Usually, we expect supply and demand to be balanced by price. If there is plenty of something, the price will go down — and we may want to use more of it. If the price goes up we tend to use less — thus preserving a limited supply.
On the other hand, we think of water like air. It is essential to life — shouldn’t it be free?
There is a pricing method that has the potential to reasonably satisfy both these goals. Tiered pricing has proven useful in the Bay Area in reducing residential water use. The East Bay Municipal Utility District (EBMUD) and the San Francisco Public Utility Commission (SFPUC) have reduced water use by raising the marginal price of water while keeping water costs lower for essential household needs.
In the year that ended June 30, 2014, SFPUC delivered 24.6 billion gallons to its own “retail” customers and twice as much to other water agencies outside San Francisco. We can look at the retail volume, and pricing, by user type.
Beginning in Fiscal Year 2008, SFPUC retail water rates were differentiated by user type and, in the case of some residential uses, by tiers of water use per household. Before 2008, all retail customers paid the same price for every gallon of potable water. In 2008, the price per gallon went up 25% for all non-residential water users and all multi-family accounts. For single-family residential users the Tier 1 rate (for the first 2,992 gallons per month) rose only 6% in 2008, but the Tier 2 rate (for unlimited additional use) was 27% higher. In 2010 a two-tiered rate structure was introduced for multi-family buildings as well (with Tier 1 only 2,244 gallons). SFPUC residential water use declined 5% by 2009, and 9% by 2011, compared to 2007. Non-residential water use, on the other hand, rose 18% in 2008, and remained 14% higher in 2009, compared to 2007.
SFPUC residential water use declined 5% by 2009, and 9% by 2011, compared to 2007. Non-residential water use, however, priced in a single tier, rose 18% in 2008, and remained 14% higher in 2009, compared to 2007.
By 2014, SFPUC water rates for non-residential use were 174% higher than the 2007 rate; single-family, residential Tier 1 rates were 113% higher than the 2007 level with Tier 2 rates up 179% and multi-family, residential Tier 1 rates were 128% higher with Tier 2 rates up 199%. As a result, despite estimated population growth of over 6% since 2007 in San Francisco, residential water use was down 10% by 2014 while non-residential water use was up 3%.
Local rainfall, of course, can reduce water use for irrigation around homes and in parks. In 2007, the rainfall in the California Central Coast Region, stretching from Petaluma to Goleta, was less than 15 inches (about 62% of the 100 year average). In the four years since June, 2011, Central Coast rainfall ranged from 49% to 76% of the average. This makes the efforts of San Francisco residents to use less water all the more impressive.
Across the Bay, EBMUD delivers all its water “retail”: directly to customers in northern Alameda County and western Contra Costa County. EBMUD has been using three-tiered rates for single-family accounts since before 1975.
This three-tiered structure has brought residential water consumption down 26% since 2007. Higher non-residential rates have led public authorities to reduce their water use by 13%, including by using recycled water for irrigation purposes. Industrial water use is also down, by 12%, partially due to increased recycled-water use. However, commercial-sector water use is up by almost 40%. The overall result for EBMUD was a decline in water use of 11% from 2007 through 2014.
Tiered water rates seem to be more effective in achieving water conservation than higher rates alone. More aggressive use of tiered volume pricing for all multi-family and single-family residential water users could push the water-saving mentality to the vast majority of households. Applying tiered pricing to commercial, industrial, and public-authority accounts would encourage more large-scale water users to connect to recycled-water resources while allowing small businesses, using water prudently, to remain successful.
Tier size based on human needs would better promote equity. Frugal water users in all sectors would have lower water bills. Large industrial water users would seek to use lower-cost recycled water wherever possible. Extravagant water users, consuming volumes in multiples of the first tier size, would bear the costs of finding and delivering that extra water.
— Kenneth Gibson for the Water Committee