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Show Imposing Conditions of Service Wholesale water purveyors can also use rates as a means of forcing retail agencies to use the water in certain ways. For example, the wholesaler could offer water based on seasonal exchanges, or with built- in " ratchet." This could make it prohibitively expensive for a utility to use the wholesale water for any purpose other than base load. Water sales to retail purveyors are generally large enough to justify special metering costs. This allows wholesale purveyors to introduce demand cost components into the pricing structure that would be infeasible in a retail pricing structure. As with retail pricing, wholesale rates using declining rate schedules should be discouraged. The wholesaler can also impose certain conditions of service. For example, utilities using California Water Project water are required under state law to develop water conservation plans for dealing with drought situations. Water utilities in Texas that obtain loans from the Texas Water Development Board program are subject to conditions outlawing declining block rates for all but large industrial facilities with high load factors. Contained within the Central Utah Project Completion Act are examples of pricing incentives. Payment requirements can be reduced if the amount of water left in Utah streams is increased. Irrigators are subjected to a surcharge if they use project water to produce crops included in a set- aside or crop subsidy program. Take or Pay Contracts " Take or pay" contracts are defined as those in which the buyer will pay for the contracted amount of water whether the buyer uses the water or not. These type of contracts do not promote conservation below the contracted amount. Take or pay contracts are a risk management tool for risk adverse water wholesale agencies. Discussions of other more risk neutral management and contract options should be pursued to minimize the conservation drawbacks of " take or pay" contracts. Elements of a Pricing Policy A water conservation pricing policy could address the following: A. All accounts should be metered and customers should be billed monthly. A correlation between price and consumption cannot be made without accurate measures of use. This information should be presented to customers in a way that they can see the penalty paid for wasting and rewards of conservation efforts. B. Eliminate water and sewer rate structures that provide no opportunity for customers to reduce their water and sewer bills by reducing their water consumption; i. e., phase out flat fees and rates that include minimum charges covering large amounts of water. C. Include in the rate making process a reserve fund for replacing expanding water system facilities as they become worn out or undersized. D. When setting prices for water sources, incorporate the cost of developing the next source. E. When minimum fees are charged, the quantity of water provided under the minimum block should be a reasonable amount which encourages conservation. & |