national multiple family submetering and allocation billing program ...

Comparing demand for water derived from Submetering and RUBS case we have
g = g( p , p , m)
Sub g x
g = g( p r, p , m)
RUBS g i x
where
respectively.
g and g are demand for water by Submetering and RUBS customers
Sub
RUBS
The demand equations show that since r
i
< 1, the price seen by the RUBS customer is less
than the price seen by the Submetering customer. That is, the RUBS price signal is “diluted” by
the ratio factor r i
. Therefore, under the above assumptions, it is in the economic interest of the
RUBS user to consume more water than the submetered user, even under identical water price
rates.
In fact, given that the allocation ratios are set in advance and the fact that customers
believe they are overcharged, it is in the economic interest of the RUBS customer to be the
largest water user within the billing group. The customer does this in order to achieve maximum
value for the amount she is charged by making sure that
r
*
i
≥ r. This example clearly points out
the fundamental economic flaw in RUBS, where the customer by receiving a distorted price
signal instead of reducing consumption, is encouraged to use more water to extract the maximum
benefit from the money spent. On the other hand, the customer under Submetering scheme who
pays directly for what she uses has an obvious direct incentive to be as efficient as possible.
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