FAQ: Water and Sewer Rates

Below are water and sewer rates for Fiscal Year 2022-23, which started July 1, 2022, and ends June 30, 2023. The minimum use that is charged was reduced by 125 gallons to a minimum of 2,250 gallons for this fiscal year. Lower-volume users will see a reduction in monthly bills despite rate increases this fiscal year. Average residential utility use is 3,050 gallons per month. 

For in-town customers:

• Water rate is $10.12 per 1,000 gallons (44-cent increase per month).
• Sewer rate is $14.24 per 1,000 gallons (28-cent increase per month).
• The minimum water fee is $22.77 (22-cent reduction per month, with payment of about 1 cent per gallon).
• The minimum sewer fee is $32.04 ($1.12 reduction per month, with payment of about 1 cent per gallon). 

For out‐of‐town customers:

• Water rate is $19.72 per 1,000 gallons (85-cent increase per month). 
• Sewer rate is $27.76 per 1,000 gallons (54-cent increase per month).
• The minimum water fee is $44.37 (45-cent reduction per month, with payment of about 2 cents per gallon).
• The minimum sewer fee is $62.46 ($2.19 reduction per month, with payment of about 3 cents per gallon).

Hillsborough charges a minimum usage fee as a financial safeguard to ensure the town can pay for providing water and sewer service. Fixed costs are associated with making water and sewer service available to a customer regardless of whether the customer uses any water in a given month. In Hillsborough, up to 2,250 gallons of water can be used with the minimum fee. Additional use is billed per 1,000 gallons.

Across the state, a number of systems have higher rates than Hillsborough. Some systems with lower rates are within larger communities. These larger communities have a greater customer base over which the cost of service can be distributed.

In the Upper Neuse River watershed, Hillsborough’s rates per 4,000 gallons in January 2023 were:

• Water rates — higher than the median by $7.54 for in-town customers and by $28.02 for out-of-town customers.
• Sewer rates — higher than the median by $6.04 for in-town customers and by $33.67 for out-of-town customers.

Among the Triangle J Council of Government, Hillsborough’s rates per 4,000 gallons in January 2023 were:

• Water rates — higher than the median by $7.31 for in-town customers and by $25.50 for out-of-town customers.
• Sewer rates — higher than the median by $15.04 for in-town customers and by $40.68 for out-of-town customers.

Comparing rates can be misleading

Comparing rates is not simple, as the cost of service for each utility is based on a number of diverse factors. Customers should not expect a gallon of water to cost the same regardless of the water system providing it, notes an Environmental Finance Blog article below.

The Environmental Finance Center at the University of North Carolina at Chapel Hill and the North Carolina League of Municipalities provide annual research to allow customers to compare rates with other water and sewer systems that have similar characteristics or that are in the same basin or regional council of government. A report based on the annual study is provided below.

In addition to being within the Upper Neuse River watershed and in the Triangle J Council of Government region, characteristics for Hillsborough include it:

• Is within the Falls Lake watershed and is affected by wastewater treatment mandates under the Falls Lake Rules, which are state mandates to protect and restore the water quality of Falls Lake.
• Charges for a minimum usage of 2,250 gallons (at the time of data collection) each billing cycle. Additional use is billed per 1,000 gallons.
• Charges out-of-town customers a rate that is 1.95 times the rate for in-town customers.
• Serves about 15,251 people through about 6,004 water and sewer connections.
• Has average residential customer use of 3,050 gallons of water per month.

Every community has different conditions that affect the ability to provide safe and reliable water and sewer service. The primary reasons that Hillsborough’s water and sewer rates are higher than those of some surrounding communities are:

Lack of a plentiful and easy-to-access water supply

The Eno River does not provide a large volume of water as we are located close to the river’s headwaters — its beginning. The drainage basin that feeds into Hillsborough’s waterways also is relatively small. In addition, Hillsborough is located too far from larger systems or in a different river basin than larger systems to make absorption into those systems a reasonable solution. An evaluation of partnering with the City of Durham water system found the costs to be too expensive, and Hillsborough is in a different river basin than the Carrboro-Chapel Hill area, which has its water provided by the Orange Water and Sewer Authority.

To address water capacity needs — both due to a history of droughts and to accommodate expected growth to the area — the town built a reservoir in the late 1990s and completed expansion of the reservoir in 2022. The debt on the reservoir construction makes up a large portion of the expenses related to the water portion of customers’ bills.

State-mandated rules to protect and restore the water quality of Falls Lake

Hillsborough is required to treat its wastewater at higher and more expensive standards than other sewer systems because of its location. The town is located within a watershed that drains into Falls Lake, which is on the Environmental Protection Agency’s list of impaired waters and has been designated nutrient-sensitive by the North Carolina Division of Water Resources. To protect and restore the lake’s water quality, the state created the Falls Lake Rules, which includes stringent rules for the release of treated wastewater. The wastewater rules affect the Town of Hillsborough, the North Durham Wastewater Reclamation Facility and the South Granville Water and Sewer Authority. The wastewater rules are said to be the nation’s strictest limits on treated wastewater. The first stage of the wastewater discharge rules went into effect in 2016, and the second stage is expected in 2036.

In 2014, Hillsborough completed upgrades to its wastewater treatment plant in part to meet the Stage 1 wastewater rule. The debt on the plant upgrades makes up a large portion of the expenses related to the sewer portion of customers’ bills. Additional upgrades to the Wastewater Treatment Plant likely will be required to meet the Stage 2 wastewater rules.

Large number of sewage pump stations

Hillsborough has more pump stations than a typical municipality because of its terrain and likely because the infrastructure was preferred decades ago due to its low upfront costs. These stations help sewage flow past an elevated area, such as a hill, by pumping or lifting the sewage from a lower to higher elevation. Once past the elevated point, the sewage can flow again via gravity. Pump stations are expensive to operate and require a large amount of staff time. In addition, failures can result in sanitary sewer overflows and fines from the state. Gravity is the most cost-effective way to transport water and wastewater.

Small size of utilities system

Because Hillsborough operates a small utilities system, it does not benefit from the economies of scale of a larger system that can spread the costs of operations among more customers.

In addition, because small towns deal with smaller amounts of gross funds, they need larger savings levels to be fiscally sound and to satisfy criteria established by bond rating agencies that assess the town’s creditworthiness. A reasonable savings level — also called “fund balance” or “retained earnings” — for a utility is critical to ensure the town does not have cash flow problems and can handle unexpected revenue shortfalls, expenditure overruns and emergencies. Town policy recommends maintaining an undesignated fund balance of 20 to 60% of annual operating expenditures.

Commitment to care for the town’s utilities system, customers and environment

Water and sewer services are expensive to provide. When it comes to maintaining its drinking and wastewater infrastructure, the United States does poorly, earning respective grades of C- and D+ in the 2021 Infrastructure Report Card from the American Society of Civil Engineers. In North Carolina, the grades from the most recent state report card in 2013 are slightly better — with a C+ for drinking water infrastructure and a C for wastewater infrastructure. 

The Town of Hillsborough strives to do better, already using solutions that the American Society of Civil Engineers recommends for raising the grade of drinking water and wastewater infrastructure, such as ensuring rates cover the full cost of service and resilient infrastructure. Often there is a reluctance to raise rates to recover the costs associated with providing water and sewer service, notes a video on full cost pricing of water, provided by the Environmental Finance Center at UNC Chapel Hill.

Hillsborough's operations approach includes taking care of what we have. Your Hillsborough water and sewer bill reflects your contribution to the labor and the physical infrastructure required to have clean, accessible water when you want it and to have wastewater removed when desired and safely returned to the environment. The town does not make a profit from providing water and sewer service nor does it use water and sewer revenue for purposes other than the operation, maintenance and improvement of the town’s water and sewer system.

Water and sewer payments cover the costs of providing the utility service, which includes the operation, maintenance and improvements of the system. The majority of revenue from water and sewer payments funds:

• Water and sewer operations
• Employees who provide the services
• Debt payments for water and sewer capital projects

For Fiscal Year 2022-23, the breakdown for major water and sewer expenses is:

• 27% for operations
• 29% for personnel services
• 19% for debt service

Out-of-town water and sewer fees are higher than in-town fees due to:

Cost of service

Customers located farther away from the town’s core usually are more expensive to serve on average because of lower densities and greater distances. Outlying areas generally are less densely populated than areas within the town, which involves a greater average expense in maintaining and serving the system per foot of pipe. The operations, maintenance, pumping of water and sewer, and reading of meters can be more costly in areas outside of town, primarily due to additional distance and travel time from the town’s water or wastewater treatment plants.

Growth management

When the town provides water and sewer service by request to developments outside of its limits, it loses some of its capacity to attract the type of development that would improve its tax base, help improve the economies of scale in providing services, and potentially ease the tax burden on existing residents. Charging a higher rate to out-of-town customers is a way to recoup some of the potential lost tax revenue that the town sacrifices by allocating part of its water and sewer resources to outside customers. Lower in-town fees also can make annexation more desirable in areas that already have water and sewer service.

Investment risk

As owners of the town’s water and sewer system, in-town customers bear more of the investment risks of owning and operating a utility. When voter-approved general obligation bonds are issued to finance large projects, such as the reservoir’s first phase, the town pledges its full faith and the credit of its taxing power as collateral to ensure the debt will be repaid.

Equity

In-town customers bear more of the burden of financing and facilitating the water and sewer system’s operations through their local government, including through paying municipal property taxes. For in-town customers, both their water and sewer payments as well as their municipal property taxes help pay for positions and resources that support the water and sewer operations, including Human Resources personnel and information technology. Through their tax dollars, in-town customers also subsidize the use of Hillsborough services by out-of-town customers who live near the town’s corporate limits, including streets; police protection when inside town limits; and recreation facilities, such as Gold Park, Kings Highway Park and the Riverwalk greenway.