Pricing Practices in the Electricity Sector to Promote Conservation and Efficiency: Lessons for the Water Sector

Because water utilities are dependent on the sale of water to recoup costs, reduced sales can result in deficits – and per capita water demand in California has been stagnant or decreasing for the past several decades. Over the coming years, California municipal water utilities are required to reduce water use by 20%. Thus, the “new normal” or an era of declining demand and rising costs is a trend that is likely to continue. Water utilities can learn from a number of electricity pricing practices to help adapt to this “new normal” while staying fiscally solvent and providing fair prices.

“California’s energy sector has implemented many pricing policies that seek to balance a commitment to energy conservation with utility financial health,” said Kristina Donnelly of the Pacific Institute, lead author of the report. “Both water and energy utilities are coping with similar financial challenges related to demand reductions and stand to benefit from a greater exchange of information and lessons learned.”

In order to understand how some of these practices might be relevant to the water sector, the Pacific Institute examined a range of electricity pricing practices and policies that California electric utilities use to remain financially stable even when per capita demand is decreasing. The paper, Pricing Practices in the Electricity Sector to Promote Conservation and Efficiency: Lessons for the Water Sector, helps inform discussion at the local, regional, and state level about water pricing in light of recent and future reductions in water demand.