Common Questions about the Cost of Water

Water is a quintessential part of all living things. We as humans use it in a variety of different ways such as for commercial, agricultural and residential uses. However, focusing more in the residential sector, we primarily use it to cook, clean, bathe, drink and for recreational purposes. Although residents of California have been conserving a tremendous amount of water, some are wondering why they are seeing an increase in their water bills. There is much to consider as to why bills may remain the same or even increase in price when less usage should translate to lower bills. 

“Why are our water rates going up when we are conserving?”

When Governor Edmund Brown passed the 25% water reduction mandate in 2015, many Californians reduced their water use but often saw their water bills increase nonetheless. There is a common misconception that lower usage should mean a lower bill, but this is not often the case. When a dramatic shift in supply and demand occurs, water rates are often increased by water agencies to make up for the loss in revenue from the loss of water sales. As water usage drops, agencies have to find other means to cover up their loss of revenue. Inevitably, they turn to increasing the price of water. In an average water bill, there are two components that make it up: the service charge, meant to cover fixed operating costs; and the commodity charge, which is the cost of water purchased to provide water for use. In the past, good operating practice among water agencies was to rely primarily on the commodity charge to generate their revenue, however within the past few years that has begun to change. As water agencies ask customers to reduce water use, it is a double-edged sword.  Less water demand could mean some water infrastructure projects and their associated costs can be deferred.  However, water distribution systems must still be maintained to ensure safe water delivery. 

As water agencies deal with drought-related water cut mandates, they are incentivized to take other actions in order to minimize their losses. More retail water agencies are re-examining their water rate structures and turning to water budget-based or allocation-based rate structures. Under these rate structures, more of the rates are tied to the fixed costs such as repairing pipelines and operating distribution and treatment systems. Their lowest tiers or blocks are associated with indoor and outdoor budgets water-use budgets. The higher rate penalty tiers or blocks are assigned to high or exceedingly high water use. This type of rate structure is fast becoming the norm instead of the exception in how to operate water rates equitably and effectively, and incentivize water customers to live within an efficient water budget. 

Many people have concern about the future of our water supply, especially after seeing their water bills significantly increase. Concurrent with this water challenge, new development and construction are proceeding. Customers wonder,

“If there is enough water for new residents, then surely there is enough water for me.”

 Then the question often arises: 

“Why are you allowing new development when there is a water shortage and you are asking us to conserve? ”

The answer to this question is to realize that a good portion of the revenue to pay for and develop new water supply actually comes from new development through fixed connection fees and from new paying customers who will reside in the new developments. New development of today is now mandated to meet higher water use efficiency standards for both indoor and outdoor use, resulting in far less water usage than past development. 

Even with these new development water use efficiency standards, more needs to be done to teach existing residents how to conserve and reduce their water bills. Many retail agencies now offer rebates for replacing their old inefficient water fixtures, such as shower heads and toilets, with low flow showerheads and toilets that are now required in all new development. 

For outdoor water use efficiency, customers are encouraged to go to their local water purveyor’s website or go to a water use efficiency rebate website such as operated by the Metropolitan Water District of Southern California (MWD). MWD’s incentive funding program is offered to residential, commercial and industrial, agricultural, and public sector entities. It is essentially a one-stop shop concept that gives rebates for smart, indoor and outdoor water-wise actions.