Price Elasticity Under Rate Structure Change and Low-Income Discounts in California

The impact on household level water demand is evaluated in four California cities while undergoing a transition from uniform to tiered rates. Price elasticities for the time periods under uniform and tiered rates are determined individually using panel data regression methods. Price elasticities in Bear Gulch, Palos Verdes, South San Francisco, and East Los Angeles ranged from -0.09 to -0.22 under uniform rates and -0.12 to -0.532 under tiered rates. Theoretically, tiered rates maintain affordability for all users while compelling high users to reduce through increasing marginal prices for higher quantities of water. Evaluating the effects separately on low-income users, water patterns of eligible customers who took advantage of a rate assistance program were compared. Low-income discounts did not have a significant effect on water consumption patterns and only had a small difference in price elasticities compared with nonparticipants.