California Water Rates and the “New Normal”

Water service providers are facing new challenges in forecasting and preparing for future water demand, staying fiscally solvent while providing fair prices, incorporating conservation and efficiency, and communicating clearly to customers about rates and service. Beginning in 2012, the Pacific Institute conducted an extensive survey and series of workshops on water rates and finances to better understand how water is priced by more than a thousand different water providers in California, both public and private – and to help agencies identify effective rate-making strategies.

The resulting Need To Know: Water Rates series (see below), released in partnership with the Alliance for Water Efficiency and the Community Water Center, highlights strategies that help water service providers cope with the “new normal” or an era of decreased water demand due to a variety of factors from weather to the economy to increased conservation and efficiency. In the spring of 2013, the first white paper on the Institute’s Water Rates Survey and research was also released. This new research analyzes different rate structures that can be used to accommodate this “new normal” so that a utility is able to meet costs and ensure resiliency in an uncertain future.

The most common water rate structures – flat fees, uniform rates, block rates, and water budget rates – require varying levels of financial, institutional, and human capacity to implement, and so choosing between them means evaluating whether the potential benefits are greater than the cost to provide the necessary capacity. The white paper An Overview of the “New Normal” and Water Rate Basics examines the rate structures and the characteristics of the new normal, which includes more uncertain water supply; new legislation, codes, and standards; and overall increasing costs to provide a safe drinking water supply.