Revenue shortfalls at water departments suggest a re-write of the laws of physics

It's Utility Deja Vu all over again ... on September 13, 2009, Reporter Mike Lee of the San Diego Union-Tribune covered a perverse conundrum facing water districts: They may need to raise rates because consumers aren't using ENOUGH water. The good news is that some of the utilities anticipated the reduction in usage and won't need to raise rates. Plus, when consumers use less water, the utilities don't have to buy as much from the water wholesalers (San Diego CWA).   So they save. 

Since 2008, water districts across San Diego County have been urging their ratepayers to conserve, or face higher rates, penalties, and in the City of San Diego, stiff fines for wasting water. This "solution" to the water shortage, has created another potential problem: for many water districts, sales volume has dropped so much that they may have to raise rates  to fund their operations. The water districts expected consumers to cut use by 8 to 10%, but ratepayers reacted by slashing water use by 20%, creating massive revenue shortfalls.

In the world of regulatory economics, this type of system -- where profligate waste is either rewarded, encouraged, or required -- is called a "perverse incentive." 

It is another reason why unregulated water districts need outside supervision like any other regulated utility.  UCAN's Water Project will be scrutinizing the City of San Diego's rates, but so far, the City claims that it will not have to raise rates because of conservation.  

Get the full Union-Tribune Article here.