SpiroFlo looks at how drought conditions are shaping water utility pricing and why some of these increasing costs are necessary.
Last time, I covered how Colorado has officially moved deeper into its drought, hitting the stage two level (meaning forced water restrictions as opposed to mere suggestions). In recently attending a Q & A with Denver Water CEO, Jim Lochhead, one of the main topics that came up was how they’re reacting to drought conditions. After hearing his comments, I have to say that while Denver Water isn’t government run, when I look at some of their pricing tactics, it feels like it is. Here’s what I mean:
Denver Water is aiming to reduce water use in Colorado by 20% in 2013. With the stage two drought limitations, this seems like a fair goal. However, on May 1st of this year, Denver Water will assign people a “drought charge” – a fee assigned to cover their reduced revenue from customers’ reduced water use… which Denver Water is enforcing with their rules and fines.
I don’t think this is completely unfair—given that there is actually less water to use with the drought, and it needs to be aggressively conserved—but Denver Water’s customer fees went up in 2010, too. They didn’t go up then because of a drought; they went up because 2009 was such a wet year and people didn’t use enough water.
So in the end, if you don’t use enough water because of good water conditions, you get charged more, and if you aren’t allowed to use water because of drought conditions, you get charged more. Admittedly, this feels like any old company that charges its customers more because they’re not making enough, but there are some differences. First off, people need clean water and someone has to treat it. Every utility has fixed costs: the base level pieces that are required to maintain any business at all. For Denver Water, these fixed costs include maintenance of pipelines, infrastructure and the overall system—you know, the parts necessary to treat and deliver clean water. According to Lochhead, as Denver Water does a decent job of keeping their fixed costs down—which make up 20-30% of their costs, as opposed to the 40% average for other utilities—only 4% of the customer’s rate is made up of these fixed costs.
Inevitably, there is that awkward conflict where Denver Water is providing a need (with fees that are at least somewhat regulated on the state level), yet, like any business, they’re trying to make a profit. Considering 2012 and 2013 will stack up as the two worst consecutive water years in Colorado history—and Denver Water is slated to lose $50 million in 2013 alone—water utilities are not in an enviable position.
That said, should water utilities simply feel the pains and costs of slower years like any other business, or with the need of clean water on the line, are they allowed to? If their provision of a need doesn’t allow them to face the pains of drought years, should they be allowed to reap the rewards of good water years? However it goes, I’m not sure you can argue that a different company could do a better job without being allowed to have a successful business model.
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Colin McKay Miller is the VP of Marketing for the SpiroFlo Holdings group of companies:
-SpiroFlo for residential hot water savings (delivered 35% faster with up to a 5% volume savings on every hot water outlet in the home) and industrial water purification (biofilm removal).
-Vortex Tools for extending the life of oil and gas wells (recovering up to 10 times more NGLs, reducing flowback startup times, replacing VRUs, eliminating paraffin and freezing in winter, etc.).
-Ecotech for cost-effective non-thermal drying (for biosolids, sugar beets, etc.) and safe movement of materials (including potash and soda ash).