The downside to the remarkable water conservation I’ve been writing about (see yesterday’s Albuquerque numbers, for example) is revenue. Water utilities sell water. If people use less water, water utilities make less money. One option is to shift to more fixed-costs pricing, charging a flat rate for service, but then you lose the behavioral incentive of price.
Tucsonans conserve so well that their usage — and Tucson Water’s revenue — has plummeted over the years, and that’s something the utility’s new director wants to fix. A specific proposal is a year away, but a new rate structure likely would reduce the utility’s dependence on revenue coming from monthly charges based on how much water a home or business uses. Under a scenario outlined by newly hired Tucson Water Director Timothy Thomure, a greater portion of customers’ bills would shift to the utility’s fixed charges, which stay the same regardless of how much water people use.
There’s pushback from water conservation advocates, who think that would lead to an increase in water use. Albuquerque used a similar approach a couple of years ago (higher fixed cost on my bill) and conservation continued, so maybe not? But the details matter. There’s a lot of room here for some detailed house-by-house, neighborhood-by-neighborhood number crunching to try to get a better understanding of the elasticity of demand and how that interacts with various pricing structures. Call in The Economists!