Water and Pricing

I while back, I wrote that I could fix our Arizona water "shortage" in about 5 minutes.  I pointed out that we in Phoenix have some of the cheapest water in the country, and if water is really in short supply, it is nuts to send consumers a pricing signal that says it is plentiful. 

David Zetland (via Lynne Keisling) follows up on the same theme:

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.

Unfortunately, water is one of those political pandering commodities.  Municipal and state authorities like to ingratiate themselves with the public by keeping water prices low.  At the same time, their political power is enhanced if shortages are handled through government rationing rather than market forces, since politicians get to make the rationing decision -- just think of all those constituencies who will pour in campaign donations to try to get special rights to water from the water rationers.


  1. EconStudent:

    In the town where I live, we pay $51.20 a month for water, sewer, and trash. As you said though, the poor idea behind this is the price doesn't change until you use more than 7,000 gallons in one month. For my household of my wife and I, with a xeriscaped yard, we use maximum 2,000 gallons a month, which leaves us to have no concerns when it comes to water conservation because we pay the same for the next 5,000 gallons we could use!

  2. John Moore`:

    I have the misfortune of using Arizona-American Water Company. My bills have ranged from $50/month to $800/month! Normally I pay almost $100/month, but now that my pool is repaired I expect that to go up.

    Oh, and the price INCREASES with volume - you pay a whole lot per gallon if you use more than a relatively small amount.

    So not all of Arizona has cheap water. Mine is outrageously expensive.

    And... it only pays for water. I pay for my own trash collection and we don't have sewer service.

  3. K:

    I live near Phoenix and pay about what EconStudent does for the bundle of water, sewer, trash.

    Charging more for water is the correct approach for AZ. But the tendency here as in other places is to find culprits who should be charged more or be otherwise regulated. Culprits that don't have many votes are best.

    America has a welfare system. In addition we keep adding endless schemes to adjust the problems of poverty. So we end up with mini-programs.

    e.g. My water bill includes an amount ear-marked to help the poor pay their water bill. I can decline to pay. But the bill is formatted so that many customers will never realize they can decline.

    These sort of tiny scams abound. The needy should be aided by the welfare systems and private charities. I have no objections to the first and gladly make contributions to some of the latter. Why should public and quasi-public agencies attempt to collect more with tiny, specialized, and well-disguised ear-marks?

  4. Kyle Bennett:

    There's a rule of thumb I've come to hold with regards to socialists: The more important something is - and thus the more valuable it is - the closer they think it should be to free. Water is nearly the most valuable thing there is*, much more valuable than the most expensive car or best dining experience, or home theater system, whatever. And so the socialists think it should be free, or at least sold at nothing above cost. An important consequence, intended or not, is that the more valuable something is, the more power they get from regulating it themselves instead of letting the free market do it. They would never accept market pricing for water.

    *Yes, value is subjective, and so the statement is not absolutely true, and certainly not true for the marginal amounts above survival necessity, but nonetheless, it holds as a loose generalization.

  5. David Zetland:

    Coyote -- thanks for the link!

    @John Moore -- you're either a creative genius or woefully uninformed. A pool? In AZ? Your habits are JUST the type that should cost an arm and a leg, and -- luckily -- they do. So -- rock on.

    As far as direct transfers" to the poor, note that my proposal gives free water (75 gal/cap/day, but that number is negotiable based on supplies) to EVERYONE. No means testing. Nice and simple.

  6. Bill:

    Not quite as simple as that, Mr. Coyote. In Phoenix,at least, the water department is an "Enterprise Fund," which means revenue is kept completely separate from the general fund, and supposed to only cover the costs of the system. That's a good thing, because otherwise you would have the "city fathers" jacking up water and sewer rates to fund other programs which would make it too easy to raise rates. The problem is that a lot of the infrastructure, like the CAP canal and the Salt River dams, has been paid for by the federal government and so the capital costs have been kept artifically low, thus water rates have been artifically low. But I would be wary of asking government to manipulate pricing to affect demand. We may not like the outcome.

  7. mahtso:

    "But I would be wary of asking government to manipulate pricing to affect demand. We may not like the outcome." Amen to that. And in truth, I don't even like the idea of it.

    As I see it, part of the reason that water should be as cheap as possible is that it is the police power of the state that prevents us most of us from sinking our own wells.