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Water Rate Structures

Structuring Water Rates to Promote Conservation

Water rate structures play an essential role in communicating the value of water to utility customers. The value of water includes: (1) the utility’s operation and maintenance costs; (2) costs to procure and develop additional water supplies to meet growing demands; and (3) social and environmental “opportunity costs” of losing other benefits of water in its natural state (e.g. impacts to fisheries, recreational opportunities, and watershed health).

Increasing block rate structures most effectively communicate the true value of water when compared to other types of rate structures. Through an increasing block rate design, the unit price for water increases as the volume consumed increases, with prices being set for each “block” of water use. Customers who use low or average volumes of water are charged a modest unit price and rewarded for conservation; those using significantly higher volumes pay higher unit prices.

Increasing Block Rate

Increasing Block rate Structure

Research has shown that conservation-oriented rate structures that send a strong “price signal” to customers can provide utilities with stable and sufficient revenue and significantly reduce water use – on the order of 10 – 30% based on the experience several Western utilities. There are several key elements that must be properly addressed, however, in order to maximize the benefits associated with this type of rate structure.

Throughout our region, a variety of water rate structures exist, ranging from progressive, efficiency-based designs to rate structures that actually promote inefficient water use. Although many municipalities have come a long way in instituting efficiency-based rate structures – especially over the past five years – many still have room for improvement. This is precisely why WRA’s Water Program is constantly promoting efficiency-based rate structures throughout the Interior West.

WRA evaluated water rate structures across the Interior West through a series of reports released during 2004 – 2007. We use the information garnered from this research effort to assist utilities in implementing the most effective rate structure options for their community.