Equity in Domestic Water Rates Design

Water rates seek at once to fund the service, to distribute the cost among users and to allocate water based on demand. Therefore, rates design is frequently subject to normative criteria such as full cost recovery, efficiency, equity and simplicity. This paper, proposes a method of ensuring the operational effectiveness of the equity criterion. Specifically, the objective is to resolve the problem of equity caused by pricing systems involving stepwise increments in the cost of aggregate household consumption. The problem is that it is more costly to meet basic individual water needs, the larger the household concerned. This paper analyses the water rates applied in the city of Zaragoza (Spain) and proposes a new rates design based on the normative criteria referred to above, which is applicable to any city and, therefore, may be of general interest.