San Juan Capistrano, Tiered Rates and Water Efficiency

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Written by: Peter Yolles

The other day I was proud to be out the door by 6am and on the way to a pool workout when I saw and heard my sprinklers on. We enjoyed a rare June rain the day before, and I realized that I broke the law by irrigating my lawn within 48 hours of rainfall. In shorts and flip-flops, I trudged through the sprinklers, drenching my legs in the process, to reach my irrigation controller and dutifully turned it off.  My water district, Marin Municipal, would allow outdoor watering again on Friday. (Note to self: Calendar a reminder to turn irrigation controller back on.)

This watering restriction, handed down by the State, is one of many signals and prohibitions to warn California citizens of impending doom if we don’t get ahead of this four-year drought and start stretching our dwindling water supplies. There are a limited number of conservation tools; one of the most important is a price signal that indicates the value of water. One of the primary reasons we are in this fix today is that water is too cheap, so we use more of it than we should.

Anyone who has taken basic economics understands that when a resource is scarce, prices rise as demand outstrips supply. Sometimes governments intervene with laws or regulations when the free market isn’t capable of managing resources effectively.  When it comes to managing our common natural resources, we need government assistance to protect our air, water supplies, and natural habitats.  When bridge tolls go up during rush hour, we call this congestion pricing which rationally and equitably apportions a scarce resource among drivers. On the hottest days when air conditioners turn on, electricity prices rise to signal users to cut back and make sure there’s enough energy to go around.  However, a recent court decision makes a mockery of market economics when it comes to apportioning water equitably during California’s extreme drought.

The use of scarcity pricing by water utilities, known as tiered pricing, increases water costs as consumption levels rise. In tiered rate systems used by most water utilities in California, basic indoor water needs are covered in Tier 1, the lowest cost water per gallon. Other non-essential water needs are priced higher. Tier 2 aims to cover a reasonable amount of outdoor water use, such as ornamental shrubs and trees. As water consumption moves from essential Tier 1 to less essential Tier 2, luxury Tier 3, wasteful Tier 4 and beyond, utilities typically use tried-and-true market prices to manage our increasingly scarce resource --- treated drinking water.

These important price tools are now being challenged by a small group of aggrieved taxpayers who are confused about the difference between price signals and taxes. This confusion is embodied in an obscure law passed through the California proposition process. Some residents of San Juan Capistrano in Orange County recently sued their city water utility over the use of scarcity pricing, or tiered water rates, and won. The court decided that under a provision of state Proposition 218, water utilities must justify water prices based on the cost of delivering service at each tier, and cannot arbitrarily set prices to encourage conservation.

We should all be substantially more concerned about prospects for drought relief if this case stands. San Juan Capistrano chose not to appeal the decision and instead determined that it must eliminate tiered water rates to comply with the court decision. This leaves San Juan Capistrano without one of the most effective drought tools available---the use of price signals to communicate with customers about the value of water.  As tiered rates are rolled back and returned to less effective uniform rates (where the first gallon is priced the same as the last, no matter how much you use), water consumption is likely to rise up to 18%, which is the estimated effect of tiered rates on water consumption. This is especially troubling given that the State has set a conservation target for San Juan Capistrano to reduce water consumption by 28% before February 2016 when compared with 2013 levels.  SJC City officials are left to wonder:  How in the world can we accomplish that without tiered rates?  (Hint: WaterSmart can help.)

Now, we are on the cusp of a contagion of similar lawsuits.  Just moments after I turned off my irrigation controller, I picked up my local newspaper, the Marin Independent Journal, with a front page headline that a local Marin resident had just sued our water utility, Marin Municipal, on the same grounds as that of the suit in San Juan Capistrano.  Personally, I should be charged more for watering my shrubs or lawn than for bathing my kids. Water is a scarce resource and we should use scarcity pricing to reflect that.

If we are to avoid a water scarcity catastrophe, and prevent our taps from running dry for even our most basic needs, we must use all the tools at our disposal, including scarcity pricing with tiered rates.  It’s only fair.

Editorial behavioral water efficiency water consumption drought response San Juan Capistrano scarcity pricing tiered rates water conservation drought water utilities

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