In recent years, there has been a trend in declining residential water use. Much has been studied and written about the trend in reference to the effect across the country. Closer to home, a review of historic utility rate survey data verifies the presence of a similar reduced residential water use trend in our region.
Figure 1: The average reported monthly residential water use in 2005 was 6,712 gallons.
Figure 2: The average reported residential water use in 2012 was 4,979 gallons.
Although many communities have actively sought this result due to water availability issues and conservation initiatives, it does not come without some cases of negative financial impacts. While reduced demands on a system can lengthen the life of infrastructure which may result in capital cost savings, the savings may not match the loss in revenue. As a result, rate planning and revenue adequecy estimates must take into consideration the sensitivity of revenue stream to decreases in water sales or wastewater flows.
Declining water use has been attributed to a variety of factors, some of which are listed below. Of these, the last two examples can be controlled by utilities to some degree. Both are explained in greater detail below.
- Weather patterns
- Changing demographics (smaller families)
- Pricing strategies (conservation rates, rate increases, etc.)
- Non-pricing strategies (low-flow appliance rebates, etc.)
To meet water conservation initiatives, some communities have made a complete change in rate structure. The most popular choice, designed to serve as an incentive for reduced water use, is the inclining block structure. In Minnesota, water systems were required to implement conservation rate structures on a timeline dependent upon community size. State statutes have recently been revised, and now allow communities to initiate other water-reducing measures in place of inclining block rate structures if they choose. However, many communities have still chosen to implement an inclining block rate structure, in which the unit price of each succeeding block of usage is charged at a higher unit rate than the previous block(s). Other rate configurations, such as seasonal rates, can be implemented to promote conservation as well, but they are not discussed herein.
Figure 3 shows the historical change in rate structures reported by respondents to the AE2S North Central Region Utility Rate Survey since 2008.
Annual rate increases also fall under the heading of pricing strategies. It is becoming more and more common for utilities to complete annual rate-setting activities with consideration of the following five-year period. This type of planning allows utility managers and other decision makers to manage the impacts to rate-payers.
Figures 4 and 5 show the monthly utility rates reported by AE2S North Central Region Utility Rate Study respondents since initiation of the survey in 2002. The yellow line illustrates the change in consumer price index for all urban customers (CPI-U). Particularly in recent years, the average of survey responses has indicated that water and wastewater utility rate increases are generally outpacing inflation.
Figure 4 illustrates that for systems serving 5,000 and greater, the average annual increases reported for water and wastewater since 2002 are 4.5 and 5.3 percent, respectively.
Figure 5 illustrates that for systems serving less than 5,000 the average annual increase since 2006 for water is 3.8 percent, and the average annual increase for wastewater is 8.1 percent.
The average increase in CPI-U for these periods is 2.4 percent. It appears that on average, water and wastewater utilities are striving to keep up with increasing operational expenses and capital requirements for rehabilitation and replacement, driving rate increases higher than the average annual inflationary increases.
Non-Pricing Strategies: In addition to price-based water reduction incentives, many communities employ alternate mechanisms that result in reduced water use.
Figure 6 illustrates the utilization of non-price conservation strategies by survey respondents that serve greater than 5,000 people.
Figure 7 illustrates the utilization of non-price conservation strategies by survey respondents that serve less than 5,000 people.
Prudent and consistent rate planning is a key component of successfully managing utility finances. It is important for utility financial and managerial staff to understand the average water use / wastewater discharge statistics for their respective utility, as well as the sensitivity of revenue streams to changes in water use patterns.