Water Pricing in a Regional Context

In Chapter 6 of the report MANAGING CALIFORNIA’S WATER: FROM CONFLICT TO RECONCILIATION published by the Public Policy Institute of California the issue of water pricing is raised as a tool for conservation. From page 270-273 under the title “Water Pricing: an underutilized tool for water conservation” the PPIC report examines the market mechanisms that impact on water demand. The issue of Urban Water Pricing was studied in the 50 year water plan of the Middle Rio Grande under the category of “Urban and Rural Conservation Activities” in Chapter 10: RECOMMENDATIONS and it was evaluated by an independent contractor for technical and physical feasibility in the water plan.

In the context of regional planning, the Middle Rio Grande study provided clarity as to the priority that should be accorded to pricing in the implementation of the plan’s numerous recommendations. In its evaluation of the effect of urban pricing on water demand the study found: “A 100 percent increase in water rates, on average, would decrease total urban water use by 10 percent. Total urban consumptive water use in the MRG planning region is estimated at 84,880 acre-feet in 1995.“ The importance of a technical review of recommendations brought forward from the community is that there is a context that improves the accuracy of measurements. Also, there are specific reasons that stakeholders provide input for the various recommendation proposals that are being addressed. By evaluating all the recommendations ahead of time, people impacted by the implementation of the plan’s recommendations see concretely how each recommendation will impact on their lives and the water resource of their region.

The MANAGING WATER report of the PPIC projects an impact of pricing to increase conservation and believes that state reviews of such water rates would “provide an impartial technical analysis, helping to depoliticize rate-setting and helping utilities to maintain a solid financial footing while encouraging water use reductions”. De-politicizing rate setting is not really an achievable goal and when state administrators are empowered to finance their own bureaucracy there is a great potential for mischief. Actions of administrators can easily devolve into a situation in which our communities have little or no influence on the decisions that are made. Further, until the day comes where California has the infrastructure to accurately measure and monitor surface and groundwater in the state, the reliability of decisions based on incomplete or inaccurate data will also be subject to real questions. We have seen all too often how state decisions on diversions have become highly “politicized” and one region can suffer for the benefit of others.

What we need for pricing is not the draconian increases needed to decrease urban demand. What we need are measures that facilitate a region’s ability to provide revenues for it that it can utilize for infrastructure management and improvement. There is also a need for revenues for research and development of new water supplies. This raises the issue of the potential role of a regional, tiered water severance tax. In the setting of the political decisions on these kinds of issues, water boards need to be established that represent users and stakeholders. Colorado has used a resource severance tax and in 2011 collected $34.68 million from the extraction of natural gas and oil. The debates need to move away from the issue of diversions. There can be no effective regional planning when diversions and importation of water are prioritized in addressing water supplies. There is much to be developed in this concept to make it fair and equitable for water users, whether urban or rural. Its success with oil and gas extraction raises the question of whether the severance tax concept can be an effective source of revenue for regions.