Effective water rates are a key tool for managing demand as well as generating sufficient revenue for operations, maintenance, and capital improvement projects. A key challenge for water providers is finding ways to maintain financial sustainability as customers embrace water conservation.
In April 2016, Denver water implemented a new rate structure. The previous rates covered service costs but were no longer generating adequate revenue for operations and maintenance due to an average reduction in consumption of 20 percent over 10 years.
The 2016 rate structure includes three tiers based on water use. Indoor water use — for bathing, cooking and flushing toilets — is considered essential for human life and is charged at the lowest rate. Efficient outdoor water use is charged in the second tier (middle rate), followed by inefficient outdoor water use in the third tier (highest rate). In addition to variable charges based on water use, the rate structure includes a monthly fixed charge based on the size of an individual’s water meter and additional fees for customers in suburban areas.
The public’s reaction to the rate structure was not positive. Customers found themselves shocked by summer water bills 25 to 35 percent higher than previous years. Denver Water was criticized for not being transparent over the increase despite having included notices in bills three months prior to the changes. The sheer number of phone calls from baffled residents to Denver Water customer service indicated that the communication strategy needed to be approached differently. In 2018, Denver Water
elected to increase the fixed monthly charge and decrease the monthly rate per 1,000 gallons of water used.
The revenue generated by the new rate structure is being used to make updates to the city’s aging water infrastructure. Denver Water has a five-year plan to put $1.25 Billion into 143 capital improvements.
Some of these capital improvement projects include new storage tanks at Hillcrest Facility that serves growing demands in southeast Denver, building a new water treatment plant and pipelines for northern Denver, and replacing 60,000 feet of old water main pipes per year.