As we use less, we could pay more for water THE CALIFORNIA DROUGHT Agencies are facing cash shortfalls because customers are buying less

Shasta Lake on, Thursday Mar. 19, 2009., in Northern California is currently at 71 feet below normal lake levels. February 1st, 2009 the lake was at 147 feet below normal. Shasta Lake, on Thursday Mar. 19, 2009., is the largest reservoir in the state, capable of holding more than 4 million acre-feet of water. This spring, however, after three dry winters, it stands at critically low levels., Calif. less Shasta Lake on, Thursday Mar. 19, 2009., in Northern California is currently at 71 feet below normal lake levels. February 1st, 2009 the lake was at 147 feet below normal. Shasta Lake, on Thursday Mar. 19, ... more Photo: Michael Macor, The Chronicle Photo: Michael Macor, The Chronicle Image 1 of / 3 Caption Close As we use less, we could pay more for water 1 / 3 Back to Gallery

Dwindling demand for anything - gasoline, DVDs, hamburgers - usually forces prices down.

Not with water. Shorter showers, brown lawns and water-efficient dishwashers translate into red ink for water agencies because their revenue relies heavily on how much water everyone uses.

When people use less, water agencies struggle to cover their large, fixed costs.

Their solution: Hike prices.

"We're out there telling people to use less water, and yet a lot of the revenue we have is based on what people use, said Gary Breaux, finance director for the East Bay Municipal Utility District, which serves 1.3 million people in Contra Costa and Alameda counties. "It's a circular thing."

The district was the first in the Bay Area to enact water rationing last year after the driest spring since the Gold Rush days. Now it faces a conservation-related shortfall of about $12 million.

Last week, the agency's board of directors moved to end drought-related rationing and to boost regular rates by 7.5 percent.

Across the nine-county region, water agencies are facing the same catch-22 after three years of dry conditions and receding reservoirs. Many of them are raising rates - in large part because customers are heeding the call to conserve.

The San Francisco Public Utilities Commission, the largest water district in the region, is leaning toward 10 percent annual rate increases over the next four years. Marin Municipal Water District plans a 7.3 percent bump.

Customers are perplexed, to say the least.

At a public workshop last week at the East Bay water district's headquarters in Oakland, Berkeley resident and environmental consultant Juliet Lamont lambasted a water system that would thrive on selling more, rather than less, water.

"Right now the system says if you use more water, (water districts) get more money," Lamont said, adding that during the mandatory water cutbacks, "people stopped using hoses and letting water run down the driveways. That should end permanently, drought or not."

Fixed costs

Ninety percent of the district's costs - salaries, debt service - are fixed, Breaux said. Only about 10 percent of its costs fluctuate - electricity, chemicals and certain maintenance fees.

But a whopping 80 percent of the agency's monthly revenue comes from the amount of water it sells. When customers use a normal amount of water, the system works. But during a drought or a cool summer, revenue tumbles. Because water districts operate at a break-even level, they are forced to react with price increases when demand plunges.

Some districts in California, historically those with plentiful supplies, charge a flat monthly fee for water. Although those districts recoup costs, experts agree that such an approach doesn't promote conservation, and many of the agencies are switching to volume pricing.

David Zetland, a UC Berkeley water economist, says water pricing in California must be overhauled. In his view, each ratepayer should fork over a much higher fixed price for a base amount of water every month. Customers who use more should be charged considerably more money, he argues.

EBMUD customers now pay $1.82 for each 748 gallons they use, up to 5,236 gallons - which is enough to fill about 100 bathtubs. For comparison's sake, a 16-ounce cup of Starbucks coffee costs $1.75.

For each 748 gallons after that, up to 11,968 gallons, customers pay $2.26, or 24 percent more. Above 11,968 gallons, each 748 gallons costs $2.77 - a 23 percent increase.

Zetland proposes that customers in the two upper tiers pay closer to $4 and $8 respectively.

"If you double the variable costs of water, conservation goes up and (water district) costs for energy and treatment go down," Zetland said. "You could actually have a 'profit' which you could rebate back to the water misers. If you use little water, you could actually have a negative water bill."

Even if Bay Area water officials agree, they face a major roadblock: Consumers like cheap water.

Ron Thompson, an East Bay builder, recently finished six homes in Castro Valley. The monthly water bill for each unoccupied home is more than $50, he told EBMUD directors last week. "How do I face a prospective buyer and say the monthly charge without using any water is $54.46?" Thompson said. "It's nothing to add $30 or $40 onto that - and soon you have a $100 water bill for a family of four. There's something wrong with this scenario."

Pricier water inevitable

Despite consumer outcry, pricier water is necessary and inevitable, experts say.

California's population is growing fast, the climate is becoming drier and warmer, aging infrastructure will need replacing and agencies will most likely seek additional, more expensive water supplies such as desalinated ocean water.

"Water rates are going up, as they should," said Heather Cooley, senior research associate at the Pacific Institute, a water think tank in Oakland. "We have undervalued water as a resource for far too long.

"Shifting people toward these new rate structures needs to be done - but it can't be done overnight."