Why Budget-Based Rates?

The main objectives of a BBR structure are to:

  1. Accurately and consistently recover the costs of water service for the agency.
  2. Establish an efficiency ethic among customers for both wet and dry years.
  3. Be fair and equitable to customers.
  4. Achieve the goals above within the context of existing state legislation and constitutional
    requirements.

Reasons why an agency may consider implementing BBRs (See also Benefits of BBRs )

  • If an agency is not recovering the full cost of service, while experiencing water demand reductions, they may consider BBRs. The first objective of a BBR structure is to more accurately recover fixed costs while also seeking customer water use efficiency.Financial Information »
  • If an agency has limited water supplies, they may consider BBRs because more water is saved when customers have an efficiency target to aim for and efficiencies are maintained over time with a consistent economic message to customers (i.e., water bill).
    Relation to Drought Response/Water Shortage »
  • If an agency needs to meet local, regional, and/or state water efficiency regulations, they should consider BBRs because accepted efficiency standards can be embedded into the rate design.Setting a Water Budget »
  • If an agency has a wide range of customer characteristics (e.g., lot size, family size, weather differences across the service area, etc.) they should consider BBRs because the rates are “individualized” for each customer.Setting a Water Budget »
  • If customers question the fairness of the current rate structure, the agency should consider BBRs because each customer gets their own individualized allocation, based on their real needs (i.e., family size, irrigated area, local weather).Setting a Water Budget »
  • If an agency has concerns about the legality (i.e., Proposition 218) of their current rate structure, they should consider BBRs because a BBR structure offers a direct proportional allocation of water for each property as well as a clear link between the cost of water service and the price.Legal Considerations »
  • If an agency’s bond rating is under threat of being lowered (due to consistent revenue loss), they should consider BBRs. The first objective of a well-designed BBR structure is to consistently recover the cost of service, which has been proven to be true even as water use declines.Financial Information »
  • If capital projects have been delayed or cancelled, if staff have been laid-off due to lower revenues, or there have been other budget-related issues, the agency should consider BBRs. Under BBRs, all fixed costs, including long-term capital project costs, are recognized in the charges in a way to provide less financial risk for the agency and are impacted less by lower water sales.Financial Information »

Technically, any agency can implement this type of rate structure and many have done so. What is key is that agencies ask themselves the right questions, develop a clear understanding of whether the rates currently employed are working to meet primary agency and customer goals, and if the agency has the political will to take a new, more equitable, and more sophisticated rate structure to customers. This is discussed thoroughly in the following sections.