New Normals?

​Lessons from California ​water conservation​, 2019

​Reservoirs aren't supposed to look like this.

Tough water times may be back in California. After the Golden State suffered through a historically severe drought from 2012-2017, ​pleasantly wet weather in 2018-2019 refilled reservoirs and replenished mountain snowpacks. But the state’s drought monitor shows that the past few months have trended drier, and water managers are worried that the state might be slipping back toward another drought.

One fortunate legacy of California’s recent struggles with drought is the California Water Board’s investment in data collection and dissemination. Researchers are learning important lessons about water management from that wealth of data on water consumption and conservation. Complete data for 2019 are now available, and I’ve just had a first look.

Three things emerge from my initial cut at the 2019 data that merit mention against the ominous backdrop of a looming drought.

1. ​A way of life

California’s overall urban water use remains down significantly from the pre-drought days. The state government​ ​established emergency conservation ​rules during the peak of the drought, cutting statewide urban water consumption by nearly 25%. But Governor Jerry Brown and other leaders also vowed to make water conservation “a way of life” that would extend beyond the emergency.

Californians seem to have taken the goal to heart, at least in aggregate. Though water conservation is not at the zealous peak we saw in 2015-2016, it remains strong:

Data: California Water Resources Control Board

Falling conservation in 2018 led to some hand-wringing, but conservation rebounded in 2019 to a statewide aggregate 18.1% relative to the state’s official 2013 baseline. That’s pretty remarkable and suggests that much of the reduction in California’s urban water demand is more or less permanent. Absent severe drought or monsoon-like precipitation, California’s overall water conservation will likely remain in the mid-to-high teens for the foreseeable future. That’s a public policy success story.

2. Persistent public-private disparity

One of the most fascinating findings that emerged from my earlier analysis of the California drought with Youlang Zhang and David Switzer was that the state’s private, investor-owned utilities conserved significantly more water than local government utilities during the drought.* We linked that difference in drought response to the institutions that govern water finance. We also found that the public-private conservation gap persisted even after the drought ended, with the greatest disparities during the summer when water demands are at their highest. Back in 2018 your humble blogger forecasted that that “public and private conservation will converge in the spring and diverge again in the summer and autumn.” And indeed, the pattern held: there was essentially no difference between public and private water utility conservation during the winter months, but during the 2018 May-September peak season, California’s investor-owned systems saved more water than their local government counterparts.

Did the pattern persist in 2019? In short, yes:

Data: California Water Resources Control Board

As you can see, public and private utility conservation move in pretty close parallel. During the non-peak period (January-April and October-December), there is essentially no difference in average conservation by ownership. But a public-private gap emerged again during the May-September peak period. In 2018 the difference was 2.3%; in 2019 the gap was smaller—investor-owned utilities saved an average of 1.5% more water than local governments. To give that percentage some context, think of it this way: if public utilities saved at the same rate as private utilities in 2019, the difference would have been about 15 billion gallons, roughly equivalent to the City of Long Beach’s annual water consumption.

The public-private disparity in summertime conservation now also appears to be a way of life in California. The difference is almost certainly related to pricing and revenue. Decoupling über alles.

3. Indoor outpacing outdoor?

​Finally, the five years of data now in front of us show how California’s urban water conservation relates to overall seasonal demand. In 2015, when severe outdoor irrigation restrictions were in effect for much of California, 70% of the state’s conservation came from reduced demand in the peak season. Since then, the share of peak season consumption has fallen to about half:

Data: California Water Resources Control Board

In 2019 non-peak conservation crept up to 52% of overall savings. It’s hard to infer exactly what’s driving this pattern from aggregated monthly data, but the picture suggests that the most persistent water savings seen in California over the past five years has come from indoor efficiency. Average water consumption in 2019 was about 98 gallons per person per day (gpcd), but some cities are far lower. For example, water demand in conservative San Francisco shows hardly any seasonal peak at all, and averages just 42 gpcd—a level approaching the theoretical minimum to sustain developed world conditions.

While there are probably still plenty of savings to be had from indoor efficiency, meeting the challenge of another potential drought year—and driving further sustainable conservation—will require tackling peak demands through pricing and regulation. Get ready for another year of water cops and rate revolts.


* Water geeks Interested readers can see the full study in Policy Studies Journal for the details.

​© 2020 Manny Teodoro

Introducing the Amy Poehler Index

Understanding progressive & regressive water pricing

It's irrigation season, everybody!

By Antonio & Manny Teodoro

How do utilities distribute the costs of drinking water systems to their customers in their rate structures?

The answer is surprisingly complicated, and water utility pricing is often weird. There are lots of other wrinkles and variations, but the vast majority of utilities use one of three basic rate structures:

  1. Uniform, where customers pay the same price for every unit of water that they consume;
  2. Inclining block, which charge higher prices as volume increases; and
  3. Declining block, which charge lower prices as volume increases.

It’s easy to see that these different rate structures distribute costs differently, but how much differently isn’t immediately obvious. How do a utility’s rates apply to low-volume customers compared with high-volume customers?

Progressivity

The answer is important because it carries ​significant implications for affordability and conservation. It also speaks to risk tolerance and questions about fairness. Water is an unusual consumer good because its use is very different at different volumes. For residential customers, low volumes are mostly used for basic needs like drinking, cooking, cleaning and sanitation. Higher volumes are usually for more discretionary uses like lawn irrigation and car washing.

Studies of water rate structures typically put them into the three main categories (uniform, inclining, and declining), which is fine, but can mask some important variation within the inclining and declining blocks. Consider four imaginary rate structures:

A and B are both inclining block rates, but A is more progressive than B because prices increase sharply for A as volume increases. Similarly, C and D are both declining block structures, but C is more regressive than D because ​C discounts higher volumes much more than D.

David Switzer developed a way to measure water rate progressivity​ to reflect that variation, and published a paper last year that uses regression slopes to measure relative progressivity. It’s a creative, rigorous, and smart methodology, but it’s pretty sophisticated and not the easiest approach for communicating with the general public.

In search of a valid but more intuitive way to communicate the idea of progressivity, we struck upon the idea of comparing average unit costs of water at relatively conservative and very high benchmark volumes. What would be appropriate comparative volumes? And how could we frame the measurement in an engaging way?

Enter Amy Poehler

​Amy Poehler was a particularly profligate water customer. In the summer of 2015, while drought ravaged the Golden State, the Parks & Recreation ​star’s Beverly Hills home used 85,000 gallons a month. Meanwhile, a family of four that is fairly conservative with water uses something like 6,000 gallons per month for drinking, cooking, and sanitation.* In other words, Poehler’s home consumed in about two days enough water to comfortably supply a family of four for a month.

​Poehler's house. Maybe she's got a dialysis clinic in the basement?

Shaming celebrities for bad environmental behavior is now something of a ritual in America, and it’s not clear whether exposing excess actually helps. But Poehler’s water consumption provides a convenient benchmark for excess.

The Amy Poehler Index

So to measure progressivity we calculate the total monthly water and sewer bill—including both fixed and volumetric charges—for a customer at 6,000 gallons (a conservative family) and at 85,000 gallons (Amy Poehler’s family), then divide that price by each customer’s total volume. These are average unit costs. The ratio of the two unit prices is the Amy Poehler Index (API). A value of 1.0 means that Amy Poehler and the conservative family pay exactly the same unit price for water. Values less than 1.0 indicate regressive rates (Amy Poehler pays less than a conservative family), and values greater than 1.0 indicate progressive rates (Amy Poehler pays more than a conservative family).

Let’s look at how this works for a couple of large U.S. city water systems under their 2019 rates:

In 2019 Tampa’s fixed monthly charge for water was just $1.50, with no fixed charge at all for sewer. Under Tampa’s inclined five-block rate structure, Amy Poehler would pay $617.82 monthly, while our conservative family would pay just $19.29. On a unit cost basis, those prices equal $7.27 and $3.22 per thousand gallons, respectively. The resulting API is a progressive 2.26.

​Meanwhile, in 2019 Philadelphia charged its customers a fixed $5.12 for water and $7.04 for sewer each month. The City of Brotherly Love then applied declining block water rates that would have charged Amy Poehler $455.69 monthly, and the conservative household $41.10—more than twice the Tampa bill for the same volume. The resulting unit costs turn out to be $5.36 for Amy Poehler and $6.85 for our conservative family, for a regressive API of .78.

The National Progressivity Picture

We used data from the Teodoro & Saywitz 2019 affordability update to calculate API for a nationally representative sample of 399 U.S. water and sewer systems. Average combined water and sewer rates were slightly regressive at .88, but ranged widely from .07 in Anchorage, AK to 3.81 in Phoenix, AZ.

API isn’t as precise as Switzer’s progressivity coefficient, but in our national dataset the two metrics correlate pretty well (ρ=.71). More importantly, the API offers an easy way to understand and improve the ways that communities distribute costs through their rate structures. That seems like the sort of thing Leslie Knope would probably dig.



*That’s about 50 gallons per person per day (gpcd) for a four-person household. 50 gpcd is an indoor efficiency standards for California and Texas.


© 2019 Antonio Teodoro & Manny Teodoro

Prevent Defense

Playing  to win  not to lose in water utility management

Nature's Prevent Defense

Warning: strained sports metaphor coming.

It’s late January, and the National Football League season soon reaches its climax with the Super Bowl. Both of last weekend’s conference championship games saw a high-octane home team take the lead. By late in the game, the winning teams’ strategies shifted from trying to score to trying to run out the clock. That meant lots of prevent defense, a tactic familiar to any reasonably attentive American football fan.

Prevent defense is an ultra-conservative strategy, designed to use up time and avoid disastrous, long passing plays—the goal is not really to stop the opposing team, but rather to manage moderate losses. A coach who deploys a prevent defense isn’t so much trying to win as he is trying to avoid losing. That works fine when the team that’s ahead has a comfortable lead. But when the lead is tenuous, prevent defense courts disaster because it can allow a quarterback to lead a heroic comeback. Legendary NFL coach John Madden famously declared that: “All a prevent defense does is prevent you from winning.” 

This didn't end well for the Cleveland Browns

Naturally, all of this makes me think about water utility management.

Compliance as performance

A few years ago I took a water operator training class through Texas A&M Engineering Extension. The course covered principles of safe operations, along with the basic math, chemistry, and physics that operators need. What really stood out to me was how virtually everything about our training involved regulatory compliance. Treatment plant operations, distribution system maintenance, even safety protocols, were all framed in terms of following rules and avoiding violations.

Things don’t seem much different in utilities’ executive suites or board rooms. Although the rhetoric of excellence abounds in water management circles, real policy decisions and capital investments tend to follow regulatory requirements. Treatment plant upgrades happen when the EPA formulates a new rule. Sewer capacity expansions come when overflows become so frequent and egregious that regulators force a consent decree.

A water system’s strategic goal might be public health, environmental quality, citizen trust, and economic prosperity, but the utilities’ management tactics often boil down to regulatory compliance. The practical goal is not so much to achieve good things, but to avoid bad ones.

The main reason is money. One of the challenges of managing great water and sewer systems is that the price of a water is much more visible than quality of water. Customers—who are also voters—know for sure what they pay for it when they get the bill each month. Water systems are literally buried. Unless quality is egregiously awful, the only marker of a system’s quality is regulatory compliance. It’s hard for utilities to demonstrate their real value in terms of anything but monthly bills and disasters.

Utility leaders are thus stuck between a rate increase rock and a regulatory hard place. For many, “success” means avoiding rate increases and regulatory violations as long as possible. The folks who operate these essential systems don’t like running them to the brink of failure, but as one city utility executive told me: “It’s hard to get anything done without a regulatory boot to your backside.”

That’s a fundamentally negative way to think about performance. Is it any wonder that utility managers often run a prevent defense?

From loss avoidance to winning

There are some creative, dynamic, and courageous leaders in the water sector who have found ways to build achievement cultures in their utilities. But hoping for the serendipitous arrival of an exceptional leader isn’t really a strategy. What would it take to change the game? How can we get utility leaders to think about seeking success, rather than avoiding failure?

What’s needed is a comprehensive, independent, and visible system for monitoring and reporting water and sewer utility performance. What if there were monthly box scores for utilities? What if they received a report card and grade point average every year, with results reported publicly?

Would this report card be good enough for you?

Aquam cum laude

This isn’t really a radical idea; Congress had transparency in mind when it required utilities systems to provide water quality reports, and the State of New Jersey was thinking about political accountability when it launched the Water Quality Accountability Act. Too often we forget that public information about water system performance also creates a credit-claiming opportunity. But reporting under those laws is complicated and in many ways opaque.

​Anyone who has been to high school understands grades and GPAs. A simple, comprehensive report card would give a utility’s leaders a way to communicate progress. A new management team could set clear improvement targets and show how their efforts moved the system’s GPA from 2.7 to 3.5. Mayors and councilmembers could trumpet the improvements, helping to demonstrate the value of those unpleasant rate increases. Water systems that achieve and maintain consistent excellence across the board would qualify for the Dean’s List.

I’m a big believer in the power of measurement and incentives. If we keep score correctly, our utility leaders can do more than avoid disaster—they can play to win health, environmental quality, and economic prosperity for our communities.


© 2020 Manny P. Teodoro