Residential Tenure Status and Payment of Water Bill. 14 ... Age of Head of Household. .... Consumers cannot immediately retire old .... After an extended debate as to the proper specification of ... In summary, the first law of demand states that the quan- ...... us and we do not know how many nonresponses fall into this.
REPORT DOCUMENTATION FORM WATER RESOURCES RESEARCH CENTER Un i ve rs i tv of Hawa i i at Manoa 1Report Number
2COWRR
Technical RePOrt No. 167
water Pricing, Conservation, and Urban Water Management 8Aut hor(s)
Field-GrouD 03-0: 06-A,B,C,O ltReport october 1984 Date 5No • of Paaes viii + 54 'NO. of 9Grant Agency
Dr. James E.T. ftk>ncur
I
Fi
3
City and County of Honolulu Board of Water SUpply lOGrant/Contract No.
lloescriptors: Identifiers:
~ater
conservation, ~ater management, ~ater costs, *pric~ water use, water demand, economic aspects, econanetrics, elasticity of demand *price elasticity, *regression model, urban water demand, Board of Water SUpply, oahu
12Abstract (Purpose, method, results, conclusions) The ~tential for using water pricing was investigated as a tool to promote conservation efforts of the ·water supplies of oahu. Traditional approaches, in Honolulu as elsewhere in the united States, to an inpending long-term shortage of water relative to demand emphasize augmenting the supply of water, on the irlplicit ground that consumers "need" certain quantities, whatever the price. A survey of Honolulu single-family residential custaners of the Honolulu Board of Water Supply was conducted in the spring of 1983. Data generated in this survey allow the specification and testing of a fairly traditional econanic model of water demand. Results of this IOOdel indicate that marginal price, household incane, and rainfall all significantly affect the quantity of water demanded by Honolulu residents. Price, in Iarticular, evidently has a low but non-zero elasticity, indicating that pricing ~licy will indeed serve as a tool in attempts to pranote water conservation and thus lengthen the viability of conventional and less expensive water sources on oahu.
2540 Dole Street· Honolulu, Hawaii 96822 • U.S.A. • (808) 948-7847
AUTHOR: Dr. James E.T. Moncur Associate Professor Department of Economics university of Hawaii at Manoa 2424 Maile Way Honolulu, Hawaii 96822 (808) 948-7143
$5.00/copy Checks payable to: Mail to:
Research Corporation, University of Hawaii
University of Hawaii at Manoa Water Resources Research Center 2540 Dole Street Honolulu, Hawaii 96822 Tel.: (808) 948-7847 or -7848
WATER PRICING, CONSERVATION, AND URBAN WATER MANAGEMENT
James E.T. Moncur
Technical Report No. 167
October 1984
Prepared for City and County of Honolulu Board of Water Supply WATER RESOURCES RESEARCH CENTER University of Hawaii at Manoa 2540 Dole Street Honolulu, Hawaii 96822
v
ABSTRACT The potential for using water pr1c1ng was investigated as a tool to promote conservation efforts of the water supplies of O'ahu. Traditional approaches, in Honolulu as elsewhere in the United States, to an impending long-term shortage of water relative to demand emphasize augmenting the supply of water, on the implicit ground that consumers "need" certain quantities, whatever the price. A survey of Honolulu single-family residential customers of the Honolulu Board of Water Supply was conducted in the spring of 1983. Data generated in this survey allow the specification and testing of a fairly traditional economic model of water demand. Results of this model indicate that marginal price, household income, and rainfall all significantly affect the quantity of water demanded by Honolulu residents. Price, in particular, evidently has a low but non-zero elasticity, indicating that pricing policy will indeed serve as a tool in attempts to promote water conservation and thus lengthen the viability of conventional and less expensive water sources on O'ahu.
vii CONTENTS
ABSTRACT • • • • 1.
INTRODUCTION • Objectives
.......
v
........
1
3
2.
ANALYTICAL BACKGROUND ••
3.
SQMMARY OF SURVEY RESULTS. Uses of Water • • • • • • Conservation Practices • • • • Socioeconomic Variables ••
19
..
25
4.
5.
5
13
14 16
ECONOMIC MODEL OF WATER DEMAND Theoretical Framework • • • Estimation Model • • • • • • • • • • . • • Results and Applications • • • • • • • • • • • SUMMARY, CONCLUSIONS, AND SUGGESTIONS FOR FURTHER RESEARCH • • • • • • • • • • Some Qualifications. Further Research •
25
27 29 35
.......
35 36
ACKNOWLEDGMENTS. •
38
REFERENCES •
38
........
APPENDICES •
41
Figure 1.
Nominal and Deflated Quantity Charges, Honolulu Board of Water Supply, 1972-1982 • • • • • • • • •
5
Tables 1.
Population, Water Input and Consumption
.......
2
2.
Residential Tenure Status and Payment of Water Bill.
14
3.
Distribution of Number of Years Residence at Service Address. • • • • • • • • •
15
Access to Non-BWS Water Sources •
15
4.
.... ..........
viii
5.
Uses for Non-BWS Water Sources • • • • •
15
6.
Uses of Water in Responding Households ••
16
7.
Distribution of Number of Bathrooms •
8.
Water Conservation Practices Adopted, 1972-1981 •
18
9.
Conservation Practices Cited and Ownership of Appliances and Facilities. • • • •
19
........
..............
16
10.
Age of Head of Household.
11.
Educational Attainment of Head of Household •
20
12.
Household Income Level ••
21
13.
Income Level and Water Uses •
22
14.
Income and Number of
23
15.
Estimated Demand Coefficients •
16.
Demand Elasticity Estimates •
............ Bathrooms in Household • . . . .
20
30
........
31
1.
INTRODUCTION
The City and County of Honolulu Board of Water Supply (BWS) was created in 1930 in response to concern over the adequacy of O'ahu's water resources to supply the demands of a growing population. The BWS has admirably met its challenges since that time, principally through regulation and control of existing sources and careful development of new supplies. Table 1 shows the extent of BWS operations since 1972. Projections of demand and supply through the end of this century, however, give rise to renewed concerns. In 1980 the reported sustainable capacity was 152 mgd (6.66 m3 /s), with 22 mgd (0.97 m3 /s) unused (Board of Water Supply 1982, p. xi), and under favorable assumptions an estimated 181 mgd (7.92 m3 /s) could be supplied to a population of about 913,000 while maintaining a comfortable surplus (Board of Water Supply 1982, p. 57). In the absence of adequate funding, deregulatory measures and successful negotiations with owners of certain industrial and agricultural water rights, however, demand will exceed supply by about 1997. Other agencies and studies have expressed the same concern (State Water Commission 1979; Hawaii Water Resources Regional Study 1979, pp. 52-56). Fundamentally, the only two ways to confront this problem are (1) to develop additional sources of supply o~ to cut back on use, and (2) to increase supply or to decrease demand. Improved system efficiency, new wells and reservoirs, desalination, recycling of treated sewage effluent, use of parallel brackish-freshwater systems all exemplify the first approach. Cutting back on use has traditionally been approached mainly through programs of conservation education or, in crisis years, programs of restrictions on water use. Clearly, the same result could be achieved by slowing population and economic growth, transforming the economic base away from water intensive industries, or promoting water saving methods by industrial and household users. But the question remains of how to induce such far reaching changes in the kinds of
2 TABLE 1. OORJLATION, WATER INPUT AND ssible cost, we need inform ation as to deliv er islan d resid ents use and pay for water . We would appre ciate about the way your coope ration in an&WeriD;J the quest ions on the follow ing form and return ing it to us in the enclo sed };X>stpaid envel ope. Your name was selec ted at random fran the Board of Water Supply customer list. Since it is oot };X>ssible to make subst itutio ns, it is ~ impor tant that we receiv e the completed quest ionna ire. If you have any quest ions, pleas e call Dr. James Moncur at 948-7143 or 948-8 496. Pleas e be assur ed that all inform ation we receiv e will be held in stric t confi dence . Only stati stica l sumn aries and tabul ation s will be used. SURVEY OOFSI'IONNAIRE
Your
address~
_
1.
Is the above addre ss a siB3l e-fam ily reside nce? . ( ) Yes ( ) No. If 00, you need go no furth er. Pleas e return the quest ionnaire .
2.
Do you live at addre ss above?
( ) Yes ( ) No.
naire .
If no, you need go no furth er.
Pleas e return the quest ion-
3.
How many years have you lived at this addre ss? _ _-..zyears.
4.
Do you own the 00me or are you rentin g? ( ) Own
5.
( ) Renti ng
Who payS your water bill?
( ( ( (
) ) ) )
Paid by landl ord Paid by Ire Paid as };art of a condaninium or coope rative fee Other
46 APPENDIX FIGURE A.l.-- eonti nued d throu gh Is there a separ ate apartm ent or detac hed housi ng unit serve your water meter ? ( ) No ( ) Yes elf) who were in7. Pleas e indic ate the number of peopl e (inclu ding yours ied the oouse occup you years clude d in your water bill for each of the in the 1972-81 perio d. Number of Ntmi>er of . Number of Number of Board ers, Roomers Family Board ers, Roomers Family or Rente rs ~ Qccgp ants or Rente rs ~ Qccyp ants 1977 1972 1978 1973 1979 1974 1980 1975 1981 1976 roomers or 8. Does your water bill cover water used b¥ the board ers, rente rs? ( ) NO ( ) Yes
6.
9.
10.
11.
12.
e sourc es Pleas e check (/) if you have any of the follow ing alter nativ of water : ( ) Well ( ) Stream· ( ) Rainf all catchm ent and stora ge _ ( ) Other. What was the water from this altern ative suppl y used for? ( ) Lawn and garde n water iIXJ ( ) Cloth es washing ( ) Other.
_
the items Pleas e check (I) whether or not your reside nce has each of use of your of t exten liste d below and where appro priate indic ate the each item. sq. ft.) number of times water ed per IOOnth _ _ ( ) Lawn ( sq. ft.) mnnber of times water per IOOnth _ _ ( ) Garden ( ( ) SWinming pool ( ) Fish pond or water fount ain Ntmlber of loads per week __ ( ) DislM asher ( ) WashiIXJ machine Ntmlber of loads per week __ ( ) Garbage dispo sal ( ) Water air condi tionin g system ( ) Number of bathroomS __ or yard Have you begun ooing anyth ing to conse rve water in your 00me in the last ten years ? ( ) No ( ) Yes
47 APPENDIX FIGURE A.!.-- eonti nued 13.
( )
( ) ( ) ( ) ( )
( ) ( )
( ) ( )
( ) ( ) ( ) ( )
Check (I) the water conse rvatio n pract ices liste d below that indic ate appro ximat ely when you began using each one and you use, check any reaso ns for using them. REASJN FOR USE Water Conse rv'n BENAN USE: Time Heat- Programs sav- Water ing and Month ~ .ingQ Costs Costs ~l s Water saver on washi ng machi ne _ _ ( ) ( ) ( ) ( ) Fully load disllw asher ( ) ( ) ( ) ( ) Fully load cloth es washe r ( ) ( ) ( ) ( ) Fix water leaks ( ) ( ) ( ) ( ) Pool cover ( ) ( ) ( ) ( ) Redes ign of yard ( ) ( ) ( ) ( ) Lawn sprin kler & time saver ( ) ( ) ( ) ( ) Water lawn only in eveni ng ( ) ( ) ( ) ( ) Take short er showe rs ( ) ( ) ( ) ( ) Insta ll shCMer head regul ator ( ) ( ) ( ) ( ) Take shCMers instea d of baths ( ) ( ) ( ) ( ) Reduce toile t water capac ity ( ) ( ) ( ) ( ) Wash cars, etc., less often ( ) ( ) ( ) ( )
14.
Pleas e indic ate any other water conse rvatio n measu res you have taken , when you began using them and your reaso ns for doing so~ _
15.
Age of head of oouse hold ( ) Below 20 years ( () 20-24 years ( () 25-29 years ( () 30-34 years (
) ) ) )
35-44 years 45-54 years 55-59 years over 60 years
16.
Years of schoo l comp leted by head of oouse hold ( ) None ( ) Voca tional schoo l ( ) 1 to 4 years ( ) 13 to 15 years ( ) 5 to 8 years ( ) 16 years ( ) 9 to 11 years ( ) 17 years or more ( ) 12 years
17.
Pleas e check (I) the appro priate brack et to indic ate the range of your gross annua l pre-t ax house hold income from all sourc es for the year 198!. () Under $4,00 0 ( ) $12,0 00-14 ,999 ( ) $30,0 00-34 ,999 () $4,00 0-5,99 9 ( ) $15,0 00-17 ,999 ( ) $35,0 00-39 ,999· () $6,00 0-7,99 9 ( ) $18,0 00-19 ,999 ( ) $40,0 00-44 ,999 () $8,00 0-9,99 9 ( ) $20,0 00-24 ,999 ( ) $45,0 00-49 ,999 ( ) $10,0 00-11 ,999 ( ) $25,0 00-29 ,999 ( ) $50,000 and over
48 WATER RESOURCES RESEARCH CENTER UNIVERSITY OF HAWAII AT MANOA and BOARD OF WATER SUPPLY ***J ust a Remi nder* ** If you have n't yet retur ned the wate r use Surve y Ques tionn aire we sent you, plea se do so as soon, And if you have any ques tions as poss ible. plea se call me at 948-7 143. Maha lo! Dr. Jame s E.T. Moncur WRRC Proj . Rese arche r Appe ndix Figu re A.2.
Ques tionn aire respo nse remin der
Q)NSUMPI'ION PER BILL: OOIULATION VS. SAMPLE ANNUAL REroR T AND STATISTICAL roMMARY Survey ConslJIIlIr No. of Bill per gal 1000 Fisca l tion Bills gal) il-00Q Bill per Year nooo gal) Issued * 35.9 21519416 599310 1971 36.5 22609870 619077 1972 37.9 24087910 635420 1973 36.2 23599923 652086 1974 40.2 36.5 24314875 666049 1975 40.1 39.8 26949636 677005 1976 40.2 41.1 28049866 682617 1977 37.6 38.3 26352315 687607 1978 38.3 37.1 25927381 698969 1979 37.1 37.4 26687781 712861 1980 38.7 37.7 27284944 724542 1981 36.4 26551959 729215 1982 (1971-1982 SOURCE: BWS, Annual Rep:>rt and stati stica l SUnmat,y, editio ns). fisca l *Bimonthly regul ar rate bills only, all distr icts; figur es for years , July l-Jun e 30. APPENDIX TABLE A.1.
Cons ideri ng Rain fall data posed seve ral prob lems . 10ca t ion, 0 1 ahu' s extre me rain fall var iat ions over time and
49
the ideal would have been bimonthly (to match the billing cycles) readings taken in each respondent's yard. With every expectation of failing that ideal, we used the Hawaii state Department of Land and Natural Resources rainfall data, prepared and made available by the University of Hawaii at Manoa Department of Meteorology. The data covers more than 750 different rain gages, including some discontinued stations, some located too far away from any of our sampled households, and many with large chunks of missing observations during our sample period. In a few cases where observations for only a few months were missing, the series was patched by using observations from nearby stations. This process yielded 62 stations to provide the necessary rainfall data. The locations of these stations were specified by longitude and latitude and marked on a large map. The available map showed only a few principal streets and other such identifiers, so we assigned sampled households to a particular rain gage by a visual and admittedly rough coordination of the rain gage map and detailed street maps of Q'ahu (Bryan 1982). The rainfall numbers posed one further problem. With minor variations the data cover a given month. The BWS billing periods, however, are staggered over time for convenience and efficiency in the meter reading and billing processes. Unfortunately, there is no entirely satisfactory method of squeezing or stretching rainfall data of a given month to match a billing cycle which begins in the middle of the month. The following approximation was based on the supposition that the meter is read on the 11th of a month. If Rt denotes the rainfall reading for that month, the following weighted sum was entered as the final rain number, Rt*
= 11/30 Rt
+ Rt-l + 19/30 Rt-2 ,
assuming that every month has 30 days. For all these reasons, the rainfall data are admittedly rough but are generally consistent over time and should at least distinguish wet from dry areas and wet from dry years, which is sufficient for present purposes.
50 APPm DIX B.
DATA PREPARA!l'ION ProCEDt.JRES
4 can be conThe preci se data neede d for the regre ssion s in sectio n the follow ing. struc ted from the quest ionna ire respo nses, in addit ion to cover ing bi1. COnsUllption data taken from BWS mater readin g books many month ly billin g perio ds fran 1972 throu gh 1981. In the event becau se house holds lack data on consu mptio n for the lo-ye ar perio d se of of chang ing their place of reside nce in the interi m, or becau gh c0mmissi ng data for one or roore of the other varia bles althou ses of plete constmq?tion data were avail able. Thus for the purpo -l98l> estim ating these mode ls, only the latte r seven years . and comes fran the U. S. Depar tment of COOUnerce sa1 perso nal income per capit a ($) from u.s. Depa.rtment of Coovnerce (1982), Survey of Curre nt Busin ess 62(8) :60-6 1 (Table 4). 2Hono1ulu Consumer Price Index , avera ge annua l, conve rted to 1981 = 100 from Bank of Hawaii (1983) Annual Economic Review, p. 25. 3Co1umn 1 divid ed by column 2. 'Real DPI/c apita in year t divid ed by real DPI/ capit a in 1981; figur es from column 3.
$0.84 /10 3 gal for t =115 - 120 (July 1981-Dec. 1981) $0.77 /10 3 gal for t =103 - 114 (July 1980-June 1981) $0.64 /10 3 gal for t = 91 - 102 (July 1979-June 1980) $0.45 /10 3 gal for t = 79 - 90 (July 1978-June 1979) $0.37 /10 3 gal for t = 67 - 78 (July 1977-June 1978) For perio d ending in months t = 1, ••• , 66 (Jan. 1972-June 1977) , use decli ning block rate struc ture: $0.37 /10 3 gal for first 100,000 gal ( = oct) 2 $0.30 /10 3 gal for next 700,000 gal (= oct) 3 $0.22 /10 3 gal for next 2,000 ,000 gal ( = oct) $0.17 /10 3 gal for any consumption >2.8 mil gal ( =
oct)
52 Yit
= real
household income for observation i in month t, as calculated from {[YNCi (IYNC) ]/CPIt} (l/IQPit) (DPItIDPI81)
where YNCi(IYNC) = reported nominal household income for 1981 at midpoint of income bracket IYNC, the index of the income bracket checked off on the questionnaire which takes on the values 1,2, ••• ,15. YNC(IYNC) converts this index to the midpoint of the corresponding bracket. These midpoints are (in $1000> 4, 5, 7, 9, 11, 13.5, 16.5,19,22.5,27.5,32.5,37.5,42.5,47.5, and 50, except 4 and 50--the upper and lower endpoints of the (open ended) lowest and highest brackets. CPIt = Honolulu price index for billing period ending in month t constructed as noted in Appendix Table B. 2, which shows the values used IQPit = nlmlber of appropriate, boarders
family
rnerrbers
plus,
where
DP1t = real per capita disposal personal income in Hawaii for the year in which billing period t ends. The ratio DPItIDPI8 1 serves to infer the respondent's income in year t from the reported income index in 1981, on the assumption that each respondent's income rose at an equal rate with the Hawaii disposal personal income per capita. This variable is a proxy for household income, which is unavailable on a monthly or even yearly basis. DPltIDPI8 1 is shown in Appendix Table B.1Rit = (DAY/3l)Rit + Ri,t-l + [1 - (DAY/3l)]Ri,t-2 • This procedure matches the different time periods referred to by consumption data, which cover 2 month billing periods beginning on staggered days, and rainfall data, which refers to a calendar month. The index i references the partiCUlar rain gage station nearest the respondent's house. Dit
= "difference" variable, equal to BILLit - PtCit, where BILL is consumer's actual exPenditure for water in period t. This variable represents income effect of higher infra-
53 marginal portions of declining block rate structure. Since July 1977 Honolulu has had a constant quantity charge, invariant with respect to quantity consumed (although changed from year to year) plus a service fee, so that Dit = SRVCRt (defined below) for any billing period ending in these months. For earlier years the customer's total bill includes a service charge plus a quantity charge involving up to four blocks: BnLit
= SRVCRt
11
22
33
"
+ PtCit + PtCit + PtCit + PtCit
where pj denotes the level of the jth block of the rate structure and cj the corresponding quantities, as follows: Cit = min (100, Cit) 2
Cit
=0
if Cit < 100 if 100 ~ Cit if Cit ~ 800
Cit - 100 700 3
Cit
=0
,
800
if Cit < 800 if 800 ~ Cit ~ 2800 if Cit ~ 2800
Cit - 800 2000
Cit
~
=0
if Cit if Cit
Cit - 2800
~ ~
2800 2800 •
Finally, the service charge SRVCRt takes· on the following values for the billing period ending month t: SRVCRt
= $2.50(1/CP1t), ~
for t
= 103
, &~~ , &>i~ , &~~
- 120 (July 1980-Dec. 1981) in t
= 91
- 102 (July '79-June '80)
for respective meter sizes 2, 3, 4, and 5; L'1Jl , J&.l.Q , l~ , 19.20 in t = 67 - 90 (July '77-June '79)
CPIt
CP1t
"ePIt
CP1t
for respective meter sizes 2, 3, 4, and 5; 3...2U
4.80
7.50
CPIt ' LULU PRICE INDEX, 1972-1981 May
June July
Aug.
sept.
OCt.
Nov.
Dec.
1972 1.215 1.220 1.224 1.223 1.223 1.222 1.225 1.228 1.231 1.235 1.240 1.244 1973 1.249 1.254 1.260 1.265 1.270 1.275 1.282 1.289 1.296 1.307 1.318 1.328 1974 1.344 1.361 1.377 1.389 1.400 1.412 1.426 1.440 1.455 1.465 1.475 1.485 1975 1.496 1.508 1.519 1.527 1.535 1.543 1.554 1.565 1.576 1.583 1.591 1.598 1976 1.602 1.606 1.611 1.615 1.619 1.623 1.629 1.634 1.640 1.645 1.650 1.655 1977 1.664 1.674 1.683 1.690 1.698 1.705 1.715 1.724 1.734 1.739 1.744 1.749 1978 1.756 1.763 1.779 1.796 1.808 1.821 1.829 1.838 1.854 1.870 1.882 1.894 1979 1.918 1.943 1.965 1.987 2.005 2.024 2.038 2.052 2.068 2.084 2.105 2.127 1980 2.157 2.187 2.219 2.252 2.252 2.253 2.265 2.278 2.300 2.323 2.330 2.338 1981 2.373 2.409 2.442 2.476 2.489 2.503 2.522 2.541 2.554 2.568 2.563 2.558 rouRCE:
Department of Planning and Economic Deve10pnent (1983, Tables 336 and 337, pp. 362-63). Published figures for 1972-1977 quarterly (Mar., June, sept., Dec.); other lOOnths were interpolated. '!he later series, for 1978-1981, a~rs bimonthly in February, April, June, August, OCtober, Decent>er; other lOOnths are interpolated in above table. The later series was also adjusted using a "chaining" method to be consistent with earlier data, which are the unrevised urban wage earners and clerical workers series from the u.s. Bureau of Labor Statistics.
