Magazine article Nation's Cities Weekly

Funding Water Conservation Efforts Need Attention to Costs, Savings and Beneficiaries

Magazine article Nation's Cities Weekly

Funding Water Conservation Efforts Need Attention to Costs, Savings and Beneficiaries

Article excerpt

Water utilities throughout the United States are looking more closely at water conservation and other measures to supplement their more traditional supply-side water resources in meeting future water demand increases. Some now see conservation and demand-side management (DSM) efforts, such as customer audits, landscaping ordinances, ultra-low-flow toilet rebates and wastewater re-use, as the only new water resources they will need to meet their increasing needs during the next five to ten years.

Exploring these options is laudable, but several potential problems may be encountered from a financial perspective. Even if DSM resources are the least-cost resource for a utility in the long term, these programs can have significant initial costs while the benefits of these water savings are spread over many future years.

Traditionally, conservation program costs have 'been funded from current rates; however, as these costs become significant, problems may arise.

For example, a utility's shortterm revenues will be lower as water savings-result in lower customer bills unless rates are adjusted upward. Rates may be unstable over time, increasing initially to meet program costs and then declining as water savings are realized. Revenues may become variable and difficult to predict, particularly during periods of drought or extreme weather conditions, as less predictable DSM resources are relied upon. Current ratepayers may end up subsidizing future ratepayers, resulting in inequltable water rates over time. If rates are set high enough to fund DSM programs and future rates decline, water users will get the wrong price signals concerning long-term conservation goals.

For these reasons, a number of water utilities are using innovative funding and financIng techniques to meet their conservation and DSM program costs. The challenge is to match the future resource savings of each program, measured as lower overall resource costs, with the recipients of, the benefits of these savings.

The Integrated Resource Plan

An integrated resource plan (IRP) is along-term planning tool for the utility that places supply-side resource alternatives on an equal footing with DSM resources, The utility can then evaluate future supply alternatives together with DSM programs. A complete IRP will include estimates of environmental and other resource remediation costs and savings for the various resource altemafives.

The IRP provides estimates both of the long-term water savings expectations for each DSM program and of the required development and operating costs of these programs. To be selected as a viable resource alternative, a DSM program needs to be the lowest cost, or one of the least-cost, resource options available to the utility in the long term.

One useful side benefit of the IRP is the development of levelized unit-cost estimates for each possible resource that can be used for other utility purposes. For example, the summarized results of the IRP will presumably show that adopted DSM measures are cost-effective resources for the utility, which provides an effective tool to help sell the resource to 1901icy makers and potential financing markets. Also, the unit-cost estimate of selected DSM programs can be compared with the utility's current resource costs and overall rate levels to help evaluate more aggressive water conservation rates.

Because the unit-cost of new DSM or supply-side resources usually will be higher than the portion of the rates that reflect the utility's investment in existing resources, an evaluation of financing alternatives is needed. The IRP provides the utility with both a road map and a compass for examining these funding options.

Water utilities are using both traditional and innovative funding techniques to help spread the costs of DSM and other resource alternatives over the expected useful fife of these resources.

Funding Through Current Rates

This is the status quo funding method for most water utility systems, and is appropriate for any DSM and conservation programs. …

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