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Factors Driving Water Utility Rate Structure Choice: Evidence from Four Southern U.S. States

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  • Christopher Boyer
  • Damian Adams
  • Tatiana Borisova
  • Christopher Clark

Abstract

Water utilities typically set residential water prices using one of three rate structures: increasing block rate (IBR), uniform rate (UR), or decreasing block rate (DBR). Historically, DBR has been the most widely used residential rate structure, but water utilities are increasingly switching to a UR or IBR structure. The literature suggests several possible motivations for rate structure decisions, but provides little empirical evidence to support these suggestions and largely ignores the role of water managers’ attitudes and perceptions in the rate structure decision. The objective of this study is to statistically assess factors that drive rate structure changes, specifically toward UR or IBR, in the southern US. We designed and implemented a survey of water utility managers in Arkansas, Florida, Oklahoma, and Tennessee, including rural to urban water utilities. Survey questions were selected based on water utility manager input and literature review and included rate structure changes, system characteristics, and attitudes and perceptions about factors likely to influence rate structure changes. The rate structure adoption decision is modeled using both multinomial logit and Heckman probit specifications. Our results suggest that different factors drive the adoption of UR and IBR, including fair prices for end-users, qualifying for government grants/loans, revenue concerns, treatment cost increases, and infrastructure investment needs. Copyright Springer Science+Business Media B.V. 2012

Suggested Citation

  • Christopher Boyer & Damian Adams & Tatiana Borisova & Christopher Clark, 2012. "Factors Driving Water Utility Rate Structure Choice: Evidence from Four Southern U.S. States," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 26(10), pages 2747-2760, August.
    • Handle: RePEc:spr:waterr:v:26:y:2012:i:10:p:2747-2760
    DOI: 10.1007/s11269-012-0043-z
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    1. Suárez-Varela, Marta & Martínez-Espiñeira, Roberto & González-Gómez, Francisco, 2015. "An analysis of the price escalation of non-linear water tariffs for domestic uses in Spain," Utilities Policy, Elsevier, vol. 34(C), pages 82-93.
    2. Brandli Stitzel & Cynthia L. Rogers, 2022. "Residential Water Demand Under Increasing Block Rate Structure: Conservation Conundrum?," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 36(1), pages 203-218, January.
    3. Boyer, Christopher N. & Adams, Damian C. & Borisova, Tatiana, 2014. "Drivers of Price and Nonprice Water Conservation by Urban and Rural Water Utilities: An Application of Predictive Models to Four Southern States," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 46(1), pages 41-56, February.
    4. DiCarlo, Morgan & Berglund, Emily Zechman & Kaza, Nikhil & Grieshop, Andrew & Shealy, Luke & Behr, Adam, 2023. "Customer complaint management and smart technology adoption by community water systems," Utilities Policy, Elsevier, vol. 80(C).
    5. M. Allaire & A. Dinar, 2022. "What Drives Water Utility Selection of Pricing Methods? Evidence from California," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 36(1), pages 153-169, January.
    6. Okoye, Chiemeka Onyeka & Solyalı, Oğuz & Akıntuğ, Bertuğ, 2015. "Optimal sizing of storage tanks in domestic rainwater harvesting systems: A linear programming approach," Resources, Conservation & Recycling, Elsevier, vol. 104(PA), pages 131-140.
    7. David Switzer, 2020. "The Context of Responsiveness: Resident Preferences, Water Scarcity, and Municipal Conservation Policy," Review of Policy Research, Policy Studies Organization, vol. 37(2), pages 260-279, March.
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