8009 (2) - Laserfiche WebLink

Home Browse Search

~' Importance for drought- contingent tiered pricing • District costs increase with pumping of ground water. ^ District pumping capacity is limited and thus the value of the water increases as the pumping capacity is reached in times of drought. Arvin Edison Water Storage District, California The Arvin Edison Water Storage District (District), in California's southern San Joaquin Valley coordinates both surface and ground water supplies. Because of the regional climate and favorable soils, farmers in the District grow a variety of crops. They also use a wide variety of irrigation technologies. With these fea- tures, the District is ideal for analysis of water pricing. While there is high variabil- ity, the area is relatively small, so the growers participate in many of the same markets and institutions. Effect of Pricing Water pricing is an excellent tool for encouraging water conservation because it allows agricultural producers the most flexible responses. Flexibility is important because growers operate under different agronomic and physical conditions. For example, depending on the crop or the soil type for a given field, the profit-maximiz- ing response for one grower to a change in water policy may be to adopt a modern irrigation technology. The profit-maximiz- ing response for a different grower may be to make improvements in the scheduling of irrigation or the length of furrows. A study of water pricing in the District showed that, in general, where fields are assessed a higher price for water, they are more likely to have an efficient irrigation technology. However, water price is not the only important determinant of changing technology. For example, drip irrigation technologies are more likely to be adopted on a field that has a relatively steep slope as compared to a field that is flat, even when the water price and the crop are the same for both fields. Effect of Fixed and Volumetric Components of Rate Structure It has historically been common for growers to contract with water districts for a fixed quantity of water per acre of land for agricultural production. However, due to changing weather conditions it is not always necessary to use the contracted 60 quantity of water to produce the intended crop. Yet the water rate structure is often set so that the grower pays for the full amount under his or her water contract regardless of whether he or she uses that amount. This encourages inefficient use of water because there is little incentive to us less than the contracted amount. If growers have water left over at the end of the year they typically use it on low-value cover crops or for preirrigation. In the spring of 1995, the District changec its rate structure from fixed rates per acre to volumetric or "use-based" rates. These changes have removed the perception that the price of water is independent of the amount used and encourage more efficien~ water use. Based on cropping data for 1995, the change in rate structure appears to have achieved its goal: an increase in the productivity (or profitability) of water per acre-foot applied. Additionally, there was substantial reduction in the production of low-value cover crops and an increase in the production of medium- to high-value truck crops. However, one year's data is insufficient to determine whether the new rate structure has led to permanent changes in water use and cropping patterns. Tiered Pricing Tiered pricing has been used extensively it the electric utility industry to induce energy conservation. In a tiered pricing structure, the volumetric charge increases as demand increases. While this structure can be used under all water flow condi- tions, the Arvin Edison demonstration wa designed as adrought-contingent tiered pricing policy to increase water use efficienc during periods of low water flow. Implementation of adrought-contingent tiered pricing structure should produce both short- and long-run improvements it