As mentioned in last week’s blog post, some utilities are creatively setting varying base charges for subgroups of customer classes in order to more equitably distribute the (fixed) costs of the utility among customers with varying demands. One way this is being done is by tailoring the base charge based on each individual customer’s water use levels. No doubt, consumption-determined base charges are rare among water utilities today. However, there are some examples, and these examples demonstrate two methods of determining base charges based on water use.
Base Charge on a Water Bill
Base charges are critical for water utilities’ finances given that the majority of utility expenses are fixed in the short term and require a stable revenue source to pay for them despite decreasing demands. The most common practice is for utilities to set a constant base charge for each customer class or vary the base charge by meter size. Yet, this assumes that every residential customer with a 5/8″ meter places the same fixed costs on the water system. A few utilities have determined that this was not the case and have structured base charges more creatively, resulting in varying base charges among customers of the same customer class. This post describes some of the less common structures of base charges.
Big News in the World of Innovative Water Rate Design
Last week, one of the most interesting water rate structures we’ve seen recently was narrowly voted down in a referendum vote. After several years of debate and campaigns to win the hearts and minds of rate payers, voters in the City of Davis, California very narrowly (51% versus 49%; only 264 votes apart) passed a measure that repeals changes to their water rates. One of the key features of the rate structure that would have otherwise been implemented was a Consumption-Based Fixed Rate.