Last week, in our article “It Happens Every Year—Another Water Rate Increase,” we provided an overview of the fiscal year 2026 water rate increase. Since then, Water Utility Director Peter Abraham has presented the proposed changes to the Oro Valley Town Council. His presentation included additional details that were not covered in our previous article. This update highlights those details, as well as some of the Town Council members’ comments and concerns regarding the rate increase.
Big hit to low water users (Last year 8%, this year 4.2%)
The proposed rate increase affects both the base rate and commodity rates, with the greatest percentage impact on lower water usage tiers. 84% of Oro Valley residents have the smallest 5/8-inch meter and will see their monthly base rate rise by $1.11 (5%), from $22.20 to $23.31. The base rate is the fixed charge for being connected to the system, regardless of water usage.
Additionally, Tier 1 users (customers who use up to 7,000 gallons of water per month) will see their commodity rate increase by $0.10 per 1,000 gallons (3.5%), while Tier 2 users (customers consuming between 7,001 and 16,000 gallons per month) will experience a $0.17 per 1,000 gallons (3.5%) increase. This results in an overall 3.8% increase in the water bill, following last year’s 7.8% increase.
The total water bill also includes five additional fees or taxes, which add approximately $15 to $16 to the bill. As a result, a Tier 1 user will be billed $60.48 in total under the proposed rate schedule. Only $44.45 is for the cost of water.
Big users see no water cost increase
Meanwhile, about 1,200 of the town’s highest water users fall into Tier 3 and Tier 4. Last year, Tier 3 rates increased by 35%, and Tier 4 rates increased by 40%, the largest hikes among all tiers. No additional increases were proposed for these tiers, as Abraham wants to evaluate whether last year’s steep increases successfully reduced high water consumption among that group. Our guess is that the town itself is the biggest user in these categories.Four factors driving the water rate increase
According to Abraham, four factors are driving the need for a rate increase:
- Rising CAP water costs (an 8.9% increase, or $257,450)
- $10.8 million in cash-funded system improvements over five years
- A town mandated requirement that operating cash reserves be at or above 20% of the combined total of the annual budgeted amounts for personnel, operations and maintenance, and debt service. This reserve excludes budgeted amounts for capital projects, depreciation, amortization, and contingency funds. (Town of Oro Valley Water Policies Section II.A.1.d)
- Funds required to purchase more long term storage credits ($200,000). Abraham refers to these funds as "Cash Firming". These are measures employed to ensure the availability of funds during periods when water supplies from primary sources, such as the Central Arizona Project (CAP), are reduced or interrupted.
A fifth reason, one not noted directly in Abraham's report to council is that Oro Valley water revenue has a shortfall from plan. This is a direct result of residents conserving water—a practice the town encourages, yet one that paradoxically leads to higher rates. As more people reduce their water use, the utility collects less revenue, even though its fixed costs for infrastructure, maintenance, and operations remain unchanged. To offset the shortfall, water rates must be increased, ensuring the utility meets its financial obligations. This creates an ironic situation where the less water you use, the more you pay per gallon. Unlike other utilities where lower usage directly reduces costs, there’s no real way to significantly lower your water bill since the base rate and tiered pricing structure ensure the utility recovers its required revenue.
Future water rate increases may decline in fiscal 2028
During the council discussion, Vice Mayor Barrett suggested smoothing out rate increases over multiple years to prevent large fluctuations. Abraham acknowledged the concern but noted that projected rate hikes will drop significantly after fiscal year 2027-28, when substantial debt obligations come off the books. The town will still need to take on new debt, including a $6 million private placement loan for the Northwest Recharge Recovery, and Delivery System (NWRRDS) project. These costs, however, will be covered by groundwater preservation fees and impact fees, not additional rate increases.
Next steps in the rate approval process
With the Notice of Intent (NOI) approved, the public review period has begun. The final vote on the rate increase is scheduled for June 4, 2025, following two public hearings. If approved, the new rates will take effect on July 5, 2025. Abraham assured the council that no additional rate or fee increases are planned beyond the adjustments to the base rate and Tiers 1 and 2 commodity rates.
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