Implementing a Public Goods Charge for Water

Our client asked for recommendations on how to implement a public goods charge (PGC) on water, as per the “Water Energy” section of the Assembly Bill 32 (AB 32) Scoping Plan.

Before considering “how,” we considered whether a public goods charge for water is the right tool. The problem we wanted to address is the negative externalities of high water consumption, including greenhouse gas emissions from the energy used to pump, transport, treat, and heat water. We gave serious consideration to two alternate strategies but ultimately decided the public goods charge for water is the best tool.

We recommend a public goods charge for water because:

• A public goods charge for water creates a price signal for water conservation.
• A public goods charge for water would provide a stable, sustainable funding mechanism to support the full list of conservation and efficiency activities specified in Assembly Bill 32.
• The dual energy and water conservation programs specified in AB 32, which could not be fully funded through the other mechanisms we considered, will be effective to both mitigate and adapt to climate change.
• Our proposed implementation strategy will help institutionalize regional water agencies, which are necessary for the state’s long?term water?planning effectiveness.

We then make specific recommendations about the design of the public goods charge:

• We recommend passing state legislation requiring all water providers to assess volumetric surcharges on each water bill where metered, or by alternate means in the short?term for areas not metered.
• We recommend that the funds be managed by regional joint power authorities to implement Integrated Regional Water Management Plans (IRWMPs), which must institutionalize their operating structure before this can be put in place. This will provide the necessary regional organization for effective project choices, and will reduce the number of water agencies that need oversight from thousands to 50.
• We recommend that the Department of Water Resources (DWR), which already has jurisdiction over the IRWMPS, provide direction and oversight to ensure that specified state goals are met and that funds are well?managed, with assistance from the WETCAT members.
• We recommend that the fees initially be set to raise $680 Million per year. That level of funding can be used to meet the water supply targets of Senate Bill X7?7, and to exceed the greenhouse gas emissions goals of Assembly Bill 32. We recommend that the legislation be structured with maximum flexibility to allow for future rate changes.