Arizona Water Meter
Water Rate Structures
Seven principles for water conservation
Click to see how these principles affect water use:
Water rate structures play an essential role in communicating the value of water to customers. They are also one of the most powerful water conservation tools.
Integrating all of the supply costs into a water rate structure is challenging. Properly designed rate structures:
- Provide water at low prices for basic and essential needs, so all customers can afford it.
- Reward conserving customers with lower unit rates.
- Encourage efficient use by sending a strong conservation price signal.
- Assign supply and development costs proportionally to the customers who place the highest burden on the supply system and the natural supply sources.
- Maintain a stable flow of revenue to the water provider.
While increasing block rate structures can provide a strong conservation “price signal” to customers, there are several key elements that must be properly addressed to achieve a truly conservation-oriented block rate structure:
Right-Size the Blocks – For residential customers, the size of block 1 should be based on an efficient level of monthly indoor use. Block 2 should be based on the landscape needs of a moderately landscaped property. Additional blocks should capture inefficient or wasteful water use.
Make Block Price Differentials Meaningful – The change in price between blocks should be large enough to be noticed by customers when their usage bumps them into a higher rate block.
Avoid High Fixed Service Charges – A high fixed service charge may provide more stable revenues, but it directly offsets the conservation incentives provided by increasing block rates.
The structure of water rates is key to determining whether they provide adequate incentive for water users to conserve.
There are a number of ways to structure water rates, including uniform (flat), seasonal, and inclining block rates — all of which are used in Arizona.
Inclining block rates are generally the most effective at communicating the value of water to customers. With inclining block rate designs, the unit price for water increases as the volume of water consumed increases, with higher prices being set for each higher water use block (Figure 3 above). Customers using low volumes of water are charged a modest unit price and are rewarded for conservation, while those using higher volumes of water pay higher prices. This approach provides an incentive to conserve and ensures that lower income consumers are able to meet their basic water needs at an affordable cost.
The utilities profiled in our report show high variability in setting the cost for different blocks of water. At one end, water rates in Tucson jump by 270% between blocks 1 and 2 — from $1.39 to $5.13 per thousand gallons — while at the other end, rates in Yuma increase only 10 cents between blocks 1 and 2 — from $1.42 to $1.52. Customers in Tucson will clearly notice an increase in their water bill if their use bumps them up into the next higher block, while customers in Yuma may not.
The utilities also show different preferences for targeting customers through their rate structures. Prescott, Payson, and Casa Grande have block changes at or before 5,000 gallons that target low-volume water users and encourage efficient indoor use. Buckeye, Chandler, Lake Havasu City, Scottsdale, and Tucson target high-volume users and penalize excessive outdoor water use by including a block at or above 30,000 gallons.