19 Feb 2009

Conservation Pricing for Businesses

Throughout this blog, I have advocated all-in-auctions for allocation of water among rights' holders at the wholesale level (e.g., among farmers in an irrigation district, urban water agencies that buy from a wholesaler, or between sectors -- ag, urban and environment) and conservation pricing for homeowners at the retail level (i.e., every PERSON gets some for free, but must pay for more).

My goal -- on the wholesale level -- is to move a FIXED AMOUNT of water from those who own it to those who value it (sometimes the same person!). At the retail level, my goal is to ensure that everyone gets a "human right" allocation of water and that those who use more, pay MUCH more for their discretionary consumption of water-as-commodity.

Unfortunately, my retail scheme doesn't address businesses because it's based on per-capita blocks (e.g., the free block is 75gal/capita/day and later blocks are much more expensive), and businesses have widely varying water needs that do not reflect sales revenue, employees, location or customer numbers.

So, we need a pricing scheme that gives businesses the incentive to use as little water as they can get by with BUT also recognizes that some businesses are more water-intensive than others -- restaurant versus office, for example.

So, here's the way to do that:
  1. Every business pays a fixed monthly charge based on the size of its water meter. "Meter" basically means the diameter of the pipe for incoming water, i.e., 1/2, 3/4, 1, 2, or 3 inches.
  2. Given the size of the pipe, the business then gets a cheap block of water that's bigger if the meter is bigger. After that cheap block, the next block is more expensive, and so on...
This system gets closer to matching fixed and variable costs to fixed and variable prices (via meter and use costs). In addition, it gives businesses an incentive to install the smallest meter possible (to minimize the monthly base charge) and then -- for a given meter size -- use as little water as possible.

Bottom Line: Encourage conservation by charging more, but make sure that "more" fits the scale of the enterprise.


  1. Farms are businesses. How do they fit into the new scheme?

  2. So, would the quantity rate be higher as the meter size increased? that is saying that businesses that use a lot of water (say a high tech manufacturer) pays a higher rate per ccf than a smaller business. I'm not sure that is equitable. I like the idea of a cheap rate and quantity in the first tier, then higher rate in the 2nd tier. But I'm not sure if the rates should be relatively higher depending on the meter size. Your thoughts?

  3. Re-reading your post I guess you are only suggesting that the quantity allotment in the first tier is scaled to meter size, not necessarily the rate itself.

  4. Interesting...i think this makes sense.

  5. @Anon -- Farms *are* businesses, but they do not often get water from urban networks (application of this idea). I recommend All-in-Auctions for farms BECAUSE they have water rights, there is no argument for a minimum flow (i.e., they may choose fallowing), and because water IS their main input...

    @Ben -- you are right. I don't have an opinion on the price of units.

  6. 2.Given the size of the pipe, the business then gets a cheap block of water that's bigger if the meter is bigger. After that cheap block, the next block is more expensive, and so on...

    One problem of the system is that businesses change places all the time, but cannot change their connection. Buildings are being reformed all the time for new occupants.

    I would suggest a cheap block of water based on a table of kind of business and production volume. For example, the average for restaurants is 1 gallon per plate, so if a restaurant plans to produce 1,000 plates a day, 1,000 gallons would be its basic allocation. Everything over the average would be considered waste and more expensive.

  7. @J -- they can "virtually" change their connection by paying for a meter that's <= what's installed.

    The per plate idea creates WAY too much bureaucracy...


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