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When utilities design water rates, they must balance a number of potentially competing objectives: water conservation, revenue, revenue stability, affordability, and consumer equity. This research proposes a number of criteria based on these objectives that can be used to evaluate water rates. In the case of water conservation, these criteria include: average water prices, marginal water prices, percent savings on household water bill associated with water use reduction, and distribution of utility revenue between volumetric and fixed charges. In the case of revenue, the proposed criteria include: average monthly revenue, standard deviation of monthly revenue, standard deviation of household bill, and distribution of household bills. Finally, in the case of affordability and equity, the proposed criteria include: quantity of water that a hypothetical household on the Federal poverty line could consume without exceeding a defined hardship threshold, and Gini coefficient estimates of rate equity as defined by income groups. These criteria were used to conduct comprehensive rate evaluations of sixteen Florida utilities. Data were provided by the 2005 Florida Water Management District report, Florida Water Rates Evaluation of Single Family Homes, by Dr. John Whitcomb. The report collected water use and price data from more than 3,000 Florida Households from 1998-2003. The rate evaluations completed for this study suggest several broad conclusions. First, utilities’ objectives of water conservation, water affordability, and customer equity do not appear to conflict with each other. Second, there is often a trade-off between water conservation incentives and stability of utility revenue. Third, inclining water rate structures with more than three price blocks tend to send stronger conservation price signals than other rate structures. Finally, water rates cannot be evaluated in isolation from utilities’ sewer rates, taxes, and inflation. |