Under this alternative, rates increase for progressively larger volumes of water use. As a result, larger volume customers pay a progressively higher average rate for increased water use. The concept of an increasing price per unit of use frequently arises from the desire for conservation in total water use. Increased concern for conservation of resources has led to acceptance of inverted rates in many areas of the country, particularly those facing immediate and recognizable water supply problems. It is possible to impose an inverted block rate structure that is applicable to all customers, however, this practice has many drawbacks from an equitability standpoint due to the diverse water usage characteristics of various customer classes.
Most utilities adopt a separate inverted block rate structure primarily for residential customers.
Under an inverted structure, the residential class may be charged a higher unit rate for increased water use in excess of an established amount per billing period. Typically, the higher priced blocks are established at amounts that would typically include non-sanitary uses such as irrigation, car washing, and filling swimming pools. Under this alternative, these uses are charge at a higher rate to discourage their use. The ratchet element can provide greater conservation incentives to the customer since excess water use will cause all purchases to be charged at higher rates, not only the usage in the higher blocks. Although this method of pricing for variations in peaking factors overcomes some of the objection to demand pricing based on maximum non-coincidental demand only, it still requires the installation of expensive demand meters, and its administration is apt to be complex and costly.