Home > Uncategorized > Water utilities and pricing rates

Water utilities and pricing rates

I read recently in an article in the Carrboro Citizen that OWASA is trying to increase rates because people are getting too good at conserving water, and they’re not making money. It seems patently ridiculous to me that people should be punished for saving water. On the other side of the same coin, it also seems ridiculous that the utility company should be punished for people saving water. Especially considering that most likely they had some hand in people saving water: imposing drought restrictions, offering free or reduced cost rain barrels, low-flow shower heads, and so on.

The way things are set up, that’s how it goes. The utility company and the populace are at odds with each other. One or the other has to suffer if water consumption goes down. And we want water consumption to go down. By all reasonable measures, that’s a good thing. It seems strange that even so progressive a community as Orange County hasn’t resolved this issue.

This conundrum points to a certain silliness in the system. Our water utility should be in the business of managing our water resources, but presently what they do is simply sell our water to us. The more we use, the more we get charged, and the more money they make. It incentivizes the consumers to use less water, but it incentivizes the utility to get us to use more water. In the Carrboro Citizen article, Town Alderman calls this “The cost of doing good.”

So what can we do about it? Is there some way we can separate the amount of water used from the amount of income the utility brings in? If the water company earned a flat fee per residence (or per resident, I’m not sure which makes more sense), they would not have a financial incentive to make people use more water, nor to impose a punitive effect on the public for doing the right thing in using less water. There would be no “cost of doing good.”

On the other hand, if households paid a flat fee for water, what would the average person’s incentive be for using less water? There should be a cost for doing bad. Warm fuzzy feelings haven’t proven particularly effective at lowering resource usage.

Could people pay on a per-gallon basis, while the utility receives a flat rate? Then both the customer and the utility would have an incentive to use less water. But then where would the variable rate income go? To general city/county coffers?

Better yet, perhaps the government could come up with a reward structure for some combination of quality of service provided and care taken of the water supply (measured by some combination of amount of water saved (relative to some baseline), quality of water provided to the public, and outbound water quality). Whatever the metric, the utility could be paid by how well they met that standard. Thus their financial interests could be aligned with the public good.

Just noticed: the Carrboro Citizen article says that Owasa is looking to find ways to avoid imposing usage restrictions on customers during droughts, rather than trying to raise rates. The point still stands though, that the current pricing scheme disincentivizes the utility from practicing proper stewardship of our water supply. We should find a way of rewarding them that gets them on our side, taking care of both our citizens and our resources.

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Categories: Uncategorized
  1. 2009/11/22 at 10:12 pm

    FIRST!

  2. 2009/11/22 at 10:12 pm

    jkjk!

    It’s always a tough call when open markets butt up against resource stewardship and the collective good. Unfortunately the reason the free market is so popular is because it’s the most reliable system ever conceived– even if it does suck sometimes.

    I think the only way you can avoid a “cost of doing good” and keep things remotely simple, is straight-up socialization– beyond even the heavy public-private enmeshment you encounter with a public utility company– and either option is kinda sadface :-/

  3. Jayme
    2009/11/22 at 11:21 pm

    OWASA is a non-profit organization, so presumably their increase in rates means they really are struggling to cover the cost of operations (as opposed to raising rates to pad the pockets of old white men). I haven’t seen the numbers, but based on their non-profit status, I’ll give them the benefit of the doubt. Thus, in the case of not being able to pay for their daily operations, I agree that they need to raise their rates.

    That said, I don’t think rates need to be raised uniformly across the board. What if rates are tiered for different volumes of water usage? For example, the first 500 cubic feet (how the City of Durham measures water volume) are charged a very low rate. The next 500 are charged slightly more. Etc. Then, people who use excessive amounts of water are penalized (incentivizing saving water), but the water utility has a means of increasing rates to cover costs without penalizing those who use less.

    The flaw in this argument, of course, is what happens when the high-use rates get so high that everyone starts conserving to pay the lower-tiered rates? Well, let’s just say that things could be a lot worse.

  4. Cliff Dyer
    2009/11/22 at 11:53 pm

    But my question is why pay them by the gallon at all? It’s not like they’re selling us water that they own to begin with. It’s public water, so as a utility company they are being contracted to manage our water supply.

    I’m not saying that they shouldn’t raise rates if they can’t make ends meet. I’m wondering why promoting conservation causes them to make less money to begin with. That’s what we want them to do, so we should find a way to reward them for doing it instead of punishing them.

    We’re paying them for the wrong service. Right now we’re paying them to sell us water, when what we really want them to do is manage our water. It wouldn’t be socialism to pay them to do something else with our (public) water. As an analogy: you hire someone to write a software application for you. You don’t pay him by the number of bytes they send to you. You pay them either for the amount of work they do, or for the product they deliver.

    We could negotiate any sort of contract we want with our utility companies, We could pay them by the amount of pollution they take out of the water in processing waste, for instance.

    It doesn’t make sense for them to make money by selling us water, both because it’s not in the public interest and because it isn’t their water to sell in the first place.

  5. Jayme
    2009/11/23 at 9:13 am

    But we’re not paying them for water. We’re paying them for treating the water so it is potable, checking water quality to ensure its safety, pumping the water from the source to water towers, maintaining plumbing and other facilities to ensure that our water supply is safe and uninterrupted, and of course, sewage treatment. My assumption is that it costs them more to treat and manage 1000 cubic feet of water than 500 (both before and after customer consumption). In this case, it absolutely makes sense for them to charge according to usage levels.

    When you say “manage our water supply” what do you mean? Do you mean ensure that we make as minimal an ecological impact as possible? Or do you mean ensure that there is enough water to meet demand? Or something else?

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