CONSERVE WATER GEORGIA
Water Conservation Rate Structures
Water rates in the Southeast
Throughout the Southeastern United States, many different water rate methods are being implemented. In the water-rich Southeast, many water providers are currently implementing declining block rate structures. Declining block rate structures can encourage high water usage, contrary to water conservation efforts. This practice is usually adopted as a way to bring high-water using industries to an area for economic gain.
Population growth in the urban and suburban areas, increased water pollution and declining aquifer and stream flow levels throughout Georgia are causing many water providers to turn to water conserving rate structures. Water conservation rate structures can help communities reduce water demand; as well as help utility companies meet revenue requirements.
Water providers should look to achieve these goals when they adopt water conservation rate structures:
- reduce peak usage
- reduce seasonal usage
- reduce total system demand
Community benefits of implementing water conservation rates include:
- communicate an overall conservation consciousness
- reward efficient users
- surcharge fees for nonessential and inefficient water users
Utilities can achieve economic goals through water conservation rate structures, including the following:
- price equity among customers
- minimize potential for litigation
- maintain revenue stability
For guidance on ways to develop conservation-oriented rate structures in Georgia, see the document entitled “Conservation-Oriented Rate Structures” developed as part of the coastal permitting plan.
Types of water conservation rates
Inverted (inclined) block rates
Inverted, or inclined, block rate structures are the most widely-accepted effective water conservation rate structures. Inverted block rates increase as consumption increases. They can be highly conservation oriented and are generally understandable by customers. With proper educational programs conducted prior to the rate change, they are generally accepted. However, there are challenges in developing appropriate blocks cutoffs and unit rates which may result in revenue instability. Proper rate analysis, conducting user class profiles and rate model testing can offer assistance in stabilizing revenue.
Case study: The Irvine Ranch Water District in southern California has a well respected and aggressive conservation rate structure. Their inclining block rate structure ensures enough funds to cover operation and maintenance costs and enhance the infrastructure. The water district established a baseline charge for necessary water use that generated enough revenue for general operation. Any water use that exceeds the individual user’s baseline amount costs incrementally more money. These extra funds are then returned to the supplier for infrastructure improvements. Ultimately, the water district has been able to repay its debts and encourage water users to decrease demand.
Seasonal rates
Seasonal rates are rates that vary during different periods of the year. Typically, rates change during peak outdoor water usage. Indoor usage is typically calculated during winter, or non-growing season months. Usage above average indoor use is charged a higher rate to discourage excessive water use. Seasonal rates are generally accepted and understood by customers, but as with all rate structures, they must be communicated properly to a community before putting them into place. Challenges include the possibility of substantial impact on high volume users and less predictable impact on demand.
Hybrid
Hybrid rate structures are any combination of rate structures. Rate structures vary by customer class. One example of a hybrid system is setting excess/individual use rates for non-residential customers and inverted or increasing block for residential users. Any combination of rate structures may be used and implementation issues for each customer class should be addressed.
Some design features to keep in mind regarding setting rates are where to establish block cutoffs, number of blocks, amount of unit charges and how to define a season.
Additional resources
American Water Works Association. Water Rate Structures and Pricing, Second Edition, Denver, CO: AWWA, 1999.
Chesnutt, Thomas W. and Janice A. Beecher. "Conservation Rates in the Real World." Journal AWWA, 90:2 (Feb. 1998).
Raftelis, George A. 1993. Comprehensive guide to water and wastewater finance and pricing. Lewis Publishers, CRC Press LLC, Boca Raton, Florida. http://www.crcpress.com/
Stallworth, Holly, PhD. 2000. Conservation pricing of water and wastewater. http://www.epa.gov/OW-OWM.html/cwfinance/cwsrf/consrvprice.pdf
Information for this page was collected from:
Elfner, M.A. 2003. Why Water Conservation Rates are a Good Thing. Georgia DNR. December 2003.
Keyes, A.M., M. Schmitt, and J. Hinkle. 2004. "Critical Components of Conservation Programs that Get Results: A National Analysis." AWWA – Water Sources Conference Proceedings. Jan. 2004. 15 pgs.
Wong, A., et al. 1999. Sustainable Use of Water: California Success Stories. Pacific Institute for Studies in Development, Environment, and Security. CA. 372 pgs.