SALT LAKE CITY — 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.
A legislative audit is underway at the Division of Water Resources in Utah to probe projections behind projects like the Lake Powell Pipeline, and 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.
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."
The conference highlighted the Park City water experience, in which 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.
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 same system shaved an Oakland area system's water use by 3 percent, and additional savings are anticipated as users get more "buy in" on the system's components.
"It's a real powerful tool to give people instantaneous information about their water use," Leurig said.
Come May, the Park City system will have been in a place a year, and officials are anxious to learn what type of impacts it may have on water use, including outdoor applications, which is upwards of 70 percent of consumption in many places throughout Utah.
McAffee said he is hopeful the competitive "sport" nature of Park City's residents will drive real water savings — a conservation ethic that will stave off another pricey diversion.
"It will be worth that investment," he said.
Luerig added that it is that type of water philosophy — in the long run — that can ultimately save water providers a lot of money and political angst.
"It is the time to do it before you start existing in supply expansion for the reason that pricing has the ability to deter those investments by decades," she said.