Finding the right price point for water customers key to quenching the thirst?

Squeezing money
Squeezing money

From The Deseret News (Amy Joi O’Donoghue):

Drought across the West and Midwest is driving renewed concerns over water scarcity and the availability to meet demand in the future. But some groups say finding the right price point for water customers will be the key to quenching the thirst for water.

A conference exploring ways for water utility finance mangers to maintain a healthy bottom line — even as water use declines and system repairs loom — was held in Park City Friday, drawing officials from Utah, Colorado and elsewhere in the West.

Called “CFO Connect,” the session was organized by Ceres, a nonprofit sustainability advocacy group, and Park City.

“More and more, areas in the West are looking at replacing the storage that had been provided by snowpack. And those are expensive projects,” said Sharlene Leurig, a water financing expert with Ceres.

The Boston-based group prepared an analysis two years ago that examines issues confronting public water utilities and their fiscal health in the marketplace, most notably the risk their investors weigh when it comes to borrowing in the municipal bond market, especially for large projects.

In Utah, Colorado, Nevada and other Western states, large diversion projects such as the Lake Powell Pipeline or delivery of water to the Front Range of Colorado are being pursued, even as critics say states should first pursue more aggressive pricing and ways to beef up conservation practices…

Groups like Ceres say that while water districts prepare their own supply and demand blueprints to meet needs into the future, financial managers would be wise to consider a number of factors, including:

Credit rating agencies are starting to build water conservation, pricing and supply risks into their analysis.
Supply constraints are not only impacting the finances of water but aging infrastructure and declining demand are also factors.
Leurig said if the bulk of a water utility’s revenues are solely tied to consumption — and there’s no consumer incentive for conservation — that dynamic does not bode well given national trends of declining consumption.

“Because the majority of systems’ costs are fixed, declines in customer use typically require systems to increase the rates they charge. Yet as systems increase the price they charge per unit of water, their customers use less,” Leurig’s report points out.

“To make up for lost revenue, the water system has to increase the cost of service. … This can create a great deal of discomfort for water managers: they fight the political battle to raise rates, only to see revenue increase by less than that needed to cover costs. And in the meantime, customers are irked that they have to pay more for using less water.”

Leurig said block pricing — bumping water rates up on a graduated scale based on consumption — and scaling impact fees to a home’s “conservation” profile, are examples of how systems can build in sustainability to help them survive longer, on less water and help to delay costly projects.

“In the 21st century, for us to really manage water, we need to understand the economics of water. We have to understand the tools, the pricing, the viability of cost sharing and diversifying our supply,” she said. “Those things are the foundation of what will create a financially resilient system in the 21st century, not just engineering.”

More infrastructure coverage here.

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