What Happens When Conservation Leaves Revenue Short?

This year has marked the fourth of record-breaking temperatures and low rainfall in California. According to the U.S. Drought Monitor, 92 percent of the state has reached “severe drought” and 70 percent resides in “extreme drought.” The storage levels for major reservoirs throughout the state are well below their historical averages. A report published in Geophysical Research Letters last year called conditions in California “the most severe drought in the last 1,200 years.”

Facing these bleak realities, Governor Jerry Brown had little choice but to take action. On April 1, he directed the State Water Resources Control Board to implement mandatory urban water usage reduction of 25 percent.

“As Californians,” he said, during a press conference to announce the cutbacks, “we must pull together and save water in every way possible.”

In Los Angeles, the 3.8 million residents answered the call and reduced consumption by about 10 percent more than their provider expected. While inarguably a triumph against the drought, the effort left the municipality in a jam.

According to a Los Angeles Times report, 18 billion gallons of water went unsold and left the Department of Water and Power (LADWP) $111 million short on revenue. Citing a $380 million need for infrastructure improvements and treatment costs, the LADWP Commissioners approved a “pass-through charge” of $1.80 more a month for the average consumer, to begin next year and last until 2017.

“Our customers… have done a tremendous job of really conserving water, which is great for the city,” Neil Guglielmo, DWP’s director of budget, rates and financial planning, said during an October 20 presentation to the LADWP Board of Commissioners. “And what that means is there is an impact in terms of our financials.”

LADWP hasn’t raised its base charge for service in five years and since its rates are determined by volume, conservation has always hit its bottom line. Pointing to a “water revenue adjustment” ordinance that was adopted in 1993 to ensure recovery of the fixed cost for transporting and distributing water, Guglielmo explained that the pass-through charge, what he referred to as a water revenue adjustment factor, would recover $57 million needed for financial stability while the rest of the savings from the conservation efforts would be passed on to ratepayers.

“Even with this adjustment, our customers are going to save money,” Jeffrey L. Peltola, LADWP chief financial officer, told the board. “Our customers will save about $54 million in total. The average customer, you’ll see, because of their conservation… they will save about $3.26 per month.”

LADWP did not respond to a request for comment about how it introduced the increase to ratepayers or how those customers have responded to the news.

While the extra charge — formally termed the “resolution approving the Water Revenue Adjustment Factor” during the meeting — was met with unanimous approval from the board, news sources have found ratepayers to be understandably flummoxed by the result of their conservation efforts.

Our Sara Jerome unearthed a soundbite from one Los Feliz resident who felt penalized for doing such a good job in her October coverage of the charge increase. The Times followed up on an LADWP-promoted hashtag and found a tweet reading “#LADWP hikes rates because they aren’t making enough revenue. We’re saving water like were supposed to. U mad? I am.” Los Angeles Daily News reporter Mike Reicher opened his report on the increase by writing “Enjoying those lower water bills from 3-minute showers and your new drought-tolerant landscaping? Well, prepare to pay a little more to make up for your conservation.”

It won’t surprise those in the water industry to learn that Los Angeles residents have a hard time appreciating the value of their water, but it may come as a disappointment that the arid conditions in the West don’t seem to have done much to increase it. As California enters its fifth year of record drought with no relief in sight, consumers are bound to get the message sooner or later.