Photo by Michael Parrish

LEAD STORY Wet Dreams One man's plan could help protect the environment and save the city $100 million, but will anyone listen? BY BOB YOUNG byoung@wweek.com

Jerry Yudelson maintains that local water rates amount to a hidden subsidy for big corporations: "If Intel pays less, obviously the rest of us pay more."   Portland gets its water from the 68,000 acre Bull Run River watershed in the Mount Hood National Forest, located about 35 miles east of the city.   The city has enjoyed exclusive and free access to Bull Run water since an 1892 decree by President Benjamin Harrison.   Hilary Abraham and others at the Oregon Environmental Council have been pushing conservation pricing for five years.   Every year the city sells about 40 percent of its Bull Run water to other cities in the region. The wholesale rates run from 47 cents to 81 cents per 100 cubic feet, or 748 gallons.   The top water rate in Portland is $1.38 per 100 cubic feet. In Seattle, it's $2.53. In Nashville it's $2.68, in Los Angeles, $2.98.   Watershed or Waterloo? The rate proposal from City Commissioners Dan Saltzman (above) and Erik Sten (below) is already drawing fire."[It's] terrible," saysTom McCue of Wacker Siltronic. "Right now the semiconductor industry is in a slump."   The average five-minute shower uses 25 to 50 gallons of water.   The city sends water bills only four times a year. Those infrequent bills don't give customers a good read on their habits.   "Conservation will not work if the city can't send timely signals to customers to reduce water use," says Jerry Yudelson.

Mad As Hell: the battle over unfair stormwater fees Ten of the Region's Biggest Water Consumers This time of year almost everyone is annoyed by the rain. No one more than Jerry Yudelson. Yudelson, an environmental engineer, doesn't suffer from seasonal affective disorder. It's just that every raindrop reminds him of Oregon's greatest paradox. The problem? It's not that we've got a shortage of water; we just don't have enough room to store it. Our reservoirs aren't big enough to accommodate the region's thirst for growth. As a consequence, the City of Portland is now considering building a new dam in the pristine Bull Run River watershed, the current source of water for 800,000 Oregonians. Three months ago, the city's Water Bureau issued a report that put the price of a dam at $135 million. Not only will the dam raise our water rates, but it will also tax the environment, drowning 400 acres of old-growth forest and further endangering fish already on the brink of extinction. That's where Yudelson comes in. Like Jack Nicholson's character in Chinatown, he's bent on exposing the murky, high-stakes world of water politics and economics. The main reason we have a supply problem, he says, is because local governments price water in a way that encourages wanton use. But Yudelson has a solution, one that's been embraced by City Commissioners Erik Sten and Dan Saltzman. This week the duo unveiled a rate-reform proposal to the City Council based on Yudelson's thinking. It won't be an easy sell. The reforms are already being called radical. They will be challenged by the micro-chip plants that suck up a million gallons a day, the water-agency bosses who want to expand their engineering empires, and city financial analysts who argue that the reforms makes municipal budgets less predictable. The reforms might not survive this tide of resistance. What is crystal clear is that Yudelson has called attention to a dirty little secret: In a region that prides itself on recycling and preserving precious natural resources, we have a water policy that discourages conservation. The subject of water is rarely as sexy as it is in Chinatown. Portland's story lacks the secret dumping, the murders and the femme fatale. There is, however, a determined sleuth who's been on the case for a while. The problem, in Yudelson's view, goes back to the drought of 1992. That unusually dry summer showed that the region's population growth had outpaced the water supply. City officials ordered people to ration their water and encouraged them to tattle on neighbors guilty of midnight lawn watering. But the city did little else. Soon, people reverted to their old ways: Between 1995 and 1997 total annual water use in the region jumped 3.4 billion gallons. That's equivalent to a per capita increase from 133 to 148 gallons daily. This growth, both in per capita consumption and in the number of people who live and work here, will require a new supply of water. That leads to two obvious choices: constructing a new reservoir in the Bull Run preserve or drinking from the polluted Willamette River. There is another option, though. Like some other cities, we could stress conservation. Seattle's water customers, for example, have cut consumption by 50 billion gallons over the last decade--the equivalent of 1,000 bathtubs full for each person in the greater King County area. Sten, the city's water commissioner, says a 15 percent across-the-board reduction in water use would postpone the need for a new dam until the year 2050. And by then it's possible that new technologies in water storage would make a dam unnecessary. All that stands in the way of such conservation is a rigid rate structure that's been in place since Sten was born. Yudelson entered the fray because he's what you might call a water geek. He studied water management at Cal Tech and Harvard before working in the field of energy conservation. But his solution to our supply problems has less to do with droughts and floods than it does with Economics 101. Yudelson is convinced Portlanders will never change their behavior under the city's current price structure. Although the system purports to be progressive--in other words, you pay higher rates for the more water you use--it contains huge loopholes. For example, a business can increase its water use by up to 40 percent a year--every year--and stay at the lowest rate level, which is 92 cents for 100 cubic feet, or 748 gallons. Portland's system is just as friendly to homeowners. Yudelson points to his own bill from last summer. For a big house (2,800 square feet) on a big lot (15,000 square feet), Yudelson used 5,984 gallons more than the average household. That excess use bumped him into a higher rate tier, which Yudelson thinks is good. But he only paid that higher rate for the increment that was above the average use. That amounted to just $1.50, or less than 1 percent of his total three-month bill. "That's less than a latte," Yudelson says. "There is no incentive to conserve." Outside Portland, the situation's even worse. Of 27 suburban water agencies, 19 charge the same rates to residential customers and big industrial users. Some cities, like Gresham, actually charge big companies lower rates. The same goes for Hillsboro, where Intel gulped down 220 million gallons last year--at a rate of 82 cents for every 748 gallons. Depending on the amount of water they use, single-family homes in Hillsboro pay either 3 or 12 cents more for every 748 gallons. In fact, those low commercial rates are partly what lured companies such as Intel, Fujitsu and Komatsu to the region in the first place. They use huge amounts of water to manufacture silicon chips. They need water to wash the raw materials and cool diamond blades that slice silicon into wafers; they also use water for air conditioning, heating and cleaning scrubbers used to treat air emission. Few of the water-agency directors see any problems with the high-tech companies. "We like big customers," says Harvey Barnes, general manager of the Rockwood Water District, which sold more than 540 million gallons to Fujitsu last year. "They're really good for us. We don't see any reason to penalize them for being big." Not everyone agrees that bigger is better. "My argument," says Yudelson, "is that big users are forcing big new capital expenditures on us sooner." And he thinks growth should pay for growth. The solution, he says, is simple: The city should jack up rates for commercial customers and soak them for the costs of a new dam--or at least push them to conserve more so that the need for a dam is postponed or eliminated. Yudelson targets the big companies because they are the most responsive to rate increases and the most adept at conservation. "First, commercial customers are very sensitive to price signals," Yudelson explains. "Second, they have the technical expertise to make changes. Third, they can borrow money to make improvements." Yudelson says studies show that every 10 percent rate hike will cause a 1 to 3 percent decrease in use. He also stresses that every bit of conservation will reduce wear and tear on the city's water-treatment plant and transmission systems. It's the best hope, he adds, because local governments can't afford to underwrite conservation programs. Although it's a relatively new idea in the Pacific Northwest, where water seems so abundant, aggressive conservation pricing has been successful in Seattle. In 1989, the city boosted rates for big and small users--and tripled rates for both during the peak summer season. The costs were steep enough to make people conserve more. "We've been able to hold demand constant despite adding 20 percent more population," says Al Dietemann, a senior analyst with Seattle Public Utilities. Taking the idea a step further, Gov. Gary Locke has sponsored legislation that would ban cheaper rates for larger users. Dietemann estimates that 5 to 10 percent of the water agencies in the country now charge the kinds of rates Yudelson is suggesting. "It's not that uncommon," he says, "although it might be in your area." Commissioner Sten had heard arguments for conservation pricing before, particularly from Gayle Killam and Hilary Abraham of the Oregon Environmental Council. But he was never persuaded to act. Last August his thinking started to change after he was confronted by a crowd of 500 East Portland residents angry about service charges on their water bills (see "Mad as Hell"). Even if they conserved water, the residents complained, they still faced high fixed charges. After that night, Sten was a lot more receptive to any idea that would give customers more control over their water bills. Yudelson first proposed his rate reform in a paper he submitted to the Better Government Competition sponsored by Portland's Cascade Policy Institute, a free-market think tank. Last November, his paper was declared a winner--and shortly after that he found himself having coffee with Sten. Sten was impressed with Yudelson. Not only was he credible with free-market capitalists, but it turned out he had worked as California's director of alternative energy programs under Gov. Jerry Brown. When Sten got done tweaking Yudelson's conservation rates, they had a more populist appeal. Most residential customers would see a 25 percent drop in their bill. The city's biggest water user, Wacker Siltronic, a silicon-wafer manufacturer, would see its bill increase 50 percent. The same would be true for smaller business customers. Last month, Sten persuaded Dan Saltzman, the city's new sewer commissioner, to co-sponsor the aggressive price scheme. It was a daring but logical move for Saltzman. An MIT graduate and environmental engineer, Saltzman had campaigned on the idea that Portlanders should "live lightly on the land." Just two months into office, Saltzman admits he's pushing a bold idea that's bound to burn big business--rate reform could cost Wacker Siltronic as much as $383,000 a year. But Saltzman says the city should live up to its progressive reputation. "There will be a tremendous challenge in selling this proposal," Saltzman says. "But I'm not afraid to embrace a new idea. That's what we're elected to do--be leaders who make tough decisions." It's possible that the rookie commissioner doesn't realize what he's wading into. Some executives say they'd rather switch water sources than conserve. "My knee-jerk reaction is to say I'd probably put in a well," says Rick Steinfeld, president of Steinfeld Products, a Portland pickle-making company with 200 employees. "I think large water users are going to look at alternative sources of water." The main gripe from big customers is that conservation pricing will unfairly shift service costs from residential to business customers. "It doesn't cost the city more to send us a bill for $739,000 than it does to send a residential customer a bill for $500," says Tom McCue, environmental manager at Wacker Siltronic, which used 622 million gallons of Bull Run water last year. Plus, big customers don't require a lot of maintenance. "We never have to go out and collect money from Fujitsu," says Barnes of the Rockwood Water District. "We send them a bill, and they send a payment. We have a lot less work with the Fujitsus." It appears that the protests of big customers will be organized--and imaginative. Kathleen Dotten, spokeswoman for a coalition of 13 large water and sewer users in Portland, suggests that schoolchildren and sick people will be victims of rate reform. "We will be speaking out on the devastating impact this proposal will have not just on business but on public schools and hospitals," says Dotten. It's not that companies and institutions can't conserve more. McCue admits that Wacker should attend to "low-hanging fruit--some obvious projects that make sense and need to be done." With new technology, McCue says, Wacker could use 20 percent less water. But, he adds, the cost would be prohibitive. Rate reform will also meet resistance from some of the men and women who run the 27 public water agencies in the region. On one hand, the managers acknowledged the need for reform in the 1996 Regional Water Supply Plan, which stressed that "an option for all providers in the region is to implement considerably more aggressive conservation rate designs." On the other hand, those managers have failed to heed their own advice. A 1998 study by the Oregon Environmental Council showed that local governments spent 500 times as much on expanding water supplies as they did on conservation programs. City financial analysts also chafe at reform. City utility specialist Dave Hasson calls it "inequitable" and last week gave a citizen watchdog group a list of 11 other arguments against the proposal. The leading ones are that the proposal might be difficult to defend in court because it seems to discriminate against one class of users and that it makes utility revenues less predictable, which might cause lending institutions to charge the city higher interest rates. There's one thing no one can dispute: The time to resolve the conservation debate is now. This year the city will start renegotiating long-term contracts with 19 suburbs that buy Bull Run water. And if the city doesn't lock in conservation rates this time, it won't have another chance for 20 to 30 years. Of course, the city could cut the suburbs loose to drink treated water from other sources such as the Clackamas and Willamette Rivers. But there are good reasons to keep them under contract. For one, suburban customers keep Portland rates down: If Portlanders had to shoulder all the costs of operating Bull Run, their bills would climb 25 percent. For another, the city can't change regional consumption habits unless it has the ability to impose aggressive rates on the suburbs. Finally, regional conservation would make life easier for trout and salmon that the Endangered Species Act forces the city to protect. "I'm no biologist," says Sten, "but I'm sure the fish need water." Before Portland can impose its will on the suburbs, however, it needs to get more serious about conservation itself. "Portland has to get it nailed down first," Sten says. "Then we need to have a conversation with the suburbs." The City Council will dive in this week. Sten and Saltzman expect the battle to be long. In a memo sent to other commissioners this week, the two said they didn't expect any changes for a year. The bottom line, maintains Saltzman, is that it's time to start thinking differently. "I think we are in a new era of how we look at waterworks and treatment," he says, "and once again we are ahead of the pack." - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Willamette Week | originally published March 3, 1999