Water Pricing: Just Say Yes!

Lynne Kiesling

David Zetland of Aguanomics has a great op-ed in Forbes about water scarcity and pricing in California. He hits the nail on the head, and does so in clear economic terms:

The real problem is that the price of water in California, as in most of America, has virtually nothing to do with supply and demand. Although water is distributed by public and private monopolies that could easily charge high prices, municipalities and regulators set prices that are as low as possible. Underpriced water sends the wrong signal to the people using it: It tells them not to worry about how much they use.

Importantly, note that David’s analysis also applies to electricity; underpriced electricity sends the wrong signal to consumers.

David’s column also offers a policy proposal for steeply inclining block pricing of water, and it’s a good one. I encourage you to read it


6 thoughts on “Water Pricing: Just Say Yes!

  1. We’ve had this problem (in spades) in the Atlanta area. Our main reservoir was famously low last summer, to the point where people were out discovering things that had sunk to the bottom of the lake long ago. There was discussion of having to extend the intake further down into the depths. There were pictures in all the national newspapers of the piers and docks that had backed into each other as the water receded. Yet, the price for water was about the same as it had ever been (though slowly and steadily escalating over time). Of course, in spite of the long-present watering restrictions, the government had to resort to public appeals for conservation, including an embarrassing prayer stunt on the courthouse steps. Lo and behold, it did eventually rain after that! 😉 (We’re still pretty low. It must be the lack of Sunday liquor sales.)

    Anyway, the public appeals last summer were somewhat successful. Consumption declined, forestalling more drastic measures. Of course, many were shocked and dismayed that the old fixed price had to be increased to make up for the revenue losses after conservation set in. People whined, saying they were being “punished for conserving.” It’s as if, they think, the water company has to buy its water by the gallon from an even bigger water company.

    Interestingly and predictably enough, the idea of scarcity pricing for water has not been breathed in public.

  2. We’ve had this problem (in spades) in the Atlanta area. Our main reservoir was famously low last summer, to the point where people were out discovering things that had sunk to the bottom of the lake long ago. There was discussion of having to extend the intake further down into the depths. There were pictures in all the national newspapers of the piers and docks that had backed into each other as the water receded. Yet, the price for water was about the same as it had ever been (though slowly and steadily escalating over time). Of course, in spite of the long-present watering restrictions, the government had to resort to public appeals for conservation, including an embarrassing prayer stunt on the courthouse steps. Lo and behold, it did eventually rain after that! 😉 (We’re still pretty low. It must be the lack of Sunday liquor sales.)

    Anyway, the public appeals last summer were somewhat successful. Consumption declined, forestalling more drastic measures. Of course, many were shocked and dismayed that the old fixed price had to be increased to make up for the revenue losses after conservation set in. People whined, saying they were being “punished for conserving.” It’s as if, they think, the water company has to buy its water by the gallon from an even bigger water company.

    Interestingly and predictably enough, the idea of scarcity pricing for water has not been breathed in public.

  3. When talking about water and cost in Calif. it is necessary to note that agriculture and wildlife are the two big users and industry and people are the minor users. Wildlife officials and Judges use billions of dollars worth (at city wholesale prices) of free water to try and protect a small population of delta smelt, but won’t fund a hatchery to produce them by the billions. Farmers use very cheap water ($15 or so/ac.ft.) to grow low value crops like hay, alfalfa, bermuda grass, etc. So. Calif. cities pay in the $400+/ac.ft range for the same water and are subsidizing the water delivery systems for may of the farmers who are using 85% of the water left after the wildlife activists get their free share.

    To make a real difference, you need real water prices on wildlife and farmers. A big increase in city water rates in So. Calif. with just cause a shift to desalinization. A small increase in the farmers rates or wildlife rates (they would need a budget allocation that would go to the appropriate water district) would make huge differences in water usage and availability.

  4. When talking about water and cost in Calif. it is necessary to note that agriculture and wildlife are the two big users and industry and people are the minor users. Wildlife officials and Judges use billions of dollars worth (at city wholesale prices) of free water to try and protect a small population of delta smelt, but won’t fund a hatchery to produce them by the billions. Farmers use very cheap water ($15 or so/ac.ft.) to grow low value crops like hay, alfalfa, bermuda grass, etc. So. Calif. cities pay in the $400+/ac.ft range for the same water and are subsidizing the water delivery systems for may of the farmers who are using 85% of the water left after the wildlife activists get their free share.

    To make a real difference, you need real water prices on wildlife and farmers. A big increase in city water rates in So. Calif. with just cause a shift to desalinization. A small increase in the farmers rates or wildlife rates (they would need a budget allocation that would go to the appropriate water district) would make huge differences in water usage and availability.

  5. I interviewed Zetland on BusinessPundit.com after the Forbes piece came out. It’s more of a general interview, but should provide readers will additional information, should they want it.

    Nice analysis of the Texas dereg. piece in the WSJ, by the way. Something was fishy about her claim, and you put your finger on it.

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