Why Rate Comparisons Fall Short
USES A FLAWED, UNREPRESENTATIVE DATASET
The report uses an unrepresentative dataset that tries to draw conclusions about all water systems by analyzing only the largest 1% of systems in the U.S.
The report uses an unbalanced dataset that heavily favors government systems (442 systems included in the study) vs private systems (58 systems included in the study). In no way does the group attempt to compare equal sets of government and private systems that have similar characteristics.
IGNORES GOVERNMENT SUBSIDIES AND TAXES
The report fails to account for non-rate revenues that act as subsidies for government systems and make cost comparisons to private systems inequitable.
The report fails to account for state and local taxes paid by customers of private systems. Government system customers do not pay such taxes.
DOES NOT FACTOR IN CAPITAL INVESTMENTS
The report fails to account for differences in capital investments between systems, blindly praising low-cost systems without considering impacts on key elements of service provision like water quality and infrastructure reliability.
An example from California shows how oversimplified, fictitious rate narratives don’t tell the full story. Experts repeatedly warn that comparing the rates of different water systems with different investment practices is misleading and unwise. The chart below shows why. While Claremont’s monthly rate is slightly higher than La Verne’s, Golden State Water invested 600% more in water infrastructure than the City of La Verne between 2011 and 2014.
Infrastructure investments matter. While Claremont has a perfect water quality record, La Verne has had three health-based violations of the Safe Drinking Water Act, including a boil water episode due to E. Coli contamination.
Note that the costs and rates charged for water services differ in many respects between public and investor-owned purveyors … It is important to consider this information related to water service and rates charged for water service when comparing public and investor-owned purveyors.
Factors such as geographic location, demand, political climate, water source, level of treatment, and age of system can greatly influence cost and rates. Careful attention must be given to these factors before drawing conclusions from a simple rate comparison.
“Casual comparisons of or generalizations about rates are strongly discouraged … Bill comparisons should be used with an abundance of caution, as many factors influence water costs and rates.”
Drawing conclusions from rate comparisons should be done only after evaluating several community characteristics (such as geography, climate, and service area, as well as the use of taxes, subsidies, and grants). The determinants of utility rates are varied and complex and do not necessarily reflect the true cost of service. A low rate or a high rate does not necessarily mean that a utility is more or less efficient, respectively.