Monday, February 10, 2014

When and Where Water Conservation Doesn't Pay

From the New York Times yesterday by Neena Satija - Texans Answer Call to Save Water, Only to Face Higher Rates:

"Wichita Falls, whose total rainfall over the last three years was 33 inches below normal, is not alone in its water conservation conundrum.  Several Texas cities have collectively lost tens of millions of dollars by restricting outdoor water use, which has been a main source of revenue.  A the same time, most of their expenses, like paying off debt and infrastructure maintenance, have increased, forcing utilities to raise rates for everyone, regardless of use.
The losses have prompted credit agencies to look closer at the finances of public utilities in Texas.  One agency, Fitch, downgraded some of Fort Worth's water and sewer debt last year, and last week the firm downgraded the debt of the city's wholesale water supplier.  Fort Worth lost $11 million last year because of water conservation."

Several important points regarding this issue.  In the age of climate change and weather extremes, a utility needs to have a pricing model that covers a greater portion of its fixed costs.  You cover fixed costs with a fixed pricing structure - which also hurts water conservation efforts.  Not a great behavior modification feedback loop. 

The political infrastructure will hate this, but we need to consider variable pricing of our water resources.  The Base Family and everyone else in Fort Worth can buy all the water they want during a drought - you just pay more and more (the marginal cost of the next gallon of water is much more expensive for the city).  Allow the market to manage the constraints of extreme weather events.  Nothing changes behavior more than markets - we just need to have a collective discussion regarding social justice and markets in the context of our water resources.

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