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🚰 "Do Droughts Impact Household Water Rates?"

The Future of Water

Photo by Matt Palmer / Unsplash

Table of Contents

Host: Reese Tisdale
Guest: Erin Bonney Casey | Research Director | Bluefield Research
Category: 🚰 Utilities

Podcast’s Essential Bites:

[7:30] “Every year we look at [the] 50 [largest] utilities across the US […] that provide […] services to about 20% of the US population. […] And we look at residential water and wastewater bills, calculated based on a 30 day billing period and for a standard five, eight inch meter. And the rates that we look at are for basically the last fiscal year so effective from July 2020, through June 2021. We typically calculate bills using a benchmark national average for consumption to compare […] where is water most and least expensive in the country. And then we also look at regionally specific water use patterns to take into account the differences in water use […] per household. Across the country, we grouped the cities into four regions, the Northeast, the Midwest, the South, and the West, which are associated with the regions established by the US Census Bureau in order to identify relevant regional variations in water and wastewater pricing. And those regions also reflect […] variations in water use patterns as well, because of their similarities […] in terms of consumer behavior.”

[9:16] “When we look at the utilities in aggregate, we do see a clear pattern that rates rise every year overall, but the amount of the rate increase varies a lot year to year. And when we look at specific utilities, that variation is even greater. […] Some of that is driven by local politics. They don't like to raise rates in an election year, for example. Could also be related to kind of local infrastructure needs. And so rates are responding to utility spending and by utility.”

[10:11] “On average, a household pays about $45 per month for water and a little over $66 per month for wastewater or sewer services. […] We go back to 2012 and so when we look at that period, on average, bills increased 4.2%, year over year for the past nine years. […] To put that into perspective, services like electricity and natural gas, they average about a 1% increase per year. So water and sewer bills are rising faster than inflation, and faster than other utility bills as well.”

[11:48] “One big difference is that power rates are typically variable based on time of day or season of the year. Water rates can vary seasonally, but they can't really vary by time of day, because water meters are not as sophisticated as power meters. And there's limited data that the utility has or that the individual household has about water use by time of day or by application. So water rates are much simpler than power rates. […] They read your meter once a month, and then they bill you based on that consumption, that one number.”

[19:27] “There's some attempt to use water prices to control consumer demand. And one example of that would be tiered pricing, which is where a small amount of household water use is relatively cheap and then a large amount of water use gets progressively more expensive. So if you think about kind of luxury uses of water like maintaining a big lawn or filling a swimming pool, those would be more expensive than the water you need for cooking and bathing […]. So some utilities try and do that and it does work to some extent, but demand for water is pretty inelastic. So you have to have a significant price increase to affect consumer behavior in that way.”

[20:12] “The other problem with trying to use price to respond to drought conditions in particular is that water rates get set typically once a year, and it's a several month long process […]. So they can't be very reactive to acute drought conditions that kind of arise over the course of a year. You can take into account a kind of chronic water scarcity, which is what some Western utilities are trying to do. But again, it's not a great response to a drought that arrives in the middle of your fiscal year.”

[21:49] “The utility rates and revenues can be used […] to pay down debt that was used to fund infrastructure developments and improvements. And so if you're thinking longer term about utilities that are going to have to invest in new infrastructure projects in order to deal with drought and water scarcity, that could ultimately drive up the rates. So rather than thinking about it as a demand management tool, what you're really thinking of it as is a cost recovery tool, and your costs are going up significantly, as a result of these droughts. You have to build additional pipelines or […] additional reuse plants or desalination plants.”

[26:48] “I think when Western states have been faced with water scarcity issues in the past year, the first step is always conservation, but they've actually done a reasonably good job of reducing water demand. So I really question how much more they can squeeze, just through conservation measures, and xeriscaping lawns and things like that.”

[30:07] “One other thing that we've been talking about a lot internally is these mandatory water cuts. So the […] the federal agency puts a hard limit on how much water is distributed to these various agencies. Ultimately, the agencies have to get their users to reduce water demand. […] Price is not a great tool for controlling demand, so they're going to have to start to get creative about it, whether that looks like fines for excess water use or voluntary conservation measures.”

Rating: 💧💧💧

🎙️ Full Episode: Apple | Spotify
🕰️ 37 min | 🗓️ 08/31/2021
✅ Time saved: 35 min

Additional Links:
Bluefield Research Newsletter: Waterline