The Case Against a High Household Base Fee

Several readers have raised issues both pro and con concerning San Diego’s base water fee for households. It is good to get a few facts on the table. San Diego’s water rates table shows a base fee of $35.18 bi-monthly or $17.59 per month.

For a household using roughly 150 gallons of water a day, which is substantially more than many two-person households living in an apartment or condo would use, their water bill in San Diego would be $17.87 for the water used plus $17.59 for the base fee which is $35.46. Thus roughly half of the water bill is for the fixed base fee. For a single person living alone, the base fee can easily be 75 percent of the water bill.

Let’s compare this to the practice in Phoenix, another city in the desert roughly San Diego’s size. (Phoenix water rates can be found here.) Phoenix’s base charge is $4.64 per month and this charge also includes roughly 150 gallons a day. Ignoring the “base” amount of water included, San Diego’s base fee is almost four times higher than that charged by Phoenix. Including the base water allocation, the comparison is even less favorable; San Diego is charging households using reasonably low amounts of water almost eight times more than Phoenix.

It is hard to justify San Diego’s large base charge on equity grounds, as the policy is highly regressive from an income perspective. It is also hard to justify in terms of encouraging water conservation as the larger the base fee the smaller the variable cost associated with using more water.

The reason for the large base fee is that the city of San Diego has large fixed costs associated with running the water system and any industry with large fixed costs would like to be able to effortlessly recover those costs. But this is true of many industries.

Can you imagine oil companies charging a large fixed fee before you filled your tank with the first gallon of gasoline? The answer of course is no, even though they have lots of pumping stations and pipelines that have to be paid for before that first gallon of gasoline reaches an automobile. Oil companies charge a high enough price for their product to be able to cover both their fixed and variable costs. To be able to do this effectively, a water agency needs to know a lot more about how sensitive water demand is to the pricing scheme used and this is something that many water agencies, including San Diego, have made little effort to learn. Part of this is understandable, the political process gets involved in setting water rates and any thought of running the water system like a business goes out the window.

San Diego, though, will never successfully make the transition onto a long term sustainable path with respect to making sure its water supply and water demand balance without a wholesale restructuring of its current system of water rates. In the long run, San Diego’s economic prospects will be enhanced by the City being known as a reliable supplier of water with the cost structure aimed at encouraging conservation, particularly since the cost of obtaining additional water is high. It would also be desirable for the city to be known for having an equitable distribution of those costs across different types of households and businesses.

— RICHARD CARSON