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Lesson plan Grade 10 Careers & CTE

Cost of Service: A Day as a Utility Rate Analyst

A grade 10 careers lesson where students act as rate analysts for the fictional Harbor Point utility, building a water rate and testing a bill against affordability.

Objectives

  1. Students will compute a utility's cost of service per 1,000 gallons from its revenue requirement and volume sold.
  2. Students will calculate a household's monthly and annual water bill from a set rate.
  3. Students will compare a combined bill to the affordability threshold and reason about a proposed rate increase.

Vocabulary

Revenue requirement
The total amount of money a utility must collect from customers each year to run the water system safely. Rates are set so that all the bills together add up to this amount.

Also: cost of service, rate analyst, affordability

Teacher overview

A utility rate analyst answers a hard question: what should water cost so the utility can pay its bills without pricing water out of reach for families? The analyst starts from the revenue requirement, the total money the utility must collect in a year, and divides it across the water it sells to set a rate. In this lesson students take that role at the fictional Harbor Point utility. A common misconception this lesson corrects is that a water rate is set by guessing what seems fair; in practice it comes from dividing real costs by real volume, and then checking the result against what households can afford.

Procedure

Hook (5 min): Show two claims: "water should be as cheap as possible" and "the utility must cover its costs." Ask how both can be true at once. Introduce the rate analyst as the person who balances them, and name the day's task: set a rate for the fictional Harbor Point utility.

Direct instruction (12 min): Model the method with a different, fictional utility that must collect $3,000,000 a year and sells 500 million gallons. Show that 500 million gallons is 500,000 units of 1,000 gallons, so the cost of service is $3,000,000 / 500,000 = $6.00 per 1,000 gallons. Then model a bill: a household using 6,000 gallons a month pays 6 units x $6.00 = $36.00 per month. Stress that every step keeps its units, dollars over gallons.

Guided practice (13 min): With the class, start the Harbor Point handout and work items 1 and 2 together. Pause for a thumbs-up or thumbs-down check: can students explain why the utility divides by the number of 1,000-gallon units, not by the raw gallon count? Re-teach if many thumbs are down.

Independent practice (15 min): Students complete handout items 3 through 9 in pairs, showing each step. Circulate and watch for the error of forgetting to add the sewer charge in item 6, and for confusing a percentage-point gap with a percent change in item 7.

Closure / exit ticket (5 min): On an index card, students answer: "Harbor Point's combined bill is 3.24% of a median income. The affordability guide flags anything above about 4.5%. Is this bill a high burden by that guide?" Collect and scan for a correct yes/no with the reason.

Cost of Service: A Day as a Utility Rate Analyst — Grade 10 Careers & CTE
Name: ____________________________ Date: ______________

Student Handout

You are a rate analyst for the fictional Harbor Point utility. This year it must collect a revenue requirement of $6,000,000, and it expects to sell 800 million gallons of water, which is 800,000 units of 1,000 gallons. Use these facts: an average household uses about 300 gallons per day; the median household income in Harbor Point is $50,000 per year; a widely used guideline built from EPA benchmarks treats combined water and sewer costs above about 4.5% of household income as a high burden.

  1. Find the cost of service per 1,000 gallons: divide the revenue requirement by the number of 1,000-gallon units sold.
  2. A household uses 300 gallons per day. How many gallons does it use in a 30-day month?
  3. Using your rate from item 1, what is that household's monthly water bill?
  4. What is the household's annual water bill?
  5. What percent of the $50,000 median income is the annual water bill from item 4?
  6. Harbor Point charges an equal sewer bill, so the combined water-and-sewer cost is twice the water bill. What percent of the $50,000 income is the combined annual cost?
  7. The affordability guide flags combined costs above about 4.5% of income. Is Harbor Point's combined cost above or below that, and by how many percentage points?
  8. To fund pipe replacement, the utility proposes raising the revenue requirement by 10%, to $6,600,000, with the same volume sold. What is the new cost of service per 1,000 gallons?
  9. Explain one reason a rate analyst must weigh the 4.5% affordability threshold before recommending a rate increase.

From Water for Schools (waterforschools.org). This material is in the public domain (CC0) and may be copied, edited, and shared freely.

Answer Key
  1. Answer: $7.50 per 1,000 gallons. $6,000,000 / 800,000 units = $7.50 per 1,000 gallons.
  2. Answer: 9,000 gallons. 300 gallons/day x 30 days = 9,000 gallons per month.
  3. Answer: $67.50 per month. 9,000 gallons is 9 units of 1,000; 9 x $7.50 = $67.50.
  4. Answer: $810 per year. $67.50 x 12 months = $810.
  5. Answer: About 1.62%. $810 / $50,000 = 0.0162, or 1.62%.
  6. Answer: About 3.24%. Combined cost = 2 x $810 = $1,620; $1,620 / $50,000 = 0.0324, or 3.24%.
  7. Answer: Below, by about 1.26 percentage points. 4.5% - 3.24% = 1.26 percentage points, so the combined cost is below the high-burden threshold.
  8. Answer: $8.25 per 1,000 gallons. $6,600,000 / 800,000 units = $8.25 per 1,000 gallons.
  9. Answer: Accept any answer noting that a higher rate raises revenue but can push lower-income households above the 4.5% burden line, so the analyst must balance the utility's need for money against keeping water affordable for the households least able to pay.

Differentiation

Support

Provide a handout with item 1 already solved and a labeled rate ladder (revenue requirement to rate to monthly bill to annual bill) so students follow the chain one box at a time. Allow a calculator throughout.

Extension

Ask students to find what rate per 1,000 gallons would push the combined bill for a median-income Harbor Point household to exactly the 4.5% affordability threshold, and to explain what that ceiling means for how far the utility can raise rates.

ELL supports

Pre-teach "cost of service," "revenue requirement," and "affordability" with a simple picture of costs on one side of a scale and household income on the other. Provide a sentence starter for question 9: "A rate analyst must think about affordability because ___."