Wednesday, November 9, 2011

Report Highlights Need For Cost-Based Water Pricing

Nov 9: Recommendations made in a new Great Lakes Commission (GLC) report indicate that as plentiful as water is in the Great Lakes region, the cost to deliver it to consumers is creeping up and should be reflected more accurately in bills to encourage conservation. The "Value of Great Lakes Water Initiative" was an 18-month project supported by the Great Lakes Protection Fund to investigate how public water is priced in the Great Lakes region and whether price could be used as a water resource management tool to change consumer behavior for more efficient water use. Principal partners with GLC in the report included the Alliance for Water Efficiency, MSU Institute for Public Utilities and the Alliance for the Great Lakes.

    The Initiative focused on three primary issues: 1) how energy costs factor into water bills; 2) whether the cost of providing water to consumers is fully transparent; and 3) if an efficiency-oriented revenue structure would change water use in the Great Lakes basin. Jeffrey Ripp of the Public Service Commission of Wisconsin, a technical adviser to the project said, "Water has historically been undervalued in the Great Lakes region because of its abundance. However, the cost of delivering safe and reliable water continues to increase and many have concerns about the long-term sustainability of Great Lakes water. The results of this project will help communities price water in a way that reflects its value to the region's economy and environment."

    A survey and economic analysis by Michigan State University (MSU) of the largest municipal water systems in the Great Lakes states found that utility expenses have climbed some 25 percent on average, mainly due to the rise in costs for infrastructure and operations. To make up for the costs, water rates are generally going up, and many public water systems are providing information about conservation to their customers and even introducing special, efficiency-oriented rates. These rates are designed to encourage the customer to use their water more wisely. Typically, the price of water increases as the customer consumes more water. Dr. Janice Beecher of MSU, who led the survey, noted that "even in this water-abundant region, there is a growing recognition that cost-based water pricing plays a central role in prudent resource management and long-term sustainability." Cost-based water pricing means setting a price per unit of water to cover the costs of providing the water (e.g., pumping, treating and delivering the water to the customer).

    The Initiative engaged utility managers and local officials in a series of four workshops to discuss the impacts of water rates using the Initiative's Water Pricing Primer on the basic principles of different water rates and how they can be used to achieve various water management goals. Also discussed were the political, institutional and economic barriers to using price to achieve water conservation goals. Such barriers include lack of political will; resistance to change; lack of consumer education on why rates need to increase; media unwillingness to research all the facts; and opposing agendas between management and elected officials. A team of experts assembled for the Initiative used results from the water system survey and the workshops to make 17 recommendations for advancing water pricing to achieve both economic viability for the utility and environmental sustainability of the water resource.

    Access a release from GLC (click here). Access the full project report (click here).