Diving Into Water - part eight: you had questions

I've got some answers

Photo by Jeremy Bishop on Unsplash

Some of you have asked questions about my recent posts on our water situation and the increase in rates so I asked city staff if they could answer them. Our Public Works Director Jeff Arthur sent along some detailed answers. I hope this helps.

Hi Karen,

Responses to your questions below -

What were the unfunded federal mandates that we had to meet regarding the water treatment plant?
How much did those changes cost?

The most notable recent unfunded federal/state mandate is related to the water reclamation facility (also referred to as a wastewater treatment facility or sewage treatment plant).  The Colorado Department of Public Health and Environment (acting under the EPA) passed two regulations (Reg. 31 and Reg. 85) that lower the allowable limits for "nutrients" (Nitrogen and Phosphorous) that the Water Reclamation Facility can discharge into Coal Creek.  In simple terms, wastewater influent to the plant includes "fertilizer" and we are adding processes to the facility to better remove that fertilizer to reduce impacts on downstream ecosystems and water users.  The project is currently underway and has a total cost of approximately $47M.  City Council issued bonds in 2021 that allow the associated rate impacts to be spread over the next 30 years.  

There are two key regulatory changes that we are monitoring closely on the drinking water side, but the full implications and costs remain uncertain.  One relates to per- and polyfluoroalkyl substances (PFAS).   PFAS has been used in numerous products (Teflon coatings being one common example) over decades and has become widely present in the environment.  The understanding/acknowledgement of associated health risks is fairly recent and has triggered EPA action related to water supplies.  Lafayette is very fortunate to have very few sources of contamination upstream of its water supply, but the levels determined to cause health risk are so low that only a few laboratories in the country are even able to perform testing.  The City is complying with new monitoring requirements, but it’s uncertain whether some significant treatment technology change might be necessary in the future.  A second area of concern relates to the EPA's "Lead and Copper Rule."  There are periods of history where Lead was used for water pipes and/or in solder used to connect Copper water pipes.  EPA/CDPHE are requiring water systems to develop an inventory of potential Lead service lines (which is complicated with much of the infrastructure in question being 5-feet underground) and a plan to replace them.  Work is underway to complete the inventory requirement by an October deadline.  The actual cost to excavate and replace underground piping will be dependent on the extent and location of issues, but digging up a single service line and replacing it can be in the tens of thousands of dollars. 

In general, unfunded regulatory mandates are an on-going cycle as understanding of health/environmental impacts become better understood and treatment technology catches up.  This is an important consideration when taking on debt.  While more aggressive debt strategies have some capacity to reduce short term rate impacts, they significantly limit options if a new regulation (or some other major event like a natural disaster) occurs over the 20-30 years it takes to pay off the debt.  

When you were analyzing data in order to determine what the new rates should be in order to pay for the water related expenses in our future are you accounting for the following:

Residents using less water due to increased costs

Residents using less water due to intentional conservation and/or xeriscaping

Wet springs resulting in less water usage

The short answer is yes.  Because both water supply and water demand are variable (and continue to become more variable), water supply planning is largely about projecting reliability over a range of scenarios and determining acceptable risk.  It generally wouldn't be feasible to fund a water system that could serve unconstrained water demands in the worst possible drought situation.  It would also be problematic to have severe water restrictions; with potentially permanent impacts to landscaping, the local economy, and/or public health; on a frequent basis.  All of the changes you've noted would help reduce overall water demand.  At the same time, climate projections indicate warmer temperatures (which requires more water to maintain the same level of "green" for what does get watered) and more variable precipitation (which influences outdoor irrigation).  Those same factors are also already impacting supply.  Systems across the front range are largely based on historic patterns of snowpack accumulation and runoff that are changing.   Hopefully, residents will reduce use, but it would take huge reductions to fully offset all of the other factors that are projected to increase demand and reduce supply.

If rates are raised and usage lowered will that have an effect on your current predictions for future funding? Could this throw off what you are predicting for future income?

Yes.  But, that's not necessarily all bad given our current supply situation. The City's current reservoir capacity is roughly equivalent to its annual demand (we essentially have a checking account, but no savings account).  This is concerning and not aligned with regional best practices which anticipate periodic droughts.   For comparison, Aurora Water goes to its most severe drought stage/water restrictions when it has less than three years of water in storage - we never have more than a one-year supply in storage.   If water demand associated with existing Lafayette customers was to permanently drop by roughly 2/3 as the result of the rate increases/conservation, our current storage is in the ballpark of what we should have to ensure reliable supply.  Looking at historic demand data, there have been noticeable drops in demand associated with severe droughts (and associated mandatory watering restrictions), but nothing on the scale of a 2/3 reduction.  If current customers make no reductions in use, most of the major water projects that are in the works will be needed just to reliably meet existing demands.  If customers do make meaningful reductions in use, that will create additional opportunities for new customers to “buy-in” to existing City capacity rather than dedicate new water (which is currently being required on all major development projects).  Those revenues can be used to pay annual debt service on water projects, reducing the amount that needs to be collected through monthly rates and fees assessed to existing customers. 

To summarize, I think we can say with relative certainty that actual water demand and revenue will not match projections and that projections become increasingly uncertain the farther we look into the future.  The intent going forward is that we will revisit water demand, rates, and fees annually through the budget process so that we can make minor adjustments over time.  Based on historic trends, the likely drop in 2024 demand (and associated revenue) due to increased rates/increased conservation is still significantly less than in a drought or unusually wet summer, both of which are always possible.  Ideally, our financial plan going forward is resilient enough that we can withstand a short-term change in demand/revenue without the need for drastic action and can adjust to any longer-term trends over multiple years to avoid “rate shock” to customers. 

I hope that helps.  Please let me know if that doesn’t answer the questions or if additional information would be helpful.

Best,

Jeff