WATER USE LOWER, WATER RATES HIGHER?

One of the current "hot" topics in the drinking water industry is the declining water use that many water utilities are experiencing. (For example, see Hunter, et al "Declining Residential Water Use Presents Challenges, Opportunities," AWWA Outflow, May, 2011, pp. 18-20).

"Cause" for declining water use is attributed to federal law (Energy Policy and Conservation Act of 1992 and Energy Independence and Security Act of 2007), which has resulted in efficiency standards for fixtures and appliances such as toilets, faucets, showers, dishwashers and washing machines. Other presumed causes include declining number of occupants per residential unit, conservation programs and rate increases. Two other potential causes are foreclosures translating into empty homes and older water meters which do not fully register use.

While reductions in water use can result in reductions to certain utility operating costs, obviously not all costs of service are variable. Water utilities may have incurred substantial fixed costs for infrastructure, which as time goes by must be replaced and upgraded. Further, a decline in usage does not necessarily translate into a comparable, if any, decline in demand. Treatment, storage and distribution assets must be able to satisfy peak demand periods.

Two other factors should be considered. New regulatory requirements continue to impose increased operating and infrastructure costs on water utilities, which in turn create higher costs of service to be recovered in rates. Further, water utilities may have incurred financing costs for current facilities, which costs must be recovered in rates and paid.

The paradox, therefore, is that a decline in customer usage does not necessarily correlate with a corresponding decline in customer water bills. Even if some costs of service are mitigated, other costs continue or may even increase. Neither utilities nor their customers should assume that water use efficiency means rate relief. An efficient utility will carefully monitor its revenue requirements, adjust rates to fully recover costs of service, and keep customers informed.