Report finds that Cal Water’s investments in water efficiency have produced more sustainable per-capita demand, lower water system costs, and lower water bills for its customers
Often in droughts, as customers cut back their water use, water bills rise, leading some to blame water conservation for the increases. A new report finds that tiered rates and conservation programs can actually save ratepayers money in the long run.
Before 2009, California Water Service Company (Cal Water) did not meter all its water customers, lacked conservation rates, or offer a comprehensive set of conservation programs, and per capita water use was either stagnant or increasing. In 2009, Cal Water introduced conservation rate designs, specifically increasing block rates, tripled their expenditure on conservation programs, and accelerated the transition of unmetered customers to metered water service. Since then, per capita water demand has steadily declined.
The report, prepared for Cal Water by the Alliance for Water Efficiency, A&N Technical Services, Inc., and M-Cubed, explores if bill-paying customers have benefitted from these programs and what the economic impact would have been if Cal-Water had not implemented these programs.
The report notes that the relationship between conservation and water rates is not always well understood, with many perplexed by rate increases when water use has decreased and blaming water conservation and efficiency for higher rates. The report found this is not the case with Cal Water: “Our analysis conservatively estimates that, over the period from 2010 to 2022, customer bills in the service districts studied would have been 1.2 to 20.5 percent higher had Cal Water not implemented water efficiency and conservation.”
Adopting tiered rate structures sends price signals to customers about their consumption, thus providing the basis for informed choices about efficient water use. Implementing tiered water rates, universal metering, efficient plumbing standards, and long-term conservation programs have lowered Cal Water’s short- and long-term operating costs, ultimately lowering customer costs. The report estimates that the water bills from 2010 to 2022 would have been 1.2 to 20.5 percent higher than what they were.
The analysis estimates the value of conservation activities over the study period by using avoided marginal costs of water service as the way to value the savings. Rather than increasing rates, the report’s analysis found that the money Cal Water spent on conservation was more than offset by lower water production costs, deferred capital spending, and other reduced costs. Cal Water’s investments in water efficiency have produced more sustainable per-capita demand, lower water system costs, and lower water bills for its customers.
The most significant cost reductions were in Hermosa-Redondo, Los Altos, Mid-Peninsula, South San Francisco, and Westlake service areas, which are areas dependent on imported water; it was reducing dependence on costly imported water that provided a significant financial benefit to customers.
Cal Water service areas reliant on groundwater have much lower avoided costs and consequently less savings in the analysis. However, the report does note that in Cal Water districts reliant on over-drafted groundwater basins, such as Stockton, Salinas, Selma, and Visalia, the avoided cost estimate does not capture the negative costs of continued overdraft and, therefore, the value of demand management programs is understated for these districts. The report also points out that no long-run supply costs were identified for the districts in critically over-drafted groundwater basins; accounting for SGMA compliance costs, such as purchasing additional supplies, would change the analysis.
The report concludes that investing in water conservation reduces system costs over the long term. Water conservation is often the least expensive way to meet future water demands in regions with high water supply and infrastructure costs.
Furthermore, the report points out that other studies and analyses have reached the same conclusions: An analysis by LADWP determined their rates were 27% lower because of their investment in water conservation over three decades; the City of Westminster, Colorado, found water and wastewater rates were 47% lower due to conservation investments over 30 years; and a study in Tucson concluded conservation helped the city avoid hundreds of millions of dollars in water and wastewater operating and capital costs.
“Investing in water conservation directly benefits ratepayers by helping to slow the increase in water service costs over time,” the report concludes. “Economic investments in water efficiency are critical to help ensure that water utilities can continue to provide water service that is both affordable and sustainable.”
