Across the state, water utility prices are escalating faster than other “big ticket” items such as college tuition or medical costs, according to David Mitchell, an economist specializing in water.
“Cost containment is going to become an important issue for the sector in the coming years” as climate change worsens drought and water scarcity, he said.
The price of water on the Nasdaq Veles California Water Index, which is used primarily for agriculture, hit $1,028.86 for an acre-foot on Oct. 20 — a roughly 40% increase since the start of the year. An acre-foot of water, or approximately 326,000 gallons, is enough to supply three Southern California households for a year.
Mitchell said there are short- and long-term factors contributing to rising water costs.
Long-term factors include the replacement of aging infrastructure, new treatment standards, and investments in insurance, projects and storage as hedges against drought.
In the short term, however, drought restrictions play a significant role. When water use drops, urban water utilities — which mostly have fixed costs — earn less revenue. They adjust their rates to recover that revenue, either during or after the drought.
“So it’s not right now a pretty picture,” Mitchell said.
David Mitchell’s practice areas include benefit-cost analysis, regional economic impact assessment, utility rate setting and financial planning, and natural resource valuation. Mr. Mitchell has in-depth knowledge of the water supply, water quality and environmental management challenges confronting natural resource management agencies.