Financing Sustainable Water: Tools for Solving the Revenue/Conservation Paradox
There are many reasons to get excited about water conservation. However, one big question that water utilities often confront is how can a utility sustain itself financially if it encourages its customers to buy less of its product?
Solutions to this challenge don’t lend themselves to quick and easy explanations, which is why the Texas Living Waters Project, in conjunction with Texas Water Foundation and the Alliance for Water Efficiency, is hosting one-day seminars in both Houston and Dallas. The seminars are designed to provide information utilities need to navigate the challenges of revenue volatility, scarce supply, variable weather, and declining demand.
Water resource professionals, and water conservation advocates willing to embrace the details, will come together in early November to learn about the newest tools and best practices for designing rate structures to protect the financial stability of water utilities while also encouraging efficient use of scarce water supplies. If that includes you, we hope that you can join us for the Financing Sustainable Water workshops.
The Importance of Getting it Right
Why is this important? Water utilities across Texas have acknowledged in the State Water Plan that water conservation will be a big part of meeting future water supply needs in Texas. According to the plan, 7% of our future municipal water supplies are projected to result from improved water use efficiency. If you are a numbers person, that means we need to achieve 647,000 acre-feet of municipal water conservation by 2060.
In Texas we are taking the long-view and realize that using water more efficiently is the best option for our water supply, for our pocket books and for the environment.
Without appropriate adjustments, improved water conservation can mean lower revenues. Utilities need to design rates that will enable them to keep pace with the cost of providing clean water to millions of households in Texas while selling less of their product. This is a challenge across the state and cities like Austin, San Antonio, Houston, Wichita Falls and Fort Worth have been taking a hard look at their rate structures and water use to find the right balance.
Using less water will not necessarily mean that Texans will see a corresponding decrease on their water bills. It is important to understand that the cost of having reliable water includes much more than just the cost of purchasing, treating and delivering the water. Utilities have to account for the construction and maintenance of the infrastructure used to capture the water, the equipment to treat and move water around, and, finally, they have to pay the staff that makes it all happen.
The cost of doing business is going up and unfortunately many water utilities have not kept their rates on par with what is needed to maintain infrastructure and provide a quality product. In part, this is the result of many years of building bigger and bigger infrastructure to meet peak demand—those summer days when more than half of our water may go to inefficient outdoor irrigation. Building a system to meet that high demand pushes up cost year round. That’s where water conservation comes in; utilities and customers can avoid those costs using by planning ahead water efficiently. When evaluating conservation against other programs, deferred cost benefits that can result from conservation should be a factor. Bringing in new water supplies and upsizing infrastructure to serve increasing water demands is very expensive (much more expensive than providing conservation programs).
Efficiency helps our water supplies last longer so that we can serve more people and businesses with the same amount of water. In the long run, good conservation programs will end up saving water customers money.
If you work at a water utility, we encourage you to attend the Financing Sustainable Water Workshop in Houston on November 12th or in Dallas on November 13th. If you are a decision maker that has to ultimately approve these rate changes it is important for you to attend and understand the options that your utility has to balance rates and efficiency. If you are an interested water conservation advocate who isn’t afraid of the details, you also are welcome.
What to Expect at the Workshop
Experts will cover the newest resources and strategies available to water managers, including:
- Access to the latest research and strategies to model and evaluate rates that achieve revenue stability and incentivize efficiency
- The latest policies and planning tools to enhance utilities’ financial outlook
- How cost-effective efficiency programs support revenue management and fiscal sustainability
- Proficiency in using the latest ratemaking tools available and confidence to apply them
Participants in the one-day meeting will also receive in-depth training on the new Alliance for Water Efficiency Sales Forecasting and Rate Model – an innovative, free, and user-friendly tool that can help managers explicitly model rate structures and effects on revenue and water use. This model addresses the shortcomings of typical models – which assume that future sales are known and do not respond to factors such as weather, price, and the economy – and helps answer questions such as:
- What block rate design could allow us to preserve our current level of revenue while reducing demand?
- What proportion of customer bills in each class will increase under new proposed rates?
- How should we adjust rates to support demand management objectives during water shortages?
- What is the likelihood we will meet one-year, three-year, and five-year revenue targets?
Please plan on joining us in November for this important community event.
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