WATER CONSERVATION MEETS RATE INCREASE...COMING SOON TO A THEATRE NEAR YOU

No--not another Godzilla movie. Rather, a potential dramatic confrontation that is not fictional.

A hot topic currently in the water industry is water sustainability and, consequently, its conservation. Generally, it appears that efforts to promote conservation of water can be either voluntary or mandatory.

Voluntary conservation can range from educational programs to inform customers how to avoid wasteful water use to financial incentives for installation of more efficient or low flow appliances and to promotion of downspout rain barrels.

Mandatory water conservation can arise through regulatory requirements for the use of low flow toilets, faucets, shower heads, and appliances; irrigation and sprinkling restrictions, and limits on sources of supply. One form of mandatory water conservation can occur when a regulatory agency imposes conservation requirements on a water utility and its end users as well. Such regulation can raise an interesting potential conflict between a utility's legal obligation to serve the demands of its customers and its legal obligation to impose restrictions on those very demands. See, for example, Arizona Water Company v. Arizona Department of Water Resources, 91 F.3rd 990 (AZ 2004).

A customer of a water utility may conclude that if less water is used due to conservation, the water bill should be lower. However, this belief is not necessarily true; and, in point of fact, in the case of a well managed water system, likely will not be true. Water utilities may be finding that conservation is resulting in decreasing system water demand. Lower water sales translates into less revenue to cover fixed costs, debt service and funding of reserves for repairs and replacements. Further, if a utility is compelled to meet tight limits on unaccounted for water, less revenue also makes leak detection, main repair and meter replacement programs more difficult to perform.

As a result, a utility that experiences declining revenue due to conservation will have to increase rates to satisfy its ongoing revenue requirements. And, customers who may be using less water may end up paying more for the water they do use. Again, rates should be sufficient to cover all costs of service.

If conservation results in such a reduction in system demand that system capacity may be viewed as excess, a question can arise as to recovery of costs associated with that excess capacity. That is a question for another day!