Water Suppliers Wrestle with Decreased Sales

Unprecedented conservation efforts come with a unique set of challenges for California water utilities
Water Suppliers Wrestle with Decreased Sales
Staff reductions and cuts to capital improvement programs are just two ways California water utilities have offset recent declines in revenue attributed to increased conservation efforts.

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The ongoing California drought has led to an apparent paradox for water utilities and agencies throughout the state: Water conservation reduces revenue.

Based in Oakland, East Bay Municipal Utility District indicated a water usage drop of 12 percent in 2014 along with a similar revenue decline within that same period. On top of that, increased energy costs associated with pumping water from supplemental sources and a decline in hydropower sales due to lower than expected reservoir levels have added to the drought-related budget woes.

Padre Dam Municipal Water District in Santee experienced a significant decline in water usage as the state was in the midst of its last drought back in 2009, and sales have not yet returned to pre-drought levels.

“What we noticed here in our district is that there was a huge drop between 2008 and 2011 when we went from 15,000 acre-feet down to 11,000,” says Allen Carlisle, general manager, “and we have remained relatively flat from 2011 to 2014 in terms of our water sales.

“Our customers are using a lot less water, and that has an impact on our business,” he says. “The number of staff was reduced by 19 percent, the capital improvement program budget was cut, and following a cost of service analysis, rates were raised as well.”

Declining revenue impact
In the midst of the fourth year of the current drought, Padre Dam Municipal Water District is dealing with the same difficult decisions faced several years ago. Tasked with conserving 20 percent of water usage, its board has decided to achieve the mandated levels by focusing heavily on education and outreach as well as moving to allow watering only two days per week.

“If our customers conserve the full 20 percent, our agency is going to absorb in the neighborhood of $3.2 million in revenue loss,” Carlisle says, noting that the board recognized the successful conservation efforts customers have already made while dealing with rate increases. “We feel like at this point in history we need to use our rate stabilization fund and absorb the loss for this particular conservation effort.”

Linda Reed, deputy director of administration for Santa Rosa Water, says her utility experienced a noticeable drop in water use back in 2009 as well. Although usage bounced back in 2011 and 2012, totals have dipped down once again as Californians continue to conserve.

Concerned about using up monetary reserves back in 2009 and unsure about what the new normal would actually look like, Reed says Santa Rosa Water set aside a large buffer as a rate stabilization tool in the years that followed.

Rate increases went into effect initially in order to partially offset the decline in water usage, but revenues have taken a hit nonetheless in 2013-14 and similar declines of about 4 percent are expected in 2014-15.

“We have an ability to cut our infrastructure replacement program and things like that to cut our costs before we have to go and enact large rate increases,” Reed says. “But in the long run the value of water is going to be such that, if the drought continues, it is going to be worth more, and rates are going to have to reflect that in California.”

Carlisle agrees as he considers the long-term implications of decreased water usage and sales. It’s never easy for customers to stomach increased rates, but Carlisle points out what a great deal tap water really is. “It’s about a penny per gallon delivered to your house, and it’s perfectly clean and safe,” he says. Consumers will pay up to 200 times that amount for the same gallon of bottled water at the store.

“It’s the most critical and important resource we have on the planet and yet it’s really undervalued,” he adds. “If we’re selling less of our commodity, that necessitates the commodity unit price going up.”

Creative solutions
There does, however, seem to be an upside to the California drought and the widespread challenges it has created along the way. “I think we’re going to be more creative in how we develop new local water supplies for our communities,” Carlisle says.

One example of this is Padre Dam’s efforts to take its water recycling program to the next level through its Advanced Water Purification Program. Currently used to irrigate parks, golf courses and public schools, a demonstration plant, which is open for public tours, is in the midst of testing water sent through four additional treatment processes in order to potentially utilize it for potable purposes.

The facility currently produces about 100,000 gallons of this highly treated water per day. “If we go full scale, this program could produce up to 25 percent of our water needs right here locally in San Diego East County,” he says.

David Guhin, director of Santa Rosa Water, agrees that the drought conditions have and will continue to lead to new ideas and developments. “Necessity breeds innovation, and I think that’s what we’re seeing,” he says.

The creativity doesn’t stop at the utilities and agencies, either. “We’ve done an enormous amount of outreach, but our customers have stepped up and become our eyes and ears out there as well,” he says. “They are helping us figure out ways to reduce waste, so it’s a culture shift and I think it’s going to continue that way even when things bounce back a little bit.

“The drought has really highlighted the importance of how we use our water, the best ways to use our water, and the value of it.”

Photo: By Los Angeles (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0), via Wikimedia Commons


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