Friday, April 22, 2011

Nice job, Tucson

Tony Davis has an article in the morning daily congratulating Tucsonans for their thrifty water use habits.  In the article, he does a nice job of pointing out the obvious connection between conservation and giving consumers information about their water use - unmetered uses will almost always be higher than metered uses (assuming there are volumetric charges for the water).  But there is always bad news that must accompany good news (wouldn't want folks getting too cocky).  In this case, reduction in water use is rewarded by increases in water rates because of the way rates are structured in Tucson.  Here's how it works:
  • Tucson water rates are set in increasing blocks - the more water you use, the higher your rate per unit of use; this is intended to send a strong conservation message to consumers
  • when rates are increased most of the increase is added to the upper blocks (don't want to punish the people who are doing the best job of conserving)
Here's what Tucson's rate structure looks like on a graph, comparing it to other 4 block rate structures:

  • over time, because most water revenue is derived from water sales, the utility becomes overly dependent on sales in the higher blocks to meet its revenue targets
  • who do you think is most likely to conserve when water rates increase, especially rates in the higher blocks?  That's right - the users in the higher blocks, because much of that use is discretionary
  • the next year, the utility projects another revenue shortfall so rates go up again, even though there was increased conservation the previous year
How do you fix this?  You restructure your revenue model so that more of your fixed costs are covered by fixed revenues (monthly service charges paid by all customers or increase the rate in the first block). 

Here's how Tucson's monthly service charge compares to those from several other cities:

This is what Tucson Water is trying to do this year, but they are certain to get pushback from the city council because of the potential impact on low-income customers.  So we'll be revisiting this issue again next year, and probably the year after that.

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