Drought: How water rates are like video games

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A month ago the state issued mandatory restrictions: basically, water districts must tell consumers to limit their use or face a fine. But some districts are experimenting with price incentives instead to achieve the same goal without mandates. 

Water rates - especially conservation-minded ones - get complicated fast. So we're using video games to illustrate a few different kinds in use around California. 

Uniform rates are like Pac-Man. 

In a uniform pricing system, each unit of water is priced the same - no matter where it comes from, no matter what it's used for, and no matter where it's going. 

If you've ever seen an Atari 5200, that might sound familiar. In the classic video game, Pac-Man gobbles up white dot after white dot, as the music wocka-wockas in the background. The white dots are like units of water. 

Consumers get a price signal from this kind of system: when they use more, they pay more. Theoretically, California water districts could set a high uniform rate, to encourage people to use less. But that means having to raise the price of even the first few units people use for necessities. 

Mesa Water (Costa Mesa and Laguna Beach in Orange County) uses uniform rates

Tiered rates are like Super Mario Bros. 

Well, they're sort of like Super Mario Bros. Imagine you're Mario, except you  want to stay safely on a lower level, rather than moving up and up and up...because when you go into the special bonus levels, you spend all those magic coins instead of collecting them for more life. 

In a tiered-rate system, the more water a consumer uses, the more expensive the water gets. A utility creates a "block" of usage based on some broad criteria, and applies that standard to everyone in a class - say, every single-family homeowner. Blow through your first block, and the next block -- the next level in Super Mario Bros. -- will cost you more money.

The point of tiered-block rates isn't to soak ratepayers. "They do not change the overall amount collected by Cal Water, but high-water-using customers will pay more, and low-water-using customers will pay less," the private California Water company tells its customers. Instead, the higher levels are meant to promote conservation. 

Tiered rates have increased in popularity over the last quarter century. The Los Angeles Department of Water and Power instituted tiered pricing, most recently in 2009. 

Allocation or budget pricing is like The Legend of Zelda. 

In the Legend of Zelda, a guy named Link navigates his way through the land of Hyrule. As he goes, he gathers fragments of the "Triforce of Wisdom" -- much the way water districts gather data about customers in order to offer a personalized "allocation pricing" budget for them. Pretend you're Link, with a quest to keep within that budget...or face a decision to spend significantly more money each month on water. 

Water budgets area way of personalizing or individualizing tiered pricing, by taking into account a number of variables that affect how each consumer might behave, such as home size, family size, and lot size. In this case, bigger is better because you're allocated more water at the outset. 

Some districts are enthusiastic about the boost allocation pricing gives to conservation. Irvine Ranch has one of the longest track records in using water budgets for Southern Californians.

The district put that pricing mechanism into place in 1991, following a multi-year drought in the late eighties. "Our water use, our water demand never went back to that same level as before," says Fiona Sanchez, conservation manager for IRWD. Outdoor use has dropped 50% since 1991, and stayed down, she says. 

Irvine Ranch customers get 50 gallons per person per day for indoor use, with allocations for outdoor use dependent on, among other things, time of year.

Sanchez says Irvine Ranch reinvests revenue from excessive, inefficient and wasteful tiers, "to fund rebates for turf, for drip irrigation, for high efficiency clothes washers. "Because we want to provide assistance to customers to reduce their demand and be more successful," Sanchez said.

More recently, the Eastern Municipal Water District has brought budget pricing to the bills of its Inland Empire customers. 

UC Riverside economists studied around a decade of data for the district, bills from before and after the institution of water budgeting. "The households that were the most inefficient users prior to the rate change showed the biggest reductions in water use and also the most resilient reductions," Baerenklau says. "So 5 years after the rate change, the most inefficient households were about 25% below where we think they would have been under uniform prices."

Eastern Municipal Water District, Irvine Ranch Water District and the city of San Juan Capistrano all use water budgeting for rates. 

But allocation pricing has its detractors, too. "It’s much more cost to administer," says Sanjay Gaur, a water rates consultant. "It's more complicated to explain to the public. And some politicians feel it's too big brother and intrusive, and you’re getting to people’s back yards too much." 

 

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