The Water Pricing Dilemma

Janet Zimmerman in the Riverside (Calif.) Press Enterprise on what happens to water agencies when their customers use less:

Water use has dropped by double digits across Southern California as residents heeded the call to conserve.

As a result, water district revenues fell drastically. Metropolitan Water District of Southern California, the wholesaler that supplies most local agencies, saw water sales decline by $16 million between March 31 of last year and this year.

The agency raised rates to compensate for that and other shortfalls from investments, and the cost ultimately was passed on to consumers. This year alone, Metropolitan’s prices rose 7.5 percent in January and will jump another 7.5 percent in the coming months; they follow two increases of 14.3 percent and 19.7 percent in 2009.

“In a year when they’re not selling as much water, they have to pass on those fixed costs. If they’re selling less, there’s less acre-feet to divide it over and they have to pass it on,” said John Rossi, Western’s general manager.


  1. That’s what ends up happening when you cover largely fixed costs with variable revenue streams. Sadly, it’s even worse when you have increasing block rates to encourage conservation, because you start subsidizing uses in lower blocks by increasing charges on higher blocks, where the use is more elastic, making your revenue stream even more unpredictable. Tucson’s been fighting the effects of that for a decade now.

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