Tuesday, November 16, 2010

Sticker shock for water

What happens when you blend a bad economy, labor costs, an effective outreach campaign and a drought?

Of course, higher water rates.

What happens over the next year or two will be worth a look for any PR professional and, for some, worth a deeper venture to offer your expertise. A bold prediction but this could be the next big "consumer experiment." The laboratory we like to call public sentiment could see some new tests, twists and turns from water rate increases.

Until now, water utilities have escaped serious consumer backlash from periodic rate increases. As the cheapest bill on one's desk, water doesn't generate the level of anger or frustration that, say, our phone bills do or another increase in health insurance. For sure, there have been sporadic consumer protests, but they remain scattered and short-lived.

Widespread consumer revolt is also muted because water is "local" and mostly unregulated. Gas and electric utilities have 100 times or greater number of customers, are more regulated and have major consumer watchdog groups going to battle over every rate increase request. Although private water companies are regulated and have combined larger customer bases, lower water bills generally keep consumers quiet.

Soon, I believe, the angry consumer will focus their frustration on the water bill.

Why? Water (and corresponding sewer) rate hikes have taken hold, a lawsuit already has been filed, a massive water bond was delayed but will likely come back, the economy is impacting water use, and perhaps some really big whammies are just around the corner.

It's easy to see that what we pay for water will soon be at the level of our other utility (commodity) bills. In some places, it's already at that level and if you own a large amount of land, the water bill could exceed the other utility costs.

It is a public relations conundrum.

On the one hand, some really effective public outreach campaigns in CA have successfully changed water behaviors. Although precise studies are lacking for the region, individual cities like Los Angeles and Long Beach are reporting per-capita reductions. A few dry years, nearly a decade of persistent water conservation messaging, the imposition of mandatory water restrictions (only water your lawn 3X a week), greater acceptance of "green" calls to action and some unique rebates have combined in such a way that consumers have permanently changed their water habits.

Now add a bad economy into the mix. Consider the number of homes lost in foreclosure, sitting idle without any water use. Consider former homeowners now renting homes - and choosing to save money by letting their lawns die ("Why should I care? It's either I'm paying the water bill or the rent - can't afford both" - actual quote from a renter I know).

When consumers use less water, that means a drop in revenue to water utilities that are stuck with huge fixed costs - like labor - and rising costs - like pipeline maintenance, power and water treatment supplies. Don't forget pension commitments, either.

The Metropolitan Water District of Southern California (my former employer - and yes, full disclosure, I get a meager pension and health benefits through an option to "retire") already has raised rates nearly 50% and has no plans to stop. A preview of "how bad" water rates could be for nearly 20 million people may occur next week (Nov. 23) when a special board committee looks at the future. Just how do you handle a $120-150 million revenue shortfall?

What happens at MWD spreads out at practically every local water agency between Ventura and San Diego. The rate structure MWD adopts now will be felt in a year or two at the local level. MWD supplies about half the water needs for Southern California.

As evidenced this week in Oceanside, changing political landscapes will also enter into the blender of water rate discussions.

Perhaps water will need to take pages from the playbooks of other utilities. Cost cutting is a major focus of energy as are the advantages of a Smart Grid and putting the responsibility of energy management in the hands of consumers. But will water agencies be able to cut costs fast enough to avoid the major rate hike?

One more item to add into the discussion - the long-standing perception among individuals that water is different from other utilities. One needs water to live.

Stay tuned. Stock the fridge and find a comfy chair. This show will be a good one. Watch this blog for more on this topic.

No comments: