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Pay as you grow 

Utilities try to stay afloat by increasing rates on bigger water-users

As a 15th year of drought persists in several Western states, cities like Las Vegas and Denver are contemplating costly new dams and pipelines to meet water demand. Those projects come from a brand of old solutions, ones that shaped the Western U.S., allowing cities to spread across dry plains and sandy deserts. But they may no longer be the go-to answer to the complex set of challenges facing water utilities today.

The old way of dealing with water needs is based on the assumption that demand will continuously rise as populations grow. But data show a different story. Implausible as it may seem in a region defined by growth and expansion, municipal water use in Western states has been falling over the last two decades. This trend is evidence that water deliveries do not simply track population, says Sharlene Leurig, a water-financing expert at Ceres, a Boston-based nonprofit that advocates for business leadership on climate change.

While individuals using less water is great for the planet, the trend threatens financial stability for utilities that depend on selling water to consumers. The less water people use, the more money utilities lose.

Nowhere is that trend more striking than in the Southwest, home to some of our fastest-growing and driest cities. Albuquerque, Fort Collins and Salt Lake City all reduced their per capita water use by over 30 percent from 1990 to 2010.

A move toward smaller houses, more water-efficient household appliances, municipal conservation programs and the national economic recession that crippled Western housing markets have all contributed to the slowing demand.

The solution to falling revenues, according to a recent Ceres report, is changing the way utilities price water. And in drought-stressed regions from Utah to Colorado, many already are changing their pricing models, which allows them to implement conservation programs while preserving their revenues.

"We're looking at a revolution in how water rates are structured," says Bart Miller, water program director at environmental nonprofit Western Resource Advocates. Under the traditional model, utilities get their revenues two ways: Each water user pays an upfront fee to connect to the system, as well as monthly fees. The trouble is, those monthly fees are based on a flat rate, no matter how much water the household or business is using.

Now, many utilities are starting to adopt what's called a block rate system, which means the price per gallon of water increases exponentially the more water you use.

That's the case with Colorado Springs Utilities, where currently city customers pay a 52-cent-per-day access charge, then .0349 cents per cubic foot for the first 999 cubic feet, then .0654 cents for the next 1,000 to 2,499, and .0988 cents for usage above 2,500 cubic feet. That tiered system was first implemented in the mid-2000s as a severe drought response, but has been in place year-round over the last few years, as a conservation incentive.

Spokesperson Dave Grossman says the typical year-round monthly average consumed is 1,100 cubic feet. No other incentives are offered other than periodic, free shower-head exchanges while supplies last.

Aurora is another place where Miller's "revolution" is already happening. In 2002, the Denver suburb was hammered by the worst drought it had ever experienced. Municipal water reservoirs were down to 26 percent of capacity, a nine-month supply. The situation brought on an "extreme panic," says Greg Baker, who manages water conservation programs at the Aurora Water Utility.

In response, the utility implemented a series of efficiency and conservation programs, including a $638 million municipal reuse project and a "cash for grass" program that pays people $1 per square foot of grass they tear out and replace with low-water Xeriscaping. A big part of why the overhaul succeeded, however, was that Aurora revamped its pricing model.

In 2008, the utility switched from a traditional structure to a block rate system. So owners of an average-sized home now pay $5.27 per thousand gallons if it uses up to 20,000 gallons, $6 per thousand gallons for up to 40,000 gallons, and $7.50 thereafter. In 2013, the city also changed its connection fees so they're based on each water user's overall impact.

Aurora reached peak water use — 58,260 acre feet — in 2000, and the city didn't break the 50,000 mark again until 2012, which Baker attributes to a population increase of 70,000. "Essentially we're getting more use out of less water," he says.

Aurora may be proof of how utilities are using new revenue models to make up for the fact that people are consuming less water, but a block pricing system and conservation programs alone won't solve water scarcity. "At some point, you run into a wall," Baker says. "We'll have to purchase about 1,000 acre-feet a year for the foreseeable future." (Still, that's substantially less than they would have had to buy without the new conservation-oriented pricing model.) Plus, once a critical mass of customers begin to use less water to avoid the higher fees, utilities may yet again find themselves in a financial bind.

But at least for now, the revolution seems to be working. According to Baker, the big question for the Aurora utility is no longer financial, but hydrological. The suburb is still growing. "Where," he wonders, "is the additional water going to come from?"

Sarah Tory is an editorial intern at High Country News, where this story first appeared online. Additional reporting by Matthew Schniper.

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