The Winners and Losers of Utility Rates

Richard Bose makes a point about the relative costs of utilities like water and electricity, depending on whether you live in the sprawling reaches of a region or closer to the dense urban core: "for the same amount of usage, households closer together subsidize households further apart."

The inequity occurs because utilities don't charge for the length or the size of infrastructure, and Bose has an obvious example from the St. Louis region to prove that point.

Missouri American Water has 4,200 miles of water mains and 31,000 fire hydrants in St. Louis County. Bills are calculated with the sum of a minimum customer charge based on water meter diameter and usage (MO American Water rates).

Like many other water systems around the country, the infrastructure that Missouri American Water and its users rely on has reached the end of its useful life.

Recognizing the need to replace old pipes, the Missouri Legislature authorized Missouri American Water to charge customers for infrastructure replacement in 2003. Missouri American Water added a fee on bills called the Infrastructure System Replacement Surcharge (ISRS). Since its inception, MO American Water has spent $445 million on improvements to water distribution and hydrant upgrades in St. Louis County.

With no consideration given to the amount of the infrastructure need to supply water to customers, the rate instead applies a universal charge of $0.7642 per 1000 gallons of water. Bose does the math to discover the winners and losers under that fee structure (read the full article for the details), also finding that the rate is likely much to low to pay for existing and future costs.