It Is Time To Rethink The Cost Of Water
This is a guest blog by Stacy Tellinghuisen. Stacy is a Senior Energy/Water Policy Analyst at Western Resource Advocates, where she works to promote strategies that protect the West’s clean air, rivers, and colorful landscapes.
Water projects are expensive; in fact, very expensive. In the last few years, western water utilities, cities, state agencies, and private developers have proposed a bevy of expensive new water projects: the Lake Powell Pipeline in Utah (estimated at $1.2 billion), the Flaming Gorge Pipeline in Wyoming and Colorado (upwards of $7 billion), the Southern Delivery System in Colorado (now under construction, and expected to cost approximately $1.5 billion), and the Carlsbad Desalination Plant in California (nearly $1 billion), to name a few.
These projects will impact customers’ water rates and connection fees. In the case of Colorado Springs, for example, the city council approved two years of 40% rate increases, followed by four years of 12% rate increases.
Why would water utilities pursue expensive new infrastructure projects when opportunities to conserve water are ample and generally cheaper than new infrastructure?
In their new report, “Drinking Water Infrastructure: Who Pays and how (and for what?)”, American Rivers provides an overview of the short-term financial barriers or disincentives for pursuing conservation as well as the long-term benefits and costs savings. For example, utilities need revenue stability, particularly to cover their short-term fixed costs such as debt service on infrastructure repairs or upgrades made in the past. For most utilities, conservation means selling less water; if a utility’s revenue stream drops significantly, it may have to increase rates. The financial benefits of conservation, in contrast, are long-term, because they reduce or delay the need to build new infrastructure, and future debts.
The second key barrier noted in the report is that most utilities have to finance conservation with cash. Utilities can finance new infrastructure and supply projects through bonds, which spread the cost of an investment over 30 to 40 years (much like a home mortgage). Most states, however, do not allow publicly-financed bonds to be used to benefit a private entity, such as a customer who receives a rebate for an efficient toilet or irrigation system.
Despite these barriers, some utilities and states have found creative ways to finance conservation. For example, in Washington and Oregon, voters passed ballot initiatives allowing utilities to bond finance conservation. And in Santa Fe, developers can either 1) purchase water rights on the market to meet the water needs of new developments, or 2) pay into a “Conserved Water Bank”, which the city uses to fund conservation efforts.
The report offers a primer on financing conservation and other topics, such as how water utilities design rate structures, the financing of new supply projects, and the risks entailed in expensive new infrastructure. It is an essential tool for advocates – as we become more informed about the challenges to financing conservation and sustainable water supply development, we also become more effective in finding creative solutions to these challenges.