The AquaHawk Blog

A blog about customer portal solutions for utilities

Have you Considered Water Budget-Based Rates?

Cut budgetThere’s an informative report titled, “Water Budget-Based Rate Structures – Powerful Demand Management Tools” written by Peter Mayer of Aquacraft, Inc. that you can find here:  http://www.aquacraft.com/node/50. It provides a comprehensive explanation of water budgets and water budget-based rates, how they’re used, the benefits and challenges, and recommendations on how water providers can implement them successfully.

Here is a brief summary of some of the main points in the report:

1. What is a water budget?

A water budget is basically the amount of indoor and outdoor water a home should use to meet personal water needs and outdoor irrigation requirements.  According to the report, “A water budget is the quantity of water that would be required by an efficient level of water use (Mayer, et. al. 2007).”

Landscape water budgets have been borrowed from the agriculture industry.  Growers monitor ET or “evapotranspiration” rates to know how much water they should apply to their crops so that they maximize the yield.

Homeowners who have turf installed don’t necessarily want to maximize grass yield but instead want to use as little water as possible to maintain a green lawn.  ET and IR (Irrigation Requirements) are useful metrics to help homeowners determine how much water to irrigate their lawns with on a daily/weekly basis.  These values can also be used to adjust customer’s water budgets.

2. What is a water budget-based rate?

“Water budget-based rate structures can be thought of as an increasing block rate structure where the block definition is different for each customer based on an efficient level of water use for that customer.”

An example would be a family of three in a single family home with a 200 sq. ft. turf lawn.  The family would be allotted an amount of water for indoor usage, say 4,000 gals. per month and an outdoor amount, say 10,000 galls. per month during the irrigation season.  A series of rates, individualized for the home, would be assigned.

If the home uses less than 14,000 gals. during the summer months, they pay at the lowest rate.  If they use up to 50% more than the budget, they pay the next highest rate, and so on.

Not all water providers, however, assign “a unique water budget for each customer.”

3. What are the benefits of water budget-based rate models?

According to the report, some of the reasons water budget rate structures are beneficial include:

  • More predictable revenue for water providers
  • Customers like the model and perceive it to be fair
  • Offers customers more personal choice on how they use water
  • Effective drought response.

This model provides a dynamic way to respond to droughts because if water supplies dwindle, providers can quickly adjust allotments and prices for all customers.  Water budget based rates support efficient water usage.

4. Who is using them?

Water budget-based rates have been in use for almost 20 years.  More than 20 water providers in the U.S. have implemented this pricing model including:

  • City of Boulder, CO
  • Centennial Water & Sanitation District, Highlands Ranch, CO
  • Los Angeles Department of Water & Power, CA
  • Irvine Ranch Water District, CA
  • City of Santa Barbara, CA

5. What are the disadvantages of water budget-based rates?

To implement this rate model, providers need a billing application that can support it.  In addition, the provider must invest in customer communication and education to explain how the rates work.  Ongoing customer service requirements are higher, and providers need to gather more information about the household and the property to insure billing is calculated accurately.

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