Evaluating Equity and Efficiency Performance of Water Tariff Designs : Are Three-Part Tariffs Useful?

The design of municipal water tariffs requires balancing multiple criteria such as financial self-sufficiency for the service provider, equity among customers and economic efficiency for society. A modeling framework is developed for analyzing how alternative municipal water tariff designs affect these three criteria. It is then applied to a hypothetical community in which a municipal water utility provides metered, piped water, and wastewater services to 5000 households. We analyze how the shift from a uniform volumetric tariff to different increasing block tariff (IBT), two-part tariff (2PT) and three-part tariff (3PT) affects households’ water use and water bills. The results show that 3PT, relative to 2PT and block tariff is capable of improving equity, while efficiency is preserved in some scenarios. However, since the latter result does not hold for all scenarios, tariff design of 3PT is a vital issue that has to be considered in further research