When we don’t witness water treatment plants in action, infrastructure being maintained and the sale and trade of water rights, it can be easy to forget that the cost of water involves more than our personal usage wrapped up neatly in a monthly bill. In reality, what we pay each month may not appropriately reflect the true cost of water. As Colorado’s population grows, the demand on already limited water resources will rise and the cost of water will likely increase—with higher totals often transferred to your water bill.

Colorado Springs  Credit: Jasen Miller

Beginning Jan. 1, water rates will increase in some towns and cities around the state ̶ including Aurora, Colorado Springs, Denver and Louisville. Depending on where you live, and how your water bill is broken down, utilities may use those monies for standard water treatment and delivery costs, conservation and education programming, infrastructure construction and maintenance, upgraded treatment systems, or even securing new water supplies. Read more about why Denver Water bills are increasing in this new post on Mile High Water Talk.

Charles Howe. Credit: Maeve Conran

“As water becomes increasingly scarce, prices are going to go up,” says Charles Howe  professor emeritus in the Department of Economics, Institute of Behavioral Science at the University of Colorado, Boulder. Howe joined KGNU’s Maeve Conran for an interview to discuss economics and the value of water on Connecting the Drops, our collaborative radio series between CFWE and Rocky Mountain Community Radio stations.

“Any new [water] use is going to face increasing prices,” Howe says. This is seen in the trade of water rights and reflected in users’ water rates. For water providers and town councils setting rates, the need to stretch scarce water supplies among multiple users and valuable uses increases the necessity of efficient water use and higher levels of conservation. Rates can be an effective tool for encouraging water conservation.

“It is very well established that users are sensitive to water prices. We know that as prices go up, users of every class do reduce use,” Howe says. “They gauge their usage of water so that they are not dumping costly water onto low value uses.”

How can rates encourage conservation? Conservation water rates send a price signal to customers to conserve—a variety of rate structures can accomplish this or can be mixed and combined. Many municipalities including Aurora, Colorado Springs, Denver, Durango, Fort Collins, Grand Junction, Steamboat Springs, Vail, Walsenburg and Westminster use some form of tiered or increasing rate structure. In a tiered or increasing rate structure system, cost to the user increases in steps and is dependent on the amount of water used. Lower pricing steps exist because low-income customers and small households cannot afford to pay high prices for essential water usage. As use increases, price increases per thousand gallons of water used. Very high volume users—whether households, industry, or businesses—are charged the highest prices because their demand determines the peak capacity of the system.

Denver Water  Credit: Jeffrey Beall

In Denver, the pricing structure moved from a four tier to a three tier system in which anything beyond “essential” use sees a significant increase in price. This, Howe notes, is a mechanism for encouraging conservation. Although prices are on the rise, Howe is of the mindset that municipalities are not charging enough to urban users. An increase of $25-30 per month would better reflect the value of the raw water that is being treated and distributed to the average urban customer, he says. Howe suggests that attention should also be focused on large-volume users in the commercial sector. They can be motivated to conserve water through increased pricing, therefore placing an appropriate value on the amount of water that they are actually using, he says.

Listen to the full interview here and read more about the economics of water in the Summer 2016 issue of Headwaters magazine “Accounting for Water.” Check out the following articles for more information on the value of our most precious resource: A Price for the Priceless and Paying for What’s Ahead.

Not a Headwaters subscriber? Sign up here, or visit yourwatercolorado.org for the digital version. Headwaters is the flagship publication of the Colorado Foundation for Water Education and covers current events, trends and opportunities in Colorado water.

Interested in water conservation and efficiency? Order your copy of CFWE’s Citizen’s Guide to Colorado Water Conservation for information on efficiency water use in homes and cities, in commerce and industry, and in agriculture.