Socio-hydrological impacts of rate design on water affordability during drought

Unaffordable water threatens water access in the United States, particularly for low-income households. In water-scarce cities, water shortages during drought necessitate either expensive infrastructure development or costly emergency measures to meet demand, which can in turn increase water rates. Rate design plays a key role in determining whether these costs threaten water affordability for low-income households, but water utilities are often constrained by local and state policy in their ability to set progressive rates. Therefore, new approaches to assess the impact of rates on water affordability within the local legal and hydrological context are needed in drought-prone regions. To address this gap, we design a socio-hydrological modeling framework that fuses legal analysis, behavioral economics, and water resource systems modeling to assess the impacts of rate design on household water affordability. We demonstrate this framework in an illustrative application in Santa Cruz, California, where droughts threaten water supplies and California Proposition 218 deters public water utilities in setting progressive rate design. Our results demonstrate that legal constraints reduce affordability during droughts by limiting drought surcharge rate structures. This framework can help utilities design rates to improve water affordability in their socio-hydrological context and illuminate the impacts of state policy on affordability outcomes.


Introduction
Unaffordable water jeopardizes human health and well-being globally [1][2][3][4][5].In the United States, over 10% of households pay more than 4.5% of their income in water bills, exceeding the recommended EPA affordability ratio (AR) [6].In San Francisco, where both water and housing are expensive, water and sewage bills for low-income households cost up to 27% of households' disposable income [1].When water is too expensive, some households report using less water than is healthy or reducing expenditures on other essential items like groceries or health care [7][8][9].Water unaffordability disproportionately affects low-income and communities of color [10].
Water scarcity and hydrological variability can exacerbate water affordability challenges.When water is scarce, utilities must either increase water supply or curtail water consumption, which reduces revenue [11].In many regions, water utilities implement drought surcharges to account for lost revenue or increased supply costs [11].In regions like California where climate change is increasing hydrological variability and reducing water availability [12], expensive new infrastructure investments may be needed.Therefore, climate change impacts on water supply are expected to exacerbate affordability issues [2].
Rate design plays a key role in determining how utility costs impact water affordability for lowincome households [1], but local and state policy may limit utility options for rate design [10].Water rate design at the utility level aims to optimize a variety of objectives including utility revenue stability, cost recovery, conservation, and customer water affordability [13].For example, increasing block rates (IBRs), in which high-volume users pay more per unit of water than low-volume users, can both support conservation and make basic indoor domestic water use affordable [14].Local laws and institutions may restrict the rates and rate structures adopted by both public water suppliers and investor-owned water utilities [15].These restrictions may vary both geographically and by the type of supplier (e.g., public or investor-owned).
Hydrology, water rate design, law, and household water consumption thus interact to determine household affordability outcomes.Traditional water affordability analysis in rate design does not account for hydrological variability and the additional cost burden of drought surcharges [16].Previous work has synthesized water rate design's impact on service affordability [13,17], examined the legal framework that defines water pricing [18], and developed a process-based model for evaluating the impact of drought response decisions on household affordability [19].No work has examined affordability outcomes at the intersection of all three mechanisms: hydrological drought, economic rate design, and legal regulation.
Here we develop a socio-hydrological framework to assess the impacts of rate design on household water affordability in its legal, economic, and hydrological context.We quantify how affordability outcomes change under different drought scenarios.Using econometric modeling, we assess how household demand changes are sensitive to price, and how utility costs change with changing residential demand.Through legal analysis, we assess what rate design structures are legally feasible.We demonstrate this framework in an example application in Santa Cruz, CA where a California voter-passed initiative, Proposition 218 (Prop.218), limits the rate design practices of publicly owned water utilities and water supply is vulnerable to drought.Our work results in policy-scale and utility-scale analysis of rate design impacts on water affordability, indicating how affordability can improve with changes to rates or adaptation of policy constraints on rate design.We find that Prop.218 challenges water affordability during drought primarily through its restrictions on drought surcharge structure.

Case study
We demonstrate our framework in Santa Cruz, a city on the Central Coast of California.80% of Santa Cruz's water supply (see figure S1) comes from local surface water from the San Lorenzo River and the North Coast Creeks.Groundwater provides <5% of supply.Loch Lomond Reservoir provides 2800 MG of surface reservoir storage, the main source of water during droughts [20].As of 2020, average annual urban water demand was 2600 MG [21].The 2011-2017 California drought reduced local water availability in Santa Cruz by 27%, leading to a mandated city-wide curtailment of 25% [19,21].To address the reduced revenue, Santa Cruz administered a fixed drought surcharge while billing water using an IBR [22].
Relevant state legal context includes Prop.218 (also known as the 'Right to Vote on Taxes Act') and Assembly Bill 685 (AB 685), California's 'Human Right to Water.' Prop.218 built upon California Proposition 13, which was a California constitutional amendment passed in 1978 that limited the government's ability to raise property taxes at will [23].Local governments were accused of circumventing the law by overcharging for services such as water in order to raise funds that could then be used for other purposes [24].Prop.218 aimed to address this issue by limiting any charge or fee to the 'cost of the service' [23].AB 685 states California's policy to ensure affordable drinking water access for all.It was passed in 2012 in the face of California droughts and inadequate access to safe and affordable drinking water in many parts of the state, but has been criticized for failing to provide for legal enforcement [23,25].Prop.218 can deter water utilities from adopting tiered rate structures or water affordability programs that would ensure affordable water for low-income households, creating tension with AB 685 [10,26].

Framework overview
We develop a mixed-methods socio-hydrological framework that integrates legal, hydrologic, and economic analysis to assess the impact of rate designand regulation constraining rate design-on water affordability for low-income populations.Figure 1 illustrates the framework.First, we legally analyze what water billing rate structures are permitted under Prop.218.Second, we use hydrological drought scenarios to assess the impact of water supply shortages on water curtailment mandates.Curtailment is defined as temporary restrictions in residential water use in response to drought.Finally, we integrate the output of the legal and hydrological analyses in an economic model, which incorporates the interacting influence of rate structure, household income level, and curtailment policy on water demand and use.This allows us to assess the interacting impacts of law, rate design, and contrasting drought scenarios on utility revenue and household water bills across income classes.

Overview of water rate structures
A rate structure refers to a collection of procedural guidelines employed to calculate customer water bills [14].We distinguish between base rate structures which determine water bills in non-drought conditions, and drought surcharge structures, which define Overview of modeling framework for quantifying household water affordability integrating legal analysis, econometrics, and hydrological dynamics.Our model simulates utility water billing across different base rate structures and drought surcharge structures under contrasting drought scenarios to assess impacts to low-and high-income household water bills.Legal compliance of rate structures and drought surcharge structures are classified on a binary based on if they are commonly adopted under Prop.218 to assess implications of current law on water affordability.how additional charges are applied to customer water bills during periods of water shortage.We classify base rate and drought surcharge structures as (1) fixed, (2) single-tier, or (3) multi-tier.A fixed charge is a uniform cost applied monthly for all customers, regardless of use.A single-tier rate includes both a fixed charge and a constant volumetric rate for each unit of water consumed.In a multi-tier rate, the volumetric charge is variable, with the unit price either increasing (IBR) or decreasing (decreasing block rate; DBR) across consumption tiers or blocks.Drought surcharges are added to base rates and can also comprise a fixed charge or volumetric charges.Our analysis compares four base rate structures (IBR, DBR, single-tier rate, and fixed rate) and three surcharge structures (fixed surcharge, single-tier surcharge, and multi-tier surcharge).

Legal analysis of rate structure compliance
To assess the impact of Prop.218 on water rate structure, we assess which rate structures publicly owned utilities (POUs) are likely to adopt under the restrictions imposed by Prop.218.Because Prop.218 is subject to varying interpretations, we focus on how POUs react to the law based on their evaluation of the risks of being sued and of losing any lawsuit.To make this determination, we review legal cases and secondary literature and interview legal experts.Legal documents include Prop 218 itself, the California Proposition 218 Implementation Guide, and information on Prop.218 from the California Legislative Analyst's Office [23,27].We also review 15 court cases from 1996 to 2021.We filter court cases using the NexisUni platform with the phrase 'Prop.218' and keyword 'tiered rates.'We review national and local media around the 2015 decision of the California Court of Appeal in Capistrano Taxpayers Assn., Inc. vs. City of San Juan Capistrano due to the case's highly public nature and influence on legal analyses of water utility rate setting.We also review peerreviewed legal publications and policy white papers on Prop.218's water-rate implications.Additionally, we conduct semi-structured phone and Zoom interviews on Prop.218 water-rate setting impacts through drought with five subject matter experts in water law, water utility rate setting, and water economics identified from our document analysis (see SI for the interview guide and court cases).Finally, we synthesize our findings to evaluate seven common water-rate structures classified by whether POUs would likely adopt them given Prop.218.

Drought impacts on water supply and demand
Our framework captures drought impacts on water supply and demand.We evaluate three drought scenarios with different levels of severity that require different curtailment volumes to mitigate shortages.The City of Santa Cruz determines if and how much curtailment is needed annually in the spring by monitoring reservoir levels, forecasting water supply availability for the remainder of the year, and modeling water supply and demand scenarios to estimate whether shortages are likely.If so, they categorize the current hydrological conditions into one of six shortage levels, each of which has an associated curtailment range [21].For simplicity, we select three of these shortage levels that capture the range of possibilities to use as our drought scenarios.We use the curtailment associated with the drought scenario as the direct input to our model.This results in curtailment scenarios that reflect contrasting hydrological conditions; however, we do not model the hydrology of the watershed directly.The 'historical' drought scenario uses the 25% drought curtailment mandated by the State of California in 2014.The 'warning' and 'critical' drought scenarios use 10% and 50% curtailment respectively, based on Santa Cruz's Water Shortage Warning and Critical Water Shortage thresholds [21].We assume a uniform rate of curtailment across all water users.For example, a 5% curtailment would result in a 5% reduction of each respective household's pre-drought water demand, consistent with historical curtailment outcomes in California [28].

Econometric model for water demand with price and income elasticity
We estimate household water demand, accounting for differences driven by price, income, and rate structures.Our simple modeling approach allows us to illuminate the role of economic drivers for affordability.In reality, a range of broader social, housing, and climate factors also play important roles in determining water use [29].We apply an econometric approach and use literature-based elasticity assumptions following [19].
We estimate household water demand d t c for month t and income class c as: where d − t is monthly cyclostationary water use per capita [30], m c is average household size [31], and r t is the fraction of demand curtailed in month t.I Y adjusts water use based on the income elasticity of demand and is calculated as: where Y C is the household income of income class c, Y MHI is the median household income in Santa Cruz, and the income elasticity parameter ϵ Y is assumed to be 0.15 in our base case [32].We use 16 income classes, ranging from $10 000 to over $250 000 annually from the standard census income distribution [32,33].I A adjusts demand for each base rate structure A as: where ϵ A is an adjustment parameter that varies with rate structure.Our baseline cyclostationary monthly water demand per capita is driven by an IBR; therefore ϵ IBR is 0 for our IBR structure.We estimate demand changes resulting from an IBR to another rate structure based on literature values: ϵ IBR = 5% [34], ϵ single-tier = 17% [35,36] scenario, and ϵ fixed = 29% [37].We perform a sensitivity analysis on ϵ A values (see SI). Finally, I P adjusts water use based on price elasticity of demand: ) where P t is the average price of water in time t and ϵ P is the price elasticity.We use ϵ P = 0.35 in our base case [32] and perform sensitivity analysis using values from 0 to 0.85 [38].See SI for details.At the utility scale, we calculate total annual residential demand (D u ) as: where H c is the average number of households per income class.

Integrated rate design and comparison
Finally, we design contrasting rates and integrate the above model components to assess their impacts on utility revenue and household water bills.First, we design specific rates within each rate category to compare.For example, there are many different forms an IBR can take, and we need to select comparable alternatives.To do this, we use a screening model to determine specific rates that are financially feasible and revenue equivalent for the utility.This ensures that differences in household affordability are driven by rate structure and associated changes in household behavior, not differences in utility cost recovery.
Our screening model solves an optimization problem to design rates based on four criteria.First, we minimize the difference in utility revenue across rate structures.This is consistent with the revenue neutrality goal of standard rate setting processes for POUs and enables us to ensure that the impacts on water affordability can be attributed to the rate structure, not cost recovery [39].Second, we hold the proportion of revenue obtained from fixed versus volumetric costs constant [39].Third, we keep the fixed monthly charge constant across all rate structures.Lastly, we ensure that there is a distinct difference between the unit prices within each tier in the IBR and DBR.See SI for details.
Next, we fit proportional surcharges for all households based upon the revenue accrued by tier in our base rate structure.Using the total annual residential demand and a given rate structure, we calculate the revenue reduction by tier of the applied rate structure for the given amount of curtailment of water use.We then use this projected utility revenue reduction to determine the proportionate surcharge pricings to compensate for lost utility revenue, based upon our surcharge rate structure.We also test an alternative modeling assumption in which we hold utility revenue reduction constant: see SI for details.
Once we have developed comparable rates, we run a series of simulations across four base rate structures and three surcharge structures to assess household water bills and affordability outcomes across all three drought scenarios.

Results
First, we present the qualitative results from our legal analysis.Next, we present the quantitative findings from our modeling framework.

Qualitative legal analysis
Our legal analysis reveals how Prop.218 creates a disincentive for many POUs to implement certain tiered rate structures.We find that the fear of lawsuits for non-compliance with Prop.218's cost recovery requirement influences rate structure adoption practices.
Interviews with legal scholars and litigators indicate that increased litigation under Prop.218 challenges utilities in implementing rate-based water management strategies during drought.Cases reviewed focus on whether utilities can justify volumetric rate differences for different levels of consumption (as seen in an IBR) under Prop 218's cost recovery requirement.As drought surcharges have become more common, Prop.218 cases also have increased in frequency in California.Legal scholars raise concerns around the legality of tiered rates and the burden of Prop.218 litigation on POUs [40].
Our document analysis reveals varied legal rulings on IBRs and drought surcharges under Prop.218.All court cases reviewed involve tiered water rates under Prop.218.Of 15 cases reviewed in depth, 14 were filed due to rate increases since the inception of the 2011 California Drought.Many cases involve concerns about an IBR.One particularly significant case is the 2015 Capistrano appellate decision, which is frequently cited as a case that spurred subsequent suits over IBRs and Prop.218 [10].The suit was brought by the Capistrano Taxpayers Association against the City of San Capistrano, and the case ruled in favor of the plaintiffs, prohibiting water utilities from charging higher rates under an IBR for excessive use during the California drought [41].The ruling does not prohibit all IBR structures, only tiered systems that are not proportional to the actual costs of the service [18,42].Theoretically, an IBR can be legal if the rate structure could be tied to infrastructure demands or conservation programs [43].
A surcharge structure can be deemed compliant if the additional charge is proportional to the existing structure with cost-recovery justification.However, if consumers feel that they are being disproportionately charged, they have the right to sue under Our interview with a California water rate specialist reveals that lawsuits and legal fees have become a major consideration in rate structure development due to Prop.218 and the Capistrano decision.In addition to traditional goals like cost recovery and customer impacts, California POUs now consider Prop.218 constraints [44].Since not all residents are billed the same under an IBR, the risk of lawsuit and legal fees for water utilities can incentivize agencies to stick with fixed surcharge increases during drought periods rather than equitably implement income-based or tiered rating and surcharge structures.
Our legal analysis classifies common base rate structures and drought surcharge structures based on their likely legality in relation to Prop.218 (table 1).Among the base rate structures, the IBR has been the most heavily contested under Prop.218.There were no identified cases in which a fixed rate, single-tier volumetric rate, or DBR were contested.Fixed surcharges are the easiest and are most common for a utility to implement under Prop.218 [10,44].

Quantitative socio-hydrological modeling outcomes
After classifying rates based on legal compliance, we now present our quantitative modeling results.We first present our base case simulation, in which the utility uses an IBR and implements a fixed drought surcharge to address reduced revenue from moderate drought.Figure 2 illustrates how drought impacts utility and household water use, utility revenue, and household bills over time.At the utility scale, limited water supply due to drought results in curtailed demand (panel (a)) and therefore decreased revenue for the utility (panel (c)).This prompts the implementation of a drought surcharge to maintain revenue neutrality (panel (e)).At the household level, curtailment mandates have two effects on water bills.Decreased household water usage (panel (b)) results in lower volumetric costs and lower bills (panel (d)).However, the fixed drought surcharge structure increases bills equally for all households.For low-income households, the bill increase from the surcharge outweighs the bill decrease from lower water use.In contrast, for highincome households, the decrease in bills from water use surpasses the increase due to drought surcharge (panel (f)).
Figure 3 illustrates the role that tiered rates play in mediating drought impacts on water bills.At the utility scale, water use in the highest tiers is nearly eliminated by drought (panel (a)), resulting in a revenue reduction that is offset by the fixed drought surcharge (panel (c)).At the household scale, high-income households account for nearly all of the higher tier water usage.Pre-drought, high-income bills are more than double those of low-income bills on average (panel (b)).Therefore, the reduction in high-tier water use from high-income households accounts for a considerable portion of the required surcharge revenue, leading water bills to increase for low-income households and decrease for high-income households.On average during drought, the ratio of lowincome bills to high-income bills decreases by nearly 50% (panel (d)).
Next, we compare the impact of drought on water bills across different rate structures in figure 4. We find that differences across surcharge structures have a larger impact on low-income bills during drought than differences across base rate structures.Across base rate structures, water bills during drought are similar for both low-and high-income households (panels (a) and (c)).For low-income households, an IBR leads to modestly lower pre-drought bills than a DBR ($644 vs $695 per year respectively), but slightly higher bills during drought ($783 vs $769 per year respectively) (panel (a)).However, this difference is negligible if we instead hold revenue reduction constant instead of curtailment percentage (see figure S2) or use a volumetric surcharge structure (panels (b) and (d)).In comparing surcharge structures, we see that fixed rate drought surcharges lead to the highest bills for low-income households (panel (b)), with volumetric drought surcharges instead leading to bills similar to pre-drought levels (panels (b) and (d)).Volumetric surcharges lead to lower bill increases because a volumetric surcharge proportionately scales the drought surcharge to water use, counteracting the amount of water reduction with a proportional charge based on current consumption level.
Figure 4 also demonstrates that the main impact of Prop.218 on drought bill changes is through incentivizing fixed surcharges.In contrast, the impact of Prop.218's base rate structure restrictions on water bills during drought is small (panels (a) and (c)).While the IBR and DBR have distinct legal classifications, their impact on bills is relatively small (panels (a) and (c)).Conversely, fixed drought surcharges are the most commonly adopted surcharge approach under Prop.218, and result in the highest bills for low-income households (panel (b)).
Finally, we evaluate water bill change impacts on the AR in figure 5.So far, our results have compared water bills across income groups, a measure of equality.However, comparing bills alone does not account for differences in households' ability to pay for water across income groups.To address this, the AR (panel (b)) expresses the cost of water bills as a percentage of household income [45], a measure of distributional equity.The AR presents water bills as a proportion of income (panel (b)).We see that using the AR leads to larger differences in outcomes between income groups than bills alone, with income driving larger differences than drought intensity or rate structure.
Through figure 5, we also compare the impact of drought on water bills across different drought intensities under a fixed surcharge.Water bills for high-income households decrease with increasing drought intensity, with negligible impacts on the AR.In contrast, bills for low-income households increase with drought intensity, and this impact is magnified in the AR.This highlights the potential for increasing drought intensity to exacerbate inequity in water affordability.

Discussion
This study develops a mixed-methods approach to analyze the implications of law and rate design on water affordability in water-scarce regions.We couple qualitative legal analysis assessing how legal context influences utility rate design with quantitative analysis estimating the impact of utility rate design on water affordability.We focus specifically on water affordability during droughts, integrating water resources analysis to estimate drought impacts on water bills for low-income households.This is especially important in water-stressed regions with a high degree of hydrological variability, where frequent droughts can result in frequent rate increases.We build on previous work that showed how droughts can increase water bills for low-income households [19], finding here that bill increases are mediated by rate structure.Our approach integrates multiple scales and actors-state law, municipal water supply planning, household affordability-with distinct implications for each.
Our results suggest that incorporating drought surcharge structures in water affordability analysis can more comprehensively capture the full cost burden to low-income households.Rate setting practices that only capture base rates can neglect the affordability impacts of drought surcharges.We find that fixed drought surcharges, rather than base rate structure, contribute most to higher bills for low-income households during drought.Additionally, we show that law can impact water affordability outcomes through its influence on utility rate design.While previous work has demonstrated how Prop.218 can deter utilities from adopting progressive base rates [10,16,18], our approach shows that Prop.218's main impact on affordability during droughts is through its effect on drought surcharge structure rate setting.Our analysis informs limitations to current state-level policy on water affordability by highlighting the need to incorporate surcharges in affordability estimates.
We also find that the intensity of droughts heightens bill increases for low-income households compared to high-income households under current rate design Indeed, the increase in bills from the most severe drought modeled is larger than the increase due to the use of a fixed rather than volumetric surcharge.This demonstrates the need for utilities to integrate drought risk into affordability analysis during rate setting processes.Further, our results show that differences in outcomes between low-income and high-income populations are exacerbated when we measure drought impacts on the AR rather than water bills alone.This underscores the importance of using measures of equity, rather than just equality, in state affordability policy analysis.Because high-income populations have a greater ability to pay water bills, none of the scenarios we consider have a meaningful impact on their AR.However, AR increases are higher than bill increases for lowincome households, due to their lower ability to pay.
Our key findings-that rate design regulation of drought surcharges can impact affordability and that droughts can exacerbate affordability challenges for low-income populations-are likely to hold in many water-stressed cities.However, the magnitude and drivers of these impacts will vary across cities.Our detailed findings are limited by economic, legal, and hydrological modeling assumptions made in our illustrative case study in Santa Cruz.Economic assumptions include the revenue neutrality of the utility, which is typical of POUs but not private utilities, and that annual drought surcharges are used to achieve revenue neutrality.In other contexts, extra costs from droughts may instead be passed on to end-users over longer time scales, incorporated into long-term base rate increases.We also use a simple model of water demand that is determined solely by price, income, and rate structure, using general literature estimates for price and income elasticity.Water demand can also be influenced by a range of climate, housing, and social factors [29].Incorporating these additional demand drivers could reduce the inequities found in our results if income differences are less influential on demand, or potentially identify other dimensions of inequity such as housing quality.Future work could use a data-driven approach to develop a more nuanced and context-specific econometric model.However, even with these additions, the econometric modeling approach captures average relationships between drivers and water use.Our sensitivity analyses found our results to be insensit-ive to variations in price elasticity and rate structure demand impacts but does not consider other socioeconomic or environmental drivers of uncertainty.
Additionally, legal analysis is place-based and must be conducted in each region assessed.In contexts where rate design faces fewer or less stringent regulation, the legal analysis may be less influential on the results.An important hydrological assumption is the reliance on curtailment scenarios to represent drought impacts.In regions with more complex water resources portfolios including imported water, our modeling approach can be extended to incorporate a water supply balance model with curtailment triggered by hydrological indicators.A final key limitation of this study is its focus on short-term drought impacts on bill increases.Water scarcity and climate change are also driving long-term rate increases in base rates.In regions without drought surcharges, this is often the mechanism through which droughts impact affordability.Future work could extend the framework to include analysis of long-term base rate increases needed for supply reliability and their affordability impacts.
Our framework for integrated hydrologic-legaleconomic systems analysis can offer insights to state policymakers, city water supply planners, and residential water consumers in California and beyond.At the state level, this approach can help policymakers assess the potential implications of state regulation on water rate design and water conservation policy on affordability outcomes.At the city level, this approach can inform utility rate design and curtailment approaches, illuminating how these decisions interact to affect affordability across different demographics.Finally, at the household level, this framework can support communities facing water affordability challenges to identify the legal, hydrological, and economic factors that drive local affordability outcomes, empowering equitable change.

Figure 1 .
Figure 1.Overview of modeling framework for quantifying household water affordability integrating legal analysis, econometrics, and hydrological dynamics.Our model simulates utility water billing across different base rate structures and drought surcharge structures under contrasting drought scenarios to assess impacts to low-and high-income household water bills.Legal compliance of rate structures and drought surcharge structures are classified on a binary based on if they are commonly adopted under Prop.218 to assess implications of current law on water affordability.

Figure 2 .
Figure 2. Temporal variability of utility-and household-scale water use, utility revenue, and monthly water bills in drought and non-drought scenarios.Results modeled with an IBR base rate and a fixed surcharge, as currently practiced by the City of Santa Cruz, with a price elasticity of 0.35 and an income elasticity of 0.15.Drought scenario modeled using historical record of the 2014 California drought.

Figure 3 .
Figure 3. Annualized drought impacts on water consumption, revenue, and bills for low-income (LI) and high-income (HI) households.'Drought' denotes the drought scenario modeled using historical record of the 2014 California drought; 'Base' refers to pre-drought conditions.Results modeled with an IBR base rate and a fixed surcharge, as currently practiced by the City of Santa Cruz, with a price elasticity of 0.35 and an income elasticity of 0.15.

Figure 4 .
Figure 4. Water bills before and during drought for low-and high-income households across base rate (IBR and DBR) and surcharge structures (fixed and volumetric surcharges), classified based on their adoption under Prop.218.'Drought' denotes the drought scenario modeled using the historical record of the 2014 California drought; 'Base' refers to pre-drought conditions.Results modeled under a constant curtailment assumption with a demand adjustment factor of 5% for the DBR, and with a price elasticity of 0.35 and an income elasticity of 0.15.

Figure 5 .
Figure 5. Water bills and affordability ratio during drought for low-and high-income households across the warning (10% curtailment), historical (25% curtailment), and critical (50% curtailment) drought scenarios.Results modeled with an increasing block rate base rate and fixed surcharge, as currently practiced by the City of Santa Cruz, with a price elasticity of 0.35 and an income elasticity of 0.15.

Table 1 .
Legal analysis summary of rate structure adoption practices under California Prop.218.Rate structures listed as 'not commonly adopted under Prop.218' showed demonstrated evidence of potential deterrence to POU adoption based on the evaluation of risks of being sued and of losing any lawsuit.
[10]ces of the user[10].While Prop.218 aims to hold utilities accountable to taxpayers by mandating that rates be proportional to actual service costs, judicial opinions raise questions about the likely legality of non-fixed drought surcharges.