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Published in: Water Resources Management 1/2022

06-01-2022

Residential Water Demand Under Increasing Block Rate Structure: Conservation Conundrum?

Authors: Brandli Stitzel, Cynthia L. Rogers

Published in: Water Resources Management | Issue 1/2022

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Abstract

Water utility managers must balance conservation and revenue goals. A conservation conundrum occurs if price increases lead customers to reduce consumption so much that utility revenues fall. We investigate whether a large increase in water rates in Norman, Oklahoma led to a conservation conundrum. Norman uses a common increasing block rate (IBR) structure which sets higher volumetric rates at higher ranges of consumption. IBRs are believed to encourage conservation. Estimating demand responses is challenging under IBRs due to co-determination of volumetric rate paid and consumption choice. We address this empirical challenge by estimating panel regressions using detailed monthly water bill data for consumers grouped by pre-change consumption. We find heterogeneous responses where high-volume users respond more to rate increases than lower-volume users but do not observe a conservation conundrum.

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Footnotes
1
Hughes and Leurig (2013) discuss the conundrum where conservation can necessitate rate adjustments for cost recovery: customers are asked to pay higher prices for less consumption.
 
2
Concern by of Norman staff inspired this investigation.
 
3
See Boyer et al. (2012) for more background on water utility financial situation in Oklahoma communities.
 
4
The voter requirement resulted from backlash to the Mayor using utility rate increases to fund police in 1974. (Layden 2014).
 
6
Only a few homes did not lie in a census track with a rainfall sensor.
 
7
Property records were available for 28,509 homes of single family residential water utility customers in Norman.
 
8
The City of Norman GIS staff estimate this using satellite imagery.
 
9
Average monthly consumption for the March through October from 2010 to 2015 was 7,625. The corresponding average for 2014 was 7040, making 2014 a representative year.
 
10
For the low group the marginal response to an additional 10 sq ft of pool is 3/10 of a percent, average use is 3,027, and summer is 7 months (March through September). Therefore the predicted marginal response to an additional 100 square feet of pool for the summer is 0.003*3,027*10*7 = 635.67.
 
11
City of Norman “Water Quantity March 2015 to February 2017” downloaded on May 15, 2020 from http://​www.​normanok.​gov/​utilities/​wt/​water-treatment-water-quantity.
 
12
The midpoint formula expresses percentage change in terms of the average change: (R1-Ro)/[(R1 + R2)/2], where R1 is new rate and Ro is the old rate.
 
13
The full results are not provided for brevity.
 
14
The corresponding regression estimates are available upon request.
 
15
As discussed above water restrictions were in place for a large range of the sample period. Further the restrictions were related to drought conditions captured in the rainfall variable.
 
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Metadata
Title
Residential Water Demand Under Increasing Block Rate Structure: Conservation Conundrum?
Authors
Brandli Stitzel
Cynthia L. Rogers
Publication date
06-01-2022
Publisher
Springer Netherlands
Published in
Water Resources Management / Issue 1/2022
Print ISSN: 0920-4741
Electronic ISSN: 1573-1650
DOI
https://doi.org/10.1007/s11269-021-03022-y

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