Denver Water customers will soon see steeper bills for outdoor water use after the utility approved drought pricing Wednesday amid historic low snowpack and severe drought.The rate increases begin in May and will remain in place through April 2027 unless the board of the utility takes further action, according to a Denver Water press release. The price hike comes after the company declared a Stage 1 drought on March 25, implementing water restrictions aimed at reducing water use by 20%. It's the first time Denver Water, which serves 1.5 million people, has implemented drought pricing in more than two decades.Drought charges signal to our customers the premium value of water in a drought, while exempting essential indoor water use. We havent needed to use this tool in more than 20 years since the historic drought of 2002-04 and conditions surrounding this years snowpack and potential runoff are shaping up to rival, and possibly be worse than, those years, Alan Salazar, Denver Waters CEO and manager, said in the release. Watch this story in the video player below: Denver Water implements drought pricing for first time in over 20 yearsWhat it means for your bottom lineA Denver Water spokesperson said the average single-family household in Denver city limits will pay about $45 more annually than they would have without drought pricing if they do not reduce water use by 20%."If they cut water use by 20%, their bill would actually drop by $81 over the course of the year when compared to what it would have been if there was no drought and no water use reduction requirements," Denver Water spokesperson Jimmy Luthye wrote in an email.The utility estimates those it considers "high users" city will see an increase of $76 annually, while those it considers "super conservers" will see an increase of about $7.Here's what Denver Water estimates annual bill increases will look like for the average resident:How it worksUnder the new rate structure, customers are allowed a certain amount of water use without any surcharge.Determined on a customer-by-customer basis, that threshold is aimed at exempting indoor water use from the price hikes by averaging the amount of water the household used during January, February and March, when the utility assumes there is very little or no outdoor watering.That means customers should be able to continue showering, cooking and flushing toilets as usual without seeing any rate increases.After that initial indoor water allotment, which the company refers to as tier 1 usage, customers will see a drought charge of $1.10 per 1,000 gallons added to their usual water charge. Up to 15,000 gallons is included in this second tier and is "considered to be an efficient use of water outdoors," according to the utility. After those 15,000 gallons, customers move into the third tier of pricing at $2.20 per 1,000 gallons on top of their usual rate."It is priced at the highest level to signal potentially excessive water use and encourage conservation efforts by larger-lot customers," the utility said in the release.Non-residential customers will also see rate increases, though they look a little different. Here's what that pricing looks like: Prices for folks in cities that buy their water from Denver Water wholesale but operate their own utility, such as Edgewater, will likely also see increases as the municipalities pass their wholesale price increases on to residents. Those increases may take on a different structure than those in place for Denver Water customers.What it means for Denver Water's bottom lineThe company said in its press release that it expects its revenue to fall even with price increases  if customers succeed in reducing water use by 20%."While drought pricing can offset a portion of that reduction, the utility will rely on cash reserves and budget reductions to cover the majority of the gap," the company said in the release.Already, the company said it has "proactively reduced its spending" by going on a hiring freeze and reviewing projects to be deferred. ...read more read less