Examination of price elasticity of residential water in Colorado
As the uncertainty of water supply looms over Colorado, water providers are seeking to reduce water demand using various methods, such as through the implementation of conservation-based rate structures. These include, for example, increasing block rates and allocation-based rates, which increase the marginal (per unit) price of water as usage increases past established thresholds. However, questions remain around how water use actually changes in response to changes in the established rate structure.Ìý
This study seeks to quantify the short-term water price elasticity of residential water use and examine the effectiveness of implementing new rate structures for conservation. We are using anonymized household water use and historical rate data provided by Colorado water utilities, focusing first on single-family households in the cities of Westminster and Fort Collins. From this, we calculated the water price elasticity of each household for a given month across significant rate changes.Ìý
According to existing literature, water price elasticity is expected to be within a range of -1 (which indicates a decrease in water use as price increases) to 0 (which indicates inelasticity). Our preliminary results indicate near-inelastic water use in winter months, but variable elasticities in summer months that do not always fall within the expected range. This can be due to several factors, including household income, climate and weather, policies, programs, and more.