Comparison of Water Pricing Structures from a Collective Utility Viewpoint

Abstract

As a result of continually lowering water tables in the arid regions of the west, many people are beginning to realize that water should be treated like any other rare resource, letting supply and demand factors regulate its distribution. Three types of price structures are used by water agencies: (1) the flat rate system (2) the step rate system and (3) the block rate system. Each of these structures may be progressive or regressive. At present, Tucson's only source of water lies underground and will presumably decrease as the population increases. To optimize the benefits to the community, it may be necessary to decrease not only average consumption but also summertime peak consumption for swimming pools, evaporative coolers and lawn sprinkling. Currently, Tucson uses a regressive block rate pricing structure. Using the theory of collective utility, a model is developed for use in comparing 2 price structures in an effort to define a monetary value for water conservation. It is concluded that the change in collective utility, du, which is a measure of the worth of change from economic state 1 to 2, is the best measure of price changes in arid areas. The model shows that Tucson water consumption would be lowered and money would be lost with either price structure, but with the permanent change, monetary flow of goods would be greater than under the seasonal structure.