Water Pricing - Decreasing Block Tariffs

Block tariffs are volumetric charges. The prerequisite for setting a volumetric charge is that consumers have a metered connexion to water services. Under a block tariff scheme, users pay different amounts for different consumption levels. Block tariffs have a step-wise structure. The water charge is set per unit (e.g. cubic meters) of water consumed and remains constant for a certain quantity of consumption (first block). As the water use increases, the tariff shifts to the next block of consumption and so on for each block of consumption until the highest one. Block tariffs can be differentiated among consumer categories (e.g. domestic and non-domestic) and are of two main types: increasing and decreasing.

With decreasing block tariffs,the rate per unit of water is high for the initial (lower) block of consumption and decreases as the volume of consumption increases.

This type of tariff structure was designed because “when raw water supplies are abundant, large industrial customers often impose lower average costs because they enable the utility to capture economies of scale in water source development, transmission, and treatment. Also, industrial users typically take their supplies from the larger trunk mains, and thus do not require the expansion of neighbourhood distribution networks” (WHITTINGTON 2002).

Well-designed decreasing block tariffs allow utilities to recover costs. However, they penalise consumers with low level of consumption and provide a disincentive for reducing wastage of water. There is a trend to move out of these kind of tariffs, essentially because water conservation has found place in the political agenda of many governments and marginal costs of providing water are now relatively high in many countries, hence decreasing block tariff are not any more profitable for utilities. Decreasing block price scheme are still used in some communities of the USA and Canada, though in recent years other volumetric tariffs (e.g. uniform price and increasing block) are more frequently applied.

In order to design an decreasing block structure, the regulator must decides for each category of water use:

• The number of blocks.
• The volume of water use associated with each block.
• The prices to be charged for water use within these blocks.

See also other types of water pricing:

• general information on water pricing
• fixed water charge
• water pricing increasing block tariffs
• water pricing uniform volumetric charge