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Show WATER PRICING POLICY STUDY purpose of the surcharges must be clearly spelled out. To further counteract customer " backlash", it is best to develop the surcharge policy during a " normal" year rather than during a drought- inspired financial crisis. Surcharges can be assessed as fixed monthly fees, a commodity rate increase, or a combination of the two. As a commodity rate increase, it can apply to all consumption, or to consumption exceeding certain levels. The surcharge can be used to transfer more of the revenue burden ( cost) to high- use customers. Higher charges to high- use customers can generate enough revenue to actually lower rates for those customers who use less. Generally, surcharges are high enough that they are effective in inducing conservation. Since they are temporary, the surcharges do not induce permanent changes in consumption levels. Many utilities have noted, however, that it can take years for usage to rebound to pre- surcharge levels. Increasing Block Rates The increasing block rate is a rate form in which the cost per unit of consumption increases as the number of units consumed increases. Increasing block rates are justified when identifiable cost distinctions exist, such as through the identification of distinct customer groups that impose different levels of cost on the utility. Any number of consumption blocks can be specified. However, the first block must include a sufficient quantity of water that some customers' water consumption fall entirely within the first block. If the rate is structured such that all customers enter the second block, then the first block does not provide a conservation goal, but rather provides only a price break. Increasing block rates can offer the advantage of sending clear price signals to high- use customers, particularly in situations where the cutoff lines between blocks are based on real cost differentials. Increasing block rates are easily understood by consumers, but in a society used to " bulk discounts", customers may need to be convinced that the cost structure makes sense. Increasing block rates are not inherently difficult to implement. It is difficult, however, to estimate the conservation impact of increasing block rates. Customers in the lowest block might pay less than they would under a uniform rate structure, and could therefore increase usage. Customers buying water at the higher block would pay a higher price and would be expected to decrease usage. The net effect depends on whether the decrease in demand by the higher block customers is greater than the increase in demand by the lower block customers. A rate study that attempts to accurately estimate customer response to an increasing block rate structure can be time consuming and expensive. Executive Summary ES- 18 |