DESIGNING THE BEST “NEW” SOURCE OF WATER DURING DROUGHT:

Designing the Best “New” Source of Water During Drought: Revenue-Neutral Water Conservation-Oriented Rates to Promote Equity for Low-Income Consumers and Minimum Flows for Ecosystems

Drought is a hazard that impacts water supply and ecosystem integrity across the globe. In the U.S., water conservation-oriented rates (WCORs) are an increasingly vital tool for mitigating the impacts of drought. Our DSM models prove that rate structures that promote water conservation can produce an impressive, cost effective, and equitable reduction in water consumption during drought. With minimal regulation the quadruple objectives of conservation rates are met: 1) improving efficiency; 2) providing revenue-neutrality; 3) assuring distributional equity; and 4) guaranteeing the conservation of water. To illustrate, our case analysis shows how future water demand for northern New Castle County, Delaware can be met through implementing drought demand rates. Though the primary goal of such rate design is normally seen as extending supply, we also prove that through utilization of WCORs it is possible to avoid streams dropping below “critical flow” levels. Finally, our research shows that when implementing WCORs it is possible to avoid subjecting lower income groups to a disproportionately large revenue burden, and that utilities can avoid being debilitated by revenue volatility. Lessons garnered and models constructed hold significant implications for governments and purveyors struggling to manage water for both people and nature during periods of drought.

Keywords: drought mitigation, environmental justice, sustainable development, water conservation, water supply rate structures.