Tailored rates

Teodoro, Manuel P.

doi:10.1002/j.1551-8833.2002.tb09557.x

Cited by 10 publications

(7 citation statements)

References 3 publications

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“…Teodoro (2002) developed a similar concept of volumetrically based fixed rates using a different approach from what is presented here. However, limiting volumetric water use to the variable portion of the bill (which is only 20% if aligned with the typical variable costs of a water agency) dampens the degree of the conservation signal and potentially affects customer affordability.…”

Section: A New Harmony: Cbfrmentioning

confidence: 99%

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Consumption‐Based Fixed Rates: Harmonizing Water Conservation and Revenue Stability

et al. 2015

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A water utility must balance multiple objectives when determining how to charge customers for its services and the water it delivers. These goals usually include receiving stable and predictable revenue that is adequate for repaying the costs of providing water; promoting efficient water use; ensuring fairness, equity, and affordability in water bills; providing stability and understandability of charges on bills; and complying with applicable laws (AWWA, 2012).In addition, water conservation is a critical goal for many water systems as they seek to defer the costs of developing new water supplies or replacing aging infrastructure, to adapt to greater variability in water availability from climate change, and to maintain sufficient water availability for the natural environment (USEPA, 2002;Jordan, 1993). This article addresses two important but often conflicting objectives of ensuring stable revenue and sending a price-based conservation signal to customers.Water-providing utilities that succeed in conserving more within their service territory than anticipated face a revenue penalty in terms of unrealized sales. In fact, water agencies can be left struggling to generate enough revenue to recoup the costs they incur for treating and providing water, including environmental and future costs. If utilities practice full-cost ratemaking, all of these costs are recovered through water sales, so revenue loss leads to a subsequent water rate increase, meaning customers are essentially punished for using less water (Chesnutt & Beecher, 2004). This overall trend has been referred to as the "new normal" of water pricing-that a utility is either able to have stable revenue or to promote conservation, but not both (AWWA & RFC, 2013).The purpose of this article is to both characterize and resolve the tension between utility revenue and customer conservation that defines the new normal. This analysis includes quantification of the structural instability of existing rate designs, including discussion of the amplification of revenue lost from reduced water demand, as well as a description and exploration of a new rate structure designed to balance the competing objectives of the new normal, called consumption-based fixed rates (CBFR). WATER RATES OVERVIEWA water rate structure establishes customer charges or amounts billed, essentially defining the revenue received to match a utility's costs (AWWA, 2012). Over the years, rates have evolved based on the needs of utilities and ratepayers as well as parallel advances in technology. Toward the end of the 19th century, when water was relatively cheap and plentiful, utilities charged customers a flat fee for water use regardless of the amount consumed (Masten, 2010). However, as population and economic development increased overall water demand, water agencies needed a way to both monitor and influence consumption within their service area. The adoption of water meters provided a mechanism to charge for water volumetrically-or based on the amount actually consumed by customers. With ...

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Section: A New Harmony: Cbfrmentioning

confidence: 99%

“…The authors propose a solution in the form of a rate structure that harmonizes fixed and variable costs with revenue while providing a volumetric price signal, and call this new rate structure CBFR. Teodoro (2002) developed a similar concept of volumetrically based fixed rates using a different approach from what is presented here.…”

Section: A New Harmony: Cbfrmentioning

confidence: 99%

Consumption‐Based Fixed Rates: Harmonizing Water Conservation and Revenue Stability

et al. 2015

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“…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.…”

Section: Internal Utility Practices: Innovations In Rates Revenue Gementioning

confidence: 99%

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

Boyle¹

2014

Journal AWWA

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Water and wastewater utility managers are encountering a host of financial challenges beyond their control. From the recent economic recession to the health of financial markets, aging infrastructure, and a changing climate, complex issues threaten utilities' financial health. Many water utilities are responding to address these challenges. To date, few studies have examined how widespread innovative financial practices are among the nation's public water systems and how these practices are helping utilities cope with mounting financial challenges. This article examines the major financial challenges facing water utilities and reviews the current state of the US water sector's financial management practices with the aim of strengthening policymakers' understanding of the drivers and impacts of available financial mechanisms. Utility financial practices are evaluated on the basis of their ability to minimize risk and create financial resilience in utility financial management.

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“…Consistent with the methodology described in earlier work on tailored rates, this calculation proceeds according to a four‐step process (Teodoro, 2002). The first three steps—revenue requirement calculation, functional cost calculation, and unit cost calculation—are identical to those used in the traditional cost‐of‐service analysis described earlier.…”

Section: Measuring Rate Equitymentioning

confidence: 99%

Measuring Fairness: Assessing the equity of municipal water rates

Teodoro¹

2005

Journal AWWA

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Meaningful, scientific measures of water rate equity are elusive. Without a sound metric for equity, discussions of fairness in water rates are prone to political manipulation, or worse yet, neglect. This study crafts empirically grounded, theoretically consistent metrics of water rate equity at the individual customer level, based on AWWA's cost‐of‐service principles. Individual equity measures are aggregated to a utility‐level rate equity index for analysis of entire rate structures. A third metric captures rate progressivity, or the degree to which rate structures favor high‐ or low‐cost‐of‐service customers. Equity metrics are calculated using financial and billing data from a small municipal water utility. Finally, this article analyzes several alternative rate structures for the example utility and draws inferences about their respective degrees of equitability. The equity metrics developed here provide new tools for managers and policymakers in assessing the equity of alternative rate structures.

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Tailored rates

Cited by 10 publications

References 3 publications

Consumption‐Based Fixed Rates: Harmonizing Water Conservation and Revenue Stability

Consumption‐Based Fixed Rates: Harmonizing Water Conservation and Revenue Stability

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

Measuring Fairness: Assessing the equity of municipal water rates

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