Water Rate Restructuring for Rocky Mountain Region Utility

Designing water rates to encourage water conservation involves careful consideration of risk and reward. The reward – decreased water usage – carries the risk of revenue falling below the level the utility requires to sustain operations. In analyzing the utility’s newly designed rates, MWH management consultants found that the prices for the highest tiers of usage were several times higher than necessary, and the price for the lowest tier was far below the actual cost to provide service. The rates produced excessive risk because the City had to depend on customers with high usage for a large part of its revenue; it was because of this feature that average customers had been pinched thus leading to the public outcry. The MWH proposed solution included restructuring the rates from five tiers to three for residential customers. The MWH team significantly reduced the dependency on high usage inherent in the previous rate structure. In addition, the team implemented a simple, uniform volume rate for multi-family and non-residential customers.

Project Milestones

Upon implementing the recommended rates, the customer complaint rate dropped from 300 calls per day to nearly zero. In 2010, the City encountered a particularly “wet” year with reduced water usage across all classes. If the previous rates had still been in place, the utility would have lost $30 million in revenue – 30 percent of all water sales revenue. Instead, because of the redesigned rates, the utility’s losses were less than $9 million. Meanwhile, water demand as measured in gallons per capita per day has steadily dropped from 160 gallons per day, to just 130.