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Blog Post · September 3, 2014

Drought Watch: Rethinking Urban Water Pricing

This is part of a continuing series on the impact of the drought.

The California Water Resources Control Board adopted a statewide policy last month requiring local agencies to implement drought plans, including restrictions on outdoor water use. Local agencies have responded in a variety of ways. Some have imposed mandatory cutbacks while others are still only asking their customers to make voluntary cutbacks. Mandatory water use restrictions can be more effective and, according to the July PPIC Statewide Survey, 75 percent of Californians say they strongly favor them. So why aren’t more water agencies enacting mandatory cutbacks during this crisis?

Last month, Jay Lund—a professor of civil and environmental engineering at UC Davis and an adjunct research fellow at PPIC— outlined some of the factors that might cause local agencies to shy away from mandatory restrictions. One important factor is that when conservation measures work, agencies sell less water and their revenues fall. But the costs of providing water services do not decrease as much, so agency balance sheets can end up in the red. As a result, investments in system maintenance and upgrade generally take a hit, and agencies often have to increase rates. This sends a confusing signal to customers, who just did what was asked of them.

There is an alternative: drought pricing. Charging more per gallon during drought years provides an additional conservation incentive and ensures that agencies can cover costs while they are selling less water. According to a June survey by the State Water Resources Control Board, only 4 percent of urban agencies have enacted drought pricing strategies. The city of Roseville is one community using the drought pricing tool, which was adopted—and vetted with customers—before the drought hit. In June, Roseville implemented a temporary 15 percent drought surcharge while also mandating a 20 percent reduction in water use.

Like most things that alter the status quo, drought pricing policies require effective communication with ratepayers. Agencies need to emphasize the need for higher prices alongside increased conservation during droughts to ensure customer buy-in. But a big advantage of a drought pricing policy is that customers understand in advance that prices need to go up to keep their water system solvent, rather than feeling blindsided by a rate increase after the fact. While they require additional effort—and advance planning—by local agencies, drought pricing policies result in better financials and customer relations while contributing to the primary goal of reducing water use during times of scarcity.


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