Government Goings-on — June 2015

In a time when the public is all too aware of water scarcity and the need to cut back on demand, many call for a tiered rate structure. Those who use the most should pay the most is the concept, and it seems both fair and workable. If you pay more, you would be incentivized to use less. But does that really work when it comes to municipal water demand?

Gary Woodard, Montgomery & Associates, is convinced that tiered block rates may not exactly perform as people think. Most people know what they paid for water last month. But behavior is affected only as the margins of a tiered block are approached. People lack real-time information on how much water has been consumed, and most don’t even know when their meter is read. Therefore, they don’t know when they get near the next tier. Ignorance of the real-time details means that tiered rates often don’t work to save water for the average household.

Do tiered block rates actually pay for the needed infrastructure and water? Leaving aside industrial and commercial customers, a municipal provider’s best, cheapest-to-serve customers are the large families with higher demand that is consistent month to month. The single user filling his pool or watering the garden in the summer creates a peak load on the infrastructure that must be planned and paid for, but he doesn’t fully pay for peaking because he is in a lower tier. Gary Woodard notes that the really high costs of municipal providers aren’t covered by the customers creating the peaking load, but by the steady high demand customers in the older neighborhoods.

And it may not be fair. Larger bills are paid by larger families who often have older, inefficient washers, swamp coolers, and toilets using 3.5–5 gallons per flush; they can’t afford the kitchen and bathroom remodels or new homes that result in less water use. So they get bumped up to higher rate tiers. In contrast, the single user with modern plumbing and a xeriscaped front lawn pays at a lower tier, even with a swimming pool. It is difficult to penalize those who use a lot of water for what appear to be extravagant uses when they stay within their lower tier. Instead of paying more for their peak water use, and the extra water and more expensive infrastructure that supports it, they are subsidized by the less affluent people in the older neighborhoods paying at higher rates.

Is this sort of subsidy socially acceptable? Maybe it is, maybe it isn’t. Arguments could be made on both sides. But you can’t make valid argument unless you first put the basic assumptions under the microscope, as Gary has. “Where did the water go?” is the theme of the 2015 Annual Symposium this September 16–19. It is time to question all sorts of assumptions.

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