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Water providers in the United States have experienced years of revenue loss from lower water use/sales. The decline in water use has been caused by water restrictions, extended economic recession, and continued water conservation programs. When water users become more efficient, traditional rate designs cannot recognize and accommodate water conservation and/or a decline in water sales without a financial hardship to the agency and ultimately the end user. The impact of traditional water rate design when water is saved is a financial, political, and public credibility problem for water providers. However, a group of agencies in California have implemented rate structures that accurately reflect the costs of water and water service, recognize customer-by-customer water use efficiency, and also provide a strong economic signal as to the future or environmental costs of water. These agencies have experienced accurate and stable revenue recovery, increased customer awareness, and have seen more conservation (user behavior change) without a negative economic impact on the agency. The rate structure is referred to as “water budget-based rates” or, more accurately, as a “sustainable” rate design. This chapter will describe the evolution and the philosophy of a “sustainable” rate structure at the Western Municipal Water District and provide a glimpse into the agency motivation, design, and the impacts on finances and water efficiency.
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Beecher, J. & Chestnut, T. Declining water sales and utility revenue: A framework for understanding and adapting. National water rates summit, Racine, Wisconsin, August 2012, Alliance for Water Efficiency.
California Department of Water Resources, California Irrigation Management Information System (CIMIS). (1984–2014). 30-year average rainfall and evapotranspiration rate. www.cimis.water.ca.gov
California Special Districts Association (CSDA). http://www.csda.net/special-districts/, Western Municipal established in 1954.
Mayer et al. (2008). Water Budget Rates — Innovative Management Tools. Am Water Works Assoc J, 117–131.
Metropolitan Water District of Southern California. (1997, September). Evaluation of water budget based rate structures (A&N Technical Report).
Personal interview, March 2013
Personal interview with WMWD’s Kevin Mascaro, Director of Finance and Customer Service, July, 2014)
Proposition 218, California State Ballot Initiative. (1996).
Public Policy Institute website. (2014, September). http://www.ppic.org/main/publication_show.asp?i=1108, http://www.ppic.org/content/pubs/report/R_114EH2R.pdf . Mount, Freeman & Lund
Special districts are a form of local government created by a local community to meet a specific need. When residents or landowners want new services or higher levels of existing services, they can form a district to pay for and administer them. Nearly 85% of California’s special districts perform a single function such as sewage, water, fire protection, pest abatement or cemetery management.
State Water Resources Control Board, Resolution No. 2014-0038, Emergency regulation for statewide urban water conservation, July 15, 2014, pg. 7 (2); www.swrcb.ca.gov
Steinberg, D. State of California Water Conservation Bill of 2009 (SBX7-7). Senate Bill No.7.
The Farrell Group. (1996, December). Irvine Ranch water district, voice of the customer study.
Water Conservation Bill of 2009 (Senate Bill X7-7, 20x2020); Association of California Water Agencies; http://www.acwd.org/DocumentCenter/View/23
Wikipedia. http://en.wikipedia.org/wiki/Marginal_cost. In economics and finance, marginal cost is the change in the total cost that arises when the quantity produced has an increment by unit. That is, it is the cost of producing one more unit of a good.
- Sustainable Water Rate Design at the Western Municipal Water District: The Art of Revenue Recovery, Water Use Efficiency, and Customer Equity
- Chapter 19
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