H2bid Blog

Water Utilities-Decreasing Revenues and Increasing Costs

It may be counterintuitive, but in the current down economy, US water bills have been rising. A complex set of circumstances are at play to cause this improbable situation including lower demand, a shift in income sources and fixed costs associated with maintenance and facilities. Efforts have been made by the utilities to reduce their costs where possible, but this has not alleviated the problem, entirely. Water consumers – virtually every household and business in the United States – must find ways to manage their finances or conserve even more.

During the global recession, many businesses have reduced shifts or closed entirely. To the extent that these companies were users of water, their demand has dried up with their industry. Before the recession began, many companies were heavy users of water, including metal processing plants, assembly factories and food and beverage makers. Each of these industries, and more like them, used water in ways that most consumers wouldn’t – water jet cutting, process heating and chilling. Such industrial water creates two stresses on the water system; the demand for the water itself and the demand for wastewater treatment after it is used. Water utilities responded to these stresses in the boom-times by building modern wastewater treatment facilities and increasing their well-fields. When the business demand plummeted, however, these expensive facilities still had to be maintained, even though they were not being fully utilized.

Similarly, families cut by the recession began to conserve; watering lawns less frequently and trying to keep their bills low in any other way possible. Just like in the case of business, this decreased demand did little to impact operating costs. Certainly, less electricity was required to run the pumps and a decreased volume of wastewater required processing, but the cost of running the facilities was mostly fixed.

Compounding the problem was the huge drop in revenue from new home building and development. In the lead-up to the recession, developers were paying fees to run water and sewer pipes to new subdivisions and business parks. In some cases, these revenues went from millions of dollars just a few years ago to only a few hundred thousand for the past year. It appears that many utilities were factoring these revenues into their general costs of operation, setting up their users up for a bigger hit when the economy turned sour.

In some cases, like Mount Pleasant, SC, the water utility was forced to lay off nine employees. Additionally the Mount Pleasant Waterworks cut overall operating costs by 10 percent. Even with those savings, however, the utility was forced to raise rates by nine percent this year. That amounts to approximately $50 per year for the average household says Clay Duffie, Mount Pleasant Waterworks’ general manager.

The economy appears to be on the verge of recovery, so the end of this conundrum may be in sight. Going forward, water managers and planners should be encouraged to utilize smart planning to analyze finance and revenue ‘weak points” that may lead to future shortfalls. This won’t stop every problem from occurring, but it may make the next recession at least slightly less painful than this one.