The Tucson City Council will consider taking a step Tuesday, Oct. 18, toward charging businesses higher rates as their water use goes up, as is already done for homeowners.
The council will consider a request from two of its members to start a process to establish an increasing block rate structure for commercial users, which could be contentious. Under that structure, users pay more for water they consume, as their use rises.
This change is being promoted in the name of equity, based on the belief that all users deserve similar or at least comparable rate structures. Critics say it would be unfair to put businesses in the same rate class as homeowners, since a large range of businesses exist, from mom and pop stores to hospitals, golf courses and industries.
This system has been in place for homeowners in the Tucson Water service area since 1976. It came part of a broader water rate increase, aimed at promoting conservation, among other things.
Businesses, apartment building owners and industries continue to pay a rate that doesn't rise with water use. The only exception is in the summer when they pay a surcharge for use beyond a certain level.
Even so, the rates approved in 1976, including the increasing block rate structure for homeowners, were steep enough to trigger a recall election that threw out the council majority that approved them. But the block rate system has since been seen by virtually all observers as a key factor in promoting water savings, which give Tucson a national reputation as a conservation-conscious city.
Council members Kevin Dahl and Paul Cunningham, along with a majority of the city's Citizens Water Advisory Committee, want Tucson Water staff to study whether it's feasible to put businesses in the same system.
"Because residents are paying those conservation rates and commercial is not, that’s just not fair," said Roxanna Valenzuela, a water advisory committee member who voted with the 6-3 committee majority on Sept. 5 to support consideration of such a system for businesses. "The burden falls on all the residents. A lot of their money already goes to the utility costs. Under the block system, a lot of times now residents will pay more for water than a business.
"I understand that some of those commercial properties are schools and other government facilities. But we’re all going to be impacted, we are already impacted by the water drought in the Southwest," Valenzuela said.
There’s a good chance Arizona will lose most if not all of its Central Arizona Project water allocation in the next few years due to ongoing drought and climate change, Dahl said. The city needs all water customers to step up, not just homeowners, in conserving water, he said.
With sobering predictions of a recession looming for the short term, Tucson also needs to look at every single option to insure fiscal stability remains within city operations, Dahl and Cunningham said.
"There’s going to be less water available to Tucson. Therefore the cost of water is going to go up. We have to pay for that. We need to get started early," Dahl said.
If the city doesn't don’t look at commercial rates, how can it maintain its current service levels, Cunningham asked.
"How are we going to be able to buy water if prices change? How are we going to be able to keep up with cost of infrastructure that we maintain?" Cunningham said. "The main thing we need to avoid is sticker shock. You can’t have a steep increase all at once."
But seeing what the profile of all commercial customers looks like, "if you are trying to compare a hospital with a small independent restaurant or day care, it doesn't make sense to have the same block rates for them as for homeowners," said water advisory committee member Val Little, who voted against recommending a block rate structure for businesses.
"Hospitals would be paying an astronomical amount of money because they are huge. This could end up penalizing businesses just because they are large," Little said.
Advisory committee Chairman Rory Juneman votes only in case of ties, so took no position on the commercial block rate recommendation.
But he said it needs the same scrutiny as all new conservation ideas now under study. Those include proposals to require new subdivisions to install "green infrastructure" to promote rainwater harvesting and a "net zero" requirement that new developments offset expected water use by reducing someone else's use.
"They need to be thoroughly vetted, really investigated and evaluated," he said. "I think we need more information. Then, hopefully, mayor and council can make an informed decision on it. Both of those populations are very different. That's the reason now I think there is a difference in rates."
Tuesday's discussion will take place at the same time the council considers a general water rate increase of 5.5% a year for the next four fiscal years for all classes of customers. The increase won't be voted on Tuesday. The council is being asked by Tucson Water to set a public hearing for Dec. 20 on the increases.
As the system now stands, homeowners pay $2.07 for the first 700 cubic feet of water they use each month. One hundred cubic feet is 748 gallons. The rate steps up gradually as use increases. It tops out at $12.93 per 100 cubic feet for someone using more than 3,500 cubic feet. The same structure applies to owners of duplexes and triplexes.
All other classes of customers pay a flat rate. Businesses pay $3.36 per 100 cubic feet, owners of multi-family structures pay $3.52, mobile home park owners pay $2.56, industrial users pay $3.38 and construction users pay $3.70.
About 46% of businesses pay a surcharge of $1.08 per 100 cubic feet, when their summertime use exceeds average winter use at all. They pay another 29 cents per 100 cubic feet for using at least 145% of winter use.
In their Sept. 22 memo advocating block rates for businesses, Dahl and Cunningham noted the commercial rate is lower than all but the lowest residential rate.
"There is no 'conservation signal' through higher pricing built into commercial rates," they wrote.
They also noted that commercial users account for only 6.2% of all Tucson Water customers but use 22.8% of total utility water use. Residential customers make up 89.2% of all Tucson Water customers while using 53.8% of total utility water use, they noted.
Little said those comparisons aren't valid. The city's rate structure is based on costs to serve various customers, and you want various users to be paying as much revenue as it costs to serve each user class, she said.
The new rate structure the utility is proposing for homeowners, apartment building owners and businesses would raise revenues proportionally to the cost of serving each class, she said. Since the utility can't make a profit on its operations, "if you jack up commercial rates you have to lower rates elsewhere. That throws the whole thing out of balance."
In a written response to questions from the Star, Tucson Water took no position on Dahl and Cunningham's proposal. Determining if the rate structure is equitable is primarily a policy discussion relating to the city’s economic, environmental, and social goals, the utility said.
The utility did echo arguments that Little and others made questioning block rates for businesses. It said commercial customers incur about 22% of the utility's annual costs and "that tracks closely with' their share of water consumption.
Single-family homes' water uses are more consistent than those of commercial establishments, the utility added. That's why commercial rates include summer surcharges, Tucson Water said.
"This type of seasonal rate is commonly used for commercial customers where a conservation-oriented rate design is desired to limit discretionary water use during the peak season," which is typically outdoor irrigation, the utility said.
