Water Seminar Series: Trends in California Water Rates and Utility Selection of Pricing
Water pricing is a demand management strategy to address the looming challenge of greater water scarcity in arid regions. Much of the literature on residential water rates focuses on evaluating the impact of pricing on household conservation. A separate, but rarely addressed question is what motivates a water utility to select a particular rate structure and the timing of doing so. We assess utilities’ decisions to adopt pro-conservation rate structures, such as increasing block rates and water budget rates. We develop a conceptual model of utility decision-making regarding the transition to pro-conservation rates and apply it to California. We find a notable shift towards pro-conservation rates, which 71 % of California utilities had by 2015, compared to 20% in 1991. We identify two major waves of adoption. The first wave, 1991-1995, experienced the fastest annual adoption rate. Adoption during the second wave, 1997-2015, is associated with peer effects, larger utilities, and greater reliance on purchased water. Overall, this study provides insight into barriers to pro-conservation pricing, which can inform policies to enable transitions and advance conservation goals.