Skip to main content
SpringerLink
Log in

Residential Water Demand Under Increasing Block Rate Structure: Conservation Conundrum?

  • Published:
Water Resources Management Aims and scope Submit manuscript

Abstract

Water utility managers must balance conservation and revenue goals. A conservation conundrum occurs if price increases lead customers to reduce consumption so much that utility revenues fall. We investigate whether a large increase in water rates in Norman, Oklahoma led to a conservation conundrum. Norman uses a common increasing block rate (IBR) structure which sets higher volumetric rates at higher ranges of consumption. IBRs are believed to encourage conservation. Estimating demand responses is challenging under IBRs due to co-determination of volumetric rate paid and consumption choice. We address this empirical challenge by estimating panel regressions using detailed monthly water bill data for consumers grouped by pre-change consumption. We find heterogeneous responses where high-volume users respond more to rate increases than lower-volume users but do not observe a conservation conundrum.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

Data Availability

Data for this research are not publicly available due to privacy concerns for the customers in the dataset. Data are held by the City of Norman Utilities Department. Researchers interested in using this data should contact the Director of the City of Norman Utilities Department.

Code Availability

Code is written in Stata and available upon request.

Notes

  1. Hughes and Leurig (2013) discuss the conundrum where conservation can necessitate rate adjustments for cost recovery: customers are asked to pay higher prices for less consumption.

  2. Concern by of Norman staff inspired this investigation.

  3. See Boyer et al. (2012) for more background on water utility financial situation in Oklahoma communities.

  4. The voter requirement resulted from backlash to the Mayor using utility rate increases to fund police in 1974. (Layden 2014).

  5. http://www.normanok.gov/sites/default/files/Features/City%20of%20Norman%20Water%20Rate%20Increase%20Special%20Election%20January%2013%2C%202015.pdf

  6. Only a few homes did not lie in a census track with a rainfall sensor.

  7. Property records were available for 28,509 homes of single family residential water utility customers in Norman.

  8. The City of Norman GIS staff estimate this using satellite imagery.

  9. Average monthly consumption for the March through October from 2010 to 2015 was 7,625. The corresponding average for 2014 was 7040, making 2014 a representative year.

  10. For the low group the marginal response to an additional 10 sq ft of pool is 3/10 of a percent, average use is 3,027, and summer is 7 months (March through September). Therefore the predicted marginal response to an additional 100 square feet of pool for the summer is 0.003*3,027*10*7 = 635.67.

  11. City of Norman “Water Quantity March 2015 to February 2017” downloaded on May 15, 2020 from http://www.normanok.gov/utilities/wt/water-treatment-water-quantity.

  12. The midpoint formula expresses percentage change in terms of the average change: (R1-Ro)/[(R1 + R2)/2], where R1 is new rate and Ro is the old rate.

  13. The full results are not provided for brevity.

  14. The corresponding regression estimates are available upon request.

  15. As discussed above water restrictions were in place for a large range of the sample period. Further the restrictions were related to drought conditions captured in the rainfall variable.

References

  • American Water Works Association/Raftelis (2019) 2019 Water and Wastewater Rate Survey. American Water Works Association/Raftelis Financial Consultants Inc, Denver, CO/ Charlotte, NC

    Google Scholar 

  • Agthe DE, Billings RB (1987) Equity, price elasticity, and household income under increasing block rates for water. Am J Econ Sociol 46(3):273–286

    Article  Google Scholar 

  • Asci S, Borisova T, Dukes M (2017) Are price strategies effective in managing demand of high residential water users? Appl Econ 49(1):66–77

    Article  Google Scholar 

  • Arévalo YF, Oliva RDP, Fernández FJ, Vásquez-Lavin F (2021) Sensitivity of water price elasticity estimates to different data aggregation levels. Water Resour Manage 35(6):2039–2052

    Article  Google Scholar 

  • Baerenklau KA, Schwabe KA, Dinar A (2014) The residential water demand effect of increasing block rate water budgets. Land Econ 90(4):683–699

    Article  Google Scholar 

  • Beecher JA (2010) The conservation conundrum: How declining demand affects water utilities. J Am Water Works Ass 102(2):78–80

    Article  Google Scholar 

  • Boyer CN, Adams DC, Borisova T, Clark CD (2012) Factors driving water utility rate structure choice: Evidence from four southern US states. Water Resour Manage 26(10):2747–2760

    Article  Google Scholar 

  • Brown TC, Mahat V, Ramirez JA (2019) Adaptation to future water shortages in the United States caused by population growth and climate change. Earth’s Future 7(3):219–234

  • Di Baldassarre G, Sivapalan M, Rusca M, Cudennec C, Garcia M, Kreibich H et al (2019) Sociohydrology: Scientic challenges in addressing the sustainable development goals. Water Resour Res 55:6327–6355

    Article  Google Scholar 

  • Gohari A, Eslamian S, Mirchi A, Abedi-Koupaei J, Bavani AM, Madani K (2013) Water transfer as a solution to water shortage: A fix that can backfire. J Hydrol 491:23–39

    Article  Google Scholar 

  • Ghavidelfar S, Shamseldin AY, Melville BW (2017) A multi-scale analysis of single-unit housing water demand through integration of water consumption, land use and demographic data. Water Resour Manage 31(7):2173

    Article  Google Scholar 

  • Grafton RQ, Chu L, Wyrwoll P (2020) The paradox of water pricing: Dichotomies, dilemmas, and decisions. Oxf Rev Econ Policy 36(1):86–107

    Article  Google Scholar 

  • Hewitt JA, Hanemann WM (1995) A discrete/continuous choice approach to residential water demand under block rate pricing. Land Econ 173–192

  • Hughes JA, Leurig S (2013) Assessing water system revenue risk: Considerations for market analysts. A Ceres and EFC Whitepaper. August

  • Kallis G (2010) Coevolution in water resource development: The vicious cycle of water supply and demand in Athens, Greece. Ecol Econ 69(4):796–809

    Article  Google Scholar 

  • Kenney DS, Goemans C, Klein R, Lowrey J, Reidy K (2008) Residential water demand management: Lessons from Aurora, Colorado 1. JAWRA J Am Water Resour Assoc 44(1):192–207

    Article  Google Scholar 

  • Klaiber HA, Smith VK, Kaminsky M, Strong A (2014) Measuring price elasticities for residential water demand with limited information. Land Econ 90(1):100–113

    Article  Google Scholar 

  • Layden L (2014) Why Norman is the Only Oklahoma town where citizens control the price of water. State Impact Oklahoma, June 26, 6:59 am

  • Lindqvist AN, Fornell R, Prade T, Tufvesson L, Khalil S, Kopainsky B (2021) Human-water dynamics and their role for seasonal water scarcity–A case study. Water Resour Manage 35(10):3043–3061

    Article  Google Scholar 

  • Lu L, Deller D, Hviid M (2019) Price and behavioural signals to encourage household water conservation: Implications for the UK. Water Resour Manage 33(2):475–491

    Article  Google Scholar 

  • Marzano R, Rouge C, Garrone P, Grilli L, Harou JJ, Pulido-Velazquez M (2018) Determinants of the price response to residential water tariffs: Meta-analysis and beyond. Environ Model Softw 101:236–248

    Article  Google Scholar 

  • Mansur ET, Olmstead SM (2012) The value of scarce water: Measuring the inefficiency of municipal regulations. J Urban Econ 71(3):332–346

    Article  Google Scholar 

  • Nataraj S, Hanemann WM (2011) Does marginal price matter? A regression discontinuity approach to estimating water demand. J Environ Econ Manag 61(2):198–212

    Article  Google Scholar 

  • Olmstead SM (2009) Reduced-form versus structural models of water demand under nonlinear prices. J Bus Econ Stat 27(1):84–94

    Article  Google Scholar 

  • Olmstead SM, Hanemann WM, Stavins RN (2007) Water demand under alternative price structures. J Environ Econ Manag 54(2):181–198

    Article  Google Scholar 

  • Puri R, Maas A (2020) Evaluating the sensitivity of residential water demand estimation to model specification and instrument choices. Water Resour Res 56(1):e2019WR026156

  • Sebri M (2014) A meta-analysis of residential water demand studies. Environ Dev Sustain 16(3):499–520

    Article  Google Scholar 

  • Stitzel B, Rogers CL (2021) Not your typical rate structure change: Heterogeneous water demand responses. Water Resour Econ 36:100183

  • Strong A, Smith VK (2010) Reconsidering the economics of demand analysis with kinked budget constraints. Land Econ 86(1):173–190

    Article  Google Scholar 

  • Vásquez Lavín FA, Hernandez JI, Ponce RD, Orrego SA (2017) Functional forms and price elasticities in a discrete continuous choice model of the residential water demand. Water Resour Res 53(7):6296–6311

    Article  Google Scholar 

  • Wichman CJ (2014) Perceived price in residential water demand: Evidence from a natural experiment. J Econ Behav Organ 107:308–323

    Article  Google Scholar 

  • Yoo J, Simonit S, Kinzig AP, Perrings C (2014) Estimating the price elasticity of residential water demand: the case of Phoenix. Arizona Appl Econ Pers Pol 36(2):333–350

    Article  Google Scholar 

Download references

Funding

The authors received no funding for this project.

Author information

Authors and Affiliations

  1. West Texas A&M University, 2501 4th St., Canyon, TX, 79016, USA

    Brandli Stitzel

  2. University of Oklahoma, 308 Cate Center Drive, Cate 1, Norman, OK, 73072, USA

    Cynthia L. Rogers

Authors
  1. Brandli Stitzel
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Cynthia L. Rogers
    View author publications

    You can also search for this author in PubMed Google Scholar

Contributions

B. Stitzel collected, cleaned, and analyzed the data, set up the empirical models, conducted the estimations, produced tables and figures, wrote the manuscript. C. Rogers coordinated data collection with City of Norman, completed the literature review, set up the empirical models, produced tables and figures, and wrote the manuscript.

Corresponding author

Correspondence to Brandli Stitzel.

Ethics declarations

Ethics Approval

Not Applicable.

Consent to Participate

Not Applicable.

Consent for Publication

Brandli Stitzel gives consent for this manuscript to be published. Cynthia Rogers gives consent for this manuscript to be published.

Conflicts of Interest

The authors declare no conflicts of interest.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Stitzel, B., Rogers, C.L. Residential Water Demand Under Increasing Block Rate Structure: Conservation Conundrum?. Water Resour Manage 36, 203–218 (2022). https://doi.org/10.1007/s11269-021-03022-y

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11269-021-03022-y

Keywords

Search

Navigation