From Local government

Water Cops

Many California communities restricted outdoor irrigation during the recent drought. Did enforcement matter?

Bad water boys, watchya gonna do when they come for you?

Faced with water scarcity, communities sometimes restrict residential outdoor water use, such as car washing and especially lawn/garden irrigation. These water restrictions are effective in driving water conservation, and many California communities adopted them during that state’s recent drought (I’ve blogged about them before). The severity of those restrictions varied considerably, with some utilities allowing unlimited irrigation, some allowing irrigation just one or two days per week, and a few banning outdoor irrigation altogether.

Enforcement of those restrictions was  up to individual utilities, and enforcement actions varied considerably. Youlang Zhang and I have been analyzing those enforcement actions and how they correlated with conservation outcomes; we’ll present our first results at the APSA Conference in Boston next week. How did California utilities enforce water restrictions? Did enforcement actions affect water consumption?

Avenues of enforcement

In July 2014 the SWRCB authorized local water utilities to impose fines of up to $500 a day for violating water restrictions and invited citizens to report violations of water use restrictions through online portals and telephone hotlines. After receiving complaints or observing violations, utilities proceeded with a series of escalating enforcement steps. The first is a follow-up action, an informal intervention that typically involves sharing information with the violator with a goal of compliance through education. The second step is a formal warning, where the utility informs the violator of regulations and potential penalties. The final step is a formal penalty and fine.

A different logic underlies each of these enforcement actions Follow-up actions convey information about public policies and community values, with the expectation that greater awareness will motivate conservation. Warnings threaten violators with punishment, and so raise the prospective cost of profligacy. Penalties punish past action in hope of deterring future behavior. Over the course of the drought local utilities issued hundreds of thousands of warnings and levied tens of thousands of penalties for violating water regulations.

Enforcement effects

We analyzed monthly data from California over the 32-month drought emergency period, looking for relationships between utilities’ enforcement actions and total conservation by those utilities. Basically we were asking: does past enforcement predict present conservation?

Initial results are fascinating. Informal follow-up actions and penalties had no statistically discernible relationship with conservation. Only warnings appear to be correlated with conservation. Here are the effects, plotted graphically:

Marginal effects of enforcement action on conservation

In substantive terms, these results indicate that 100 formal warnings results in about 0.1% greater conservation. Though these figures are small in percentage terms, they represent potentially large volumes of water. An average of 500 more warnings each month during the observation period would have reduced the state’s total water consumption by 29 billion gallons—enough to supply the City of San Francisco for 15 months.

So are penalties pointless?

Does that mean that penalties don’t work? Not necessarily. It’s likely that the positive effects of warnings depend on the threat of penalties. Also, a $500 penalty might be an insufficient incentive for conservation in utilities where penalties were imposed. If you’re a rich celebrity, you might not care about a $500 fine enough to stop wasting water. Without detailed data on individual violations (which we don’t have), it’s hard to say.

In any event, the effects of all enforcement actions were apparently short-lived. Enforcement actions were most influential early in the drought emergency, when climatic conditions were most severe. As the drought weakened, the influence of enforcement also declined. The effects of all three types of enforcement actions appear to be negligible in the long run.

Lessons for conservation

We need to do more work to make sure we have the analysis right and to tease out all of the temporal effects, but our findings to date suggest three preliminary takeaways:

  1. Formal warnings are most effective in driving overall conservation; and
  2. Warnings can lead to immediate conservation during an emergency; but
  3. Enforcement effects decline in the long run, and so probably don’t help promote conservation as a “way of life.”

 

Political Decoupling

A California Surprise, Part 2

More drought porn (this is used to be Folsom Lake)

How private implementation separates public policies from their political costs.

Warning: this post contains hardcore wonkery.

In 2015 the California State Water Resources Control Board (SWRCB) ordered drinking water utilities to reduce water usage by 25% statewide. As my last post described, something surprising happened: compared with local governments, the state’s private, investor-owned utilities imposed stricter water use regulations, were nearly twice as likely to comply with the state mandate, and conserved significantly more water overall.

Though counterintuitive, this difference in public and private sector water conservation follows rationally from the political institutions that govern water in America generally and California specifically. The keys to this conundrum are money and politics.

Financial risks of conservation

American water utilities operate on a fee-for-service basis; typically, customers pay a fixed monthly charge, plus a charge for each unit of water. Faced with resource scarcity or some other environmental problem, it may make sense to curb water consumption—say, in response to a drought. But reduced consumption reduces revenue. For utilities that rely on rate revenue to fund their operations (and, in the case, of private utilities, to pay their shareholders), conservation can be environmentally good but financially bad.

The financial risks of conservation are especially severe for utilities due to their very high fixed costs. As I’ve observed before, whether a utility delivers one gallon or ten million gallons, the costs of constructing, maintaining, and operating reservoirs, treatment plants, and distribution pipes are the same. A drop in water sales doesn’t bring a matching drop in costs to the utility, so reduced consumption threatens financial sustainability (for government utilities) and profitability (for investor-owned utilities).

Utilities are natural monopolies, and so could charge customers exorbitant prices if they were allowed to set prices any way they like. For that reason, utilities are subject to government price regulation. But the institutions that govern private and public utilities are different, and present them with very different incentives to comply with state conservation rules.

Price regulation & decoupling

Let’s start with private utilities.

Governments regulate private utility pricing through state Public Utilities Commissions (PUCs); in California the PUC is composed of five appointed commissioners. The PUC process is technocratic and legalistic, usually drawing scant media attention. PUC price regulation proceeds under the cost of service principle: companies are limited to recovering the actual cost of providing service, plus a legally-sanctioned rate of return.

It only looks Soviet

Decades ago, the conflict between conservation and profitability for private utilities led environmentalists to develop rate decoupling: the separation of a firm’s revenues from the volume of product it sells. If conservation causes revenue shortfalls, decoupling provides for automatic rate increases to make up the loss. In that way, decoupling shifts the financial risks of conservation from utilities’ investors to their customers, eliminating the incentive for utilities to sell more and more energy, water, or whatever. Decoupling can work in situations where private utilities operate under PUC regulation, and has generally been successful in stimulating conservation in the energy sector. Today about half of US states use rate decoupling for electrical utilities.

In 2008, California became one of just two states (the other is New York) to adopt decoupling for water utilities when it introduced the Water Revenue Adjustment Mechanism (WRAM). Private utilities take advantage of this provision when conservation causes a loss of sales revenue: financial losses associated with reduced sales volumes are recovered in future rate increases through WRAM. PUC records show that by Spring 2018, at least 39 of the 62 investor-owned utilities subject to California’s conservation mandate had invoked WRAM and raised rates following the drought. Decoupling irritates customers, who understandably grumble about paying more for water they didn’t use—the paradox of conservation. But those grumbles are largely impotent, as the PUC’s technocratic process allows WRAM under state law.

Water rate politics & the conservation paradox

And then there are local governments.

Governments (including counties, municipalities, and special districts) that own drinking water utilities are essentially self-regulated with respect to pricing; their rates are set by city councils and district boards. Public water rates are thus subject to the political calculations of local elected officials. Water customers are also voters who prefer lower rates, and so raising rates can have bad electoral consequences for politicians. Unlike the technocratic PUC process, rate-setting for government utilities can be a contentious affair. In California the political risks are especially pronounced, since public water rates are subject to Proposition 218.

California local government utilities can raise rates when conservation measures cause revenue shortfalls; they need not seek permission from the PUC. But raising rates is politically risky for local officials. Whatever their attitudes toward sustainability, citizen-customers of government utilities are just as irritated as customers of private utilities when they use less but pay more. Government managers and elected officials are wary of angering their voting water customers if revenue losses force rate increases.

Attendance at the Redlands city council meeting on water rates was robust. Photo: informedredlands.com

Consider the politics of water conservation in the City of Redlands. California’s 2015-2016 emergency rules assigned the city a 33% conservation standard. The city responded with a series of conservation measures, but met its conservation standard in just two out of twelve months and achieved only 11.3% conservation overall. Still, reduced water sales caused a city revenue loss of about $2 million. When utility staff recommended a 19% rate increase to cover the shortfall, more than 3,000 citizens filed protests against the increase in advance of a raucous, five-hour City Council meeting on the subject. Drought-related rate increases prompted similar protests and/or legal challenges in Alameda County Water District, East Bay MUD, Hillsborough, Los Angeles, Pleasanton, and Yorba Linda.

Political decoupling

When combined with rate decoupling, private water provision shifts to private firms the political risk that discourages conservation by governments. The unelected PUC absorbs those political risks instead. In this way, investor-owned water utilities provided a kind of political decoupling during California’s drought: private implementation of conservation rules separated a controversial environmental policy from its political costs, and helped make private firms more effective conduits of environmental policy than were government agencies. Youlang ZhangDavid Switzer, and I develop the idea of political decoupling and its broader implications in a forthcoming article.

Of course, decoupling conservation from its political costs does not eliminate those costs so much as place them beyond the reach of ordinary citizens. That might make for effective drought response, but it weakens democratic local governance.

 

A California Surprise, Part 3 will discuss what happened after the SWRCB dropped the conservation mandate.

Hyperopia at the tap

hyperopia (hīˌpə-rōˈpē-ə). n. A condition in which visual images come to a focus behind the retina of the eye and vision is better for distant than for near objects

Last week I had the pleasure of speaking at the Connecticut AWWA’s annual conference. There I shared a the stage with a team from Providence Water, who told the story of their city’s struggles with lead contamination in drinking water. One of the most surprising things about Providence’s experience is the way that its customers apparently responded to the Flint water crisis.

Lead in Providence

Lead contamination in drinking water is a long-standing problem in Providence. Like many older American cities, Providence has many buildings with lead plumbing. As in Flint, Providence’s water system requires careful corrosion control in its treatment process to limit the release of lead into the drinking water supply. Lead contamination has been detected consistently in Providence’s water system since testing began in 1992—usually hovering just below EPA’s action level of 15 ppb—but it spiked to 30 ppb in 2009 and again in 2013, prompting increased regulatory scrutiny.* According to last week’s presentation, at least one Providence test site yielded lead contamination greater than 200 ppb—far higher than the levels that sparked outrage in Flint. Unlike Flint, where leaders denied and obfuscated lead contamination, Providence has publicly acknowledged and taken steps to address the issue: they’ve changed maintenance protocols and treatment methods, and introduced programs to replace lead service lines in its system.

As part of that effort, in 2014 Providence Water began offering drinking water lead testing for $10 to any customer who wanted it (earlier this year they started offering testing for free). In providing this service the utility also gathers valuable data on its own system. Initial participation in this voluntary testing regime was moderate, with an average of 4.7 customers requesting testing each month over the first two years of the program.

Hydro hyperopia

Then something unexpected happened in 2016: Participation in Providence’s lead testing program skyrocketed—after the Flint Water Crisis grabbed national headlines. Water contamination in Flint made Americans everywhere reconsider what comes out of their own taps. The figure below plots monthly voluntary lead testing in Providence from 2014-2017 (blue line); the utility mails its testing brochure in the May/June billing cycle, and so testing jumps in June and July each year.** The graph also shows monthly average Google News Index for coverage of the lead crisis in Flint (red line). Providence Water’s own lead contamination issues emerged in 2009, but when Flint put drinking water into the national spotlight in 2016, Providence citizens took action locally.

Are the people of Providence responding to events in Flint? It’s impossible to be certain, but the circumstantial evidence is strongly suggestive. A lead crisis 700 miles away apparently caused a 400% increase in lead testing participation by focusing Rhode Islanders’ attention on the contamination that they’d been living with for decades.

Focusing event

The water crisis in Flint is the Cuyahoga River fire of our generation: an event that thrust a widespread but underappreciated problem into the national consciousness. Political scientists call these focusing events: harmful, high-profile occurrences that suddenly put previously obscure issues onto the public policy agenda. One important consequence of the newfound attention to drinking water quality is that citizens everywhere think differently about their own utilities and drinking water. They may not deserve it, but utilities everywhere must now grapple with the Flint Water Crisis’ awful legacy. The effects of the Flint Water Crisis on the people of Providence, Rhode Island show such events afar can transform citizens’ interactions with their own local governments.

*No level of lead is healthy according to the CDC, especially for young children.

**Thanks to Providence Water for providing these data.