How Well Do Block Rate Water Budgets Promote Water Use Efficiency?

Dr. Ken Baerenklau

Dr. Ken Baerenklau Present Study on Block Rates to the SAWPA Commission

How well do block rate water budgets work to encourage customers to conserve water?  Dr. Ken Baerenklau, Associate Professor of Environmental Economics Policy at the University of California, Riverside, presented his study on this subject to the SAWPA Commission this January. In the study, he used data from Eastern Municipal Water District as they implemented a new water budget rate structure in 2009.

Block Rate Water Budgets

Increasing block rate water budgets are a particular type of escalating tiered price structure in which the block sizes are based on household-specific characteristics (e.g. household size, irrigated area), environmental conditions (e.g. evapotranspiration), and a judgment by the water district with regard to what constitutes “efficient” water use given those characteristics and conditions.

Water budgeting allows water districts to charge more for water as household use increases.  Prices remain low for essential uses of water and rise in “blocks” with higher and higher prices for uses of water deemed to be less necessary.

EMWD implemented a water budget rate structure that separated indoor use, outdoor use, excessive use, and wasteful use.  Prices increase by block, as does the cost to supply the water used by customers.

Block rates encourage households to conserve water.

Studying the Results Using EMWD Data

In the study, Baerenklau surveyed water use of over 13,000 residential homes, which is about 11% of EMWD’s overall customer base, between 2003 and 2012. He compared the predicted water use under flat rate pricing with the actual water use experienced by those households under block rate water budgets, and used the difference to determine how much water use efficiency may have been influenced by the water budget rate structure.

What were the Conclusions?

Three years after implementation, block rate water budgets appear to have reduced demand by about 15%.  During that time, average prices rose only 4%.  According to Baerenklau, it would have required a price increase of approximately 30% to achieve the same effect under flat rate pricing. It would appear that block rate pricing achieves the goal of encouraging water efficiency while keeping overall prices low and addressing equity concerns.