[I just sent this message to my fellow members of 1) the Purissima Hills Water District Board and 2) the Los Altos Hills Water Conservation Committee.]
Below are excerpts from Conservation Feebates -- Journal of the American Water Works Association, Jan 1996, pp. 70-78, by Dr. Robert Collinge, Dept. of Economics, UT San Antonio. If you read nothing else, read the first and last paragraphs.
The tricky part is coming up with the allotments, but my understanding is that, at least in Purissima, there is already a formula or method for assigning allotments in a drought. I have no problem telling Purissima customers that if they don't like our prices/allotments, then they can truck in their own water. However, I have a big problem with telling LAH residents that if they don't use the water they buy in the way the town thinks is best, then they can expect a visit from the sheriff (or equivalent). As long as a customer pays our stated rates and isn't a nuisance to his neighbors or to district infrastructure, then I don't think it's any of my business what he does with the water he buys.
water rates are expected to satisfy three objectives: efficiency,
revenue neutrality to the utility, and distributional equity.
Unfortunately, adjusting rates to efficiently achieve use and
conservation targets would ordinarily generate excessive revenues.
Rather than mold one tool to the service of three masters, this article
suggests combining three separate tools. The first sets the water rate
to cover the utility's costs. The second assigns customers allotments to
water use. The third either charges a fee for use that exceeds the
customer's allotment or hands out rebates for consumption below that
allotment. The fees pay for the rebates--thus the term "feebate." The
outcome is: revenues to the utility just sufficient to cover costs;
efficient water consumption by municipal water customers without
conservation mandates; and revenue effects that can be spread fairly
across various categories of customers.