

In reality, virtually all methods of utility rate design require a considerable degree of cost

averaging. The obvious example is in the establishment of rates by customer classes (for

example, residential, commercial, industrial, and wholesale). But many utility costs are

associated with common operational and management functions. Common costs are

allocated to customer groups according to one of several available methodologies. For

multi-system utilities that do not use single-tariff pricing, common costs must be allocated

spatially as well. Allocating common costs requires the analyst to make assumptions about

underlying cost drivers and establish yet another layer of averaging. The entire process of

cost allocation and rate design is as much art as it is science, and has at least as much to do

with equity as it does efficiency.

In many jurisdictions, the status quo presents a challenge for utilities. Based on the

prevailing theoretical assumptions, the burden of proof has rested on water utilities

to justify the use of single-tariff pricing. In other words, the prevailing assumption is

that deviations from spatial allocation of costs (such as the movement toward

consolidated rates) must be justified. An alternative approach would be to begin

with a single tariff and specify the circumstances under which spatial allocation of

costs is justified because of concerns about efficiency, equity, subsidies, undue

discrimination, or other ratemaking or policy concerns. This might shift attention to

the use of extra-tariff instruments, such as surcharges, to make price adjustments

needed to encourage efficiency and accomplish other purposes.

Evaluation Issues

The appropriateness of reflecting spatial differences in cost in prices can be

evaluated according to traditional and modern ratemaking criteria. The general

criteria for many public policies, and for utility ratemaking, often emphasize

competing goals. Although it always seems desirable to achieve public policy goals

efficiently, efficiency itself is not the only goal of policymaking:

Of course, efficiency is not the only societal value. Human dignity, economic

opportunity, and political participation are values that deserve consideration

along with efficiency. On occasion, public decision makers or ourselves, as

members of society, may wish to give up some economic efficiency to

protect human life, make the final distribution of goods more equitable, or

promote fairness in the distribution process. As analysts we have a

responsibility to confront these multiple values and the potential conflicts

among them.26

The emphasis on, concept of, and assumptions about efficiency shape views about

what is just, fair, or equitable. Political philosophers offer alternative perspectives.

The Rawlsian theory of justice, which holds that public policies should be used to

 

26 David L Weimer and Aidan R. Vining, Policy Analysis: Concepts and Practice (Englewood Cliffs, NJ:

Prentice-Hall, 1989), 31.
USEPA – NARUC Consolidated Water Rates

20

provide the greatest benefit to society’s least advantaged, is perhaps the best

example of a countervailing philosophy.27

Ratemaking Criteria

Ratemaking and rate design are guided by certain fundamental principles that are well

established and well accepted in the regulatory community. These principles provide

guidance, but are not decisive because each involves a degree of subjectivity and some

principle might directly clash with others.

Most ratemaking analysts rely substantially on James Bonbright’s eight criteria for a sound

or desirable rate structure:

1. The related, “practical” attributes of simplicity, understandability, public

acceptability, and feasibility of application.

2. Freedom from controversies as to proper interpretation.

 ̧3. Effectiveness in yielding total revenue requirements under the fair-return

standard.

4. Revenue stability from year to year.

5. Stability of the rates themselves, with a minimum of unexpected changes

seriously adverse to existing customers.

 ̧6. Fairness of the specific rates in the appointment of total costs of service

among the different consumers.

7. Avoidance of “undue discrimination” in rate relationships.

 ̧8. Efficiency of the rate classes and rate blocks in discouraging wasteful use of

service while promoting all justified types and amounts of use:

(a) in the control of the total amounts of service supplied by the company;

(b) in the control of the relative uses of alternative types of service (on-peak

versus off-peak electricity, Pullman travel versus coach travel, single-party

telephone service versus service from a multi-party line, etc.28

As indicated by check mark ( ̧), Bonbright considered three criteria—revenue sufficiency,

fairness, and efficiency—to be especially important.29 Despite the passage of time,

Bonbright’s criteria remain quintessential. Table 3 presents a qualitative analysis of the

consistency of single-tariff pricing with Bonbright’s traditional criteria (items 1 though 8).

Five additional policy criteria that are especially relevant to modern water pricing also are

presented (items a through e).

Consolidated rates generally seem to meet the test of Bonbright’s first five criteria. If

practicality depends in part on customer acceptance, then acceptance becomes a

 

27 John Rawls, A Theory of Justice (Cambridge, MA: Belknap Press of Harvard University Press, 1971).

28 Phillips (1993), 434-435. Based on James C. Bonbright, Principles of Public Utility Rates (New York:

Columbia University Press, 1961).

29 Phillips (1993), 434-435.
USEPA – NARUC Consolidated Water Rates

21

determinant. Other aspects of practicality, namely simplicity, understandability, and

feasibility of application (or implementation) seem very compatible with single-tariff

pricing. The last three criteria are labeled as indeterminate because their compatibility with

rate consolidation depends on other policies or practices, or on the subjective judgment of

the evaluator. While single-tariff pricing is not necessarily consistent with these criteria,

neither is it clearly inconsistent. On the issue of fairness, single-tariff pricing might be

considered unfair on the basis of subsidization, but fair on the basis of sharing burdens at a

reasonable cost. On the issue of efficiency, other features of a tariff also affect the

accuracy of price signals.

The five additional criteria included represent a select group of other potentially relevant

policy goals in relation to single-tariff pricing for the water industry. Resource planning is

considered indeterminate because planning incentives and outcomes probably are more

heavily influenced by the structural character of the water industry than by rate design.

However, single-tariff pricing seems rather consistent with four other criteria—standards

compliance, customer affordability, industry restructuring, and institutional legitimacy. The

last criterion, institutional legitimacy, is somewhat of a composite indicator. The assertion

of consistency reflects the generally positive support for single-tariff pricing by the state

public utility commissions and the courts.

Table 3

Consistency of Single-Tariff Pricing

With Ratemaking Criteria

Criterion Consistency of Single-Tariff Pricing

with Criterion

Bonbright Criteria

1. Practicality

2. Interpretability

3. Revenue recovery

4. Revenue stability

5. Rate stability

6. Fair cost allocation/equity

7. Discrimination avoidance

8. Efficient resource use

Generally consistent (if accepted)

Generally consistent

Generally consistent

Generally consistent

Generally consistent

Indeterminate

Indeterminate

Indeterminate

Additional Criteria

a. Resource planning

b. Standards compliance

c. Customer affordability 

d. Industry restructuring

e. Institutional legitimacy

Indeterminate

Generally consistent

Generally consistent

Generally consistent

Generally consistent

Source: Author’s construct. Criteria 1 through 8 are from James C. Bonbright, Principles of Public Utility

Rates (New York: Columbia University Press, 1961).
USEPA – NARUC Consolidated Water Rates

22

Directly or indirectly, these criteria figure prominently in the consideration of rate

consolidation. Other analysts surely could raise other relevant considerations. No attempt

is made here to weight the criteria according to perceived importance; this is a task left to

policymakers. In reality, the efficiency criterion is assigned considerable weight in

ratemaking, as well as in policymaking in general. In other words, divergence from

efficient solutions (or solutions that are perceived to be efficient) must be well justified.

The Efficiency Criterion

Economic theory argues for utility pricing that promotes overall efficiency for society. An

efficient price signal leads consumers to consume, and producers to produce, an

appropriate amount of a good or service. Prices that are too low can lead to

overconsumption (and underproduction); prices that are too high can lead to

underconsumption (and overproduction). The mismatch of supply and demand, and the

“welfare loss” associated with it, has rippling effects throughout the economy because in

using excessive resources to produce a good, or spending too much for that good, society

foregoes opportunities to use those resources or make those expenditures elsewhere.

Economic theory also argues for utility pricing that is equitable in terms of allocating costs

to those responsible for those costs.30 In this conception, equity essentially serves

efficiency goals. Three kinds of equity can be considered. Horizontal equity suggests that

those who impose similar costs should pay the same rate. A related ratemaking principle is

that rates should be “nondiscriminatory.” Vertical equity suggests that those who impose

different costs should pay different rates that reflect those cost differences. Ratemaking

allows for “due discrimination” when costs among customer groups vary substantially.

Finally, intergenerational equity considers equity along a temporal dimension, suggesting

that one generation of customers should not be forced to cover costs imposed by another

generation of customers.

Economists long have argued for prices that reflect costs and against subsidies that distort

price signals. Modern pricing theory more specifically calls for pricing based on marginal

costs; that is, prices should reflect the incremental cost of producing an additional

increment of a good. Prices based on long-term marginal costs will help achieve long-term

efficiency in deploying resources. Efficiency is a fundamental goal but it is not the only

goal of utility pricing. Pricing also must help achieve a delicate balance between the

interests of the utility and the interests of ratepayers, and in doing so satisfy the public

interest standard.

 

30 Of course, other theoretical perspectives will argue for different kinds of equity, such as social and

political equity.
USEPA – NARUC Consolidated Water Rates

23

Other Criteria

Another vitally important ratemaking principle centers on the avoidance of “undue” price

discrimination. An important issue for regulators is whether the level of price discrimination

under either single-tariff pricing or stand-alone pricing is “due or undue,” that is, whether

or not it is justified. According to Charles Phillips:

Price discrimination occurs when a seller establishes for the same product or service

different rates that are not justified entirely by differences in cost, or the same rate

where differences in cost would justify differences in price. . . [I]t would be

theoretically possible for a firm to charge each customer a different rate. . .31

The often-cited legal standard of “undue discrimination” does not point regulators or the

courts to particular solutions, as articulated by Richard J. Pierce:

Most regulatory statutes forbid “undue discrimination” in the relationship among

the rates charged different customers or classes of customers. This statutory

standard is almost completely devoid of meaning, however. By using the adjective

“undue,” the standard obviously authorizes some forms of price discrimination, but

it says nothing that would help an agency or a court distinguish between permissible

and impermissible rate differentials.

Much of the case law purporting to distinguish between due and undue

discrimination is affirmatively misleading. . .

[The Supreme] Court’s holding in Hope applies with equal force to rate design

decisions. An agency’s decision has a “presumption of validity,” and anyone

seeking to overturn it has “the heavy burden of showing that it is invalid.” The

agency is “not bound to the use of any single formulae in determining rates.”32

A closely related and equally complex regulatory standard is whether resulting rates are

“just and reasonable.” Phillips explains:

[D]iscrimination is accepted in the rate structures of public utilities, but. . . such

discrimination must be “just and reasonable.” Discrimination is both unintentional

and purposeful. It is unintentional in that some discrimination results from the

efforts of utilities and commissions to simplify the rate structures by grouping

customers into a limited number of classifications. It is purposeful in that

discrimination may be the only way in which service can be provided to some

customers. Low-density routes may be subsidized by high-density routes (even

 

31 Phillips (1993), 69-70.

32 Richard J. Pierce, Economic Regulation: Cases and Materials (Cincinnati: Anderson Publishing Co.,

1994), 122.
USEPA – NARUC Consolidated Water Rates

24

under competition), small towns by large cities. Rather than preventing

discrimination, regulation merely seeks to control what discrimination takes place.33

In sum, regulatory agencies have considerable discretionary authority, and have exercised

that authority, to determine whether rates and rate structures are within acceptable

boundaries. Many state public utility commissions have found that rate consolidation by

multi-system water utilities is within these boundaries.

Pricing in Practice

Despite the hallowed status of economic efficiency in ratemaking, pricing in practice often

violates pricing in theory. Many sources of distortion (governmental grants and subsidies,

differences in ownership, ill-defined markets for alternative water uses, and a variety of

past public policies) distort price signals for water. The considerable “noise” in the real

world of assigning monetary values to water undermines the efficiency of the price signal

sent by utilities. Practical applications of marginal-cost pricing, when used at all, deviate

substantially from the theoretical construct. One key reason is that strict adherence to the

marginal-cost model could allow utility monopolies to receive excess revenues and earn

excess profits (in the case of investor-owned utilities).

Averaging costs to one degree or another is an accepted practice in utility ratemaking. For

example, rate regulators generally do not accept “vintage” rates that distinguish “old”

customers from “new” customers even though old and new customers impose different

costs on the utility system.34 Ratemaking also tends to ignore the reality that older and

newer parts of a water system will require capital investments at different times and at

different costs; these improvement costs instead are averaged across the entire system and

all of the utility’s customers.35

In rate design, economic theory often gives way—at least somewhat—to practical and

public policy concerns. An example that has some relevance for the single-tariff pricing

debate is the provision of budget-payment plans for customers that equalize payments over

a year, making the utility bill during the peak period of use (such as the winter heating bill

or the summer cooling bill) more affordable. A disadvantage of the budget plan in terms of

economic efficiency is that it undermines the price signal to customers, which may lead

them to overconsume (and pay a higher annual bill than they otherwise would pay). But

the advantages of convenience and affordability for customers, as well as avoidance of

costly and potentially dangerous disconnections, generally outweigh these theoretical

considerations.

 

33 Phillips (1993), 70, footnotes omitted.

34 John Guastella, “Single Tariff Pricing and Conservation Rates,” a discussion paper prepared for the

Rates and Revenue Committee of the National Association of Water Companies (1994).

35 Guastella (1994).
USEPA – NARUC Consolidated Water Rates

25

The budget-payment plan is an imperfect analogy to single-tariff pricing, however, in that it

is customer-specific and does not involve subsidization from one customer to another.

Subsidization will occur, however, with lifeline rates that provide a minimal block of usage

at a price below the cost of service and lenient disconnection practices. Such policies

introduce equity and fairness considerations beyond those narrowly defined by economic

theory.
USEPA – NARUC Consolidated Water Rates

26

4. Structural Issues in the Water Industry

The U.S. water industry is complex and diverse. The U.S. Environmental Protection

Agency and the state primacy agencies, count noncommunity and community water

systems. According to the EPA’s Community Water System Survey (1997), about 50,289

community water systems operate in the United States. A community water system is a

system serving a population of 25 or more people with at least 15 service connections.

The data confirm both the large number of water systems in the United States, as well as

the large proportion of smaller systems within that total. Relatively small systems, defined

as systems serving communities with a population under 3,300 persons, comprise about 85

percent of total systems and provide water to approximately 12 percent of the connections

served by community systems. Conversely, about 15 percent of community water systems

are larger in size and provide water to approximately 88 percent of connections.

Systems v. Utilities

Community water systems, which the EPA inventories, can be distinguished from water

utilities. Water utilities are governmental, nonprofit, or private corporate entities engaged

in providing water service to one or more service territories. Water utilities can operate

more than one water system. Multi-system utilities are particularly apparent in the private

segment of the water industry. Many of the larger investor-owned utilities actually

operated several distinct water systems. In some cases, none of the systems operated by

the utility are physically interconnected; in other cases, two or more of the systems may be

connected to common water source, transmission, or treatment facilities.

The state public utility commissions typically count the number of regulated water utilities

but not necessarily water systems. In 1995, the number of commission-regulated water

utilities was about 8,537 and the number of commission-regulated water systems was

about 11,064.36 Thus, the commissions regulate approximately 20 percent of all water

systems, although the number and percentage of commission-regulated systems probably is

somewhat underestimated because of the difficulty in counting regulated systems.

In some states, the number of regulated utilities is equivalent to the number of regulated

systems. However, the distinction between utilities and systems is important in that many

jurisdictional water utilities encompass multiple community water systems. The presence

of numerous multi-system utilities is, and will continue to be, an important feature of the

U.S. water industry.

 

36 Janice A. Beecher, 1995 Inventory of Commission-Regulated Water and Wastewater Utilities.

(Indianapolis, IN: Center for Urban Policy and the Environment, 1995).
USEPA – NARUC Consolidated Water Rates

27

Multi-System Water Utilities

A multi-system water utility is a utility comprised of several distinct water systems.

Physical interconnection among systems can help utilities achieve economies of scale in

production and enhance service reliability. Common management of physically separate

systems, however, also can help systems realize operational, management, and financing

(cost-of-capital) savings.

Even without physical interconnection, the utility still can achieve economies of scale and

scope through certain operational and administrative functions. Operating multiple

noninterconnected systems within close physical proximity, for example, might allow the

utility to save labor costs by using a circuit rider approach to system operations. A

specialized maintenance team might also be used to address ongoing programs for

maintenance, replacements, and improvements. Shared operations and management also

can enhance the ability of water systems to respond to water emergencies. Consolidated

meter reading, billing, and customer relations functions also can produce savings.

At the management level, planning, financing, regulatory relations, and other areas of

decisionmaking can be consolidated on a utility-wide basis. Managers with greater

expertise can be retained at the utility level than at the smaller system level. While

managers with greater expertise will command higher salary and benefit packages, the

investment in their expertise can yield savings that individual systems could not otherwise

achieve. Ample anecdotal evidence supports the assertion that smaller systems benefit

from access to expert technical knowledge. Using this expertise, multi-system utilities can

exploit efficiencies and improve effectiveness by deploying a unified workforce, rather than

having each individual utility maintain separate capability for various utility functions.

The potential advantages of utility-wide management may extend beyond the immediate

efficiency payoffs. Planning for multiple systems, as compared to individual systems,

allows for a more comprehensive approach. Better planning, in turn, should enhance the

utility’s capacity to respond to regional economic and environmental issues. Effective

watershed management and source-water protection programs, for example, require a

regional perspective that is not easily achieved by isolated systems.

Another appreciable benefit of common management is lowering the cost of capital. A

consolidated utility with a broader customer and revenue base is expected to pay lower

financing costs than individualized systems. This is a particularly important benefit for very

small water systems.

Multi-system utility operations can be linked to the broader and more long-term policy

concerns related to structural change in the water industry through regionalization. Multisystem utilities generally serve regional areas. Many have the potential to combine

operations, with or without physical interconnection, with other nearby water systems

(many of which are small in size). Water utility mergers and acquisitions reflect a very

gradual trend toward regionalization and, in some cases, privatization of water services.
USEPA – NARUC Consolidated Water Rates

28

Existing utilities also can be used to provide service as an alternative to the creation of new

water utilities. Indeed, many states will not certify a new water system if service from an

existing provider is feasible. In addition to expanding regional water operations, some

water utilities have diversified by entering the wastewater industry. Likewise, some private

energy utilities providing electricity and natural gas have ventured into the water business.

The formation and expansion of multi-system utilities and multi-sector utilities are part of

potentially fundamental structural changes occurring in the water industry.

Pricing and Structural Change

Pricing is intrinsically related to structural change in the water industry. For example, a

utility’s level of interest in a merger or acquisition opportunity may depend on anticipated

price effects. A negotiated sale of a utility might include limitations on near-term pricing

practices or even price caps or freezes for a fixed period of time. Larger utilities often are

reluctant to consider acquiring smaller, nonviable systems unless reliable means of cost

recovery can be identified and secured. An acquisition candidate often presents substantial

infrastructure needs but its service community lacks the ability to pay for improvements

through higher rates. As mentioned already, the acquisition will yield some economies but

not usually economies of a magnitude great enough to offset the diseconomies associated

with the smaller system’s operations. Some argue that more acquisitions would occur if

acquiring companies were provided incentives, including the ability to spread costs

throughout the utility’s multiple service territories.

Although the dilemmas of small water systems have been extensively studied, the issue of

pricing probably has received considerably less attention than viability assessment, capacity

building, and related approaches. Pricing policies ultimately will play a role in shaping the

future structure of the water industry, including but not limited to the future of small water

systems.

Incentives for Restructuring

Single-tariff pricing has the potential to encourage economic industry consolidation and

regionalization, as well as privatization.37 Averaging costs mitigates rate shock for

customers and enhances revenue stability for utilities; it also is relatively simple to

administer. Some investor-owned utilities have sought rate equalization in direct

connection with small system acquisitions.38 According to one industry representative,

 

37 Janice A. Beecher, G. Richard Dreese and John D. Stanford, Regulatory Implications of Water and

Wastewater Utility Privatization (Columbus, OH: The National Regulatory Research Institute, 1995), 141.

38 Patrick Mann, G. Richard Dreese, and Miriam A. Tucker, Commission Regulation of Small Water

Utilities: Mergers and Acquisitions (Columbus, OH: The National Regulatory Research Institute, 1986);

Raymond W. Lawton and Vivian Witkind Davis, Commission Regulation of Small Water Utilities: Some

Issues and Solutions (Columbus, OH: The National Regulatory Research Institute, 1983).
USEPA – NARUC Consolidated Water Rates

29

single-tariff pricing “could help solve the dilemma of other nonintegrated small water

systems.”39

The focus of this report is on single-tariff pricing by regulated investor-owned utilities

because the issue has emerged primarily within these parameters. Rate consolidation can

be used as easily by publicly owned utilities as by investor-owned utilities.40 Many of the

larger metropolitan water systems could acquire numerous contiguous small systems and

employ single-tariff pricing with a negligible customer-bill impact.41 In the context of

public utility regulation and mandated takeovers, it appears that the burden of acquiring

troubled systems seems has fallen more to privately owned than to publicly owned water

utilities. This is because many small systems are privately owned and regulated, the larger

investor-owned systems do not confine their service territories to local political boundaries

and regulators can provide acquisition incentives to jurisdictional utilities. In the few states

where a takeover can be mandated, it may be easier to impose this responsibility on a

private system.

Unfortunately, little systematic evidence on the use of single-tariff pricing in the public

sector is available. Also, most municipal utilities and many public authorities appear to

operate single water systems only. However, one example of the use of single tariff pricing

in the nonprofit context can be found in Clark County, Washington. Clark Public Utilities

is a customer-owned district that provides water service (and other services) to 24,000

customers throughout Clark County and also operates several small "satellite" systems for

small groups of homes throughout the county.42 All customers pay the same monthly

customer charge and uniform volume rate.

Some municipalities do impose zonal rates that reflect differences in elevation and pumping

costs. Generally, however, municipal water utilities impose a single pricing structure for all

citizen-ratepayers served within municipal boundaries; ratepayers outside of municipal

boundaries often pay a higher rate.43 Higher “outside” rates are justified on the grounds

that “inside” customers bear more risks and burdens associated with financing capital

improvements through municipal funding instruments. However, the rate differential often

appears to be somewhat arbitrary. In a few states, charging a different rate to outside

customers can trigger economic regulation by the state (Pennsylvania is an example).

Some insights can be gained from two states where state economic regulation applies both

the privately and publicly owned water systems. In Wisconsin, state law mandates single-

 

39 Edward M. Limbach, “Single Tariff Pricing,” Journal American Water Works Association 75 no. 9

(September 1984): 52.

40 Limbach (1984).

41 Cities may lack adequate incentives or opportunities or acquisitions. In contrast, regulatory agencies can

offer investor-owned utilities with rate-of-return and other incentives. Some commissions have the

authority to mandate takeovers of smaller, nonviable water systems.

42 Clark Public Utilities (http://clarkpud.com/Default.htm).

43 The interest of many investor-owned utilities in single-tariff pricing clearly stands in contrast to the

apparent interest of many municipally owned utilities in spatially differentiated pricing.
USEPA – NARUC Consolidated Water Rates

30

tariff pricing for municipalities.44 In West Virginia, where economic regulation applies to

public service districts, as well as investor-owned utilities, single-tariff pricing has been an

issue because of the needs of the state’s rural areas. Single-tariff pricing is approved on a

case-by-case basis and both single tariffs and multiple tariffs are used throughout the state.

Many of the state commissions have broadly supported the idea of consolidating water

utilities and specifically approved valuation, costing, and pricing practices that encourage

larger and healthier utilities to acquire smaller and less healthy utilities. The Pennsylvania

Public Utility Commission, in its policy statement regarding acquisitions, explicitly

mentions single-tariff pricing. These regulatory policies are being adopted within the larger

context of structural change in the water industry. These structural changes may include

reconsideration of traditional methods of regulation and ratemaking, as is taking place in

many jurisdictions for the other utility industries.45

 

44 Wisconsin S. 66.069 (1) (a) (1971).

45 In the increasingly competitive electric and natural gas industries, for example, the interest in regulatory

alternatives is high. These alternatives include price caps and flexible rates, which essentially deregulate

rate design by giving utilities greater discretion in setting rates within broad parameters.
USEPA – NARUC Consolidated Water Rates

31

5. Cost Profile of the Water Industry

Water utilities remain one of the more tried and true monopolies in terms of basic

economic characteristics. In general, water service can be provided efficiently by a

vertically integrated supplier; two or more suppliers (or redundant distribution systems) in

the same service area would greatly increase costs and rates. The technology of water

supply clearly demonstrates economies of scale, meaning that average unit costs decrease

with the quantity of water provided. The prevalence of many small utilities undermines the

industries' overall efficiency in terms of achieving economies of scale.

Even in comparison to other fixed utilities, water utilities require substantial investment in

fixed assets relative to the variable costs of production (including the cost of raw water,

energy, and treatment chemicals).46 Using the standard of capital investment per revenue

dollar, water supply is among the most capital-intensive of all utility sectors. Capital

investment in water supply mainly is a function of the need to establish production

capacity; maintain a complex storage, transmission, and distribution network; and meet

both fire-protection specifications and peak demands. In general, the water supply industry

has high fixed costs and low capital-turnover rates. However, the capital intensity of the

water supply industry also can be explained by the industry's relatively low variable

(operating) costs, which translate into relatively low operating revenues.

Reflecting these cost characteristics, water rates typically take the form of a fixed charge

that does not vary with usage and a variable charge that varies with usage. Traditional

cost-of-service principles can lead to very high fixed charges and very low variable charges

for water utilities. Efficiency-oriented rates, however, tend to accentuate the variable

component of the water bill in order to affect consumption behavior.

Trends in Water Costs

Water supply clearly is a rising-cost industry. Water supply utilities, and their regulators at

the federal, state, and local levels, are increasingly aware of the water supply industry's

changing revenue requirements. Three key forces affecting the industry's costs are (1) the

need to comply with regulatory provisions of the Safe Drinking Water Act (SDWA), (2)

the need to replace and upgrade an aging water delivery infrastructure, and (3) the need to

meet population growth and promote economic development. In addition, water utilities

face a variety of secondary cost forces. These include the often high cost of borrowing to

finance capital projects (especially for small systems) and the shift to nonsubsidized,

self-sustaining operations (especially for publicly owned systems).

 

46 For a comparison of the water industry to the electric, natural gas, and telecommunications industries,

see Janice A. Beecher, The Water Industry Compared: Structural, Regulatory, and Strategic Issues for

Utilities in a Changing Context (Washington, DC: National Association of Water Companies, 1998).
USEPA – NARUC Consolidated Water Rates

32

The concurrent and mutually reinforcing impact of these forces on many water utilities

presents a substantial pressure on both capital and operating costs, a pressure not

previously experienced by the water supply industry. In response, water utilities are

reexamining their cost allocation and rate design practices. The interest in alternative

ratemaking methods for the water sector is on the rise.

Rising costs, along with structural and regulatory changes in this industry is placing new

demands on utility regulators. However, rising costs should not be taken for granted but

closely scrutinized. Moreover, the water supply industry must be held accountable for

making prudent decisions in response to its changing cost profile. The industry must be

able to fully justify the use of alternative approaches to meeting revenue requirements

(including automatic cost-adjustment mechanisms, pass-throughs, and special surcharges,

as well as cost-allocation and rate-design methods).

Water utility regulators generally are open to the consideration of policy alternatives but

also vigilant about whether these alternatives are within the scope of regulatory authority

and consistent with accepted regulatory principles. Regulators will want to be especially

cautious about affecting the incentives that determine whether utility costs are effectively

managed. Thus, the industry perspective on rising costs and how to address them should

be tempered by a reasoned regulatory perspective.

Economies of Scale

Although an arbitrary threshold, water systems serving under 3,300 (or approximately

1,000 service connections) generally lack economies of scale in production and other

aspects of service.47 As a result, many small water systems are prone to capacity problems

and difficult to sustain over time.

Economies of scale in water supply, particularly in the areas of source development and

treatment, make it difficult for smaller water utilities to perform as well as larger water

utilities. Declining unit costs of production indicate scale economies; as the volume of

water “produced” (that is, withdrawn and treated) increases, the cost per gallon or cubic

foot decreases. At lower unit costs, production is less costly in the aggregate and more

efficient at the margin.

Very small water systems underperform primarily because they simply are not large enough

to achieve economics of scale. Scale economies in the water sector explain why smaller

utilities tend to have less capacity in financial, managerial, and technical terms.48 Rising

 

47 U.S. Environmental Protection Agency, Affordability of the 1986 SDWA Amendments to Community

Water Systems (Washington, DC: U.S. Environmental Protection Agency, 1993).

48 Janice A. Beecher, G. Richard Dreese, and James R. Landers. Viability Policies and Assessment

Methods for Water Utilities (Columbus, OH: The National Regulatory Research Institute, 1992).
USEPA – NARUC Consolidated Water Rates

33

costs over the past decade have exacerbated the condition of smaller systems.49 Capacitydevelopment problems often are manifested in higher rates for water service.

Scale economies (or lack thereof), thus become an important determinant of how much

people pay for water service. As a generalization, assuming comparable system

characteristics and cost-based pricing, larger systems should be able to provide service at a

lower price than smaller systems. In reality, of course, many factors other than system size

(such as the quality of source water and treatment methods required) influence ultimate

water costs and prices. But as a generalization, it is widely held that smaller water systems

must charge customers much higher rates for water service comparable to service provided

by larger water systems.

Importantly, the economies of scale in water production are associated with the volume of

water produced (not simply the number of service connections). Even smaller systems

that are fortunate enough to have one or two large-volume customers will enjoy some

economies of scale. Two utilities can have a comparable level of investment per customer

and cost-of-service for the same number of residential customers, but if one also serves a

large industrial firm and economies of scale are achieved, everyone in that community will

enjoy lower water bills. In other words, when controlling for large-volume use, the level

of investment and the cost of service can be quite comparable from system to system. One

of the arguments in favor of single-tariff pricing is that it allows all customers to benefit

from the location of large customers anywhere in the composite service territory.50

Some evidence about the effect of utility size on water prices is available. A 1996 survey,

summarized in Table 4, found that median prices decline as system size increases for

different classes of customers served (residential, commercial, and industrial). The

implication is that small-systems customers pay more for roughly the same level of service

as large-system customers. As a consequence, the affordability of water service is a greater

threat for small systems. “Rate shock” is another problem for many smaller systems

because increasing costs must be spread over a smaller customer base.

In some respects, rate consolidation is similar to “aggregation,” a tool emerging in the

context of electric industry restructuring. Aggregation is used to group customers

according to similar characteristics, usage patterns, or service requirements. Aggregation

can provide access to services and a degree of purchasing power to disadvantaged

customers. In effect, multi-system utilities are aggregators for the customers in the various

systems they manage. Both aggregation and rate consolidation can promote the broader

goal of universal service.

 

49 Janice A. Beecher, Patrick C. Mann, and John D. Stanford, Meeting Water Utility Revenue

Requirements (Columbus, OH: The National Regulatory Research Institute, 1993).

50 Conversely, large-volume users in the larger service territory might complain that single-tariff pricing

forces them to subsidize customers in outlying areas.
USEPA – NARUC Consolidated Water Rates

34

Table 4

Monthly Water Bills by System Size and Customer Class

Customer Class

Group A Systems

Producing >75

MGD (n=34)

Group B Systems

Producing 15 to

75 MGD (n=61)

Group C

Systems

Producing < 15

MGD (n=47)

Residential

Median monthly charge for 1,000

cubic feet (7,480 gallons) $13.19 $14.64 $15.61

Commercial

Median monthly charge for 50,000

cubic feet (374,000 gallons) $486.82 $530.92 $578.96

Industrial

Median monthly charge for

1,000,000 cubic feet (7,480,000

gallons)

$7,926.97 $8,747.06 $10,292.34

Source: Raftelis Environmental Consulting Group, 1996 Water and Wastewater Rate Survey (Charlotte,

NC: Raftelis Environmental Consulting Group, 1996), Exhibit 2.

MGD = million gallons daily. n = number of systems in the sample.

Capacity Development

Federal policymakers and state regulators, including both drinking water primacy agencies

and public utility commissions, have long been concerned about how to check the

emergence of new nonviable water systems, how to improve the performance capacity of

existing systems, and how to maintain safe and affordable water service.51 The 1986 Safe

Drinking Water Act triggered substantial attention to small-system issues and the problem

of keeping rates affordable in light of the newly enacted standards.

Regulators continue to seek out ways to balance the equally legitimate fiscal concerns of

water utilities (that is, financial capacity) and utility customers (that is, affordability). The

1996 Safe Drinking Water Act codified capacity-development policies for new and existing

water systems and elevated the capacity-affordability conundrum to a higher place on the

policy agenda.

Capacity in this context is defined in terms of a utility’s financial, managerial, and technical

well being. Financial capacity carries particular importance because a financially healthy

utility will have the resources needed for professional management and technically

appropriate operations. Many (but not all) small water systems struggle with significant

capacity problems. These problems are manifested by the small water utility’s poor

performance in many areas, including regulatory compliance.

 

51 Beecher, Dreese, and Landers (1992).
USEPA – NARUC Consolidated Water Rates

35

Traditionally, both economic and public health regulators have been very focused on smallsystem capacity issues. Policymakers have paid considerable attention to smaller water

systems and the tradeoffs between ensuring a financially healthy system and maintaining

affordable rates for safe and reliable water service. One manifestation of capacity problems

is noncompliance with drinking water standards. For small systems, these violations often

include failure to meet monitoring and reporting requirements. Small systems also have

difficulty complying with public utility commission regulations. For very small systems,

meeting the procedural mandates of economic regulation (such as rate filing requirements)

can be difficult.

Small water systems have long troubled state economic regulators. Many (but certainly

not all) of the commission-regulated water systems are small in size, which poses certain

public policy problems. Particularly problematic are the very small systems that were the

product of unchecked real estate development and lax local zoning policies. Many of these

systems are geographically isolated, which often precludes interconnection with another

system. Lacking economies of scale, smaller water systems typically must charge a much

higher rate for service than larger systems. Higher rates make water service less affordable

for customers of smaller water systems.

As a utility monopoly, water supply demonstrates substantial economies of scale. Larger

water systems enjoy these economies, meaning that they can spread certain costs over a

larger customer base. Lower production costs are reflected in lower prices to customers.

Smaller systems must recover revenue requirements over a smaller customer base. In

general, smaller systems are more likely to encounter capacity and affordability problems.

Consumer Affordability

Economic theory argues strongly for cost-based utility rates, that is, rates based on the true

cost of providing a service. An efficient (cost-based) rate should sustain the water system;

however, if the rate is unaffordable to the service population and customers cease to pay

for and/or receive the service, the water system itself may cease to exist. This solution may

achieve a degree of economic efficiency, while sacrificing other fundamental public health,

safety, and quality-of-life purposes.

For many water customers, the affordability of water service is a growing problem. The

problem of affordability affects customers in terms of increased arrearages, late payments,

disconnection notices, and actual service terminations. Affordability affects utilities in

terms of expenses associated with credit, collection, and disconnection activities; revenue

stability and working capital needs, and bad debt or uncollectible accounts that other

customers must cover.

Other ramifications of the affordability issue also are becoming apparent. If a customer

base cannot support the cost of water service, potential lenders may be concerned about

the utility's financial health and ability to meet debt obligations. Moreover, disconnecting
USEPA – NARUC Consolidated Water Rates

36

residential water customers can present a public relations nightmare for utilities,

particularly because essential services are involved. Increasingly, problems of bad debt also

extend to nonresidential utility customers. Financial distress and bankruptcies in the

commercial and industrial sectors can leave utilities holding the bag. However, the larger

issue of affordability is primarily a concern with respect to low-income residential

consumers.

For low-income customers, who have little choice but to buy service from the local utility,

paying more for basic water service means going without less essential and more

discretionary products and services. Thus, rising water prices can contribute to

deterioration in the quality of life for low-income utility customers. While larger systems

can spread the cost of providing assistance to low-income customers, a small system with

an impoverished customer base has no opportunities for even limited subsidization.
USEPA – NARUC Consolidated Water Rates

37

6. Examples of Single-Tariff Pricing

All utility pricing involves some form of averaging. Utility systems do not establish a rate

for Customer A based on the cost of serving Customer A, a rate for Customer B based on

serving Customer B, and so on. Doing so might be considered efficient and equitable, but

it also would be extraordinarily costly from an administrative standpoint (that is, the

transaction costs would be astronomical). Instead, utility systems tend to group customers

into customer classes—residential, commercial, and industrial—based on similarities in the

cost of serving customers in those categories. Occasionally, a unique customer (often a

large-volume customer, such as a food-processing plant) might be able to negotiate a

special rate based on unique cost-of-service characteristics, but most customers pay a rate

based on cost averaging.

Basic Single-Tariff Pricing

Single-tariff pricing basically is the conceptual “opposite” of zonal or spatially

differentiated pricing. Single-tariff pricing suggests that ratemakers should de-emphasize

spatial differences in costs; costs are aggregated rather than disaggregated. One of the

chief advantages of single-tariff pricing, from the utility’s standpoint, is simplification.

Single-tariff pricing does not negate the need to determine the revenue requirement and to

allocate the revenue requirement among customer classes. It may still be necessary for the

utility to maintain cost data for separate facilities and services in accordance with accepted

accounting practices and regulatory reporting standards. Once revenue requirements are

established, however, the allocation process is greatly simplified because it is unnecessary

to spatially allocate common costs (that is, costs that are not site-specific). Total costs

simply are spread over the consolidated customer base and only one rate is designed for

each class of customers or service.

A sample calculation of a single-tariff price is provided in Table 5. In this very simple

illustration, the cost of service and total water sales are varied for three separate service

territories (A, B, and C). A relatively modest amount of water usage (5,000 gallons per

month or 60,000 gallons per year) is assumed. The number of residential connections and

the annual cost of service are varied to reflect differences in costs and economies of scale.

For simplicity, only residential customers are considered.

Service Territory A is in the most favorable position, in terms of economies of scale

(number of customers and sales volume); Service Territory C is in the least favorable

position, which accounts for the higher costs per connection and per sales. A stand-alone

tariff results in a cost of service equivalent to $1.94, $2.08, and $2.78 per 1,000 gallons of

water service in the three respective service territories. The transition to single-tariff

pricing would result in a rate of $2.11 per 1,000 gallons for all customers in all three

service territories.
USEPA – NARUC Consolidated Water Rates

38

The illustration reveals the resulting shift in cost responsibility from the customers in the

larger Service Territory A to the smaller Service Territory C. However, the decrease in

rates to customers in Service Territory C of 67 cents per 1,000 gallons (24.1%) is offset

Table 5

Sample Calculation of Single-Tariff Pricing

Service Territory A

Total residential connections 6,000

Total annual water use per connection 60,000

Total annual water sales (gallons) 360,000,000

Total annual cost of service 700,000

Annual cost per connection $116.67

Cost per 1,000 gallons sold $1.94

Service Territory B

Total residential connections 2,000

Total annual water use per connection 60,000

Total annual water sales (gallons) 120,000,000

Total annual cost of service 250,000

Annual cost per connection $125.00

Cost per 1,000 gallons sold $2.08

Service Territory C

Total residential connections 1,500

Total annual water use per connection 60,000

Total annual water sales (gallons) 90,000,000

Total annual cost of service 250,000

Annual cost per connection $166.67

Cost per 1,000 gallons sold $2.78

Combined Service Territory

Total residential connections 9,500

Total annual water use per connection 60,000

Total annual water sales (gallons) 570,000,000

Total annual cost of service 1,200,000

Annual cost per connection $126.32

Cost per 1,000 gallons sold $2.11

Rate Impact of Single Tariff

Per 1,000

Gallons

Percentage

Change

Service Territory A +17 cents +8.8%

Service Territory B +3 cents +1.4%

Service Territory C -67 cents -24.1%

Source: Author’s construct. For simplicity, only residential customers are considered and a priceelasticity adjustment (that is, a usage response to the change in price) is not included in the illustration.
USEPA – NARUC Consolidated Water Rates

39

primarily by the relatively smaller increase in rates to customers in Service Territory A of

17 cents per 1,000 gallons (8.8%). The larger number of customers in Service Territory A

lessens the impact of the rate adjustment on a per customer basis. Customers in Service

Territory B are least affected, experiencing an increase of 3 cents per 1,000 gallons (1.4%)

in rates. The lower cost-of-service in Service Territory B (relative to the number of

connections served) in comparison to Service Territory C accounts for the difference in the

rate impact.

In practice, rate design for public utilities is far more complex.52 (See Appendix C.)

Utilities must analyze the cost of service, including the cost of capital, and determine

revenue requirements for the period over which rates will be set (the “test year”). A

utility’s costs will be allocated according to customer groups (or classes) and the demand

characteristics of those groups. Typically, residential customers are distinguished from

nonresidential customers, the latter of which are further divided into commercial and

industrial classes.

Variations of Single-Tariff Pricing

Utility tariffs, or rate structures, actually have various components. These components

make it possible for utilities to approach single-tariff pricing in different ways depending on

system cost characteristics and the nature of the current rate structure. Table 6 illustrates

three variations. In the first, uniformity is established only for the fixed charge portion of

the utility bill. In the second variation, fixed charges vary and uniformity is established for

the variable portion of the utility bill. The third variation is the more complete example of

single-tariff pricing, where both fixed and variable charges are made uniform.

These variations can be used to phase-in single-tariff pricing over time, as illustrated in

Table 7. A phase-in plan reflects the principle of gradualism in ratemaking. A significant

change in rate levels or rate design can be implemented in phases, rather than at once, in

order to reduce rate shock to customers and revenue instability to the utility. In this

example, the utility first consolidates fixed charges and gradually consolidates the variable

rate. Many utilities have used a phased approach to implementing single-tariff pricing, with

the encouragement and approval of regulators.

At least three other variations of single-tariff pricing can be identified. First the utility can

retain current rate differentials and equalize future rate increases. This addresses the rate

shock issue while maintaining rate differences based on historical differences in costs.

Second, the utility can use rate “bands” to establish tariffs for groups of systems with

similar cost characteristics. Third, the utility can combine rate equalization with the

strategic use of short-term or mid-term surcharges to pay for extraordinary costs

associated with blending the operations of multiple systems. Each of these methods has

been implemented on at least one occasion.

 

52 Beecher and Mann (1990).
USEPA – NARUC Consolidated Water Rates

40

Because of rising costs, and the need for rate customers to gradually become accustomed

to higher rates, it may not be desirable to lower rates at all for any customer group.

Rather, it may be advisable to “cap” higher rates in the higher-cost areas and gradually

increase rates in the lower cost areas. Although customers should be educated about

changes in the rate structure, a phased approach and a price-cap approach might help

mitigate complaints about cost shifting.

Table 6

Pricing Variations for Fixed and

Variable Water Charges

Before Implementation After Implementation

Fixed

Charge

Variable

Rate

Fixed

Charge

Variable

Rate

Variation 1:

Change to Single Fixed Charge Only

Service Territory A $6.00 per

month

$1.95 per

1,000 gallons

$7.50

per month

$1.95 per

1,000 gallons

Service Territory B $9.00 per

month

$2.15 per

 1,000 gallons

$7.50 per

month

$2.15 per

1,000 gallons

Variation 2:

Change to Single Variable Rate Only

Service Territory A $6.00 per

month

$1.95 per

1,000 gallons

$6.00 per

month

$2.05 per

1,000 gallons

Service Territory B $9.00 per

month

$2.15 per

1,000 gallons

$9.00 per

month

$2.05 per

1,000 gallons

Variation 3:

Change to Single Tariff for Fixed Charges and Variable Rates

Service Territory A $6.00 per

month

$1.95 per

1,000 gallons

$7.50 per

month

$2.05 per

1,000 gallons

Service Territory B $9.00 per

month

$2.15 per

1,000 gallons

$7.50 per

month

$2.05 per

1,000 gallons

Source: Author’s construct.
USEPA – NARUC Consolidated Water Rates

41

Table 7

Phase-In Approach to Single-Tariff Pricing

Before Implementation After Implementation

Fixed

Charge

Variable

Rate

Fixed

Charge

Variable

Rate

Phase 1:

Change to Single Fixed Charge

Service Territory A $6.00 per

month

$1.95 per

1,000 gallons

$7.50

per month

$1.95 per

1,000 gallons

Service Territory B $9.00 per

month

$2.15 per

 1,000 gallons

$7.50 per

month

$2.15 per

1,000 gallons

Phase 2:

Adjust Variable Rates

Service Territory A $7.50 per

month

$1.95 per

1,000 gallons

$7.50 per

month

$2.00 per

1,000 gallons

Service Territory B $7.50 per

month

$2.15 per

1,000 gallons

$7.50 per

month

$2.10 per

1,000 gallons

Phase 3:

Equalize Variable Rates

Service Territory A $7.50 per

month

$2.00 per

1,000 gallons

$7.50 per

month

$2.05 per

1,000 gallons

Service Territory B $7.50 per

month

$2.10 per

1,000 gallons

$7.50 per

month

$2.05 per

1,000 gallons

Source: Author’s construct.

Two Recent Cases

In 1997, the Indiana Utility Regulatory Commission approved a hard-won plan by the

Indiana-American Water Company to consolidate rates. Figure 6 illustrates the difference

in revenue requirements per equivalent residential customer for stand-alone pricing,

common-management pricing, and single-tariff pricing.53 Stand-alone pricing reflects the

costs that a commonly owned or managed water system would incur if it replicated the

same services and functions on a basis completely independent of the parent utility and

other systems. Common-management pricing reflects costs that are incurred on the basis

of the joint operation of multiple systems. Costs under common management, given

management economies of scale and scope, should be less for the utility than the sum of

stand-alone costs for all of the operated systems.

 

53 In this illustration of single-tariff pricing, the use of equivalent customers produces a comparable but not

identical level of revenues per customer across all service territories because of differences in water usage.
USEPA – NARUC Consolidated Water Rates

42

Figure 6. Revenue Requirements per Equivalent Residential

Customers for Stand-Alone Costs, Common-Management Costs, and

Single-Tariff Pricing

Figure 7. Forecast Revenue Requirements per Equivalent Residential

Customers Including Capital Improvements

Source: John F. Guastella, Testimony in Cause No. 40703 before the Indiana Utilities Regulatory

Commission, Indiana-American Water Company (1997), Exhibits JFG-5, JFG-R-1, and JFG-R-3.

$0

$500

$1,000

$1,500

$2,000

Present

19982000200220042006

Revenue Requirements per

Equivalent Residential Customer

System A

System B

System C

System D

System E

System N

System H

System I

System G

Single-tariff

System K

System L

System J

System M

System F

$0

$500

$1,000

$1,500

$2,000

$2,500

System A (74)

System B (404)

System C (5,567)System D (8,292)

System E (9,176)

System F (11,134)

System G (13,705)

System H (13,705)

System I (26,884)

System J (36,339)

System K (40,108)

System L (42,583)

System M (46,440)

System N (53,527)

Community (Equivalent Residential Customers)

Annual revenues per equivalent 

residential customers

Stand-alone

Commonmanagement

Single-tariff
USEPA – NARUC Consolidated Water Rates

43

For each community served, the economies of scale and scope achieved by common

management are obvious. Left to their own devices, none of the communities could

replicate the same level of service at the same cost. In other words, each community’s true

stand-alone cost would be much higher than their share of costs under consolidated

operations. These cost savings are achieved independent of the pricing structure.

The additional benefits of single-tariff pricing are fairly obvious. The smaller, very high

cost systems at the low end of the spectrum clearly have much to gain through rate

consolidation. Both common-management and consolidated rates are a fraction of what

the system would pay on a stand-alone basis. The impact of the single-tariff price on

customers at the middle and higher end of the spectrum is not necessarily substantial.

The rate stabilizing effect of single-tariff pricing is illustrated by the revenue requirements

forecast for the same group of utilities (Figure 7). Over time, the single-tariff provides

considerable rate (and revenue) stability and, once again, the benefits for the smaller

systems are clear. In this particular case, substantial rate hikes associated with planned

capital improvements for four systems can be mitigated. The timing of capital expenditures

will play a role in determining perceptions about the benefits of single-tariff pricing to

individual communities. The obvious affordability benefits to small systems, as well as the

general “smoothing” effect on revenue requirements, are among the leading rationales for

single-tariff pricing.

Similar results were achieved in another recent case involving a New Hampshire utility,

Pennichuck Water Works, Inc. Without rate consolidation, some water customers would

face annual water bills as high as $1,200, as illustrated in Figure 8. In its decision, the New

Hampshire commission directly addressed subsidy and affordability issues, as well as the

anticipated benefits of adopting the single tariff:

We do not believe it would be in the public interest to impose annual rates in the

range of $800 to $1200, as would be the case here, when a reasonable alternative is

available. By consolidating the community systems with the core system for

ratemaking purposes, all customers would face a uniform tariff which, for the

average residential customer, would be approximately $253 per year. The rates for

the average residential customer in the core system would increase less than $1.00

per month, for a total of $8 per year, under the rate consolidation proposal which,

in light of the alternative, we find to be acceptable. We consider a single tariff rate

of approximately $253 per year for the core residential customer to be just and

reasonable. A consolidated rate will ensure affordability and the continued viability

of many of Pennichuck's community systems. It will also enable Pennichuck to

operate in a more administratively efficient manner by eliminating separate general

ledgers for each system, thereby reducing administrative costs.54

 

54 New Hampshire Public Utilities Commission, Order in Docket DR 97-058, Pennichuck Water Works,

Inc. (1998).
USEPA – NARUC Consolidated Water Rates

44

Figure 8. Stand-Alone and Consolidated Rates for

Pennichuck Water, New Hampshire

Source: New Hampshire Public Utilities Commission, Order in Docket DR 97-058,

Pennichuck Water Works, Inc. (1998).

$0

$200

$400

$600

$800

$1,000

$1,200

System A (78)System B (62)

System C (50)System D (29)

System E (99)

System F (458)

System G (36)

System H (88)

System I (102)

System J (75)

System K (63)

Core system (18,273)

Community (population served)

Annual Water Bill

Current rate

Stand-alone rate

Consolidated rate
USEPA – NARUC Consolidated Water Rates

45

Single-Tariff Pricing in Great Britain

Great Britain provides a “real life” example of the use of single-tariff pricing on a very

large scale. In 1989, Great Britain’s ten large regional water, wastewater, and stormwater

service providers (shown in Figure 9) were transformed from nationalized to investorowned utilities. Since privatization, the tariffs established for measured (metered) service

within each of the regional systems have been uniform. In other words, single-tariff pricing

is implemented along with metering. Each of the water utilities provides a metering option,

although a large proportion of British households is not metered. For unmeasured service,

standing charges are uniform. However, variable charges are based not on water volumes

but on the “rateable” value of properties served. These charges vary according to

geographic zones for the Severn Trent and Thames water utilities, but not for the other

utilities.

Tariffs for residential water service for 1995-1996 are reported in Table 8. Metered rates

for large users are comprised of standing (fixed) charges that vary by meter size, plus a

volumetric charge. Standing and volumetric charges are uniform for large-volume

customers throughout the company service territories.

In addition to the larger privatized utilities, another twenty-one water service companies

also serve somewhat smaller service territories in Great Britain, although in terms of

population served almost all seem quite substantial in size when compared to many U.S.

water systems. For the most part, these companies also employ single-tariff pricing. All of

the twenty-one companies use a uniform standing (or fixed) charge; four have different

volumetric rates for different geographic areas served.55

 

55 For one of these companies (Three Valleys), two of three areas have comparable metered rates,

suggesting a gradual move toward uniform pricing. A fifth water company (North East) adopted singletariff pricing in the 1993-94 rate period for its two areas (each of which also is subdivided).
USEPA – NARUC Consolidated Water Rates

46

Figure 9. Regional Water Utilities in Great Britain.

Source: Daniel A. Okun, Regionalization of Water Management: A Revolution in England and Wales

(London: Applied Science Publishers, 1977).
Consolidated Water Rates 

USEPA - NARUC 47 June 1999

Table 8

Metered Water Tariffs for British Water Companies, 1995-1996 (Household Customers)

Service Characteristics Tariffs for Water Service

Company Area

Served

Households

Served

Metered

Households

Unmetered Metered

km2(000) (%) Standing charge

(pounds)

Rateable

Value Charge

Standing charge

(pounds)

Volumetric

Charge p/m3

Anglian 22,000 1,510 16.8 37.35 50.69 27.00 69.62

Dwr Cymru 20.400 1,081 2.8 81.28 38.72 33.00 75.39

North West 14,415 2,643 4.9 29.00 35.20 32.00 60.10

Northumbrian 3,850 470 0.6 52.00 27.15 31.20 53.43

Severn Trent 19,745 2,804 8.2

Zone 1 none 45.85 27.00 62.90

Zone 2 “ 41.29 “ “

Zone 3 “ 40.04 “ “

Zone 4 “ 41.81 “ “

Zone 5 “ 48.08 “ “

Zone 6 “ 50.02 “ “

Zone 7 “ 50.38 “ “

Zone 8 “ 40.04 “ “

East Worcester “ 41.29 “ “

South West 10.300 585 9.1 40.00 49.43 27.20 74.63

Southern 4,450 879 11.8 21.00 33.70 31.00 52.10

Thames 8,200 3,022 5.4

Area 1 14.00 25.41 20.00 48.14

Area 2 “ 25.85 “ “

Area 3 “ 19.45 “ “

Area 4 “ 23.29 “ “

Area 5 “ 29.90 “ “

Area 6 “ 25.90 “ “

Area 7 “ 35.63 “ “

Wessex 7,350 435 9.7 24.00 45.45 30.50 67.78

Yorkshire 13,900 1,729 6.0 22.00 56.60 25.00 64.20

Source: Office of Water Services, 1995-96 Report on Tariff Structure and Charges (Birmingham, UK: Office of Water Services, 1995
USEPA – NARUC Consolidated Water Rates

48

7. The Public Utility Commission Role

Regulation of the water industry, like the water industry itself, is fragmented and

pluralistic. All community water systems, regardless of their ownership, are subject to

federal and state drinking water regulations pursuant to the federal Safe Drinking Water

Act. Drinking water standards focus on public health concerns. Water systems in many

states also are subject to water quantity regulations, meaning that water withdrawals are

regulated through registration or permitting mechanisms. Economic regulation of water

utility prices and rates of return is the domain of the state public utility commissions. The

commissions play a quasi-administrative, quasi-legislative, and quasi-judicial role in terms

of overseeing the utility industries.

Although their jurisdiction for the water industry is not comprehensive, and generally

applies only to investor-owned water systems, the state public utility commissions have

specific authority and expertise in the area of pricing. Moreover, many commissionregulated systems are small in size. Thus, pricing practices in general, and commission

policies in particular, are worth considering when crafting solutions for small systems.

Forty-five commissions presently have authority to regulate investor-owned water utilities.

In some of the states, commission regulation extends to other types of water utilities under

certain circumstances. For example, some states regulate municipal water utilities if they

provide service outside of municipal boundaries. In Florida, counties can opt to regulate

water systems; in Indiana, municipal water utilities can opt to be regulated. In terms of

commission jurisdiction and authority, many variations among the states can be found.

Not all water utilities are subject to commission regulation. Most water utilities in the

United States are publicly owned and not subject to state economic regulation. The state

public utility commissions do not regulate water utilities in Georgia, Michigan, Minnesota,

North Dakota, South Dakota, or Washington, D.C.

Number of Regulated Utilities

Periodic surveys have been conducted for the purpose of counting the number of regulated

water and wastewater systems. As noted earlier, for 1995 the total number of commissionregulated water utilities in the United States was approximately 8,537.56 Approximately

4,095 regulated water utilities are classified as investor-owned water utilities.57 Table 9

summarizes the 1995 inventory of commission-regulated water and wastewater utilities.

 

56 Beecher (1995).

57 These data include 15 investor-owned utilities and 3 homeowners’ associations that no longer are

regulated in Michigan.
USEPA – NARUC Consolidated Water Rates

49

Table 9

Commission-Regulated Water and Wastewater Utilities

Water Utilities Wastewater Utilities

Utility Ownership

Number of

Commissions

Number of

Utilities

Number of

Commissions

Number of

Utilities

Investor-owned or private 46 4,095 28 1,233

Municipally-owned 11 1,547 6 649

Districts 7 1,300 4 205

Cooperatives 4 1,436 2 50

Homeowners’ associations 6 85 1 0

Nonprofits 1 73 1 15

Other 1 1 0 0

Totals 46 8,537 28 2,152

Source: Janice A. Beecher, 1995 Inventory of Commission-Regulated Water and Wastewater Utilities

(Indianapolis, IN: Center for Urban Policy and the Environment, 1995). Includes data for Michigan,

which ceased regulating 18 systems in 1996.

Leading states in terms of the number of regulated water utilities are Texas (3,300),

Mississippi (740), Wisconsin (573), West Virginia (421), Arizona (354), and New York

(354). For investor-owned water utilities, leading state jurisdictions are Texas (1,200),

Arizona (354), New York (334), North Carolina (226), Florida (210), California (199), and

Pennsylvania (190).

Between the 1989 and 1995 surveys, the number of regulated investor-owned utilities

declined by 445 utilities (10 percent); the total number of regulated utilities declined by

1,398 utilities (14 percent).

States in which the number of regulated water utilities (including investor-owned utilities)

declined by a substantial amount include Arizona, Connecticut, Indiana, New York, North

Carolina, Pennsylvania, and Texas. Commission sources suggest that mergers and

acquisitions were the leading cause of the decline. Systems rarely cease operations

altogether. However, transfers to unregulated ownership forms and changes in commission

jurisdiction also can contribute to the decline in the number of regulated utilities. A few

states, including Mississippi and Oregon, had substantial increases in the number of utilities

under their jurisdiction. Nebraska’s gain is noteworthy because jurisdiction for the water

industry was initiated in 1994.

The decline in the number of regulated utilities is consistent with an anticipated trend in

industry consolidation. Mergers and acquisitions within both the public and private

segments of the industry will gradually reduce the number of regulated utilities. However,

the population served by regulated utilities will not necessarily decline as a result of

reductions in the total number of regulated utilities.
USEPA – NARUC Consolidated Water Rates

50

Despite the decline in the number of regulated water utilities, water utility regulation

continues to rise in importance on the agendas of many state commissions.58 Economic

regulation of water utilities is important given monopoly power, rising costs, structural

change, and a degree of uncertainty about the industry’s future.

Capacity-Development Policies

The commissions, which are well aware of the precarious condition of many small water

systems, can and have addressed capacity development through three basic strategies. The

first strategy involves slowing the creation of new water systems. State regulations can

create substantial barriers to entry for new water systems. Many of the state commissions,

as well as the state drinking water agencies, are tightening the certification process and

more carefully scrutinizing the financial, managerial, and technical competencies of

proposed new systems.

The second strategy involves procedural simplification for small water systems to lower the

administrative cost of regulation and enhance regulatory compliance. This strategy

includes simplifying filing and reporting procedures. In some cases, commission staff

members directly assist managers of small water utilities in meeting procedural

requirements. Some of the commissions have used alternative regulatory methods, such as

operating ratios, to further simplify the process and address the unique needs of small

systems. Regulatory simplification treats one of the primary symptoms of small-system

capacity problems (that is, regulatory compliance), but it does not necessarily treat the

underlying capacity problem (that is, lacking economies of scale).

The third strategy involves structural change in the water supply industry. As noted in a

report of the National Regulatory Research Institute, the least-cost solution to regulatory

compliance and other problems for many systems can be found only through structural

change, namely consolidation.59 The downward trend in the number of water systems

suggests that ownership consolidation may be occurring in the industry. Consolidated

systems may or may not be physically interconnected. While physical interconnection

yields significant economies of scale, common management of noninterconnected systems

directly addresses financial, managerial, and technical capacity issues and can yield

significant economies.

Many of the commissions have played an active role in this area by encouraging and

approving mergers and acquisitions. Some of the commissions provide specific incentives,

such as acquisition adjustments. Certain ratemaking practices, including single-tariff

pricing, also can provide incentives for acquisitions and, perhaps, the formation of regional

water systems. Larger systems interested in acquiring smaller systems tend to favor rate

consolidation (sometimes with surcharges).

 

58 In the late 1990s, however, water issues must compete for the attention of regulators with major

restructuring issues in the energy and telecommunications sectors.

59 Beecher, Dreese, and Landers (1992).
USEPA – NARUC Consolidated Water Rates

51

In general, modern public policies affecting the water-supply industry, including regulatory

policies, appear to support the consideration of structural options (including consolidation)

that will help water systems achieve economies of scale. The emphasis on water system

capacity at the federal, state and local levels will make it harder for providers to get

operating certificates, water-supply permits, and special financing. Explicitly or implicitly,

growth management policies in some states are calling for consolidation of water supply

through interconnection with existing systems. Public policy also appears to emphasize the

importance of establishing and maintaining water systems for which the population served

can support the cost of water service. Thus, institutional factors also are playing a role in

reducing the number of water systems.
USEPA – NARUC Consolidated Water Rates

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8. Commission Survey

State public utility staff members at all of the state public utility commissions with

jurisdiction for water utilities (that is, forty-five state commissions), were surveyed about

the issue of single-tariff pricing in early 1996. This research was conducted by Dr. Janice

Beecher on behalf of the Florida Public Service Commission. The survey was first sent by

telefax in January and follow-up telephone calls were made in late January and early

February to ensure the completeness and accuracy of the survey. The commission staff

members who completed the survey are knowledgeable about water utility regulation and

competent to complete this particular questionnaire. A copy of the survey questionnaire is

attached as Appendix D. Detailed findings can be found in Appendix E.

Additional follow-up contacts were made in 1997 and 1998 to update findings on specific

cases that were pending at the time of the original survey, as well as to check for any major

shifts in regulatory policy. Although no significant changes were detected, updated

information is noted throughout the findings.

Relevance of Single-Tariff Pricing

Single-tariff pricing for water utilities is not necessarily a policy issue for every state public

utility commission. Jurisdiction for water utilities and the presence of multi-system utilities

are necessary but not sufficient conditions for consolidated rates to be an issue for a given

commission. Single-tariff pricing does not become an issue until a utility or the

commission initiates the use of this method. Utilities with systems that are viable on a

stand-alone basis, by virtue of size and other factors, may not need or want single-tariff

pricing. Even when considered or implemented, single-tariff pricing may not be considered

“an issue” if it is noncontroversial.

The consideration of single-tariff pricing policy can benefit from the perspective provided

in Table 10. The relevant sample for considering commission policy with regard to singletariff pricing is comprised not of all fifty-one public utility commissions (including the

District of Columbia). It is more accurate and reasonable to evaluate commission policies

with regard to this issue in the context of the twenty-five commissions where multi-system

water utilities operate and where the issue has been considered (including the states where

single-tariff pricing had been rejected or considered but not approved). Given this context,

a clear majority of affected state commissions have allowed regulated water utilities to

implement single-tariff pricing (22 state commissions).

Of the remainder, the California commission has allowed partial rate consolidation. For

two commissions (Maryland and Mississippi), single-tariff pricing had not been an issue but

staff characterized commission policy as “case-by-case.” It also is noteworthy that in one

of the state’s approving a single-tariff pricing structure (Idaho), the matter was “not an

issue when proposed.” No regulatory commission has steadfastly opposed single-tariff

pricing, although many continue to review the merits on case-by-case basis.
USEPA – NARUC Consolidated Water Rates

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TABLE 10

RELEVANT SAMPLE OF STATE PUBLIC UTILITY COMMISSIONS

REGARDING THE ISSUE OF SINGLE-TARIFF PRICING POLICY

All state public utility commissions: 51

Commissions without jurisdiction for water utilities: -6

 Subtotal 45

Commissions without multi-system water utilities: -15

 Subtotal 30

Commissions for which single-tariff pricing has never been considered: -5

 Total 25

Source: Author’s construct. Includes reclassification of Delaware as having a multi-system utility based on

a 1999 survey. The total number of commissions includes the District of Columbia.

Pending cases at the time of the original survey in Massachusetts and New Jersey were

decided in favor of single-tariff pricing. Soon after, in two significant cases, the Indiana

and New Hampshire commissions approved rate consolidation proposals (in 1997 and

1998 respectively). Since the original survey, the Delaware commission approved singletariff pricing in conjunction with an acquisition that created the state’s only multi-system

utility (as reflected in Table 10 and elsewhere).

General Findings

The detailed results of the original survey are reported in Appendix E (Tables E1 through

E4). The data are reasonably complete for all fifty-one public utility commissions

(including the District of Columbia commission). Detailed data on specific utilities are

incomplete from a few states because of the difficulty in compiling these data.

As noted in the tables, six public utility commissions do not have jurisdiction for water

utilities (“NJ”). In sixteen (16) of the states with jurisdiction for water utilities, staff had

observed that no multi-system water utilities were in operation (including Delaware at the

time of the original survey). This finding also was established in the 1995 Inventory

Report, which was used to supplement this survey. For the remainder of the survey,

responses for these sixteen states were recorded as “NA,” or “not applicable.”

Thirty (30) state commissions regulate multi-system water utilities, where single-tariff

pricing is a potential issue. Of the thirty (30) commissions with multi-system water

utilities, twenty-two (22) have approved single-tariff pricing for one or more utilities,

including partial consolidation. California regulators have allowed partial consolidation
USEPA – NARUC Consolidated Water Rates

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subject to further deliberations. Seven commissions (7) have not directly addressed this

issue. As already noted, these findings have been revised since the original survey to

update the findings for five states (Delaware, Indiana, Massachusetts, New Hampshire, and

New Jersey) where pending and recent cases have been decided in favor of single-tariff

pricing (in Massachusetts, partial consolidation already had occurred).

Of the twelve (12) commissions that had not approved single-tariff pricing at the time of

the original survey, three explanations were provided: single-tariff pricing had not been an

issue (7 commissions), a proposal for single-tariff pricing was rejected (1 commission), and

single-tariff pricing had been considered but not specifically approved (4 commissions).

The Indiana commission reportedly rejected single-tariff pricing because of cost-of-service

concerns. No commission staff member reported that a statute or policy expressly

prohibited single-tariff pricing. However, the Florida survey response indicated that

legislation had been proposed to limit the use of rate consolidation to interconnected

systems; the legislation was not adopted.

Specific Findings

Data were provided for 213 multi-system utilities, of which 129 had implemented a full

version of single-tariff pricing and 20 had implemented partial rate consolidation (that is,

single-tariff pricing for all but a few systems or single-tariff pricing for groups of systems

within the utility but not for the utility as a whole). Partial rate consolidation in some cases

is used to phase-in the single tariff. The survey does not include the multi-system utilities

in Texas (estimated at 200 to 300 utilities) or all of the multi-system utilities in Florida

(estimated at 60 to 70 utilities) because these data were not readily available. Other states

also may have some additional multi-system utilities for which data were not reported. The

survey also excludes publicly owned water utilities, with the exception of West Virginia for

which data were available for commission-regulated public service districts.

Several states have jurisdiction for only one multi-system water utility. States with more

than ten multi-system utilities are Connecticut, Florida, Louisiana, North Carolina, Texas,

Washington, and West Virginia. Of these states, only Louisiana has not approved singletariff pricing.

Based on the available data from the original survey, the number of systems managed by

the multi-system utilities ranges from 2 to 201. The average number of systems reported is

11; the median number of systems was 4. The number of connections for the smallest

system ranged from 2 to 30,000 with a mean value of 751 and a median value of 30 (based

on data for 115 systems). The number of connections for the largest system ranged from

18 to 329,000, with a mean value of 11,615 and median value of 257 (based on data for

115 utilities). The earliest date reported for adopting single-tariff pricing was 1958; the

most recent date was 1995 (disregarding the pending or subsequent cases). The average

and median time frame for adopting single-tariff pricing was the early 1980s.
USEPA – NARUC Consolidated Water Rates

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At the time of the survey, rate consolidation had been partially implemented for several

utilities. In some cases, all but a few systems had been placed under a single tariff; in other

cases, the single tariff was being phased-in gradually over time. Only one commission

reported that monitoring and evaluation of single-tariff pricing had occurred in the form of

reexamining past rate cases (West Virginia).

Characteristics of Single-Tariff Utilities

Single-tariff utilities appear to have some distinguishing features in comparison to multisystem utilities that do not use single-tariff pricing. Data were provided for 213 utilities, of

which 129 implemented single-tariff pricing or partial rate consolidation. Data on the

approximate number of systems were provided for 203 utilities (149 single-tariff utilities

and 54 multi-system utilities without single-tariff pricing). Data on the smallest and largest

systems in terms of service connections were available for 115 utilities (81 single-tariff

utilities and 34 multi-system utilities without single-tariff pricing). All available data were

used to preserve as much information as possible for the analysis. For data reported as a

range of values, an average was used (for example, “8 to 9” was replaced with 8.5). For

data reported as “<5,” a value of 4.5 was used.

The sample is incomplete and nonrandom, so findings based on the available data are not

generalizable. Substantial missing data will affect the results of any analysis. However, the

data represent a sizable portion of the multi-system utilities regulated by the state

commissions. Also, many states reported a mixture of systems with and without singletariff pricing. Certain observations can be drawn from the data that should lead to further

consideration and analysis.

As reported in Table 11 (and Table E2), single-tariff systems and multi-system utilities

appear to differ in terms of the number of systems that comprise them, smallest

connections, and largest connections. For single-tariff systems, the median number of

systems was 5 (average value of 13); for multi-system utilities without single-tariff pricing

the median number of systems was 4 (average value of 6). The connection data reveal

more striking patterns. Along every measurement (except for the minimum of 2

connections for the smallest systems for both utility types), single-tariff utilities appear to

be much smaller in terms of both smallest and largest systems based on connections.

This finding is very consistent with the perception that single-tariff pricing is most needed,

and perhaps most justified, when numerous very small water systems are involved. These

data may indicate that commission approval of single-tariff pricing takes into account these

basic descriptive characteristics. This is not to suggest, however, that single-tariff pricing

only has been (or should be) approved for utilities made up of very small systems. In fact,

some of the more recent decisions affirming single-tariff pricing have involved utilities with

systems that are fairly substantial in size.
Consolidated Water Rates 

USEPA - NARUC 56 June 1999

Table 11

Comparative Analysis of Multi-System Utilities

With and Without Single-Tariff Pricing

Utilities Number of

Utilities

Reported

Approximate Number of

Systems

Smallest System

(N Connections)

Largest System

(N Connections)

Approx.

Systems

ConnectionsMinimumMaximumAverageMedian MinimumMaximumAverageMedian MinimumMaximum

AverageMedian

All MultiSystem Utilities

203 115 2 201 11 4 2 30,000 751 30 18 329,000 11,615 257

Multi-System

Utilities With

Single-Tariff

Pricing

149 81 2 201 13 5 2 2,400 122 20 18 97,000 5,651 193

Multi-System

Utilities Without

Single-Tariff

Pricing

54 34 2 32 6 4 2 30,000 2,251 82 26 329,000 25,824 1,254

Source: Table E1. Not adjusted for cases pending at the time of the survey or subsequent cases in which consolidated rates

were approved for individual utilities in Delaware, Indiana, Massachusetts, New Hampshire, and New Jersey.
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INSERT PAGE 56
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Arguments in Favor of Single-Tariff Pricing

In the course of the survey, regulatory commission staff members were asked to consider

key arguments for and against the adoption of single-tariff pricing. Various reasons for

commission approval of rate consolidation were provided in the survey. Table E1 provides

the primary reasons for approval. Cost savings were frequently mentioned. As reported in

Table E3, commission staff members also were asked to identify the arguments that

influenced their commissions’ deliberations or policies regarding rate consolidation.

These data reflect only staff member views, not necessarily the views or policies of the

commissions. Twenty-one (21) commission staff members responded to this portion of the

survey. The data exclude thirty commissions where, at the time of the survey, single-tariff

pricing had not been an issue and staff views were not elicited. 60 Staff could cite more

than one argument and no weighting or ranking of arguments was required. In decreasing

order of mentions (indicated in parentheses), commission staff indicated agreement with

the following arguments in favor of single-tariff pricing:

r Mitigates rate shock to utility customers (17)

r Lowers administrative costs to the utilities (16)

r Provides incentives for utility regionalization and consolidation (15)

r Physical interconnection is not considered a prerequisite (13)

r Addresses small-system viability issues (13)

r Improves service affordability for customers (12)

r Provides ratemaking treatment similar to that for other utilities (10)

r Facilitates compliance with drinking water standards (9)

r Overall benefits outweigh overall costs (9)

r Promotes universal service for utility customers (8)

r Lowers administrative cost to the commission (8)

r Promotes ratepayer equity on a regional basis (6)

r Encourages investment in the water supply infrastructure (5)

r Promotes regional economic development (3)

r Encourages further private involvement in the water sector (2)

r Other: Can be consistent with cost-of-service principles (1) and found to be in

the public interest (1)

Staff members also noted that single-tariff pricing could be consistent with cost-of-service

principles (New York), that separating small-system costs may not always be cost-effective

(Virginia), and that the genesis for the issue was regulatory simplification (California).

Mitigating rate shock also was equated with “rate stability” (Indiana). Vermont

regulators found that single-tariff pricing addressed small system viability issues and

generally was in the public interest, approving the method over the objections of staff

 

60 Excluded were 6 commissions without jurisdiction for water utilities, 16 commissions without

jurisdiction for multi-system water utilities (“not applicable”), and 8 commissions that regulate multisystem utilities but where single-tariff pricing has not been an issue (including the Idaho commission,

where single-tariff pricing was approved for one utility but not an issue of significance).
USEPA – NARUC Consolidated Water Rates

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members concerned about subsidization issues. Typically, more than one argument affects

commission deliberations regarding rate consolidation.

Arguments Against Single-Tariff Pricing

Commission staff members also evaluated the key arguments against rate consolidation.

Various reasons for commission disapproval of single-tariff pricing were provided. Table

E1 provides the primary reason for the disapproval. Cost-of-service issues were frequently

mentioned, although some staff also indicated that single-tariff pricing could be consistent

with cost-of-service principles. As reported in Table E4, commission staff members also

were asked to identify the arguments that influenced their commissions’ deliberations or

policies regarding rate consolidation.

These data reflect only staff member views, not necessarily the views or policies of the

commissions. As mentioned earlier, twenty-one (21) commission staff members responded

to this portion of the survey based on their experience with the issue of single-tariff pricing

for multi-system utilities. Staff could cite more than one argument and no weighting or

ranking of arguments was required. In decreasing order of mentions (indicated in

parentheses), commission staff indicated agreement with the following arguments against

single-tariff pricing:

r Conflicts with cost-of-service principles (14)

r Provides subsidies to high-cost customers (12)

r Not acceptable to all affected customers (10)

r Considered inappropriate without physical interconnection (8)

r Distorts price signals to customers (7)

r Fails to account for variations in customer contributions (6)

r Justification has not been adequate in a specific case (or cases) (6)

r Discourages efficient water use and conservation (4)

r Encourages growth and development in high-cost areas (4)

r Undermines economic efficiency (3)

r Provides unnecessary incentives to utilities (2)

r Not acceptable to other agencies or governments (2)

r Insufficient statutory or regulatory basis or precedents (2)

r Overall costs outweigh overall benefits (2)

r Encourages overinvestment in infrastructure (1)

Regarding unacceptability to other agencies or governments, the California staff member

noted that opposition to single-tariff pricing had come from other utilities.
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9. Commission Policies on Rate Consolidation

As already noted, twenty-two (22) state commissions have allowed regulated water utilities

to implement single-tariff pricing. Single-tariff pricing is generally accepted in eight (8)

states, as summarized in Table 12 and Figure 10 (and detailed in Table E1). Texas

commission staff members noted that single-tariff pricing was accepted “and preferred.” In

fact, the Texas commission provides a simplified procedure for merging the rates of

acquired systems with the rates of the acquiring utility. While the regulated water utility

usually requests consolidated rates, at least one commission (New York) has imposed its

use. Pennsylvania staff noted that the use of single-tariff pricing has evolved from its

application on the basis of physical interconnection to its application on the basis of

common ownership.

Based on the updated survey findings, staff members at seventeen (17) commissions

characterized the policies of their commissions as “case-by-case,” indicating that the use of

single-tariff pricing must be justified for every specific application (even when the policy is

“generally accepted”). In many states, only some of the multi-system utilities under

commission jurisdiction are implementing single-tariff pricing. In fourteen (14) of the caseby-case commissions, single-tariff pricing has been approved (including the five recent

cases decided in favor of single-tariff pricing). In California, regulators have approved

partial rate consolidation. In the two (2) other case-by-case commissions, single-tariff

pricing has not been approved or considered in the context of a regulatory proceeding.

Commission Decisions

The experience of West Virginia-American Water Company stands as one of the least

controversial and most enduring examples of single-tariff pricing. Implementation of

single-tariff pricing has played a role in the company’s expansion. A case study of the

West Virginia experience appeared in a 1984 issue of the American Water Works

Association Journal.

61

In its order, the West Virginia Public Service Commission considered the consistency of

single-tariff pricing with the commission’s general regulatory obligations and operating

principles, finding that:

1. The company’s single tariff pricing proposal resulted in a just, reasonable,

sufficient and nondiscriminatory rate for all the customers of the company.

2. Each customer will pay the same rate for a like and contemporaneous

service made under the same or substantially similar circumstances and

conditions.

 

61 Limbach (1984).
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Table 12

Summary of State Public Utility Commission Policies on

Single-Tariff Pricing for Water Utilities

Commission Policy State Commissions

Generally Accepted (8) Connecticut

Missouri

North Carolina

Oregon

Pennsylvania

South Carolina

Texas

Washington

Case-By-Case (17) Single-Tariff Pricing Has Been Approved (14)

Arizona

Delaware (a)

Florida

Idaho (not an issue)

Illinois

Indiana (b) (f)

Massachusetts (c) (f)

New Hampshire (d) (f)

New York

New Jersey (e) (f)

Ohio

Vermont

Virginia

West Virginia

Single-Tariff Pricing Has Not Been Approved (3)

California (g)

Maryland (not an issue)

Mississippi (not an issue)

Never Considered (5) Iowa

Kentucky

Louisiana

Maine

Wisconsin

Not Applicable – No

Multi-System Water

Utilities (15)

Alabama

Alaska

Arkansas

Colorado

Hawaii

Kansas

Montana

Nebraska

Nevada

New Mexico

Oklahoma

Rhode Island

Tennessee

Utah

Wyoming

No Jurisdiction for Water

Utilities (6)

Georgia

Michigan

Minnesota

North Dakota

South Dakota

Washington, D.C.

Source: Author’s construct based on survey of state public utility commission staff members, JanuaryFebruary 1996 and subsequent contacts with the commissions (including a follow-up survey in early 1999).

(a) Reclassified from “not applicable” following an acquisition with approval of consolidated rates.

(b) Since the original survey, a case was decided in favor of single-tariff pricing (previously rejected).

(c) A pending case at the time of the original survey was decided in favor (partial consolidation

previously).

(d) Since the original survey, a case was decided in favor of single-tariff pricing.

(e) A pending case at the time of the original survey was decided in favor.

(f) Characterization of commission policy as “case-by-case” was unchanged following the recent

decisions.

(g) Partial consolidation with possible phase-in of single-tariff pricing. A case was pending in 1999.
USEPA – NARUC Consolidated Water Rates

61

Generally accepted

Case-by-case policy – approved

Case-by-case policy – not approved

Not considered, not applicable, or no jurisdiction

3. The approval of the company’s proposal was in compliance with the

commission’s duty to regulate utilities of this state in order to provide the

availability of adequate, economical, and reliable utility services to

encourage the well planned development of the utility resources in a manner

consistent with the state needs and in a way consistent with the productive

use of the state’s energy resources.

4. Single tariff pricing strikes a reasonable balance in the interest of current

and future water consumers, the general interest of the state’s economy, and

the interest of West Virginia Water Company.62

 

62 Order of the West Virginia Public Service Commission as cited in Limbach (1984), 55.

Figure 10. Summary of Commission Policies on Rate

Consolidation.
USEPA – NARUC Consolidated Water Rates

62

In a 1986 order, the Pennsylvania Public Utility Commission approved single-tariff pricing

for Western Pennsylvania Water Company (1986) and provided several pragmatic reasons

for approving this pricing strategy.63 First, a larger rate and revenue base ameliorates the

impact of major capital additions needed from time to time in every service area. Second, a

larger revenue base promotes flexibility in timing and financing major capital additions.

Third, the impact of instability resulting from changes in sales volumes is mitigated when

the effect of such volumetric factors is spread over a larger economic base. Finally, the

reduction of the number of accounting units and the number of individual rate filings result

in administrative efficiency with a potential to reduce costs to ratepayers.

Ten years later, in a general proceeding on acquisition policy, the Pennsylvania

Commission stated its belief “that every system and every ratepayer in the Commonwealth

will eventually be in need of specific service improvements and at that point, the true

benefits of single tariff pricing will be realized by all citizens in the Commonwealth.”64 The

Commission now views single-tariff pricing as a central component of acquisition

incentives provided to jurisdictional utilities.

Although single-tariff pricing has been approved without much consternation in some

jurisdictions, in others the level of controversy has been much more pronounced.

Consumer advocates, local governments, large-volume users, and commission staff

members (even within agencies) have at times been deeply divided on this issue.

The regulatory commissions have struggled in particular with whether or not physical

interconnection among water systems should be a prerequisite for single-tariff pricing.65

As noted by the Massachusetts Department of Public Utilities, physical interconnection is

not necessarily required: “[S]everal factors (viz., the contiguity of the communities served

in that zone; the commonality of personnel for meter-reading, operations, maintenance, and

construction duties; and administrative convenience) are decisive in favor of treating the

[two communities] as a single zone . . .”66

Similarly, the Florida Public Service Commission once concluded that state law supports

the view that multi-system utilities can be considered a single system because the utility’s

facilities and land are functionally related (in administrative, operational, and managerial

terms); even without physical interconnection.67 An analogy provided in the case was that

the multi-system utility operations were like a “wagon wheel,” where the separate service

territories are the spokes and utility management is the rim holding them together.

 

63 Pennsylvania Public Utility Commission, Order in Docket R-850096, Western Pennsylvania Water

Company (1986), 148.

64 Pennsylvania Public Utility Commission, Order in Docket M-00950686, Policy Statement Re:

Incentives for the Acquisition and Merger of Small, Nonviable Water and Waste Water Systems (1996).

65 Physical interconnection in the other industries may be the reason why pricing across larger regions

tends to prevail.

66 Massachusetts Department of Public Utilities, Order in Docket No. 90-146, Massachusetts-American

Water Company (1990), 3-4. See also MA DPU 95-118 (1996).

67 Florida Public Service Commission, Order No. PSC-96-1320-FOF-WS, Docket No. 950495-WS,

Southern States Utilities (1996).
USEPA – NARUC Consolidated Water Rates

63

Following an appeal of the Florida order, however, the District Court held that rate

consolidation need not be conditioned on a finding by the commission that the systems

involved are functionally related. “Because we decide that the determination of functional

relatedness is not controlling on the issue of whether uniform rates can be set,” noted the

Court, “we express no opinion on whether the utility systems involved in this rate case

were ‘functionally related.’”68

In a 1993 case, the Illinois-American Water Company articulated the variety of ways in

which the systems of a multi-system utility are operationally related:

All operation and maintenance and construction activities are performed on a

uniform basis throughout the five districts. . . All five districts utilize similar

facilities, such as pumping stations and purification plants, transmission and

distribution mains, storage reservoirs, service lines and meters. . . All five

districts utilize the same engineering and construction standards, maintenance

programs, operating procedures, inspection programs, budgeting and

accounting procedures, types of materials and supplies and management

structure. . . All five districts utilize the services of the American Water Works

Service Company (the “Service Company”), which provides, pursuant to a

contract with the Company, support to Illinois-American personnel in the areas

of accounting, engineering operations, rate design, regulatory practices, finance,

water quality, information systems, personnel information and training,

purchasing, insurance, safety and community relations.69

The company also argued that the evolving corporate structure of the multi-system utility

is germane to these issues, as described in Illinois Commerce Commission’s order:

According to Illinois-American, another important factor supporting the

adoption of single tariff pricing are the many steps the Company has taken in

recent years to centralize and consolidate its operations. . . Illinois-American,

as it presently exists, is the result of two mergers. Pursuant to the mergers,

which were approved by the Commission. . . water systems once operated as

five separate companies were merged to form a single integrated unit, rather

than as five independent, stand-alone systems.70

Staff members of the Illinois Commerce Commission found that “Commission practices in

Illinois. . . support the uniform rate concept.”71 In this particular proceeding, the

commission approved partial rate consolidation and ordered Illinois-American to submit a

proposal for company-wide single-tariff pricing.

 

68 District Court of Appeal, First District, State of Florida, Decision in Case No. 96-447 (June 10, 1998), 1.

69 Illinois Commerce Commission, Order Docket No. 92-0116, Illinois-American Water Company (1993).

70 Ibid., 85.

71 Ibid., 87.
USEPA – NARUC Consolidated Water Rates

64

In a parallel proceeding, Indiana-American Water Company argued before the Indiana

Utility Regulatory Commission that single-tariff pricing is justified in part on the grounds

that the company’s districts are managed by a single corporate structure and financed

through a common capital structure.72 The Indiana Office of Consumer Counselor opposed

this reasoning and the Indiana Commission rejected that particular bid for single-tariff

pricing, but the company prevailed in a 1997 proceeding (discussed below).

Another rationale in the regulatory context is that rate consolidation can help reduce the

frequency and complexity of rate filings by regulated firms. According to John Guastella,

regulatory acceptance of single-tariff pricing as a matter of policy reduces costs associated

with preparing separate cost-of-service studies to allocate common costs among the

separate systems, and thus significantly reduces the cost of utility rate filings.73 A related

point is that rates under a single tariff are easier to communicate to customers (lowering

administrative costs) and easier for customers to understand.

In some deliberations, the focus is shifted from differences in the cost of service to

comparability in the value of service that utility customers receive regardless of their spatial

location. Indiana-American Water Company has argued that, “The single tariff pricing

concept is supported by the fact that any one of the Company’s customers, regardless of

where that customer is located, expects, is entitled to and receives essentially the same

service as the customers in any other district.”74

In a recent regulatory proceeding involving the New Jersey-American Water Company, the

administrative law judge echoed this argument:

Inasmuch as all customers of New Jersey-American, be they New Jersey

Commonwealth or Monmouth customers, receive comparable service on a

comparable basis, it seems only appropriate that all customers be charged

similarly. . . By distributing the burden of system improvement to all

customers, the relative impact is decreased. All Company customers in the

three operating groups are benefiting by the relative economics [sic] of scale

and system integration and administration the unified company produces.

Likewise, all customers should equally shoulder the costs involved.75

The New Jersey Board of Public Utilities agreed with the administrative law judge in

adopting a statewide (single-tariff) price for the New Jersey-American Water Company

in this particular proceeding.

 

72 Richard E. Hargraves, Direct testimony in Cause No. 39595 before the Indiana Utility Regulatory

Commission, Indiana-American Water Co., Inc. (1993).

73 Guastella (1994).

74 Hargraves (1993).

75 New Jersey Board of Public Utilities, OAL Docket No. PUC 520795, Agency Docket No. WR-95040165,

New Jersey-American Water Company (1996), 14-15.
USEPA – NARUC Consolidated Water Rates

65

Several of the commissions have implemented variations of single-tariff pricing or partial

forms of rate consolidation. The Missouri Public Service Commission, for example, once

reasoned that rate shock is the result of rate changes not rate levels. Thus the commission

ordered the company in question to maintain existing rate differentials while equalizing

future rate increases. By maintaining current rate differentials and equalizing rate

increases, rate shock is minimized, subsidization is limited, and the company is afforded

greater flexibility in timing plant additions.76 The commission later found, for another

company, that the movement toward rate consolidation was in the public interest.77 But in

a subsequent rate case, and to the understandable chagrin of the utility, the commission

reiterated “that it is not committed to a specific position regarding cost recovery for capital

plant additions by means of [single-tariff pricing].”78

In a phased approach, implementation of single-tariff pricing may occur over several

commission decisions involving the same multi-system utility. According to a former

regulator, a phase-in plan may be especially justified when differences in rates are

“extreme.”79 A phased approach “facilitates the goal of single tariff pricing, but does not

negate the requirement for future commission approval of its full implementation.”80

Interestingly, zonal rates for groups of systems can be used in conjunction with a phased

approach to rate consolidation. The Florida commission recently advanced a “capband”

approach establishing rates for groups of systems with similar cost characteristics,

reasoning that:

First, the capband structure represents a greater move toward the long term

goal of a uniform rate. It eliminates the need for separate rate structures for

each individual service area under the cap. The number of rates would decrease

from 56 to eight for the water facilities under the cap, and from 23 to six for the

wastewater facilities. Second, as noted above, the capband structure reduces

subsidies in terms of deviation from stand-alone rates. This is true both in terms

of number of service areas and number of customers. Uniform rates within the

band mitigate the subsidy within the band. . . [The capband rate structure]

embraces all of the advantages of the modified stand-alone rate structure and

adds the additional advantages of simplifying the rate structure by moving the

utility closer to a uniform rate.81

 

76 Missouri Public Service Commission, Order in Case No. 90-236, Missouri Cities Water Co. (1990).

77 Missouri Public Service Commission, Order in Case Nos. WR-95-205 and SR-95-206, MissouriAmerican Water Company (1995).

78 Missouri Public Service Commission, Order in Case Nos. WR-97-237 and SR-97-238, MissouriAmerican Water Company (1997).

79 Wendell F. Holland, “Acquisition Incentives Encouraging Regionalization in the Water Industry” a

speech made at the Great Lakes Conferences of the National Association of Regulatory Utility

Commissioners in Greenbrier, West Virginia (July 11, 1995).

80 Pennsylvania Public Utility Commission, Western Pennsylvania Water Company, 72 PUR 4th (1986),

154.

81 Florida Public Service Commission, Order No. PSC-96-0549-PHO-WS, Docket No. 950495-WS,

Southern States Utilities (1996), 78-79.
USEPA – NARUC Consolidated Water Rates

66

The Florida decision was appealed on a variety of grounds. As noted earlier, the Court of

Appeal held that the commission need not determine that utility facilities are “functionally

related” prior to approving consolidated rates. In the same decision, the Court also found

that “no statute prohibits resort by the Public Service Commission (PSC)—in an

appropriate case—to so-called “capbands" to fix rates that are just, reasonable,

compensatory, and not unfairly discriminatory.”82 Specifically:

Nothing inherent in the capband methodology runs afoul of the statute. The order

under review sets rates[footnote omitted] so that no ratepayer's rates exceed by

more than seven per cent what they would have been if each system's rates had

been set on a stand alone, cost of service basis. This modest deviation from a pure

cost of service basis for individual rates pales by comparison to the magnitude of

inevitable intra-system subsidization. Nor is a pure cost of service basis as to each

individual ratepayer mandated by a statute which directs that "the commission shall

consider the value and quality of service and the cost of providing service." §

367.081(2), Fla. Stat. (1997). See Occidental Chem. Co. v. Mayo, 351 So. 2d 336,

340 (Fla. 1977) ("Given the multiplicity of methods suggested by the experts to

allocate expenses between various users, we cannot say that the Commission

departed from the essential requirements of law in relying on a range of criteria for

this purpose."). A shift in the direction of "affordability" takes the value of service

into account. Although using stepped rates or “capbands" requires offsetting

increases and does not spread offsets perfectly evenly among households paying

less than maximum rates,such use need not lead to unfairly discriminatory rates.83

The Indiana Utility Regulatory Commission articulated the pragmatic rationale for singletariff pricing in the recent Indiana-American case.84 The press release accompanying the

commission’s order asserts that the company’s movement toward single-tariff pricing is “in

the best interest of all of the customers” and that all areas will benefit in the long term by

increased rate stability and mitigation of construction cost impacts. The order found that

single-tariff pricing was consistent with pricing for other utility and nonutility services and

that it would help the company meet demands associated with environmental compliance,

infrastructure replacement, and service adequacy for customers.85 The commission also

addressed the issue of price discrimination:

There will always be customers who over a given period of time will be required to

pay higher rates than would result if they were included in some smaller or different

customer group. But this does not mean undue discrimination exists so long as

they are paying an equivalent price for an equivalent product. Moreover, we must

not forget that all of the customers today are the beneficiaries of water facilities

 

82 District Court of Appeal, First District, State of Florida, Decision in Case No. 96-447 (June 10, 1998), 1.

83 Ibid., 13.

84 Indiana Utility Regulatory Commission, Order in Cause No. 40703, Indiana-American Water Company

(1997).

85 Ibid., 77.
USEPA – NARUC Consolidated Water Rates

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built in the past, and the cost of developing these facilities was borne in large part

by earlier generations of customers.86

As a general rule, individual water utilities must make the case for single-tariff pricing

before regulators, who consider the merits on a case-by-base basis. The Indiana-American

decision also is instructive on this point because the case was made by the utility several

times—and the arguments rejected—before regulators were persuaded that single-tariff

pricing was in the public interest. As with many initiatives by utilities, regulatory approval

often requires more than one attempt, as well as modifications to the proposed method to

address the legitimate concerns of regulators and consumer advocates.

A few commissions have explicitly recognized single-tariff pricing as a policy tool. As

already noted, Pennsylvania regulators have placed single-tariff in the broader context of

regulatory policies to promote regionalization and specifically the acquisition of smaller,

nonviable systems.87 The general provisions of the commission’s policy, appearing in Table

13, provides for the application of single-tariff pricing to the rates of acquired water

systems “to the extent that is reasonable.”88

Similarly, New York Public Service Commission staff members expect acquiring utilities to

include a plan for “rate equalization” (with phase-in provisions as appropriate) as part of

petitions for acquisition incentive mechanisms. 89

Connecticut regulators have interpreted state statutes to authorize rate equalization in

connection with mandated takeovers.90 The commission also recognizes the potential use

of annual price caps (to avoid rate shock) and surcharges (“so that customers of the

acquiring company are not always obligated to assume full responsibility for the cost of

ordered improvements to the acquired company”).91

Implementation Strategies

Utility regulators can consider several implementation strategies if they find that rate

consolidation is in the public interest. Implementing the single tariff can be accomplished in

conjunction with acquisition proceedings. Utilities can phase-in single-tariff pricing for all

or part of their service territory. A partial form of single-tariff pricing is to adopt a

 

86 Indiana Utility Regulatory Commission, Order in Cause No. 40703, Indiana-American Water Company

(1997), 81.

87 Holland (1995), 10.

88 Pennsylvania Public Utility Commission, Order in Docket M-00950686, Policy Statement Re:

Incentives for the Acquisition and Merger of Small, Nonviable Water and Waste Water Systems (1996).

89 New York Public Service Commission, Order in Case 93-W-0962, Investigation of Incentives for the

Acquisition and Merger of Small Water Utilities (1993), Appendix E.

90 Connecticut General Statutes, 16-262o. According to Connecticut Statutes (16-262r), rate equalization

also can be used in connection with satellite management of a smaller by a larger system.

91 Connecticut Department of Public Utility Control, Order in Docket No. 96-03-31, DPUC Review of

Water Companies Acquisitions and Transfer Processes (January 8, 1997), 27.
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68

common fixed or customer charge for all utility customers, and alter variable charges based

on variations in the cost of service. Utilities can use surcharges or other mechanisms to

differentiate prices based on extraordinary costs and send customers a very specific price

signal. A partial approach to single-tariff pricing is to develop tariffs based on groupings of

systems or “zones” with roughly similar cost or service characteristics. Another partial

approach, mentioned earlier, is to use a phased method of implementation by which rates

are made more uniform over several rate adjustments.

Innovative pricing options and implementation strategies for water utilities can emerge in

the context of regulatory proceedings, dispute resolution processes, and a continuing

dialog among utilities, consumers, consumer advocates, and other interested stakeholders.

Related Strategies

Commissions may want to consider implementing specific regulatory strategies in

conjunction with single-tariff pricing. First, regulators could use auditing or other

evaluation techniques to establish that utilities are meeting efficiency and other

performance goals. Second, the commission could coordinate with other regulatory

agencies to promote compliance with water quality standards. Third, regulators could

evaluate the long-term strategic plans of water utilities for serving customers throughout

their service territories. Fourth, features of the consolidated rate could be assessed in

terms of their effectiveness in promoting efficient water use and discouraging waste. Fifth,

the commissions could implement a monitoring and evaluation system to assess the effects

of consolidated rates on all systems and customer groups. Sixth, alternative dispute

resolution could be encouraged to provide parties with a forum for participation and an

opportunity to reach a settlement agreement on single-tariff pricing issues. Finally,

regulators could assess utility efforts to communicate with customers about the value of

water and build understanding of the rate structure.

Commission Authority

Commission authority to approve consolidated rates has been met with legal challenges in

some jurisdictions. Obviously, single-tariff pricing policy must be consistent with a state’s

legislative framework and legally sustainable. Regulatory and legal doctrine generally seem

to permit this pricing method. Legislative, judicial, or other constraints on rate

consolidation would be undesirable from a public policy standpoint and undermine the

ability of the regulatory commissions to craft effective policies for the water industry.

In a recent case, the New Hampshire Public Utilities Commission acknowledged the

absence of a clear regulatory standard for, or prohibition of, the use of single-tariff pricing.

The commission essentially asserted its policymaking authority to approve rate

consolidation based on a public-interest standard:
USEPA – NARUC Consolidated Water Rates

69

While New Hampshire law is replete with references to the appropriate standard for

establishing a utility's rate base and rate of return, there appears to be no specific

guidance on the point of rate consolidation or single tariff pricing. Thus, in the

absence of any legal impediment to utilizing single tariff pricing, our decision

essentially becomes one of policy that is bound only by our statutory constraints

that rates be just and reasonable and that we act in the public interest. See RSAs

374:2 and 378:28.

Opponents of rate consolidation in this case argue that we should adhere to our

traditional ratemaking policy of cost causation. We find their position unpersuasive

in this case for two reasons. First, traditional cost of service regulation already

includes some measure of rate averaging in that customers are not charged the true

costs of serving them on an individual basis. Second, and perhaps more important,

stand alone rates in this case produce results for some customers that are well

beyond the zone of "just and reasonable." One needs only to look at the stand

alone rates that would result from the settlement Agreement to see just how

extreme the results are when significant investments are required in a very small

system. Most of the community systems are simply too small to absorb the

magnitude of investments mandated by environmental enactments. However,

without these investments, it is clear that the small community systems would have

been unable to provide safe and adequate water service to their customers.92

Single-tariff pricing evolved as a legitimate policy tool and is used by a clear majority of the

states that regulate multi-system water utilities. Rate consolidation is a tool that can be

used on a case-by-case basis, where regulators carefully weigh the evidence before them,

and as a general policy tool to encourage acquisitions and regionalization. The precarious

condition of very small water systems merits the consideration of alternative regulatory

approaches, including consolidated rates.

Rate consolidation will continue to focus attention on some fundamental regulatory issues:

Does it result in a measurable “subsidy”? Does the subsidy constitute a form of price

discrimination? Are the resultant rates just and reasonable? Do the long-term benefits of

implementing single-tariff pricing, including subsidization, outweigh the costs? Regulators

must be satisfied with the answers to these questions before approving a rate consolidation

strategy. Generally, however, the commissions are arriving at conclusions that support the

use of single-tariff pricing.

The commissions have demonstrated their policymaking authority to approve consolidated

rates, as well as their capacity to consider and weigh the complex ratemaking and policy

tradeoffs involved. Only the commissions can specify the circumstances appropriate for

single-tariff pricing in their jurisdictions. Water utilities should continue to advance

innovative pricing strategies. The commissions should continue to exercise due diligence in

approving water rate structures that serve the public interest.

 

92 New Hampshire Public Utilities Commission, Order in Docket DR 97-058, Pennichuck Water Works,

Inc. (1998).
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Table 13

Pennsylvania Public Utility Commission

Policy Statement on Acquisition Incentives

Title 52, Part I, Chapter 69

Incentives for Acquisition and Merger of Small Nonviable Water Utilities--

Statement of Policy

§ 69.711. ACQUISITION INCENTIVES

(a) General

To accomplish the goal of increasing the number of mergers and acquisitions to foster

regionalization, the Commission will consider the acquisition incentives at subsection (b).

However, the following parameters must first be met in order for Commission consideration of a

utility’s proposed acquisition incentive. It should be demonstrated that:

(1) The acquisition services the general public interest;

(2) The acquiring utility meets the criteria of viability which will not be impaired by the

acquisition; that it maintains the managerial, technical, financial capabilities to safely and

adequately operate the acquired system, in compliance with the Public Utility Code, the

Sate Drinking Water Act, and other requisite regulatory requirements on a short and long

term basis;

(3) The acquired system has less than 3300 customer connections; the acquired system is not

viable; it is in violation of statutory or regulatory standards concerning the safety,

adequacy, efficiency or reasonableness of service and facilities; and that it has failed to

comply within a reasonable period of time, with any order of the Department of

Environmental Protection or the Public Utility Commission;

(4) The acquired system’s ratepayers should be provided with improved service in the future,

with the necessary plant improvements being completed within a reasonable period of time;

(5) The purchase price of the acquisition is fair and reasonable and the acquisition has been

conducted through arm’s length negotiations; and

(6) The concept of single tariff pricing should be applied to the rates of the acquired system, to

the extent that is reasonable. Under certain circumstances of extreme differences in rates,

and/or affordability concerns, consideration should be given to a phase-in of the rate

difference over a reasonable period of time.
USEPA – NARUC Consolidated Water Rates

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Table 13 (continued)

(b) Acquisition Incentives

In its efforts to foster acquisitions of suitable water and sewer systems by viable utilities when such

acquisitions are in the public interest, the Commission seeks to assist these acquisitions by

permitting the use of a number of regulatory incentives. Accordingly, the Commission will consider

the following acquisition incentives:

(1) Rate of Return Premiums - Additional rate of return basis points may be awarded for

certain acquisitions and for certain associated improvement costs, based on sufficient

supporting data submitted by the utility within its rate case filing;

(2) Acquisition Adjustment - In cases where the acquisition costs are greater than the

depreciated original cost, that reasonable excess may be included in the rate base of the

acquiring utility and amortized as an expense over a 10-year period;

(3) Deferral of Acquisition Improvement Costs - In cases where the plan improvements are of

too great a magnitude to be absorbed by ratepayers at one time, rate recovery of the

improvement costs may be recovered in phases. There may be a one time treatment (in the

initial rate case) of the improvement costs but a phasing-in of the acquisition, improvements

and associated carrying-costs may be allowed over a finite period; or.

(4) Plant Improvement Surcharge - Collection of a different rate from each customer of the

acquired system upon completion of the acquisition could be implemented to temporarily

offset extraordinary improvement costs. In cases where the improvement benefits only

those customers who are newly acquired, the added costs may be allocated on a greater than

average level (but less than 100%) to the new customers for a reasonable period of time, as

determined by the Commission.

(c) Procedural Implementation

The appropriate implementation procedure for the acquisition incentives listed would be to file the

request during the next filed rate case. In the case of the first incentive, for example, the rate of

return premium, appropriate supporting data should be filed within the rate of return section in

order for Commission evaluation of its applicability. The rate of return premium as an acquisition

incentive may be the most straightforward and its use is encouraged.

Other appropriate incentives may be considered by this Commission, provided they meet the

parameters listed at subsection (a). Acquisition incentive requests will be considered on a case by

case basis. In acquisition incentive filings, the burden of proof rests with the acquiring utility.

________________________________________________________________________

Source: Pennsylvania Public Utilities Commission, Incentives for Acquisition and Merger of Small

Nonviable Water Utilities: Statement of Policy (February 28, 1996).
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[BLANK PAGE]
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73

APPENDIX A

GLOSSARY OF TERMS

Block rate. A billing rate applied to

water usage that varies according to

blocks of water usage (measured in

gallons or cubic feet). See uniform rate,

decreasing-block rate, and increasing

block rate.

Common-management costs. Costs

that are incurred on the basis of the joint

operation of multiple systems. Costs

under common management, given

management economies of scale and

scope, should be less for the utility than

the sum of stand-alone costs for all of

the operated systems.

Decreasing-block rate. A variable rate

that decreases with additional blocks of

water usage. See uniform rate and

increasing-block rate.

Equity. A condition under which costs

have been fairly allocated among

customer groups consistent with cost-ofservice and efficiency criteria. See

horizontal equity, vertical equity, and

subsidy.

Efficiency. A condition under which

prices charged, and quantities produced

and used, are optimal (that is, not too low

or too high).

Fixed charge. The portion of a

customer’s water bill that does not vary

with water usage. Fixed charges often

are used to recover administrative and

other recurring costs that are not

determined by water usage. The fixed

charge may include a minimal water

allowance, above which a variable rate is

applied.

Horizontal equity. A condition under

which customers that impose similar

costs on the utility system pay similar

prices for comparable utility services.

See vertical equity.

Intergenerational equity. A condition

under which one generation of customers

does not pay for costs imposed on the

utility system by another group of

customers. See horizontal equity and

vertical equity.

Increasing-block rate. A variable rate

that increases with additional blocks of

water usage. See uniform rate and

decreasing-block rate.

Investor-owned (or privately owned)

utility. A utility owned and operated by

a private firm on a for-profit basis. See

publicly owned utility.

Just and reasonable. A concept used to

evaluate utility rates related to the

concept of undue discrimination.

Multisystem utilities. Public or private

utilities that operate two or more water

systems serving distinct service

territories; systems may or may not be

physically interconnected.

Municipal-unit doctrine. The treatment

of a municipality as a distinct service

territory and unit for cost allocation and

ratemaking purposes (that is, “city-based”

rates).
USEPA – NARUC Consolidated Water Rates

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Phase-in (rates). Implementation of a

significant change in rate levels or rate

design in phases, rather than at once, in

order to reduce rate shock to customers

and revenue instability to the utility.

Reflects the principle of gradualism.

Physically interconnected systems.

Water systems joined by a system of

pipes and pumps for transporting water

(usually treated water) from one system

to another.

Primacy agency. A state agency

responsible for regulating community and

noncommunity water systems to ensure

compliance with federal drinking-water

standards established under the Safe

Drinking Water Act.

Privately owned (or investor-owned)

utility. A utility owned and operated by

a private firm on a for-profit basis. See

publicly owned utility.

Public Utility Commission (PUC). A

state agency responsible for regulating

the rates and profits of public utility

monopolies.

Publicly owned utility. A utility owned

and operated by a governmental agency,

such as a municipality, on a nonprofit

basis. See privately owned utility.

Safe Drinking Water Act (SDWA).

The federal statute that establishes

drinking-water standards for community

and noncommunity water systems.

Substantial amendments to the SDWA

were enacted in 1986 and 1996.

Service territory. The geographic area

served by a public utility; a utility’s

service territory may or may not

correspond to geopolitical boundaries.

Single-tariff pricing. Single-tariff

pricing is the use of a unified rate

structure for multiple water (or other)

utility systems that are owned and

operated by a single utility, but that may

or may not be physically interconnected.

Under single-tariff pricing, all customers

of the utility pay the same rate for

service, even though the individual

systems providing service may vary in

terms of operating characteristics and

stand-alone costs.

Stand-alone pricing. Pricing based on

the costs that a commonly owned or

managed water system would incur if it

replicated the same services and functions

on a basis completely independent of the

parent utility and other systems.

Subsidy. A transfer of welfare from one

group of customers to another that is not

based on differences in the cost of serving

the different customer groups.

Tariff. The official rate schedule

document specifying all of a utility’s rates

and charge; the tariff must be approved

by appropriate state or local governing

bodies.

Undue discrimination. Price

differentiation that is not based on

variations in the cost of service.

Uniform rate. A variable rate that does

not change with the total amount of

water usage.

Variable rate. The billing rate applied

on a per gallon or per cubic foot basis to

the amount of water used by customers
USEPA – NARUC Consolidated Water Rates

75

during the billing period. The variable

rate multiplied by water usage determines

the portion of a customer’s water bill that

varies with water usage.

Vertical equity. A condition under

which customers that impose different

costs on the utility system pay different

prices for utility services based on the

relevant cost differences. A related

concept is undue discrimination.

Water system. An infrastructure system

for withdrawing, transporting, treating,

storing, and distributing water to a

defined service territory.

Water utility. A public or private entity

that owns and operates one or more

water systems and typically charges

customers for the cost of providing water

service. In multi-system utilities, two or

more water systems are owned and

operated by the utility and they may or

may not be physically interconnected.

Zonal Pricing. Differentiation in rates

according to substantial differences in the

cost of serving different areas. Zones

generally are defined in spatial terms and

represent geographic clusters of

customers with similar cost

characteristics.
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APPENDIX B

SELECT COMMISSION ORDERS ON

SINGLE-TARIFF PRICING

California

California Public Utilities Commission. Decision No. 89-06-007. Hillview Water Company, Inc. June 7,

1989.

Connecticut

Connecticut Department of Public Utility Control. Docket No. 86-12-08. Connecticut-American Water

Company. June 2, 1987

__________. Docket No. 89-03-22. Connecticut-American Water Company. September 21, 1987.

Florida

Florida Public Service Commission. In re Rate Setting Procedure and Alternatives for Water and Sewer

Utilities. 1989.

__________. Docket No. 920100-WS. Southern States Utilities, Inc. November 2, 1993.

__________. Docket No. 930880-WS. Southern States Utilities, Inc. September 13, 1994.

__________. Docket No. 930892-WU. Venture Associates Utilities Corp. December 30, 1994.

__________. Docket No. 931122-WU. Lakeside Golf, Inc. February 9, 1995

Hawaii

Hawaii Public Utilities Commission. Docket No. 6434. GASCO, Inc. April 3, 1992.

Illinois

Illinois Commerce Commission. Docket No. 92-0116. Illinois-American Water Company. February 9,

1993.

__________. Docket No. 94-0481. Citizens Utilities Company of Illinois. September 13, 1995.

__________. Docket No. 95-0076. Illinois-American Water Company. December 20, 1995.

Indiana

Indiana Utility Regulatory Commission. Cause No. 36483. Northern Indiana Fuel & Light Company, Inc.

October 1, 1981.

__________. Cause No. 36427. Terre Haute Water Works Corp. November 13, 1981.

__________. Cause No. 38880. Indiana-American Water Company. September 26, 1990.

__________. Cause No. 39595. Indiana-American Water Company. February 2, 1994.

__________. Cause No. 40703. Indiana-American Water Company. December 11, 1997.

Iowa

Iowa Utilities Board. Docket No. RPU-94-2I. ES Utilities, Inc. June 30, 1995.

Maine

Maine Public Utilities Commission. Docket Nos. 91-193 and 93-027. Michael McGovern v. Portland

Water District. February 28, 1994.

Maryland

Maryland Public Service Commission. Case No. 8643. Chesapeake Utilities Corp. August 17, 1994.

Massachusetts

Massachusetts Department of Public Utilities. D.P.U. 95-118. Massachusetts-American Water Company.

May 31, 1996.
USEPA – NARUC Consolidated Water Rates

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Missouri

Missouri Public Service Commission. Case No. 90-236. Missouri Cities Water Company. October 12,

1990.

__________. Case Nos. WR-95-205 and SR-95-206. Missouri-American Water Company. November 21,

1995.

__________. Case Nos. WR-95-205 and SR-95-206. Missouri-American Water Company. November 21,

1995.

__________. Case Nos. WR-97-237 and SR-97-238. Missouri-American Water Company. November 6,

1997.

New Hampshire

New Hampshire Public Utilities Commission. Docket DR 97-058. Pennichuck Water Works, Inc, Request

for Permanent Rates. March 25, 1998.

New Jersey

New Jersey Board of Public Utilities. Docket No. WR95040165. New Jersey-American Water Company.

March 3, 1996.

New York

New York Public Service Commission. Case No. 93-W-0962. Order Instituting Proceeding and Soliciting

Comments, Investigation of Incentives for Acquisition and Merger of Small Water Utilities.

November 10, 1993.

Ohio

Ohio Public Utilities Commission. Case Nos. 88-716-GA-AIR et. all, 88-1011-GA-CMR. Columbia Gas

of Ohio, Inc. October 17, 1989.

Pennsylvania

Pennsylvania Public Utility Commission. Order in Docket R-850096, Western Pennsylvania Water

Company (January 29, 1986).

__________. Order in Docket No. M-00950686. Policy Statement Re: Incentives For The Acquisition

And Merger Of Small, Nonviable Water And Waste Water Systems. February 23, 1996.

Rhode Island

Rhode Island Public Utilities Commission. Docket No. 2216. Narragansett Bay Water Quality

Management District. March 24, 1995.

Texas

Texas Public Utility Commission. Docket No. 4240. Texas-New Mexico Power Company. June 2, 1982.

West Virginia

West Virginia Public Service Commission. Case No. 81-126-W-42A. West Virginia Water Company.

May 26, 1982.

__________. Case No. 89-498-W-42T. West Virginia-American Water Company. May 4, 1990.

__________. Case No. 89-498-W-42T. West Virginia-American Water Company. May 24, 1990.

__________. Case No. 93-0279-W-42T. West Virginia-American Water Company. January 23, 1994.

Source: Adapted and updated from Daniel W. McGill, “Memorandum on Single-Tariff Pricing”

(correspondence dated December 31, 1996).
USEPA – NARUC Consolidated Water Rates

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APPENDIX C

DETAILED EXAMPLE OF

SINGLE-TARIFF PRICING

Table C1

Cost-of-Capital Determination

Source of Capital Issuance

Cost ($)

End-of-year

Capitalization

($)

Capitalizatio

n (percent)

Cost

Rate ($)

Weighted

Cost ($)

Short-term bank debt 4,800,000 7.47 14.00 1,046

Long-term debt bonds

 First-mortgage bonds

 53/8% series due 3/1/82 2,040 2,500,000 3.90 5.427 0.211

 93/4% series due 5/1/95 40,544 3,000,000 4.67 9.884 0.462

 10% series due 10/1/96 229,017 16,800,000 26.17 10.116 2.647

 93/8% series due 8/1/96 83,423 7,840,000 12.21 9.474 1.157

Total long-term debt 30,140,000 46.95 9.54 4.477

Preferred stock

 10 percent 31,781 2,940,000 4.58 10.092 0.462

 91/2 percent 19,067 1,368,000 2.13 9.602 0.204

 71/2 percent 21,926 1,920,000 2.99 7.692 0.230

Total preferred stock 6,228,000 9.70 9.24 8.896

Common equity

 Common stock 986,073

 Capital surplus 7,172,538

 Earned surplus 14,875,670

Total common equity 23,034,281 35.88 15.00 5.381

Total capitalization 64,202,281 100.00 11.800

Source: Adapted from Edward M. Limbach, “Single Tariff Pricing,” Journal American Water Works

Association 75 no. 9 (September 1984).

Table C2

Allocation of Expenses by District and Under Single-Tariff Pricing

Expense Per 1 Million

Gallons of Pumped Water

District A District B District C District D SingleTariff

Pricing

Fuel and power 49 91 115 102 57

Chemicals 15 31 76 17 20

Total operation cost 374 2,136 2,443 789 513

Total maintenance cost 103 499 277 94 116

Source: Adapted from Edward M. Limbach, “Single Tariff Pricing,” Journal American Water Works

Association 75 no. 9 (September 1984).
USEPA – NARUC Consolidated Water Rates

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Table C3

District Revenue Requirements and Effect on Average Residential Water Bill

Cost and Service Characteristics District A District B District C District D

Ratebase ($) 52,231,951 211,630 351,510 2,320,677

Rate of return (percent) w 11.80 11.80 11.80 11.80

Utility operating income ($) 6,163,370 24,972 41,466 273,840

Operation & maintenance expense ($) 5,835,260 173,506 139,624 806,709

Depreciation & amortization ($) 806,306 5,931 9,750 32,509

Taxes other than federal income tax ($) 1,789,540 16,527 18,728 131,035

Provision for federal income tax ($) 1,057,772 2,919 2,944 45,127

Total revenue requirement ($) 15,652,248 223,855 212,512 1,289,220

Percentage of revenue assigned to

 residential customers

53.03 70.86 66.4 64.67

Number of residential customers 51,651 534 558 5,180

Average residential water bill ($)ww 12.01 27.70 24.21 13.30

Impact of $50,000 investment on

 average residential bill

0.12

(1%)

15.16

(55%)

$13.59

(56%)

$1.43

(11%)

Source: Adapted from Edward M. Limbach, “Single Tariff Pricing,” Journal American Water Works

Association 75 no. 9 (September 1984).

w From Table C1. ww Based on 4,500 gallons per month.

Table C4

Comparison of Tariffs for Selected Districts Before and After Implementation of

Single-Tariff Pricing

Usage Charge District A ($) District B ($) Single-Tariff Pricing

($)

Minimum charge

 17-mm (5/8-inch) meter or smaller 6.62 13.11 7.35

 20-mm (3/4-inch) meter 9.78 19.67 11.06

 25-mm (1-inch) meter 16.30 32.78 18.40

 40-mm (11/2-inch) meter 32.59 65.56 36.80

 50-mm (2-inch) meter 52.15 104.91 58.90

 80-mm (3-inch) meter 97.78 196.70 110.40

 100-mm (4-inch) meter 162.96 327.85 184.00

 150-mm (6-inch) meter 325.92 655.69 368.00

 200-mm (8-inch) meter 521.47 1,049.11 568.80

Variable charge (per 1,000 gallons)

 First 2000 gallons/month -- -- --

 Next 28,000 gallons/month 2.597 4.526 2.74

 Next 970,000 gallons/month 1.562 3.147 1.56

 Next 9 million gallons/month 1.107 3.147 1.14

 All more than 10 million gallons/month 0.858 3.147 0.902

Source: Adapted from Edward M. Limbach, “Single Tariff Pricing,” Journal American Water Works

Association 75 no. 9 (September 1984).
USEPA – NARUC Consolidated Water Rates

80

APPENDIX D

Date: 1996

________________________________________

(______) ________________________________

Dr. Janice A. Beecher, Director of Regulatory Studies

University

Re:

Happy New Year! Can you help me by taking a moment to fill out this quick survey and faxing it

will make the results available to everyone.

 is used to implement a single rate structure for multiple water (or other) utility

the utility pay the same rate for service, even though the individual systems providing service may

Water utilities with multiple systems are not necessarily found in every state.

1. Do any of the water utilities regulated by your

commission have multiple water systems ( ̨)? Yes r No r

If No, the remaining questions are not applicable to your state. Please return the first

page of the questionnaire so that your state will be represented in the survey.

2. If you answered Yes to Question 1, please name the multi-system water utilities, the

number of systems they operate, and the approximate number of connections for the

smallest and largest system operated by the utility. Use an additional sheet if necessary.

3.

Approximate Number

of Connections for the:

Total Number Smallest Largest

Utility Name of Systems System System

____________________________ ______________ _______ ______

____________________________ ______________ _______ ______

____________________________ ______________ _______ ______

3. Has your commission approved single-tariff pricing Yes r Go to Question 4

for any of the utilities named in Question 1 ( ̨)? No r Go to Question 5
USEPA – NARUC Consolidated Water Rates

81

4. If your answer to Question 3 was Yes, please name the utilities and when the tariff was

first approved. Use an additional sheet if necessary.

When was the

tariff

Utility Name first approved?

_________________________________________ ____________

_________________________________________ ____________

_________________________________________ ____________

5. If your answer to Question 3 was No, please check all of the following that apply ( ̨):

r Single-tariff pricing has not been an issue.

r Single-tariff pricing has been considered but not specifically approved.

r A proposal for single-tariff pricing has been rejected.

r Other: ____________________________________________________

6. Has single-tariff pricing been explicitly prohibited

in your state by statute ( ̨)? Yes r No r

When was the statute passed? _______________

Please describe the nature of the prohibition: ________________________________

_____________________________________________________________________

_____________________________________________________________________

7. Has your commission put any monitoring and/or

evaluation systems in place for single-tariff pricing

in cases where it has been implemented ( ̨)? Yes r No r

If Yes, please describe: ________________________________________________

_____________________________________________________________________

8. If your commission approved single-tariff pricing, what was the primary reason for the

approval? _______________________________________________________

9. If your commission rejected single-tariff pricing, what was the primary reason for the

rejection? _______________________________________________________

10. Please characterize your commission’s policy position on single-tariff pricing ( ̨)?

3

r Generally accepted

r Generally not accepted

r Decided on a case-by-case basis

r Never considered
USEPA – NARUC Consolidated Water Rates

82

11. If single-tariff pricing has been an issue in your state, whether or not it has been

implemented, please review the following arguments in favor and against single-tariff

pricing and check all that have influenced your commission’s deliberations or policies on

the issue. Check ( ̨) all that apply:

Arguments in Favor of Single-Tariff Pricing

3

r Provides incentives for utility regionalization and consolidation

r Mitigates rate shock to utility customers

r Promotes universal service for utility customers

r Promotes ratepayer equity on a regional basis

r Improves service affordability for customers

r Addresses small-system viability issues

r Facilitates compliance with drinking water standards

r Provides ratemaking treatment that is similar to that for other utilities

r Lowers administrative costs to the utilities

r Lowers administrative costs to the commission

r Promotes regional economic development

r Encourages further private involvement in the water sector

r Encourages investment in the water-supply infrastructure

r Physical interconnection is not considered a prerequisite

r Overall benefits outweigh overall costs

r Other: ___________________________________________________________

Arguments Against Single-Tariff Pricing

3

r Conflicts with cost-of-service principles

r Undermines economic efficiency

r Provides subsidies to high-cost customers

r Distorts price signals to customers

r Discourages efficient water-use and conservation 

r Encourages growth and development in high-cost areas

r Encourages overinvestment in infrastructure

r Fails to account for variations in customer contributions

r Provides unnecessary incentives to utilities

r Considered inappropriate without physical interconnection

r Not acceptable to all affected customers

r Not acceptable to other agencies or governments

r Justification has not been adequate in a specific case (or cases)

r Insufficient statutory or regulatory basis or precedents

r Overall costs outweigh overall benefits 

r Other: ____________________________________________________________

Please provide any additional comments on another sheet. Thank you again for your

assistance. I look forward to working with you in 1996.
USEPA – NARUC Consolidated Water Rates

83

APPENDIX E

DETAILED FINDINGS FROM COMMISSION SURVEY

ON SINGLE-TARIFF PRICING
USEPA - NARUC Consolidated Water Rates

TABLE E1

Commission Policies on Single-Tariff Pricing for Water Utilities

State

Multi-System Utilities in the State (Q1)Number of Multi-System Utilities (Q2)Commission Approval of Single-Tariff Pricing (Q3)Number of Utilities with Single Tariff Pricing (Q4)Reasons for No SingleTariff Pricing (Q5)Has Single-Tariff Pricing Been Prohibited by Statute (Q6)Monitor or Evaluate Single-Tariff Pricing (Q7)Reason for Approval (Q8)Reason for Rejection (Q9)Commission Policy (Q10)

Alabama No 0 NA NA NA NA NA NA NA NA

Alaska No 0 NA NA NA NA NA NA NA NA

Arizona Yes 9 Yes 2 NA No No Viability of systems NA Case-by-case

Arkansas No 0 NA NA NA NA NA NA NA NA

California Yes 3 No (a) 0 (a) Considered but 

not approved

No No NA NA Case-by-case

Colorado No 0 NA NA NA NA NA NA NA NA

Connecticut Yes 12 Yes 10 NA No No Mitigate rate shock NA Generally accepted

Delaware (b) No 0 No NA NA NA NA NA NA NA

Florida Yes 60 to 

70

Yes 20 NA No (c) No Affordability; revenue 

stability; rate 

normalization for 

construction projects; 

simplified 

bookkeeping; 

reduced rate case 

expense.

NA Case-by-case

Georgia NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

Hawaii No 0 NA NA NA NA NA NA NA NA

Idaho Yes 1 Yes 1 NA No No Not an issue when 

proposed

NA Case-by-case

Illinois Yes 4 Yes 2 NA No No Reasonably 

consistent costs and 

source of supply.

Difference in 

source-of-supply 

costs

Case-by-case

84

NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E1

Commission Policies on Single-Tariff Pricing for Water Utilities

State

Multi-System Utilities in the State (Q1)Number of Multi-System Utilities (Q2)Commission Approval of Single-Tariff Pricing (Q3)Number of Utilities with Single Tariff Pricing (Q4)Reasons for No SingleTariff Pricing (Q5)Has Single-Tariff Pricing Been Prohibited by Statute (Q6)Monitor or Evaluate Single-Tariff Pricing (Q7)Reason for Approval (Q8)Reason for Rejection (Q9)Commission Policy (Q10)

Indiana Yes 2 No 0 Rejected (later 

approved)

No NA NA Cost-of-service; 

cost-based rates

Case-by-case

Iowa Yes 1 No 0 Not an issue No NA NA NA Never considered

Kansas No 0 NA NA NA NA NA NA NA NA

Kentucky Yes 1 No 0 Not an issue No (d) NA NA NA (d) Never considered

Louisiana Yes 10 No 0 Not an issue No NA NA NA Never considered

Maine Yes 1 No 0 Not an issue No NA NA NA Never considered

Maryland Yes 2 No 0 Not an issue No NA NA NA Case-by-case

Massachusetts Yes 1 No (a) 0 (a) Considered but 

not approved*

No No Contiguity of 

communities; 

commonality of 

personnel; 

administrative 

convenience.

Need for further 

post-merger 

experience.

Case-by-case

Michigan NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

Minnesota NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

Mississippi Yes 1 No NA Not an issue No NA NA NA Case-by-case

Missouri Yes 2 Yes 2 NA No No Cost savings NA Generally accepted

Montana (b) No 0 NA NA NA NA NA NA NA NA

Nebraska No 0 NA NA NA NA NA NA NA NA

Nevada No 0 NA NA NA NA NA NA NA NA

New Hampshire Yes 4 No (a) 0 (a) Considered but 

not approved*

No NA NA NA Case-by-case

85

NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E1

Commission Policies on Single-Tariff Pricing for Water Utilities

State

Multi-System Utilities in the State (Q1)Number of Multi-System Utilities (Q2)Commission Approval of Single-Tariff Pricing (Q3)Number of Utilities with Single Tariff Pricing (Q4)Reasons for No SingleTariff Pricing (Q5)Has Single-Tariff Pricing Been Prohibited by Statute (Q6)Monitor or Evaluate Single-Tariff Pricing (Q7)Reason for Approval (Q8)Reason for Rejection (Q9)Commission Policy (Q10)

New Jersey Yes 3 No 0 Considered but 

not approved*

No NA NA NA Case-by-case

New Mexico No 0 NA NA NA NA NA NA NA NA

New York Yes 5 Yes 1 NA No No Acceptable cost-ofservice differentialsCost-of-service 

differentials

Case-by-case

North Carolina Yes 50 Yes 46 NA No No More economical for 

utility and customers; 

less tracking required.

NA Generally accepted

North Dakota NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

Ohio Yes 3 Yes 2 NA No No Company request, 

cost savings, 

customer benefits.

NA Case-by-case

Oklahoma No 0 NA NA NA NA NA NA NA NA

Oregon Yes 1 Yes 1 NA No No Public interest NA Generally accepted

Pennsylvania (e) Yes 11 Yes 7 NA No No Economies of scale; 

mitigate rate shock 

associated with 

improvements; 

lessen bookkeeping 

and reporting.

NA Generally accepted; 

case-by-case

Rhode Island No 0 NA NA NA NA NA NA NA NA

86

NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E1

Commission Policies on Single-Tariff Pricing for Water Utilities

State

Multi-System Utilities in the State (Q1)Number of Multi-System Utilities (Q2)Commission Approval of Single-Tariff Pricing (Q3)Number of Utilities with Single Tariff Pricing (Q4)Reasons for No SingleTariff Pricing (Q5)Has Single-Tariff Pricing Been Prohibited by Statute (Q6)Monitor or Evaluate Single-Tariff Pricing (Q7)Reason for Approval (Q8)Reason for Rejection (Q9)Commission Policy (Q10)

South Carolina Yes 4 Yes 4 NA No No Uniform cost 

allocation; lower 

billing costs; base 

charge covers most 

fixed costs.

NA Generally accepted

South Dakota NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

Tennessee No 0 NA NA NA NA NA NA NA NA

Texas Yes 200 to 

300

Yes Most NA No No Regionalization, 

lower administrative 

cost

NA Generally accepted 

and preferred

Utah No NA NA NA NA NA NA NA NA NA

Vermont Yes 1 Yes 1 NA No NA Viability of systems; 

public interest

Staff rejected 

based on cross 

subsidies

Case-by-case

Virginia Yes 4 Yes 4 NA No No Spreads costs; 

separating smallsystem costs not 

always effective.

NA Case-by-case

Washington Yes 30 Yes 25 NA No No Economies of scale 

for small systems

NA Generally accepted

87

NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E1

Commission Policies on Single-Tariff Pricing for Water Utilities

State

Multi-System Utilities in the State (Q1)Number of Multi-System Utilities (Q2)Commission Approval of Single-Tariff Pricing (Q3)Number of Utilities with Single Tariff Pricing (Q4)Reasons for No SingleTariff Pricing (Q5)Has Single-Tariff Pricing Been Prohibited by Statute (Q6)Monitor or Evaluate Single-Tariff Pricing (Q7)Reason for Approval (Q8)Reason for Rejection (Q9)Commission Policy (Q10)

West Virginia (f) Yes 26 Yes 17 NA No Yes (g) Promotes 

regionalization; 

ratepayer equity; 

ratemaking treatment 

similarity (f).

Cost-of-service 

principles; 

customer 

contribution 

inequities (f).

Case-by-case

Wisconsin (h) Yes 1 No 0 Not an issue No NA NA NA Never considered

Wyoming (b) No NA NA NA NA NA NA NA NA NA

D.C. NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

88

NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E1

Commission Policies on Single-Tariff Pricing for Water Utilities

State

Multi-System Utilities in the State (Q1)Number of Multi-System Utilities (Q2)Commission Approval of Single-Tariff Pricing (Q3)Number of Utilities with Single Tariff Pricing (Q4)Reasons for No SingleTariff Pricing (Q5)Has Single-Tariff Pricing Been Prohibited by Statute (Q6)Monitor or Evaluate Single-Tariff Pricing (Q7)Reason for Approval (Q8)Reason for Rejection (Q9)Commission Policy (Q10)

(a) Partial rate consolidation has been approved; single-tariff pricing may be phased-in for some utilities (for regulatory simplification).

(b) Response by phone or derived from 1995 Inventory of Commission-Regulated Water Systems; no multi-system water utilities.

(c) Proposed legislation would require physical interconnection of systems for single-tariff pricing.

(d) Farmers Home Administration debt requirements prohibit, but the issue did not come before the commission.

(e) May be more multi-system water utilities in the state.

(f) The commission regulates public service districts. These data reflect primarily the views of staff involved in regulating the districts. 

(g) Reevaluation of rate cases where single-tariff pricing has been implemented (for public service districts).

(h) Response applies to regulated investor-owned utilities only. The Commission also regulates municipal

water utilities and state law requires single-tariff pricing throughout municipalities.

* Pending or later cases were decided in favor of single-tariff pricing.

89

NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E1

Commission Policies on Single-Tariff Pricing for Water Utilities

State

Multi-System Utilities in the State (Q1)Number of Multi-System Utilities (Q2)Commission Approval of Single-Tariff Pricing (Q3)Number of Utilities with Single Tariff Pricing (Q4)Reasons for No SingleTariff Pricing (Q5)Has Single-Tariff Pricing Been Prohibited by Statute (Q6)Monitor or Evaluate Single-Tariff Pricing (Q7)Reason for Approval (Q8)Reason for Rejection (Q9)Commission Policy (Q10)

Summary Data

Yes 29 -- 17 -- -- 0 1 -- -- --

No 16 -- 13 -- -- 29 17 -- -- --

NA 0 -- 15 -- 33 16 27 27 38 16

NJ 6 -- 6 -- 6 6 6 6 6 6

Not an issue -- -- -- -- 7 -- -- -- -- --

Rejected -- -- -- -- 1 -- -- -- -- --

Considered but not 

approved

-- -- -- -- 4 -- -- -- -- --

Generally 

accepted

-- -- -- -- -- -- -- -- -- 8

Generally not 

accepted

-- -- -- -- -- -- -- -- -- 0

Case-by-case -- -- -- -- -- -- -- -- -- 16

Never considered -- -- -- -- -- -- -- -- -- 5

Total 51 193 51 145 51 51 51 51

90

NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E2

Multi-System Water Utilities and Single-Tariff Pricing

State

Name of Multi-System Water Utility (Q2)Approximate Number of Systems (Q2)Smallest System (N Connections) (Q2)Largest System (N Connections) (Q2)Single-Tariff Pricing Approved (Q4)Approximate Date of Approval (Q4)Notes

Alabama NA NA NA NA NA NA

Alaska NA NA NA NA NA NA

Arizona Wilhoit Water Company 4 47 140 Yes 1993

Water Utility of Greater Tonopah, Inc. 7 4 67 Yes 1994

Arizona Water Company 20 176 8,120 No NA

Big Park Water Company 3 10 1,400 No NA

Citizens Utilities Company 5 416 20,000 No NA

Congress Water Company 2 48 434 No NA

Cordes Lakes Water Company 3 600 2,977 No NA

Marana Water Service, Inc. 2 88 600 No NA

United Utilities 12 22 1,229 No NA

Arkansas NA NA NA NA NA NA

California Cal Water Service Company 19 485 3,400 Partial 1990s Phasing-in tariff, subject to cost 

analysis (a).

Southern California Water Company 21 1,000 96,000 Partial 1990s Phasing-in tariff, subject to cost 

analysis (a).

California-American Water Company 5 7,000 40,000 No NA

Colorado NA NA NA NA NA NA

Connecticut Bridgeport Hydraulic Company 7 66 97,000 Yes 1986

Connecticut Water Company 16 42 27,000 Yes 1988

Connecticut-American Water Company 5 43 16,000 Partial 1985 Phasing-in rate.

Crystal Water Company 3 480 2,204 Yes 1995

Eastern Connecticut Regional Water Co. 25 <5 249 Partial 1993 Six tariffs; phasing-in rate.

Gallup Water Service Company 4 36 574 No NA

91 NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E2

Multi-System Water Utilities and Single-Tariff Pricing

State

Name of Multi-System Water Utility (Q2)Approximate Number of Systems (Q2)Smallest System (N Connections) (Q2)Largest System (N Connections) (Q2)Single-Tariff Pricing Approved (Q4)Approximate Date of Approval (Q4)Notes

Jewett City Water Company 4 20 1,331 Yes 1986

Olmstead Water Company 4 31 121 Yes 1995

Rural Water Company 20 2 244 Yes 1973

Topstone Hydraulic Company 3 41 237 Yes 1975

Tyler Lake Water Company 4 27 90 No NA

United Water Connecticut Inc. 4 136 2,919 Yes 1993

Delaware NA NA NA NA NA NA Since the survey, a multisystem utility was created 

(acquisition); consolidated rates 

were approved. 

Florida (b) Arredondo Utility Company 2 NR NR Yes NR (b)

Clay Utility Company 2 NR NR Yes NR (b)

Consolidated Water Works, Inc. 2 NR NR Yes NR (b)

Florida Cities Water Company (Lee County) 2 NR NR Yes NR (b) Single-tariff for water only.

Gulf Utility Company 2 NR NR Yes NR (b) Interconnected water; 

noninterconnected wastewater.

Heartland Utilities, Inc 2 NR NR Yes NR (b)

Holiday Utility Company, Inc. 2 NR NR Yes NR (b)

Jacksonville Suburban Utilities Corp., Inc. 21 NR NR Partial NR (b) Three tariffs.

Lake Utility Services, Inc. 11 NR NR Partial NR (b) Two tariffs.

Lenvil H. Dicks 4 NR NR Yes NR (b)

Mad Hatter Utility, Inc. 3 NR NR Yes NR (b) Noninterconnected water; 

interconnected wastewater.

92 NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E2

Multi-System Water Utilities and Single-Tariff Pricing

State

Name of Multi-System Water Utility (Q2)Approximate Number of Systems (Q2)Smallest System (N Connections) (Q2)Largest System (N Connections) (Q2)Single-Tariff Pricing Approved (Q4)Approximate Date of Approval (Q4)Notes

Marion Utilities, Inc. 23 NR NR Partial NR (b) Two tariffs.

Neighborhood Utilities, Inc. 5 NR NR Yes NR (b)

Ocala Oaks Utilities, Inc. 9 NR NR Yes NR (b)

Pine Island Utility Corporation 2 NR NR Yes NR (b)

Poinciana Utilities, Inc. 4 NR NR Yes NR (b)

Rainbow Springs Utilities, Inc. 2 NR NR Yes NR (b)

Seven Rivers Utilities, Inc. 3 NR NR Yes NR (b)

Sunshine Utilities of Florida 20 NR NR Partial NR (b) Excludes 2 systems.

Utilities, Inc. 16 NR NR Partial NR (b) Three tariffs.

Georgia NJ NJ NJ NJ NJ NJ

Hawaii NA NA NA NA NA NA

Idaho Hayden Pines Water Company 10 12 646 Yes 1985 Not an issue when proposed.

Illinois Citizens Utilities Company of Illinois 22 114 8,400 Partial 1965 Some exceptions based on 

source of supply differences.

Illinois-American Water Company 5 1,700 65,200 Partial 1993 Phasing-in one system.

Northern Illinois Water Corporation 4 4,000 40,200 No NA

Consumers Illinois Water Company 8 200 19,200 No NA

Indiana Indiana-American Water Company 16 NR NR No NA

Hoosier Water 4 NR NR No NA

Iowa Iowa-American Water Company 2 10,400 43,700 No NA

Kansas NA NA NA NA NA NA

Kentucky Southeastern W.D. 3 837 1,278 No NA

Louisiana A.T.S. NR NR NR No NA

Acadian Water & Sewer NR NR NR No NA

93 NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E2

Multi-System Water Utilities and Single-Tariff Pricing

State

Name of Multi-System Water Utility (Q2)Approximate Number of Systems (Q2)Smallest System (N Connections) (Q2)Largest System (N Connections) (Q2)Single-Tariff Pricing Approved (Q4)Approximate Date of Approval (Q4)Notes

Baton Rouge Water Company NR NR NR No NA

Capital Utilities NR NR NR No NA

Coast Water System NR NR NR No NA

Hunstock Hills NR NR NR No NA

Ascension Water Company NR NR NR No NA

Louisiana Water Company NR NR NR No NA

Parish Water Company NR NR NR No NA

Utilities Data, Inc. NR NR NR No NA

Maine Consumers Maine Water Company 7 408 7,192 No NA

Maryland Utilities, Inc. 5 75 1,010 No NA

Facilities Services, Inc. 7 31 130 No NA

Massachusetts Massachusetts-American 3 2,400 11,000 Partial 1990 Two tariffs under a settlement 

agreement; a case is pending 

(a).*

Michigan NJ NJ NJ NJ NJ NJ

Minnesota NJ NJ NJ NJ NJ NJ

Mississippi Johnson Utility Company 32 12 to 15 600 to 

750

No NA

Missouri Missouri-American Water 7 500 2,800 Yes 1995

KMB Utilities 6 200 600 Yes 1995

Montana NA NA NA NA NA NA

Nebraska NA NA NA NA NA NA

Nevada NA NA NA NA NA NA

94 NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E2

Multi-System Water Utilities and Single-Tariff Pricing

State

Name of Multi-System Water Utility (Q2)Approximate Number of Systems (Q2)Smallest System (N Connections) (Q2)Largest System (N Connections) (Q2)Single-Tariff Pricing Approved (Q4)Approximate Date of Approval (Q4)Notes

New Hampshire Consumers New Hampshire Water 24 40 5,000 Partial NR Three tariffs; may be moving 

toward single tariff (a).

Pennichuck Water Works 12 35 19,000 No NA

Lakes Regional Water Company 11 30 200 No NA

Carleton Water Company 4 30 175 No NA

New Jersey New Jersey-American 2 272 329,000 No NA A case is pending.*

Elizabethtown Water Company 2 10,928 181,100 No NA

Consumers New Jersey 7 422 28,652 No NA

New Mexico NA NA NA NA NA NA

New York Jamaica Water Supply 2 30,000 90,000 No NA Operated as one system until 

disconnected and extreme cost 

differentials became apparent

South County Water 4 2 270 No NA Smallest serves two industrial 

customers.

Rand Water 2 148 158 No NA

Northwood Water 2 49 220 No NA

Forest Park Water 6 30 60 Yes 1987 Commission imposed singletariff pricing.

North Carolina Alpha Utilities 11 18 121 Yes 1986

Bess Brothers 11 16 78 Yes 1971

Bogue Banks Water Company 3 80 3,830 Yes 1991

Bradshaw Water Company 5 10 41 Yes 1974

Brookwood Water Corporation 15 32 5,345 Yes 1974

95 NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E2

Multi-System Water Utilities and Single-Tariff Pricing

State

Name of Multi-System Water Utility (Q2)Approximate Number of Systems (Q2)Smallest System (N Connections) (Q2)Largest System (N Connections) (Q2)Single-Tariff Pricing Approved (Q4)Approximate Date of Approval (Q4)Notes

Carolina Water Services of NC 72 13 2,790 Yes 1978

Clear Meadow Water 2 24 50 Yes 1981

Coastal Plains Utility Company 3 36 542 Yes 1967

Community Water Works 2 26 51 Yes 1975

Corriher Water Service 22 13 193 Yes 1968

Crabtree Water Systems 3 10 26 No NA

Cross State Development Company 3 9 140 Yes 1974

CWS Systems 16 12 1,211 No NA

D&W Water Systems 2 17 96 Yes 1987

Environmental Maintenance 3 20 132 No NA

Fairways Utilities 3 9 296 Yes 1990

Fisher Utilities 18 13 184 Yes 1973

Fox Run Water Company 6 21 60 Yes 1989

Goss Utility Company 7 19 131 Yes 1976

Grandfather Golf and Country 2 45 156 Yes 1982

Heater Utilities 150 10 2,475 Yes 1972

Wayne M. Honeycutt 3 15 40 Yes 1978

Huffman Water Systems 10 11 83 Yes 1964

Hydraulics, Ltd. 85 4 191 Yes 1966

HydroLogic 4 15 64 No NA

Kings Grant Water Company 7 96 850 Yes 1968

Knob Creek Utility 3 24 151 Yes 1984

Language Water Works Corp. 22 62 678 Yes 1969

Ira D. Lee & Assoc. 2 41 145 Yes 1986

96 NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E2

Multi-System Water Utilities and Single-Tariff Pricing

State

Name of Multi-System Water Utility (Q2)Approximate Number of Systems (Q2)Smallest System (N Connections) (Q2)Largest System (N Connections) (Q2)Single-Tariff Pricing Approved (Q4)Approximate Date of Approval (Q4)Notes

Lewis Water Company 14 6 80 Yes 1980

Lincoln Water Works 2 21 122 Yes 1972

William K. Mauney 2 19 24 Yes 1976

Mercer Environmental 10 47 479 Yes 1965

Mid South Water Systems 201 7 429 Yes 1981

Giles E. Mullis 2 20 20 Yes 1983

Norwood Beach Water System 4 10 36 Yes 1995

Piedmont Construction & Water 47 7 147 Yes 1970

Prior Construction Company 2 11 184 Yes 1988

Quality Water Supplies 14 37 257 Yes 1967

Rayco Utilities 10 12 104 Yes 1987

Scientific Water & Sewage 5 106 537 Yes 1964

Scotland Water 4 39 91 Yes 1983

Scotsdale Water & Sewage 15 7 205 Yes 1990

Setzer Brothers Well Boring 3 30 72 Yes 1972

Spring Water Company 2 17 139 Yes 1977

Surry Water Company 30 8 206 Yes 1972

Turner Farms 4 20 127 Yes 1982

Water Resources 2 9 81 Yes 1993

West Wilson Water Company 6 15 74 Yes 1988

Woods Water Works 4 5 18 Yes 1981

North Dakota NJ NJ NJ NJ NJ NJ

Ohio Ohio-American Water 8 or 9 300 15,000 Yes 1975 to 1983

97 NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E2

Multi-System Water Utilities and Single-Tariff Pricing

State

Name of Multi-System Water Utility (Q2)Approximate Number of Systems (Q2)Smallest System (N Connections) (Q2)Largest System (N Connections) (Q2)Single-Tariff Pricing Approved (Q4)Approximate Date of Approval (Q4)Notes

Citizens Utilities 6 278 3,023 Yes 1975 to 1983

Consumers Ohio Water 4 7,516 25,254 No NA

Oklahoma NA NA NA NA NA NA

Oregon Avion Water Company, Inc. 4 52 5,750 Yes Early 1970s

Pennsylvania Pennsyvania-American Water Company 27 NR NR Yes 1970s & 

1980s

Interconnected systems 

(1970s); noncontiguous 

systems (1980s).

United Water Pennsylvania, Inc. 22 NR NR Partial 1992 Excludes one system.

Consumers Pennsylvania Water Company 10 NR NR Partial NR Three rate zones.

Citizens Utilities Water Company of PA 20 NR NR Partial NR Five rate zones.

National Utilities, Inc. 21 NR NR Partial NR Three rates and four systems 

with their own tariffs.

Philadelphia Suburban Water Company 15 NR NR Partial NR Most acquisitions adopt the 

single tariff; excludes two 

systems.

Newtown Artesian Water Company 2 NR NR Yes 1994 Merger of two companies.

Redstone Water Compnay, Inc. 3 NR NR No NA Three rate zones and four 

systems with separate tariffs.

Frank Sargent 4 to 5 NR NR No NA May be moving toward single 

tariff.

Blaine Rhodes 5 NR NR No NA May be moving toward single 

tariff.

98 NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E2

Multi-System Water Utilities and Single-Tariff Pricing

State

Name of Multi-System Water Utility (Q2)Approximate Number of Systems (Q2)Smallest System (N Connections) (Q2)Largest System (N Connections) (Q2)Single-Tariff Pricing Approved (Q4)Approximate Date of Approval (Q4)Notes

Carl Kreisge 2 to 3 NR NR No NA May be moving toward single 

tariff.

Rhode Island NA NA NA NA NA NA

South Carolina Carolina Water Service Inc. 53 18 1,500 Yes 1987

Heater Utilities, Inc. 38 5 250 Yes 1990

Blue Ribbon H2O Corporation 34 5 300 Yes 1995

Upstate Heater Utilities Inc. 21 20 50 Yes 1994

South Dakota NJ NJ NJ NJ NJ NJ

Tennessee NA NA NA NA NA NA

Texas Data not easily available ---------------Not reported--------------- Single-tariff pricing is preferred; 

a special procedure is used to 

implement the tariff in 

conjunction with acquisitions.

Utah NA NA NA NA NA NA

Vermont Sunshine Water Company 4 12 40 Yes 1985

Virginia Alpha Water Corporation 28 10 200 Yes 1984

Heritage Homes of Virginia 8 11 29 Yes 1994

New River Water Company 14 7 126 Yes 1993

Pocahontas Water Works 2 60 68 Yes 1958

Washington (c) Alderton-McMillin Water Supply, Inc. 8 NR NR Yes NR

Aquarius Utilities, Inc. 4 NR NR Yes NR

Arcadia Utilities 11 NR NR No NA

Bethel Water Company 3 NR NR Yes NR

99 NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E2

Multi-System Water Utilities and Single-Tariff Pricing

State

Name of Multi-System Water Utility (Q2)Approximate Number of Systems (Q2)Smallest System (N Connections) (Q2)Largest System (N Connections) (Q2)Single-Tariff Pricing Approved (Q4)Approximate Date of Approval (Q4)Notes

Evergreen Land & Water, Inc. 6 NR NR Yes NR System under receivership.

Gamble Bay Water, Inc. 10 NR NR Yes NR

H & R WaterWorks, Inc. 8 NR NR Yes NR

H2O Company, The 2 NR NR No NA

Harbor Water Company, Inc. 79 NR NR Yes NR

Iliad Water Services, Inc. 12 NR NR No NA

Lara Lee, Inc. 6 NR NR Yes NR

Mainland View Manor Maintenance Co. 5 NR NR Yes NR

Marvin Road Water Company 4 NR NR Yes NR

Mirrormont Srevices, Inc. 2 NR NR Yes NR

Monterra, Inc. (Washington Water Systems) 2 NR NR Yes NR

Northwest Water Systems, Inc. 13 NR NR Yes NR

Pattison Water Comapny 4 NR NR Yes NR

Point Fosdick Water Company, Inc. 4 NR NR Yes NR

Rainier View Water Company, Inc. 4 NR NR Partial NR Excludes 1-2 systems.

Sanderson & Associates, Inc. 13 NR NR Yes NR

Satellite Water Systems 25 NR NR No NA

S-K Pump & Drilling 39 NR NR Yes NR

Soren Pedersen Water Company 2 NR NR No NA

Sound Water Company, Inc. 4 NR NR Yes NR

South Bainbridge Water System, Inc. 2 NR NR Yes NR

South Sound Utility Company, Inc. 35 NR NR Yes NR

Stroh Water Company 5 NR NR Partial NR Excludes 1-2 systems.

Sunshine Acres Water System 4 NR NR Yes NR

100 NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E2

Multi-System Water Utilities and Single-Tariff Pricing

State

Name of Multi-System Water Utility (Q2)Approximate Number of Systems (Q2)Smallest System (N Connections) (Q2)Largest System (N Connections) (Q2)Single-Tariff Pricing Approved (Q4)Approximate Date of Approval (Q4)Notes

Thomas Water Service, Inc. 2 NR NR Yes NR

Washington Water Supply, Inc. 9 NR NR Yes NR

West Virginia (d) West Virginia-American 13 571 68,636 Yes 1982 Formerly 12 to 14 districts.

Arbuckle 2 NR NR Yes Prior to 8/85

Central Hampshire 2 NR NR No NA

Friendly 2 NR NR Yes Prior to 4/88

Gilmer County 2 NR NR Yes Prior to 

Grant County 2 NR NR Yes Prior to 9/83

Green Valley-Glenwood 2 NR NR Yes Prior to 6/80

Hammond 2 NR NR Yes 1982

Hardy County 2 NR NR No NA

Jefferson County 3 NR NR No NA

Kopperston 2 NR NR Yes 1981

Logan County 5 NR NR Yes 1995

Mannington 2 NR NR Yes Prior to 3/82

Mason County 3 NR NR No NA

McDowell County 6 NR NR No NA

Oakland 2 NR NR Yes Prior to 5/84

Ohio County 3 NR NR Yes Prior to 1/81

Pendleton County 4 NR NR No NA

Preston County #1 2 NR NR Yes Prior to 2/81

Preston County #2 2 NR NR Yes Prior to 

Raleigh County 3 NR NR No NA

Red Sulphur 2 NR NR Yes Prior to 8/83

101 NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E2

Multi-System Water Utilities and Single-Tariff Pricing

State

Name of Multi-System Water Utility (Q2)Approximate Number of Systems (Q2)Smallest System (N Connections) (Q2)Largest System (N Connections) (Q2)Single-Tariff Pricing Approved (Q4)Approximate Date of Approval (Q4)Notes

South Putnam 2 NR NR No NA

Van 2 NR NR No NA

Washington Pike 2 NR NR Yes Prior to 7/80

Wyoming-Glover 2 NR NR Yes Prior to 2/85

Wisconsin Wisconsin Power & Light 2 2,661 13,752 No NA

Several towns with two or three systems ---------------Not reported--------------- Single-tariff pricing is required 

for municipal utilities.

Wyoming NA NA NA NA NA NA

D.C. NJ NJ NJ NJ NJ NJ

(a) Single-tariff pricing has not been explictly approved, but some rate consolidation has occurred (three states; four systems).

(b) Only utilities with single-tariff pricing for all or some systems are reported. These rates were approved over time, dating back to at least

 the early 1980s. Data were not reported for all multi-system utilities in the state.

(c) Flat rates and metered rates may exist within the same tariff; mobile home parks and multi-dwelling units may have a separate rate within the 

same tariff. 

(d) Only West-Virginia is investor-owned; the rest are public service districts. Only multi-system utilities are reported;interconnected

systems and single-systems with multiple tariffs are not included.

* Pending cases were decided in favor of single-tariff pricing.

102 NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E2

Multi-System Water Utilities and Single-Tariff Pricing

State

Name of Multi-System Water Utility (Q2)Approximate Number of Systems (Q2)Smallest System (N Connections) (Q2)Largest System (N Connections) (Q2)Single-Tariff Pricing Approved (Q4)Approximate Date of Approval (Q4)Notes

Summary Data for All Utilities

Yes -- -- -- 129 --

Partial -- -- -- 20 --

No -- -- -- 64 --

Total -- -- -- 213 --

Minimum 2 2 18 -- --

Maximum 201 30,000 329,000 -- --

Average 11 751 11,615 -- --

Median 4 30 257 -- --

Utilities reported 203 115 115 -- --

103 NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E2

Multi-System Water Utilities and Single-Tariff Pricing

State

Name of Multi-System Water Utility (Q2)Approximate Number of Systems (Q2)Smallest System (N Connections) (Q2)Largest System (N Connections) (Q2)Single-Tariff Pricing Approved (Q4)Approximate Date of Approval (Q4)Notes

Summary Data for Single-Tariff Utilities

Yes -- -- -- 129 --

Partial -- -- -- 20 --

No -- -- -- 0 --

Total -- -- -- 149 --

Minimum 2 2 18 -- 1958

Maximum 201 2,400 97,000 -- 1995

Average 13 122 5,651 -- 1982

Median 5 20 193 -- 1984

Utilities reported 149 81 81 -- 80

Summary Data for Non-Single-Tariff Utilities

Yes -- -- -- 0 --

Partial -- -- -- 0 --

No -- -- -- 64 --

Total -- -- -- 0 --

Minimum 2 2 26 -- --

Maximum 32 30,000 329,000 -- --

Average 6 2,251 25,824 -- --

Median 4 82 1,254 -- --

Utilities reported 54 34 34 -- --

Note:

For reponses reported as a range of values, averages were used (for example, "8 to 9" was averaged to "8.5"). 

For the response "< 5" a value of 4.5 was used.

104 NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E3

Arguments in Favor of Single-Tariff Pricing (a)

State

Regionalization IncentivesMitigates Rate ShockUniversal ServiceRegional Ratepayer EquityService AffordabilitySmall-System ViabilityCompliance with StandardsSimilar Ratemaking to Other UtilitiesLowers Admin. Costs to UtilityLowers Admin. Costs to CommissionRegional Economic DevelopmentEncourages Private InvolvementEncourages InvestmentInterconnection Not RequiredOverall Benefits Outweigh CostsOtherNumber of "Yes" Responses

Alabama NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Alaska NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Arizona Yes Yes No No No Yes No Yes Yes Yes No No No Yes Yes No 8

Arkansas NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

California No Yes Yes No Yes Yes No No No No No No No No No No 4

Colorado NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Connecticut Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes No 14

Delaware NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Florida Yes Yes Yes No Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes No 13

Georgia NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

Hawaii NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Idaho NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

Illinois Yes Yes No No No No Yes No Yes No No No No Yes Yes No 6

Indiana No Yes No No No No No Yes No No No No No No No No 2

Iowa NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

Kansas NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Kentucky NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

Louisiana NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

Maine NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

Maryland NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

Massachusetts No No No Yes No No No No Yes No No No No Yes No No 3

Michigan NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

Minnesota NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

Mississippi NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

Missouri Yes Yes Yes No No No No No Yes Yes No No Yes Yes No No 7

Montana NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

105

NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E3

Arguments in Favor of Single-Tariff Pricing (a)

State

Regionalization IncentivesMitigates Rate ShockUniversal ServiceRegional Ratepayer EquityService AffordabilitySmall-System ViabilityCompliance with StandardsSimilar Ratemaking to Other UtilitiesLowers Admin. Costs to UtilityLowers Admin. Costs to CommissionRegional Economic DevelopmentEncourages Private InvolvementEncourages InvestmentInterconnection Not RequiredOverall Benefits Outweigh CostsOtherNumber of "Yes" Responses

Nebraska NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Nevada NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

New Hampshire Yes Yes No No Yes Yes No No No No No No No No No No 4

New Jersey Yes Yes No No No Yes Yes Yes Yes No Yes No No Yes No No 8

New Mexico NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

New York No No No No No No No No Yes No No No No Yes No Yes (b) 3

North Carolina Yes Yes No No Yes Yes Yes No Yes No Yes No No Yes Yes No 9

North Dakota NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

Ohio Yes Yes No No Yes Yes No No Yes No No No No Yes No No 6

Oklahoma NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Oregon Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No No Yes No Yes No 12

Pennsylvania Yes Yes Yes Yes Yes Yes Yes No Yes Yes No No No Yes Yes No 11

Rhode Island NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

South Carolina No Yes Yes No No No No Yes Yes No No No No No No No 4

South Dakota NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

Tennessee NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Texas Yes Yes No No Yes Yes Yes No Yes No No No No No No No 6

Utah NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Vermont No No No No No Yes No No No No No No No No No Yes (c) 1

Virginia Yes Yes No No Yes No No Yes Yes Yes No No No No No No 6

Washington Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes No 14

West Virginia Yes No No Yes Yes No No Yes No No No No No Yes Yes No 6

Wisconsin NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

Wyoming NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

D.C. NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

106

NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E3

Arguments in Favor of Single-Tariff Pricing (a)

State

Regionalization IncentivesMitigates Rate ShockUniversal ServiceRegional Ratepayer EquityService AffordabilitySmall-System ViabilityCompliance with StandardsSimilar Ratemaking to Other UtilitiesLowers Admin. Costs to UtilityLowers Admin. Costs to CommissionRegional Economic DevelopmentEncourages Private InvolvementEncourages InvestmentInterconnection Not RequiredOverall Benefits Outweigh CostsOtherNumber of "Yes" Responses

Summary Data

Yes 15 17 8 6 12 13 9 10 16 8 3 2 5 13 9 2 --

No 6 4 13 15 9 8 12 11 5 13 18 19 16 8 12 19 --

Not an issue 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 --

Not applciable 16 16 16 16 16 16 16 16 16 16 16 16 16 16 16 16 --

No jurisidction 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 --

Total 51 51 51 51 51 51 51 51 51 51 51 51 51 51 51 51 --

(a) These findings reflect staff views about the arguments affecting commission deliberations or policies.

(b) Can be consistent with cost-of-service principles.

(c) The board determined that single-tariff pricing was in the public interest and approved it over the objections of staff concerns 

about subsidies.

107

NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E4

Arguments Against Single-Tariff Pricing (a)

State

Conflict with Cost-ofServiceUndermines Economic EfficiencySubsidies to HighCost CustomersDistorts Price SignalsDiscourages Efficient Water UseEncourages Growth in High-Cost AreasEncourages OverinvestmentFails to Account for ContributionsUnnecessary IncentivesInappropriate Without InterconnectionNot Acceptable to All CustomersNot Acceptable to AgenciesNot Justified in a Specific CaseInsufficient PrecedentsOverall Costs Outweigh BenefitsOtherNumber of "Yes" Responses

Alabama NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Alaska NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Arizona Yes No Yes No No Yes No No No Yes Yes No No No No No 5

Arkansas NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

California Yes Yes Yes Yes Yes Yes No No No No No Yes No No No No 7

Colorado NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Connecticut Yes No Yes No No Yes No No No Yes Yes No No Yes No No 6

Delaware NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Florida Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No 15

Georgia NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

Hawaii NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Idaho NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

Illinois Yes No No No No No No No No No No No Yes No Yes No 3

Indiana Yes No No No No No No Yes No No Yes No Yes No No No 4

Iowa NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

Kansas NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Kentucky NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

Louisiana NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

Maine NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

Maryland NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

Massachusetts Yes No No No No No No No No Yes No No Yes No No No 3

Michigan NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

Minnesota NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

Mississippi NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

Missouri Yes No Yes Yes No No No Yes No Yes No No No No No No 5

Montana NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

108

NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E4

Arguments Against Single-Tariff Pricing (a)

State

Conflict with Cost-ofServiceUndermines Economic EfficiencySubsidies to HighCost CustomersDistorts Price SignalsDiscourages Efficient Water UseEncourages Growth in High-Cost AreasEncourages OverinvestmentFails to Account for ContributionsUnnecessary IncentivesInappropriate Without InterconnectionNot Acceptable to All CustomersNot Acceptable to AgenciesNot Justified in a Specific CaseInsufficient PrecedentsOverall Costs Outweigh BenefitsOtherNumber of "Yes" Responses

Nebraska NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Nevada NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

New Hampshire Yes No Yes No No No No Yes No Yes Yes No No No No No 5

New Jersey No No No No No No No No No No No No No No No No 0

New Mexico NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

New York Yes Yes Yes Yes Yes No No Yes No Yes Yes No Yes No No No 9

North Carolina Yes No Yes Yes No No No No No No No No No No No No 3

North Dakota NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

Ohio No No No No No No No No No No No No No No No No 0

Oklahoma NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Oregon No No No No No No No No No No No No No No No No 0

Pennsylvania Yes No Yes No No No No No No No Yes No No No No No 3

Rhode Island NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

South Carolina No No No No No No No No No No No No No No No No 0

South Dakota NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

Tennessee NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Texas No No Yes No No No No No No No Yes No No No No No 2

Utah NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Vermont No No Yes Yes No No No No No Yes Yes No No No No No 4

Virginia Yes No Yes No No No No No Yes No No No No No No No 3

Washington No No No Yes Yes No No No No No Yes No No No No No 3

West Virginia Yes No No No No No No Yes No No No No Yes No No No 3

Wisconsin NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

Wyoming NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

D.C. NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ NJ

109

NA = Not applicable; NR = Not reported; NJ = No jurisdiction
USEPA - NARUC Consolidated Water Rates

TABLE E4

Arguments Against Single-Tariff Pricing (a)

State

Conflict with Cost-ofServiceUndermines Economic EfficiencySubsidies to HighCost CustomersDistorts Price SignalsDiscourages Efficient Water UseEncourages Growth in High-Cost AreasEncourages OverinvestmentFails to Account for ContributionsUnnecessary IncentivesInappropriate Without InterconnectionNot Acceptable to All CustomersNot Acceptable to AgenciesNot Justified in a Specific CaseInsufficient PrecedentsOverall Costs Outweigh BenefitsOtherNumber of "Yes" Responses

Summary Data

Yes 14 3 12 7 4 4 1 6 2 8 10 2 6 2 2 0 --

No 7 18 9 14 17 17 20 15 19 13 11 19 15 19 19 21 --

Not an issue 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 --

Not applciable 16 16 16 16 16 16 16 16 16 16 16 16 16 16 16 16 --

No jurisidction 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 --

Total 51 51 51 51 51 51 51 51 51 51 51 51 51 51 51 51 --

(a) These findings reflect staff views about the arguments affecting commission deliberations or policies.

110

NA = Not applicable; NR = Not reported; NJ = No jurisdiction