Water Utilities-Why Revenues Decrease while Costs Increase

The surprising truth about utility services is that they are not immune to economic downturns. Governments may do their best at limiting cost increases in providing utilities but the bottom line is that revenues have been on the decline.

A number of reasons have caused this situation, the main one being a fall in the demand for water and Wastewater treatment.

Usage of a water system creates a demand for the water itself as well as a demand for the Wastewater utility bid of wastewater after it is utilized. In the years prior to the recession, there was a huge demand for water from heavy industries sector as well as the domestic sector and water utilities responded by setting up large water distribution facilities and wastewater treatment plants.

The unexpected fall in demand led huge processing capacities to remain unutilized or underutilized. The maintenance costs however did not come down. On the one hand, while the revenues earned by water utilities decreased, the costs of maintenance remained fixed, eating into their profit margins.

Closure of Heavy Industries Impacts Demand for Water

Food processing industries, metal processing plants, assembly units as well as other manufacturing units are the biggest consumers of water systems. Water is also the main component for water jet cutting, washing, heating and cooling processes in most of these factories.

With several key industries facing economic downturns, some have scaled down production while some have temporarily or permanently shut shop. In both cases, end result was a drop in demand for water systems. Even though the demand reduced, the state-of-the-art water treatment and distribution facilities had to be maintained at fixed operating costs while the Wastewater contracts revenues decreased.

Impact of Water Conservation in the Domestic Sector

Loss of jobs and reduced income sources forced the domestic water consumer to make all efforts to keep their water bills down. People cut down on water usage by avoiding watering lawns, gardens and in any other way they could. Cars were washed once in two weeks instead of every third day. All this led to a reduced demand and consequently less income for Sewer construction bids, their operating costs continued to remain fixed, decreasing their revenues.

Building and Construction Industry

The construction and real estate boom before the recession saw an increase in demand for water in the form of new water and sewer lines thus increasing Sewer Utilities Bids revenues. When the recession set in, new construction projects came to a standstill drying up the income for water companies. Again, the cost of running the facilities remained the same while the income declined, creating a situation of decreasing revenues and increasing costs for the water utility companies.

Planning for the Future

In these difficult times, water utilities made all efforts to cut down their costs; lay offs were common as a cost cutting measure. Most of the water utility companies tried all means to reduce their operating costs. Clearly, these measures did little to help stall the problem – the recession taking its toll in a big way.

Very soon, the economy may revive resolving the issue of decreasing revenues and increasing costs for water utilities. However, in an attempt to secure the future, water utility companies must find the means to manage their business in a better way by identifying weak spots and plugging them in an effort balance their finances. Although this may not be a foolproof method to take care of the situation, it will certainly help them weather any future storms on the economic scenario.