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Why districts are slow to charge market rates for water (2009)

37 points by luu 3y ago

Seattle3503 3y ago
This needs a 2009 tag.
Jeff_Brown 3y ago
In short, because politicians decide, they know what their constituents want, and their constituents mostly haven't though about water economics beyond the fact that they want it cheap. And sometimes there are laws that make it even harder. Did I miss anything?
causality0 3y ago
one side effect of Proposition 218, put forth by the Howard Jarvis Taxpayers Association, was that it became illegal to charge any household more than the costs of conveyance to that parcel. It was illegal to charge punitive rates to send a price signal to wasteful users. Why does punishing wasteful users require charging them more per unit? If I waste a lot of milk, like by bathing in it, I'm punished by having spent way more on milk than a normal person. "Use twice as much, spend twice as much" is fair.
- bombcar 3y ago
  Because water is so cheap (cheaper than dirt) that it’s not punitive at all to pay for twice or ten or a hundred times normal.
  - eru 3y ago
    On the one hand, if water is so cheap, why do you need to punish people for using a bit more of it, then? On the other hand, if water is so scarce that you need to discourage people from using a bit extra, why do you price it so cheap in the first place?
    - cool_dude85 3y ago
      Here you find yourselves at the crossroads. Everyone needs water to live. The actual price of water, fairly pricing in long term externalities, may be too much for a family of four to afford their 8 or 10 kgals a month. At least for many such families. But when you price it at the marginal cost to pump out the extra gallon, it becomes economical to do silly stuff like grow water intensive crops in the desert and draw the city's aquifer down. Hence the conundrum. Price it fair, some people can't afford flush the toilet. Subsidize it at a flat(ish) rate, or even just ignore externalities, some people can afford to destroy the commons. So, conservation pricing.
      - eru 3y ago
        > Everyone needs water to live. The actual price of water, fairly pricing in long term externalities, may be too much for a family of four to afford their 8 or 10 kgals a month. At least for many such families. Depends on where you live. And perhaps we shouldn't encourage people to live in such dry areas where an honest pricing of water would make living unaffordable? > But when you price it at the marginal cost to pump out the extra gallon, it becomes economical to do silly stuff like grow water intensive crops in the desert and draw the city's aquifer down. Your pricing should take the longer term into account. An auction style pricing can do that. (Or a system that simulates auction-style pricing. No need to go through all the hassle of actually holding auctions.) > Hence the conundrum. Price it fair, some people can't afford flush the toilet. Subsidize it at a flat(ish) rate, or even just ignore externalities, some people can afford to destroy the commons. So, conservation pricing. That sounds like your conclusion is driving your argument. Give poor people money, if you want to help them. Instead of mucking around with prices. They can then use the money to either pay for water or move somewhere less inhospitable. Or spend it on something they like even more than either of these two alternatives. Btw, flushing toilets with drinking-quality water sounds like a big waste. You should only do that when you have plenty of water to go around. Perhaps that family wants to buy a composting toilet, and pocket the savings? Instead of flushing water down the drain every day?
        bombcar 3y ago
  - outside1234 3y ago
    So we need to make water less cheap
- eru 3y ago
  Water economics are weird. Not because of anything directly in the economics, but because people have really weird ideas and emotional attachments. So instead of charging a market rate proportional to usage (plus a fee to access the network etc, and giving poor people money to afford all this), there's all kinds of weirdness and grandstanding. See https://slatestarcodex.com/2013/08/25/fake-consensualism/ https://slatestarcodex.com/2013/08/25/fake-consensualism/ for a wider exploration of sacred value and taboo trade-offs. People seem to prefer having the government snoop on and micromanage what you use your water for, eg watering your lawn or filling your pool, instead of charging people a reasonable rate like you suggest.
  - ggm 3y ago
    "people" here includes farmers, miners, and a swag of other corporate entities. It's not just about tapwater for people and the public utility function, it's about water rights and costs in the food chain and construction and mining industries, amongst others. Farmers at least should know they have to operate in a market, with all kinds of conditionality on interrupting flow, capture of water which falls over their land (but is not entirely theirs to keep, because they are in a catchment for a water supply for other people) -And the same with bore water: there's no extraction without impacting somebody else, unless you're in a very unusual position: ground water is another shared commons. Reticulated water in domestic contexts? Sure. A lot of people don't understand the social and economic pressures. Down here in Australia, with 10+ year droughts across large metro areas recent history and investment in desalination plants, we have a very good idea of the limits to domestic water usage which can be required of us. The farmers in NSW are at war with themselves and riverine management processes around retention of water flows over land, in the streams.
  - pvdoom 3y ago
    Those examples you give are absolutely things that should be taken into account for - i.e. watering your lawn or filling your pool should be much more expensive than other uses.
    - eru 3y ago
      Why? For the rest of the community, it doesn't matter whether you water you fill your swimming pool or flush the toilet a few extra times. Or does it?
- squokko 3y ago
  Because there is a highly nonlinear utility of water, where enough to drink and cook is essential for survival, enough to bathe and wash is essential for a decent life, and then... nothing. If milk was $200 a gallon you could simply not buy any and you'd be fine, which is not the case with water.
  - causality0 3y ago
    So charge for water on a non-linear scale, like taxes.
    - squokko 3y ago
      Yes? I was answering your question of why to do that.
bin_bash 3y ago
99% Invisible did a podcast recently where they talked about a very similar issue: the privatization of parking meters in Chicago. Parking meters have a similar problem. The purpose is for drivers to pay their fair share to use some real estate in a city, however the city and elected officials in charge have a vested interest to keep prices low. Nobody wants to be the mayor known for raising parking rates. Privatization makes some sense in this case since a private company can actually make the meters charge closer to what parking should cost. However, it ended up being a pretty bad deal for Chicago in the end. https://99percentinvisible.org/episode/paved-paradise/ https://99percentinvisible.org/episode/paved-paradise/
- jandrese 3y ago
  Sounds kind of like Ticketmaster. "Oh, the rates went up, that's not our fault, it's this private company." "Oh, so you're getting all of the extra money then?" "Not so much, well, the guy who set up the deal got a big personal payday, but we are getting only a tiny sliver of the ongoing extra revenue."
  - bin_bash 3y ago
    sort of, yeah, Ticketmaster sort of sells "accountability as a service" so fans don't get mad at the artists. I'm a centrist, but things like this push me further to the right personally. Governments can't charge what they ought to for parking/water and the people ultimately suffer the consequences.
    - jandrese 3y ago
      Historically conservative governments have been more interested in making sure the water rates don't go up for corporations than pushing for conservation.
    - karmakurtisaani 3y ago
      Careful with the left-right thinking here. Can you be sure the upfuckery in this case was due to the leanings of the politicians, that the other party would have done it any differently, and most importantly, the right wing thinking would not cause other side effects (I.e., you lean to right to avoid this kind of garbage, but end up effectively supporting Trump and his flavour of garbage)?
AuthorizedCust 3y ago
The article is confused. Market pricing and conservation pricing are related but still different. I’m in Dallas. We have months long periods almost every year where all our lakes are so overfull, we’re simply dumping excess water down the Trinity River to Houston’s Lake Livingston, which during those periods is typically well over capacity, too. There’s no reason to conserve during those times. Want to grow a rain forest? Go for it! Conservation pricing is silly then. Same for New Orleans. All that city has to do is put a straw in the Mississippi. There’s no conceivable situation where conservation is needed there. Sure, there’s could be other limiters, like capacity to process and generate water. But that’s not a conservation issue.
- eru 3y ago
  Sounds like you just need different prices in different times of the year? Just like electricity often has different prices during different parts of the day?
  - AuthorizedCust 3y ago
    Or different pricing when there’s an actual need to conserve, which isn’t always seasonal.
    - eru 3y ago
      Yes, indeed. Seasonality was just an example.
joe_the_user 3y ago
Headline: Why districts are slow to charge market rates for water." P1: Why don’t districts pass the marginal costs of water on to their constituents? P2: HAH! Do you see what I did there? [switch constituents with customers] Me: Actually, the thing I notice is the switch from "market costs" to marginal costs. It should be obvious that "market costs" are fiction for water districts since these districts are virtually always a monopoly charging the prices they choose. On the other end of this, water districts are created by municipalities to foster the development of a town or city as a whole. Sure, you can argue that "marginal costs" are the same as "market rates" but that's a long argument that makes the agenda involved much more clear. I'd say in contrast, water fees are fundamentally taxes and so water districts are inherently supported by taxes and the talk are "market rate" is basically neoliberal ideology that aims to squeeze the average rate-payer/tax-payer in the name of "markets" but which doesn't actually use real markets. That's not saying that municipal water districts shouldn't have fees to restrict usage - but they should be like other taxes, self-consciously charge people what's needed. The average person gets a low rate for what they need to consumer and the huge mansion pays a huge rate and appropriately so. How could "market rate" mean anything for water?
- Spivak 3y ago
  Because it's not the market rate for water, it's the cumulative market rate for the goods and services purchased by the company needed to get that water to you. Is the same "market rate" restaurants charge for fish sometime. Inside their restaurant they are the monopoly provider of fish to you and hence there's no market -- they're not competing with other restaurants in this moment. They are directly passing on cost of fish to you.
  - joe_the_user 3y ago
    Because it's not the market rate for water, it's the cumulative market rate for the goods and services purchased by the company needed to get that water to you. Actually, it's not. That would be the average costs. The marginal cost of a good is essentially the cost to add one more final user, which can be higher or lower that the average costs provider pays to supply all their customers. The author mentions the marginal cost in particular because by some theories, that's the price that would develop in a competitive market. But it's just a fiction. There's no reason for municipalities to charge either of these prices. There might be a beautiful lake that could be cheaply drained to everyone's water but that may well be undesirable in many other ways.
RetroHippyNimby 3y ago
Why is there a market rate for water? Shouldn't there be a cost for water without a market? We shouldn't be selling water at whatever the market will bear, but whatever the cost is to produce clean water (or less). Whatever amount prevents waste but allows everyone access to clean, potable water should be the what is charged.
- rocqua 3y ago
  There is (approximately) no cost of production for water. There is only a cost of extraction. The difference being that there is a limit to how much you can extract. On other words, you can run out of water. Running out of water is horrible, so it needs to be prevented. Using prices to signal scarcity is generally the least worst solution. In other words, you shouldn't just pay the cost of extraction, but also some of the opportunity cost of everyone else not being able to use your water.
pvdoom 3y ago
Or maybe these things shouldn't be a subject to markets in the first place.
- rocqua 3y ago
  They should, because water is scarce. Like the article says, have a low rate for an amount that covers basic needs. But raise rates for usage above that. Discourage fountains wasting water. Ideally (though it won't happen probably) make farmers pay higher rates for the water they use.
  - pvdoom 3y ago
    Problem is, especially when a resource is scarce, markets are pretty bad, even worse than distributing things under normal conditions.And farming pretty much needs water, so increasing prices of water for farming means increasing food prices. So you will still end up with rich people watering their lawns, but people with less income will have to suffer. I think this is better handled through heavy taxation and outright bans rather than trying to get an already finicky thing like a market to solve it.
    - matthewterhune 3y ago
      It means increasing food prices specifically for foods that require extensive irrigation, and are likely ill-suited for the region they are being grown except for water subsidies, e.g. almonds in California. So it means shifting agriculture towards more sustainable crops, increased prices for some specific foods, and likely reduced water prices for the average consumer.
      - pvdoom 3y ago
        I think that the agriculture thing is again better achieved with regulation, rather than a magical market fairy.
    - rocqua 3y ago
      Markets only make sense when a resource is scarce. Tweaking the market and exemptions might be difficult and finicky. But managing taxation and outright bans is even more finicky. I am not, btw, arguing for an electricity like system of daily auctions. Just for a 2-tier pricing system that covers the basic requirements with a low rate, and sets a roughly 'market clearing price' for the remainder. For this I would also price untreated water quite a bit higher. The price isn't just set for the cost of extraction. It is mainly set for the opportunity costs of all others who cannot use that water. So untreated water should cost roughly the same.
Scoundreller 3y ago
One thing I liked about Cleveland's water rates is that they charge based on "the distance and elevation of your home and business from Lake Erie." So if your water requires more pumping distance and elevation, and the more piping's involved, the more you pay. https://www.clevelandwater.com/customer-service/water-rates/rates-fees https://www.clevelandwater.com/customer-service/water-rates/...

37 points by luu 3y ago

This needs a 2009 tag.

In short, because politicians decide, they know what their constituents want, and their constituents mostly haven't though about water economics beyond the fact that they want it cheap. And sometimes there are laws that make it even harder. Did I miss anything?

causality0 3y ago

one side effect of Proposition 218, put forth by the Howard Jarvis Taxpayers Association, was that it became illegal to charge any household more than the costs of conveyance to that parcel. It was illegal to charge punitive rates to send a price signal to wasteful users. Why does punishing wasteful users require charging them more per unit? If I waste a lot of milk, like by bathing in it, I'm punished by having spent way more on milk than a normal person. "Use twice as much, spend twice as much" is fair.

bombcar 3y ago
Because water is so cheap (cheaper than dirt) that it’s not punitive at all to pay for twice or ten or a hundred times normal.
- eru 3y ago
  On the one hand, if water is so cheap, why do you need to punish people for using a bit more of it, then? On the other hand, if water is so scarce that you need to discourage people from using a bit extra, why do you price it so cheap in the first place?
  - cool_dude85 3y ago
    Here you find yourselves at the crossroads. Everyone needs water to live. The actual price of water, fairly pricing in long term externalities, may be too much for a family of four to afford their 8 or 10 kgals a month. At least for many such families. But when you price it at the marginal cost to pump out the extra gallon, it becomes economical to do silly stuff like grow water intensive crops in the desert and draw the city's aquifer down. Hence the conundrum. Price it fair, some people can't afford flush the toilet. Subsidize it at a flat(ish) rate, or even just ignore externalities, some people can afford to destroy the commons. So, conservation pricing.
    - eru 3y ago
      > Everyone needs water to live. The actual price of water, fairly pricing in long term externalities, may be too much for a family of four to afford their 8 or 10 kgals a month. At least for many such families. Depends on where you live. And perhaps we shouldn't encourage people to live in such dry areas where an honest pricing of water would make living unaffordable? > But when you price it at the marginal cost to pump out the extra gallon, it becomes economical to do silly stuff like grow water intensive crops in the desert and draw the city's aquifer down. Your pricing should take the longer term into account. An auction style pricing can do that. (Or a system that simulates auction-style pricing. No need to go through all the hassle of actually holding auctions.) > Hence the conundrum. Price it fair, some people can't afford flush the toilet. Subsidize it at a flat(ish) rate, or even just ignore externalities, some people can afford to destroy the commons. So, conservation pricing. That sounds like your conclusion is driving your argument. Give poor people money, if you want to help them. Instead of mucking around with prices. They can then use the money to either pay for water or move somewhere less inhospitable. Or spend it on something they like even more than either of these two alternatives. Btw, flushing toilets with drinking-quality water sounds like a big waste. You should only do that when you have plenty of water to go around. Perhaps that family wants to buy a composting toilet, and pocket the savings? Instead of flushing water down the drain every day?
      - bombcar 3y ago
- outside1234 3y ago
  So we need to make water less cheap
eru 3y ago
Water economics are weird. Not because of anything directly in the economics, but because people have really weird ideas and emotional attachments. So instead of charging a market rate proportional to usage (plus a fee to access the network etc, and giving poor people money to afford all this), there's all kinds of weirdness and grandstanding. See https://slatestarcodex.com/2013/08/25/fake-consensualism/ https://slatestarcodex.com/2013/08/25/fake-consensualism/ for a wider exploration of sacred value and taboo trade-offs. People seem to prefer having the government snoop on and micromanage what you use your water for, eg watering your lawn or filling your pool, instead of charging people a reasonable rate like you suggest.
- ggm 3y ago
  "people" here includes farmers, miners, and a swag of other corporate entities. It's not just about tapwater for people and the public utility function, it's about water rights and costs in the food chain and construction and mining industries, amongst others. Farmers at least should know they have to operate in a market, with all kinds of conditionality on interrupting flow, capture of water which falls over their land (but is not entirely theirs to keep, because they are in a catchment for a water supply for other people) -And the same with bore water: there's no extraction without impacting somebody else, unless you're in a very unusual position: ground water is another shared commons. Reticulated water in domestic contexts? Sure. A lot of people don't understand the social and economic pressures. Down here in Australia, with 10+ year droughts across large metro areas recent history and investment in desalination plants, we have a very good idea of the limits to domestic water usage which can be required of us. The farmers in NSW are at war with themselves and riverine management processes around retention of water flows over land, in the streams.
- pvdoom 3y ago
  Those examples you give are absolutely things that should be taken into account for - i.e. watering your lawn or filling your pool should be much more expensive than other uses.
  - eru 3y ago
    Why? For the rest of the community, it doesn't matter whether you water you fill your swimming pool or flush the toilet a few extra times. Or does it?
squokko 3y ago
Because there is a highly nonlinear utility of water, where enough to drink and cook is essential for survival, enough to bathe and wash is essential for a decent life, and then... nothing. If milk was $200 a gallon you could simply not buy any and you'd be fine, which is not the case with water.
- causality0 3y ago
  So charge for water on a non-linear scale, like taxes.
  - squokko 3y ago
    Yes? I was answering your question of why to do that.

bin_bash 3y ago

99% Invisible did a podcast recently where they talked about a very similar issue: the privatization of parking meters in Chicago. Parking meters have a similar problem. The purpose is for drivers to pay their fair share to use some real estate in a city, however the city and elected officials in charge have a vested interest to keep prices low. Nobody wants to be the mayor known for raising parking rates. Privatization makes some sense in this case since a private company can actually make the meters charge closer to what parking should cost. However, it ended up being a pretty bad deal for Chicago in the end. https://99percentinvisible.org/episode/paved-paradise/ https://99percentinvisible.org/episode/paved-paradise/

jandrese 3y ago
Sounds kind of like Ticketmaster. "Oh, the rates went up, that's not our fault, it's this private company." "Oh, so you're getting all of the extra money then?" "Not so much, well, the guy who set up the deal got a big personal payday, but we are getting only a tiny sliver of the ongoing extra revenue."
- bin_bash 3y ago
  sort of, yeah, Ticketmaster sort of sells "accountability as a service" so fans don't get mad at the artists. I'm a centrist, but things like this push me further to the right personally. Governments can't charge what they ought to for parking/water and the people ultimately suffer the consequences.
  - jandrese 3y ago
    Historically conservative governments have been more interested in making sure the water rates don't go up for corporations than pushing for conservation.
  - karmakurtisaani 3y ago
    Careful with the left-right thinking here. Can you be sure the upfuckery in this case was due to the leanings of the politicians, that the other party would have done it any differently, and most importantly, the right wing thinking would not cause other side effects (I.e., you lean to right to avoid this kind of garbage, but end up effectively supporting Trump and his flavour of garbage)?

AuthorizedCust 3y ago

The article is confused. Market pricing and conservation pricing are related but still different. I’m in Dallas. We have months long periods almost every year where all our lakes are so overfull, we’re simply dumping excess water down the Trinity River to Houston’s Lake Livingston, which during those periods is typically well over capacity, too. There’s no reason to conserve during those times. Want to grow a rain forest? Go for it! Conservation pricing is silly then. Same for New Orleans. All that city has to do is put a straw in the Mississippi. There’s no conceivable situation where conservation is needed there. Sure, there’s could be other limiters, like capacity to process and generate water. But that’s not a conservation issue.

eru 3y ago
Sounds like you just need different prices in different times of the year? Just like electricity often has different prices during different parts of the day?
- AuthorizedCust 3y ago
  Or different pricing when there’s an actual need to conserve, which isn’t always seasonal.
  - eru 3y ago
    Yes, indeed. Seasonality was just an example.

joe_the_user 3y ago

Headline: Why districts are slow to charge market rates for water." P1: Why don’t districts pass the marginal costs of water on to their constituents? P2: HAH! Do you see what I did there? [switch constituents with customers] Me: Actually, the thing I notice is the switch from "market costs" to marginal costs. It should be obvious that "market costs" are fiction for water districts since these districts are virtually always a monopoly charging the prices they choose. On the other end of this, water districts are created by municipalities to foster the development of a town or city as a whole. Sure, you can argue that "marginal costs" are the same as "market rates" but that's a long argument that makes the agenda involved much more clear. I'd say in contrast, water fees are fundamentally taxes and so water districts are inherently supported by taxes and the talk are "market rate" is basically neoliberal ideology that aims to squeeze the average rate-payer/tax-payer in the name of "markets" but which doesn't actually use real markets. That's not saying that municipal water districts shouldn't have fees to restrict usage - but they should be like other taxes, self-consciously charge people what's needed. The average person gets a low rate for what they need to consumer and the huge mansion pays a huge rate and appropriately so. How could "market rate" mean anything for water?

Spivak 3y ago
Because it's not the market rate for water, it's the cumulative market rate for the goods and services purchased by the company needed to get that water to you. Is the same "market rate" restaurants charge for fish sometime. Inside their restaurant they are the monopoly provider of fish to you and hence there's no market -- they're not competing with other restaurants in this moment. They are directly passing on cost of fish to you.
- joe_the_user 3y ago
  Because it's not the market rate for water, it's the cumulative market rate for the goods and services purchased by the company needed to get that water to you. Actually, it's not. That would be the average costs. The marginal cost of a good is essentially the cost to add one more final user, which can be higher or lower that the average costs provider pays to supply all their customers. The author mentions the marginal cost in particular because by some theories, that's the price that would develop in a competitive market. But it's just a fiction. There's no reason for municipalities to charge either of these prices. There might be a beautiful lake that could be cheaply drained to everyone's water but that may well be undesirable in many other ways.

RetroHippyNimby 3y ago

Why is there a market rate for water? Shouldn't there be a cost for water without a market? We shouldn't be selling water at whatever the market will bear, but whatever the cost is to produce clean water (or less). Whatever amount prevents waste but allows everyone access to clean, potable water should be the what is charged.

rocqua 3y ago
There is (approximately) no cost of production for water. There is only a cost of extraction. The difference being that there is a limit to how much you can extract. On other words, you can run out of water. Running out of water is horrible, so it needs to be prevented. Using prices to signal scarcity is generally the least worst solution. In other words, you shouldn't just pay the cost of extraction, but also some of the opportunity cost of everyone else not being able to use your water.

pvdoom 3y ago

Or maybe these things shouldn't be a subject to markets in the first place.

rocqua 3y ago
They should, because water is scarce. Like the article says, have a low rate for an amount that covers basic needs. But raise rates for usage above that. Discourage fountains wasting water. Ideally (though it won't happen probably) make farmers pay higher rates for the water they use.
- pvdoom 3y ago
  Problem is, especially when a resource is scarce, markets are pretty bad, even worse than distributing things under normal conditions.And farming pretty much needs water, so increasing prices of water for farming means increasing food prices. So you will still end up with rich people watering their lawns, but people with less income will have to suffer. I think this is better handled through heavy taxation and outright bans rather than trying to get an already finicky thing like a market to solve it.
  - matthewterhune 3y ago
    It means increasing food prices specifically for foods that require extensive irrigation, and are likely ill-suited for the region they are being grown except for water subsidies, e.g. almonds in California. So it means shifting agriculture towards more sustainable crops, increased prices for some specific foods, and likely reduced water prices for the average consumer.
    - pvdoom 3y ago
      I think that the agriculture thing is again better achieved with regulation, rather than a magical market fairy.
  - rocqua 3y ago
    Markets only make sense when a resource is scarce. Tweaking the market and exemptions might be difficult and finicky. But managing taxation and outright bans is even more finicky. I am not, btw, arguing for an electricity like system of daily auctions. Just for a 2-tier pricing system that covers the basic requirements with a low rate, and sets a roughly 'market clearing price' for the remainder. For this I would also price untreated water quite a bit higher. The price isn't just set for the cost of extraction. It is mainly set for the opportunity costs of all others who cannot use that water. So untreated water should cost roughly the same.

Scoundreller 3y ago

One thing I liked about Cleveland's water rates is that they charge based on "the distance and elevation of your home and business from Lake Erie." So if your water requires more pumping distance and elevation, and the more piping's involved, the more you pay. https://www.clevelandwater.com/customer-service/water-rates/rates-fees https://www.clevelandwater.com/customer-service/water-rates/...