The Coastside County Water District last week approved new policies meant to incentivize water conservation and keep the agency financially stable during droughts. The move caps a yearslong process that could be a glimpse at future costs should droughts continue to be longer and more frequent.
At the Jan. 11 CCWD board meeting, commissioners emphasized that the district was only approving the Water Shortage Contingency State Rates, but not yet implementing them for customers.
In May 2021, the district declared a Water Shortage Advisory, putting customers into the first level of the district’s Water Shortage Contingency State. The advisory recommended customers cut back by up to 10 percent. It noted the board would have to declare a Water Shortage Emergency, requiring up to a 30 percent drawback, for the new prices to go into effect. Such a change would require a notice to customers 30 days in advance of implementing the higher rates.
Board President Bob Feldman called the policy a fallback plan, a worst-case scenario that the board would initiate only if it thought it had no other option. The rates are the maximum the district can charge, and it may implement them at a lower rate, use reserves, defer capital projects, or a combination of all three if it declares an emergency.
“This has been a very difficult road for us to deal with this over the last five months,” Feldman said. “To try to come up with a way that’s equitable yet protects the community going forward, to be sure we have sufficient water for our needs should this drought continue.”
The new rates effectively determine allocations for each customer class during each water shortage stage based on the 2020 Water Shortage Contingency Plan. It charges more to customers who don’t save water at the recommended amount. The rates are meant for the district to recover lost revenue to cover its fixed costs as customers use less water and would otherwise pay less.
According to Raftelis Financial Consultants, 72 percent of the district’s $9.3 million operating budget is fixed costs, meaning the price to pump and treat water remains the same regardless of water use. The district has additional expenses, including around $6 million in capital costs to refurbish water systems.
Only 21 percent of the district’s revenue comes from fixed costs like water meters. Sanjay Gaur, vice president with Raftelis, said the district wouldn’t want to increase the fixed cost to maintain affordability for low-end water users.
“There is a discrepancy between the fixed cost nature of a water utility and the goal of maintaining affordability for a water agency creates this financial instability when water use is significantly cut back, and that’s why we’re talking about the water shortage contingency rates,” Gaur said.
The board opted for a Uniform Percentage method, which is believed to offer more affordable and flexible options for customers to reduce their bills compared to other options like a fixed monthly meter charge or a uniform commodity charge.
The allocated use is based on the district’s 2020 Water Shortage Contingency Plan. The new rates involve six stages that require more conservation while less water is available from local sources and the San Francisco Public Utilities Commission. For example, in the first stage, single-family homes should reduce water by 15 percent compared to its baseline use and the district would need to see at most a 10 percent reduction. By Stage 6, single-family homes would have to save 52 percent of their water, and the district would be required to save more than 50 percent.
The rates vary between single family, multifamily and commercial units. For example, the first stage sees a 22 percent rate increase from the baseline use as of Jan. 1, 2022. But not all costs are distributed the same. A single-family home will be charged $2.24 per hundred cubic foot of water in the first stage, but a multifamily home would pay $2.98 per hundred cubic foot, while nonresidential units will start out paying $3.17. By Stage 3, the price could go up 56 percent from the baseline standard.
In normal water years, the district uses water from local sources and SFPUC. But under the new rates, stages 2 through 6 don’t account for any local sources, meaning the district would need to purchase all its supply from SFPUC to meet demand, said Nancy Phan, a senior consultant for Raftelis. The rate policy also states that if SFPUC adds drought surcharges, they will be passed onto Coastside customers.
Here’s an example of the plan’s cost for a seven-person billing unit during the second stage.
If the unit pays $116 per month during the baseline year, it will pay $120 per month with a drought surcharge when it reduces use by the recommended 21 percent. If there is no cutback, the bill would increase to $150. During Stage 3, the same unit would still pay $116 per month if reducing use by 30 percent. If there is no reduction, the bill is increased to $164 per month.
As the primary water supplier for more than 18,000 people in Half Moon Bay, Miramar, Princeton and El Granada, there were some concerns about how the rates would be equitable, particularly for multi-family units.
“When we get a drought imposed on us by the supplier, we have to figure out a way to equitably manage that so it’s fair to the entire community,” Commissioner Glenn Reynolds said. “It’s never going to be a perfect system. It has to cover everybody from the largest users to the little users. It’s always going to be a compromise.”
Gaur noted that a key challenge for the district involves monitoring drought severity and the ever-changing availability of water. Despite recent rain and snowfall, the ongoing drought is still creating more variables for water agencies, and CCWD could end relying on more expensive options in SFPUC to meet local demand.
“Hopefully this doesn’t happen often, but we are entering uncharted territory where this may occur more often than we’d like,” Gaur said.