Cost Recovery and Conservation of Residential Water Use by Optimized Block Pricing

A method for pricing residential municipal water with increasing rate structures is developed and applied in this article. The method relies on the water-use functions for each block of a rate structure and on economic and water-supply data to produce a nonlinear programming problem whose objective function is the recovery of water-production costs. Maximum-water use, minimum-water use, cost-recovery, and price constraints were imposed on the objective function to complete the rate-design nonlinear programming problem, whose solution yields the block prices and water-meter charge of a water-rate structure. The water-pricing method is applied to a small municipality —on the order of 90000 residents— whose water-use functions were derived from data collected during the 1988–1991 California drought. The water-pricing method produced a rate structure that complies with specified constraints and recovers water-production costs, demonstrating that it is a useful tool for residential water pricing.