When you sell less water, you make less money selling water. It’s the modern water agency dilemma:
Albuquerque’s municipal water agency may need another rate increase to dig out of a growing financial hole left by the community’s water conservation success, agency officials acknowledged in a report this week to their board.
It really doesn’t need to be such a dilemma. Fixed costs — salaries, equipment, debt service — should be covered in your monthly service charge. Variable costs — water, energy — get covered in your per-unit usage charge. If you set it up right, you can ride the ups and downs of usage changes without having to keep changing your rate structure.
This is a problem with water and energy providers. They are refusing to re-think their ‘business’ model.
I’ve been covering the shifting revenue waves at Circle of Blue for several years. Researchers at UNC, Chapel Hill are coming up with ways to re-balance fixed and variable revenue with new patterns of water consumption, and a few utilities – Davis, CA; Austin, TX, for example – are taking up these ideas. But most utilities are conservative dinosaurs and loath to throw out old models. Baby steps, baby steps–which are necessary when fixed costs are typically 80 percent of the budget while fixed revenue is usually less than 20 percent of revenue. No utility could match fixed and variable one-to-one and still meet the goals of equity or conservation pricing.
The 2013 update to my water rates survey goes into these ideas in more detail.
Of course, all utilities face this problem as they/we become more efficient, and since services are not unified, the result is a patchwork effort. It IS the business model. or better but, the economic system we are working with.
Francis is right. Here’s how to do it: “I guess that my preferred alternative would have a fixed charge to cover fixed costs plus a Uniform Rate (NOT increasing block rate!) to cover variable costs AND reflect water scarcity. Refunds of excess revenue (per meter, not per person) would transfer money from heavy to light water using households.” Discussion here: http://www.aguanomics.com/2011/09/time-to-dump-increasing-block-rates.html