Municipal Water Prices as a Tool for Dynamic Adaptation to Climate Variability

Abstract

Water utilities in the southwestern U.S. operate on a limited revenue stream, are expected to encourage water conservation, and are working with increasingly stressed water supplies. Expectations for increased temperatures and more frequent extreme weather events make it important for water utilities to be able to adapt operations and revenue streams to changing conditions. This article draws from multiple examples of strategic price-setting techniques used throughout different industries to encourage specific consumer behaviors and to control revenue outcomes. Using price-setting techniques seen in the electricity and airline industries, this article develops an iterative process for water utilities to strategically set prices for residential water use with the goal of promoting water conservation, stabilizing revenue and making it affordable for all users to meet their basic water needs.