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Water Prices

December 28, 2009, 1:18 pm

Another 2600 word essay in the Arizona Republic on trying to balance water supply and demand in the state with only a one-sentence mention of water rates.

Over the years, some communities have tried to reduce demand. Years ago, Tucson devised a set of water rates that escalated steeply with use. As a result, many people simply stopped planting grass or other thirsty landscaping.

Amazingly, it is the only thing in the whole article that has been demonstrated to work, but still the author leans towards land-use planning and goofy dictats like rainwater harvesting rather than raising rates as a way of managing water supply and demand.

I wrote a lot more here, including an analysis that showed Phoenix has some of the cheapest water rates in the country.

Tags: , , , ,
Category: Economics
  • perlhaqr

    That sort of rate structure is what I've been advocating here in Albuquerque ever since I was a teenager. Everyone still looks at me like I've got a squid in my mouth, though, preferring fines for watering on odd days of the week, and bitching about how much water Intel uses in their chip fab. But if you just implement a roughly exponential curve shaped rate scale, the problem will self limit.

    Actually, thinking about it, the water use problem here in NM may be the very thing that first got me thinking about how everyone always prefers a government solution over a simple free market one.

  • ADiff

    It seems that as a society we've been convinced that imposed structural solutions are all there are. I wonder if our schools, such as they are, even teach about the operation of free markets. If quantity demanded keeps increasing, then it's clear the price is too low. It's as simple as that! What? Use price to ration goods and services? Now that couldn't be fair/work, could it?

    Our whole society is so 'ate up' with this collectivist, altruistic crap it's almost beyond belief.

    Regulation? Ordinances? Central Planning? It's never worked and isn't going to start working now.

  • ToddM

    Any time I see a situation like this, I try to recall seeing a private company in a competitive market telling consumers to 'reduce demand', while holding prices steady. Haven't come up with one of those situations yet. In fact it's kind of funny comparing a relatively free-market supplier like a fuel-oil company with the electric company or the water utility. My oil company has NEVER ONCE had a problem with 'excess demand'. Sometimes they apologize for the high prices, but they're always willing to deliver as much as I want. But the water utilities are ALWAYS struggling with this 'excess demand' problem, and we often get lectures from the electric company about conservation. I wonder how many people ever think about why the difference exists.

    On the escalating prices with higher usage, I think it needs to be labeled as "progressive". Which it is, really. Most free-market price schemes give you a discount for buying higher quantities. So, charging more per unit at higher usage rates is a transfer of wealth, or subsidy, to people who use just a little water, presumably mostly poor people. Why would a left-winger object to that? Maybe left-wingers want to water their lawns at below market prices?

  • Mark

    The problem is whenever you try to raise the price of a "basic necessities" you always hear cries "What about the poor, how they will suffer without, heat, water, food, electricity, phones, nike basketball shoes ...."

    And then people fall for it instead of realizing the poor should wear sweaters and turn the heat to 62 like everyone else.

  • Craig

    60 Minutes had a story yesterday about California's water problems. It was posed as an environmentalist vs. farmer problem, and the poster boy for the farmers was a grower of none other than cotton, the most water-heavy crop you can find. There was nothing about prices at all in the story.

  • RobTzu

    Remember, prices have no effect on demand. Zero. Nada. They have an effect on "quantity demanded". Not the same thing at all. However, prices on substitues and complementary goods do have an effect on demand, just not on the good that the price has been changed on.

  • ColoComment

    Sometimes a pricing plan can work too well. One unintended (but maybe should have been foreseen) consequence of incremental rate increases to discourage water use, is that of decreased revenues to the water utility. During the recent drought years in Colorado, Denver Water implemented exactly that type of upward rate adjustment as water use increased, and lo and behold, demand DEcreased so much that DW ended up having to assess surcharges to cover its fixed costs (or so it said.) How's that for placing a consumer between a rock & a hard place?