SLV tiered water pricing: Who needs it?
by Bruce Holloway
May 19, 2011 | 1668 views | 0 0 comments | 8 8 recommendations | email to a friend | print
San Lorenzo Valley Water District customers pay a basic charge bimonthly, plus an amount based on metered water use. The price per unit of water depends on the amount consumed, so customers using more water pay more for each additional unit. SLVWD prices its water in five tiers, from $2.36 to $4.35 per 748-gallon unit, and plans a 15 percent increase in both basic and consumption rates starting June 1.

Imagine a gas station operating on a membership basis, charging different customers from $2.36 to $4.35 per gallon, and running at a loss.

The district proposes to increase all the prices by 15 percent, but wouldn't it make more sense to charge everyone the same high price to break even?

SLVWD applies the same tiered pricing scheme to all customers. Santa Cruz and Soquel Creek districts also have tiered water pricing, but they only apply it to single-family homes and duplexes. Commercial and institutional customers, which may be much larger consumers, get a single-tier rate and pay the same price for each unit. Scotts Valley also has tiered pricing for homes, but other larger users can qualify for a single-tier rate.

Because the other three districts focus their tiered prices on homes, their top tiers are at lower quantities than for SLVWD. Santa Cruz and Soquel Creek households reach the top tier for consumption that would only be in SLVWD's second tier. Scotts Valley's top tier corresponds to SLVWD's third tier. The top two tiers on SLVWD's rate schedule, at 100 and 200 units, are far beyond ordinary household use.

Who winds up in each tier? Every SLVWD customer gets the first 10 units at the lowest price, and about 40 percent of the district’s water is sold at that level. Another 35 percent is sold in the second tier, which is where the average customer falls. SLVWD customers in the top tier are schools, parks, and a mobile home park with many senior citizens.

Why have tiered water pricing at all? One rationale is that tiered pricing promotes conservation — high users are punished with higher prices, while low users are rewarded with lower prices. This makes sense if the users are similar, such as single-family homes. But lower-income households are more likely to share living spaces, and those homes will be pushed into higher water tiers

And putting schools, parks and seniors in the top tier punishes them unreasonably. They're high users because they serve thousands of people or happen to live in a multi-residential setting.

A saving grace has been that SLVWD's prices have been lower than those of other districts, so even its top tier is lower than all but the bottom one or two tiers of the other districts. However, SLVWD's proposed basic charge would make it the highest of all of these districts and would amount to a 53 percent increase in four years.

As the average discount from the top-tier rate is about $1.33 per unit, the cost of the tiered pricing scheme itself, at 761,000 units annually, is $1 million. SLVWD says its basic charge covers gradual replacement of its infrastructure and activities that don't depend on consumption, such as reading meters, mailing bills and processing payments. Its budget for capital replacement this year was $660,000. Its estimate for the cost to read meters twice as often was about one worker’s wages, so that might be $100,000 or so. One could argue that the activities usually attributed to the basic charge cost close to $1 million. As the district gets about $2 million from basic charges, this is consistent with the tiered pricing scheme itself costing $1 million. As the price tiers are scaled up, the subsidy scales up, necessitating further increases in the basic charge to cover it.

Raising the top tier might not yield as much revenue as raising the bottom tier, because high users will likely conserve even more. When told that SLVWD plans a 15 percent rate increase, one county parks employee said, "We'll just water 15 percent less lawn." Instead of simply raising all its rates by 15 percent, I'd rather see SLVWD have a single tier close to the present top-tier price. This will treat schools and parks equally with homes and stimulate increased conservation by residential users. I think SLVWD is overcharging with respect to its basic charge and undercharging for water.

If it's too big a leap to put everyone in the top tier right away, a lesser step would be to eliminate the bottom tier and compress the remaining tiers. Those in the bottom tiers pay the lowest price per unit, but their average prices are the highest, because the basic charge is amortized over fewer units of consumption. The district proposes to raise the basic charge for most connections by $6.49, but it would be better to eliminate Tier 1 than to increase the basic charge by so much. In any case, nonresidential users like schools and parks should get a more middling single-tier price, as other water districts provide.

I don't mind paying a good price for a good product, and I'm happy with SLVWD's safe, reliable water service. I'd rather have the district raise revenue by raising the price of water rather than raising the basic charge, which is essentially a tax no one can escape unless they move away. There must be a way to limit further increases in the basic charge to something more in line with inflation.

Let's quit trying to outsmart ourselves figuring out how to get someone else to foot the bill. Instead, let's have one Valley price of water, like the price of gasoline, around $4 per unit, and we won't need any other rate increase.

Bruce Holloway, of Boulder Creek, has been a San Lorenzo Valley Water District customer and SLV resident for more than 28 years. He holds a Bachelor of Arts degree in economics and a Bachelor of Science degree in mathematics from University of California, Santa Barbara.
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