AWE Resource Library

Water Rates and Rate Structures

Pricing water appropriately can be on of the most effective methods for reducing water demand.  A wide variety of water rate structures are currently in place in North America and there are definite differences in their design and impact.  The AWE Resource Library pages listed below offer information on water rates and rate structures as well as links to the latest research and information about this important topic.

Water Rates

Water Rate Structures

Water Rates and Charges Introduction 

AWE (2008) Fundamentals of water ratemaking 

AWE (2008) Water rates references 

 

Conservation Oriented Rate Structures 

AWE (2008) Implementing a conservation oriented rate structure 

AWE (2008) Water budget rate structures 

White Paper (2009) - Rate Structures and Conservation 

 

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As part of its Financing Sustainable Water initiative, AWE is developing a suite of new resources to provide practical information to guide utilities from development through implementation of rate structures that balance revenue management, resource efficiency and fiscal sustainability. These resources will be available in in early August, free of charge to utility managers. We encourage you to return to the AWE website after August 12 for free access to the following new tools. Please contact Megan Chery with any questions.

FSW CoverBuilding Better Rates in an Uncertain World: A Handbook for Balancing Revenue Management, Resource Efficiency and Fiscal Sustainability 

This new Handbook provides the latest thinking, guidance and real world examples on the following topics:

  • Ratemaking Principles and Concepts
  • Steps for Building a Better (Efficiency-Oriented) Rate Structure
  • Implementing an Efficiency-Oriented Rate Structure
  • Financial Policies and Planning for Improved Fiscal Health
  • Public Engagement and Communications

AWE Sales Forecasting and Rate Model 

A new analytical tool that can explicitly model the effects of rate structures (examples from model below).  Typical water rate models assume that future sales are known with certainty, and do not respond to price, weather, the economy, or supply shortages—that is to say, not the world we live in. The AWE Sales Forecasting and Rate Model addresses this deficiency and enables analysis of the following:

  • Customer Consumption Variability—weather, drought/shortage, or external shock
  • Demand Response—Predicting future block sales (volume and revenue) with empirical price elasticities
  • Drought Pricing—Contingency planning for revenue neutrality
  • Probability Management—Risk theoretic simulation of revenue risks
  • Fiscal Sustainability—Sales forecasting over a 5 Year Time Horizon

The Model has two distinct modules: 

     The Rate Design Module can answer the following questions:

  • What effect would increasing the rate in our top tier by 15% have on water demand? 
  • Will shifting to seasonal rates cause overall water use to increase or decrease?
  • What block rate design could allow us to preserve our current level of revenue while reducing demand?
  • How should we adjust rates to support our water demand management objectives during water shortages?
  • What proportion of customer bills will increase under our proposed rates when compared to current rates? 

     The Revenue Simulation Module can answer the following questions:

  • What is the likelihood we will meet one-year, three-year, five-year revenue targets?
  • What is the chance our revenues will turn out more than 15% below our current projections. 
  • What level of confidence can we have that our sales will exceed our minimum planning estimates?

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Definition of Terms

Looking for a quick definition of a water or conservation related term or concept?  The AWE Glossary has an extensive list of the most commonly used terms in the biz.

AWE Glossary of Common Water Related Terms, Abbreviations, and Definitions 

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