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New Water Rates that Help Consumers Save

Ed Osann

Posted November 8, 2012

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There are lots of reasons why California and states throughout the West need to start using water more efficiently, and do so quickly.  Climate change will cause water supplies to be more variable, and warmer temperatures will drive up the water demands of irrigated crops and landscapes.  Groundwater pumping is at unsustainable levels in many areas.  And increased diversions from rivers and estuaries, such as the Colorado and the Bay-Delta, threaten natural resources and local economies along these waterways.

The way water is priced is often overlooked in managing the supply and demand for water.  Government agencies and utilities often project future demands for water without regard to price, as though every drop of consumption was virtually priceless to its current user.  We know from our own experience that this is not true.  The first gallon of water we use for cooking or bathing is far more important (and valuable) to us than the last gallon that sprays from our lawn sprinkler, drifting across the sidewalk and running into the street.  As a nation, we have plenty of fresh water for drinking.  But the day is fast approaching when we will no longer be able to afford to run drinking water into the gutter.

So it was welcome news this week when the California Public Utilities Commission approved a new structure for residential water rates used by the California-American Water Company, an affiliate of American Water Works, Inc., and one of the largest investor-owned water companies in the state.  In a landmark decision, the Commission approved rate designs jointly recommended by CalAm and the state’s consumer advocate office, as well as NRDC and another consumer-oriented intervener, the Utility Reform Network. 

CalAm Rate Design-Davis Workshop-9-11-2012.jpg

In 2010, CalAm requested permission from the CPUC to increase rates for water service. NRDC intervened in the case to propose an improved rate design for water conservation purposes. This past June, the Commission gave approval to CalAm to increase its revenues by $28.5 million annually, which will mean increases from 8% to 26% across CalAm service areas in Sonoma, Ventura, Los Angeles, and San Diego counties.

The new rate design approved this week does not change the total amount that the company will collect from customers.  Rather, it specifies how the authorized increase will be collected. 

The new rates consist of a relatively small monthly fixed charge accompanied by volume-based charges divided into four tiers, with higher rates for higher than average levels of water use.   The volume allotted to the tier with the lowest rate is based on average levels of indoor use in each district, while the highest rate applies to water use far in excess of the summertime average.  This benefits customers who want to be smarter about their water use, and encourages heavy users to find ways to make their water consumption more efficient.

In California, about half of residential water use is for lawn maintenance and other outdoor purposes.  Peak summertime demand for water, largely outdoors, pushes the cost of water service higher.  The new tiered structure is more equitable in distributing these costs, and will reward those who make prudent use of our scarce resources.  CalAm will also be adopting a new billing format that will make monthly bills easier to read, so customers can see the amount of water consumed each month and be rewarded for remaining smart water users.

Under the new rate design, high usage customers that take steps to reduce water use – such as fixing leaking toilets or renovating an old irrigation system – will see these investments pay for themselves in about half the time it would have taken under CalAm’s previous rates.  And it’s worth noting that the endorsement of California’s ratepayer advocate for strong conservation rate designs across four diverse service areas is a powerful statement of the widespread need to conserve water and the positive role that improved rate designs can play, both for consumers and the environment. CalAm’s rate design is a good model, and NRDC will encourage other water utilities to consider adopting a similar approach.

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Laer PearceNov 9 2012 09:56 AM

The PUC is a bit behind on making this good move. Public water agencies, which are not regulated by the PUC, started making this change years ago, led by the Irvine Ranch Water District. Since then, the water budget based rate approach has been adopted by many more agencies, and is saving millions of gallons of water each year.

The conversion to a budget-based system leads to lower water bills for most customers because it gives them a target - their water budget - to strive for. Users who don't conserve pay more, and the additional funds are used by the districts on water conservation programs. Customers often don't trust the change, so a comprehensive outreach and education program (the specialty of my firm) is necessary for the change to go smoothly so positive results can be seen immediately.

Fred L CurryNov 9 2012 02:15 PM

Well, that is not quite true. The CPUC originated increasing block rates for electricity and has had it for water for many years. CalAm's Monterey district has had probably the most sophisticated increasing block rates in the Country.

Increasing block rates work, but they are not simple to design fairly, and often need to include an appeal process.

Even so, the number of high flow toilets still in use would make an environmentalist cry.

Anyway, 85% of water use is still agricultural, so of course there is enough water available for drinking, washing and food preparation.

Edward OsannNov 9 2012 06:32 PM

Laer is too quick to equate the tiered rates approved for CalAm with budget based rates used by Irvine. Budget based rates are a particular type of tiered rate that is customized for individual users, requiring substantial data and staff time to establish and maintain. Most agencies will never go to budget based rates, but the rate design principles used to set tiered rates for Cal Am could be widely adopted by most water suppliers, public or private.

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