October 1, 2026 Submitted By John Borger
In six Hingham H2O pieces to date, I have repeatedly urged the Weir River Board of Water Commissioners (BWC) to initiate the transition to a universally recommended, tiered rate structure in which rates sharply increase in each successively higher volume block, thus incentivizing conservation. This has become the standard pricing strategy of peer towns. BWC members might well protest, “But it’s not that simple!” And they would be right – it isn’t simple. But it is doable. Here’s how…
The Revenue Maxing Imperative
In Hingham H2O Part 2, I described Aquarion’s revenue maximization imperative:
The rate structure WRWS inherited made sense for an investor-owned utility (IOU). Maximizing returns to investors entailed selling as much water as possible. A rate structure calibrated to incentivize conservation would have depressed sales – and profits.
The BWC now has a different but equally compelling revenue maxing imperative: debt service. Payments on the $117.5 million bond floated to finance acquisition must be funded with revenue from ratepayers. The WRWS Commissioners have to consider whether moving to a tiered rate structure, with strong incentives to conserve, might depress the volume of water consumed (sold), and thus decrease the revenue available for debt service.
The experience of Nantucket in 2025 is an example of the risks. After lawn irrigation during a pump outage bled its water system to the brink of catastrophe, Nantucket revamped its rate structure to incentivize conservation – and saw an immediate 20% decline in usage. It had to quickly adjust its rates to fully fund operations. This is yet another object lesson in how volumetric pricing can change consumer behavior.
Are Tiered Rates on the Table?
We do not know if the BWC members are considering adoption of industry standard pricing. But if they are, it’s reasonable to infer that they may be intimidated by the possibility of revenue shortfalls if the conservation incentive turns out to be as effective as demonstrated elsewhere.
In effect, Aquarion’s mandate to maximize returns to shareholders has been replaced with WRWS’s mandate to fund debt service. Both imperatives feature a perverse incentive to maximize volume of water sold – the opposite of the conservation we need.
This dynamic might seem to lock authorities into passive capitulation to our dysfunctional status quo. The result is a depressing new normal of depleted aquifer, infrastructure strained to the danger point, and recurring summer-long Level II water bans. Is there a way out?
Yes. It’s a financial strategy other utilities have used called “revenue decoupling.” Here’s how it would work.
Revenue Decoupling Focuses on the Essentials
Let’s start with WRWS’s two primary costs – funding for operational expenses and funding for debt service. WRWS must pay staff, buy energy, maintain infrastructure, etc. It also must make regular payments on its $117.5 million debt. Those essential costs determine the total revenue required.
(For simplicity’s sake, we can ignore special charges like the new $65 capital assessment recently levied on each household account. That charge is earmarked for capital expenditure for infrastructure, not operations and debt service.)
The Current Mode
Currently, WRWS operates with fixed rates and trusts that its forecast sales volume will generate the needed revenue. In this mode, BWC members may feel pressure to maximize the volume of water sold, similar to Aquarion, but for a very different reason.
They may not want to risk significant changes, such as a multi-tier rate structure that incentivizes conservation, because it might jeopardize sales volume, decrease revenue, and impact debt service. As Nantucket learned, basic price economics really works.
Revenue Decoupling Puts the Horse Back in Front of the Cart
But WRWS’s ultimate imperative is the fixed amount of revenue required to support both operations and debt service. So why not start instead with this fixed revenue requirement itself?
Here’s how this new paradigm would work:
- Budget: WRWS would establish the total budget needed to deliver its essential service – water – while maintaining debt service. (It has to do this now.)
- Working Capital: It would establish an enhanced working capital fund. (It maintains working capital now.)
- Conservation Rate Schedule: It would implement a new, tiered schedule of rates calibrated to incentivize conservation while still generating the needed revenue. (WRWS has the requisite data; business school grad students could do the optimization math.)
- Ongoing Revenue: Proceeds from the monthly billings of ratepayers would still fund that budget, as regulations require.
- Revenue Balancing: During the fiscal period, if the new rate schedule induced conservation as expected, and revenue fell short of requirements, WRWS would supplement ratepayer revenue by drawing from enhanced working capital to meet current period obligations. (As it is now, WRWS must maintain a certain level of working capital to deal with seasonal fluctuations in billings; the new paradigm would simply extend current practice.)
- End of Period True-Up: At the end of each period, it would adjust rates as needed to meet the next period’s revenue requirement and replenish working capital.
In this way, WRWS would be freed from the revenue maximization imperative and could establish the universally recommended schedule of volume-driven rate tiers.
Requisite revenue for operations and debt service would be assured, still funded by ratepayers, as regulations require.
A New Paradigm
This approach changes the paradigm. WRWS would no longer be operating like a storefront proprietor trying to make loan payments by selling a product at advertised prices, straining capacity to maximize sales volume and revenue. That dynamic dangerously pushes WRWS in the opposite direction of conservation and sustainability.
Instead, in the new, revenue-decoupled paradigm, WRWS would be operating more like the Hingham Fire Department, providing an essential service that absolutely must be delivered. The only difference is that the HFD is funded by taxpayers; WRWS is funded by ratepayers.
The HFD does not generate revenue based on how many fires it puts out; it does not fund its essential service based on volume. That would be absurd – the HFD would much rather prevent fires than put them out.
Instead, it establishes a budget for the requisite service level and taxpayers fund that budget. If in subsequent periods the HFD needs more revenue (a bigger budget) to deliver the requisite level of service, more taxes are allocated to fund that budget. WRWS would take a similar approach to periodically adjusting rates.
Ratepayer Buy-In
Would this paradigm change be more complicated? Initially, yes. Would it be more of a challenge to explain to ratepayers? Probably. But if better communication with ratepayers is what is needed to move to a rate structure that discourages profligate waste via lawn irrigation, would it be worth it? Absolutely.
Speaking as a ratepayer, I would vastly prefer periodically updated rates if it meant lowering the threat to public safety and greater fairness in how we pay for water. As a moderate user, I would almost certainly come out ahead, because the higher consumption users would by design pay a disproportionately higher share of WRWS costs.
A Nice Problem to Have…
What if the higher rates for lawn irrigation unexpectedly generate more revenue than expected while still reducing overall volume?
WRWS could reserve a portion of increased retained earnings for enhanced working capital, or future capital needs, like enhanced local filtration. Or it could return all or part of the excess to water-conserving lower-tier ratepayers via credits as part of the retroactive true-up for the period.
Summary
To adopt industry standard pricing that incentivizes conservation, the WRWS Board of Water Commissioners must escape the perverse volume maximization incentive of the debt service revenue trap.
Their challenge is to continue to meet debt service while adopting the universally recommended schedule of sharply increasing volume-driven rates that incentivize conservation. Revenue decoupling would enable them to do both of these things.
The strategies successfully implemented by the California Water System, Massachusetts Unitil, and Connecticut Aquarion provide ample validation of this approach. A short consulting engagement using industry experts could help the BWC implement the approach.
But wait – won’t Quabbin water rescue us from having to make these changes? Not until we get our house in order and move to a rate structure that harnesses basic economics to incentivize conservation. I’ll explain why in the next installment, Hingham H2O, Part 8 – The Quabbin Dream – Prudent Planning, or Avoidance/Denial?