Water is both a necessity and a scarce commodity.  This makes it important that water pricing discourages unnecessary and wasteful use while maintaining affordability for essential uses.  Because a significant portion of water use is non-essential, there is  considerable elasticity in demand with respect to price, meaning that if the price of a given quantity of water increases, consumers are encouraged to reduce their costs through reduced discretionary use and more efficient technology.  In the short term, a 10% increase in the cost of water for single family residential customers can result in roughly a 1% to 2% decrease in summer water consumption.  In the long run, the same price increase can reduce summer water use by approximately 2% to 5%.

Conservation-oriented pricing structures can be designed to be revenue neutral.  As the rate burden is shifted to customers who use the most water or who use it most wastefully, rates decrease for customers using less water.  Rates can also be structured to recover the full cost of delivering water, even as overall consumption decreases.  

Many water systems in Massachusetts use a uniform rate structure in which customers pay the same rate for each gallon of water.  This type of rate does not distinguish between essential and non-essential uses, between efficient and wasteful use, or between usage when supplies are high and usage when supplies are low.  By structuring rates so that the price increases above certain usage levels or during certain time periods, customers will be encouraged to reduce water consumption, and/or to reduce peak use.  

Most rate structures contain both an upfront fixed charge and per unit commodity charges covering the water used. There are a number of different ways to structure the commodity rates to discourage wasteful use.  These include:

• Increasing block pricing, in which the price per gallon of water increases with the amount of water consumed;
• Seasonal rates, which charge more for each gallon of water in the summer when demand is greater and supplies are lower (and can be superimposed on block water rates);
• Other strategies to quantify the discretionary use of each customer and to charge higher rates for the water used for discretionary purposes.  These strategies include targeted use rates based on projected essential household demand; separate outdoor meters; and fees or discounts based on the use of water efficient technologies.  

Regardless of the rate structure, universal metering is a prerequisite for the success of conservation-oriented rates.  Also, water systems must read meters and bill customers frequently to give feedback in time to influence customer behavior.  

The New England Water Works Association Conservation Committee is developing a Best Management Practice document regarding pricing structures.

12.a    Water utilities should ensure 100% metering of all public sector and private users with meters of proper size and accuracy

12.b    Water utilities should bill all customers at least quarterly, preferably monthly, and should use water bills to educate consumers about consumption and conservation opportunities

12.c    Water utilities in the region should adopt increasing block rate structures

12.d    Water utilities should adopt seasonal rate structures that charge higher unit costs during peak demand periods

12.e    Water utilities that permit outdoor meters should enact higher water rates for outdoor meters to send an appropriate conservation signal to consumers

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