WATER: Pricing SCHEMES for water conservation with cost recovery – Loehman – 2008 – Water Resources Research – Wiley Online Library

WATER:  Pricing SCHEMES for water conservation with cost recovery – Loehman – 2008 – Water Resources Research – Wiley Online Library . . . World Bank

Note: The clever dishonest schemes to price water! This document illustrates the extreme planning and pricing of water as a product while exploiting the world’s people of the available water that the Earth creates, as a renewable resource for all.  We are NOT running out of water.  We do not need to reuse water by treating our sewerage and urine in treatment plants to then deliver as drinking water. To learn the water facts please go to PrimaryWater.org and listen to the YouTube videos “Primary Water Explained” and “Origins of Water”.

Be well – and get to primary water while you still are able to!


In many water supply systems, water rates are being redesigned in light of recent droughts that focus attention on conservation needs.

Pricing must cover joint cost Cwi) of total water production Σwi. Joint costs include raw
water costs, drinking water treatment costs, and administrative costs. Cost may also
include a fee or return to entrepreneurship, when there is a private supplier.
The use of increasing block rates (IBR) has become prominent for conservation purposes,
and has been recommended by the U.S. EPA for this purpose.
However, IBR has shortcomings: first, definition of block sizes and associated prices is
arbitrary; second, there can be problems with respect to cost recovery as consumers cut
back on water use. Utilities have faced revenue losses of up to 14% because of demand
An intended context for variable unit pricing is water demand management and planning,
when water utilities and others concerned with water management engage in determining
the desired level of supply, such as a supply limit relative to expansion needs and drought.
The first‐order conditions for economic efficiency now include a shadow price μfrom the
resource constraint; the shadow price is the long‐term marginal cost to increase supply
from the limit. The first‐order necessary conditions are: the marginal benefit for each water
consumer should be equal to marginal cost plus the “shadow price” where the superscript L
denotes evaluation at the constrained optimum:

AGU Publications


Pricing for water conservation with cost recovery

[1] Variable unit pricing provides incentives for conservation, similar to increasing block rates, while covering system costs. For supply‐limited situations and planning contexts, it is also shown to provide for cost recovery with supply limits and capacity constraints. This paper presents two applications of pricing with supply constraints: (1) an application for Amman, Jordan, showing that VUP satisfying a supply limit can avoid more costly capacity expansion and (2) an example of seasonal pricing for Boulder, Colorado, as an alternative to water restrictions. These two cases also exhibit two methods for generating data needs: (1) a “full information approach” with specified demand and cost functions and (2) “iterative pricing” that uses a previous year’s cost and consumption data to set future pricing.

1. Introduction

[2] In many water supply systems, water rates are being redesigned in light of recent droughts that focus attention on conservation needs. The use of increasing block rates (IBR) has become prominent for conservation purposes, and has been recommended by the U.S. EPA for this purpose [Duke and Montoya, 1993] (see also http://www.epa.gov/waterinfrastructure/pricing/About.htm). However, IBR has shortcomings: first, definition of block sizes and associated prices is arbitrary; second, there can be problems with respect to cost recovery as consumers cut back on water use. Utilities have faced revenue losses of up to 14% because of demand reductions [Bishop and Weber, 2001].

[3] Variable unit pricing (VUP) was developed to cover costs while satisfying economic efficiency [Loehman, 2004]. Here, its use is extended for satisfying a supply limit or meeting a seasonal capacity constraint while covering cost and satisfying economic efficiency. VUP can also achieve cost recovery for long‐term investments for sustainability by including bond payments among the fixed costs to be covered each period (E. T. Loehman, Sustaining groundwater through social investment, pricing, and public participation, unpublished manuscript, 2008, available from the author).

[4] An intended context for variable unit pricing is water demand management and planning, when water utilities and others concerned with water management engage in determining the desired level of supply, such as a supply limit relative to expansion needs and drought. In this context, in addition to covering costs, variable unit pricing can provide incentives for demand to meet the desired supply. (See section 7 for further discussion.)

[5] Criteria for utility pricing include fairness as well as economic efficiency and cost recovery [Brown and Sibley, 1986]. Economists support the criterion of economic efficiency (total net benefit maximization), because otherwise a change in allocation or supply could be made that would benefit at least some consumers of a water system without hurting others. Zajac [1979, ] has discussed the importance of fairness for utility pricing. Objectivity is a related social criterion: rates should be determined by well‐specified rules not dependent on personal identity. If rates are perceived to be unfair or not objective, the rate setting process can become politicized and open to rent seeking [Hall and Hanemann, 1996].

[6] VUP satisfies a fairness property in that the total water bill for each consumer is a proportion of total cost according to the share of water consumption. VUP satisfies objectivity because pricing parameters are specified by formula on the basis of cost properties and use levels. In contrast, IBR has no formula for determining pricing parameters, so that cost recovery can only be satisfied through trial and error. For example, if IBR has three rate blocks, there are two “jump points” and three price levels to determine for the rate schedule, in total five parameters to determine for each consumer type. The last block is sometimes set equal to long‐run marginal cost for economic efficiency reasons; even so, there will still be four parameters to determine for each consumer type.

[7] Consumer understanding of billing procedures is another important pricing issue. Boland [2000] has suggested that for consumer understanding, a simpler rate structure than IBR would be desirable. With IBR, a consumer does not have an easy task to determine the total bill; charges must be added up over ranges of consumption. Because of rate complexity, the effects of IBR on consumer demand are controversial, e.g., whether consumers consider marginal or average prices when determining water consumption [Shin, 1985Nieswiadomy and Molina, 1991].

[8] In contrast, VUP provides a relatively simple rate structure based on a per unit charge: all units consumed are charged at the same rate. The total bill is simply the unit price, specified for the level of total consumption, times total consumption. Table 1 illustrates the unit price schedule given by ranges of use for a case of increasing costs.

Table 1. Illustration of Variable Unit Pricing Charge Schedulea

Water Use Unit Price Total Bill
500 $0.0383 $16.67
1000 $0.0433 $43.30
3000 $0.0633 $189.90
5000 $0.0833 $416.50

[9] The unit price is specified to vary linearly with water consumption. Figure 1 illustrates the unit charge schedule for VUP when the unit charge is increasing (it can also be decreasing, depending on cost properties). Increasing unit price provides a conservation incentive similar to IBR in that greater consumption will entail a higher unit price and hence a higher total bill.

Figure 1

Illustration of variable unit pricing.

[10] The terms “base” and “demand” charges are familiar for water pricing. The VUP charge per unit is the base charge plus the demand charge per unit. In Figure 1, the base charge per unit is the intercept. The demand charge per unit is the slope times the consumption level.

[11] The following sections derive slope and intercept formulas for unconstrained and constrained supply situations. Readers who do not wish to pursue details are invited to skip these sections. The paradigm for parameter determination is a generalization of the first theorem of welfare economics [Bohm, 1976] to nonlinear (nonconstant) pricing; for more discussion, see [Loehman, 2004]. For a water economy with variable unit prices, the pricing paradigm is as follows.

[12] 1. Define a social problem expressing the desired outcome (economic efficiency (EE)) with constraints (supply, capacity, etc.) as appropriate.

[13] 2. Define a water supply demand equilibrium on the basis of variable unit pricing for consumers and the water utility that satisfies the EE problem.

[14] 3. Determine slope and intercept parameters for variable unit pricing to satisfy EE with cost recovery.

[15] After parameter formula development, two case studies for supply limits and capacity constraints also highlight two types of data/computation methods: “full information” utilizing both cost and demand functions, and “iterative pricing” using data from a previous year to develop pricing for a subsequent period. The theoretical properties of efficiency and cost recovery may only be approximately satisfied in real applications of pricing formulas.

[16] Below, the derivation of slope and intercept formulas is presented for individual consumers. However, utilities more conveniently provide rates by consumer type, such as households, commercial and industrial, etc. Therefore, Appendix Aconsiders parameter formulas by consumer types, indicating that theoretical efficiency is only approximately satisfied when pricing is determined by consumer types. For VUP by consumer type, the average user of a given type is charged the average unit price, equal to average cost; use levels greater than average are charged more than average cost, and the converse holds for use levels less than average use.

[17] In the derivation of parameter formulas, wi represents water use by consumer i and pi represents the unit price for this water use: pi = a + biwi. The corresponding total bill or charge schedule is unit price times total consumption: Ri(wi) = (a + biwi)wi. The intercept (a) and slope parameters (bi) are determined by the two requirements of economic efficiency and cost recovery, as shown below. The same intercept applies for all consumers.

[18] Pricing must cover joint cost Cwi) of total water production Σwi. Joint costs include raw water costs, drinking water treatment costs, and administrative costs. Cost may also include a fee or return to entrepreneurship, when there is a private supplier.

[19] Utility situations usually also have separable costs, e.g., larger pipes for larger water consumers and pumping stations for more isolated locations. With separable costs, total costs can be covered without affecting efficiency conditions if nonvolumetric separable charges for individual consumers are simply added to volumetric charges.

2.1. Economic Efficiency (EE) for Water Supply

[20] For economic efficiency [Bohm, 1976], supply and allocation should maximize total community net welfare, here expressed in dollar terms. Given benefit functions Bi(wi) for water consumers with use levels wi and the joint cost function Ciwi) for total supply Σiwi, the efficient allocation, here without supply constraints, should maximize total net benefits:

[21] First‐order necessary conditions for efficiency are that the marginal benefit (MB) (derivative of benefit) should equal the marginal cost (MC) (derivative of cost) for each consumer, where * indicates evaluation at the efficient outcome:

2.2. Supply‐Demand Equilibrium Under Variable Unit Pricing

[22] The first theorem of welfare economics for regular market goods shows that a supply‐demand equilibrium satisfies economic efficiency when suppliers maximize profit while consumers maximize net benefits, if each party takes price as given [Bohm, 1976]. Similarly here, for net benefit‐maximizing water consumers and a profit maximizing water utility, when each party takes the VUP charge schedules as given, the supply‐demand equilibrium will be constructed to correspond to the EE solution.

[23] For the supply‐demand equilibrium, a water consumer with demand wi maximizes individual net benefits, given the VUP charge schedule Ri(wi):

[24] The first‐order necessary condition for (3) is that each water consumer will choose equilibrium demand w*i to set the marginal benefit equal to the marginal charge:

The marginal benefit function is the same as the demand curve shown in Figure 2

Figure 2

Illustration of variable unit pricing equilibrium.

[25] At the same time, the water utility will maximize net revenue for the given charge schedules:

satisfying the necessary conditions that the marginal charge for each consumer is equal to the marginal cost at equilibrium supply w*i, which is equal to equilibrium demand: By combining both consumer and water utility choice conditions (4)and (6), the necessary economic efficiency (EE) condition (2) will be satisfied.[26] Now we consider what parameter conditions will ensure that both efficiency and cost recovery are satisfied. For the linear unit price schedule pi(wi) = a + biwi with marginal charge MRi(wi) = a + 2biwi, the firm’s first‐order conditions require

At the supply‐demand equilibrium, the net benefit maximizing consumer will also set marginal benefit equal to the marginal charge: From (7), the equilibrium condition is that the demand charges are the same for each consumer relative to a reference consumer m:

2.3. Cost Recovery With Variable Unit Pricing

[27] For cost recovery (zero economic profit), total revenue equals joint cost:

Substituting from (9) for each consumer’s demand charge relative to consumer m: From (11), by factoring out the unit price for consumer m and dividing both sides of (11) by total water supply Σiw*i, the equilibrium unit price p* = a + bmw*m will equal average cost: Equation (9) implies the same unit price for all consumers at the equilibrium.[28] Figure 2 illustrates the VUP equilibrium with two consumers. The demand curve (Di) for each consumer is shown in one quadrant; it is the same as the marginal benefit schedule. At the equilibrium, each consumer’s demand curve intersects the marginal charge schedule (MRi) at the equilibrium demand w*i; at this demand, the marginal charge is equal to the equilibrium marginal cost MC*. The equilibrium unit price is found from where the equilibrium demand intersects the unit price schedule (pi); by construction, the unit price at equilibrium is equal to AC*. Also by construction, joint cost is equal to AC* times the sum of the two equilibrium demands. (Here with an increasing marginal charge, MC* exceeds AC*.) The consumer surplus (net benefit) for each consumer is indicated by the area above the average cost line and below the demand curve. The pricing equilibrium maximizes total consumer surplus (i.e., net benefits) over all consumers.

2.4. Variable Unit Pricing Parameter Determination

[29] Pricing parameters are determined simultaneously to satisfy economic efficiency and cost recovery at an equilibrium. Parameters result from simultaneously solving (7) and (12):

From (9), thus, a larger consumption will imply a smaller slope.[30] Equations (13) and (14) indicate that pricing parameters depend on the relative sizes of marginal cost and average cost as well as on the consumption level. The VUP schedule is increasing when the marginal cost curve is above the average cost curve, and decreasing in the reverse case.

2.5. Fairness Properties

[31] From (9), demands are proportional to total demand, with proportion inverse to the slope:

At equilibrium, the relative shares of revenue are equal to consumption shares: Since total revenues are constructed to be equal to total costs, by (16) each consumer’s charge at equilibrium is a proportion of total cost, with the proportion equal to the water consumption share. Proportional cost sharing is a common fairness property [Young and Peyton, 1995].

2.6. Comparison of Variable Unit Pricing to an Increasing Block Rate

[32] Figure 3 compares an increasing block rate schedule to the VUP equilibrium in Figure 2. The indicated IBR has three blocks for each consumer, respectively set at below AC*, at AC*, and at MC*, where AC* and MC* are at the same levels as in Figure 2. Since VUP maximizes total net benefit with cost recovery, any other pricing scheme, such as the indicated IBR, must either not cover cost or else have a lower total net benefit.

Figure 3

Comparison of increasing block rate to variable unit pricing.

[33] Consumer surplus (net gain) for the indicated IBR compared to the VUP equilibrium is illustrated in Figure 3. For both consumers, there is a small gain with IBR for the first block, because the price is less than AC*. For consumer 1, consumption occurs at the intersection of marginal benefit with the second block; consumption in block two is w1d, greater than the optimal w*1. The extra charge for the excess consumption by consumer 1 is offset by the extra benefit of the additional consumption. Consumer 2 has consumption in the third block w2d = w*2; there is a loss from IBR at this consumption because the price is higher, MC* instead of at AC*, which offset the gains in the first block from a lower charge. The consumer surplus gain by consumer 1 from the indicated IBR comes with a much larger loss for consumer 2.

[34] Cost recovery can also be examined in Figure 3. For consumer 2 in block three, the excess revenue over cost for the indicated IBR more than offsets the revenue loss in block one. For consumer 1, since there is increasing average cost, the excessive consumption in the second block is not supported by the revenue received, so that costs are not recovered for consumer 1. It is unlikely that total revenue equals cost for IBR, since cost recovery is not built into IBR as it is in VUP. IBR may produce either a loss or an excess in terms of cost recovery.

3. Variable Unit Pricing for a Supply Limit

[35] This section applies the pricing paradigm for a efficiency and cost recovery with a supply limit. Pricing parameters are now based on satisfying cost recovery with net benefit maximization, now subject to a supply constraint.

3.1. Economic Efficiency

[36] Given a limit L on the maximum amount of water that should be taken, economic efficiency is maximization of total net benefits subject to this supply limit:

The first‐order conditions for economic efficiency now include a shadow price μ from the resource constraint; the shadow price is the long‐term marginal cost to increase supply from the limit. The first‐order necessary conditions are: the marginal benefit for each water consumer should be equal to marginal cost plus the “shadow price” where the superscript L denotes evaluation at the constrained optimum:

3.2. Supply Demand Equilibrium With Variable Unit Pricing

[37] To satisfy constrained economic efficiency, the net revenue‐maximizing water utility should have the supply constraint added to its decision rules:

Denote the shadow price for the supply constraint by μ. An equilibrium allocation wiL with should satisfy marginal charge equal to marginal cost plus shadow price: The consumer problem is the same as in (3) above. Necessary conditions for the consumer are Efficiency with the supply constraint is satisfied by the combination of (20) and (21).[38] With variable unit pricing, from (20) the marginal charge should be equal to marginal cost plus the shadow price at a supply demand equilibrium:

Again, the equilibrium condition is that the demand charges are equal over consumers relative to a reference consumer m:

3.3. Cost Recovery

[39] Substituting (23), the cost recovery requirement with a supply limit becomes

Factoring out unit price, the equilibrium unit price is equal to average cost, here evaluated at the supply limit LpL = C(L)/L.

3.4. Parameter Determination

[40] Parameters now include an additional parameter to be determined: the shadow price μ. Solving for slope and intercept from (22) and (24):

Increasing unit price schedules are again obtained when average cost is increasing. But if equation image is positive (i.e., the supply constraint is binding) and sufficiently large, increasing unit price schedules can be obtained even when average cost is decreasing.[41] From (25), we get the closed form for constrained consumption:

Summing over consumption, Solving for the shadow price μ from (26), the shadow price satisfies[42] Figure 4 illustrates the constrained supply demand equilibrium for variable unit pricing. The top half of the diagram is similar to Figure 2, except the demands and costs are at the constrained levels. The supply constraint is shown in the bottom‐right quadrant. The constrained equilibrium demands wiL occur at the intersection of the marginal charge with MC(L) + μ.

Figure 4

Illustration of variable unit pricing equilibrium with a supply constraint.

3.5. Fairness Properties

[43] From (26), water demands are in proportion to total supply L, inversely to slope:

Again, sharing of cost in proportion to consumption holds at the equilibrium: because total revenue is equal to supply cost.

4. Seasonal Pricing to Meet a Summer Capacity Limit

[44] In some geographic areas, reservoir storage capacity puts a limit on summer demands but not on winter demands. VUP with separate winter and summer rates can help satisfy the summer capacity limit, while covering costs over both seasons. The pricing method for this purpose is outlined and demonstrated below.

4.1. Economic Efficiency

[45] Winter demand is indicated by tɛW and summer demand by tɛS. Water use is differentiated by I and O for indoor and outdoor uses; wIt denotes indoor water use in a month of season t, and wOt denotes outdoor use in month t. To simplify the derivation, consumption can assumed to be the same in each month of a given season.

[46] Benefit functions for indoor and outdoor uses are assumed to be separable. Winter indoor demand and summer indoor demand are related because the same indoor technologies (shower, toilet, etc.) are used in both seasons. To simplify, the same benefit function can be assumed for indoor use for summer and winter. Further simplifying, summer and winter indoor use can be assumed to be the same. Outdoor demand is taken to be independent of indoor demand.

[47] To help distinguish between summer and winter costs, joint costs can be decomposed. Utility costs include both “operating and maintenance” (OM) and capital costs for long‐term facilities such as reservoirs. OM includes variable costs and fixed costs for billing and maintenance of facilities. Both components of OM can be apportioned by volume.

[48] Capital expenditure is discontinuous over years, depending on whether or not capital improvements are made in any given year. Payments to bond funds “smooth” capital expenditure over time. Below, K denotes reservoir capacity which constrains summer demand, and C(K) denotes annual revenue requirements for bond funds that finance capital costs.

[49] For economic efficiency, total net benefits should be maximized by water consumption for indoor and outdoor uses for both seasons, subject to the summer capacity constraint:

where Bi denotes benefit for consumer i for indoor or outdoor uses as noted. With the above simplifying assumptions, first‐order necessary conditions for efficient allocation are The right hand sides of the above equations represent total marginal cost, respectively for indoor and outdoor use. Because indoor use affects cost in both seasons, the marginal cost for winter indoor use includes the marginal OM effects of winter indoor use and summer indoor use plus the marginal capital cost. The marginal cost for summer outdoor use is marginal OM cost plus marginal capital cost.

4.2. Supply Demand Equilibrium With Variable Unit Pricing

[50] To simplify, rates can be set to be the same for each month of a given season (winter or summer). Monthly VUP charge schedules for consumers are specified separately by season:

where wit denotes total monthly water consumption by consumer i for a month in winter W or summer S; both indoor and outdoor uses are included in total water consumption for summer. Note that both slopes and intercept differ over seasons.[51] In winter months, the consumer chooses demand for monthly indoor use wiI to maximize net benefit, thus setting marginal benefit of indoor use equal to the marginal charge:

Denote the monthly indoor demand by equation imageiI. Since winter and summer indoor use are assumed to be the same, only the outdoor decision is made in summer. Given monthly indoor use, the consumer chooses monthly outdoor demand to maximize net benefit; outdoor demand satisfies[52] The water utility should maximize net revenue over both seasons subject to the capacity constraint. Therefore, at equilibrium the marginal charge for each season is equal to both marginal benefit and marginal cost for that season. Again, equilibrium conditions are that demand charges are the same for each consumer relative to consumer m:

4.3. Cost Recovery and Pricing Parameters

[53] For cost recovery with seasonal pricing, equilibrium unit prices are assumed to be the same for summer and winter, and furthermore, equilibrium unit prices are set equal to average cost. In this way, total costs over summer and winter are covered by equilibrium unit prices.

[54] Parameters for each season can then be determined to simultaneously satisfy efficiency and cost recovery:   Winter efficiency:

Summer efficiency:    Winter cost recovery:    Summer cost recovery: Solving (35) and (37) for winter parameters, and (36) and (38) for summer parameters:   Winter:


5. Empirical Applications

[55] Full information implementation of any pricing method requires both cost and demand data. For example, Barkatullah [1999] estimated both demand and cost functions to develop marginal cost pricing for India. Although methods for demand and cost estimation are found in many empirical studies, most studies report on either demand or cost estimation. Demand studies have been performed in many regions over the years, and there is wide variation in elasticity estimates, depending on the estimation method and geography. Demand studies have mostly been limited to households [e.g., Whitcomb et al., 1993].

[56] Cost function estimation is often based on cross‐sectional data [e.g., Renzetti, 2001Sauer, 2005] and used for purposes of determining economies of scale in treatment and piping costs, or for measuring relative cost shares for labor and capital. Long‐run cost functions needed to address long‐run efficiency concerns are rarely available.

[57] For the Jordan example below, a “full information” approach is used. A long‐run cost function for raw water supply is first estimated on the basis of projected capacity expansion costs. Demand functions are also estimated on the basis of published elasticities. A mathematical programming method for constrained optimization is then applied to compute parameters relative to potential supply limits; see Appendix B for the solution method. The shadow price is obtained from the constrained optimization.

[58] As an alternative information treatment, “iterative pricing” can ease information needs. For this approach, data from a previous year are used to compute parameters. Enough iterations could in theory produce the full information solution but would in actuality be imperfect, because costs and demands would change as external conditions change. Still, pricing formulas based on theory can provide an objective way to determine rates.

[59] The Boulder example uses a previous year’s data on cost and demand to estimate pricing parameters for the succeeding year. Correspondingly, the computational method for pricing parameters is relatively simple: “spread sheets” are based on the seasonal pricing formulas.

5.1. Example for Amman, Jordan: “Full Information” Pricing and Cost Estimation

[60] As reported by World Bank [1997], public water supplied for Amman was about 90 million cubic meters (mcm). The current pricing method is increasing block rates, with an average price of 0.47 jd/cm (1 Jordanian dinar (jd) = U.S. $1.428) in 1997. Water in Amman has been rationed, resulting in privately trucked provision of water at rates as high as 1–2 jd/cm. Various projects have been proposed to expand the water supply.

5.1.1. Long‐Run Cost Function for Amman, Jordan

[61] A long‐run cost function to expand capacity was constructed from data on total construction costs for potential water supply projects [World Bank, 1997]. In Table 2, the “extra” cost for each project to increase supply is denoted by Δc; the “extra” volume from each project is denoted by Δw; the ratio Δcw denotes the “extra” (marginal) construction cost per unit extra volume. “Economic cost” is the minimum cost to provide a given volume. Therefore, to minimize cost to produce any volume, projects should be adopted in order of increasing Δcw. For example, the least cost to produce 25 million cubic meters (mcm) in Table 2 is to do the first two projects. The third and fourth projects would also give 25 mcm but at a greater cost.

Table 2. Long‐Run Construction Cost for Ordered Water Projects in Amman, Jordana

Project Δw Δc Δcw Volume ΣΔw Cost ΣΔc Average Cost Cost/w
Jafar/Shedia 18 6 0.33 18 6 0.33
Feedan Dam 10 4 0.4 28 10 0.357
Adasiyah Weir 20 11 0.55 48 21 0.437
Lagoon Wells 5 5 1 53 26 0.490
Wadi El Arab 20 26 1.3 73 52 0.712
Mujib Dam 35 52 1.49 108 104 0.962
Desalinization of urban Jordan 60 100 1.66 168 204 1.21
Aqaba desalinization 20 40 2 188 244 1.30
Wala Dam 9.3 22 2.36 197.3 266 1.35
Tannur Dam 8.7 21 2.41 206 287 1.39
Desalinization of Jordan 5 14 2.80 211 301 1.43
Disi‐Amman 120 420 3.50 331 721 2.17
Yarmouk River Dam 85 303 3.56 416 1024 2.46
Mujid Weir 23 104 4.52 439 1128 2.5

[62] With a Cobb‐Douglas production function and cost minimization, the form of the cost function should depend on input prices (labor and capital) and volume. However, for this cross‐sectional study within the same time period, labor and capital prices are virtually the same over the study area. Since no identification of input price effects is needed, the construction cost function is specified only in terms of volume. The logarithmic form is

with a representing the effect of input prices and b representing the effect of production technology. The marginal cost function is MC(w) = b[C(w)]/w = b[AC(w)], where AC(w) represents the average cost function. Therefore, if b is greater than one, marginal expansion cost exceeds average expansion cost, implying rising average expansion cost. Regression analysis on data in Table 2 resulted in the following estimated long‐term expansion cost function (million Jordanian dinars (mjd) per mcm): with R2 = 0 0.9967. Because b exceeds 1, marginal and average costs are increasing. (The standard error of the slope coefficient is 0.028; the cost elasticity coefficient is in a confidence interval of two standard deviations about 1.7 with 0.97 probability.)[63] The current annual supply of raw water is taken to be 90 mcm plus 17 mcm transferred from agriculture at a low cost of 0.85 mjd (equal to 0.045 jd/cm times 17 mcm). Any raw water supply must, of course, be treated and piped. The current average water price (0.47 jd/cm) is assumed to be the average cost for piping and treating raw water, given sufficient capacity for piping and treating. The total annual cost (NC) for water supply, 107 mcm plus any new water w, is represented as the treatment cost for the existing and new raw water plus the annualized cost per unit of expansion:

where C(w) denotes the estimated long‐run cost function for construction. Construction cost is converted to an annual payment by dividing by 22.39, representing a 2% interest rate for a 30 year life of project. (Other interest rates and project life can be incorporated simply by changing this adjustment factor.) The marginal cost function is the derivative of (43).

5.1.3. Pricing Results

[65] Table 3 shows pricing parameters and shadow prices that correspond to varying supply limits and the unconstrained solution. Parameters were determined by nonlinear optimization for the specified cost and demand functions (see Appendix B). Because projects are discrete, but a continuous cost function is used to determine pricing, costs are not exactly covered by the indicated prices; adjustments could be added as a lump sum charge.

Table 3. Variable Unit Pricing With a Supply Constraint, Amman, Jordan

Supply Constraint
Unconstrained 151 mcm 131 mcm
Charge intercept a (jd/cm) 0.453393 0.319213 0.127540
Charge slope (jd/mcm)
Household 306.5 1811.5 4570.0
Commercial 455.4 2633.2 6476.2
Equilibrium unit price (jd/cm) 0.484691 0.481272 0.478535
Shadow price (jd/cm) 0 0.138063 0.336766
Demand (mcm) 171.8 151 131
Household 102.1 89.4 76.8
Commercial 68.7 61.5 54.1
Total charge (mjd) 82.7 72.6 62.6
Household 49.4 43.0 36.7
Commercial 33.3 29.6 25.8

[66] Supply limit levels were chosen arbitrarily for demonstration purposes. Meeting the demand of 171 mcm (unconstrained solution) with the available supply of 107 would require additional 64 mcm; correspondingly, the first five projects (up to and including Wadi El Arab) should be built. For a supply limit of 151 mcm, the additional 44 mcm could be supplied by three projects, up to and including Adasiyah Weir. For the more restrictive limit of 131 mcm, only two projects (up to and including Feedan Dam) would be needed.

[67] As the supply limit becomes more restrictive, the unit price parameters in Table 3 exhibit increasing slope and decreasing intercept. The resulting equilibrium unit price decreases as the supply limit becomes more restrictive. Because cost is less for a smaller supply, and revenues must cover a smaller cost, setting supply limits with VUP pricing can result in reduced supply costs and reduced water bills.

5.2. Example of Seasonal Pricing: Boulder, Colorado (2001)

[68] The following example demonstrates the less data intensive approach of iterative pricing. Two steps for a past year’s water data were required: (1) developing consumption data for a representative typology of water consumers through detailed utility records and (2) estimating marginal and average costs by season. Then, slopes and intercept and corresponding rate schedules were computed by consumer type. (Computations used a spreadsheet. Consumer type details and spreadsheets for Boulder, Colorado, are available from the author.)

5.2.1. Estimating Marginal and Average Costs

[69] Operating and maintenance (OM) and capital data were available only in annual terms from Boulder utility auditing documents. Average OM and capital costs were obtained by dividing total costs by total annual consumption.

[70] Marginal OM and marginal capital costs had to be estimated by season. Marginal OM cost and marginal capital cost vary by season because of the summer capacity constraint. Marginal capital cost is taken to be zero in the winter, because there is excess capacity. For winter, marginal OM cost is taken to be equal to average treatment and power cost, since only treatment and power expansion is needed to increase volume in winter.

[71] In summer, raw water must be obtained from alternative sources when capacity is exceeded. A reservoir at Windy Gap provides peaking supply for Boulder. In Boulder rate publications, the last block of the IBR schedule has been described to be the summer marginal cost to obtain peaking supply. For 2001, the last block rate was $3.85 per 1000 gal. (1 gal. = 3.785 L).The breakdown for 1992 (the most recent cost breakdown) was 46% for variable cost and 54% for capital cost. These proportions were applied to the 2001 total marginal cost to obtain the indicated summer marginal cost breakdowns for OM and capital.

[72] Table 4 shows the resulting cost estimates. For both OM and capital, average cost exceeds marginal cost in winter, whereas marginal cost exceeds average cost in summer. Therefore unit pricing will have a negative slope for winter, whereas summer pricing will have a positive slope.

Table 4. Boulder Cost Breakdown for 2001a

Annual Winter Summer
OM cost $8,288,607
Capital cost $7,852,781
Total average cost/1000 gal $2.479
OM average cost/1000 gal. $1.273 $1.273
Capital average cost/1000 gal. $1.206 $1.206
OM marginal cost/1000 gal. $0.260 $1.770
Capital marginal cost/1000 gal. $0.000 $2.070

5.2.2. Demand by Water Consumer Types

[73] Boulder Utilities Division develops rates for types of water consumers rates: single family residence, trailer parks, multifamily residences, commercial/industrial, and sprinklers. (Separate rates are given “inside” and “outside” the city for cost reasons.) To provide more finely tuned rates, here consumer types were further subdivided into “low,” “medium,” and “high” types, for a total of fifteen types, where “medium” represents the typical consumer for each type. The distribution of use by types was constructed to match 2001 consumption data.

5.2.3. Seasonal Pricing for Boulder

[74] Tables 5 and 6 show VUP rate schedules for two of the fifteen consumer types for winter and summer, respectively: the average single family residence and the average commercial account inside the city limits. By construction, the unit price each season for average use for each type is equal to average cost (here $2.48). In Tables 5 and 6, average cost and average quantity for each type are indicated by bold font. Those who use more than the average will pay a unit charge higher than average cost, and conversely for those who use less than average.

Table 5. Variable Unit Pricing Schedule for Average Boulder Household for the 2001 Simulationa

Unit Price Total Bill
1 $2.82 $2.82
2 $2.74 $5.47
3 $2.65 $7.95
4 $2.56 $10.26
5 $2.48 $12.39
6 $2.39 $14.36
7 $2.31 $16.15
8 $2.22 $17.77
9 $2.14 $19.22
9 $2.34 $21.09
10 $2.48 $24.79
11 $2.62 $28.77
12 $2.75 $33.01
13 $2.89 $37.53
14 $3.02 $42.33
15 $3.16 $47.39
16 $3.29 $52.73
23 $4.25 $97.71
Table 6. Variable Unit Pricing Schedule for Average Boulder Commercial Account for the 2001 Simulationa

Unit Price Total Bill
79 $2.50 $197.47
80 $2.49 $199.56
81 $2.49 $201.63
82 $2.48 $203.70
83 $2.48 $205.75
84 $2.47 $207.80
85 $2.47 $209.83
86 $2.46 $211.86
127 $2.42 $307.03
128 $2.43 $310.76
129 $2.44 $314.50
130 $2.45 $318.27
131 $2.46 $322.06
132 $2.47 $325.87
133 $2.48 $329.70
134 $2.49 $333.55

[75] For both indicated consumer types, the base charge is the predominant charge. The total bill is a result of both base and demand charges. The small negative slope for winter is offset by the much larger base charge, so that the total charge for winter increases approximately linearly with water use. The summer rate reflects a positive demand charge; the total charge increases quadratically with use.

[76] The average Boulder household uses about 5000 gallons per month in winter, and the summer use is about double the winter use. In spite of different slopes and intercepts, the result is approximately linear: the typical household monthly bill for summer is about twice that for winter for about twice as much consumption. The typical commercial account uses 83,000 gallons in the winter and 133,000 gallons in the summer. VUP results in a 60% increase in the average commercial summer bill over the winter bill for about a 60% consumption increase. Even thought the total bill is quadratic in volume, near linearity between volume and use is due to the predominance of the base charge over the demand charge. Still, the demand charge does not have to be very large to have an incentive effect on demand.

[77] Comparing rates by use types, the commercial rate has a flatter slope than the household because of higher water use by the commercial consumer (the use level determines the denominator for the slope). Still, the total charge for the household is much less than for the commercial consumer because of the commercial consumer’s much higher volume.

[78] Using the iterative method, costs for a given year may not be exactly covered by parameters based on data from a previous year; there may be an excess or insufficiency, depending on use and cost trends. Adjustments to cover cost can be made in a future year.

[79] Table 7 compares VUP and IBR rates for a typical Boulder household with monthly consumption as indicated by season. VUP bills for all months are higher than for IBR, but IBR rates for 2001 did not cover costs and were raised in 2004. Interestingly, the summer maximum charge is about eight times the predominant winter charge for both rate structures.

Table 7. Monthly Bill Comparisons for a Typical Boulder Household: 2001 VUP and 2001 IBR

Monthly Use (gal.) Seasona VUP Monthly Bill IBR Consumption by Block (gal.) IBR Monthly Bill
$1.50 $2.55 $3.85
5 × 103 W $12.39 5 × 103 $7.50
5 × 103 W $12.39 5 × 103 $7.50
5 × 103 W $12.39 5 × 103 $7.50
6 × 103 W $14.36 5 × 103 1 × 103 $10.05
8 × 103 W $17.77 5 × 103 3 × 103 $15.15
15 × 103 S $47.39 5 × 103 10 × 103 $33.00
23 × 103 S $97.71 5 × 103 13 × 103 5 × 103 $59.50
17 × 103 S $58.34 5 × 103 12 × 103 $38.10
16 × 103 S $52.73 5 × 103 11 × 103 $35.55
10 × 103 S $24.79 5 × 103 5 × 103 $20.25
5 × 103 S $8.99 5 × 103 $7.50
5 × 103 W $12.39 5 × 103 $7.50
Year total $371.64 $249.50

5.2.4. Summary of Boulder Rate History

[80] The Boulder experience with the process of making rate changes demonstrates the complexity and transactions costs of rate setting. Starting in 2004, public hearings were held with much public discussion. Citizen participation in rate hearings indicated that water consumers are interested in their rate structures and willing to be involved in water pricing decisions. Much of the public discussion of rate structures had to do with fairness.

[81] In January 2007, the method of rate making was changed from IBR to a “water budget” approach. For the water budget for households, the utility specifies a target for water use on the basis of a household’s lot size; aerial photographs for 2003 are used for the household budget assessment. The budget for outdoor use is based on horticultural research regarding the amount of water necessary for healthy bluegrass lawns in Colorado; the budget can vary monthly on the basis of watering needs. Indoor needs are based on 7000 gallons for a family of four. If dissatisfied with their budgets, households can appeal to the utility. For commercial/industrial users, the monthly water budget is based on 2005 actual average monthly use. (See Basics of your water budget, www.bouldercolorado.gov)

[82] For drought situations, the water budget provides an alternative to unpopular restrictions used in the past. To address droughts such as occurred in 2002, the stated goal of the water budget is for the utility to be able to adjust rates rapidly. When droughts occur, water budget levels can be changed while maintaining the structure of rate blocks.

[83] The same block structure is used for all user types while varying their allotted water budgets. Five rate blocks are assigned in relationship to the water budget: the first block rate holds for up to 60% of the allotted water budget, the second block is 61% to 100%, the third block is 101% to 150%, the fourth block is 151% to 200%, and the last block is for volumes greater than 200%; the same structure is used year round (summer use typically falls into the fourth or fifth blocks). Rates are set by block: Block 2, the “base rate, is set at $2.50 per 1000 gals., Block 4 is three times the base rate, and Block 5 is five times the base rate. The Boulder water utility reports that 2007 rates achieve nearly proportionate sharing of costs by volume of consumer type. (See Updated water revenue and use totals, January through December 2007, http://ci.boulder.co.us).

[84] The water budget method is still a form of IBR in that blocks require parameterization for price levels and percentages of water budget. The same shortcomings of IBR hold for the water budget: it does not guarantee that supply costs will be exactly covered or that a target supply level will be met. A Boulder conservation group cautions: “Reductions in water consumption and the new rate increase plan can create infrastructure budget deficits long term but in the short run it should create windfall revenue increases until conservation takes hold. What is Boulder going to do with these collection windfalls?…” (http://www.boulderflycasters.org/reelnews/2007/feb/index.htm).

6. Contexts for Variable Unit Pricing

[85] For a municipal utility, VUP pricing rules can be used directly by the government agency that supplies water. For a contractual arrangement with a private supplier, pricing rules could be defined as part of the arrangement. However, since the unit pricing formulas result in zero profit, an additional management fee would be required for a private utility to operate. Specifying the pricing rule for a private utility is similar to a regulatory agency setting rules such as an allowed rate of return or a pricing cap. (Loehman [2004] discussed the economic organization implications of variable unit pricing in more detail.)

[86] An important context for variable unit pricing is planning for integrated water resource management (IWRM) and water demand management (WDM). Water demand management refers to conservation on the demand side as an alternative to more costly supply expansion. IWRM refers to a participatory planning process to determine how best to meet society’s long‐term water needs while maintaining essential ecological services (What is integrated water resources Management?, http://www.usaid.gov/, 2006). Drought planning is another context in which communities develop conservation and management plans and rules for low water supply.

[87] In response to prolonged drought with reduced supply or to reduce excessive groundwater pumping, a supply limit could be set as an alternative to seeking costly new supplies. Then, variable unit pricing would help to ensure that costs would be covered while providing incentives for meeting the supply limit. Because VUP is formula driven in terms of cost and capacity/limits, alternative scenarios could be readily translated by planners into pricing implications.

[88] One principle of IWRM is public involvement. Deliberation is more specific: reasoned discussion among citizens that leads to an agreement that is acceptable to all. Deliberation is being applied to the management of water utilities; see the examples of Flynn and Boudouris [2005] and the Municipal Plan of the Township of Centre Wellington in Ontario Canada (www.beyondapipedream.com). Deliberation among citizens served by a water utility can help to make socially acceptable decisions about capacity expansion versus setting limits. By comparing alternative costs, supply levels, and pricing implications, citizens could determine whether they would be willing to pay more to increase supply, or to pay less while facing supply limits.

7. Conclusions

[89] Variable unit pricing provides an objective foundation for water utility pricing, with well‐defined formulas to specify rate making. Furthermore, it is designed to satisfy, in theory, the desirable properties of cost recovery and economic efficiency. Total bills based on unit pricing may also be easier for consumers to comprehend than increasing block rates.

[90] This paper showed applications of variable unit pricing to situations not addressed by increasing block rates: meeting supply limits and seasonal capacity constraints. Two case studies showed the efficacy of VUP for supply limits and seasonal pricing while drawing on two different empirical methods. The Jordan study used “full information” to show that pricing for a supply limit can help avoid more costly system expansion. The Boulder study used “iterative information,” employing seasonal pricing with separate unit price schedules for winter and summer on the basis of differences between average and marginal costs for these seasons. The resulting increased demand charges for summer, to provide incentives to reduce summer use, may be preferred by consumers to unpopular use restrictions.


[99] Thanks to Bronwyn Weygandt, Director of Billing, Boulder Water, for consumption and billing data. Thanks to Carol Linn, Financial Officer of Boulder Water, for cost data. Charles Howe, Department of Environment and Society, Institute for Behavioral Science, University of Colorado, is thanked for providing much encouragement during the course of this work and for pointing attention to pricing by consumer type. Keith Willett, Department of Economics, Oklahoma State University, is thanked for very helpful review comments. George Tolley, Economics, University of Chicago, is thanked for encouraging me to develop interpretations and applications.

Appendix A:: Parameter Determination by Water Consumer Type

[91] The derivation of pricing parameters above was for individualized rate structures for each consumer, intractable especially for larger water supply systems because of information, computation, and administrative needs. It is reasonable to seek to simplify rate structures by grouping water consumers by type such that consumers of the same type will receive the same price schedule.

[92] Below, a method to structure unit pricing by type of consumer is suggested. The method of pricing by group has less tidy properties than individualized rate structures as described above, because costs may not be exactly covered and efficiency is not perfectly achieved. Still, the method has a theoretical foundation and reasonable properties.

[93] Suppose water consumers can be grouped, with groups denoted by k and an individual member of a group denoted by ik. Each group has an average use level

where nk denotes the number of members in group k. There is a distribution of individual demands about the group average:[94] For group charge schedules, we seek to define a slope bk for each group with a common intercept. A natural extension of the individual slope and intercept parameter formulas is to solve the following simultaneous system for group parameters:

That is, the average use for each group would be charged a unit price equal to average cost, and the marginal charge for the average use would be set at marginal cost.[95] Unfortunately, there is an imperfection from pricing by consumer type. Given charge schedules by type, suppose water consumers would maximize their net benefits. The corresponding first‐order condition are that marginal benefit should equal the marginal charge for each consumer:

If at the same time, the water utility satisfies (A3), the efficiency conditions – marginal benefit by individual consumer equals marginal cost – are only approximately satisfied.[96] To justify (A2) and (A3), consider the utility’s expected net revenue. Denote variance of the error by group by σk2; the sum of the squared error in (A1) is equal to nkσk2. Substituting (A1) in the revenue expression and taking expectations, total expected net revenue E(NR) is equal to:

given zero means of the error terms in (A1) and independence of the error terms from average use levels. By maximizing expected net revenue (A5) over group average use, (A3) will be satisfied by the utility. Furthermore, satisfying (A2) will result in positive expected net revenue at the utility optimum, i.e., cost recovery is more than achieved. To minimize excess revenue over cost, grouping should be defined to minimize Σnkσk2.

Appendix B:: Nonlinear Solution Method for Full Information

[97] To solve for the equilibrium with full information about cost and marginal benefits, a nonlinear solver such as GAMS (General Algebraic Modeling System, http://www.gams.com) can be used. A procedure for solving for parameters a, {bj}, {wj} is to solve the following system, which has equilibrium conditions as constraints:

The slack variables lj, kj, and τ should be zero for an exact solution to the equilibrium system.[98] Any other supply constraints – such as annual or seasonal limits – can also be added, and optimization of the system then allows determination of the corresponding shadow prices.

Supporting Information


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BREAKING: Presidential Executive Memorandum . . .U.S.A. WATER from SEWERS and SALT WATER a DEADLY PLAN of Genocide

Presidential Memo


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2014 Napa earthquake may be linked to groundwater changes, study says – Los Angeles Times


2014 Napa earthquake may be linked to groundwater changes, study says

2014 Napa earthquake may be linked to groundwater changes, study says
Two men walk past a quake-damaged building in Napa on Aug. 25, 2014. New research suggests the magnitude 6.0 earthquake that rocked California wine country may have been caused by an expansion of Earth’s crust due to seasonally receding groundwater. (Eric Risberg / AP)

Research suggests the magnitude 6.0 earthquake that rocked California wine country in 2014 may have been caused by an expansion of Earth’s crust because of seasonally receding groundwater under the Napa and Sonoma valleys.

The vineyard-filled valleys flank the West Napa Fault, which produced the quake that killed one person, injured several hundred and caused more than $500 million in losses.

The study recently published in the American Geophysical Union’s “Journal of Geophysical Research: Solid Earth” suggests land between the valleys is stretched each summer as groundwater levels fall beneath the valleys and the ground in the valleys sinks and contracts.

The amount of the horizontal stretching measured is tiny — about 0.12 inch — but enough to stress faults, according to the researchers.

“We think it’s more of a localized effect, something related to the groundwater system. We don’t know if it is groundwater pumping specifically, or something related to how the natural aquifer system works, or a combination,” said lead author Meredith Kraner, formerly of the Department of Geosciences at Stony Brook University in New York and now with the University of Nevada, Reno.

Co-authors were William E. Holt of Stony Brook University and Adrian A. Borsa of the Scripps Institution of Oceanography at UC San Diego.

The early morning Napa quake on Aug. 24 was the largest to hit the Bay Area since the magnitude 6.9 Loma Prieta earthquake on Oct. 17, 1989.

The Napa quake left 8 miles of surface rupture and damaged many historical masonry buildings and older residences, according to the U.S. Geological Survey.


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Water Restrictions & Conservation | Palm Beach Gardens, FL – Official Website – police department is assisting with oversight of residential compliance.

Water Restrictions & Conservation | Palm Beach Gardens, FL – Official Website – police department is assisting with oversight of residential compliance.

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WATER LAWS – Fines, Restrictions POLICED . . .Chapter 74 – UTILITIES | Code of Ordinances | Palm Beach Gardens, FL | Municode Library

WATER LAWS – Fines, Restrictions POLICED . . .Chapter 74 – UTILITIES | Code of Ordinances | Palm Beach Gardens, FL | Municode Library

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WATER ALERT: State’s offer of working group to oversee water flows “a joke,” MID official says | The Modesto Bee

WORKING GROUP INPUT ILLUSION (THE DELPHI TECHNIQUE)  . . . These meetings are controlled by directives not only from the United Nations, NGO’s, universities, The World Bank and many many more to establish policies based upon fraudulent water science. .   We have Primary Water – water is a renewable, we are NOT running out of water. . .  We MUST as individuals access primary water, independently from the water takeover power structure that is set to ration water resources that are endlessly available to all.  Learn more go to PrimaryWater.org

An important role of irrigation district board members is deciding how much water to allocate for agriculture and city customers each year and how much to hold in storage, said Michael Frantz, a TID board member. “In certain years, (the STM Group) would take that control away from our elected leaders and transfer it to a Sacramento bureaucrat.”

The so-called “STM Working Group” would include state water board staff and its executive director, the state and federal wildlife agencies, and water users. The group would implement the flows downstream from the dams and assess their effectiveness in boosting salmon numbers.

“The STM Group is a joke,” said John Mensinger.

In a statement Friday, the state agency said it would not be operating the reservoirs. The STM group would assist with implementation and monitoring of the flow requirements and would be comprised of the current operators, who are experts on reservoir management, and fisheries experts, who know how to manage flows for fish protection, the board’s statement said.

“The STM working group is all about having experts that understand the local problems make recommendations to best manage the system,” the board said.



State’s offer of working group to oversee water flows “a joke,” MID official says

Key elements of a State Water Resources Control Board plan for restoring fisheries are not acceptable to local irrigation districts, which are likely to sue if the state board does not compromise, district board members said Friday.

Most people know by now that the Bay Delta update would require 40 percent of unimpaired flows from February through June on the Stanislaus, Tuolumne and Merced rivers to restore salmon and support the Sacramento-San Joaquin Delta estuary.

To implement the plan, the state board would create a working group for the rivers that would exert far too much influence over the operation of Don Pedro, New Exchequer and New Melones reservoirs, two board members said.

The so-called “STM Working Group” would include state water board staff and its executive director, the state and federal wildlife agencies, and water users. The group would implement the flows downstream from the dams and assess their effectiveness in boosting salmon numbers.

“The STM Group is a joke,” said John Mensinger, who sees himself as a moderate board member of Modesto Irrigation District, which co-owns Don Pedro with Turlock Irrigation District. “We are never going to accept it.”

An important role of irrigation district board members is deciding how much water to allocate for agriculture and city customers each year and how much to hold in storage, said Michael Frantz, a TID board member. “In certain years, (the STM Group) would take that control away from our elected leaders and transfer it to a Sacramento bureaucrat.”

In a statement Friday, the state agency said it would not be operating the reservoirs. The STM group would assist with implementation and monitoring of the flow requirements and would be comprised of the current operators, who are experts on reservoir management, and fisheries experts, who know how to manage flows for fish protection, the board’s statement said.

“The STM working group is all about having experts that understand the local problems make recommendations to best manage the system,” the board said.

The water board, which held a two-day hearing on the plan Tuesday and Wednesday, says it will vote on the Bay Delta water quality update Nov. 7. Local and state officials who spoke at the Sacramento hearing said they would prefer to negotiate voluntary agreements that could include other tools for improving the fisheries in the delta.

If there are no agreements, the state could impose the flow requirements through conditions on water rights starting in 2022.

The irrigation districts, including MID and TID, along with districts with rights to Stanislaus and Merced river water, take issue with the final flow proposals, which were issued in July, but also can’t live with proposals for year-to-year carryover storage behind the dams for environmental purposes.

With a more civil tone prevailing at the hearing this week, local officials had thought that Gov. Jerry Brown’s appointees on the board might compromise. But board members’ comments near the end of the meeting Wednesday evening suggested they won’t budge and were disappointing, Frantz said.

Felicia Marcus, chairwoman of the five-member board, is a former western director for the National Resources Defense Council, an environmental advocacy group. Other board members have professional backgrounds with regulatory agencies.

Negotiations are still possible with the state’s Natural Resources Agency, Department of Water Resources and Department of Fish and Wildlife. Representatives of those agencies said at the hearing they’re committed to discussing voluntary settlements before the Nov. 7 decision.

“If the state board adopts this program, as it stands, we are going to sue them because the environmental document is deficient and a lot of things they are asking for are unlawful,” Mensinger said, noting he has seen a rough draft of a lawsuit.

Legal challenges to the Bay Delta update are also anticipated from environmental groups that have called for 50 to 60 percent river flows to benefit the fisheries.

Frantz said the carryover storage requirements are a lesser-known piece of the state’s plan and one reason for dire predictions of economic losses for the region.

He said it would result in cuts or total elimination of water deliveries to farmers and city of Modesto customers amid multiple dry years. As an example, he cited the severe drought from 2012 to 2015. No water would have been delivered to TID customers in the last two years of the drought if the state proposals had been in place, Frantz said.

Some special drought provisions in an agreement might help appease the districts.

“We expect to see more droughts,” Frantz said, noting that weather patterns suggest that dry spells could be longer and more severe in the future. Aside from the farm-related industries served by the districts, more than a million people live in the area affected by the water board’s plan.

The state plan would allow the increased river flows or an equivalent amount of water to be managed and shaped for creating river conditions and cooler water temperatures that support the salmon. The releases, starting at 40 percent of the natural runoff in the watersheds, could be adjusted in future years between 30 and 50 percent based on whether the measures are effective in boosting the fisheries.

Mensinger said the upper end of the range is too high — the MID won’t sacrifice half its water.

The irrigation districts are faced with convincing the water board to accept some of their ideas for salmon restoration in the three rivers. They contend more can be done with less water by providing habitat and suppressing nonnative bass that feed on young salmon swimming downstream.

Some have suggested the state should remove June from the requirements since the young salmon are no longer in the river that month.

If the flow requirements are approved in November, a signoff is required from the U.S. Environmental Protection Agency. It could be another flashpoint in the process given the recent efforts by the Trump administration to intervene in water resource policies in the delta. The U.S. Bureau of Reclamation has said the updated Bay Delta plan contradicts the congressional priorities for the federally run New Melones reservoir and has threatened legal action.

The state water board has not conceded that the federal EPA has approval rights over all of the Bay Delta water quality update.


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The World Bank – Regulatory Frameworks for WATER Resources Management – (Document) Public Disclosure Authorized

The World Bank – Regulatory Frameworks for WATER Resources Management – (Document) Public Disclosure Authorized
  1. Regulatory Frameworks for Water Resources … – World Bank Group

    web.worldbank.org/archive/website01021/WEB/IMAGES/Proxy  Highlight

    regulatory framework for water resources management and identifies …. With regard to water legislation, the Action Plan recommendations are still highly.
EXCERPTS BELOW from above Document – recommended reading entire water regulations and global water management scheme – above link:

The United Nations Conference on Environment and Development (UNCED) has addressed the concept, stating that

the holistic management of freshwater as a finite and vulnerable resource, and the integration of sectoral water plans and programs within the framework of national economic and social policy, are of paramount importance. . . . Integrated water resources management is based on the perception of water as an integral part of the ecosystem, a natural resource and social and economic good.293

IWRM aims to ensure the coordinated development and management of water, land, and related resources by maximizing economic and social welfare without compromising the sustainability of vital environmental systems.294

Sustainable and efficient water management requires good planning. This suggests that each jurisdiction needs to develop plans for how it will manage and regulate its water resources. Consequently, water legislation could stipulate the types of plans—national, regional, basin plans—the authorities are required to develop, and the issues that they should address. The legislation could also stip- ulate how the information needed to develop these plans should be collected.

4.4 RegulationofWaterUses

As a public trustee of the nation’s water, the State is entrusted with responsibil- ity for ensuring that water is allocated equitably and beneficially, as well as with authority for regulating the use, flow, and control of all types of water in the State. A general rule in most statutes relates to the requirement for a permit or license to be issued by the government in accordance with clear and transparent criteria and procedures before a person can use water or construct water infra- structure. In essence, the permit grants a water right to this person.

Such a permit would describe the types of water uses allowed, the quantity of water that can be used, the water standards with which the permit holder must comply, the duration of the permit,297 the process for its renewal, and the water permit fees. In relation to groundwater, well spacing and the current amount of water being drawn from the aquifer in question can be other factors to be con- sidered in deciding whether to award a permit. However, in some countries per- mits are not required if the depth of the well does not exceed a specified limit. In addition, most legislation exempts domestic uses, up to a specified amount per day, from the requirement for a permit.298 Other issues to be addressed include procedures for challenging unfavorable decisions on water rights.

One issue facing most countries preparing water legislation is how to verify and regularize water uses that existed before the legislation is adopted.

Groundwater needs stricter and more detailed rules for its protection because it is more vulnerable than surface water to pollution and other forms of contam- ination. This is due to the fact that groundwater “flows at much slower rates than surface water, which causes contamination and other problems to manifest at slower rates and reduces aquifers’ natural reclamation abilities.”306 Moreover, pollution of groundwater is usually irreversible.307 It is further argued that non- replenishable groundwater (fossil aquifers) requires more stringent protection rules.308 Some legislation addresses the environmental sustainability of the water source, requiring that part of the water be left as a “reserve” to maintain the ecosystem of the river.309 These developments indicate clearly that the stan- dards for protecting water resources are evolving; therefore the legislation should be flexible enough to accommodate such evolving standards.

Two concepts that have been evolving and are now receiving increasing atten- tion in water legislation are the precautionary principle and the polluter-pays principle. The precautionary principle has been given wide recognition by the Rio Declaration, where it is included as principle 15. That principle states: “In order to protect the environment, the precautionary approach shall be widely applied by States according to their capabilities. Where there are threats of seri- ous or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degra- dation.”310 The main rationale for the precautionary principle is the often irre- versible character of damage to the environment and the limitations inherent in the very mechanisms for reparation of this type of damage.

306 See Gabriel Eckstein, Protecting a Hidden Treasure: The U.N. International Law Com- mission and the International Law of Transboundary Ground Water Resources, 5 Sust. Dev. L. & Policy 5 (2004).

307 See Stephen Foster, Essential Concepts for Groundwater Regulators, in Salman (ed.), supra n. 163, at 15. See also Stephen Foster, Adrian Lawrence & Brian Morris, Ground- water in Urban Development—Assessing Management Needs and Formulating Policy Strategies, World Bank Technical Paper No. 390, 11 (World Bank 1998); and Stephen Foster, John Chilton, Marcus Moench, Franklin Cardy & Manuel Schiffler, Groundwater in Rural Development—Facing the Challenges of Supply and Resources Sustainability, World Bank Technical Paper No. 463 (World Bank 2000).

308 See Guidelines for Development and Management of Groundwater Resources in Arid and Semi-Arid Regions, 8 Intl. J. Water Resources Dev. 145 (1992).

309 See supra, section, on the concept of the Reserve in South Africa.

310 For the Rio Declaration see supra n. 277. The precautionary principle is now recog- nized as a general principle of international environmental law;see The Precautionary Principle in International Law—The Challenge of Implementation (David Freestone & Ellen Hey, eds., Kluwer Law Intl. 1996).See, for example, Preamble to the Convention on Biodiversity, 31 ILM 818 (1992) (entered into force December 29, 1993); article 3.3 of the United Nations Framework Convention on Climate Change, 31 ILM 818 (1992) (entered into force December 29, 1993); and the Convention on the Protection and Use of Transboundary Watercourses and International Lakes, supra n. 122.

4.6 RegulationofWaterInfrastructure

Regulation of the works that are needed to provide adequate water services is not purely an issue of water law. The construction and operation of such works raises legal issues related to construction, land acquisition, environmental, and zoning law, and, in the case of public works, government procurement law. The water statute needs to address this because these works affect the quality, quantity, and flow of water. Consequently, it is important that water legislation stipulate who can operate such works and the procedures for getting permission to undertake them. This issue may be addressed, inter alia, through a requirement for a per- mit from the relevant government authority if the works are to be carried out by a private party. Both public and private entities would need to adhere to laws and regulations in this regard.

The legislation would endow the government with responsibility for the use, protection, capital investment, and safety of all state-owned water infrastruc- tures, while making private owners responsible for their infrastructure. Private owners include water users’ associations, which are allowed in some countries to build and operate their own water infrastructure. Some statutes require that water infrastructures that have special strategic importance be owned only by the state. The government has the authority to inspect privately owned water infra- structure and ensure its compliance with standards, permits, and registration requirements, including any requirements for an environmental impact assess- ment, as well as its proper functioning and safety.317

It is worth noting that the issues related to water infrastructure are quite com- plex and are usually covered in a large number of legal instruments. The World Bank Policy Paper on Water Resources Management refers to the World Bank policies that are related to water resources. They include the policies on envi- ronmental assessment, environmental action plans, involuntary resettlement, projects on international waterways, indigenous peoples, physical and cultural resources, safety of dams, how to involve nongovernmental organizations, poverty reduction, and disclosure of information.318

4.7 Institutional Arrangements

Institutional arrangements for dealing with water resources are covered widely in water legislation. Such arrangements designate one or more government agencies with ultimate responsibility over water resources, including allocation and supervision of water rights and the preparation of plans, programs, and poli- cies, as well as enforcement provisions. The previous part of this study noted the variety of those agencies: ministries, national councils, agencies, and commis- sions. Whatever choice is made, the line of responsibility should be made clear to avoid duplication and overlapping of responsibilities, and the entity should be provided with financial and administrative autonomy. As noted in the World Bank Water Policy: “The lessons of experience suggest that an important prin- ciple in restructuring public service agencies is their conversion into financially autonomous entities, with effective authority to charge and collect fees, and with freedom to manage without political interference.”

The institutional arrangements should also reflect decentralization of deci- sion making and public participation. Decentralization is based on the principle that “nothing should be done at a higher level of government that can be done satisfactorily at a lower level.”320 This is reflected in the establishment of basin management authorities that are responsible for developing water management plans for a specific basin.321 The legislation should clearly define the watershed limits, composition, and responsibilities of the basin authority. Public represent tation in such agencies would strengthen their role and provide a base for sup- port of their decisions. The responsibilities of such entities could extend to both management and protection of the basin. This approach of decentralization and public participation in water management would incorporate two of the Dublin Principles.

Water users’ associations are established under most legislation as legal enti- ties with responsibility over the operation and maintenance of the irrigation facilities in their district and for collection of water charges.322 Furthermore the authority of those associations is extended in some countries to water supply as well. It is widely argued that participation of users “increases the likelihood that the system under their responsibility will be well maintained and contributes to community cohesion and empowerment in ways that can spread to other development activities.”323 Moreover, because association-managed systems have a consumer orientation, they are likely to provide better service and improve willingness to pay for such service.324 (See page 154 of this document)

*****Some legislation provides for the establishment of “advisory boards”, where all the entities and organizations concerned with water would be represented, including civil society organizations and academic institutions. Such advisory bodies would assist the government in preparing water policies, programs, and plans, and in coordinating their implementation. Indeed, public participation in the design and implementation of water policy and legislation is now considered an important element in ensuring the success of the policies and the legislation.329  **********

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4.8 Financial Arrangements

One of the complex issues, and a major challenge in water resources manage- ment, is water charges.330 Charging fees is intended to recognize water as an eco- nomic good,331 manage demand, encourage rationalization of water use, and raise revenues for operation and maintenance of the system.332 Most of the statutes state that charges for water must be set at a level that is adequate to cover the costs associated with operation and maintenance of the water infrastruc- ture.333 Because some cultures perceive water as a God-given gift for which no charges should be imposed, such charges can be presented as fees for delivery of the service, not necessarily for the water itself.334

One of the elements taken into account in setting charges for water is the vol- ume of water used, sometimes with progressive increases in prices for water usage exceeding certain amounts. This approach is being applied for domestic, industrial, and irrigation uses, though for irrigation uses approaches other than volume of water delivered have been used. Such approaches include the size of the area irrigated, the kind of crop irrigated, and the season for irrigation (the wet or the dry season, with higher charges during the dry season).335 Some laws use the source of water as a factor, charging more for groundwater than for surface water. Other laws include location of the area of delivery, the furthest points pay- ing the highest fees. In many countries water charges are set out in a separate regulation rather than in the water law itself, since updating a regulation is less cumbersome than amending a law.

Water pricing has been one of the most difficult issues faced in the water sec- tor, particularly charges for irrigation.336 Irrigation is the largest single user of water, accounting for about 73 percent of global water use, with the figure exceeding 80 percent for developing countries.337 Irrigation water in most countries is heavily subsidized,338 with no more than 10 percent of operating costs being paid by the users.339 This is notwithstanding water law in many of those countries that would call for full cost recovery for water services.340 The vicious cycle of farmers not paying because water is not being delivered, and water not being delivered because the system is in disrepair and cannot be fixed because of lack of funds, is often quoted as one reason for this state of affairs.

Partly because of this reasoning, some countries have followed the approach of charging a flat rate for water, whether for irrigation or domestic use, with all users or consumers paying the same rate regardless of the amount used. This approach does not create any incentives for managing demand or using water efficiently. Indeed, it creates perverse incentives for exactly the opposite, thus exacerbating an already difficult situation. The vicious cycle applies more vividly to water utilities where supply, demand, and pricing keep hopelessly chasing each other because of the flat rate approach. The problem of unac- counted-for water exacerbates this situation.341One reason for promoting the use of water users’ associations in both irrigation and rural water supply is the expectation that they can play a major role in water management, including operation and maintenance and collection of water charges.342

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In the cited case, the applicant had failed to pay for water in excess of the free six kilo- litres per month provided by the Durban Transitional Metropolitan Council (DTMC). The DTMC, invoking its bylaws, gave the applicant written notice and allowed for represen- tations to be made before disconnecting her water supply. The applicant argued that the bylaws were inconsistent with the Water Services Act because the disconnection resulted in her being denied access to basic water services while she was unable to pay for basic provisions in its water law.357 Chile has implemented a water stamps system for the needy in its population who live below a certain level of income.358 Con- sequently, there is increasing pressure on governments from international and civil society organizations to guarantee such a right to the poor and vulnerable segments of society through incorporation of this right into water statutes, as well as through specific action and procedures to implement the provisions of the statutes.

4.11 EnforcementoftheRegulations

The credibility of any legislation, including water legislation, depends on its enforcement provisions and how to get the different parties to comply with them. Such provisions need to enumerate acts that are considered violations of the law and specify sanctions. The tools that authorities can use in enforc- ing the requirements of the statute and identifying violations are limited to monitoring and inspections. To facilitate enforcement, most water law statutes give employees of the water agency the authority necessary to monitor com- pliance with the law, and some even create a special category of employees for that purpose.

Violations would include diverting or using water for any purpose without having been awarded the right to use water for that purpose; in contravention of the permit, actions that alter the flow rate, quality, or quantity of water without prior authorization; construction of unauthorized works; or committing fraud in measuring the volume of water used. Such violations can result in sanctions that include temporary or permanent revocations of the permit, fines, or even jail sentences for acts that involve criminal activity,359 though such sanctions are subject to appeal. Violators may even be liable to pay damages to any person harmed by their acts, as prescribed by the statutes of Armenia and South Africa. On the other hand, the statutes of China and Vietnam, as discussed earlier, provide incentives for compliance.

4.12 Dispute Settlement

Given the increasing scarcity of water resources and the rising quality problems, disputes between different users, or between a user and the government, are bound to arise. Water legislation therefore needs to address the issue of how to deal with those disputes. Furthermore, the legislation may also need to address situations where the dispute is between two government agencies.

Water disputes can be dealt with in widely varying ways. Initial authority to resolve disputes between users may be granted to the water agency established and operating under the water law. Special commissions are established in some jurisdictions to mediate or arbitrate water disputes between users that do not involve the government. Water users’ associations are also given powers in some countries to resolve disputes among members. A special water tribunal is estab- lished in some jurisdictions to deal with water disputes.360 The rationale for those less formal mechanisms is to avoid cost and delays. However, in most cases, appeals are allowed to the court system. Cases against the government, in most jurisdictions, can only be dealt with by the court system.

Disputes between different government agencies or basin authorities may be referred to the regulatory authority. Disputes between different water users’ associations are referred, as mentioned earlier, to the federation of water users’ associations, if such a federation exists.361

Clearly, a wide array of key and emerging issues has to be addressed in water legislation. Those issues include ownership of the water resources, underlying principles and priorities, regulation of water uses and water infrastructure, pro- tection of water resources, institutional and financial arrangements, enforce- ment of regulations, and dispute settlement. Some of the components of those issues are still evolving. Decentralization and participation, including broad par- ticipation in the preparation of water legislation, are gaining wide recognition and are becoming overarching principles for the regulatory framework for water resources management.362

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CHAPTER 5 Conclusion

Water resources globally are facing tremendous and ever-increasing pressures. The population of the world has more than tripled in the last century, presenting a major challenge, particularly in the water sector, to governments around the world. Environmental degradation and hydrological variability, urbanization and industrialization, have compounded the challenges. Disputes resulting from com- peting demands between different uses and users at the local, district, provincial, national, and international levels keep multiplying. Issues related to international waters are now becoming increasingly apparent, and indeed are intertwined with domestic uses. Utilization of shared waters by one country is, more than ever before, having direct effects on other countries sharing the same watercourse.

All those challenges have pushed the need to rethink water resources manage- ment to the top of national as well as regional and global agendas.363 The search for solutions has extended across various paths, including the managerial, tech- nological, financial, social, economic, political, institutional, and legal, confirm- ing the multidisciplinary, or transdisciplinary, nature of water. The Marrakech Declaration recognized the urgent need for a better understanding of all those complex issues, including the legal ones, as a prerequisite for shaping a water policy for this millennium.

The relevance and importance of water legislation to the proper management and protection of water resources was recognized a long time ago. This recogni- tion has been underscored by more recent international conferences on water, starting with the Mar del Plata United Nations Water Conference in 1977. Indeed, that conference went beyond urging States to adopt water legislation and issued a detailed road map highlighting the basic elements to be included in water leg- islation, as well as in the national water plan, policy, or strategy. The road map also included the process for preparing water legislation.

That road map is still valid and relevant, almost thirty years after its adoption. Moreover, the road map undoubtedly paved the way for the Dublin which we termed the magna carta for water resources management and develop- ment. The four Dublin Principles continue to guide policies, strategies, and leg- islation around the globe and without a doubt have had major influence on our thinking about how water should be used, managed, and developed. Chapter 18 of the United Nations Conference on Environment and Development on Fresh- water Resources and the declarations of the three world water forums, as well as other international water conferences, have incorporated and emphasized those principles and underscored the importance of water legislation. Indeed, the only effective way for recognizing and giving effect to the Dublin Principles is through their incorporation in water legislation.

Some thirty years after Mar del Plata, the overall picture around the world with regard to water legislation is quite mixed. While a number of countries have adopted comprehensive water statutes, others are still struggling to agree on one. Countries in a third group have addressed water issues in scattered provisions in a number of laws and regulations. Some of the countries with a federal system of government have assigned authority over water to their states or provinces, with little responsibility left for the central government.

As stated earlier, the purpose of this study is to provide policy makers and technical experts with a toolkit of issues to be considered in water legislation. Based on the survey and analysis of the regulatory frameworks for water resources management in sixteen jurisdictions, the study has identified key elements that for the most part have been addressed, in varying ways, by the coun- tries surveyed. The study has also identified what we have referred to as emerg- ing trends in water legislation.

However, as the previous chapters indicate, the jurisdictions whose regula- tory frameworks for water resources management are examined in this study have addressed the various basic issues in ways that are influenced largely by their legal history and their socioeconomic, political, and cultural milieu. State ownership or custodianship of water resources is gradually emerging as the rule. Yet exceptions are allowed in some countries for some form of private ownership; and traditional and customary rights are still gaining recognition. Private ownership of rainwater harvested in private lands for domestic use is explicitly allowed in a number of countries. Groundwater continues to present special challenges because a number of countries still allow the ownership of land to carry with it ownership of the water beneath it. Moreover, even in coun- tries that have claimed custodianship over such groundwater, effective meas- ures for exercising such custodianship responsibilities are still lacking. The fact that groundwater is highly susceptible to externalities364poses additional


364 For discussion of such externalities, see World Bank, supra n. 4, at 83.

problems, particularly when the aquifer in question is a fossil, nonreplenish- able one.365

Variations in the incorporation of the four Dublin Principles in water legisla- tion are quite evident. Financial arrangements are given wide coverage in some legal frameworks, underscoring the belief that treating water as a socioeconomic good will assist in demand management as well as in rationalizing water use. Yet a few countries have missed or ignored this principle, thereby compounding the challenges to the sustainability of their water resources. However, even in some countries that have adopted provisions for cost recovery, enforcement of those provisions has proven quite difficult.

Decentralization of decision making at the basin level and participation of users in the planning and management of water resources are the rule in some countries, the exception in a second group, and absent in others. Indeed, some countries have gone a long way towards incorporating public participation, not just users’ participation, into decision making over water resources management issues. As discussed in the previous chapters, such participation includes public notice of water use permits, inviting public comments on proposed regulations to be issued by the executive authority, the establishing or disestablishing of a water institution, and water pricing strategies. As the discussion in the previous chap- ters indicates, decentralization and users’ participation are the pillars of any water legislation.

Similarly, variations in institutional arrangements for the water resources sec- tor in the countries surveyed are quite apparent. They include oversight by one or more ministries, councils, commissions, or simply administrative agencies or water utilities. However, it is the authority and independence of such entities that should actually matter, not whether they are ministries with multiple responsibil- ities or separate water agencies. Legal and financial autonomy is particularly important for public water utilities.366 Where there are multiple entities, the need for coordination and avoidance of overlapping responsibilities is necessary. But in a number of countries this need may not be that clear, in theory, in practice, or in both.

With the challenges to the quality of water resources multiplying by the day, compounded by environmental degradation and industrialization, the need for an elaborate protective framework is evident. Yet a number of countries still fail this test. Decisions on water rights—how to allocate them, using what criteria, and how to verify existing ones—and how to administer them will only be accepted as legitimate when they are made in a transparent, equitable, and fair manner, accompanied by mechanisms to redress grievances. Some legislation does pro- vide for public participation in such decisions. Yet those elements, and the details elaborating them, are missed in a number of water laws.

As the previous chapters indicate, water resources management is clearly a dynamic and evolving concept and should be dealt with accordingly.367 Our understanding of the elements that need to be addressed in water legislation is constantly evolving. It is also noteworthy that “water legislation is rapidly evolv- ing towards integrated water planning to satisfy environmental objectives, eco- nomic requirements and social concerns.”368 This fact is further buttressed by some emerging trends in water legislation. The underlying purposes for legisla- tion now include new elements, such as the sustainable utilization of water resources to protect future generations. Such sustainable utilization is also needed to enable states to meet their international obligations with regard to shared water resources.

Integrated water resources management is increasingly finding a place in water legislation and policies. As discussed earlier, IWRM aims to ensure the coordinated development and management of water, land, and related resources by maximizing economic and social welfare without compromising the sustain- ability of vital environmental systems.

Closely related to the concept of IWRM is the need for protection of the water source ecosystem, which is broad and includes the flora, fauna, and land con- tiguous to the water source.369 Similarly, the notion of the “reserve” is becoming increasingly relevant for water legislation. Furthermore, concepts that have been reserved to international environmental law, such as the precautionary and polluter-pays principles, are gradually being incorporated as rules in domestic water legislation.

The human right to water for the needy and vulnerable groups of the society is being debated, and as discussed earlier, it is widely agued that such a right does indeed exist under international law, buttressing the emerging calls to recognize this right.


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WATER ALERT: Flood Protection and Groundwater Recharge Plan Now Available for Public Comment

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