Sustainable Water Infrastructure

Pricing and Affordability of Water Services

Price of Water Services

User fees typically generate funds for daily operation and maintenance and long-term capital investments for drinking water and wastewater systems. As a percentage of household income, U.S. households pay less for water and wastewater than other developed countries. There is a perception that water is readily available and water services are generally inexpensive. Public education on water sector system operations and private water conservation can help us meet our essential infrastructure needs.

Pricing of water services should accurately reflect the true costs of providing high-quality water and wastewater services to consumers to maintain infrastructure and plan for upcoming repairs, rehabilitation, and replacement of that infrastructure.

Information on pricing water services can help consumers learn about how water prices affect them and their community:

Affordability Considerations - Pricing to ensure everyone can have the service they need.
Pricing Structures - Approaches to pricing water sector services.
Frequent Questions - Learn about your water and wastewater bills.
Pricing Resources - Guides, tools, articles, reports and case studies.

Affordability Considerations

Pricing decisions involve considerations of equity as well as efficiency. Low-income households, especially those served by high-cost systems, may face affordability problems if prices are raised. To alleviate these hardships, communities can offer pricing structures that mitigate impacts on low-income households.

The most common example is "lifeline rates," where low-income households are charged lower rates on non-discretionary water consumption (the minimum sanitary requirement, e.g., 6,000 gallons a month), and higher rates on water consumed beyond that amount. The Water Research Foundation Exit has comprehensive information on water affordability programs.

Pricing Structures

Prices signal value to consumers and help determine whether consumers use water efficiently. If prices are too low, consumers will use too much water. It is also essential that the pricing of water services covers the costs of providing service, for both operations and maintenance and capital expenses.

Full cost pricing factors all costs into prices, including past and future, operations, maintenance, and capital costs. Full cost pricing can take the form of any of the rate structures shown below, as long as all costs are recovered.

Price Structures that Encourage Conservation

Increasing block rates - Using block rates or tiered pricing that increase with water usage. The per-unit charges for water increases as the amount of water used increases. The first block is charged at one rate, the next block is charged at a higher rate, and so on.
Time of day pricing - Charging higher prices for water used during a utility's peak demand periods.
Water surcharges - Charging a higher rate for "excessive" water use (i.e., water consumption that exceeds the local or regional average).
Seasonal rates - Water prices rise or fall according to weather conditions and the corresponding demand for water.

Price Structures that are Less Effective in Encouraging Conservation

Uniform rate structures - A uniform rate charges the same price-per-unit for water usage beyond the fixed customer charge, which covers some fixed costs. The rate sends a price signal to the customer because the water bill will vary by usage. Uniform rates by class charge the same price-per-unit for all customers within a customer class (e.g., residential or non-residential).
Flat fee rates - Flat fee rates do not vary by customer characteristics or water usage.

Frequent Questions

Why does my water bill need to be metered?

Metering allows both consumers and suppliers to know exactly how much water is being consumed. When water is billed based on metered consumption, consumers see a direct financial reward for their conservation efforts. Suppliers use meters to gain insights on the amount of water being lost in a system through leaks. From both a consumer and a supplier point of view, metering is an invaluable aid to conservation efforts. For more information, see EPA's policy on the Applicability of the Safe Drinking Water Act to Submetered Properties (PDF)(5 pp, 29 K, About PDF).

I'm happy paying a flat fee every month for water and wastewater because I know my bill will not contain any surprises. What is wrong with that?

According to EPA's 2006 Community Water System Survey, approximately 33 percent of water utilities use a flat fee for drinking water or drinking water combined with other services. While this billing method offers a high degree of certainty for users, it does not provide a incentive to conserve because the quantity of water used has no effect on a user's bill. This can be a problem in drought-stricken areas or areas where water supplies are strained by growth or multiple and competing demands.

How can I conserve water (and thereby reduce my water bill)?

EPA has a water efficiency program called WaterSense, which has a wealth of information on saving water. When you see the WaterSense label on products that use water, you know that those products use at least 20 percent less water than their less efficient counterparts.