While conservation is essential, an entire industry is still adjusting to a “new-normal” revenue model as a direct impact of its success in reducing water use across the state. The reality is that our water and wastewater systems were not designed with conservation in mind. Rather, they were designed with public health and safety in mind.
Systems capacity is the main area where the conservation, cost recovery model has been turned on its head. Consider the following: a water system—wells, pumps, pipelines and reservoirs—must be able to meet the maximum demand of the water system based on two factors, historic use and potential demand.
What does this mean? It means that water system capacity is based on engineering standards, calculations and specifications, combined with historic use of various customer classes (e.g. residential, commercial, etc.). For example, engineers know that a three-quarter inch meter—the most common among residential users—can place a demand of around 25 gallons per minute on the system. They also know what historic use is based on data contained in the agency’s Urban Water Management Plan and/or Water System Master Plan. They know how many meters may be placed into service in the water system, the pipeline diameters needed to accommodate those meters, the size of the reservoirs, wells and pumps. They also know the required capacity for fire flows in addition to domestic uses.
Though somewhat simplified, this is an overview of how water systems are (and were) designed and constructed. The problem is that the existing water system was built on assumptions of a time when water use was very different from today.
Rates—both fixed and volumetric (water used)—are set based on the cost of moving water from the source to the end user, as well as the cost to maintain 100 percent of the system, upgrade the system, comply with regulations, and all the administrative processes related to running an agency. Nearly 80 percent of these costs are fixed. That means no matter how much water the end users demand, costs to the agency don’t change much. A reservoir, for example, needs to be recoated every five years whether 10 thousand or 10 million gallons of water move through it in a month.
So, what happens when people use less water (like 30 percent less water) than the system was built to sustain, and rate models were set on? Remember, public agencies don’t have the luxury of scaling back infrastructure like an assembly line. They can’t reduce their maintenance staff or their water and wastewater teams. The same system that provided water when people used 30 percent more is intact and requires care! Therefore, rates must go up to cover those unchanging costs and the decline in revenue caused by conservation.
In the Coachella Valley, public water agencies have saved more than 40 billion gallons of water since 2015 from the 2013 baseline. That’s enough water for about 250,000 households for a year. These savings are a testament to the great work of each of the CV Water Counts member agencies in promoting conservation. It also points to you, the customer, as a conscientious partner in water sustainability. But what do these savings mean in water-related revenue? (You may want to sit down for this.)
As impressive as that may be, there is a behind-the-scenes impact of conservation that rarely gets discussed. It is the “opportunity cost” of successful conservation on revenue needed to maintain the water system. For public agencies, the state mandates that our rate and fee structures result in covering 100 percent of the cost to operate the water system, no more – no less. 40 billion gallons of water is equivalent to nearly 53.5 million billing units. Calculated at a conservative regional average of $1.50 per billing unit, that’s about $80 million in lost revenue in three years.
Of course, we don’t want to discourage conservation, especially in a desert community! We do, however hope that our customers will understand the complexities of utility finance enough to support what is required to ensure that your local agency is providing high-quality, healthful water at the lowest possible price.
