Do Tiered Water Rates Save Water?

By Wayne Lusvardi.

It must sound crazy in the middle of an epic California drought to say empirical studies show raising water rates to spur water conservation is not likely to result in water conservation.

But a study by CalWatchdog.com of comparable water rates in Orange County indicates tiered water rates do not clearly result in demonstrably lower water usage. Similar studies in other states show the same thing.

The prevailing notion by water experts is that raising water rates increases conservation. For example, the Pacific Institute is dedicated to “sustainable communities.” A recent Need to Know fact sheet, made in a partnership with the Alliance for Water Efficiency, explained:

“Conservation pricing provides a price signal to customers to use water efficiently, and can be achieved through a variety of volumetric rate structures,” including “Tiered rates in which the volumetric rate increases as the quantity used increases.”

Tiered rates increase the cost of water with higher usage.

Higher rates — higher usage

A recent study of long-term water rates, “Urban Water Demand and Water Rates Structure Over Decades,” of the huge Edwards Aquifer in Texas, found charging more for water usage ironically resulted in higher water use over several decades:

“The adoption of water pricing structures alleged to promote water conservation (e.g., increasing block rates) does not lead to expected results as in our sample (13,447 observations) consumption increased by 5-6 percent (significant at the 1 percent level) after the change occurred… . The “more water conserving” … exert(s) a counterproductive effect and correspond(s) with higher average daily water consumption.”

Orange County

Different water rate methods in Orange County, Calif. also indicate that tiered water rates do not produce greater water conservation.

Let’s look at water rates and usage in three cities in Orange County with similar coastal climates: Tustin, Costa Mesa and Huntington Beach.


                   Comparison Water Usage by City: Tiered and Flat Water Rates

                                 Ranked by Water Use Per Person Per Day


Avg. monthly residential water bill/ 29,920 gal. Residential per capita water use /day, gal. Percent groundwater Percent multifamily structures Persons served per water hookup Rate
Tustin $46.02 115 77% 48.9% 4.70 Tiered Rates
Mesa Water District $54.60 95 75% 50.0% 5.26 Flat Rates
Huntington Beach $32.33  88 62% 39.9% 3.94 Flat Rates
Source: Orange County Water Suppliers Water Rates and Financial Information 2012 .

Tustin, with tiered rates, uses 115 gallons of water per person per day.

By contrast, the Mesa Water District (Costa Mesa) and Huntington Beach, with flat water rates, use 95 and 88 gallons per person per day, respectively.

Lower water use should result in a higher proportion of apartment units (which typically use less water).

Higher water usage should result from a higher percentage of cheap groundwater used (lower prices may induce higher use).

And higher water usage should result from a higher number of persons served per water meter hookup (from master metered apartment buildings).

Yet, considering all these factors, there is no clear evidence that tiered water rates conserve water.

Service or commodity?

At the core of the question of whether pegging higher water rates to greater use saves water is whether water is a service or a scarce commodity.

Those water districts that use punitive tiered water rates justify their higher rates by marketing their water-rate policy as bringing greater water conservation of a scarce commodity. Conservation is used as a marketing strategy to raise water rates, not necessarily as a real way to save water. A study by the UCLA Anderson School of Management in 2010 found that water conservation was due to social norms, not water rates.

Conversely, those water districts that use flat water rates tend to see themselves as providing a basic service at the lowest cost possible.

Originally posted at CalWatchdog.

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