City officials began aggressive conservation efforts long before the current drought. Those efforts include a graduated rate structure that penalizes larger residential water users.

The more water a residential customer uses, the higher the rate. About the same time, the city phased out volume discounts for industrial customers, encouraging them to use water more efficiently.

"Greensboro has done everything right," said John Morris, director of the state Division of Water Resources.

While Greensboro's water revenues have increased, water use has declined. Since 2000, the average residential customer's water use has dropped from roughly 5,236 gallons a month to 4,488 gallons, a 14 percent reduction, said Allan Williams, Greensboro's director of water resources.

"Until you poke people in the wallet, you're not going to get them to change their behavior and treat water as a scarce resource," Williams said. "We could not just manage the supply. We had to stem the demand."

The number of customers has increased from 80,000 in 1996 to about 100,000 now, Williams said. But the average water use has dropped about 1 million gallons per day to 33 million gallons per day.

The loss of a major manufacturing plant that used 1.5 million gallons per day accounts for some of that decline, but aggressive conservation efforts play a large role.

Williams said much of the reduction was in lawn irrigation in summer months.

"You don't see sprinkler systems going in the rain," Williams said. "You see fewer people trying to keep green grass all summer. Does someone with an irrigation system still run it? Yes, but they are paying a premium for it."

Besides conservation, Greensboro has extended lines to Burlington and Reidsville and bought water from them to keep from depleting its reservoirs.

Greensboro also joined with other local governments to create a new water supply, Randleman Lake. It will be tapped starting about 2012.

Setting water rates that encourage efficient use is one of the most important environmental responsibilities of local governments, said Jeff Hughes, director of the Environmental Finance Center at the UNC-Chapel Hill School of Government.

But a center survey found that only about one in five of North Carolina's water systems use rate structures to encourage conservation. Those that do include Cary and the Orange Water and Sewer Authority.