Rachel Szymanski
August 18, 1992

One of the principal contending alternatives to the expansion of Metro Toronto’s main sewage treatment plant is that of water demand reduction by means of various water conservation strategies. For the assessment of this alternative, the expansion’s proponent relies on the Water Conservation Strategy prepared by R.V. Anderson Associates Limited for the Metro Toronto Works Department. The document carries much weight within the environmental assessment process, and has been unilaterally accepted by the Metro Toronto government.

The study recommends the inclusion of “supply management” components, notably a suggestion that plumbing regulations be amended to require water-efficient fixtures in new dwellings. The proposal also advocates voluntary reductions through the use of water-saving devices, as well as the adoption of a pricing policy that embodies full user-pay concepts. The study identifies potential long-term water conservation results for Metropolitan Toronto. It anticipates a possible reduction in water use by the year 2001 of 6-10%, over the “do-nothing” flow-projection, with a total reduction of 13-23% by the year 2011. This projected water conservation scenario includes the introduction of low-flow water fixtures in 25% of Metro’s households by the year 2001, and in 50% of homes by the year 2011. Moreover, it assumes a real water price increase of 25% by 2001, and of 50% by the year 2011. R.V. Anderson’s projected conservation figures have been deemed “realistic” by the City of Toronto’s Department of Public Works and the Environment (p. 5), though this department has not carried out a detailed evaluation itself of the potential for water conservation or of possible water reduction targets.

The Metro Toronto Works Department states that it is its mandate and obligation to supply water actually needed by its consumers in the Metro Toronto and York Regions and to accommodate those demands and sewage flows actually generated – not projected quantities (p. 23). Similarly, the R.V. Anderson study concludes that the “time-tested” criteria used for planning, design and development of water and sewage infrastructure should not be reduced in any way until there is clear evidence that conservation measures are in fact working. Thus, R.V. Anderson finds that current expansions to Metro Toronto’s water filtration capacity should proceed as planned. The estimated long-term reduction in demand from water conservation measures that are considered in the study will not, it is felt, offset the capacity shortfalls projected for the next five to ten years.

A critique of the R.V. Anderson study, however, reveals that it is incomplete, and does not adequately address the potential for water conservation in the Metro Toronto region. Either certain conservation mechanisms are not discussed at all, or, when the study does in fact comment on such techniques, it does not attempt to pursue them vigorously.

Full Metering of the City of Toronto’s Residential Sector

R.V. Anderson’s recommendation that the City of Toronto proceed quickly with its meter implementation program is a good one, and it must be pursued seriously (p. 5-9). The City of Toronto is the last local government within Metro to have its residential sector fully metered. (“Full” residential metering is a somewhat deceptive term, however, since many local governments within Metro Toronto only meter houses, not apartment dwellings.) Full-scale metering is a necessary precursor to the most effective manner of water conservation: reducing demand through pricing mechanisms, since this feedback to the consumer and the system serves to determine just how much the consumer is taxing the system and allows both to take informed action in response.

The installation of water meters has long shown results of much more careful use on the part of consumers. Although the R.V. Anderson study recommends full-scale metering, it does not discuss the conservation successes that have been realized merely from the implementation of metering, nor does it include the effect of full-scale metering in its final projected conservation figures. The Organization for Economic Co-operation and Development has listed substantial reductions in water consumption following the implementation of metering in municipal jurisdictions around the world: Gothenberg, Sweden 33%; Philadelphia, USA 45%; Moss City, Norway 41%; Toowoomba, Australia 41%; and Copenhagen, Denmark, 20% (Tate, 1990, p. 36).

Fortin describes several metering successes in other jurisdictions. He notes from a collection of studies done on the metering of residential sectors in the U.S., for example, that “average sprinkling use was about 45 percent that of unmetered areas,” but that “household use for domestic purposes was not significantly different between the metered and unmetered areas” (p. B-24). Additionally, he describes a study conducted by himself on the effects of water metering in Boulder, Colorado, where he traced water consumption both before and after six years of metering. Fortin found that domestic and sprinkling water use were 65 and 51 percent, respectively, of their pre-metering levels. He also found that the impact of meters on water use was slightly greater after six years than in the first year of metering (p. B-27). In other jurisdictions, such as Durham, Ontario, the greatest water savings occurred within the first two years of metering (Louden).

Wastewater Metering

The R.V. Anderson study does not consider the possibility of metering wastewater sewage flows, either in terms of water quality or quantity. According to Brooks et al., however, “[c]ase studies show that such charges commonly result in cuts of one-third to two-thirds in the volume of discharge from such widely varying industries as steel, food processing, and electronics” (p. 46). Wastewater metering, as Tate has noted, would also produce a fairer and more equitable pricing system: “The second objective of effective rate design, according to [the American Water Works Association], is that of equity, in the sense of sharing the costs of water systems amongst customers in a so-called ‘fair’ manner” (Tate, 1986, p. 8). The lack of any system for metering water quality means that lower-strength wastewater producers are effectively subsidizing higher strength producers, especially from the industrial sector.

The City of Toronto has proposed to bill certain industries a wastewater surcharge, presumably to make up for the increased stress and costs such businesses place on wastewater infrastructure. But such a charge would only yield a crude approximation of industrial metering.

True Water Value and Other User-Pay Principles

Metro Toronto sells water wholesale to its local municipalities, which in turn transfer the cost of water and wastewater services to their customers. This wholesale water charge merely includes water and wastewater treatment and delivery. “True” water value, however, is generally considered to extend beyond the costs for such water and sewage services. As was explained in the draft document Region in Transition, prepared by the Centre for the Great Lakes, “water use fees in the region are typically designed to concern the costs of water-supply infrastructure, and do not reflect supply and demand” (1990, p. 18). Indeed, research by such experts as Tate for Environment Canada suggests that water prices in Canada are too low relative to the price of comparable goods and services (1990, p. 14). Experts agree that this kind of comparative pricing, as well as other methods of assessing the true value of water are useful in decreasing water demand (Brooks et al.).

R.V. Anderson’s commitment to such full user-pay principles is mixed. On one hand, the study briefly discusses such concepts and recommends that the Metro Works Department consider these. For instance, the study notes the suggestion by some experts that water prices should include, apart from the cost of services, the “intrinsic value” of the water, as is done with other natural resources such as oil and gas (p. 3-5). Moreover, the study notes that Metro Toronto “should officially adopt a position supporting the user-pay principle,” and details some operative costs that are not included in the current water price (pp. 5-6 and 5-7). R.V. Anderson even goes so far as to reveal the effect a substantial rate increase (though not necessarily relational to market or marginal prices) would have on water consumption: “[I]f the water and sewer rate increases that are proposed for next 4 years (1992-1995) were to be combined and assessed over one year, the resultant increase in the rate would be 57.7%. At an elasticity of 0.4 this would result in a 23% reduction in use” (p. 3-14).

It should be noted that this proposed reduction in use does not even include the expectancy of fixture retrofitting of 25% of homes that is included in the proposed Metro Conservation Goal (p. 4-11). Such an inclusion would have served to further increase conservation potential.

Hence, R.V. Anderson appears to recognize the existence of alternative true water value principles, and has assessed the possibility of incorporating these concepts into the Metro Toronto scenario. Unfortunately, it has chosen not to incorporate possible “full” water costs into the proposed water conservation scenario. The study’s suggested conservation strategy suggests a 25% real increase in the price of water by the year 2001 (p. 4-6). However, it is unclear whether this rate of increase is based on anything other than the standard, already proposed rate of increase by Metro.

One model frequently used to determine full water value is marginal cost pricing. But despite its popularity with experts, marginal cost pricing is not considered or even discussed by R.V. Anderson. The idea behind this mechanism is that the price of water should include the cost of supplying the next increment of water, which is referred to as the “marginal” or replacement cost. The goal is to provide consumers with an accurate sense of the real value of water (Postel, p. 48). The application of a marginal cost pricing principle must include all relevant costs, including private and social costs and opportunity costs (Peat Marwick, p. III-8; also see Hanke, p. 488 for a description of how water utilities can determine the “proper price” of such marginal costs). Such a scheme could also include differing rates for peak hour or seasonal peaks, if these periods of greater consumption mean higher replacement costs per unit of water (Peat Marwick, p. III-17).

One problem in determining and charging the “true value” of water lies in establishing ownership. When determining whether customers should be charged a “true value” price that extends beyond the service charges surrounding a resource, it is important to determine who is the owner of the resource. In the case of Metro Toronto, water is extracted from Lake Ontario. It is unclear whether this water belongs to the provincial populace, or, because it is an international body of water, is under the federal jurisdiction. Discussions on this issue are taking place within the Water Strategy Division of the Ministry of Natural Resources.

Elasticity

The R.V. Anderson study assumes an elasticity of 0.7 for “High Volume Users” (the commercial and industrial sectors combined), and of 0.2 (indoor use) and 0.4 (outdoor use) for the residential sector (p. 4-6). These last figures dealing with the residential sector appear to be in keeping with those established in other studies (see Brooks et al., p. 43). The Brooks article, however, notes that residential lawn watering may have a significantly higher rate of elasticity exceeding 0.7 in certain drier regions. It is unclear whether the R.V. Anderson elasticities rates are accurate. However, Brooks does note that similarly low elasticity rates were applied to energy resources at the beginning of the conservation era, and that these steadily increased and in some cases exceeded 1.0 as conservation mechanisms were implemented. There is no reason the same trend cannot be expected of water demand.

Such an observation leads to another shortcoming in R.V. Anderson’s discussion of water elasticity. The study does not attempt to determine how in fact such levels of elasticity may be altered. As Brooks et al. have noted, “we should be looking at price elasticities very carefully, not so much to predict future consumption, but to be able to identify the forces that can make water use more elastic” (p. 43). To this end, it is necessary to identify what technologies are available and have successfully served to provide low-consumption alternatives for water users. In addition to rain-barrels, xeriscaping and retrofitting with low-flow devices for the residential sector, it will be important to focus on what technologies have been employed by industry in other jurisdictions to reduce the necessity of high water use and thus increase water elasticity in certain manufactures, etc. The lack of any detailed breakdown of this high-volume use to determine varying water elasticity rates between different manufactures and industries makes the tasks of targeting and projection within a conservation scheme difficult. In order to be accurate and most efficient, a water conservation study must also distinguish between varying elasticities within the same sector. For instance, Fortin states:

Another concern in demand studies is the need to distinguish among different types of demand. Each user group will display a distinct demand relationship associated with its own water requirements, whether for industrial cooling, domestic cleaning, recreation and other uses. Moreover, for any other user group, the nature and demand, and therefore, the price responsiveness may vary with type of use. Residential consumption is thus broken down into domestic use and lawn sprinkling or alternatively into winter and summer use. An analysis of demand that is to provide some insight into the nature of demand and to produce a useful forecasting tool should differentiate among user groups and types of use. Moreover, the analysis should account for regional variations in demand caused, for example, by climate and consumer preferences (p. A-11).

To be thorough, each sector – residential, commercial and industrial – must thus be analyzed. Are tenants in apartment buildings, for instance, consuming more water than the rest of the residential sector? Generally, apartments and condominiums are not metered at the sub-unit level, and if they are (as is, for instance, the case in Scarborough), such water accounts are not separated from other apartment accounts for billing purposes, so no consumption comparison is possible.

Bibliography

Anderson, R.V. Limited. Water Conservation Strategy, prepared for the Metropolitan Toronto Works Department, May 31, 1991.

Brooks, D. et al. “Pricing, A Neglected Tool for Managing Water Demand”, Alternatives, Volume 17, No. 3, 1990.

Centre for the Great Lakes. Region in Transition; Toward Sustainable Development in the Great Lakes and St. Lawrence River Basin, (DRAFT) Toronto, September 15, 1990.

Environment Canada. Fact Sheet #4: Water Works! (Ottawa), 1990.

Fortin, M. and S. Hanke. The Economics of Municipal Water Supply; Applying the User-Pay Principle, (Inquiry on Federal Water Policy, Research Paper #21), June 1985.

Hanke, S. “A Method for Integrating Engineering and Economic Planning”, Journal AWWA, September 1978, pp. 487-491.

Hickling. Charging for Water and Wastewater Services: A Model for Rate Setting for Canadian Municipalities, (Paper presented for the Waterscapes ’91 Conference, Saskatoon, Saskatchewan, June 7, 1991.

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Works Conference and Equipment Show, May 11-14, 1986, Ottawa.

Peat Marwick and Partners. Design Factors and Data Requirements for Water Withdrawal Pricing and Effluent Charges, prepared for the Policy and Planning Branch, Ontario Ministry of the Environment, April 1988.

Postel, Sandra. Conserving Water: The Untapped Alternative, Worldwatch Paper No. 67, September, 1985.

Renzetti, S. The economic aspects of industrial water use, Inland Waters Directorate, Environment Canada, Ottawa, Unpublished manuscript (used in Tate, 1990, p. 25).

Schlette, T. and D.C. Kemp. “Setting Rates to Encourage Water Conservation,” WATER/Engineering & Management, May 1991, pp. 25-26.

Tate, D.M. Municipal Water Rates in Canada, 1986 – Current Practices and Prices, (Inland Waters Directorate; Ottawa), Social Sciences Series, No. 21, 1989.

Tate, D.M. Water Demand Management in Canada; A State-of-the-Art Review, Social Science Series No. 23, Inland Waters Directorate, Ottawa, 1990.

Toronto, City of. Department of Public Works. Memo to City Services Committee in response to R.V. Anderson Consultants Ltd. Water Conservation Strategy, February 7, 1992.