Water Pricing – A New Paradigm

Deborah Sullivan Brennan’s report on water use is another winning journalist
article in the UT San Diego 11/6/2014. The next step? How to get the message
to the high users. Not complicated. Follow the money. The water rates are
tiered somewhat now, but they need revision. If those in Rancho Santa Fe and
other high end uses want to grow avocados and oranges on their three acres,
the price will have to go up. Just as they paid premium prices for the real
estate, water pricing will have to go higher.

Currently the water rates for the City of San Diego are (Rancho Santa Fe
rates may vary slightly):
Base fee: $37.78
0 – 8 HCF used are billed at $3.64 per HCF.
9 – 24 HCF used are billed at $4.08 per HCF.
25 – 36 HCF used are billed at $5.82 per HCF.
Each HCF used after the initial 36 HCF is billed at $8.19 per HCF.

We are all used to tiered pricing since our gas and electricity bills are
tiered. But there is a significant difference between water availability and
power generation. We can always generate more power, whether it be by coal,
gas, oil, solar, wind or some other energy source. We cannot make more water
unless we recycle it. Since there is such a radical difference, why not look
at a different method of pricing water for residential use.

The Aussies have it figured out. Every homeowner in Perth, Australia pays
the same price for water, $215.56 AUD PER YEAR, or converting to US dollars,
$249.40 PER YEAR. The difference is in the sewer charges, which is how they
pay for potable recycling and desalination. The following calculations, because of the
exchange rates between US dollars (USD) and Australian dollars, and property
valuations turned into costs for water and sewer may cause your eyes to
glaze over, but stay with it.

Bottom line? Right now every month the Allied Gardens homeowner with a one
quarter acre lot currently pays just $500.00 less for water than the
homeowner irrigating three acres in Rancho Santa FE. Is that fair? Let’s
look at how Perth charges for water.

The Water Corporation that administers the water and sewer systems in Perth,
Australia uses the appraisal value of a home to calculate the water and
sewer charges. Seems fair. The more house a user owns, the higher the cost
of the water. For example a three bedroom house in Perth appraised at
$460,775 AUD would be equivalent at today’s exchange rate $395,946 USD. The
annual water and sewer charges for that property billed by the Water
Corporation are $4,610.00 AUD or, converted to USD, $3,974 USD. Or $331.00
per month.

Now let’s go to Rancho Santa Fe where the average home Zestimate according
to Zillow.com is $2,258,600 USD. The AUD to USD exchange rate is 1.16.
Using the handy Water Corporation calculator of rateable (or appraisal
value), the annual cost for water would be $19,238 USD or $1,603 per month.
The Water Corporation defines the rateable value based on the annual rental
value property may get if leased out. Not that much different than standard
US appraisal values.

Currently the Rancho Santa Fe average water usage per Ms. Brennan’s article
is 600 gpd, or converting to HCF’s, 600 times 30 divided by 748 is 24 HCF.
Assuming four people in the home, the total monthly usage would be charged
at $5.82 per HCF or the monthly bill is 24 times 4 times $5.82 or $558.72
plus the basic fee of $37.78 for a total of $596.50.

Using the same calculation for a three bedroom home in Allied Gardens in San
Diego, the Zillow Zestimate for the median price is $470,700, not that much
different than the three bedroom house calculated above where the monthly
water and sewer charges would be $331.00 per month using the Perth model.

According the data Ms. Brennan has put together one person uses 80 gpd in
San Diego. We can assume that will be close to the usage in Allied Gardens.
So in a typical four person home, 80 times 4 times 30 is 9600 gallons per
month, or 13 HCF. Taking that times the current water rate of $4.08 per HCF
is $52.36 per month. To that is added the basic fee of $37.78 per month for
a total of $90.14. So, yes the residential users in Allied Gardens will pay
$240.86 more using the Perth model, but the Rancho Santa Fe water users will
pay $1,006.5 more than they currently pay. The owner of the one quarter acre
lot in Allied Gardens would pay $1,272 less than the owner of a three acre
plot in Rancho Santa Fe. Isn’t that a fairer pricing method?

Using the appraisal value of a home to calculate the water and sewer
charges eliminates the complexity of percentage tiered rates. It applies
water and sewer costs directly according the property values.

This blog cannot in a few words cover all of the complex pricing questions,
but there is no question a tiered rates structure for water pricing is
outdated. A new paradigm has to be considered, and why not follow the path
already laid out by the folks in Perth, Australia, where currently they are
drought resistant with more than half of their water from desalination and recycled for potable
reuse.

Milt Burgess