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Pricing & improving municipal water/wastewater services

by Canada's Ecofiscal Commission
in Environment, Health, ONLINE FEATURE
January, 2018

Municipal water and wastewater services are complex systems that vitally impact a community’s health, environment, and economy. A new report from Canada’s Ecofiscal Commission identifies how user fees can improve conservation, fund infrastructure, and protect water quality while keeping water services fair, ensuring water stays affordable for low-income households.

Below are 10 best pratices identified in the report that municipal leaders can follow for proper pricing and improving municipal water and wastewater services.

1.  Installing water meters for all residential and commercial users

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Water meters have proven benefits: they allow utilities to charge water users based on the amount they consume and help identify leaks.

2.  Estimating all private and social costs using a lifecycle approach

A comprehensive asset-management plan includes all private costs borne by the water utility (operations, maintenance, capital) and broader social costs (protecting our water sources).

3.  Estimating existing and future revenues from all sources

Determining existing and likely future revenues requires looking at all sources of revenue, including user fees, development fees, fire protection charges, property taxes, and government grants.

4.  Identifying the funding gap and developing a full-cost-recovery strategy

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With an asset-management plan in place and a comprehensive understanding of current and forecasted revenues, municipalities can estimate their funding gap.

5.  Relying on user fees to help close the funding gap

User fees are the most flexible and practical revenue tool available to municipalities. User fees can recover the full spectrum of private and social costs. If designed well, they also provide a clear pricing signal and encourage water conservation.

6.  Design rate structures to achieve multiple objectives

A multi-part user fee is the best way to achieve full-cost recovery while encouraging water conservation. The fixed portion allows utilities to recoup fixed costs and provides predictable revenues. The volumetric portion recovers variable costs and drives conservation with a price signal.

7.  Tailoring rates to the local context

Designing user fees to reflect the local context helps ensure that they are cost-effective, environmentally sustainable, and equitable. Municipalities can tailor rates according to the costs of supplying different types of users or to address environmental pressures.

8.  Integrating relief for low-income water users

Municipalities can take different approaches to ensure that water remains affordable. For example, they can provide low-income households with financial assistance with their water bills, or they can include a basic allotment of water within their fixed rate.

9.  Making adjustments over time—in a predictable and transparent way

User fees should be adjusted over time, as conditions change. The right rate structure today may not be appropriate in the future. Events such as larger-than-forecasted reductions in water demand or an economic downturn necessitate re-evaluating and calibrating water fees to changing contexts.

10.  Complementing user fees with other tools, especially for small municipalities

User fees should be the main revenue tool for improving the financial and environmental sustainability of municipal water systems. Other tools, however, can be valuable complements to user fees. This can be particularly important for small municipalities.

For full report, please visit: Canada’s Ecofiscal Commission MW

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