At a meeting today, a district board member asked how to answer the question he hears all the time: If I’m conserving water, why are my rates going up? How come I’m paying more for less water?
Oddly, no one on the panel told him the real answer. They mentioned deferred maintenance and the costs of obtaining additional supply, but no one explained it quite right. Mr. Board Member, next time someone in the public asks you why they’re going to be paying more for less water, here’s the answer you need.
You have always been selling two different things. You sell water*, and you sell reliability. By unfortunate chance, the costs of both of those are going up right now. You may be developing additional sources of water that cost more. But a lot of districts are going to need money to keep their reliability perfect, because their systems are nearing the end of their designed life and it will cost a lot to replace them.
Customers are not going to like hearing that they have to pay more for reliability, (a little bit because it is invisible and people really do not understand invisible things) mostly because districts have done such a good job buffering their customers from water delivery interruptions that it has never occurred to most Californian urban customers that reliability could be anything other than perfect. They think that having the water on during the night, or all the days of the week, is just how it is. They’ve never approached the tap and wondered whether water will come out this time. Deferred maintenance is coming due and many districts are facing the failure of systems installed in the fifties or before. Reliability must be paid for anew, and that’s why districts will need to charge more even as they’re asking people to use less water.
So that’s what you should tell the public, Mr. District Board Member. They won’t like it. Fortunately, this is a self-correcting feedback loop. If they don’t let you raise water rates, the district won’t be able to provide perfect water reliability forever. (It will probably cannibalize itself first, making it even harder to restore completely reliable deliveries in the long run, but that’s the cost of short-sightedness.) When water deliveries aren’t reliable, people will notice that immediately and realize they want it. Then you’ll be able to explain about the rates again.
[In the alternate, you could try to explain to them how expensive it would be if they were using as much water as they always have, and paying for the costs of developing new sources and the capital costs of replacing your system at the same time. With water conservation, at least you have a chance of deferring the costs of developing new sources.]
*Not precisely. But close enough for this conversation.
On the public record 
Why make it so complicated? I’d answer that there are costs related the actual water and costs related to the infrastructure. Reduced water use doesn’t mean that the infrastructure costs less. People understand words like infrastructure more than they understand availability and reliability.
On the other hand, there’s another story here that I am sure you already know: Rate increases have to go through the CPUC. Rate increases targeted at conservation are generally supposed to be revenue neutral. That’s revenue neutral for the water company, not the consumer. We have this policy because it is in the public interest to have water companies stay in business, particularly when they are supplying large population centers. My water company stayed revenue neutral in a recent conservation-driven rate change in part by raising the fixed costs that are charged per meter, regardless of usage. So far as I could tell, our fixed cost change was driven solely by the principle of revenue neutrality. This wasn’t a change driven by infrastructure needs; there’s other assessments for those needs that are approved separately by the CPUC.
So, a consumer could still see an increase in rates if their water use reduction efforts don’t compensate for the fixed cost increases. We ought to take a lesson from this about effective conservation principles: You can’t make the fixed costs so high that water conservation becomes effectively irrelevant.