How Utilities Reconcile Conservation With Lost Revenue

The unfortunate fact about water conservation for utilities is that while it’s good for the planet, it’s also a direct assault on revenue.

The solution, of course, is not to discourage conservation. Industry experts say new tech and policy innovations are making it easier for utilities to protect revenue and accept conservation. As City Lab put it: “The best utilities will do more than continue to pass off budget shortfalls to customers. They’ll plan differently for the future than they have in the past.”

Heather Cooley, director of the Pacific Institute’s Water Program, explained some of the ways utilities are addressing the problem. It has a lot to do with accurate forecasting, she said.

That includes accurate forecasts of demand. “[Utilities] don’t want to overestimate demand and build unnecessary supplies,” Cooley said, per the report. “Those are long term risks, and they will serve to increase the revenue requirement, putting more pressure on ratepayers.”

Skillful asset management is another piece of the puzzle, according to Julie Spacht, the water executive managing engineer at Los Angeles Department of Water and Power. That includes infrastructure repairs to reduce water loss and keep costs down in the long run. “I look at it like a car,” she said. “When do you decide to change the oil, get new tires, or make a major repair? Or when do you decide the car is too unsafe or is too costly, and you need to buy a new one?”

Utility operators may be scratching their heads and wondering how they will afford all this. Rising bills may be an unavoidable part of the equation, but it would help if customers had a better understanding of the value of water. “[Utilities] need to start thinking differently about their own business model and how they communicate changes to customers, since those changes are going to be reflected in customer bills,” the report said.

“Which is to say that customers also need to adjust their expectations about water. Is water a commodity to be purchased at a given rate? Or is it more like a public service, like the police or court systems? It might be better to conceptualize it more like the latter,” the report said.

Communicating the value of water is of pivotal importance to the water industry. In 2014, the American Water Works Association (AWWA) ranked value-of-water issues among the top concerns of water professionals. Numbers four and five on AWWA's list, respectively, were "public understanding of the value of water resources" and "public understanding of the value of water systems and services."

Cooley explained the need for an adjustment in customer expectations.

“As customers, I think we have a tendency to look at this like, ‘I’m using less water, so I should pay less,’” she said, per the report. “But in reality you’re getting the same, if not better water service that lets you shower, wash your clothes, and flush the toilet. We want a reliable, clean supply, independent of the amount of water we’re using, and that’s what we need to evaluate our bill upon.”

Water bills are climbing faster than many other utility bills, according to Tom Curtis, the leader of governmental affairs at the American Water Works Association (AWWA), in an interview with Governing.

"Between 2001 and 2011, water bills grew the fastest as a percentage of income for the poorest customers. Water expenses grew faster than all other utility bills for low-income Americans except electricity. At the same time, though, the take-home pay for low-income Americans has fallen, when adjusting for inflation," the report said, citing Curtis.

“In addition to the need for infrastructure replacement and big investments required there, we are now coming face to face with a social problem of big dimensions, namely the hardship that these investments are going to impose on customers at the bottom of the income spectrum," Curtis said.

To read about more drought related issues, visit Water Online’s Water Scarcity Solutions Center.