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Rates and Fees                                                                                          


Overview

Water providers charge new customers when they join the water system and charge existing customers for the water they use. A water provider’s rate and fee structure can serve multiple purposes, including covering water provider expenses associated with providing high-quality water infrastructure and services, incentivizing – or disincentivizing – water efficiency, and affecting affordability. The Rates and Charges Best Practice Area highlights the importance of establishing water system development rates and water usage fees that cover water provider’s expenses, reflect the value of conserving water, and maintain affordability for a resource essential to life. 

For more on this best practice see the CWW Best Practices document, which includes additional information on:

  • Establishing conservation-oriented tap or connection fees (commonly known as “system development charges” or “tap fees”) to encourage water-efficient development from the start.
  • Establishing a conservation-oriented water rate structure to encourage the efficient use of water by customers
  See external resources related to Rates and Fees.

Key Takeaways

Conservation Oriented Tap or Connection Fees
      • Developers respond to the price incentive. Conservation oriented tap fees are part of the connection charge and are based on anticipated demand at the site. When developers confront tap fees based on anticipated water use, they recognize the incentive to build smaller homes on smaller lots and to install conserving fixtures and landscapes to pay a lower connection fee.
      • Be smart from the start. Incentivizing conservation, through the prospect of reduced tap fees, is an effective method for reducing future water use on the property.
Conservation-Oriented Water Rate Structure
      • Colorado has implemented tiered rates. Almost all water providers in Colorado have implemented the best practice of having a conservation-oriented rate structure.
      • Water budget-based rates are effective and popular. A growing number of Colorado providers are implementing water budget-based rates which are considered the most advanced and effective rate structure form.
      • Tiered rates and avoidance of fixed charges are most equitable. In Colorado, the focus of conservation-oriented rates is on tiered, inclining block rate structures and most water providers already use this form which is most equitable. Avoiding overreliance on fixed charges may be a newer concept for Colorado water suppliers and is something everyone should consider when implementing rate updates.
      • When selecting and designing a conservation-oriented rate structure water providers should:
        • Size blocks appropriately.
        • Make block price differential meaningful.
        • Limit high fixed service charges that may ensure water provider revenue but are less equitable and weaken intended conservation effects.
        • Implement billing cycles that create the ability to track water use and have an influence on customer rate response.

Major Benefits and Considerations

Category  Definition
Water Savings
  • Conservation-oriented tap fees provide a financial incentive for developers and builders to use water efficient techniques. Water efficient new buildings and landscapes can use 30-45% less water compared to standard building and landscaping practices (Chesnutt et al., 2018; DeOreo et al., 2016; Mayer P. et al, 2003).
  • Water budget-based rate structures can reduce water demands by 10-30% (Mayer et al., 2008).
Other Benefits
  • Rates and fees that lead to more efficient water use can reduce or delay the need for costly water supply and/or infrastructure development.
  • Water bills and water rates are two of the most prevalent education tools available to water providers.
  • The amount a water provider charges for water use communicates the value of water, and bills can serve as a visual reminder for customers to use less water.
  • Tap fees that encourage waterwise plantings improve community resilience, especially during drought. In turn, this leads to less landscapes being abandoned and helps maintain a healthy community in wet and dry years. 
  • Rate and fee structures that improve water efficiency may decrease treatment needs, decreasing the amount of greenhouse gases emitted through water treatment or distribution. 

Costs

Category  Definition 
Water Provider
Costs
  • A cost-of-service study often accompanies implementation of a new tap fee structure. The cost of implementing a conservation-oriented tap fee structure is difficult to predict and will vary depending on the current structure and the significance of the changes proposed. Additionally, conservation-oriented fee structures that are based on anticipated water use may require more staff time and/or staff with specific expertise.
Customer Costs
  • The type of conservation-oriented rate and fee structure, as well as each customer’s unique water use, dictate if customers see savings compared to non-conservation-oriented structures. Rate and fee structures can simultaneously promote conservation and affordability by keeping prices low for essential water use while charging higher rates for discretionary water use. This provides cost savings to customers who use water efficiently.
  • For new builds, reducing tap fees in exchange for installation of high-efficiency fixtures and waterwise landscapes from the beginning is a cost savings for the developer. This policy lowers the overall cost of development for builders that include waterwise components and can results in greater affordability for water-efficient homes due to lower water bills over time.

Case Studies


Colorado WaterWise                                          
www.coloradowaterwise.org
management@coloradowaterwise.org 

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Denver, CO 80250

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