SDCWA: the price of water has little historic influence on water usage
Posted by George J Janczyn on December 9, 2010
[Revised Dec 15]
According to a [staff] study performed requested by the Water Planning Committee of the San Diego County Water Authority (SDCWA), “Historically, water pricing has not been a major driver in consumer decisions to use water” although “water demands can be responsive to the retail price consumers pay when the appropriate factors are in place.”
The study report was presented at today’s SDCWA Board of Directors meeting (contained in the agenda packet) [at the Planning Committee meeting preliminary to the full Board meeting].
Rather than price being the key factor [historically influencing] in water use, “it was the upswings and downturns in the local and national economy, population growth, weather, long term conservation programs, heightened messaging and imposition of water use restrictions that had the greatest effect on retail water demand” according to the study. In particular, “personal income is one of the major factors that can influence customer water usage.” Mandatory restrictions and extensive media coverage are also considered to be strong factors among the interacting variables.
On the surface, this report would seem to be at odds with a Metropolitan Water District Long Term Conservation Plan report (a different agenda item) which states “Price to the end user is a significant factor affecting conservation – as the price of water goes up many consumers will choose to use less. Significant research on retail price elasticity has already established this premise.”
The Planning Committee report does include a qualifier that “It must be emphasized that this is a very simplistic evaluation of water demand responsiveness due to price over the last few years. The results are unique to the rate increases and demand reductions experienced over the four-year time frame.”
In any event, Dana Friehauf, SDCWA Water Resources Specialist, told Directors that price adjustments “can be an effective strategy with the right pricing signals.”
Several Directors expressed concern about how to use this information to help explain price increases to the ratepayers, but the answer to that question remains elusive.
[later: Ms. Friehauf confirmed to me that there isn’t really a conflict with the MWD report. The Met report isn’t saying price is THE determining factor, just a significant factor, while the committee report doesn’t say price is not a big factor. It just shows that many other variables also have considerable influence. She also pointed out that the committee report looked at both historic and near-term price elasticity and price does play a bigger role in the near-term analysis.]
This entry was posted on December 9, 2010 at 12:07 pm and is filed under San Diego County Water Authority (SDCWA), Water. Tagged: Water usage. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
GrokSurf's San Diego 
Belinda Smith said
Great post, George.
I think the SDCWA should start educating it’s customers on water supply costs. Perhaps they could hold those forums on desal costs they’ve been promising the public? Another option is on the water bill, show exactly what the State has subsidized, and show that as what they have ‘saved’ in paying. People need to know what they are really paying.
George J. Janczyn said
You might be interested in the special workshop explaining the City of San Diego’s water rate setting process that will be held by the Independent Rates Oversight Committee (IROC).
The workshop will be held on Monday, Dec. 13 from 10am-12noon at the Metropolitan Operations Complex Auditorium, 9192 Topaz Way, San Diego, CA 92123
Burton Freeman said
Thanks, George, for your reporting on this presentation at the SDCWA monthly meeting; this is an important and interesting topic.
Unfortunately, from the point of view of a statistician the data are not very definitive. The time record is very short and, more problematical, there are MANY uncontrolled variables. These include weather, and the onset of a very large increase in economic distress. Consequently, the conclusions to be drawn from the analysis are uncertain and the results should show a large variance.
With this in mind, the elasticity factor obtained in the study for water long-run demand vs. price of -0.40, while uncertain, is not all that small. Clearly, price is a quite significant factor in San Diego water demand. This is particularly the case since price will be monotonically larger in the future, while other factors may wax or wain. Certainly, one can anticipate that revenue will not increase proportionately to price increase.
Policy-wise, this should serve to emphasize that amelioration of water price escalation should be a major goal on the SDCWA agenda.
Dawn Guendert said
The report appears to be contradictory. How can it report that personal income influences water usage and then state that water rates do not. While this may be true for high income users, I find it hard to believe it does not influence low and moderate income users.
George J. Janczyn said
Perhaps I should have used the phrase “has relatively little influence” in the headline instead of “has little influence.” The report certainly makes no assertion that water rates have no influence.