Water affordability has moved from the periphery of utility planning to the center of regulatory, legal, and political debate. The convergence of aging infrastructure requiring over $1.2 trillion over 20 years, emerging contaminant compliance costs, the expiration of federal assistance programs, and mounting environmental justice scrutiny has created a crisis that no utility can ignore.
The numbers demand attention. The U.S. Environmental Protection Agency's December 2024 Water Affordability Needs Assessment found that 12.1–19.2 million households — between 9% and 15% of the nation — lack affordable access to water and wastewater services. The annual affordability gap stands at $5.1–$8.8 billion. Water and sewer costs have more than doubled since 2000, far outpacing inflation and household income growth.
The Affordability Regulatory Framework: Evolution and Crisis
The EPA established its foundational affordability guidance in the late 1990s. The approach has remained largely unchanged for nearly three decades — even as the utilities, the contaminants they face, and the populations they serve have fundamentally transformed.
The regulatory trajectory is clear — affordability analysis is no longer optional in rate cases. Utilities that proactively incorporate household-level burden analysis, rather than relying solely on the MHI-based Residential Indicator, position themselves ahead of where EPA's framework is heading.
The 2% MHI Problem
EPA's 2% median household income threshold, established in 1997, systematically masks affordability crises for the lowest-income households. At the median, 2% of income is affordable for many. For households in the lowest income quintile, 2% of median income translates to payment burdens of 9.7% to 19% of their actual income — making water literally unaffordable.
The Affordability Gap: Federal, State, and Utility Response
LIHWAP was the first federal program designed specifically to address water affordability. In operation from December 2020 through March 2024, it provided critical relief. But its expiration has left a chasm.
LIHWAP Impact and Current Funding Gap
Program served 1.4 million households; gap remains nearly $7 billion annually
Over 3+ years, LIHWAP distributed $1.1 billion to 1.4 million households — an average of $786 per household per year. At that rate, addressing the full 12–19 million household gap would require approximately $9.4–15 billion annually. No successor program has been authorized by Congress.
The $7+ billion annual gap between need and available assistance is the defining challenge of water affordability in the post-LIHWAP era. Utilities that wait for federal action risk both regulatory penalty and community backlash. The path forward requires layering every available funding source — SRF, state programs, settlement proceeds — with defensible rate structures.
Rising Water Bills: The National Picture
Water and sewer costs have doubled since 2000, but the distribution varies dramatically by region. In some systems, bills approach or exceed $170 per month.
Average Combined Water & Sewer Bills by State
Geographic variation in affordability burden
State Spotlight: Five Markets in Affordability Crisis
The five states profiled here represent a spectrum of regulatory approaches and affordability challenges. The common thread: affordability analysis is becoming more granular, more equity-focused, and more consequential for utility planning.
Baltimore: The 500% Crisis
Baltimore's water crisis illustrates the compounding affordability trap. In 2005, the average monthly combined water and sewer bill was $33. By 2026, it had risen to $168 — a 500% increase in two decades. More than half the city's households cannot afford their bills. Over 41,000 homes are at risk of tax sale for unpaid water bills.
Chicago: Racial Disparity in Water Costs
Chicago illustrates a starkly different affordability challenge: racial equity. While citywide water costs average 2–3% of household income, in majority-Black census tracts on the city's South Side, water bills consume 19% of household income. This gap persists despite federal civil rights law and state anti-discrimination statutes.
Chicago Water Burden by Demographic
Percentage of household income spent on water and wastewater
California: Progressive Reform and Remaining Gaps
California has adopted the nation's most comprehensive affordability framework. SB 1255 mandates percentage-of-income water bills (PIWB) for 5 million residents, with credits ranging from 20% to 50% depending on income. Despite this, 21% of the state's water systems still fail affordability tests.
Texas: Emerging Action Without Federal Guidance
Texas has no state affordability standard and ranks among the fastest-growing water-stress states. But San Antonio Water System, serving 1.5 million people, operates 14 distinct customer assistance programs. The 2025 legislature authorized $2.5 billion in water infrastructure funding — a signal that affordability is reaching political salience even in conservative markets.
Colorado: Affordability Meets PFAS Pressure
Colorado faces affordability pressure exacerbated by emerging PFAS treatment mandates. Average combined water and sewer bills exceed $130/month. PFAS compliance could add $3,500 per household per year in some systems. The state's Public Utilities Commission Bill Help program caps assistance at 6% of income — still inadequate for lowest-income households.
Customer Assistance Programs: What Works
Customer Assistance Programs are no longer a public relations exercise — they are becoming a regulatory requirement in many jurisdictions. The most effective programs combine percentage-of-income caps with automatic enrollment mechanisms tied to existing benefit programs.
Lifeline/Discount Rates
EBMUD: 50% discount for low-income
SB 1255: Tiered 20–50% credits
SAWS: First 2,000 gallons free
Fixed income thresholds; limited flexibility
Percentage-of-Income Programs
Baltimore Water4All: 1–3% of income cap
Philadelphia TAP: Most developed model
IAW Illinois: 10–80% credit
Scales with household economic reality
Crisis & Emergency Funds
WSSC Water Fund: $500/year
Aurora Water Cares: $400–500/yr
Houston W.A.T.E.R: Donation-funded
Targeted to disconnection prevention
Customer Assistance Programs are no longer a public relations exercise — they are becoming a regulatory requirement in many jurisdictions. The most effective programs combine percentage-of-income caps with automatic enrollment mechanisms tied to existing benefit programs.
Rate Design Strategies for Affordability
Defensible rate structures must incorporate affordability analysis at the household level, not just at the median. Three primary approaches are emerging in utilities nationwide.
Inverted Rate Blocks
Higher rates for higher consumption; subsidizes essential use
Challenge: Poor cost-of-service alignment; can increase revenue volatility
Emerging in: California, some municipal systems
Income-Based Fixed Charges
Base/fixed rate varies by customer income; discovered through benefit program enrollment
Strength: Predictability; lower bills for lowest-income
Emerging in: Pennsylvania, Maryland
Three-Part Tariff with CAP
Base charge + volumetric rate + customer assistance rider capping income percentage
Strength: Cost recovery + equity; most defensible in rate cases
Emerging in: Colorado, Illinois, New Jersey
What Utilities Should Do Now
Water affordability is no longer a peripheral planning consideration. It is a core regulatory, legal, and operational imperative. Utilities must act on multiple fronts simultaneously.
Immediate Actions (2026)
- Conduct a household-level affordability assessment using the EPA's three-tier framework from its February 2023 FCA Guidance. Do not rely solely on median household income.
- Inventory all available funding sources: state affordability programs, SRF set-asides, EPA water infrastructure grants, settlement proceeds, and philanthropic funding.
- Model rate structures that incorporate affordability: inverted blocks, income-based fixed charges, or percentage-of-income caps.
- Engage with customers and governing boards on the affordability-infrastructure tradeoff. Transparency now prevents crisis later.
- Review customer assistance program effectiveness — eliminate enrollment barriers; tie to existing benefit program data.
Near-Term Actions (2026–2028)
- File rate cases or adjustment petitions with household-level affordability analysis.
- Develop a five-year capital improvement plan that accounts for affordability constraints.
- Establish or expand Customer Assistance Programs targeting the bottom income quintile.
- Document affordability outcomes for regulatory filings and bond offerings.
- Monitor state and federal affordability policy — the current EPA review (March 2026) may reshape the entire framework.
The five states profiled here represent a spectrum of regulatory approaches. The common thread: affordability analysis is becoming more granular, more equity-focused, and more consequential for utility planning. A rate study that ignores household-level affordability data now risks regulatory challenge.
The $7+ billion annual gap between need and available assistance is the defining challenge of water affordability in the post-LIHWAP era. Utilities that wait for federal action risk both regulatory penalty and community backlash. The path forward requires layering every available funding source — SRF, BIL grants, state programs, settlement proceeds — with defensible rate structures that incorporate household-level burden analysis.
At NewGen Strategies & Solutions, helping utilities navigate affordability challenges while maintaining financial sustainability is what we do every day. Whether you need a comprehensive affordability assessment, customer assistance program design, or a defensible rate case that incorporates household-level burden analysis, we'd love to hear from you.