Tiered Pricing and Cost Functions: Are Equity, Cost Recovery and Economic Efficiency Compatible Goals?

Suppliers of water and energy are frequently natural monopolies, with their pricing regulated by governmental agencies. Pricing schemes are evaluated by the efficiency of the resource allocation they lead to, the capacity of the utilities to capture their costs and the distributional effects of the policies, in particular, impacts on the poor. One pricing approach has been average cost pricing, which guarantees cost recovery and allows utilities to provide their product at relatively low prices. However, average cost pricing leads to economically inefficient consumption levels, when sources of water and energy are limited and increasing the supply is costly. An alternative approach is increasing block rates (hereafter, IBR or tiered pricing), where individuals pay a low rate for an initial consumption block and a higher rate as they increase use beyond that block. An example of IBR is shown in Figure 1 (on next page), which shows a rate structure for residential water use. With the rates in Figure 1, a household would be charged $0.46 and $0.71 per hundred gallons for consumption below and above 21,000 gallons per month, respectively.

Yield potential and resource-use efficiency of maize systems in the western U.S. Corn Belt

Maize demand for food, livestock feed, and biofuel is expected to increase substantially. The Western U.S. Corn Belt accounts for 23% of U.S. maize production, and irrigated maize accounts for 43 and 58% of maize land area and total production, respectively, in this region. The most sensitive parameters (yield potential [YP], water-limited yield potential [YP-W], yield gap between actual yield and YP, and resource-use efficiency) governing performance of maize systems in the region are lacking. A simulation model was used to quantify YP under irrigated and rainfed conditions based on weather data, soil properties, and crop management at 18 locations. In a separate study, 5-year soil water data measured in central Nebraska were used to analyze soil water recharge during the non-growing season because soil water content at sowing is a critical component of water supply available for summer crops. On-farm data, including yield, irrigation, and nitrogen (N) rate for 777 field-years, was used to quantify size of yield gaps and evaluate resource-use efficiency. Simulated average YP and YP-W were 14.4 and 8.3 Mg ha-1, respectively. Geospatial variation of YP was associated with solar radiation and temperature during post-anthesis phase while variation in water-limited yield was linked to the longitudinal variation in seasonal rainfall and evaporative demand. Analysis of soil water recharge indicates that 80% of variation in soil water content at sowing can be explained by precipitation during non-growing season and residual soil water at end of previous growing season. A linear relationship between YP-W and water supply (slope: 19.3 kg ha-1 mm-1; x-intercept: 100 mm) can be used as a benchmark to diagnose and improve farmer’s water productivity (WP; kg grain per unit of water supply). Evaluation of data from farmer’s fields provides proof-of-concept and helps identify management constraints to high levels of productivity and resource-use efficiency. On average, actual yields of irrigated maize systems were 11% below YP. WP and N-fertilizer use efficiency (NUE) were high despite application of large amounts of irrigation water and N fertilizer (14 kg grain mm-1 water supply and 71 kg grain kg-1 N fertilizer). While there is limited scope for substantial increases in actual average yields, WP and NUE can be further increased by: (1) switching surface to pivot systems, (2) using conservation instead of conventional tillage systems in soybean-maize rotations, (3) implementation of irrigation schedules based on crop water requirements, and (4) better N fertilizer management.