Regarding this statement ("It will be difficult for many utilities to raise rates high enough to pay down existing levels of debt"), I'd say that rates (or taxes) must rise. Most utilities have been underinvesting since the "big push" of installing networks over 100 years ago. They've drawn down capital, and now it's time to bite the bullet and spend. Americans pay less for water than Europeans, and they get what they pay for.Bottom Line: Water managers can deliver quality water services, but they need to be pushed to achieve quality and properly funded.
On (1), it's important to benchmark performance (e.g., IB-NET) to see how well they are doing. Want to push that to its limit? Use my method for improving manager performance [pdf]
On (3) and (4), it's important to keep leakage and recovery in mind. Most leaks are in the system -- not the household -- and recovery means that conservation (demand down) is not as important as reducing leaks and recycling water.*
* Speaking of recycling, Portland
Correction: That was in 2011, when it was ALSO a bad idea :) -- thanks to CF for the correction...
H/T to RM