Consider this scenario:
Joan, a single woman, and Mary, a married mother of three, are buying apples at a local grocery. Joan buys one and pays $1. Mary buys five apples identical to Joan’s, but she’s charged $1.75 each.
Mary asks why she is paying more than Joan. The clerk explains that the store wants to discourage large purchases to ensure that apples are available for other customers.
Outrageous? That’s what the Washington Suburban Sanitary Commission (WSSC) does with its volume-based pricing policy.
The WSSC supplies water and sewer service to residents of Montgomery and Prince George’s counties. Its volume-based rate schedule operates exactly like our hypothetical store’s apple pricing.
Greater daily consumption results in higher water and sewer prices for every thousand gallons used in a billing period.
Do the math. The WSSC tells us that the average person uses 70 gallons of water each day. Joan’s household uses 70 gallons a day. Joan pays a combined water and sewer price of $8.55 per thousand gallons at WSSC’s 2015-2016 volume rates effective July 1. Mary’s pricing, however, is entirely different. Each of the five members of her family also uses 70 gallons a day. Total daily use in Mary’s house: 350 gallons, for which she’ll be charged $15 per thousand gallons, more than 75 percent more than what Joan is charged.
Mary’s total quarterly bill for volume consumed (based on a 91-day quarter) is $478. That is $205 more than Mary’s family would have paid had it been charged at Joan’s rate. Over the course of a year, Mary pays the WSSC about $824 more than Joan and four others just like her would have paid.
That’s hardly chump change. The WSSC’s rates soak larger families. That is unjustified and unconscionable.
The WSSC argues that it encourages conservation by charging higher-use customers higher prices. But equally conserving individuals often pay different prices. Some studies cast doubt on the conservation effect of progressive pricing.
As of 2012, roughly half of water utilities in the United States charged higher prices on incremental consumption as water use increased, whereas about 30 percent charged a uniform rate. The remaining utilities charged decreasing prices on higher amounts used. Uniform prices are simple and viable and would not penalize larger households. Plus, metering use and charging on volume, even at uniform prices, encourages water conservation.
The WSSC’s volume-based rate structure is unique among water utilities in the United States. It is the only water utility that applies the price in each of its tiers to the entire amount of water purchased each quarter, instead of to the incremental amount beyond the previous tier. The WSSC’s rate structure results in large spikes in the cost of buying just a little more water if that additional water bumps a customer into a higher rate tier.
The WSSC argues that the higher prices that families such as Mary’s pay for the volume of water they use are offset by the WSSC’s fixed account charges. Mary’s family pays only one set of fixed charges for five people, whereas Joan pays one set for just one person — so, per person, Mary pays less. But a fair, fixed charge should not be used to offset the inequity of an unfair charge.
The WSSC is well aware of the flaws in its volume-based rates and how they could be easily corrected. It just refuses to correct them. The only puzzle is why this situation has persisted for more than three decades.