DROUGHT: WATER UTILITIES CONFRONT CONFLICTING POLICIES

"If you don't know where you are going any road can take you there."

---- Lewis Carroll, Alice in Wonderland

The photo depicts the arid wonderland of the South Dakota Badlands. They are a drought stricken moonscape that stands in dramatic contrast to the verdant Black Hills 50 miles to the west.

The Badlands once were full of rich vegetation and animal life also. Fossils evidence now extinct critters such as sabre tooth tigers, sheep-like oredonts, rhinos and miniature horse. At another time, the landscape was under water.

Some have asserted that parts of California naturally are arid and subject to drought--where farming must depend upon irrigation and cities on water sources located elsewhere. Whether current drought conditions in California and other states may be due to climate changes or temporary weather conditions, water utilities must deal with drought in some rational manner. Unfortunately, they can confront conflicting policies that make rational solutions difficult. Some of these policy conflicts include the following:

* Legal Duty To Serve vs. Service Restrictions. Generally, water utilities have a monopoly in their given service areas. This is because of the costly infrastructure required to provide water service; rarely are there competing water utilities within the same service are. For their monopoly status, water utilities incur certain obligations: whether by statute or by court decision, water utilities generally are required to satisfy the water demands of customers within their service areas. This obligation likely can be expected to apply to both investor-owned utilities and to municipal-owned utilities.

However, there can be a conflicting policy when, for example, state or local governments seek to impose restrictions on the amount of water utilities may deliver to their customers. The restrictive regulation limiting water delivery can clash with the legal obligation to serve customer water requirements.

* Higher Rates To Force Conservation vs. Cost Of Service Ratemaking. Some have urged dramatic increases in rates, such as inclining rate blocks as volume of water delivered increases, as a way of forcing reductions in water usage. However, while such measures may appear to have merit from the standpoint of objective, they can clash with applicable legal requirements that to be reasonable, rates must be based upon costs of service.

* Higher Rates To Force Conservation vs. Affordability. Some have argued that higher rates will enable "market forces" to naturally enable the desired reductions in water usage, and thus conservation. However, such a policy may well conflict with the notion of affordability of water. While "affordability" is not a precise concept, one can assume that higher water rates will take a larger chunk out of low income earner budgets. Moreover, affluent customers may feel no pain from higher rates and continue to use their typical amounts of water, thereby reducing the effectiveness of the conservation effort.

* Higher Rates To Force Conservation vs. Reductions In Revenue. Assuming that increased rates are successful in creating reductions in usage, the end result of conservation may also be a reduction of needed revenue to the utility as eell as excess treatment and delivery capacity that still must be funded--pushing rates still higher or forcing excess capacity to be abandoned as no longer used and us full.

* Contracts vs. Abrogation Of Contracts. A water utility serves customers pursuant to contract, which includes the tariffs of a regulated utility and ordinances of a municipal utility. However, if a governmental authority imposes service restrictions, does such an action also abrogate the contracts between utility and its customers?

For water utilities in limited source water environments, determining the best road to travel can be perplexing and full of potholes of policy conflicts. Indeed, the best destination may not be clear. It may seem that the only road available could be a circle.