Economic Analysis of Infrastructure Investment and Irrigation Budget Issues in a Southwestern U.S. Water Utility

The three chapters of this dissertation investigate two policy issues faced by water utilities: infrastructure investment and water budget programs. Water utilities have infrastructure that is deteriorating at an increasing rate, necessitating higher rates of investment from ratepayers. At the same time utilities must improve their management of existing water supplies in order to postpone the need to procure water supplies with a higher marginal cost. Water budgets are a way to manage scarce water resources more efficiently. The first chapter focuses on customer preferences for infrastructure investments. Individuals are willing-to-pay to have fewer outages at home, shorter average outage lengths, greater advance notification, more urban greenspace irrigated with reuse water, and greater use of renewable energy. The correlated attributes model indicates evidence of adaptive behavior towards longer outages and that individuals who prefer high levels of reuse infrastructure investment also prefer high levels of investment in renewable energy. These results are useful to policymakers who need to raise rates to fund the infrastructure investment gap. The second chapter studies the impact of model assumptions about the marginal utility of income (MUI) by comparing MWTP distributions from preference-space and WTP-space mixed logit models. In preference-space models, the MUI, whether heterogeneous or fixed, is the denominator of the MWTP ratio. WTP-space models estimate the MUI separately from the attribute coefficients that represent the MWTP. The resulting MWTP distribution using WTP-space estimates has a tighter distribution and no extreme outliers. From a behavioral standpoint, the distribution closely resembles a preference-space fixed cost model. The third chapter examines the water budget program for irrigation-only customers. Water budgets are a new conservation tool that combine aspects of quantity restrictions with increasing price blocks to encourage efficient water consumption. Excess consumption receives a per-unit surcharge. Private and public sector accounts have significantly different consumption behavior. Price elasticity of demand is estimated as $-0.845$. Accounts in the 85th and 95th percentiles of water budget use, parks, and multi-family accounts are among the most inelastic. Commercial and home owner associations are the most price responsive. Policy recommendations include focusing on accounts in the middle use tier between 100 and 150\% of water budget use and raising the highest surcharge rate. These papers contribute to the literature by examining new infrastructure investments to increase the use of reuse water irrigating greenspace and renewable energy use. The studies also examine the differences between correlated and uncorrelated attributes models. The final paper contributes by focusing on non-residential water consumption and estimates elasticity of demand for a customer class that only has outdoor water use.American Water Works Association Water Research FoundationEconomicsDoctoralUniversity of New Mexico. Dept. of EconomicsThacher, JenniferBerrens, RobertChermak, JanieThomson, BruceBagby, Jenn