Utilities Missing Opportunity To Raise Revenue, Study Shows

Research shows that utilities are missing the chance to use a tool that could raise revenue.

A new report by Western Resource Advocates, Ceres, and the University of North Carolina’s Environmental Finance Center shows that “very few water utilities are utilizing water connection charges to increase water-conserving residential development projects,” according to Environmental Leader.

Water connection charges are also known as tap fees, impact fees, system development charges, or plant investment fees. They are “one-time charges assessed to new developments to help pay for the direct costs of connecting to a utility’s water system, and for the infrastructure and water resources capacity needed to support these new developments,” the research report said.

The charges “provide utilities with much-needed revenue to pay for water system infrastructure; importantly, they can also be designed to influence water demand in new developments,” the report said.

Amelia Nuding, a water analyst at Western Resource Advocates, explained the significance of the findings in a statement.

“While water connection charges have been around for years, only a handful of communities are using them to encourage water-efficient new developments. Structuring water connection charges to drive water efficiency is a smart and timely strategy,” she said.

The report, which surveyed 800 water connection charge structures used by communities in Georgia, North Carolina, Arizona, Colorado, and Utah, found that utilities are underusing this tool.

Most communities charge uniform tap fees for all one-family homes. “A uniform structure means that no matter the size, location, or outdoor landscaping of the home, every single-family residential unit pays the same amount to be connected to the water system if they use a standard-sized residential meter. This provides no incentive for builders to construct more water-efficient developments,” the report said.

Relying on factors such as efficiency of water fixtures and types of landscape can help utilities impose fairer tap fees, according to the research paper. “In a handful of communities, especially in water-parched Colorado, connection charges have been used successfully to reduce the water footprint of new residential and commercial developments, and to more fairly allocate costs among customers,” the report said.

So what should utilities do? “The report recommends utilities consider using multiple factors to determine the connection charges to drive water efficiency and capture the costs of new development,” Environmental Leader reported. “The report also recommends mechanisms to ensure longevity of water savings and suggests utilities fully engage customers and developers in designing new connection charges.”

For more stories on utility financial planning, visit Water Online’s Funding Solutions Center.