Drinking, cooking, bathing, laundry, dishes, pets, livestock, crops, fighting fires—the essential uses of water in our daily lives go on and on. It is hard to imagine life would be like without water.
At the same time we see lakes, rivers, and streams, and it may appear water is a plentiful resource leading the public to wonder why they have to pay for it. Managers and public officials at water utilities often struggle to communicate with customers the relationship between the service they provide and the cost to provide that service. Utilities say they “sell water”, and often the rate structures or bills are labeled as the “cost of water”, but the reality is public water utilities provide much more than just water.
Picture for a minute your home and the nearest water source. Now imagine you had to go to that source and gather the water and transport it back to your home for all of your water needs. Now picture that source again. Is the water you just obtained safe for cooking or brewing your morning coffee?
Public water utilities don’t just sell water. They provide clean, safe water delivered to the tap in your home. That is the value of the service provided! Several things are needed for clean, safe water to come out of the tap in a home including:
- Infrastructure to obtain the water from the source; either surface water or ground water
- Distribution system to transport the water from the source to the tap and maintain adequate water pressure
- Treatment equipment or facilities to ensure the water is clean, clear, and fresh
- Laboratory facilities to test the water and monitor compliance with state and federal regulations
- Power to pump the water through the system and run the treatment facilities
- Chemicals to treat the water
- Staff to construct, inspect, and repair the systems, run the treatment plant, work in the laboratory, read the meters, process the bills, answer customer questions and ensure the entire system keeps working every day
Often a water utility will discuss its finances and the need to increase rates in terms of operating costs, debt service, capital cost recovery or return on investment. However if the same total revenue requirement is separated into the costs associated with treatment (providing clean, safe water) and the costs of delivery (obtaining and distributing water), the discussion can now be framed around value added service. Further if the costs in each of these categories are divided by the total volume of water sold in a year, water utilities can demonstrate to customers the price they pay for clean water delivered to their homes.
As an example, ABC Utility has an annual revenue requirement of $2 million, including $215,000 for treatment, $1.34 million for delivery, and $445,000 for shared support. With annual sales of 250 million gallons, the “cost” of water is $0.0011 per gallon for treatment and $0.0069 per gallon for delivery. That’s less than one penny per gallon of safe, clean drinking water from the tap!
Positioning the conversation this way can put the value of the water utility’s service in very different terms. Instead of receiving a monthly bill for an amount of water used that can’t be conceptualized because it is so integral to their daily life, the customer can understand a gallon of tap water costs less than a penny as opposed to the $1.20 they would readily spend at the store for a twenty ounce bottle of water.
For more information on this topic, or to learn how Baker Tilly energy and utility specialists can help, contact our team.