I was at Irvine Ranch Water District [IRWD] in 1991 when we designed the water budget rate structure. An individual customer is not compared to a group or a generalized allocation/budget. Each individual customer is allocated water based on their specific situation (number of residents, size of landscape area). So, there is no comparison to a standardized allocation or "average property". Each customer is compared to the individualized site specific allocation based on their characteristics. This is considered much more equitable than comparing all customers in a group to a single standard. It is partly what makes the IRWD rate structure so accepted by customers and so successful.Although I agree with Tom that IRWD's system is "fair" in requiring that people make the same reduction in their physical "needs," I do not agree that the budget should be based on lawn size or business consumption. (Golf courses in the desert should pay a heavy charge if they use a lot of water.) As I said in my original post, budgets should be based on the number of people in the house.
The residential customer group has an allocation equation. That equation establishes a per capita use goal or standard of use per day per person. The second part of the equation includes the size of landscape and daily ET. It also establishes an efficiency standard, say 70% of the local ET allowed for the irrigation needs (this is the State of Calif. Legislation standard). With these 2 elements of the allocation structure, individual allocations are calculated per home. Those allocations change as the weather changes as real time ET is used and downloaded into the billing system each day.
This system does not compare one customer to another as each customer has their own set of circumstances. Using high efficiency standards and an individualized approach we were able to create equity and high customer satisfaction levels. With a generalized allocation or budget we would have underallocated some and overallocated others. This would have made for (1) less conservation achieved and (2) political/public relations problems across customers being fit into a single allocation box. The generalized allocation is the method most agencies use because they see it as easiest. Those same agencies have seen customer dis-satisfaction as the result.
If a customer uses more water than their individualized allocation, they certainly pay higher prices. However, one customer can use more than another and not be penalized if their situation is different (say more residents and/or larger landscape area). Over water use, not high water use, triggers the penalty costs.
Sometimes this argument is one of semantics. I think most would agree that wasted water should be expensive water. But water that is needed for what people already have (business, family size, outside water need) should be priced low. I hope this is clear of what the IRWD system does. It achieved significant savings and very high customer satisfaction (over 90%). The rate structure also generated "excess" revenue that was used exclusively for conservation programs. It created a scenario where only water wasters paid for conservation. This also made sense to end users.
OTOH, I see Tom's point on customer acceptance -- by grandfathering in wasteful practices, IRWD made it easier for wasters (huge lawns) to cut back slowly, without getting hit by a massive "conservation" price increase.
Perhaps the best case would begin with budget based rates and then (over 5-10 years) move to human-based rates.
Bottom Line: It doesn't matter how good your rate structure is if it's not adopted.