Abstract
Being a semi-arid state, California faces frequent and prolonged droughts. In a typical policy intervention to deal with less water, state agencies and water utilities responded (in the urban sector) by either cutting water allocations to users or by dramatically increasing water tariffs, or both. Drought returned to California in 2007, and lasted, with various levels of severity until 2014. Starting 2008, with the slowdown in economic activity in the state, water rates that were adjusted, led to reduction in water consumption and decline in revenues of water utilities; customers that saved water have faced increased rates again and again, much to their dissatisfaction. The Water Budget Rate Structure (WBRS) (called also by some analysts sustainable rate design, since it seeks to stabilize revenues and drive conservation at the same time) has emerged as a practice that allows water utilities obtain a high level of conservation without jeopardizing the financial and political stability of the water utility. This chapter reviews the legal, economic and political aspects of the design and implementation of the WBRS in southern California in three water utilities, starting in 1990 until a recent implementation by the Western Municipal Water District. The chapter draws lessons and suggestions regarding the possible implementation of the WBRS by other utilities.
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Notes
- 1.
There is also the philosophy, often sought by the environmental community, that most of the fixed costs of water be moved to the variable costs side, making the cost of water high to encourage conservation, but putting the agency at great financial risk should users reduce demand. The initial concept appears correct, making the cost of water high to encourage conservation, yet denying that the actual costs of water delivered are mostly fixed. Activist groups are not responsible to the local voter, yet have amassed significant political power, causing this philosophical dilemma.
- 2.
It is only adopted in a small group of innovator agencies, but is generating discussions, mainly without the fundamental details understood and the typical conservation pricing still in the minds of rate consultants, environmentalists and most public agencies.
- 3.
“Water budget-based water rates—also known as individualized, goal-based, and customer specific rates—are block rates, where the block is defined by using one or more customer characteristics. Water budget-based rate structures can be thought of as an increasing block rate structure where the block definition is different for each customer, based on an efficient level of water use for that customer” (Mayer 2009: 4).
- 4.
1 gal ≅ 4 l.
- 5.
1 in. ≅ 2.54 cm.
- 6.
The annual LF for fescue grass is 0.8 of ET. Monthly values may exceed or be below 0.8, depending on the month.
- 7.
Some water utilities use the DF to adjust both the ODU and the IDU.
- 8.
1 ccf ≅ 100 ft3 or 748 gal; 1 in. = 0.083333 ft3.
- 9.
- 10.
Based on Ash, T. (2011, November 28). Personal communication.
References
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Dinar, A., Ash, T. (2015). Water Budget Rate Structure: Experiences from Several Urban Utilities in Southern California. In: Lago, M., Mysiak, J., Gómez, C., Delacámara, G., Maziotis, A. (eds) Use of Economic Instruments in Water Policy. Global Issues in Water Policy, vol 14. Springer, Cham. https://doi.org/10.1007/978-3-319-18287-2_11
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