New rate structure still rewards conservation while helping us upgrade our system in a fluctuating climate.
By Travis Thompson
We’re getting a lot of questions about our new rate structure.
No surprise there. With multiple tiers of pricing, indoor and outdoor usage totals, and higher fixed charges to meet infrastructure demands and the extreme weather fluctuations of climate change, water rates are complex and often confounding.
Denver Water crews proactively install or replace an average of 60,000 feet of pipe throughout our service area per year. About $11 million will go to main replacement and main improvement in 2016 and $130 million will be invested in main replacements over the next 10 years.
But of all the questions, one stands above all the others.
Is my bill going up?
That’s a straightforward question, and the simple answer is yes.
Not necessarily everyone’s bill, and not by the same amounts. But yes, in general, this year’s charges were designed to help us recover our increasing costs to collect, treat and deliver safe, reliable water, while remaining affordable and encouraging responsible water use among those we serve.
For about half of our Denver residential customers, the annual increase in 2016 will be less than $39, including some who will see a decrease. In the suburbs, about half of the residential customers will see a total increase this year of $100 or less, including some customers with annual decreases.
“The reality is that the cost of water is going to increase as we continue to invest in infrastructure, new supplies, watershed protection, reuse and more,” said Denver Water CEO Jim Lochhead. “We are committed to keeping essential water use affordable and ensuring our customers are getting good value for the increasing investments they will need to make in their water system.”
Answering that question invariably leads to others, especially these three:
- Are your new rates punishing me for conserving water?
- If not, why are the biggest residential water users paying less while households using the least amount of water are paying more?
- Why is my bill so much higher this year than it was last year?
Let’s take them one at a time.
Question 1: Am I being punished for conserving water?
Some customers tell us they worry the new rate structure doesn’t promote conservation.
Not so. Our philosophy remains exactly the same: The more you use, the more you pay. In fact, our new three-tiered rate structure gives customers a more accurate signal of how their water use affects their bills, allowing them to make changes to conserve water.
The old rate structure, which had four tiers, did its job. Customers reduced water use by more than 20 percent in the last 15 years, despite a population increase of 15 percent.
But under the old structure, most residential customers were paying the same price per 1,000 gallons for essential indoor use as they did for outdoor use – even if they weren’t efficient about their water use.
The new structure is much more individualized, with three tiers that help distinguish indoor use from outdoor watering for a typical-sized yard, and then anything additional for those who have larger properties or are being less efficient with their water.
All customers pay the cheapest rates (Tier 1) specific to their needs for essential indoor water use, considered vital for drinking, bathing and sanitation. That rate is calculated by averaging your monthly water consumption on bills dated January, February and March each year.
When you use more water than your unique indoor average, your price per gallon jumps to Tier 2. That price signal tells you you’re using more water, most likely outdoors. We bill this at the second lowest rate so you can still afford to have a healthy landscape. (It takes about 15,000 gallons a month to water an average-sized yard efficiently.)
Water used in excess of that amount jumps to Tier 3, where you are charged the highest rate per 1,000 gallons, alerting you that you may want to cut back on water use that is more about choice than need.
In other words, those using the most still pay the most.
Question 2: OK. So why am I hearing that bills for the highest users are going down while the lowest water users are paying more?
There has been talk and media coverage on this point. To be clear, higher water users will always pay higher bills than lower water consumers.
And for 90 percent of our residential customers, bills for those who are higher water users will increase more than for lower water users under the new structure.
The remaining customers at either end of the spectrum are a different story and hardly represent what a typical customer looks like.
Let’s look at the lowest 5 percent of our water users. In many cases, these customers don’t ever use water in some months. They may live in a different state for part of the year, or the property could be vacant because it was abandoned or is waiting on rental tenants, among other reasons.
We raised the fixed charge on everyone’s bill by about $2 a month, which helps us stabilize our revenue throughout the year to account for more frequent extreme weather fluctuations that affect water usage.
That will raise the water bills of these customers by as much as 30 percent. But in almost all of those cases, 30 percent means less than $25 a year.
The highest 5 percent of water users are unique in their own way. Some may have had massive leaks over time, while some may fill large ponds, which creates a huge spike in water use in one month of the year. Others just own really big properties with acres of grass.
Even if they’re efficient users, the size and use of these properties translates into annual water bills totaling thousands of dollars.
Under the old structure, these customers were charged $11 in the city and more than $12 in the suburbs for every 1,000 gallons they used over 40,000 gallons (Tier 4). But less than 1 percent of city customers and less than 3 percent of suburban customers were ever billed at those rates.
With the fourth tier eliminated, the most these customers will pay per 1,000 gallons of water used is $6.24 in the city and $7.87 in the suburbs.
If these customers use water exactly as they did last year, they could see their bills drop by more than $100 this year.
These are the exceptions in the rate formula, not the norm, and they do not reflect the bills of more than 200,000 active single-family residential accounts.
The reality is that about half of Denver residential customers can expect to pay less than $350 total in 2016 for water under the new rate structure. Last year, under the old structure, the total amount paid was less than $300 annually.
Question 3: So why is my bill so much higher this year than last?
We’re not in Hawaii or San Diego, where we can set the daily weather report on repeat. In the Denver metro area, no two days, or months, are alike.
If you look back at the temperature and precipitation numbers for our summer months over the past few years, you’ll see major differences. Because weather drives outdoor water use, these changes make it more difficult to compare your current summer bills to previous summer months.
In 2015, June and July were 5 degrees cooler and brought 5 more inches of precipitation to the metro area than those same months this year. That led to an overall water consumption increase this June and July of 32 percent (about 4.3 billion gallons) compared to last year.
Based on “the more you use, the more you pay,” customers who used more water this summer will pay more than they did last summer.
To figure out why your bill is higher this year, look at the gallons used before comparing the dollar amounts. This information is displayed on a graph on your bill that charts your water use over the previous year.
With hot, dry temperatures in June and July this year compared to last year, customers are using more water (4.3 billion gallons, in fact), which means higher water bills.
So where does this leave us?
Updating our rate structure was an exercise in balancing three different, but related needs:
- Stabilizing our long-term rates and revenues so we can continue to maintain and operate the water system;
- Continuing to encourage conservation; and
- Keeping essential water use affordable for our customers.
Read, “Your water bill: Different path, same goals,” to learn more about how this new structure is designed to help us meet these goals.
It wasn’t easy, and we did not make the decision overnight. We spent 18 months weighing the different impacts of this change. And we didn’t do it alone. The process included input from community leaders, as well as voices from all of our customer types and stakeholder groups, including West Slope and environmental representatives. They recommended this rate structure as the ideal way for us to continue to deliver safe, clean and affordable drinking water today and in the future.
But we also knew it was going to be confusing, so our Customer Care team is standing by to assist you. Call 303-893-2444, and a representative will help you calculate your individual bill impacts, based on your personal water use information.