A Look at the Factors That Impact Your Laundry’s Rates
Imagine Manhattan under almost 300 feet of water. Not water from a hurricane or a tsunami, but purified drinking water – 2.1 trillion gallons of it.
That’s the amount of water researchers estimate is lost each year in this country because of aging and leaky pipes, broken water mains and faulty meters.
Fixing that infrastructure won’t be cheap, which is something every water consumer is likely discovering.
In Chicago, fresh water is drawn into water intake cribs in Lake Michigan and piped to the enormous Jardine Water Filtration Plant on the lakefront.
Jardine is the largest water filtration plant in the world by volume, pumping about 1 billion gallons of purified drinking water out through hundreds of thousands of miles of pipes to 5 million people in Chicago and 125 surrounding communities.
But not all of that treated, potable water makes it through the system to homes and businesses. In fact, quite a bit of it is lost.
The Chicago-based Center for Neighborhood Technology, a nonprofit focused on sustainability, estimates “about 6 billion gallons of water per day may be wasted in the U.S.”
Where does it go? Much of it just leaks out of aging pipes and water mains that crack and break.
In the 1950s, U.S. cities – resurgent from an economic depression and powerful in the wake of a global military victory – installed and expanded the far-reaching water supply networks that propelled a generation of widespread economic growth, prosperity and improvement in public health.
Facilities to clean the nation’s waterways of harmful pollutants and organic wastes followed in the 1970s, thanks to generous federal grants and civic outrage at burning rivers.
The results of those investments – the thousands of miles of distribution pipes beneath city streets, the lengthy water transport and treatment infrastructure – are now cracked or brittle. The bill to repair and renew America’s long-neglected water systems is coming due.
Continuing a trend that reflects the disrepair and shows no sign of slowing, the price of residential water service in 30 major U.S. cities rose faster than the cost of nearly every other household staple last year, according to a water pricing survey conducted by Circle of Blue, a website that reports on the world’s water supply.
The economics of water – particularly the cost of treatment, pumping, and new infrastructure, as well as the retail price for consumers – gained renewed prominence as California and Texas faced historic droughts and water managers seek to rein in water consumption, with price increases as one tool in their arsenal.
The average monthly cost of water for a family of four using 100 gallons per person per day climbed 6 percent, according to data collected from the utilities. The median increase this year was 4.5 percent. In comparison, the Consumer Price Index rose just 1.8 percent.
For families using 150 gallons and 50 gallons per person per day, average water prices rose 6 percent and 5.2 percent, respectively.
This reflects broad trends in the municipal water industry that nearly every U.S. utility must grapple with, according to Andrew Ward, a director of U.S. public finance for Fitch Ratings, a credit agency.
Distribution pipes, which can branch for thousands of miles beneath a single city, have aged beyond their shelf life and crack open daily. Some assessments peg the national cost of repairing and replacing old pipes at more than $1 trillion over the next two decades. In addition, new treatment technologies are needed to meet Safe Drinking Water Act and Clean Water Act requirements, and cities must continue to pay down existing debts.
At the same time, conservation measures have proven successful. Utilities are selling less water, but they still need big chunks of revenue to cover the substantial cost of building and maintaining a water system. All together, these and other factors amount to a persistent upward pressure on water rates.
“We expect water rates to continue to grow above inflation for some time,” Ward said. “We don’t see an end in sight.”
The Circle of Blue survey also includes sewer prices and fees for controlling urban runoff from rainstorms. Together, the three charges – water, sewer and stormwater – provide a complete picture of the rising cost of water in the country’s largest cities.
Atlanta ($325.52) and Seattle ($309.72) have the largest combined monthly charges for water, sewer and stormwater for a four-person family at the 100 gallon per person per day level. Both cities have high sewer rates, which pay for multibillion-dollar investments in new treatment facilities. Both cities are also operating under legal agreements with the U.S. Environmental Protection Agency to reduce polluted sewer flows.
These agreements, called consent decrees, typically require massive investments in wastewater treatment capacity and affect more than 40 U.S. cities. Consent decrees and other EPA clean water mandates are the foremost drivers of sewer rate increases, according to Brent Fewell, a partner at the law firm Troutman Sanders and a former EPA assistant administrator for water. Federal grants that helped build the generation of sewage treatment plants in the decade following the passage of the Clean Water Act in 1972 have been cut by Congress and are not coming back, Fewell added. Cities now finance those projects on their own.
Furthermore, according to a comprehensive USA Today study of 100 municipalities over a 12-year period, water prices at least doubled in more than a quarter of the locations and even tripled in a few of them – with cities like Philadelphia (+164%), San Francisco (+211%) and Atlanta (+233%) experiencing astronomical jumps in price.
The USA Today study pointed to a number of factors driving water bills higher:
• The cost of paying off the debt on bonds municipalities issue to fund repairs or upgrades on aging water systems
• Increases in the cost of electricity, chemicals and fuel used to supply and treat water
• Compliance with federal government clean-water mandates
• Rising pension and health care costs for water agency workers
• Increased security safeguards for water systems since 9/11
For years, everything from antiquated sewer systems to water shortages to raised effluent standards have been blamed when an increase is passed on to self-service laundry owners. Sometimes, these are true needs that have to be met, and the problems can be resolved only by adding impact fees, surcharges and other cost increases. However, in some instances, politics plays a role and can be held responsible for the additional money you’ll be paying to continue to operate your laundry business.
Unfortunately, today, there seems to be no across-the-board rationale for price increases and the imposition of what can easily be referred to as an additional “tax” disguised as an impact fee.
As both city and suburban areas grow, they are taking their toll on aging and inadequate water and sewer systems. Many communities have enacted infrastructure renewal programs, but such upgrades are expensive.
Unfortunately, self-service laundries are perhaps hit harder than many other businesses when water and sewer costs skyrocket. The problem is nationwide, and it is only becoming more severe.
The issue is that when towns or cities experience growth, the water and sewer systems often are unable to accommodate that growth and increased volume. Water mains break, sewers back up and the cities are constantly cleaning up after these accidents. In addition, when a large rainfall occurs, retention ponds and sewers flood. This flooding can cause an overflow of wastewater into the water supply.
Thus, the only real answer to the problem of inadequate water and sewer systems is to upgrade or replace the infrastructure. This is, of course, extremely expensive, and most cities need to raise taxes or water rates to cover the costs. However, there are not many towns that are fully aware of the devastating effect these rates and tax hikes can have on laundry owners.
AWWA Annual Study: The State of the Water Industry
The American Water Works Association has been formally tracking issues and trends in the water industry since 2004 through its yearly State of the Water Industry study. Here are some of the key findings from the 2015 version of the association’s annual survey:
• The top five most important water issues for 2015 were identified as:
1. Renewal and replacement (R&R) of aging water and wastewater infrastructure
2. Financing for capital improvements
3. Long-term water supply availability
4. Public understanding of the value of water systems and services
5. Public understanding of the value of water resources
• There is a gap between the financial needs of water and wastewater systems and the means to pay for these services through rates and fees. Nine percent of all respondents felt that water and wastewater utilities are not at all able to cover the full cost of providing service, including infrastructure R&R and expansion needs, through customer rates and fees. What’s more, 16 percent of all respondents are concerned that utilities will not be able to cover the full cost of providing service in the future.
• Concerning infrastructure R&R, the most important issue was establishing and following a financial policy for capital reinvestment. Other critical concerns in this area are prioritizing R&R needs and justifying R&R programs to ratepayers and oversight bodies.
• The most reported cost recovery strategies from utility employees were (1) shifting more of the cost recovery from consumption-based fees to fixed fees within the rate structure, (2) changes in growth-related fees, (3) shifting rate design to increasing block-rate structure and (4) increasing financial reserves.
• When asked “How prepared do you think your utility will be to meet its long-term water supply needs,” 11 percent of utility personnel indicated their utility will be challenged to meet anticipated long-term water supply needs, up from 10 percent in 2014.
• Regarding management of groundwater resources, the most important issues identified through the survey were (1) declining groundwater levels, (2) watershed/groundwater protection and (3) groundwater regulations.
Why Do Water Rates Vary So Greatly?
The vast majority of current water and sewer systems are owned by the city or the district they serve. This means you can be paying a $6,000 impact fee for every washer in your store and $18 per unit of water, while the laundry in a neighboring town may not even have an impact fee and is paying only $9 a unit.
Local communities have autonomy in determining local rates, and there are factors that make each city’s charges higher or lower than the next. These factors include:
• Accounting and financial reporting systems.
• Policies and financing mechanisms for long-term systems.
• Local rate methodologies (flat rates, subsidies, etc.).
• Differing amounts of rainwater flow and infiltration of wastewater into local systems.
Small towns located next to larger cities may suffer from inadequate water and sewer systems, and are unable to afford to run a line and tap into the city’s system. In addition, a poorer city may not have the funds to cover the water and sewer upgrades mandated by state and environmental agencies. Fines for non-compliance can reach $1,000 a day, and the state governments have the right to refuse plumbing hookups if a city’s infrastructure is not up to state-mandated standards.
The rate picture is not easily carved up into geographical segments. Where you live is not necessarily going to determine if you pay a higher rate. You can have different pressures, based upon the history of your water system and the climate.
For example, if you’re in the Midwest, it’s more likely that your rate pressures are going to arise from infrastructure needs. If you’re in the Southwest, those costs may be driven by the need to invest in technology that will help provide a larger supply.
Water Privatization
In some markets, privatization of the water supply has grown in popularity.
Historically, in certain parts of the U.S., private ownership and provision of water was the norm. Then, in the latter half of the 19th century, private water systems began to become part of municipal services. As of 2011, more than three-quarters of U.S. local governments surveyed by the International City/County Management Association provided water distribution entirely with public employees. In addition, more than two-thirds of municipalities provide water treatment publicly, and more than half provide sewage collection and treatment publicly.
Increased interest in privatizing public water services is an outgrowth of political forces and public policies favoring privatization of public services generally, and water resources specifically. A growing number of contracts to privatize public water services is an indicator that privatization has become increasingly attractive to many public water institutions. State legal authority for public entities to privatize water systems has aided the privatization trend. In fact, states have enacted statutes authorizing municipalities and other public entities to enter into contracts with private entities to supply water to the public.
And some large water corporations have identified U.S. public systems as potentially profitable. These companies include United Water, a subsidiary of the French company Suez Environment; American Water; and Siemens from Germany, which acquired U.S. Filter Corp. from French Veolia Environment and does business under the Siemens name.
The University of Michigan’s Center for Local, State and Urban Policy published a report examining the pros and cons of privatization, and its impact on local and state government in the U.S. The report’s findings included:
• Private providers may or may not be more efficient than public providers. Whether privatization leads to greater cost savings depends largely on whether there is competition in service provision.
• The quality of privatized services may or may not be higher than publicly provided services. Governments can play an important quality assurance role by monitoring and evaluating the delivery of privatized services.
• Privatization might lead to more rational labor market policies. However, the employment effects of privatization are more nuanced than commonly assumed by either proponents or opponents of privatization. Privatization tends to lead to substitution of high-skill for low-skill workers and reduction in total employment levels, but no change in net wages.
• Political considerations strongly influence both if and how policymakers contract-out services to private providers.
The report summarized: “While many states and localities are turning to privatization as a way to provide services to their citizens, surprisingly little is known about these choices. Much of the debate over privatization pays little attention to the rationales and consequences of private versus public service provision.”
A private sector supply of water can be more efficient and cost-effective. According to the World Bank, it is estimated that in the U.S. each dollar of public funds raised for utilities has an opportunity cost of $1.30 of private consumption, and the average opportunity cost for each dollar of tax revenue raised is $1.17 for 38 African countries.
In addition, some point out that, privately owned utilities also make significant economic contributions to the communities they serve by paying local, state and federal taxes. So, in addition to providing quality water service, a privately owned utility also helps fund schools, police and fire departments, etc.
Today, private firms operate more than 2,400 publicly owned water and wastewater facilities for nearly 2,000 municipalities. The industry has been growing an average of about 19 percent per year over the last few years, which is considerable, when factoring in the recession. These statistics are clear signs that municipalities are satisfied with the results of the partnerships they have set up.
One positive example of privatization occurred in Indianapolis. In 2011, the city transferred its water and waste water systems to a non-profit charitable trust known as Citizens Energy Group, for more than $1.9 billion. Under the terms of the transfer, the city transferred all of the debt of those two systems to CEG and received more than $500 million, which the city has used to fund upgrades to transportation infrastructure, improvements to city parks and removal of abandoned homes.
Understanding Your Water Bill
Whether your water purveyor is public or private, the first step to taking control of the way you use water in the future is through a clear understanding of how much water you use today. The best place to find this information is on your monthly water bill.
Different utilities use different units for measuring water use. The most common units are the CCF and the gallon. A CCF (centum cubic feet), also called an HCF (hundred cubic feet), represents 100 cubic feet of water. The first “C” comes from the Roman word for hundred, “centum.” This is the most common unit used by both water and natural gas utilities. One CCF is equal to 748 gallons.
The next thing to understand is how you’re being charged. There are a wide variety of rate structures used to bill customers. They include:
Flat Fees: This is a rate structure where all customers are charged the same fee, regardless of the amount of water used. Flat fees are the simplest type of rate structure and are rarely used today. They generally don’t provide revenue sufficient to operate the utility and are not good at promoting water efficiency.
Uniform Rates: This is a structure that has a constant per unit price for all metered units of water consumed on a year-round basis. It differs from a flat fee in that it requires metered service. Some utilities charge varying user groups different rates, such as charging residential households one rate and commercial users a different rate. Constant block rates provide some stability for utilities and encourage conservation because the consumer bill varies with water usage.
Increasing Block Rates: This is a rate structure in which the unit price of each succeeding block of usage is charged at a higher unit rate than the previous block(s). Increasing block rates are designed to promote conservation and are most often found in urban areas and areas with limited water supplies.
Declining Block Rates: These are the opposite of increasing block rates where the unit price of each succeeding block of usage is charged at a lower unit rate than the previous block(s). This rate structures are popular in rural areas that service large farming populations or areas with large users such as heavy industry and where water is plentiful.
Seasonal Rates: These are rates that cover a specific time period. They are established to encourage conservation during peak use periods. Examples of seasonal rates may be increases for the summer season due to increased demand associated with lawn watering and outside activities.
Drought Rates: These are similar to seasonal rates, but instead of applying higher rates during an entire time period, they adjust rates based on the local area’s drought level. Higher levels of drought result in higher prices for water in order to encourage conservation
Water Budget Based Rates: This is a rate structure where users are given a “water budget,” based on the anticipated needs of that user. Consumers are charged a certain rate for use within their budget and a higher rate for use that exceeds their budget.
Many utilities use a combination of a fixed fee (base) and a variable fee (volume) for their water rate structure. Fixed charges generally include the price the customer pays as a base charge to help cover costs for maintaining existing infrastructure and repaying loans and bonds used to build that infrastructure. Variable charges are the price the customer pays per volume of water used, which reflect the costs of providing water, such as costs for chemical treatment to provide safe water and energy to move and deliver water.
Most utilities will provide you with a breakdown of charges in your “billing detail” or “summary of charges” section. Some utilities measure both water entering the building and waste leaving to the sewer, but many utilities have only one meter on location and will charge both volumes based on water entering.
If you’re curious about what various surcharges and other charges on your water bill mean, you can usually find that information either on the back or appendix of the bill or on your local water utility’s website.
Water Metering
The process of measuring your store’s water use is referred to as water metering.
Water meters are used to measure the volume of water used by residential and commercial buildings that are supplied with water by a public water supply system. Water meters also can be used at the water source, well or throughout a water system to determine flow through a particular portion of the system. In the U.S., water meters are calibrated in cubic feet or gallons on a mechanical or electronic register. Some electronic meter registers can display rate-of-flow in addition to total usage.
There are several types of water meters commonly used today. The choice depends on the flow measurement method, the type of end user, the required flow rates and accuracy requirements. In North America, standards for manufacturing water meters are set by the American Water Works Association.
Basically, there are two common approaches to flow measurement – displacement and velocity, with each making use of a variety of technologies. Common displacement designs include oscillating piston and nutating disc meters. Velocity-based designs include single- and multi-jet meters and turbine meters.
Water meters are generally owned, read and maintained by a public water provider such as a city, rural water association or private water company. In some cases an owner of a mobile home park, apartment complex or commercial building may be billed by a utility based on the reading of one meter, with the costs shared among the tenants based on some sort of key (size of space, number of people or by separately tracking the water consumption of each unit in what is called submetering).
Displacement water meters. This type of water meter is most often used in residential and small commercial applications. Displacement meters are commonly referred to as “positive displacement,” or PD, meters. This metering method relies on the water to physically displace the moving measuring element in direct proportion to the amount of water that passes through the meter. A piston or disk moves a magnet that drives the register.
PD meters are generally very accurate at the low-to-moderate flow rates typical of residential and small commercial users, and commonly range in size from 5/8 of an inch to two inches. Because displacement meters require that all water flow through the meter to “push” the measuring element, they generally are not practical in large commercial applications requiring high flow rates or low pressure loss. PD meters normally have a built-in strainer to protect the measuring element from rocks or other debris that could stop or break the measuring element. PD meters normally have bronze, brass or plastic bodies with internal measuring chambers made of molded plastics and stainless steel.
Velocity water meters. A velocity-type meter measures the velocity of flow through a meter of a known internal capacity. The speed of the flow can then be converted into volume of flow to determine the usage. There are several types of meters that measure water flow velocity, including jet meters (single-jet and multi-jet), turbine meters, propeller meters and mag meters. Most velocity-based meters have an adjustment vane for calibrating the meter to the required accuracy.
Keep Your Costs in Line
As a laundry owner, the very first thing you can do to offset water and sewer costs, as well as pricey impact fees, is to know exactly what you’re getting into. If you’re considering building a new laundry, learn which impact fees and surcharges will be imposed upon your business.
There are tens of thousands of water reclamation sights throughout the U.S. and each is authorized to act as its own entity. Therefore, each district has the authority to impose any and all costs it may deem necessary. Thoroughly examine what costs will be incurred for initial equipment set up and what other charges will be imposed once you have begun operation.
If you are currently operating in a district that has increased costs drastically, or has begun to impose additional charges, ask questions. Why are your costs rising? Is your store being charged on the basis of what you are actually consuming and disposing? Is your category unfairly lumped in with heavier water users that require additional methods to meet effluent standards? Is your water district making an allowance for water lost in evaporation? These are questions that require answers.
In addition, laundry owners can – and should – look into replacing their older equipment with new, more efficient units. If your coin laundry’s washers are more than five years old, you may be paying too much for water and other utilities. In some cases, high-efficiency machines can lower water and sewer costs by as much as 35 percent to 50 percent.
Above all, it’s crucial to educate yourself on your marketplace’s water and sewer issues. Stay informed. Let your local lawmakers know how their decisions impact your small business.
Back at your store, purchase new equipment if and when necessary. Diligently maintain your current equipment. Take advantage of any rebates, grants or other programs offered in your marketplace to take some of the financial pressure off of your business’ bottom line.
Lastly, when pricing your services, give yourself a fighting chance. Due to legislative initiatives and the economy in general, it’s clear that there will be no letup in water rate increases. If you don’t keep up now, you may fall behind to such an extent that it will be impossible to catch up – or even stay in business.
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