GEORGIA'S WATER CRISIS: Pricing changes fall flat at faucet

Soak the wasteful? The idea sounded good, but it hasn't reduced consumption.

December 22, 2007
By Ken Foskett, The Atlanta Journal-Constitution

Atlanta -- Four years ago, metro Atlanta water planners urged utilities to discourage wasteful water use by raising the price charged to their customers.

Instead of a uniform price for water, the utilities were asked to set three rates tied to consumption. The more water used, the higher the price.

Today, nearly all of the more than 60 utilities in the 16-county metro area have complied with the directive or, at the very least, adopted summer surcharges.

But the new pricing structures have failed to reduce water consumption, especially in peak summer months when higher rates were supposed to have the greatest impact. In some communities, water demand actually increased after the new rate structures went into effect, according to local water chiefs.

"It really has little, if any, impact on the actual use of water," said Chris Browning, assistant director of public works in Fulton County.

In Fulton, water rates double during summer months after customers exceed 200 percent of their wintertime average.

"It's only a few dollars on a water bill," said Browning. "And most people probably wouldn't even notice it."

The notion that consumers will buy less of something as the price goes up, basic economics, is actually more complicated when it comes to water.

As a necessity of life, water has to be affordable for people to meet basic needs.

"You have to protect that large, low-income family that may not have the ability to really cut their use," said Kathy Nguyen, conservation director for Cobb County. "You can't price them out of a basic life need."

In many districts, higher rates often don't kick in until a customer uses more than 20,000 gallons a month —- nearly two and a half times average indoor use.

Even the highest rates are low enough that consumers don't feel the bite.

"We've never seen any change ... due to the surcharges," said Michael Carter, Paulding County water chief.

Water conservation experts also point to another reason why conservation pricing, which has produced significant water savings around the country, is not working in metro Atlanta. Metro Atlanta water users, accustomed to abundant and inexpensive water, haven't yet adopted the conservation mind-set that must accompany conservation pricing.

"We've looked at water as a God-given right," said Mark Crisp, an Atlanta consultant who advises utilities on rate structures. "We have to change our entire education process, so that we look at conservation on an every year basis."

Not, added Crisp, just when droughts come.

Conservation measures

On the heels of Georgia's last major drought, from 1998 to 2002, the newly created Metropolitan North Georgia Water Planning District recommended 10 conservation measures to stretch the region's water resources.

Number one on the list was conservation pricing, which was projected to save 20 million gallons a day, the second largest savings behind plugging leaks in aging water systems.

The district recommended that utilities establish a base rate for the first level of water use, and increase that rate at least 25 percent in the second tier. The rates were to double in the top tier. The increases were to go into effect by Jan. 1, 2006.

The city of Roswell, a small utility in Fulton County, was among the first to adopt conservation pricing, putting new rates into effect July 1, 2004.

The city established a base rate of $3.71 per 1,000 gallons of water, up to 13,350 gallons. After that, the rate jumped to $5.96 for consumption up to 20,000 gallons. Above 20,000 gallons, the rate increased to $6.99 per 1,000.

The new rates, however, have had "insignificant" impact on consumption, according to Chris Boyd, water distribution superintendent.

The city's total consumption actually increased in 2004 and 2005 before declining in 2006. Per capita consumption spiked in the summer months, when the higher rates were intended to reduce outdoor watering.

This past August, the month before state officials imposed a complete outdoor watering ban, the city's per capita water use hit 223 gallons —- more than 125 percent higher than the same month in either of the two previous years.

City officials are now reviewing the rate structure to determine if the consumption thresholds for hitting higher rates are too high, or if the base rates are too low.

Increases ineffective

In economic terms, water is inelastic, meaning that price increases don't stop people from buying it.

Unlike a store purchase where the consumer sees the price, water is consumed first and paid for later.

"You don't know how much water you used until a month later," said Jeffery Jordan, a UGA economist who studies water economics. "And then you might say, 'Whoops, I used too much.' People can't make rational decisions about rates until after the fact."

A 10 percent increase in water price will result in only a 2 percent reduction in consumption, Jordan said.

That means water prices have to increase 50 percent to get a modest 10 percent reduction, or 100 percent to achieve a 20 percent savings, Jordan said.

"To try to decrease water demand 20 percent, you have to raise prices so high," Jordan said. "Nobody can do that."

Jordan said conservation pricing can —- and does —- work if utilities set the consumption thresholds low enough that higher rates take effect at a meaningful level.

"The conservation rates don't kick in until 16,000 gallons" per month, said Jordan. "That's a lot of water, and the doubling isn't going to affect the consumption."

Budgeting water

Conservation pricing has reduced water use in many Western states, where water scarcity has been a fact of life for years.

Some Western communities have implemented an even more aggressive form of pricing called water budgeting.

This model also uses tiers of consumption. But the tiers are established for individual homeowners, based on the number of people living in the house, and the size of their lot.

In Irvine, Calif., outside Los Angeles, water customers receive a base water allocation of 300 gallons per day, or roughly 9,000 gallons per month, for indoor use, based on four people in the home. Larger families can receive a higher allocation.

On top of that, the water district gives a homeowner an outdoor allocation that fluctuates every month, based on the time of year and weather patterns. Allocations are lower in the winter and during months of heavy rain.

The cost of the water to consumers is actually quite low, provided they stay within the water budget. Rates begin doubling as consumers exceed their budget, up to eight times the base rate.

By contrast, the district cuts the base rate by 25 percent if consumers use less than their allocation.

"It's a win-win for our customers," said Fiona Sanchez, Irvine's water conservation manager. "The ones who are conserving are getting the advantage and benefit of lower rates, plus we are not wasting as much water."

Per capita water consumption has decreased 21 percent since the rate structure was introduced in 1992, Sanchez said.

"You need to have an aggressive structure, otherwise people are not going to get a strong price signal," said Sanchez. "If it's only 10 cents more per tier, or even a dollar more, it's not having an economic impact."

Water budgets also do something that simple tiered rate structures do not: They tell consumers if their consumption is excessive or not, based on averages for other consumers.

In Irvine, water billed in the top tier is actually labeled "wasteful" on the consumer's bill.

"We want our customers to notice it, and then we want them to call us for assistance," Sanchez said. "Our goal is not to just charge them a penalty. Our goal is to get them out of it."

New rates planned

In addition to Roswell, several other metro Atlanta utilities are poised to retool water rates.

In Clayton County, higher rates will go into effect Jan. 1 for consumption over 3,000 gallons per month, and jump again for consumption over 7,000 gallons. Under the outgoing rate structure, higher rates didn't kick in until consumption hit 21,000 gallons.

Mike Thomas, Clayton's water chief, said he anticipates the new rates will encourage more customers to get their consumption at or below 3,000 gallons per month.

In Paulding County, water officials have prepared a rate structure that would top out at $13.32 per 1,000 gallons for consumption over 200 percent of wintertime averages.

Carter, the water director, said the new rates —- the highest of any in metro Atlanta —- will be proposed only if the drought worsens.

"That rate structure would force a homeowner to conserve water," said Carter.