Understanding Increasing Water Fees

As discussed in Patch's recent story  on the rising cost of water in Beverly Hills, the Public Works Department plans to increase water rates by 50 percent over the next five years to offset rising prices from its supplier, Metropolitan Water District (MWD).

Additionally, the city needs funds to cover the cost of developing a local water supply, which is also adding to the expense of water.

Heather Cooley studies water conservation and sustainability as a senior research associate for the Pacific Institute, a nonpartisan group in Oakland that works to conduct sustainable research, protect natural resources and resolve resource conflicts. Cooley explained to Patch some of the reasons why water is becoming more expensive and how residents can reduce their costs:

Beverly Hills Patch: How does an increase in a supplier's price affect individual cities?

Heather Cooley: The retail water agency will then have to pass that [price increase] on to their customers. Some of that can be made up through restructuring or internal organization or efficiency improvements, but oftentimes a lot of that cost is passed on to customers. Those can have effects on customers' water use. As prices generally go up for water, studies indicate that water demand goes down. That's just because people are responding to the price signal. In some cases, raising rates can cause problems for those that are on a fixed income or are low income.

BHPatch: Has the price of natural resources gone up during the recent economic downturn?

HC: That's been a trend that preceded the economic downturn, but yes. Overall I think prices, especially for water, are going up. Part of that is a result of the fact that in the past we simply undervalued and underpriced water. It's led to—in many parts of the United States—a failure to maintain infrastructure. I think there's an overall pressure to keep water rates low and so, as a result, we have deferred maintenance of much of our existing infrastructure….

Increases in prices have started to address that gap. I think in the future we're going to have to increase the rates even more to really adequately maintain our system. In addition, energy prices have gone up. Because we require energy to provide water and to use water, increases in energy prices can increase our price for water.

In addition, many areas are frankly running out of cheap water supplies and they're having to look at some of the more expensive alternatives, including desalination and taking water from farther and farther away. All of those things can lead to higher costs.

BHPatch: Beverly Hills invested in deep-water wells to have a local supply of water—particularly in case of emergencies. Yet the yield from these wells is half of what the city expected, making the cost of the well water greater than MWD's supply. Is that something typically seen with water wells and is there a way to make these wells a better investment for the city?

HC: That can happen in any infrastructure project where you simply overestimated the resource that was available and therefore underestimated the cost... One thing that should be taken into consideration or looked at should be water conservation and efficiency as a way of reducing the need to develop these new supplies and therefore reducing the need to make these major investments.

BHPatch: Do you think that the city's projected 50 percent increase in water rates over the next few years is in line with water pricing trends in California?

HC: Fifty percent is higher than I've heard in other areas, but again, each agency is unique…. It also seems a factor in rising prices was the groundwater wells that were put in and weren't delivering as much as intended. There are fixed costs with these projects for developing and, if you're dividing that fixed cost over a smaller body of water, you're actually increasing the cost of that water.

My guess is that there are a variety of factors in the decision to raise rates and the level at which to raise them. The groundwater wells, the rising price of water from the wholesaler, as well as the need to develop a reserve fund—all of those things are a factor. But again, there very well could be water conservation and efficiency improvements that could be implemented that could reduce costs and save the customer money over the lifetime of those devices.

BHPatch: What types of things would you suggest for that purpose?

HC: Some of the efficient showerheads are hugely cost effective. They save water...[especially] hot water. By reducing hot water they are reducing energy use. Those devices are fairly inexpensive, generally in the $15-$30 range, and quickly repay themselves in your water and energy savings.

A slightly more expensive device is a front-loading clothes washer. There are new models out there that use 60 percent less water than some of the older models. Because they are saving water, they are typically saving warm and hot water, which also saves energy. Over the lifetime of those devices, they actually save the customer money through lower water, energy and wastewater savings.

BHPatch: Is there anything else about water conservation that you think is important to mention?

HC: In terms of water conservation, there's often this misconception that if you conserve water, water rates will go up even further because there are fixed costs that the utility has already invested in and if you reduce the amount of water sold, you're reducing the distribution of those fixed costs among the water.

So, some utilities argue that by conserving water you are reducing revenue stability, that they are not able to get enough revenue to meet their fixed costs and therefore have to increase their water prices. I think that's again a misconception. That is a short-term effect, but it's one that can be reduced by effectively integrating water conservation and efficiency into your long-term planning.

If you consider a reasonable amount of conservation into your projection, you can help minimize that risk. In addition, by obtaining the water through water conservation and efficiency, it's much cheaper than if you had to build a water desalination plant or some other very expensive water supply option. In the long term, you're actually saving money because you don't have to build that expensive infrastructure and expensive water treatment, or wastewater treatment, facility.