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Managing Water Demand: Price vs. Non-Price Conservation Programs

While the Commonwealth is blessed with an abundance of lakes, rivers, streams, and wetlands such as bogs and marshes, our residents use enough water to strain the water supply just about every summer.  The United States Geological Survey reports that Massachusetts’ rainfall and groundwater levels are average this year.  Still, communities across eastern Massachusetts, in particular along the 495 growth corridor, are adopting a range of policies to manage water demand and promote conservation.  Oddly, they often ignore the most cost-effective policy tool for achieving conservation: water pricing.

Last week Pioneer released a report by Professor Sheila Olmstead of Yale University and Professor Robert Stavins of Harvard University that sites fifty years of studies demonstrating that water demand is responsive to price changes.  In fact, the studies show that residents respond to price increases for water just as much as they do to price increases for electricity and gasoline.

Where water savings have been estimated from non-price approaches, they are usually smaller than expected. Customers may take longer showers with low-flow showerheads, flush twice with low-flow toilets, and water lawns longer under day-of-the-week restrictions.

Utilities implementing price increases to reduce demand will increase total revenues.  On the other hand, regulatory approaches most often increase utilities’ costs (due to implementation, monitoring, and enforcement of the programs) while decreasing total revenues, as water use is reduced. Given that water treatment plants built in the 1970s are coming to the end of their useful life, the question of how we pay for the next generation of treatment plants is not trivial.

Pioneer will be making presentations on the findings at venues across the state.  If you are interested in more information, contact Amy Dain, Project Manager, at 617-467-4452.