Drought penalties: here to stay in areas dealing with drought

Policy-makers, legislators, and water utilities increasingly create “drought” penalties and surcharges to incentivize conservation by water users and discourage waste. In the context of dealing with a historic drought, the policy makes sense. The operation of these penalties and surcharges do not take into account how water is used (and paid for) in the multifamily housing sector, however.

A typical drought surcharge penalty is set up to require a percentage deduction in water use for the customer of the water utility. This customer is most often the property and many of these properties use billing programs to allocate utility expenses to residents. The penalty is set up so that if the customer doesn’t reduce usage by the mandated percentage during a specified time period, the customer will receive a penalty amount on the next bill.

These sorts of drought surcharges may be allocated to residents in some jurisdictions, but not all. The residents that receive submetered or allocated (RUBS) bills may not realize that their usage habits are causing the property to incur the penalty and thus aren’t incentivized as the penalty was intended. The California Legislature is wrestling with this issue currently (for submetered properties only) and seem inclined to allow owners to pass through a portion of the penalty to residents.

Until that law is passed and other jurisdictions specify how these penalties can be allocated to residents, NWP’s regulatory department is working with customers to either remove the penalty or to recover the penalty amounts from residents. The most common way to remove the penalty is to show historical consumption deductions that result from the operation of a billing program to residents for water and sewer. We have been successful in arguing that the property has already achieved (prior to the penalty being in effect) the percentage required. Many jurisdictions and water utilities have agreed to remove the penalty once we demonstrate that the owner acted in good faith (and not to avoid a penalty) previously.

Should your property’s utility bill contain a new line item for drought surcharges/penalties, the regulatory team performs a review to determine the ability to pass these amounts through. If we cannot, we will work with the appropriate entities to remove the penalty, if possible.

As always, please contact us with questions or concerns.