PAYING YOUR DEBTS
If there is one thing that the recent machinations over the Greek debt crisis and its impact on the Euro situation have, highlighted it is that debt eventually needs to be re-paid. In the financial world, you may be able to get away with skipping a few payments, negotiating different terms, finding a new lender or using other means to stay afloat. In the end though, to survive one must budget to account for all your costs—including debt. In the natural world, there are fewer options to renegotiate your situation. Living beyond your means with respect to water stalls growth, increases costs, and increases the potential for natural disaster and collapse.
FIRST THE GOOD NEWS
On 30 July 2015, California released its water conservation report detailing over a 27 percent reduction in potable water deliveries for the state’s 405 reporting water suppliers, saving 59.4 billion gallons (182,151 acre-feet), as compared to the same time in 2013.1 This is a tremendous result, with 265 water suppliers, serving 27.2 million people, meeting or exceeding their conservation standard.2 In fact, almost 40 percent of all urban water suppliers reduced their water use by 30 percent or more, despite June 2015 being the warmest on record.
AND NOW FOR THE BAD NEWS
Notwithstanding the efforts achieved by Californian urban water suppliers and their customers, there is still a staggering volume of water that is missing from the California ecosystem. A new NASA study has concluded that as a result of a dramatic reduction in water-laden air currents moving across the state from the Pacific Ocean, California has accumulated a debt of about 20 inches of precipitation between
“Drought has happened here before. It will happen again, and some research groups have presented evidence it will happen more frequently as the planet warms. But, even if the climate doesn’t change, are our demands for fresh water sustainable?”
—Andrey K. Savtchenko, NASA/Goddard Space Flight Center
2012 and 2015—a volume equivalent to the average amount expected to fall in the state in a single year.4 These type of precipitation deficits are not unusual for California, which often experiences prolonged drought periods followed by a number of wet years. The NASA study identified that between 1986 and 1994, a 27.5 inch deficit of rain and snow occurred.6 The key difference in today’s climate, however, is the impact of increased population and industrial, commercial and agricultural water use that was not present during the previous drought period.
While an accumulated deficit of 20 inches may not sound like a lot of water, when taken over the entire state of California, it is an astronomical sum of 57 trillion gallons of water, or 175 million acre-feet—roughly 1,000 times the volume of water saved by Californians over the period June 2013 to June 2015. And while certainly much of the “missing” water would go to other uses not related to per capita water use, such as the replenishing environmental flows and being subject to runoff, that scale of deficit is substantial. This deficit shows up in NASA’s Gravity Recovery and Climate Experiment (GRACE) satellite data as wetness profiles below the 10th percentile. Even the Governor’s Executive Order exhortation to reduce demand by 25 percent (1.2 million acre-feet) by February 20167 represents only 0.7 percent of the accumulated precipitation deficit.
IMPENDING ACCUMULATED REVENUE DEFICIT
We as water users must adapt to the new reality of water supply—particularly in areas prone to repeated droughts. The changes California customers have recently made to their behavior must become permanent if we are to begin to live within our new water reality. And that means much less direct revenue for water suppliers. With the fact that “almost 40 percent of all urban water suppliers reduced their water use by 30 percent or more,” the impending revenue deficit will certainly have an impact on the state and its ability to fund its water needs in the future. If we consider a simple hypothetical utility where water revenues are derived 25 percent from fixed charges and 75 percent from volumetric charges, a 30 percent reduction in water use would result in a 22.5 percent reduction in revenue. In actuality, the impact would likely be worse as much of the conservation will occur at the higher cost, discretionary use, tiers in an inverted block rate structure. A model based on this type of tiered rate structure results in a 36.7 percent reduction in revenue from a 30 percent reduction in consumption.
This revenue destruction will not be as immediately noticeable for customers or regulators and will likely not generate state-driven press releases. It is likely that California utilities are seeing the impacts today, but until the harsh light of Comprehensive Annual Financial Reports illuminates the performance of the municipality’s “business-like activities”, the real impact will not be known until well into 2016.
BEATING THE BANK
Clearly we need to continue to conserve water. The water reality in many parts of the world is such that increasing water volatility requires that water customers minimize the use of potable water. For utilities, however, faced with the reality of operating a business on declining revenue, and facing real pressures to fund both conservation programs and infrastructure repairs and replacement, the pressure will be on to raise rates. Better yet, the pressure will be on for us to find the missing revenue in our existing systems. FATHOM provides the opportunity for utilities to ensure they are billing and collecting the revenue from every drop of water distributed. Through maximizing revenue collection, utilities will be able to adapt to the new water paradigm quickly and efficiently, and continue to support the necessary conservation initiatives to achieve water sustainability without breaking the bank.
3Figure from: http://www.waterboards.ca.gov/water_issues/programs/conservation_portal/conservation_reporting.shtml (Download PDF to View)
4NASA/Goddard Space Flight Center. “California ‘rain debt’ equal to average full year of precipitation.” ScienceDaily. ScienceDaily,
30 July 2015.
5NASA’s Scientific Visualization Studio, http://svs.gsfc.nasa.gov/cgi-bin/details.cgi?aid=4326 (Download PDF to View)
6Savtchenko, A. K., G. Huffman, and B. Vollmer (2015), Assessment of Precipitation Anomalies in California Using TRMM and
MERRA Data, J. Geophys. Res. Atmos., 120, doi:10.1002/2015JD023573.
7http://www.waterboards.ca.gov/waterrights/water_issues/programs/drought/docs/040115_executive_order.pdf (Download PDF to View)
8http://drought.unl.edu/nasa_grace/GRACE_GWS.png (accessed 4 August 2015)