An Agent-Based Modeling Approach to Assess the Socio-Economic and Social Equity Impacts of Dynamic Pricing in Residential Water Management

Climate change, urbanization, aging infrastructure, and rising energy costs require water utility managers to consider policies that manage peak water consumption while meeting the needs of water users with affordable, reliable, and safe drinking water. Peak water consumption can exacerbate strains on aging infrastructure and often coincides with peak electricity prices, increasing operation costs for water utilities. Water rates are a part of a demand-side management approach that can elicit water-use behavior changes. As an example, dynamic pricing policies increase the marginal cost of water during periods of peak water use to encourage users to shift their water usage to off-peak times, reducing the strain on infrastructure and the operating cost of the utility. With the adoption of advanced metering infrastructure (AMI) within the water industry, utilities can collect medium-resolution water consumption data to monitor and charge for the timing of hourly water use. However, dynamic pricing can lead to inequitable water costs across a community. Low-income households may have less flexibility in their time-of-use, limiting their ability to respond to dynamic pricing as strategically as high-income households. Households with more inhabitants, which are typically low-income households, typically pay a higher average price than smaller households under conventional tiered pricing policies; this effect can be exacerbated by dynamic pricing. The goal of this research is to assess the differential impact dynamic pricing has on heterogeneous water users. This research develops an agent-based model (ABM) to simulate the response of a community of water users to dynamic pricing. The ABM is applied for a case study, and model outcomes assess the impact that dynamic pricing has on the volume of water consumption, time-of-use, and price of water for households that differ in socio-economic characteristics. This research develops an ABM approach that can be used to quantify inequities in water costs based on household attributes and the ability of water users to respond to demand-side management policies.