The effects of individualized water rates on use and equity

Water pricing policies seek to balance cost recovery, conservation, equity, and affordability. Two-part tariffs are commonly deployed with the volumetric portion often using increasing block tiers. Setting a uniform-sized first tier too small can put more burden on lower income groups that may have less efficient homes and more people per household. Setting the tier too large will allow many people outdoor use at the lowest rate. This paper analyzes the effects of the growing trend to use average winter consumption (AWC) to create individualized rate structures tailored to revealed indoor use. I use nearly eight million monthly household bills from before and after the implementation of AWC pricing to explore two questions. First, do consumers respond to the implicit discount for winter use embedded in AWC pricing and reduce indoor conservation? Second, how does AWC alter equity in terms of varying average price both across and within water use levels? On average, winter use does not increase, but the trend in reductions is slowed after AWC is introduced and a small subset of consumers do appear to respond strategically. Furthermore, AWC results in a progressive structure whether holding water use constant or allowing it to vary.