Understanding progressive & regressive water pricing
By Antonio & Manny Teodoro
How do utilities distribute the costs of drinking water systems to their customers in their rate structures?
The answer is surprisingly complicated, and water utility pricing is often weird. There are lots of other wrinkles and variations, but the vast majority of utilities use one of three basic rate structures:
- Uniform, where customers pay the same price for every unit of water that they consume;
- Inclining block, which charge higher prices as volume increases; and
- Declining block, which charge lower prices as volume increases.
It’s easy to see that these different rate structures distribute costs differently, but how much differently isn’t immediately obvious. How do a utility’s rates apply to low-volume customers compared with high-volume customers?
The answer is important because it carries significant implications for affordability and conservation. It also speaks to risk tolerance and questions about fairness. Water is an unusual consumer good because its use is very different at different volumes. For residential customers, low volumes are mostly used for basic needs like drinking, cooking, cleaning and sanitation. Higher volumes are usually for more discretionary uses like lawn irrigation and car washing.Studies of water rate structures typically put them into the three main categories (uniform, inclining, and declining), which is fine, but can mask some important variation within the inclining and declining blocks. Consider four imaginary rate structures:
A and B are both inclining block rates, but A is more progressive than B because prices increase sharply for A as volume increases. Similarly, C and D are both declining block structures, but C is more regressive than D because C discounts higher volumes much more than D.
David Switzer developed a way to measure water rate progressivity to reflect that variation, and published a paper last year that uses regression slopes to measure relative progressivity. It’s a creative, rigorous, and smart methodology, but it’s pretty sophisticated and not the easiest approach for communicating with the general public.
In search of a valid but more intuitive way to communicate the idea of progressivity, we struck upon the idea of comparing average unit costs of water at relatively conservative and very high benchmark volumes. What would be appropriate comparative volumes? And how could we frame the measurement in an engaging way?
Enter Amy Poehler
Amy Poehler was a particularly profligate water customer. In the summer of 2015, while drought ravaged the Golden State, the Parks & Recreation star’s Beverly Hills home used 85,000 gallons a month. Meanwhile, a family of four that is fairly conservative with water uses something like 6,000 gallons per month for drinking, cooking, and sanitation.* In other words, Poehler’s home consumed in about two days enough water to comfortably supply a family of four for a month.
Shaming celebrities for bad environmental behavior is now something of a ritual in America, and it’s not clear whether exposing excess actually helps. But Poehler’s water consumption provides a convenient benchmark for excess.
The Amy Poehler Index
So to measure progressivity we calculate the total monthly water and sewer bill—including both fixed and volumetric charges—for a customer at 6,000 gallons (a conservative family) and at 85,000 gallons (Amy Poehler’s family), then divide that price by each customer’s total volume. These are average unit costs. The ratio of the two unit prices is the Amy Poehler Index (API). A value of 1.0 means that Amy Poehler and the conservative family pay exactly the same unit price for water. Values less than 1.0 indicate regressive rates (Amy Poehler pays less than a conservative family), and values greater than 1.0 indicate progressive rates (Amy Poehler pays more than a conservative family).
Let’s look at how this works for a couple of large U.S. city water systems under their 2019 rates:
In 2019 Tampa’s fixed monthly charge for water was just $1.50, with no fixed charge at all for sewer. Under Tampa’s inclined five-block rate structure, Amy Poehler would pay $617.82 monthly, while our conservative family would pay just $19.29. On a unit cost basis, those prices equal $7.27 and $3.22 per thousand gallons, respectively. The resulting API is a progressive 2.26.Meanwhile, in 2019 Philadelphia charged its customers a fixed $5.12 for water and $7.04 for sewer each month. The City of Brotherly Love then applied declining block water rates that would have charged Amy Poehler $455.69 monthly, and the conservative household $41.10—more than twice the Tampa bill for the same volume. The resulting unit costs turn out to be $5.36 for Amy Poehler and $6.85 for our conservative family, for a regressive API of .78.
The National Progressivity Picture
We used data from the Teodoro & Saywitz 2019 affordability update to calculate API for a nationally representative sample of 399 U.S. water and sewer systems. Average combined water and sewer rates were slightly regressive at .88, but ranged widely from .07 in Anchorage, AK to 3.81 in Phoenix, AZ.
API isn’t as precise as Switzer’s progressivity coefficient, but in our national dataset the two metrics correlate pretty well (ρ=.71). More importantly, the API offers an easy way to understand and improve the ways that communities distribute costs through their rate structures. That seems like the sort of thing Leslie Knope would probably dig.
Gender predicts concern for water utility issues
Do men and women think differently about their water utilities? In a recent post I wrote about some findings from a Texas A&M Institute for Science, Technology & Public Policy (ISTPP) public opinion survey that included questions taken directly from the American Water Works Association (AWWA) State of the Water Industry survey. The ISTPP survey’s sample of nearly 2,000 individuals was carefully crafted to be representative of the US population, and so is a goldmine of public perceptions about water. I’m blogging about interesting findings here as time allows; today I’m looking at gender.
Water & gender
I’ve always been a bit skeptical about the idea that water is a “gendered” issue in the United States. From a purely biological perspective, there’s no reason to expect that men and women think differently about water utility issues. People of all genders need water to drink, cook, and clean; sanitary sewers and stormwater systems protect everyone. There’s a huge body of academic research on gender related to water and sanitation in the developing world, which make sense—in much of the world, women and girls bear the greatest (literal) burden of securing drinking water, and are most vulnerable to poor sanitary conditions. My Texas A&M colleague Kathleen O’Reilly has worked extensively on this issue.
But in most of the US, men and women experience water utilities in more or less the same way. For the most part, American girls aren’t trudging long distances on foot to fetch water, and American women don’t have to use open pit toilets in urban areas.
What women want (from their water utilities)
So it was surprising (to me, at least) to discover a subtle but consistent gender disparity in attitudes toward water issues in our dataset. As noted in my last post, the ISTPP survey asked eleven questions taken directly from the SOTWI. All eleven attitudinal questions are based on a five-point scale: unimportant (1), slightly important (2), important (3), very important (4), and critically important (5).
Here are the results from the national survey, broken down by gender:
Women reported greater average concern than men across all eleven categories. The greatest disparities were in concern for water loss, climate change, affordability, and conservation. The differences aren’t huge in absolute terms—about a third of a standard deviation in general—but the consistency is striking. The gender effect is in the same direction across-the-board, and the difference is statistically significant in nine of the eleven categories. The gender differences persist in regression analyses that control for partisanship, region, and age.
Unfortunately, the 2015 SOTWI doesn’t include gender data, so we can’t say much about whether a similar gender gap exists within the water sector.
The Aquatic Gender Gap
I don’t know enough social psychology to know exactly what’s behind the gender gap in American water utility attitudes. But these results offer a potentially powerful clue for politically savvy utility leaders: building support for water systems in American communities probably starts with women.
How utility people—and everybody else—think about water issues
Each year the American Water Works Association (AWWA) conducts a survey of its members on the State of the Water Industry (SOTWI). The survey seeks to “identify and track significant challenges facing the water industry.” Among other things, the SOTWI survey asks respondents about their perceptions of various water issues, and so broadly gauges attitudes within the water sector.
It’s common for water sector folks to lament that the public doesn’t understand water issues. After several years of responding to SOTWI and reading the results, I wondered: How does the public perceive water issues? How closely do attitudes within the industry align with those of the general public?
Organizations like Texas A&M’s Institute for Science, Technology & Public Policy (ISTPP) offer a way to answer those questions scientifically. In the summer of 2015 I worked with ISTPP colleagues to deploy a nationally representative mass public survey of attitudes toward energy, agriculture, and environmental issues in the United States. The ISTPP survey yielded nearly 2,000 respondents. As part of the ISTPP survey, we included several items about water policy taken directly from the SOTWI survey. Identical wording and question structure provides an extraordinary opportunity to compare attitudes within the water sector (the “pros”) against attitudes in the general public (the “Joes”).
The SOTWI questionnaire included 34 items; from among these we selected 11 items that directly ask the respondents’ perceptions of water issues such as water resources, capital, and affordability for low-income households. All 11 attitudinal questions are based on a five-point scale: unimportant (1), slightly important (2), important (3), very important (4), and critical (5).
Convergence & divergence
Some interesting patterns emerged. Average values ranged between 3.2 and 4.6 among the Pros, with infrastructure replacement emerging as a clear #1 priority. The general public averaged 3.10-4.11, with long-term supply availability as the top value. Ordinal rankings—that is, which issues were more or less important relative to each other—were fairly consistent between Pros and Joes.
But the really interesting picture emerges when we look at the disparities in average scores across the eleven issue area. This graph shows the difference in average score for Pros minus average for Joes:
The most striking disparities are at the top and bottom of the graph. Water sector respondents perceive infrastructure replacement, regulatory compliance, and source water protection as much more important than does the public. Meanwhile, the public evidently views low-income affordability as significantly more important than does the water sector.
Together, these results offer clues about the areas of relative harmony and dissonance between the American water sector and the American public. Water organizations and utility communications staff should perhaps concentrate on developing effective ways to convey the significance of infrastructure replacement, regulatory compliance, and source water protection.
By the same token, these findings suggest that low-income affordability matters much more to the public Joes than to water sector Pros. It stands to reason that taking affordability seriously can help utility leaders legitimize their own priorities to the public.