How to use price as a tool to improve water service provider financial performance and community water use efficiency

http://poliswaterproject.org/sites/default/files/PricingPrimer_1.pdf

excerpts:

• The Regional District of Nanaimo, on the east coast of Vancouver Island, operates seven small water utilities, referred to as Water Local Service Areas. All seven are fully metered, and customers are billed on an inclining block system with six different consumption tiers designed to encourage efficiency. A customer would have to use a hefty volume of water to make it into the top tier (over 3.5 cubic metre/day). However, those who do, pay a premium at $3/cublic metre.
• The Capital Regional District, at the southern tip of Vancouver Island, is the bulk water supplier to municipalities in and around Victoria, and has been a leader in the field of full cost accounting for some time. Since at least 1995, the Capital Regional District has used full cost accounting to allocate the capital component of costs over the life of the assets. Its representatives have successfully argued that full cost accounting ensures sustainability of the water system, facilitates rate stability, leads to efficient resource allocation, creates the right fiscal environment for encouraging conservation and discourages overbuilding of infra- structure. In summary, they have demonstrated that it represents sound business practice reforming water allocation systems, modifying building codes to mandate the use of fixtures such as high efficiency toilets, or requiring commitments to conservation as a condition of infrastructure funding.
• 10. TAKE THE LONG-TERM VIEW...
  Canadian water providers, policy makers and researchers still have much to learn about water use in our communities and about how people will respond to different pricing approaches. As our knowledge and understanding grows and communities become more familiar with conservation-oriented pricing, the sophistication of rate structures can increase. Demand for innovative and effective approaches to water use efficiency and conservation will also grow as communities adapt to the realities of climate change and its impact on our water supplies. In the future, price, rather than outdoor watering restrictions, may well become the main tool to ration water during drought (known as scarcity pricing). Utilities might begin to use distance pricing, where users pay for the actual cost of supplying water to their individual connection. Non-linear price schedules and other more esoteric economic tools, where the mapping from quantity purchased to total price is not a strictly linear function, may become the norm.16 Non-linear pricing is already commonly used in the mobile phone industry and even in the energy sector. Over time, this may become more common with water, particularly as “smart meter” technology proliferates.