Let's Price Water Sensibly


Editorial provided by Robert Glennon
Author of: Unquenchable: America’s Water Crisis and What To Do About It, and
Morris K. Udall Professor of Law and Public Policy
University of Arizona, James E. Rogers College of Law

waterfaucetWe are spoiled in the United States. When we wake up in the morning and turn on the tap, out comes as much water as we want for less than we pay for cell phone service or cable television. Many U.S. cities have archaic, flat-rate prices that charge all users the same regardless of the amount of water used. Just as bizarre is the fact that some cities employ decreasing block rates, so that the more water you use, the less you pay for that final block of water. We should use increasing block rates to encourage water conservation, and we should factor in a seasonal water use component as well. After all, basic water use does not go up in the summer. Increased water consumption is due to discretionary uses, such as filling swimming pools and watering lush landscaping.

It would surprise most Americans to find out that the water bill they pay, to a local municipal water department or a private water company, does not include a commodity charge for water. Although this sounds counter-intuitive, the rates are based on a “cost of service” principle. Water rates are designed to generate sufficient revenue for the department or utility to offset the costs of the infrastructure, treatment and delivery.

We should also decouple the cost of service structure from the revenue stream to the water department or utility. This is a new concept in water rates, but it makes tremendous sense. Consider the recent plight of a few specific utilities.

In Phoenix, the economic downturn has yielded a large number of foreclosed homes and commercial
buildings. In Milwaukee, Wisconsin, the flight of water-intensive companies from Milwaukee to other parts of the United States has meant that Milwaukee Water Works is delivering substantially less water than it did thirty years ago. In some Southern California cities, the recent drought has prompted aggressive water conservation campaigns. Citizens have responded by reducing their water consumption. In these three examples, the water utility suffered a decline in revenues. And, because rates are based on the cost of service, the revenue stream was insufficient to cover the utilities’ costs. In response, the mayor and council or the state public utility commission approved water rate increases to recapture the lost revenue. Talk about a kick in the pants. Citizens conserve water and get rewarded with a water rate increase!

The water industry could learn a lesson from the natural gas and electric industries that have moved in recent years toward decoupling the revenue stream from the quantity of the product delivered. We should reward water departments and utilities with an increase in the revenues or profits if they achieve certain demonstrated
benchmarks, such as reducing the average per person per day consumption water rates in their delivery area.
There is much that we can do to harmonize the cost of water with its inherent value. But we have thus far one precious little about it. Now it’s time to change.


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This article is one of a regular series of reports on emerging and innovative technologies and policies in the area of environment and water resources produced by EWRI’s Emerging and Innovative Technologies Committee (EITC). If
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