Water use, water rates, and what is ‘fair’

In this third post in a three–part series about water to our homes, I want to talk about issues of fairness. What is a household’s “fair share” of our water supply? What is a “fair” bill for that water? And who should pay how much?

Let’s start with usage.

Are we using more than our fair share of water?

There was an interesting exchange during a water planning meeting in Palo Alto last year. The Utilities Advisory Commission (UAC) was talking with staff about options for managing water in dry years. Staff was recommending that we conserve water. Conservation is less expensive than finding additional water supply and it benefits the environment. One of the staff members added that it was also the right thing to do because “In Palo Alto, the per capita water use is higher, on average, than … “. She was going to say “in neighboring cities”, referring to Palo Alto’s per capita use of 71 gallons per day compared with the Bay Area average of 55.

But UAC Commissioner Greg Scharff interrupted before she could finish her statement. He seemed a bit exasperated by the lecture, which he had heard before. His response was as follows:

“You keep saying that. It’s true! But [do] you want to tell people that because their lots are bigger than in neighboring cities, they should let their landscaping die? …. Do we want our tree canopy to die? Is that what we’re arguing? That we shouldn’t spend money on our tree canopy, on our vegetation, on our yards? Is that really what we’re saying? And that’s different than getting rid of grass. We’re not bad people here because we use more water.”

“We’re not bad people here because we use more water.”

PALO ALTO UTILITIES ADVISORY COMMISSIONER GREG SCHARFF

He then joked that he was getting off his soapbox, but Commissioner Chris Tucher added that in Portola Valley and Atherton they use even more than we do. You can see that in the chart below, where Atherton and Portola Valley comprise much of the Bear Gulch Water District along with Woodside. The similarly wealthy areas of Hillsborough and Los Altos Hills are also shown, represented respectively by the Hillsborough and Purissima Hills Water Districts. They use so much water per capita that Palo Alto starts to look pretty good….

Scharff summed up the situation, saying water use “is a lot-size function. So [the fact that we use more water than neighboring cities] is really an irrelevant thing to say…. We should be more sensitive to what the community character is and not say how bad it is if we use more water than neighboring cities. Because it’s not a good comparison.”

In other words, it’s not only people that need water, it’s landscapes too. Shouldn’t we account for that in these comparisons?

The state legislature sides with Scharff on that. Our “Making Conservation a California Way of Life” water regulation requires all of us to use water more efficiently in coming years, and notably its embedded guidelines account separately for indoor and outdoor water use. Water districts with more landscaping can use more water.

So let’s agree that households with more property can reasonably use more water. But what should they pay for it?

Should owners of big properties get a larger allocation of low-cost water?

Most water rates are tiered. The first 6 CCF of water might cost $3, then the next 10 CCF might cost $5, and so forth. (1) A certain amount of water, sized to meet basic needs, is low cost, but the rate goes up as customers use more. This inclining block structure rate design discourages wasteful use.

As we discussed above, a household with a lot of landscaping has to use more water — up to a point — than other households. So there is an argument that they should have more low cost water to meet their basic needs. The Los Angeles Department of Water and Power (LADWP) does just that, allocating more water to larger lots. The table below shows LADWP allocations in winter. The lowest (basic needs) tier doesn’t change (8 CCF/month), but allocations are more generous beyond that. A small property would pay Tier 3 rates after using 22 CCF in two months, while a larger property would be able to use 36 CCF before getting to Tier 3.

I have argued for a structure like this in the past, for example here. But I have since changed my mind. I am not wild about bigger low-cost water allocations for larger lots because I don’t see why the public should subsidize private landscaping. Is it a public good? To some extent, yes. A nice private landscape provides some habitat that neighbors can benefit from (e.g., more birds). But it’s not substantial. (2) Furthermore, property is expensive, so a homeowner with nice landscaping is unlikely to struggle to pay a water bill.

So it seems to me that it’s okay for bigger properties to use more water (within reason) as long as they pay full price. But do they?

Districts that use more water have lower rates (all else being equal)

Many residents of San Carlos are up in arms about a water hike proposed by their provider, California Water Service. Over the past years, their rates have gone up considerably for all but the lowest tier, raising bills for households with even minimal irrigation needs. A fourth tier added to their rates last year meant that any use beyond 13 CCF/month is priced at a high $27.65/CCF, more than seven times the base rate of $3.71. The new proposal goes well beyond that, with a top rate of $50.58/CCF (!) You can read some of the residents’ complaints at the CPUC proceeding on this rate change. (Click on the “Public Comments” tab.)

“Our water bill is completely out of control. We are not increasing our usage and our rates are soaring. This is unacceptable.”

SAN CARLOS RESIDENT DANIELLE COLE

What is going on? You could say, well, water infrastructure is expensive, construction costs are high, etc. But rates for nearby, much wealthier areas are substantially lower. Consider California Water’s Bayshore district (San Carlos, San Mateo, and South San Francisco) and its Bear Gulch district (Atherton, Portola Valley, Woodside, and nearby). The water sources are similar (mostly SFPUC), construction costs are similar, and management is the same, so they operate with similar standards. But the rate structures are quite different. Bayshore’s rates are higher across the board. Residents in San Carlos pay $27.65 for their 14th CCF while those in Atherton pay less than half that at $10.10.

Is that fair? It is true that Bear Gulch has a higher fixed charge, making Bayshore cheaper for landscape-free homes. But the Bayshore bills quickly catch up as shown in the graph below. A bill for 24 CCF is about twice as much in the Bayshore district ($475) as it is in Bear Gulch ($257). The wealthier people pay less for water.

What gives? Why do the wealthy areas get lower rates and smaller bills?

Well, in fact, they don’t get smaller bills, but only because they use much more water (on average). According to Kevin McCusker, Director of Government Policy and Community Affairs for California Water, the median bill in Bayshore last year was $49.80 while that in Bear Gulch was $73.76, even with the lower rates. Wealthy residents’ copious use of water is a big reason why their rates are lower. Since more water is being sold in Bear Gulch (per capita), the district doesn’t have to charge as much per CCF to bring in the revenue it needs, most of which is for fixed costs like treatment plants and pipes.

“Please explain why San Carlos will bear the brunt of these outrageous rate hikes, while our neighbors in Atherton will pay a fraction of what we will. Large families will get unfairly penalized with this structure along with those that have ADUs.”

SAN CARLOS RESIDENT Christine ROBERTS

I asked McCusker about this. One way to avoid the “more water use means lower rates” effect is to have a larger fixed charge, one that would cover the fixed costs. Then the rates are priced more accurately, reflecting just the marginal cost of the water. The problem with that, McCusker pointed out, is twofold.

One issue is that a very large fixed charge would lead to affordability problems for low-income households. Even a small amount of water would result in a high bill. Since water use correlates with wealth, putting some of the fixed costs into usage rates instead leads to more affordable bills.

The second problem is that a large fixed cost would discourage conservation because the rates would be so low. So the rate structure that California Water and most other water utilities use, where the fixed charge covers only a small portion of the fixed costs, is intentional. But it does have the effect that rates are higher for districts that use less water, with the effect being especially noticeable for the heavier water users in those districts. McCusker conceded this, adding “I should say that nothing is fixed. We are still looking into this, doing lots of modeling.”

Is our water affordable?

California Water has taken a number of steps to ensure that every household can afford water for basic indoor use for health and safety. McCusker says “We have artificially lowered the rates for the first tier to help with affordability. That tier by design is not enough to cover our costs, so the higher tiers help to make up for it. In addition, we have an income-qualified program available to help with the fixed charge if people need that.” You can see in the chart above that Bayshore is indeed lower cost than Bear Gulch for most households with no outdoor irrigation, as indicated by the 4 and 7 CCF bills.

In contrast, let’s take a look at how the Purissima Hills Water District, which covers the wealthy Los Altos Hills area, designs its rates. It is not operated by California Water but it also uses water from SFPUC. Compare its rate structure with that of Bayshore and Bear Gulch.

The lowest rate is much higher in Purissima Hills, and the allocations for the upper tiers are more generous. The effect is that the lower-use, typically lower-income households pay considerably more than in neighboring districts.

Is that fair? California law requires that water rates be based on cost of service. (3) But within that there is some judgment, and you can see the effect of different choices across these water districts.

Palo Alto’s pricing is also less progressive than you might expect. The city does have a very low fixed charge, but the price of its lowest cost tier is high and there are only two tiers.

As a result, Palo Alto’s bills are on the high side for smaller properties.

Moreover, since Palo Alto’s per-capita water use is much closer to that of the Bayshore district than it is to that of the Purissima Hills or Bear Gulch districts (Palo Alto lots are not especially big), its bills for high water users should be higher than those districts with their very large properties. In other words, high water users are outliers in Palo Alto but they are not billed as such. They are getting a break and all but the smallest water users are getting the squeeze. A higher-priced tier for larger properties would rectify this.

Going forward

Water rate design matters. In my opinion, Purissima Hills needs to make some adjustments so that low use is more affordable, while Palo Alto needs to make some adjustments so that high use is more expensive.

But a larger problem is that water rates overall seem destined to outpace inflation for the foreseeable future. The more we conserve the higher the rates climb because the fixed costs don’t decrease. We see this today in Palo Alto, where residents have conserved aggressively. The “Making Conservation a California Way of Life” regulation will ensure that this effect spreads to all water districts, at least those that do not offset water’s fixed costs via property taxes.

Furthermore, construction costs have gotten very high and new infrastructure needs such as PFAS treatment and drought resilience will further push up costs and bills. UAC Commissioner Robert Phillips is very concerned about this. “I have a hard time thinking the best we can do is ever-increasing rates, more than inflation, with no change in quality.”

“I have a hard time thinking the best we can do is ever-increasing rates, more than inflation, with no change in quality.”

Palo Alto Utilities Advisory Commissioner Bob Phillips

This is happening for more than just water. Electric rates are rising due to wildfire hardening. Gas rates will go up as sales drop but fixed costs remain. The increasing risks of drought and wildfire, along with environmental pollution ranging from PFAS and microplastics to global warming, are without a doubt affecting our cost of living. I don’t see a way out of it.

I welcome your thoughts and questions about this.

Notes and References

0. This post is the third in a three-part series on water to our homes. The first post, “Do we need to drink our pee to save the fish?“, is about the degree to which there are environmental tradeoffs between our domestic water supply and what we reserve for wildlife. The second post, “What is our best option for water in dry years?“, is about the difficulty of planning for and paying for water in dry years.

1. A CCF is 100 cubic feet, which is the same as 748 gallons. For context, a person’s indoor use is around 2 CCF per month. The state’s guidelines for utilities are currently 1.9 CCF/month (47 gallons per day) per person for indoor use, going down to 1.7 (42 gallons per day) in 2030. You might map that 42-gallon daily use as follows:

• 8 low-flow flushes @ 1.6 gallons = 13 gallons
• 1 8-minute shower @ 1.8 gpm = 12 gallons
• Cooking and house cleaning: 5 gallons
• ½ high-efficiency dishwasher load: 2 gallons
• ¼ high-efficiency washer load: 4 gallons
• Extra water: 4 gallons

Outdoor use is harder to estimate, as landscaping needs depend on the type of plant, exposure to sun and wind, the quality of soil and mulch, efficiency of the irrigation, ambient temperature and humidity, and so on. A rough estimate might be that every 500 square feet of landscaping is worth 1-2 people in summer. Grass will use more and low-water plants will use less. Inline drip irrigation will waste less water than spray, while smart controllers will water only when needed.

So a 4-person household living in an apartment might use 7 CCF per month. A 4-person household living in a 1500 sf house on a 6000 sf lot with 1500 sf of landscaping might use 15 CCF in summer (7 for indoor and 9 for outdoor) and an average of 10 CCF year-round. A 5000 sf luxury home on a half-acre (22,000 sf) with 8,000 sf of landscaping might use 55 CCF in summer. Irrigation is expensive!

2. It is possible that Los Angeles implemented this rate structure for safety reasons. Dry landscapes are tinder, so there may be a meaningful public benefit to watering private landscapes in fire-prone areas. But I don’t know if that is why they did it, and I’m not sure how carefully it is enforced (e.g., verifying that the households are in fact using the water for irrigation).

3. The regulation that ensures this is Proposition 218, passed in 1996. It is a constitutional amendment that requires water rates be based on cost of service. Any financial assistance needs to come from non-rate revenue like property taxes.

Current Climate Data

Global impacts (Year End 2024), US impacts (Year End 2024), CO2 metric, NOAA climate dashboard

January 2025 was the hottest January on record and the third hottest month ever recorded. Scientists had anticipated a cooler January, so this may suggest an even hotter year than predicted. The graph below shows daily temperatures since 1991, with 2024 marked in orange and 2025 in red.

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