11. Water Budget Rate Structure: Experiences from Several Urban Utilities in Southern California

Being a semi-arid state, California faces frequent and prolonged droughts. In a typical policy intervention to deal with less water, state agencies and water utilities responded (in the urban sector) by either cutting water allocations to users or by dramatically increasing water tariffs, or both. Drought returned to California in 2007, and lasted, with various levels of severity until 2014. Starting 2008, with the slowdown in economic activity in the state, water rates that were adjusted, led to reduction in water consumption and decline in revenues of water utilities; customers that saved water have faced increased rates again and again, much to their dissatisfaction. The Water Budget Rate Structure (WBRS) (called also by some analysts sustainable rate design, since it seeks to stabilize revenues and drive conservation at the same time) has emerged as a practice that allows water utilities obtain a high level of conservation without jeopardizing the financial and political stability of the water utility. This chapter reviews the legal, economic and political aspects of the design and implementation of the WBRS in southern California in three water utilities, starting in 1990 until a recent implementation by the Western Municipal Water District. The chapter draws lessons and suggestions regarding the possible implementation of the WBRS by other utilities.