Sustainable Water Rate Design at the Western Municipal Water District: The Art of Revenue Recovery, Water Use Efficiency, and Customer Equity

Abstract

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.