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Show WATER PRICING POLICY STUDY services. 2 A number of states also require water conserving rate forms. For example, most regulated water utilities in Nevada are required to have increasing block rates. 3 CONSERVATION PRICING ISSUES Potentially, institutional issues may inhibit immediate movement to water conservation rates. A major institutional issue concerns risk. The most commonly used water rate structure in the region affords a high degree of certainty relative to water conservation rates. Utilities with heavy reliance on ad valorem taxes will be doubly affected by increased risk. To promote conservation, the majority of net revenue requirements should be recovered through variable charges. In one study of a nature similar to this study, the guideline is that 75 percent of revenue requirements should be recovered through variable charges, and that 90 percent of all revenues should be recovered through water rates, impact fees, and other non- tax income sources. 4 Risk- averse institutions face the need to change their institutional outlook in order to accomplish these changes. Another institutional issue surrounds the incidence of costs, revenues, and subsidies. Ad valorem taxes represent a form of subsidization as owners of undeveloped lands subsidize the variable water costs incurred by owners of developed land. Use of ad valorem taxes should be discouraged for purposes other than capital expenditures and prices should be set to recover costs from those causing the costs to be incurred. The price of water should equal the variable cost of supplying the water. This implies the elimination of subsidies, a change that would be welcomed by those providing subsidies but not by those receiving subsidies. A fact of life is that mechanisms providing subsidies ( no matter who is receiving the subsidy) generally have constituencies that will oppose any effort to remove the subsidies. Marginal cost pricing raises questions because the policies can result in over- collection. Irrigation water purveyors generally price water to cover costs, cooperatively, and any pricing policy that raises " excess" revenues would be viewed unfavorably. Municipalities are limited in the level of retained earnings that can be held. Marginal cost pricing might be useful only as a " template" for allocating embedded cost revenue requirements. 2 Woodcock, Christopher. Alternative Conservation Rates. Vancouver, B. C.: AWWA National Convention. June 22, 1992. 3 Telephone conversation with Dr. Stanley, Nevada Public Service Commission staff, February 2, 1992. 4 Brown and Caldwell. Definition of Water Conservation Promoting Rates. Report prepared for the Southwest Florida Water Management District. February, 1993. Page 4- 2. Executive Summary ES- 8 |
