Water prices in San Diego again raise hackles at NR&C meeting
Posted by George J Janczyn on March 23, 2011
What drew me to the San Diego City Council’s Natural Resources and Culture Committee meeting today was a report on “Water Budget Based Billing” on the agenda.
This seemed timely because the price of water in the city of San Diego has lately been attracting more media attention (again). City Councilmember and mayoral candidate Carl DeMaio has been energetically spinning a proposal to cut water rates across the board by 15%, saying that the Public Utilities Department (PUD) management has room to tighten its own belt. Criticism also appears in a ‘people use less but pay more’ story the Voice of San Diego just published highlighting a woman who made a concerted effort to conserve water and has only a higher water bill to show for it.
Elsewhere people are calling for water rates that penalize waste and reward conservation while at the same time insisting that prices should only reflect absolutely necessary costs–not necessarily compatible goals. And comparisons are drawn with other water districts with lower rates–ignoring the fact those districts may import proportionately far less water than San Diego and have very different cost structures.
Back to the meeting. The only printed material distributed for this agenda item was a September 2010 memo from Mayor Sanders to the City Council stating that an expanded research effort would be undertaken to determine the feasibility of implementing a water budget billing scheme (inspired by one in place to our north at the Irvine Ranch Water District). That was the background.
So it seemed that some interesting data about what has been learned might come out at this meeting.
PUD Assistant Director Alex Ruiz gave a brief presentation that repeated what was in the memo, saying that the department now plans to issue an RFP for a technical expert to lead a project that would create a water budget proposal by the end of the year. That was about it. Councilmember Sherri Lightner asked if there is a written report on the data gathering to date, and there wasn’t, although Mr. Ruiz said he could bring something to the next meeting if desired. I don’t think anyone was pleased that a detailed and written report had not been prepared.
Lightner also asked about a cost of service study that had been anticipated for this fiscal year but it turned out one is not being done, nor is one intended for the next fiscal year. Apparently a cost of service study is an option for PUD in the event of certain budgetary issues, but the department decided there’s no need for it at this time. The mayor’s spokesman interjected that the lack of a cost of service study should therefore be seen as good news.
Mr. Ruiz said that PUD has to juggle many factors with water rates and that they’re sensitive to low-use and low-income users, but that the goal is for all groups to pay an equitable proportion of the costs. One example of the difficulty in achieving that, he said, was the fixed base fee (for infrastructure and maintenance) which is the same for everyone regardless how much they use, meaning that low water users pay proportionately more for infrastructure and maintenance than larger users. Other schemes for distributing those costs, however, also tend to have inherent flaws that seem unfair to certain users.
Councilmember Carl DeMaio demanded that PUD make a commitment to a water rate structure where “if people use less water they’ll pay less.” He then revealed where he came up with his campaign theme that water rates can be reduced by 15%. Apparently there was an earlier committee or city council meeting where DeMaio had posed a question about PUD’s ability to maintain service levels even if conservation resulted in a 15% reduction in demand with consequently lower revenues for the department, and Ruiz had responded that the department would be able to get by with that.
“I can even show you in writing where you said that!” exclaimed DeMaio.
DeMaio’s theory that lost revenue from a 15% conservation rate is the same as a 15% cut in water rates that the department can absorb may be arguable, and it conveniently ignores another issue: if there has already been lost revenue due to a 15% reduction in water use, the department is already having to deal with that. So DeMaio’s plan would burden the department with yet another 15% cut. That makes 30%.
To be continued at the next meeting on April 20.
This all reminds me of something I wrote about getting city residents to develop a permanent mindset to conserve water in a 2009 post:
Increases are needed to offset infrastructure and delivery costs, but higher prices can be imposed to control demand as well (David Zetland at Aguanomics is a strong advocate for that approach). That’s where I think we’re headed. If we do price ourselves into appropriate water behavior, though, I hope it’s done equitably. Up north, the Irvine Ranch Water District has a well-considered approach that meets my fairness test. Their rate structure defines a typical household’s size and water needs, then has tiered pricing in low-volume / base rate / inefficient / excessive / wasteful categories. If one’s household is greater in size than the assumed model, one can apply for a variance to accomodate the extra need and avoid being penalized. I would like San Diego to follow suit with such a plan, but I predict our water department would resist having to do more needs analysis and processing of the inevitable variance requests, a great deal of work to be sure.
Of course artificially setting prices to control demand opens another can of worms. For one thing, there’s the city ordinance that requires water rates (as opposed to the fixed water base fee) to only pass along what the city has to pay to purchase the water (remember most of the city’s water is imported via the County Water Authority and the Metropolitan Water District). Also, if an artificially high rate for water gluttons is charged, where does that money go to in the PUD budget and how can it be used? Lots of details and questions, not many answers.
On a possibly related note: I consume much less gasoline than I used to but it sure costs me a lot more now.
[Late update: UCAN’s response to this water rate development]
GrokSurf's San Diego 
The BIG picture said
Our first major infrastructure for water collection, storage and distribution was paid for by the State and Federal Government (taxes), not by water user rates and so the initially water was very cheap. Since we are still using this infrastructure our water is subsidized, but new projects must be paid by water users. The most economical projects are done first and so producing subsequent water capacity gets more and more expensive. One way to set up a rate structure is to grant each property based on acreage a set amount of the cheapest water, the next cheapest water and so forth. In this way, if you have a high density project, it generates a greater need for water and it can be had for a price. If an owner wants a big house, that is fine, but they are not entitled to more water at the cheaper rates. If an owner wants to irrigate the property so it is a lush landscape that should be fine too. There is unlimited water in the Pacific and if a customer is willing to pay the high price to get it, I think the agency should provide it. I ask this question, if a property owner only uses their allotment of water that was developed by taxes many years ago why should they have to pay more and more for water to pay for new infrastructure so developers can build high density projects? If we all vested into water infrastructure based on how much land we have, this would not be an issue.
When an agency builds major new infrastructure they set up bonds and repayment schedules. If the customers reduce water use, the principle and interest on the bonds still must be passed through to the water users. The water from north to south must also be pumped several times and the rise in electrical rates is an agency cost. Hence, the cost per unit must go up.
San Diego is at the furthest point on the distribution system hence we have the most infrastructures to pay for and this must be included in the rates for water. In addition, water mains last about 50 years which means that we should replace about 2% of our mains per year. San Diego replaced about 1/20 of that amount for 45 years creating a huge amount of deferred main replacement. As a result we used to have the cheapest water of the cities that used water from northern California even though we are the furthest from the source. The City is replacing main at about 45 miles per year to make up for the years of neglect. Bonds must be sold to spread the costs to future years. Otherwise it would be like trying to rebuild your house for cash. In addition, Cities in Orange, LA, Riverside and San Bernardino Counties treat their sewage; discharge it to the San Andres river aquifer and many agencies use the water over and over as it travels down to Long Beach. Hence their imported water and the cost for the infrastructure to get it to their cities is small compared to San Diego.
When comparing water costs for new water such as desalinization, and water reuse, we must not compare the cost to our current water that has infrastructure that was subsidized by State and Federal funds, but to what it would cost to build new pipelines from northern California, across the delta all the way to San Diego. BTW, CWA is also building major facilities in our county to deal with the issues of reliability in a disaster so they can move water around the county. These are needed facilities that everyone benefits from and must be paid for too.
So with state wide bond debt, regional bond debt and local bond debt for all this construction the cost has to be passed on to the ratepayers. You can’t stop paying on the bonds when there is less water to sale or people cut their consumption. We all know we can’t stop paying our mortgage because we were on vacation even if we were not using our house.
And unfortunately, materials in the world are becoming scarcer and so the cost of construction has risen disproportionally to the general cost of living. That is unfortunate when we have such a backlog of construction work that needs to be done because it pushes rates up even faster. Most of this mess was created because politicians caved to public pressure to keep rates low. We now have a lot of old mains which means some of our water is leaking out into the ground. I think all of us can understand that that is not a situation we want to continue.
We started out with infrastructure that was paid for with taxes not from our water bills, and then we were not paying for main replacement, so our rates were incorrectly too low. Our rates would have gone up just to replace the mains normal to infrastructure life, but now we need to add on to pay for the deferred work and to provide for a more reliable system. Then throw in a factor to pay for escalating construction costs. It’s no wonder the cost of water looks like it has gone crazy. It is because it had to. Even if people stopped using water all together, the mains in the street still need to be replaced for fire protection! The only good news I see is once the entire backlog is done and the bonds are sold, the payment will be fixed which should stabilize part of the water costs. And in the long run, the bonds for the deferred maintenance will be paid off. This is a good thing because eventually we will need to rebuild the water treatment plants.