A Rate Structure Rubik’s Cube

May 17, 2017

Water agency rate structures typically recover costs by charging consumers per gallon, which means that when usage drops, rates have to go up. In many cases, that means that it costs rate payers more to conserve water.

The financial logic is simple. If a company sells less of something, it has to cut costs, raise the price, or a combination of both to maintain the bottom line. So when utilities encourage consumers to use less water, a rate increase is inevitable.

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According to utility sources, about 80 percent of the costs of delivering water to urban customers are fixed. They cover maintenance expenses for pipes, pumps, and treatment plants, as well as energy costs and storage.

The Alliance for Water Efficiency explains that some water districts charge an increasing block tier rate, with those using the most water paying the highest amount per gallon. Other water districts have implemented an allocation model, in which a fixed amount of water for basic usage is sold at the lowest price, with gallons above that base amount charged higher rates. And others use water budgets with punitive tiers when budgets are exceeded.

In California, from June 2015 to January 2017, consumers reduced water consumption an average of 22 percent in response to the state’s drought. Although this winter, extensive rains brought some drought relief, several California water agencies recently announced that they are planning rate increases.

In Southern California, Whittier City water rates may go up from 4.5 to 6 percent over the next two years. And according to the New York Times, the East Bay Municipal Utility District plans to raise water rates 9.25 percent on July 1 and another 9 percent the next year. In nearby Marin County, the water agency plans to raise rates 7 percent per year for the next two years. An agency spokesperson explained that some of the revenue will support infrastructure renewal projects.

Although the rate increases are rational shifts driven by an evolving market, they have created dissatisfaction among utility customers who have worked to reduce their water usage. Today, many of these customers have dry lawns and dusty cars, but are paying higher water bills than ever before.

How does your agency encourage consumers to conserve while maintaining budgets? Are conservation rebates a valid option?
About the Author

Laura Sanchez

Laura Sanchez is the editor of Distributed Energy and Water Efficiency magazines.