Metrics and Methods for Comparing Water Utility Rate Structures

Utility managers must design rate structures that meet multiple objectives: full cost recovery, fairness, economic efficiency, and resource conservation. To reach these multiple goals, the design of an optimal rate structure would ideally include detailed information on cost of service, demand elasticity, and preferences of the customer base within each utility. However this information is often unavailable, especially when analyzing utilities at regional or national scales. In this absence, the comparison or benchmarking of rate structures across utilities may reveal insights regarding the features, management, or performance of one utility relative to another. We review the metrics and methods available to water utility managers for comparing rate structures with publicly available information. By presenting the full range of metrics available to utility managers, we aim to facilitate the comparison of water rate structures, and ensure that the analysts can select the metric that best fits their needs. To illustrate how these metrics may help generate insight, we use them to compare the rate structures of five municipalities in Canada. Despite the contextual differences, we find that the rates tend to converge at a single metric, the Canadian standard of 25m3/month, suggesting that there is a “looking over the shoulder effect” in which managers are probably cognizant of the metrics used to compare them to others. We suggest that the design or re-design of rate structures can be informed by the metrics that compare rates across utilities, despite the limitations of working with only publicly available information.