article · OpenSIUC (Southern Illinois University Carbondale) · 2004
Variable Unit Pricing: An Alternative to Increasing Block Rate Pricing for Water Utilities
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Abstract
Water pricing by water utilities and public water management agencies is becoming increasingly contentious as water scarcity increases.Increasing Block Rate pricing has been developed to address needs to conserve water.The use of IBR is increasing among utilities.For example, from a survey of 119 utilities in the Southwest Florida Water Management District: 11.8% used IBR in 1991 and 29.4% used IBR in 1997; the number of utilities with decreasing block and uniform rates decreased over this period..Because there is no set prescription for setting the blocks, rate setting with IBR is fairly ad hoc (in contrast to average cost pricing).At the same time, many utilities are suffering revenue insufficiency as water users respond to both price and educational efforts by reducing use.This paper introduces a new method of pricing -Variable Unit Pricing.This method addresses both cost recovery and conservation simultaneously.It also is designed to satisfy economic efficiency -an aspect often ignored by utility rate-making procedures.Economic efficiency means maximization of aggregate net benefits from water utilization and supply methods.It requires that the last water unit consumed by each water user should have the same marginal benefit for each user.There is also a requirement regarding the relation between marginal benefit for each user and marginal cost of supply: if there are no user specific costs, marginal benefit should equal marginal cost of supply.The reason for these conditions is that -if they do not hold -then net benefits for the system could be increased, either by shifting from some uses of water to others, or by changing supply methods.VUP produces a quadratic total bill schedule, i.e. the price for all water units consumed increases with increasing consumption (assuming increasing marginal and average costs).Therefore, DRP is expected to be more effective for conservation needs than IBR in which only the marginal units are affected by the "marginal price."
Cite this paper
Loehman. (2004). Variable Unit Pricing: An Alternative to Increasing Block Rate Pricing for Water Utilities. OpenSIUC (Southern Illinois University Carbondale).
Loehman. “Variable Unit Pricing: An Alternative to Increasing Block Rate Pricing for Water Utilities.” OpenSIUC (Southern Illinois University Carbondale), 2004.
Loehman. 2004. “Variable Unit Pricing: An Alternative to Increasing Block Rate Pricing for Water Utilities.” OpenSIUC (Southern Illinois University Carbondale).
Loehman (2004) ‘Variable Unit Pricing: An Alternative to Increasing Block Rate Pricing for Water Utilities’, OpenSIUC (Southern Illinois University Carbondale).
@article{loehman2004variable,
title = {{Variable Unit Pricing: An Alternative to Increasing Block Rate Pricing for Water Utilities}},
author = {Loehman},
journal = {OpenSIUC (Southern Illinois University Carbondale)},
year = {2004}
}Made from the index record. Check names, capitalisation and page numbers against the paper. Need another style? AI for Research has over 10,000.