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San Diego has failed to articulate a set of general principles that lie behind how it prices water to households. As a consequence, the city has been unable to place its water supply situation on a long-term sustainable path. The nature of this failure lies in not recognizing the key features of San Diego’s water supply situation.
The most important point is that there is not now nor will there be in the future a true water shortage situation in San Diego. Why? Water intensive, but low-value agriculture growing like alfalfa, cotton and rice in places like the San Joaquin and Imperial Valleys use most of California’s water. Agricultural irrigation districts can sell water to urban water wholesalers like the Metropolitan Water District of Southern California (MWD). MWD in turns stands ready to sell San Diego as much water as it wants. The catch is that this “extra” water comes at a higher price. Longer-term desalination and various conservation measures are also important new additional (high-cost) water sources.
The availability of more water at a higher price establishes the first key principle: water rationing should never be any part of an intelligent water policy. The reasoning is simple. Some households whose yards would suffer under water rationing would rather pay more to obtain extra water. A responsible agency obtains this extra water and charges households more for it to ensure they are not being subsidized by households who cut back on water use.
The second key principle is that: San Diego once and for all needs to determine its stance toward entitlements to its low cost water. For instance, is this entitlement on a household basis, a per capita basis, lot-size basis, or a past-use basis?
Should developers seeking to build new homes have to pay the full cost of obtaining new sources of water or should these costs be largely passed on to existing residents in the form of higher water bills, as more and more high-cost water is averaged in with the old low-cost water? Until the entitlement issue is resolved, it is impossible to determine how to price water.
The third key principle is that San Diego needs: higher “marginal” water prices to encourage water conservation and to ensure that water demand is consistent with its supply situation.
San Diego needs an increasing block rate structure with more blocks and higher prices for those using the most water. The usual objection to increasing water prices is hurting low-income households. However, the reality is that implementing a pricing scheme designed to encourage conservation would reduce, not increase water bills of most low income households.
Much of the current water bill is a base fee, which should dramatically shrink under any pricing scheme aimed at reducing water use. Further, a generously sized first block of water should be priced fairly low because opportunities for reducing indoor water use, the dominate form of water use for low income households, are small. Reductions in water use need to come from those capable of cutting back and willing to do so rather than pay higher water bills.
— RICHARD CARSON
Richard Carson is a professor in, and former chair of, the department of economics at the University of California San Diego. You can reach him at email@example.com.