The Politics of Residential Water Pricing

California’s consumers already endure tiered rates for electricity consumption, where if their electricity consumption goes beyond approved levels, they pay more per kilowatt-hour. At least with electricity, there is some rationale for tiered pricing, because when demand exceeds capacity the utility has to purchase power from the grid at the spot market rate. But in the case of water that’s a much harder case to make. Water prices are negotiated far in advance by water utilities.

The reason utilities want to charge tiered rates is so they can discourage “over-consumption” of water, in order for them to avoid running out of water during times of severe drought. What happened repeatedly over the past few years was that suppliers to many regional water districts could not meet their contracted delivery obligations. Understandably, water districts want to reduce total annual consumption so, if necessary, they can get by with, for example, only 60% of the amount of imported water they would otherwise be contractually entitled to.

Punitive rates for “overuse,” however, will effectively ration water, as only a tiny minority of consumers will be wealthy enough to be indifferent to prohibitively high penalties.

There is a completely different way for water districts to address this challenge. An optimal solution to California’s water supply issues should incorporate not only conservation, but also increasing supply. And to fund new supplies of water, utilities should experiment with tiered pricing that only incorporates moderate price increases. Doing this would mean a large portion of consumers will […] Read More