Water Rates, Utility Finances, and Affordability: What the 2026 Data Tell Us
by Dr. Ahmed Rachid El-Khattabi
Water and wastewater services are among the most basic services local governments provide, but delivering those services is anything but simple. Utilities must operate treatment plants, maintain miles of pipes, respond to emergencies, and plan for infrastructure replacement, all while keeping bills manageable for the customers who depend on them.
So what is happening to water and wastewater bills in North Carolina? And are the rates utilities charge enough to keep pace with the costs of providing these essential services?
This post overviews the 2026 North Carolina Water & Wastewater Rates Dashboard and corresponding report that provide a statewide look at these questions. The report compares rates from fiscal years 2025 and 2026, based on rate information collected between August and October of each year. It includes rate information from 467 utilities across 99 of North Carolina’s 100 counties, representing 94% of the utilities surveyed.
**An update to the North Carolina rates dashboard and report is currently in progress**; if you haven’t submitted your current rates this summer, please email them to efc@sog.unc.edu.
Water and Wastewater Bills are Rising
At a consumption level of 5,000 gallons per month, the statewide average residential bill across surveyed utilities is $46.57 per month for water and $60.10 for wastewater.
Residential water and wastewater bills generally increased between fiscal years 2025 and 2026, but not uniformly across the state. About half of water rate structures and two-fifths of wastewater rate structures resulted in higher bills in 2026. Among those that increased, the bill at 5,000 gallons rose by 6.00% for water and 11.00% for wastewater, on average.
From a household perspective, these increases are best understood in the context of the broader cost of living. Comparing changes in water and wastewater bills with the Consumer Price Index (CPI) can help illustrate how utility bills are changing relative to the prices consumers face for other goods and services. Between July 2024 and July 2025, the CPI increased by approximately 2.7% nationally. In other words, the average increase for 5,000 gallons of consumption was roughly 2.2 times the rate of overall consumer inflation for water and 4 times the rate for wastewater.
Are Utilities Generating Enough Revenue?
Though CPI is useful for putting changes in water and wastewater bills in a household context, it should not be considered a measure of the cost of providing utility service. Water and wastewater utilities face a different mix of cost pressures, including labor, energy, chemicals, equipment, construction, and infrastructure replacement. These costs do not necessarily change at the same rate as the prices of goods and services captured by the CPI. Producer-price measures and other indexes that reflect utility operating and capital costs are more appropriate for assessing change in cost-of-service delivery. This distinction matters because though a rate increase can be significant for households, it might still be insufficient for a utility to recover its costs.
A useful measure of financial health is the operating ratio, which compares operating revenue with operating expenses. A ratio of 1.0 means revenues cover expenses; below 1.0 means they do not. We examine the ratio both with and without depreciation; excluding depreciation provides a picture of whether current revenues cover current operating costs, whereas including depreciation better reflects the resources needed to sustain infrastructure over time.
At first glance, the statewide picture looks relatively strong. Excluding depreciation, 354 of 411 utilities with financial information (86.1%) generated enough revenue to cover operating expenses. That picture becomes more nuanced when system size is considered. Approximately 78% of small utilities (fewer than 3,300 connections), 95% of medium utilities (between 3,301 and 10,000 connections), and 95% of large utilities (over 10,000 connections) generated enough operating revenue to cover expenses. However, simply covering operating costs is not necessarily a sign of financial strength. The SOG EFC uses an operating ratio of at least 1.2 when depreciation is excluded to recognize that utilities need additional revenue beyond current operating expenses to help support future infrastructure renewal and replacement needs. Using this more stringent benchmark, only 65% of all-sized utilities meet the EFC threshold.
The picture also changes when depreciation is included. Only 209 of 411 utilities (50.9%) generated enough revenue to cover operating expenses. Of the 202 utilities with ratios below 1.0, 153 (76%) serve fewer than 10,000 people, highlighting the particular financial challenges facing smaller systems.
One reason utilities may struggle to keep pace with changing costs is that rates are not always updated regularly. Although most North Carolina rate structures were updated in 2026, 11% had not been updated since before 2024, and 34 utilities had not updated any of their rate structures in the past five years. Regular rate reviews give utilities an opportunity to adjust rates gradually as costs change rather than allowing gaps to accumulate and requiring larger increases later.
Water and Wastewater Affordability
These numbers in the preceding sections point to a fundamental tension in water and wastewater finance. Utilities need to charge enough to cover the full cost of providing and sustaining service. But those same charges become household expenses which can be difficult for some customers to absorb.
Affordability is ultimately about whether households can reasonably pay for essential water and wastewater service. At 5,000 gallons per month, the median residential bill in North Carolina represents 0.95% of the statewide median household income (MHI) for water and 1.22% for wastewater. Using MHI to represent income in the context of affordability can obscure the burden faced by households with much lower incomes. Comparing bills with the federal poverty guidelines provides another perspective by showing the potential burden for households with incomes near levels used to determine eligibility for various forms of assistance. At the 2026 guidelines for a family of four ($32,150), the 75th percentile water and wastewater bills would represent approximately 2.19% and 2.63% of annual income, respectively.
Affordability and financial sustainability are therefore closely connected. The goal should not be to keep rates as low as possible, but to develop rates and affordability strategies that allow utilities to sustain service while keeping essential water and wastewater accessible to households with limited ability to pay. Rates that do not cover the cost of operating, maintaining, and replacing infrastructure can create problems later when deferred investments result in larger costs or less reliable service.
Rate design can be one part of this approach. Increasing-block rates, for example, charge higher rates as consumption increases and can reduce the cost of lower levels of use. However, they are not a substitute for targeted affordability assistance. Because utilities generally are not permitted to distinguish between households with different abilities to pay within the same customer class, an increasing-block structure may provide a discount to households that do not need assistance while shifting more costs to higher-use customers.
Consumption allowances offer another approach. An allowance includes a specified amount of water in the monthly base charge, reducing the marginal cost of lower levels of consumption. In FY 2026, 52.7% of North Carolina water rate structures with a base charge included a consumption allowance, with a median allowance of 2,000 gallons per month. Like other rate-design approaches, however, the allowance applies to all customers within the customer class rather than targeted assistance.
Ultimately, affordability can look very different across households. Addressing affordability therefore requires more than keeping rates low or changing rate structures; it requires finding ways to balance adequate cost recovery with strategies that help households with limited ability to pay.
Continuing the Conversation: Affordability Forum
The question is not simply whether utilities can afford to raise rates or whether customers can afford to pay them. The challenge is finding approaches that address both at the same time. That challenge is becoming more pressing as utilities face aging infrastructure, disruptive events (e.g., hurricanes, cyberattacks, drought), rising costs, and growing demands on household budgets.
The 2026 Rates Report shows that utilities across North Carolina are actively adjusting their rates. But rate increases alone do not tell us whether a utility is financially sustainable or whether its bills are affordable for the households it serves.
To continue this conversation, the Environmental Finance Center will host an Affordability Forum on October 26 at the UNC-Chapel Hill School of Government. The one-day forum will bring together utility professionals, local government leaders, researchers, and practitioners from across North Carolina to explore practical approaches to water and wastewater affordability, including how to measure affordability, set financially sustainable rates, address disconnections and nonpayment, and design effective customer assistance programs. The goal of the forum is to share approaches and experiences that can help communities sustain essential water and wastewater services while keeping them accessible to households with limited ability to pay.