As the Colorado River Declines, Water Scarcity and the Hunt for New Sources Drive up  Rates

PHOENIX—Across the Southwest, water users are preparing for a future with a lot less water as the region looks to confront steep cuts from the Colorado River and states are forced to limit use to save the river. Farms are being paid to not farm. Cities are looking to be more efficient and find new water supplies. And prices are starting to go up. 

In Phoenix, the city’s Water Services Department is preparing to increase residents’ monthly water bills starting this October if the hike is approved by the city council. The city isn’t alone. Water providers throughout the entire Colorado River Basin have raised water rates, or are preparing to, to compensate for increasing costs of infrastructure repairs and water shortages along the river. Inflation is driving up the costs of resources to treat and deliver water to customers, and other additional fees are planned to incentivize conservation.

The issue is economics 101, said Casey Wichman, an assistant economics professor at Georgia Institute of Technology and a university fellow with Resources for the Future who studies water pricing. Providers along the basin are coming to terms with the diminishing supply in the river and the infrastructure that needs to be repaired or replaced, largely driven by the rapid growth in population. All of those drive up costs, he said. 

“The cheapest way to build new supply is just to get your customers to use less.” To do that, he said, water utilities often turn to raising rates, making the need to incentivize conservation another driver of the increasing price of water. 

Finding new water sources and getting people to conserve more is becoming increasingly important as the Southwest grapples with climate change and looks to shore up its supply.

“We have a lot of people living in areas where the water supplies just aren’t there,” Wichman said.

Arizona released a report this month showing the Phoenix metropolitan area was over-drafting the region’s groundwater and announced that moving forward, no new development would be allowed if it relied on groundwater. Throughout the Valley, cities like Phoenix and Tempe are introducing drought contingency plans. Further cutbacks of Colorado River water, particularly in the Lower Basin, which consists of Arizona, California and Nevada, are unavoidable. 

The region has experienced more than 20 years of drought and decades of overallocation. Arizona’s supply from the Colorado River has already been extensively cut back, and under a proposal from the river’s Lower Basin states introduced last month and supported by the Biden Administration, the states would agree to cut an additional 3 million acre feet of water over the next three years to prevent Lake Mead and Lake Powell, the nation’s two largest reservoirs, from falling to levels that wouldn’t allow electricity generation at the Hoover and Glen Canyon dams, or the river stops flowing past the dams altogether. 

In recent years the Central Arizona Project, a 336-mile-long system that delivers Arizona’s allocation of Colorado River water to around 80 percent of the state’s population, has seen a nearly 25 percent cut in the amount of water that flows through its canal. 

The price CAP charges is derived from how much it costs to deliver the water to where it needs to go, said Chris Hall, CAP’s assistant general manager for administration and finance. If less water is being delivered to the state, the price of each gallon will go up. 

“We’re spreading that cost over fewer acre feet. It’s really just that simple,” he said. “It doesn’t have anything to do with us having to do any major retrofits to accommodate less deliveries or change our business operations in a meaningful way. It’s just less water.”

This year, the cost of an acre foot of water, enough for about three homes for a year, is $217. Next year it will be $270. By 2028, CAP is expecting the price to rise to $323.

“Water in the Southwest is still, especially in Arizona, relatively affordable,” Hall said. CAP’s goal, he said, is ensuring rates go up in a way that is stable. 

Rates Have Long Been Too Low, Experts Say

Among the biggest expenditures in water utility infrastructure are pipelines. In order to fund their repairs and replacements, utilities will have to raise the price of water. Many experts believe that is long overdue, and that water rates haven’t been high enough to keep up with the large investments required to keep infrastructure in acceptable condition.

The City of Phoenix has over 7,000 miles of utility pipelines that deliver water to companies and households. The average water pipe will last 70 to 75 years in Arizona, but a large portion of them are reaching that age where they need to be replaced. While these pipes are built to last using what, at the time of any given pipeline’s construction, are enormously expensive and durable components, corrosion takes place over time and the pipe can crack, introducing contaminants into the drinking water system. 

“It is a matter of water quality and water reliability,” said Kathryn Sorenson of Arizona State University’s Kyl Center for Water Policy. 

Utility companies and elected officials are reluctant to raise prices, she said, which underfunds these vital investments. Other experts believe water prices across the country are historically low, and increases are inevitable. 

“Water is remarkably cheap for the value it provides to individuals and how we can’t sustain life without it,” said Wichman, the assistant economics professor.

But raising rates isn’t a simple task, he said. Cities like Phoenix have a much larger customer base to spread the increased costs over, he said, but rural communities tend to just eat the costs or not increase rates at the pace needed. 

Wichman said residents feel the same way about higher water rates as they do higher taxes: They’re not big fans. 

At a May public meeting regarding the proposed increase in Phoenix’s water rates, residents were skeptical of the proposal. “I want the city to be a lot more creative in how they search for funds to help cover some of these costs other than just putting it on the backs of the ratepayers,” said Jeff Spellman, a West Phoenix resident, who also questioned how the city would make sure the parts of the city most affected by climate change—like his—get the help they need to confront it.

Residents on fixed incomes, like Spellman, have expressed concern over water increases and how they will affect their lives, as well. “My pension isn’t going up by almost 40 percent like these rates are,” he said.

Higher water rates tend to have a greater impact on people in low-income communities, who generally have less efficient appliances and households with more members, resulting in more use, Wichman said. 

He said that utilities often adopt complicated rate structures designed to recover costs, promote conservation and keep fees affordable, but those are all very different, and often contradictory, goals. “Those tend to not work that well,” Wichman said.

There are no laws capping how much municipal utilities can charge per month for water, just some that require it be reasonably priced. The Arizona Corporation Commission, however, has a strict rate-making process, Sorenson said, that is taken very seriously. 

Cutbacks, Inflation and Conservation Spike Rates

For providers in Arizona that get water from the Colorado River, the costs are beginning to add up. 

Starting this October, Phoenix customers could see a 6.5 percent increase—roughly $2 for the average user per month—with another 6.5 percent increase next March and a final 13 percent increase in 2025. Phoenix Water Services will also impose a water allowance on customers to promote conservation, resulting in a $4 increase each month should customers use more than what is allotted to them.

For Phoenix, the rate increases were born out of trying to find a way to signal to residents how much water they were using, said Water Services director Troy Hayes. The city currently has a flat rate for water until a customer uses a certain number of gallons. 

“If you use water below that, your bill doesn’t change,” Hayes said. “So they can go up and go down as long as they stay below that amount. They just don’t have really a concept of the amount of water they’re using.”

Many believe raising water rates is the best, and perhaps the only way to disincentivize citizens from overusing their allotments. 

“Back in the 1970s, something like 75 to 80 percent of single-family homes in Phoenix had majority turf or lush landscaping, that number today is down to nine percent,” Sorenson said.

She believes a huge amount of that change is directly related to Phoenix charging more in the summer months for water than winter months, giving a direct price signal that people will pay attention to.

The cost of raw water has gone up 35 percent in recent years, according to the city, but it’s not just the price of water itself driving the change. Inflationary pressures are having big impacts, too, with the chemicals to treat the water to drinkable standards rising by 136 percent.

Measures to reduce the demand on the river and overtaxed aquifers are forcing cities to invest hundreds of millions of dollars to find new sources of water, whether from desalination, agreements with tribal governments, recycling more wastewater or finding new untapped groundwater resources. Those costs, water utility directors and city staff have said, will force utilities to raise rates in the future to pay for the new sources of water. 

The pressures from inflation are not isolated to Arizona, though. 

Colorado Springs Utilities raised rates by 5 percent at the beginning of the year to address inflation and infrastructure projects. The utility created a separate fund supported by a new fee to purchase other water rights and infrastructure, according to Jennifer Jordan, a spokesperson for the utility. Denver also raised its rates this year.

California has also implemented fees for years to discourage overuse, which is expected to increase. 

Major utility companies in California, like the California Public Utilities Commission (CPUC), have been irregularly imposing fees for users as a result of unpredictable drought patterns. As of April 11 of this year, the CPUC is no longer imposing penalties for overuse of water because the drought has been declared over—for now. 

Most of the projected rate increases in California over the next 10 years will be a result of replacing infrastructure and developing desalination technology. California American Water was recently approved for a desalination grant by the California Coastal Commission. The facilities to extract fresh water from the sea will make them wholly water self-sufficient in the next few years, according to Kevin Tilden, president of the utility company. 

The long drought encouraged the company to adapt more quickly, putting them ahead of the desalination game, Tilden said. The challenge is that desalination is one of the most expensive ways to source water, and will have to be paid for regardless of demand, so price increases across California are inevitable, regardless of whether or when droughts are declared. 

“We’ve reached a point where the droughts continue longer and longer,” Tilden said. “As a responsible water utility, we have to source a reliable source of water.”

New sources of water, however, are scarce and pricey, said Hayes, with the Phoenix Water Department. 

Buckeye, a fast-growing city outside of Phoenix that relies almost exclusively on groundwater, spent $80 million earlier this year on the rights to just under 6,000 acre feet from a basin where state law allows groundwater transfers. 

Mesa, Arizona’s third-largest city, has a $185 million water pipeline in the works as part of an agreement with the Gila River Indian Community and is spending $3.7 million on new wells.

Both of those plans, a city official said, will force water rates to go up.

Hayes said Phoenix is currently evaluating its options to increase its supply of water, from potential desalination projects to using wastewater effluent and more. Whatever city leaders and residents decide to do, he said, water rates will likely need to rise again to pay for it.