News Feature | March 24, 2015

How Will Utilities Survive Cost Pressures Of Conservation?

Sara Jerome

By Sara Jerome
@sarmje

utah.reg

Utah officials want to increase the state's reliance on smart water technology, but that could present challenges for utilities, which will be forced to contend with the cost effects of conservation.

This problem was examined at the CFO Connect conference in Utah this month, organized by the nonprofit sustainability advocacy group Ceres. During the conference, water experts put a special focus on south Utah's Park City, since it has pulled itself out of a water crisis over the last three years and plans to use smart meters as part of its long-term plan.

"The system found itself at the end of its supply three years ago and was forced to import 2,900 acre-feet of water via a $45 million price tag to funnel water to users from Rockport Reservoir," the Deseret News recently reported.

Importing water will delay water shortages for just a little while. Smart technology will be at the crux of the city's long-term plan.

"System manager Clint McAffee said he figures that new water delays another deficit by about 20 years — a relatively short time frame — so another $2 million upgrade in smart technology is giving water users 'real time' feedback on their water use," the report said.

"It will be worth the investment," McAffee said, per the report.

Other municipalities have had success with the same technology. "When implemented in an area near Oakland, California, a similar system decreased water use by 3%. Salt Lake City has created an online dashboard for their Sustainable Salt Lake Plan that provides metrics on categories like transportation and air quality for residents to study. There is also a comment section for consumers to leave feedback," the Cache Valley Daily reported.

Sharlene Leurig, a water financing expert with Ceres, explained the draw of this technology.

"It's a real powerful tool to give people instantaneous information about their water use," she said, per the report.

Leurig acknowledged, however, that increased conservation presents utilities with cost pressures. "The need for more reliable revenue is more important than ever, as water service providers contend with prolonged droughts and aging infrastructure. Unfortunately, this need for revenue can make conservation the unwanted stepchild of water utilities," according to an editorial published by National Geographic.

Leurig explained the challenges and provided insight on how utilities can contend with these pressures, presenting a report on the issue. "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," her report said, per the News.

"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," it continued.

What's the solution?

"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," according to the News.

"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."

Utah plans to study its water problems, and officials may push for major infrastructure investments in the coming years.

"Utah Gov. Gary Herbert wants funding to pay for an expansive water rates study in the next fiscal year. And a legislative proposal seeks the establishment of a 'water infrastructure' fund with an eye toward coming up with $33 billion in new projects and repairs to existing systems," the Deseret News said.

For more on water policy, see Water Online's Regulations & Legislation Solution Center.

Image credit: "Utah," Moyan Brenn © 2011, used under an Attribution-NoDerivs 2.0 Generic license: https://creativecommons.org/licenses/by-nd/2.0/