Many people in our community are wondering why water rate increases don’t match federal inflation rates. Unfortunately, they are left to consider answers with limited information.
Here are three impacts not calculated into or related to inflationary factors as calculated by the federal government.
1. The water district collected 30 percent less revenue due to reduced water sales – a direct result of the longstanding drought.
2. Cash reserves have been drawn down to meet cost requirements and those cash reserves need to be replenished.
3. Increased cost of imported water as a result of the groundwater adjudication.
The cost of water is going up faster than inflation because there is less water available and more need for water than ever as populations in California grow. While the District has not issued a new service connection since May 2015, surrounding communities as well as agricultural demand has grown and placed additional stress on the groundwater basin.
Consider that over the last five years of the drought, communities were asked to reduce their water consumption, in part, to comply with the governor’s executive order. As a result, many water providers incentivized water consumers to conserve water by offering such things as rebates on washing machines, low flow toilet replacements, and free water audits to control consumption.
Water districts like Nipomo Community Services District also constructed water rates that put pressure on higher water users. As a result of water conservation by communities, revenues used to operate and maintain water facilities dropped off – 30 percent for Nipomo CSD – and cash reserves were drawn on to fill the gap.
The first inclination for private sector industry when revenues drop is to reduce costs and output. This is where water systems and private industry diverge in their operating models. A majority of the cost of operating and maintaining a water system is fixed. Nipomo CSD only collects revenues to cover the cost of service, so there is no profit built into the rate and no shareholders to pay dividends to.
Consequently, there is no private capital to contribute when revenues drop. Sections of the system cannot be idle simply because there is less demand for the product, no matter what the reason. Pumps must be maintained whether they run 40 hours or 10 hours. Pipes have to be repaired, a fixed number of water quality samples taken, required reports filed with regulatory agencies, bills generated and processed no matter how little water the community ultimately uses.
For the Nipomo Mesa, we also have the Santa Maria Water Conservation District groundwater basin adjudication to operate under. The Nipomo CSD is required to import water from the City of Santa Maria as part of the court judgement. Imported water is three times more expensive than pumping native groundwater.
But with the basin’s water level at severe criterion this less expensive source of water has been limited. There is a 50 percent groundwater pumping reduction requirement currently in place for the three water providers on the mesa: Golden State Water Company, Woodlands Mutual Water Company and Nipomo CSD. The imported water from Santa Maria is the only thing that assures the community they will have water if the basin is contaminated with sea water. Thirty percent of the water consumed in the District was imported onto the Mesa last year and that percentage is going to rise as required by the courts to over 70 percent by 2025.
There is a great deal of pressure on finding and developing new sources of water. The low hanging fruit has been picked and communities across the state looking to secure a reliable water supply are experiencing sticker shock. The Nipomo Community Services District pays $1,800 per acre-foot of water to the City of Santa Maria – a price many communities would be happy to pay for the assurance of a reliable water supply.
The District is obligated to purchase 1,667 acft per year by 2025. As we migrate incrementally closer to 2025 and replace groundwater supplies with import water, costs will continue to rise and most likely at a rate that will outpace federal inflation calculations.
The District must strive to meet the service expectations of all residents 24 hours a day, seven days a week. It is a challenge every team member here at the District understands and works to achieve.
Until next time…