Austin environmentalist Paul Robbins is pushing a report (pdf) he's drafted that bashes Austin Water Utility's water and wastewater fees. I have a certain amount of respect for someone who takes the time to write a 37-page, single-spaced report on water pricing policy.
Paul makes a number of criticisms, most of which I have no desire to engage. He might have a legitimate complaint that Austin's wastewater prices are too high, for example. And he criticizes AWU for not maximizing the value of its extensive property holdings. His ultimate point, I think, is that AWU spends too much money (including, notably, on new capital projects like WTP4).
But front and center is his complaint that Austin residents pay too much for water. This is just a complaint no environmentalist should make.
Paul encounters a problem at the outset in choosing a methodology for comparing water rates. Most cities use tier pricing, so your average cost rises the more you use. One way to approach this would be to calculate the average Austin customer's consumption (he says its 8.1 thousand gallons per month) and then compare his bill to what other cities charge for the same amount of water. Another approach would be to do the same calculation using monthly averages (he says in Austin, the average varies from 5.2 thousand gallons in February to 11.6 thousand gallons in September), and then average the totals.
But Paul doesn't like this approach because Austin has steeply progressive rate tiers, and people who use an average amount of water never pay the highest rates. He therefore calculates gross revenue per 1,000 gallons, which he calls a "weighted" approach. This methodology, he says, shows that Austin charges too much for water, whether compared to other large Texas cities or to Austin's suburbs.
Austin's water is indeed expensive using this methodology, but mainly because Austin charges heavy water users high prices. Complaining about water's high "average" price, under this methodology, thus boils down to complaining that we're charging heavy water users too much.
Let's compare Houston and Austin. 72% of Austin's customers use an average of 9,000 gallons or less per month. Under Austin's water rate structure, a residential customer who uses 9,000 gallons per month pays $35.40 (including the flat connection fee of $11.50). A Houston residential customer pays $37.30 per month (including the flat connection fee for the smallest meter). Austin's water is not the most expensive in Texas if you are an average residential customer.
But a heavy water user in Austin (20,000 g/month) pays $137.67, while the equivalent Houston water user pays only $100.93. The small percentage of heavy water users paying steep prices inflates AWU's average revenue per thousand gallons. According to Paul, the top 13% of Austin's water users use 41% of the residential water and contribute 52% of the gross revenue. Austin can bring its average residential water rates down by charging profligate water users a lot less money. But why in the world would an environmenalist argue that heavy lawn watering should be less dear?
Or consider his chart comparing Austin to its suburbs:
He claims that Austin collects more revenue per thousand gallons ($5.29) than its suburbs, but this is only true in the aggregate. Several of them -- Elgin, Hutto, Kyle, Lago Vista, Leander, Lockhart, Plugerville and San Marco -- collect more revenue per thousand gallons than Austin. The weighted average is lower than Austin's mainly because the biggest suburb, Round Rock, charges heavy water users so little.
By my calculation, the average Austin water customer actually uses 8.8 thousand gallons per month (perhaps Paul's 8.1 thousand is a median). That customer pays $34.78 (including the flat connection fee). A Round Rock customer using the same amount of water pays $34.52, virtually the same price (assuming the smallest meter size).
But heavy water users in Austin pay a bunch more than heavy water users in Round Rock. 20,000 gallons/month costs you $137.67 in Austin, but only $60.84 in Round Rock, because Round Rock charges a low rate no matter how much water you use. (Round Rock has bravely implemented a "block rate" structure in the summer to encourage conservation, which ratchets the cost for 20,000 gallons all the way up to $62.02.) It should thus be no surprise that Round Rock collects substantially less revenue per thousand gallons than does Austin.
And it should be no surprise that, given this rate structure, the average Round Rock customer uses substantially more water per month: 11.6 thousand gallons per month, or 31.8% more than the average Austin customer.
So what does Robbins really think Austin should do? Charge really low rates to really heavy residential water users, like Round Rock does? He'd better spend his time, I think, urging Round Rock to raise its rates.
Austin has a highly rational water pricing system. It is a system designed to encourage water conservation. We know, from many water pricing studies, that consumers do use less water when they're charged higher prices. We also know that persistently high prices encourage consumers to make long-term investments in conservation, whether buying rain barrels or putting in drought-resistant plants.
This system may yield a lot of revenue, because the "ration" price of water has little to do with the operational cost of delivering it to the user's home. But we should view that excess revenue as a perk of a wise pricing system. The excess revenue come from heavy water users, who are essentially subsidizing sidewalks and libraries and other things through AWU's transfers to the general fund. Environmentalists shouldn't be complaining about that.