Saving water may push rates up

Triangle systems foresee increases

If Triangle water customers were expecting a financial reward for taking shorter showers and embracing brown lawns, they should think again.

All the major systems in the Triangle say they may have to raise rates if the drought continues into the summer, when utilities traditionally sell the most water.

In Raleigh, Mayor Charles Meeker has been widely criticized for proposing a temporary 50 percent rate increase, in part to avoid a future budget shortfall.

"It's going to hurt us, and we've been conserving," Alan Payne, a Raleigh water customer, said of the proposed surcharge.

The severity of the drought, the region's third in the past six years, is also causing cities with water systems to consider the possibility that demand for their product will not return to previous levels, forcing them to permanently raise rates to cover costs.

Most of the state's largest systems have cut use by more than 30 percent since August, and many systems are likely to keep permanent year-round restrictions in place even after the drought ends.

"I think people are getting the conservation message, and I think they will permanently change some of their habits," said Karen Mills, Cary's finance director.

Each year, water rates are based on how much revenue is needed to cover the cost of operating and growing systems. Most of these costs are fixed, meaning they do not drop when less water is sold.

When systems encourage their customers to conserve water, as they are doing now, they are essentially asking people to buy less of their product.

So far, Raleigh, Cary, Durham and the Orange Water and Sewer Authority have avoided raising rates thanks mainly to the heat wave that hit the Triangle in July, August and September. They sold record amounts of water during that stretch, which has offset any loss of revenue in recent months.

"It appears we're still on our projections from last year because of water sales in July and August," said Dale Crisp, Raleigh's public utilities director.

But the fiscal year ends June 30, and managers are certain to be more conservative predicting how much water they expect to sell over the next fiscal year. The only way for systems to make up revenue lost to conservation is to raise rates.

"It's a paradox," said Jeff Hughes, director of the UNC School of Government Environmental Finance Center.

To the average customer, that paradox can seem unfair: The more successfully a community conserves, the more likely it is that the utility will raise rates.

Raleigh has one of the lowest water rates in the Triangle, but that hasn't made customers more accepting of rate hikes. After being flooded with angry e-mail from residents, the Raleigh City Council declined to vote on Mayor Meeker's 50 percent increase, and the proposal now appears dead.

Out for money

Few residents seem to accept the connection between conservation and the need for higher rates.

"They're always looking for ways to get my money," said Ann Mosley, 54. She thinks the surcharge would punish people who are just scraping by while allowing wealthier people to carry on as usual.

But even if the Raleigh City Council doesn't adopt Meeker's proposal, City Manager Russell Allen said any expected revenue loss would have to be recovered through greater increases in water rates beginning July 1.

In the Triangle, Raleigh and Durham are likely to experience the greatest rate changes as a result of the current drought because they have not previously focused as much on conservation as Cary or OWASA.

If Raleigh and Durham water customers suddenly go from conserving little water to cutting their use by 30 percent, it will leave a gaping whole in the budget.

That's one reason Raleigh and Durham officials have both expressed interest in adopting a tiered rate structure, like the one used by the Orange water authority. Such a structure is designed to encourage conservation and bolster revenues by charging customers more if they use more water.

But even a tiered rate system doesn't make a system immune to revenue shortfalls.

Kevin Ray, the director of finance and customer service for OWASA, said the authority could run a deficit of as much as $1.4 million if restrictions remain in place. He said OWASA is prepared to cut back operational spending to avoid raising rates.

As for dealing with more customers conserving, the Orange water authority has been ratcheting down the amount of water it expects to sell each year since 2002, when officials committed themselves to permanently reducing the demand.

"We don't want to return to that level," Ray said.

Join the discussion on Mayor Meeker's proposed water rate increase at share.triangle.com. You can also get the latest information on the drought at newsobserver.com.