Pricing Policy Effectiveness is Domestic Water Demand Management

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percent increase will bring down water use to 2,700 gallons – close to the level of lifeline consumption. (See table 8.1). 18 A drawback of these computations is that they are based on average consumption patterns, and do not give any indication of how the tariff increase will affect households with varying socioeconomic settings, particularly income levels. Taking into account these considerations may make an overall equal increase in tariffs undesirable. If an overall increase is not desirable, effective conservation can still be achieved by increasing the tariff of the final block – monthly consumption of over 20,000 gallons. Currently, average consumption in this block is over 1,800 gallons. A 30 percent increase in the price of this block will induce average households to cut down over 1,000 gallons of monthly consumption. A larger increase can virtually eliminate per household water consumption beyond 20,000 gallons. (See table 8.2) Table 8.1: Impact of Price Increase on Monthly Water Use Current Tariff Increase 10% 20% 30% Avg. MP (Rs.) 21.8 23.98 26.16 28.34 Avg. Monthly Use (gallons) 8,900 6,900 4,800 2,700 Table 8.2: Impact of Price Increase on Water Use in Block 3 Current Tariff Increase 30% 40% 50% Block 3 Price (Rs.) 27.30 35.49 38.22 40.95 Avg. Monthly Use in Block 3 (gallons) 1,820 545 125 -300 Cost Recovery: Typically, a tariff structure that is meant for budget balancing consists of a large fixed part coupled with declining block rates (Montginoul, 2006). Declining block rates promote consumption leading to higher revenues and faster cost recovery on investments, while the fixed part increases the certainty of revenue projections. Though leading to immediate cost recovery, decreasing block rates are not compatible with promoting efficient water use, and assuming that conservation is more important of the two objectives, declining blocks rate are not advised. Moreover, though increasing block rates do not 18 Daily per capita lifeline is 13.21 gallons. The average household size is taken to be 7 (see Chapter 6 for descriptive statistics on household size). Lifeline water supply is calculated as: 13.21*7*30= 2,800 gpm. 18
generate equally high revenue, they do lead to a cut-down in O&M costs while at the same time easing the need for new investments to increase supply capacity. Therefore, the management will not be ill-advised to continue following increasing block rates. The non-volumetric part can also be effectively used to increase revenues. Currently the monthly non-volumetric charge consists of a connection fee of Rs.3 and meter charge of Rs.12, that is, all households indiscriminately pay fixed charges of Rs.15 per month. The connection fee can be increased, uniformly or discriminately, varying increasingly with the household’s ability to pay. The best measure of ability-to-pay is household income, but it is difficult to oblige people to provide correct information about their incomes. Alternatively, non-volumetric charges can be based on property value, ARV, or plot size. Allocation: The effect of a pricing policy may not be uniformly felt across all income groups. Past studies have found that indiscriminate tariff increase causes greater reduction in water use in lower income households than in higher income households (Agthe and Billings, 1987, Renwick and Archibald, 1998). If this disparity gets large enough, it can threaten the lifeline supply of vulnerable households. As a rule, water expenditure should not exceed five percent of the household income (WASA, 2005). The lifeline water requirement for a seven-member household (2, 800 gallons per month) costs Rs.36.06. If the monthly income is Rs.5, 000, this expenditure amounts to a bare 0.72 percent. If the tariff in the first block is increased by 50 percent, the lifeline consumption cost will amount to only 1.1 percent of the expenditures of a household with above-mentioned features. Table#: Impact of Block 1 Price Increase on Lifeline Consumption Current Tariff Increase 10% 20% 50% Price in Block 1 (Rs.) 12.88 14.17 15.46 19.32 Cost of Avg. Household Lifeline Supply (Rs.) 36.06 39.68 43.29 54.10 Summing the discussion on pricing policies, one can see that there is significant room for increasing tariffs to achieve conservation and cost recovery objectives without risking lifeline supply. 19
Page 1 and 2: Pricing Policy Effectiveness is Dom
Page 3 and 4: Relentless extraction of water may
Page 5 and 6: too much variability which can caus
Page 7 and 8: 3. WATER SUPPLY IN LAHORE Lahore is
Page 9 and 10: Tariffs for both metered and unmete
Page 11 and 12: about the house value was used as a
Page 13 and 14: elasticities of the variables, thus
Page 15 and 16: Household Size 6.3 1.8 2.0 11.0 Plo
Page 17: We may infer that low-income househ
Page 21 and 22: Table 5.1: Allocation of Sampling U
Page 23 and 24: T .101 .023 4.324 .000 NR .177 .399
Page 25 and 26: ln_Q_lag .649 .016 41.784 .000 IV.
Page 27: Lahore Development Authority Act 19

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