Conservation feebates

Abstract

A combination of fees and rebates—“feebates”—offers the economic efficiency of marginal cost pricing but keeps revenues equal to costs. Municipal water rates are expected to satisfy three objectives: efficiency, revenue neutrality to the utility, and distributional equity. Unfortunately, adjusting rates to efficiently achieve use and conservation targets would ordinarily generate excessive revenues. Rather than mold one tool to the service of three masters, this article suggests combining three separate tools. The first sets the water rate to cover the utility's costs. The second assigns customers allotments to water use. The third either charges a fee for use that exceeds the customer's allotment or hands out rebates for consumption below that allotment. The fees pay for the rebates—thus the term “feebate.” The outcome is (1) revenues to the utility just sufficient to cover costs, (2) efficient water consumption by municipal water customers without conservation mandates, and (3) revenue effects that can be spread fairly across various categories of customers.

Contingent Professionalism: Bureaucratic Mobility and the Adoption of Water Conservation Rates

“…Although individualized rates are clearly conservation oriented, only a handful of utilities (and none in the surveyed utilities) had adopted such rate structures at the time of the survey. (Collinge 1996;Gaur 2007;Michelson, McGuckin, and Stumpf 1998). A utility's adoption of a conservation-oriented rate structure is a decision to redistribute resources and so to accept the political risks that accompany redistributive policies.…”

Adapting to change: Water utility financial practices in the early twenty‐first century

“…Similar to budget‐based rates, tailored rates (Teodoro, 2002), feebates (Collinge, 1996), and hybrid rate structures are being developed as alternatives to meet the rate design goals of both conservation and cost‐of‐service recovery. These rate structures are still in the early stages of development.…”

“…Feebates are similar to a cooperative dividend model; all customers pay a flat fee for water use and in a later period receive refunds if they use less water, and the utility charges extra fees to water‐guzzling customers (Collinge, 1996). This type of structure stretches the water utility into taking on services of a bank, thereby adding significant administrative costs for the utility and also increasing the time between a customer's use and final charge for that water—putting both the water utility and the customer at greater financial risk.…”

Tailored rates

“…In some ways, this rebate idea is similar to the “feebate” rate structure proposed by Collinge (1996). However, Collinge's feebate program would set fees and rebates to achieve specific elasticity responses and thereby meet conservation goals.…”