Reducing operating costs has resurfaced as a primary objective for water utilities over the past few years. There is extreme pressure on utilities to maintain water rates or at the least, minimize rate increases, in the face of increased regulation, aging infrastructure, and the threat of privatization for municipal systems. To operate in this competitive business environment, water utilities must scrutinize their operating costs and reduce expenditures as appropriate. When segregated into broad cost categories, the most significant elements of a water utility budget include labor, chemicals, energy, and in many cases debt service on bond issues for capital projects. Traditionally, in the public sector, debt service on bond issues and labor costs have minimal flexibility, leaving chemical and energy costs with the greatest opportunities for cost reductions. As energy-intensive technologies (such as ultraviolet radiation, ozone, and membranes) become more prevalent in drinking water treatment, energy consumption is a more significant element of utility operating costs. In 1996, the City of Ann Arbor, Michigan, UtilitiesDepartment replaced chlorine with ozone as its primary disinfectant resulting in a 45 percent increase in electrical costs. Currently, annual energy costs top $1 million for the utility. Because of the significance of this cost category, the Water Utilities Department has focused on energy costs as one means for cost reduction. The Water Treatment Division within the Water Utilities Department was selected to pilot the development and implementation of the energy reduction plan. The Division used the following five-step process: understand the rate structure of electricity provider; install energy monitoring devices; develop load profiles to analyze usage; assess process modifications; and, implement recommendations and monitor.Components of the plan include electrical load monitoring, demand management, and energy-saving capital improvements. Constraints were established at the onset of the project to ensure that energy conservation was secondary to the Department mission to provide a safe and reliable water supply to its customers. Through these actions the Water Treatment Division expects to meet its goal of reducing electrical expenditures by five percent in the coming fiscal year, and potentially an additional five percent in the following fiscal year. By following these five steps, opportunities may exist for other water utilities to achieve comparable savings. Includes 6 references, table, figures.