Percent Change as a Measure of Price Escalation in Water and Energy Utilities

Abstract

We advance the idea of using percent billing changes as a simple measure of price escalation. This simple yet underused metric may help evaluate rate structure design in public utilities. We illustrate how price escalation may generate useful insight for utility managers by analyzing rate structures from water utilities in British Columbia, Canada. We observe that increasing block rates may send weaker relative price signals to users than a simple constant unit charge, and that low volume users tend to receive the strongest relative price signals. Measuring price escalation may also allow one to quantify the distortions generated by fixed charges. We conclude that analysts may find it useful to include measures of price escalation in their portfolio of metrics to evaluate rate structures in energy and water utilities.