Understanding Ann Arbor Water Rate Increase
Ann Arbor water rates increased by 3.02% effective July 1, 2010 in part because the overall demand for water has been going down while the basic operating expenses remain. The vast majority of cost for the water treatment plant is related to the already built, existing infrastructure:  the treatment plant, storage tanks, water main pipes, etc., as well as the personnel to run the system. The city refers to all of these costs as fixed because they must be covered whether the system is operating at full capacity or something less.  This means that if less water is used, there are fewer units sold across which to spread those fixed costs. 

The loss of Pfizer as a large water consumer combined with water conservation from current customers means that the operating costs need to be redistributed with slightly higher rates. However these water increases should not be construed as a disincentive to adopt water conservation practices.

Water Bill Breakdown
With moderate water conservation, the water bill overall may still be lower, despite the increase in unit cost.

Some benefits of water conservation are short term, for example using less water means less electricity and chemicals that are needed to treat the water. There are environmental benefits to this as well as economic savings for the water plant, and indirectly to the water consumer (through avoidance of future rate increase).

In addition, conservation means less investment in the future.  For instance, consumers reducing peak water requirements in the summer over the past six years has meant that the city has been able to defer, perhaps eliminate, the need to secure additional water sources.  Developing new wells and building pipelines to bring that water to the treatment plant would be at considerable new expense, both environmentally and economically, and that would mean significantly higher water rates in the future.  So again, conservation plays a very meaningful role in the long term operational costs of our city’s water system.

Future of Ann Arbor Rates
Conservation impacts aside, the city is doing everything that it can to reduce or maintain operational costs to minimize the need to adjust rates.  For example, over $1 million of deferred or permanent expense reductions were made in the 2010 Water Utility operations budget, which will also carry-over to the next fiscal year.  These cost-containment steps are taken while continuing to focus on maintaining high water quality and reliable service.