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Show WATER PRICING POLICY STUDY Wholesale Water Rates as Conservation Tools Any water pricing scheme that is available to retail water agencies is also available to wholesalers of water. The retail water agencies are the customers of the wholesaler, and water sold to them can be priced in the same fashion as water that is sold to residential, commercial, and industrial customers of retail agencies. It can be argued that conservation pricing is not the role of the wholesale water purveyor. One frequently asked question is " who actually makes the decision to conserve water?". The answer is that the ultimate consumer of water makes decisions that result in a change in the ultimate consumption of water. Thus, retail water rates effect conservation, not wholesale water rates. From a practical standpoint, however, wholesale agencies can introduce methods that will induce a reduction in the ultimate consumption of water. Wholesale water purveyors have available a wide range of pricing tools that can be used to shape water demand, including uniform, declining block, increasing block, marginal cost, seasonal, and flat rates. Wholesale purveyors can also use rates as a means of forcing retail purveyors to use the wholesale water in certain ways. For example, the wholesaler could offer water on the basis of seasonal exchanges, or with " ratchet" factors built in that make it prohibitively expensive for a utility to use the wholesale water for any purpose other than baseload. Wholesale water sales to retail purveyors are generally large enough to justify special metering costs, allowing wholesale purveyors to introduce demand cost components into the pricing structure that would be infeasible in a retail pricing structure. From the standpoint of rate structure development, the preferred option is to induce conservation at the point of ultimate consumption ( the retail level). If retail rates are developed that send the appropriate price signal to consumers, it should not be necessary to consider conservation- inducing rates at the wholesale level. An exception to this is the recommendation that wholesale rates absolutely should not encourage water usage. This recommendation would effectively eliminate declining block rates or fees that are independent of the level of water used. Conditions of Service as Conservation Tools Perhaps of greater importance than direct rate impacts are other impacts imposed through conditions of service. Conditions can be imposed - or pricing incentives provided - to deal with any and all types of planning or regulatory coordination issues. Executive Summary ES- 10 |