Water budgets and rate structures: Innovative management tools

Mayer, Peter; Deoreo, William B.; Chesnutt, Thomas W.; Summers, Lyle

doi:10.1002/j.1551-8833.2008.tb09636.x

Cited by 33 publications

(40 citation statements)

References 2 publications

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“…household pays a higher price for additional water only when total consumption exceeds that household's "efficient" level of use for the current billing period (Mayer et al 2008). Hall (2009) argues that the conservation incentives provided by water budgets are even stronger than those provided by standard IBR pricing with fixed volumetric blocks because water budgets adjust the blocks according to the size of each household.…”

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confidence: 99%

“…Furthermore, by more closely matching the price structure to the cost of supply, water budgets help utilities maintain fiscal balance despite potentially significant demand fluctuations. Water budgets also can accommodate equity concerns by charging lower prices for the most essential uses of water such as drinking, cooking and cleaning (Mayer et al 2008). By keeping these prices low for every household regardless of size, water budgets tend to be more politically acceptable than standard IBR pricing (Hall 2009).…”

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confidence: 99%

“…By keeping these prices low for every household regardless of size, water budgets tend to be more politically acceptable than standard IBR pricing (Hall 2009). Last, water budgets provide utilities with the ability to respond flexibly and immediately to evolving environmental and fiscal conditions with a price-based regulatory instrument (Mayer et al 2008). …”

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confidence: 99%

“…As of 2008, fewer than 14 California water utilities had implemented IBR water budgets (Mayer et al 2008), even though around 50% of all California water utilities were utilizing IBR pricing as of 2005 (Hanak 2005). Recently, though, there appears to be renewed interest in water budgets.…”

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The Residential Water Demand Effect of Increasing Block Rate Water Budgets

Baerenklau¹,

Schwabe²,

Dinar³

2014

Land Economics

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We investigate the effect of introducing a fiscally neutral increasing block rate water budget price structure on residential water demand. We estimate that demand was reduced by around 17%, although the reduction was achieved gradually over more than three years. As intermediate steps we derive estimates of price and income elasticities that rely only on longitudinal variability. We investigate how different subpopulations responded to the pricing change and find evidence that marginal, rather than average, prices may be driving consumption. We also derive alternative rate structures that might have been implemented, and assess their estimated demand effects. Key wordsBlock rate pricing, DCC model, residential water demand, water budgets. 1 Increasing Block Rate Water BudgetsAs urban water utilities confront increasingly scarce and less reliable water supplies due to population growth, environmental regulation, and climate variability, water managers are seeking opportunities to reduce residential water demand. While the adoption of non-price instruments (e.g., short-term water restrictions, subsidies for water-saving technologies, and public-awareness campaigns) likely will continue to be wide-spread, volumetric pricing and, in particular, block-rate pricing is gaining traction. This is not surprising to economists who have long espoused the merits of pricing as an efficient and effective means to address water scarcity (e.g., Howe and Linaweaver 1967;Chesnutt and Beecher 1998;Renwick and Green 2000;Griffin 2001;Dalhuisen et al. 2003;Olmstead and Stavins 2009;Grafton et al. 2011). One challenge confronting water utilities that are considering switching to volumetric pricing is identifying the particular rate structure that is best suited to their needs. One structure that is increasingly being adopted by California water utilities is the increasing block-rate water budget.Increasing block rate (IBR) water budgets (which we refer to herein more simply as "water budgets") are a particular type of escalating tiered price structure in which the block sizes are based on household-specific characteristics (e.g., household size, irrigated area), environmental conditions (e.g., evapotranspiration), and a judgment by the water utility with regard to what constitutes "efficient" water use given those characteristics and conditions. This means that price structures can differ across households at any given time, and through time for any given household. Water budgets are a relatively new pricing tool. One of the earliest adopters was the Irvine Ranch Water District (IRWD) in southern California which instituted such pricing in the early 1990s (IRWD 2013).Water budgets are thought to have significant advantages over more commonly used rate structures.1 Foremost, water budgets provide utilities with the means to promote conservation through appropriate price signals while also maintaining fiscal balance. Under water budget pricing, each 1 We thank an anonymous reviewer for helping to improve this section. introdu...

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The Residential Water Demand Effect of Increasing Block Rate Water Budgets

Baerenklau¹,

Schwabe²,

Dinar³

2014

Land Economics

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“…With real agency experience, the American Water Works Association (AWWA) produced a 2008 study of agencies with water budget style rates, titled Water Budgets and Rate Structures : Innovative Management Tools . The report confi rmed the water savings potential of this rate design but also noted that fairness for consumers was a "fundamental benefi t" identifi ed by agencies and that the "additional complexity of customer specifi c water budgets was more than outweighed by the increased customer acceptance…" (Mayer et al 2008 ).…”

Section: Examination Of the First Water Budget Rate Structurementioning

confidence: 96%

Water Pricing Experiences and Innovations

Dinar¹,

Pochat²,

Albiac-Murillo³

2015

Global Issues in Water Policy

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Statistical estimates of water savings from landscape transformation programs

Chesnutt

2020

AWWA Water Science

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A statistical impact evaluation was conducted on nine retail landscape transformation (LT) programs across North America that include turf removal and replacement, “cash for grass,” xeriscape and water‐wise relandscaping, and utility‐sponsored efforts to promote and incentivize reductions in the landscape water requirement. This empirical evaluation focused on the observable changes in customer water consumption. Methodological challenges include unavoidable self‐selection in voluntary conservation programs, programmatic differences, weather variation, and customer heterogeneity. Alternative methodological approaches are discussed, and a continuous time statistical intervention model is set forth. This was implemented using high‐resolution individual customer panel data methods to arrive at an expected annual change, changes to the shape of water demand within the year (demand shaping), and—for one LT program—the long‐term persistence of water savings. Detectable water savings were observed for all examined programs.

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Water budgets and rate structures: Innovative management tools

Cited by 33 publications

References 2 publications

The Residential Water Demand Effect of Increasing Block Rate Water Budgets

The Residential Water Demand Effect of Increasing Block Rate Water Budgets

Water Pricing Experiences and Innovations

Statistical estimates of water savings from landscape transformation programs

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