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About Water & Wastewater Pricing
Prices signal value to consumers and help determine whether consumers use water efficiently. If prices are too low, consumers will use too much water. Economists have long advocated the "polluter pays" principle - the idea that the polluter or consumer should pay for any environmental damage or resource depletion created. While this principle is generally accepted in the classroom, its application in the real world is much harder to find.
Full cost pricing is usually interpreted to mean factoring all costs - past and future, operations, maintenance and capital costs - into prices. Full cost pricing can take the form of any of the rate structures below so long as all costs are recovered through prices.
Types of Pricing Structures
A large portion of our water and wastewater providers are publicly-owned natural monopolies. As such, water and wastewater finances can be intermingled with other municipal departments so that revenues and costs are shared with other municipal functions. Local governments and state laws can also constrain a publicly-owned utility's rate setting. Current water and wastewater prices may not cover the full and complete costs of past and future capital and operating costs.
Several price structures are available for water and wastewater providers seeking to encourage conservation.
- Increasing block rates. Increasing block rates or tiered pricing reduces water use by increasing the per-unit charges for water as the amount used increases. The first block is charged at one rate, the next block is charged at a higher rate, and so forth.
- Time of day pricing. Higher prices are charged during a utility's peak demand periods.
- Water surcharges. A higher rate is imposed on "excessive" water use, i.e., water consumption that is considered higher than average.
- Seasonal rates. Prices rise and fall according to water demands and weather conditions (with higher prices usually occurring in the summer months).
There are also other rate structures that are currently used by water and wastewater providers; however, these types of rate structures are not as effective in encouraging conservation.
- Uniform rate structures. A uniform rate charges the same price per unit for water usage beyond the fixed customer charge, which covers some fixed costs. The rate sends a price signal to the customer, because the water bill will vary by usage. Uniform rates by class charge the same price per unit for all customers within a customer class (e.g., residential or non-residential).
- Flat fee rates. Flat fee rates do not vary by customer characteristics or water usage.
EPA has produced numerous documents on pricing and the relationship between pricing and water conservation for water and wastewater systems. Visit the Office of Water Online Publications page for information on how to order these documents.
Agency Pricing Information:
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Setting Small Drinking Water Systems Rates for a Sustainable Future (PDF, 366KB, 62 pages, about PDF)
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Case Studies of Sustainable Water and Wastewater Pricing (PDF, 572KB, 25 pages, about PDF)
- Applicability of the Safe Drinking Water Act to Submetered Properties
- Building Support for Increasing User Fees (EPA, Office of Water, EPA 430/09-89-006, July 1989)
- Conservation Pricing of Water and Wastewater
- Consolidated Water Rates: Issues and Practices in Single Tariff Pricing (EPA, Office of Ground Water and Drinking Water, EPA 816-R-99-009, 1999)
- "Evaluating Municipal Wastewater User Charge Systems: What You Need to Know" (EPA, Office of Water, EPA 832-R-93-010, September 1993)
- Information for States on Developing Affordability Criteria for Drinking Water (EPA, Office of Water, EPA 816-R-98-002, 1998)
- National Drinking Water Advisory Council (NDWAC), Small Systems Affordability Workgroup
- OGWDW, Drinking Water Academy: Developing Financial Capacity, 2002
- Seattle Post-Intelligencer, "Supply of fresh water dries up," G. Tracy Mehan, September 30, 2003
- Water Conservation Plan Guidelines (Office of Water, EPA-832-D-98-001, 1998)
- A Water and Wastewater Manager's Guide for Staying Financially Healthy (EPA, Office of Water, EPA 420-09-89-004, July 1989)
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