Drivers of water conservation policies in rural and municipal

systems: Results of a regional survey

Damian C. Adams and Chris N. BoyerOklahoma State University

Department of Agricultural EconomicsDepartmental Seminar

February 19, 2010

Background and problem statement

Water supply problems in Southeastern US No longer an urban city or ‘dry state’ problem Droughts, population growth, diminishing access,

other persistent factors (Dziegielewski and Kiefer, 2008).

Rural and small water utilities considering: Price-based conservation (PC) measures that

encourage conservation through consumers’ water bills

Non-price conservation (NPC) measures that reduce water demand or reduce waste (Olmsted and Stavins, 2008)

Price-based conservation

P3: $5.00

P2: $4.00

P1: $3.00

Q1: 5,000 Q2: 10,000

Water Price

Quantity of Water

Non-price conservation New or smart meters Mandatory or voluntary watering

restrictions Education/awareness Leak detection Water budgets/audits Incentives for efficient irrigation systems Xeriscaping Rebates/retrofits

Background and problem statement

Use of water conservation tools is largely unknown in the southern United States.

Small and rural utilities ignored by the literature: Past studies provide little insight for non-urban

utilities (e.g., USGAO, 2000) Past studies fail to consider water managers’

attitudes and perceptions about water conservation, which can drive the adoption decision (e.g., Inman and Jeffrey, 2006).

Project overview Survey of water supply managers in 4

Southeastern states: Oklahoma, Arkansas, Florida and Tennessee

Objectives(1) Identify use of water conservation tools in small water

systems in Southeastern states(2) Identify barriers to price and non-price conservation

programs by water systems(3) Evaluate factors affecting water conservation strategy

(PC, NPC) use Funded by Oklahoma Water Resources

Research Institute and the USDA National Water Program

Survey design Questions cover six categories:

System characteristics/demographics Planning and investment Notification and approval Price conservation programs Non-price conservation programs Consequences and barriers to conservation

Expert review and pre-test (n=82)

Survey method Dillman (2008) survey method:

Pre-survey introduction email Two online survey emails Reminder emails Final online survey email Pre-hardcopy postcard Cover letter and hardcopy survey Reminder postcard Final hardcopy survey

Response ratesState Response

s Systems Response Rate

Oklahoma 292 500 58%Arkansas 149 395 38%Florida 155 306 51%Tennessee 99 212 47%Total 695 1413 49%

87% of respondents completed the online version Rural coverage bias for online survey not found

(Boyer et al., forthcoming)

Survey Results

Utility size – by state

Oklahoma Arkansas Tennessee Florida Total0%

10%

20%

30%

40%

50%

60%

70%

SmallMediumLarge

State

Perc

enta

ge o

f sys

tem

s

Ownership type – by size

Small Medium Large0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

MunicipalPrivateCooperativePublic water associa-tionPublic facilityRural water associa-tionMulti-cityPublic trust

System size

Perc

ent o

f sys

tem

s

Water use – by size

Small (<0.5mgd)

Medium (0.5-2 mgd)

Large (>2mgd)0%

10%

20%

30%

40%

50%

60%

70%

80%

ResidentialIndustrialCommercialOil and gasAgricultureWholesaleWasteOther

System size

Perc

enta

ge o

f tot

al u

se

Water source – by state

Tennessee Oklahoma Arkansas Florida0%

10%

20%

30%

40%

50%

60%

70%

80%

Surface waterGroundwaterPurchasedSecondary source

State

Perc

ent o

f sys

tem

s

Water source – by size

Small Medium Large0%5%

10%15%20%25%30%35%40%45%50%

Surface waterGroundwaterPurchasedSecondary source

System size

Perc

ent o

f sys

tem

s

Changes in water demand (per-capita)

Small Medium Large0%

10%

20%

30%

40%

50%

60%

Decreased >10%Decreased 5-10%Stayed sameIncreased 5-10%Increased >10%

System size

Perc

ent o

f sys

tem

s

Conservation use – by state

Florida Oklahoma Arkansas Tennessee0%

10%20%30%40%50%60%70%80%90%

NonePCNPCBoth

State

Perc

ent

of w

ater

sys

tem

s

Conservation use – by size

small (<0.5mgd) medium (0.5-2mgd)

large (>2mgd)0%

10%20%30%40%50%60%70%80%

NonePCNPCBoth

System size

Perc

ent

of w

ater

sys

tem

s

Type of non-price conservation

New or

smart

mete

rs

Manda

tory r

estric

tions

Educa

tion/a

warene

ss

Leak d

etecti

on

Budg

ets/au

dits

Efficie

nt irri

gatio

n syst

ems

Xeris

caping

Volun

tary r

estric

tions

Rebate

s/retr

ofits

0%2%4%6%8%

10%12%

Type of non-price tool

Use

rate

Factors impacting demand

Small Medium Large0%

5%

10%

15%

20%

25%

30%

35%

40%

Population growthBusiness growth and economyWeatherInfrastructure leaksYard useChange in water ratesHigher standard of livingConservationWaste by consumers

System size

Perc

ent o

f sys

tem

s

Utilities’ plans to meet future demand

Small Medium Large0%

10%

20%

30%

40%

50%

60%

70%

80%

New supply - traditionalReplace/improve infras-tructursNew supply - alternativeChange ratesManage demandNo plans

System size

Perc

ent o

f sys

tem

s

Perceptions on climate change

Climate change will negatively and seriously impact supply

Yes 23%

No 29%

Not sure 39%

Plans for responding to climate change

Conservation program 14%

Repair infrastructure 5%

New supplies 16%

No plan/Studying 14%

Alternative supplies 3%

Perceptions of elasticity

5%35%60%

Perceived Impact of a 10% Price Increase on Water Use

IncreaseDecrease

10% indicated that demand would be elastic (10% or more change in demand per 10% increase in price)

Residential customers typically respond to a 10% increase in water rates with a 1% - 3% reduction in water usage (AWWA, 2000)

Barriers to conservation

No need for conservationLimited staff

Insufficient funds for programsRevenue requirements

Concern for low-income customersCost-effectiveness

Decision-maker awarenessNot enough political supports

Regulatory requirementsNot enough people care

Impacts on growth

0% 10% 20% 30% 40% 50%

Percent of systems

Barriers to conservation – key differences by size

Small Medium Large0%5%

10%15%20%25%30%35%40%45%

Limited staffInsufficient funds for programsDecision-makers have lit-tle awareness of policy ef -fectiveness

System size

Perc

ent o

f sys

tem

s

Factors affecting conservation

Drivers of Water Conservation Strategy – Bivariate Probit Model

Probability of adopting PC and NPC, given demographics, etc:

• Φ2 is the bivariate standard normal cumulative distribution function

• x is a matrix of independent variables, • βPC and βNPC are vectors of parameter estimates, and • ρ is the correlation between the equations for PC

and NPC. Allows direct examination of correlation

between price and non-price conservation use

),','[|1,1Pr 2 xxxNPCPC NPCPC

Model statisticsPrice-based

Conservation (PC)

Non-price Conservation

(NPC) Model fit (Percent correctly predicted) 92.52% 74.96%

Model test statistics Statistic P-value

Log Likelihood -311.22 -

Likelihood ratio: χ2 (84 d.f.) 770.34*** 0.0000

ρ (Relationship between PC and NPC) -0.0430 0.8227

LR test of rho = 0: χ2 (1 d.f.) 0.0502 0.8227 * Significant at the 10% level; ** Significant at the 5% level; *** Significant at the 1% level. § Excludes insignificant variables, except two variables central to the study: climate change and Arkansas.

Dependent variablePrice-based

Conservation (PC)

Non-price Conservation

(NPC) Independent variable§ Coefficie

nt P-value Coefficient P-value

Demographics

Florida 0.786*** 0.024 1.515*** 0.000 Oklahoma 0.883** 0.001 0.031 0.920 Arkansas 0.192 0.539 0.392 0.174 Small size (< 0.5 million gallons/day) 0.297* 0.065 -0.236 0.310 Groundwater source 0.434** 0.033 -0.462** 0.040 Has secondary source -0.756** 0.004 -1.241** 0.014 Government recommends cons. adoption -0.007 0.983 1.275*** 0.004 Management recommends cons. adoption -0.880** 0.039 0.162 0.692 Had a per-capita water use increase, last 5 yrs 0.279 0.122 -0.413* 0.099 Notify customers of rate changes - website 0.041 0.870 0.898*** 0.002 Notify customers of rate changes - meeting -0.102 0.538 -0.366* 0.056 Notify customers of rate changes - mail out 0.406** 0.011 -0.036 0.862

Attitudes and Perceptions

Determining rate schedule - cost of delivery 0.236** 0.028 0.190 0.129 Determining rate schedule - consumer waste 0.029 0.714 -0.177* 0.053 Increased the average rate in last five years 0.219 0.156 0.435** 0.022 Reason for past rate increase - treatment costs 0.412** 0.012 -0.194 0.406 Reason for past rate increase - system maintenance 0.599** 0.036 0.126 0.705

Reason for past rate increase - conservation 1.490*** 0.000 1.067*** 0.009 Internally studied demand elasticity 0.681** 0.027 -0.048 0.903 Believes users do not respond to price increases -0.119 0.443 -0.591*** 0.003 Climate change will not impact water supplies -0.056 0.743 -0.034 0.201

Dependent variablePrice-based

Conservation (PC)

Non-price Conservation

(NPC) Independent variable§ Coefficie

nt P-value Coefficient P-value

Dependent variablePrice-based

Conservation (PC)

Non-price Conservation

(NPC) Independent variable§ Coefficie

nt P-value Coefficient P-value

Future Planning

Meet future demand - alternative source 0.565** 0.029 1.204*** 0.000

Meet future demand - infrastructure expansion/replacement 0.410** 0.016 0.127 0.499

Meet future demand - manage demand 0.870*** 0.000 -0.210 0.460 Barrier to meeting demand - treatment costs 0.275* 0.083 -0.108 0.597 Barrier to meeting demand - consumer waste 0.001 0.940 -0.026* 0.063

Barrier to meeting demand - inability to increase withdrawals from source -0.479* 0.084 0.847*** 0.006

Barrier to meeting demand - population growth 0.123 0.448 -0.637*** 0.001

Notable implications Lack of knowledge/resources a barrier to

adopting conservation Elasticity studies Technical/staff resources

Significant educational opportunities Use of conservation programs/pricing Views on elasticity, revenue change,

climate change, etc Decision-making and information provision Planning and barriers

Conclusion Key differences by utility size

Use of conservation tools Attitudes/perceptions of barriers, climate change, elasticity

Very different set of factors drive PC, NPC decisions - implications for policy

Demographics, attitudes and perceptions, and future planning successfully predict conservation strategies

Using model to evaluate feasible water conservation tools for rural and small systems given their characteristics and consumers’ willingness to adopt (future work)

Thank you

Discussion - Demographic variables

Florida and Oklahoma utilities more likely to adopt PC; Florida utilities more likely to adopt NPC.

Small utilities were likely to adopt PC. This could be due to rural utilities trying to maintain revenue streams as they lose customers or face increasing production costs.

Systems using groundwater were more likely to adopt PC and less likely to adopt NPC.

Having a secondary water source to meet demand decreases the likelihood of PC and NPC.

More likely to adopt NPC if a government agency normally makes recommendations.

Less likely to adopt if utility management is responsible for making recommendations.

Systems that rely on mail-outs are more likely to use PC; those that post their information online are more likely to adopt NPC.

Discussion - Attitudes and perceptions Having increased average rates in the last five years increases odds

of NP. These utilities could be using NPC since price increases are already being used to cover inflation and increasing costs.

Having increased rates to signal conservation, increases odds of adopting PC and NPC.

Higher likelihood of PC if past rate increases were due primarily to treatment costs and system maintenance. PC might help utilities cover costs of delivery and infrastructure repair and maintenance more effectively than uniform rates or declining block rates.

Internally measuring water demand elasticity increases the likelihood of PC. Measuring a price demand elasticity helps providers better understand impacts on their revenue stream, and suggests critical self-evaluation that might result in more efficiency gains.

Views of potential impacts from climate change on water supplies are not significant.

Discussion - Future planning Planning to use alternative water source increases

likelihood of PC and NPC. Planning to expand or replace infrastructure increases

likelihood of adopting PC. Believing that higher treatment costs are a barrier to

meeting future demand increases PC adoption, which also implies PC is viewed as more effective for covering costs.

Viewing consumer waste and population increases as primary barriers to meeting demand reduces the likelihood of adopting NPC. This might suggest that NPC is not effective at reducing per-capita consumption.