Water Rates and Charges Introduction

Water rates can be and important and effective tool for encouraging water conservation.   Because water is essential for life and because water providers are usually either public or publicly regulated, there is a strong and appropriate desire to keep basic water service costs as low as possible.  Conservation oriented water rates and rate structures must be carefully designed to be fair and equitable, to provide stable revenue for the provider, to be based on the actual cost of service, and to be easy to implement and administer.

When considering conservation oriented water rates, the relationship between the price of water and consumption must be well understood.  A basic economic assumption is that water price and consumption are inversely related meaning that as the price increases demand decreases correspondingly.  A convenient way to quantify this relationship is through the concept of price elasticity. Elasticity is defined as the percentage change in quantity consumed for each percent change in price.  An elasticity of negative one (-1) implies that a one percent increase in price results in a one percent decline in the quantity consumed.  Even with a good understanding of price elasticity, it is difficult to predict the changes in water use caused by changes in price.

This section of the AWE Clearinghouse provides information on the fundamentals of water rate making; information on the “do’s and don’ts” implementing a conservation oriented rate structure; a detailed explanation of water budget-based water rates which are considered one of the most effective conservation rate structure forms; and a detailed reference list of articles and publications on the subject of water rates and charges.

For additional information please see the following:

Conservation Oriented Rate Structures 

AWE (2008) Fundamentals of water ratemaking 

AWE (2008) Implementing a conservation oriented rate structure 

AWE (2008) Water budget rate structures 

AWE (2008) Water rates references

EPA (2007) Expert Workshop on Full Cost Pricing of Water and Wastewater Service 

EPA (2005) Case Studies of Sustainable Water and Wastewater Pricing

Whitcomb, J (2005) Florida Water Rates Evaluation of Single-Family Homes

Various (2005) Brochure- Water Rates - Conserving Water and Protecting Revenues