11. CONSERVATION WATER RATE STRUCTURE
Overview
Water rates can be structured to promote water conservation by providing price signals that prompt consumers to use water efficiently. The two primary types of conservation rates are:
- Inclining block rate, in which the amount paid per unit of consumption increases when larger amounts of water are consumed.
- Seasonal rate, in which a higher price per unit is charged during peak summer periods.
There are many considerations involved in selecting an optimal rate structure. Water rates should reflect the full long-term marginal cost of water supply; in other words, rates should account for the future capital costs of replacing and expanding the system. Typically, peak summer demand may stress a water system’s capacity and drive infrastructure expansions, providing a strong economic rationale for higher seasonal rates. Rates should also reflect the full private and social cost of supply, including the “externalities” of ecological degradation due to reduced streamflows. Water fees should be deposited in a dedicated enterprise fund to ensure that they are used solely to fund water system services and associated administrative and maintenance costs, including the administration of an effective water conservation program with a water conservation coordinator.
Inclining block and seasonal rate structures can help utilities manage their water more effectively and provide clear incentives for consumers to conserve water. Rates should be set to reflect the full cost of the capacity required to meet the peak summer demand. In the case of water, much of the peak demand is for outdoor uses like lawn watering, which in economic terms are more “elastic” than core household uses. In other words, households are more responsive to price signals in the summer because their outdoor use is more optional and flexible. Similarly, inclining block rates should be structured to charge a higher rate for discretionary water use that exceeds a threshold level. The lowest block can be set based on the amount of water an efficient household would use indoors.
Importantly, water bills should be transparent and clearly organized to enable consumers to respond to price signals. Households that receive monthly or quarterly bills are better able to track their seasonal water usage patterns than those receiving annual or semiannual bills. Bills that provide water use data in gallons allow customers to determine their own per capita daily use and to compare their household’s water use with local and regional averages and targets.
Local Examples
Water rates and rate structures vary widely among the fourteen cities and towns that receive some or all of their municipal water supply from the Ipswich River watershed. Of the fourteen communities, six have flat rates (Beverly, Danvers, Middleton, Reading, Salem, Wilmington) ranging from $2.22 to $4.66 per hundred cubic feet. While high flat rates can provide some incentive to conserve water, they are not as effective as a carefully structured inclining block or seasonal rate.
Seven communities use inclining block rate structures (Hamilton, Lynn, Lynnfield, North Reading, Peabody, Topsfield, Wenham), and one community (Ipswich) uses a seasonal rate structure. The inclining block structures vary in their “steepness.” Topsfield and Wenham’s rates rise steeply, around $2 per thousand gallons, from the middle block to the highest blocks. In contrast, Lynn’s rates until recently rose by only $0.01 from one block to the next; the city has recently amended its rates to increase the incline. Ipswich’s 2004 summer rate of $5.85 per hundred cubic feet was nearly quadruple the winter rate of $1.50; the town adjusts these rates each year. Of the communities using inclining block structures, most have two or three water use blocks, but Hamilton has eight separate blocks.
Billing practices also vary widely, with four communities billing biannually and nine billing quarterly. Only Ipswich uses monthly billing, which provides the most useful information to customers about how their water use varies over time. Ipswich customers receive a bill which shows their monthly water use for thirteen months, clearly showing seasonal patterns and allowing a comparison with the same month in the previous year. Topsfield is currently experimenting with monthly billing, as a research partner with the Massachusetts Department of Conservation and Recreation. The town will use funding from an EPA Targeted Watershed Grant to compare water use by customers billed monthly with those billed semi-annually. Most of the communities deposit water fees in a dedicated enterprise fund, but Beverly and Peabody use general funds, while Danvers, Ipswich, and Wilmington rely on special revenue funds.
Resources
Tighe and Bond, 2004 Massachusetts Water Rate Survey (html)
Water Wise Communities: Index
- Introduction & Using the Handbook
- How Development Affects Water (link to IRWA site)
- Checklist: Is Your Community Water Wise?
- Water Wise Tools:
