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The Drought's Water-Rate Paradox

At least two local agencies that plan to cut rates are walking a fine line: They are cutting prices because they expect demand to go up. At the same time, they are still talking about the importance of conserving water. But too much conservation means sales won’t rebound and water agencies might have to raise rates again.

When water use goes down, water prices go up.

It’s a maddening paradox San Diegans have dealt with for the past year.

When Gov. Jerry Brown last year ordered Californians to use 25 percent less water, water agencies saw their sales plunge and holes open up in their balance sheets. So they raised rates. Short showers, brown lawns and dirty cars were rewarded with stubbornly high bills.

The state recently relaxed those water rules because rain and snow this winter refilled rivers and reservoirs. People can now legally go back to using more water, and in anticipation of rising demand, a few water agencies have lowered prices.

That’s unusual relief for water customers accustomed to ever-rising prices, but it may not last. Even if it does, it may leave the state flatfooted if the drought deepens.

In San Diego, two water agencies in Encinitas cut prices and one in Escondido is thinking about it.

These agencies are walking a fine line: They are cutting prices because they expect demand to go up. At the same time, they are still talking about the importance of conserving water. But too much conservation means sales won’t rebound and water agencies might have to raise rates again.

Yet, lower prices might prompt a return to old habits – squeaky clean cars, lush lawns and long showers. Environmentalists warn that a return to business as usual while California remains in drought is dangerous.

The mixed signals are hard to untangle: Save water and your rates go up. Stop saving so much water and your rates may go down. Yet if you use too much water we’re all in trouble!

“There has to be a happy medium there,” said Bill O’Donnell, the general manager of the San Dieguito Water District, which serves part of the city of Encinitas.

San Dieguito lowered rates twice in recent months. In April, it cut rates 4 percent and then last month it cut rates another 10 percent. Together, those two cuts will save an average customer about $80 a year.

If people don’t start using more water now, the district will end up with a $500,000 hole in its $17 million budget because of the lower rates. How would it fill that hole? Perhaps by raising rates again.

“You either raise rates or find savings elsewhere,” O’Donnell said. The district also has some reserves it could dip into.

Some of the water rate paradoxes result from how agencies get their money. The vast majority of customers’ water bills are based on how much water they buy, but the vast majority of the water agencies’ expenses don’t change from year to year. That’s because water agencies have the same miles of pipelines to maintain and employees to pay no matter how much water their customers use. Some people, like San Diego City Councilman Chris Cate and a UCSD economist, have proposed other ways of financing water services, but such solutions have their own complications.

Olivenhain Municipal Water District, which also serves parts of Encinitas, also just lowered its rates. Like San Dieguito, it has different prices for different climatic conditions. They both charge more during severe droughts and less when conditions are wetter. They also impose greater restrictions on water use during droughts.

Rincon del Diablo Municipal Water District, which serves the Escondido Valley, has a similar structure. It relaxed its usage restrictions but did not cut rates, in part because customers are still using so much less water. If demand doesn’t go up, it can’t afford to keep prices low.

“We’ll have better idea on (our) next step in September or October once we see financial information from the summer,” Rincon general manager Greg Thomas said in an email.

Not every agency has a rate plan that allows rates to go up and down quickly. Last fall, the city of San Diego approved a 40 percent water rate increase over the next five years, in part because of falling demand. The city water department plans to check back to see if those rates can still be justified over the next few years, but those check-ins are only periodic.

Kim Thorner, Olivenhain’s general manager, has advised her board that rates may go back up soon if the State Water Resources Control Board requires new cutbacks, something that could happen if the drought deepens or if water use spikes across the state.

In June, California cities were still using 21 percent less water than they used in June 2013, the benchmark year state water officials use to measure water conservation.

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