Why the cool kids are flocking to energy and not water economics

Why do kids like to go to birthday parties? Because there is lots of sugar and other kids. Academic economists are not that different. Energy economics has attracted a lot of new bright minds both young and not so young. The reason for it is simple: It’s an important topic, the people working in this space are people you want to hang out with (yes Severin, Lucas, Catherine, and Meredith I mean you) and there are lots of really good data (the sugar).

What surprises me is that water economics has not experienced the same influx. Although there are some world class economists working on this important resource, there is no rush into this field. The reason for it is simple: The data are terrible. Why am I thinking about this?  The repeated calls for me to conserve water during this drought. They go something like this. “Dear Dr. Auffhammer, please reduce your water consumption by 20% this summer. There’s a drought. Thanks a lot. Your utility.” Well here is a letter I am sending to my water utility:

Dear Sir/Madam:

I received your very nice note asking me to conserve water. It was printed on recycled paper and all future generations and I thank you for it. But I have three issues with your call for conservation:

1) I get a letter every three months telling me how much water I consumed. I have no idea or way to figure out how much water the drip irrigation I put in with my bare hands uses (compared to the inefficient spray system the previous owner had). Trust me. I tried. I lifted the 30 pound concrete plate over my water meter and chased away a few black widows the size of chickens to find out that my water meter is analog (yes with a needle). Even running my irrigation system at full speed for 15 minutes did not move it significantly. There must be a better way. I can monitor real time electricity load for my house using my cell phone and a rainforest gateway. It must be possible to replace the 19th century meter on my house with something that uploads consumption data to my phone. The black widows want to be left alone.

2) How about charging me more for water when it’s scarce? In summers when there is a drought, charge me more! It does not have to be perfect, but if you raised my second tier rate by 25% I would decrease my consumption significantly. Even without a meter. I am scared of second tiers. 

3) How about you roll out some real time meters and let us energy people do some experiments in your service territory! The electric utilities (e.g. the cool kids) are doing it and are learning a lot from the essentially free consulting (I know how much McKinsey charges) from us academics. Some of the best work in energy economics has exploited randomized controlled trials to help us better understand households’ responses to quasi-shaming (Hunt Alcott’s work on OPOWER), used service territory borders to better understand the price elasticity of electricity demand, analyzed the magnitude of the rebound effect and so on and so on.

While I understand that this is a major change in the way we study water demand, now is the time. Monitoring has become much cheaper and the information we gain from better monitoring will lead to a better understanding and potentially more efficient allocation of water. We will gladly help you look at the effects of shaming your neighbors. We could have a startup called H2Opower! We will help you run experiments which will evaluate the effectiveness of different pricing strategies! The opportunities are endless. 

Best wishes,

Dr. Max

About Maximilian Auffhammer


18 Responses to Why the cool kids are flocking to energy and not water economics

  1. This has been the case for a long while, even more so in regulatory economics. It may have to do with the structural character of the industry (ownership and regulation). Nevertheless, there are some of us out here.

  2. Jeff Byron says:

    “Smiley Face” on Dr. Auffhammer’s water bill!

  3. Max,
    Good post. I think you hit on ONE of the reasons. Do you know of any jurisdictions that have installed smart water meters?
    A second, perhaps just as controlling reason is that we do not experience shortage from a drought the same way we experienced the energy crises of the 1970s or 2001. For virtually all Californians who are not farmers, the water does not get shut off because of a drought. Prices signals would help, but the shock of being cut off is much more powerful. Think about the gas lines and gas stations that ran out during the OPEC embargoes. Think about your reaction to a blackout caused by more demand than supply.
    Unfortunately, i suspect we are headed for exactly that kind of object lesson with water – maybe this year, maybe not, but soon and probably often. At that point, the cool kids WILL pay attention, the water utilities WILL look to the cool kids for answers, and smart water meters WILL become the norm. Hopefully, we will also have comparative bills so typical households will have a ‘benchmark’ against which to compare their own usage.

  4. Azmat says:

    Hi Max: Since you are so into it, you can install a ‘camera-like’ scanner that looks at your analog meter, as the little ‘thingy’ spins or the needle turns, and converts it to digital signal that is then wi-fi’d to your computer or phone. I have worked briefly with a startup that has such as gadget for the old ‘spinning wheel’ electric meters; it picks up the little red or white marker at the edge of the wheel. So we do not need to spend so much capital on new meters, that we don’t even know how to take best advantage of. I bet, by the time we figure out HOW to best use the data from our smart power meters, the meters will already be almost obsolete. There are many simpler solutions to even not-so-simple problems.

    I do have a lot of empathy for why you say: I am living in a newer house but with older water main line coming into the main shutoff. [ANOTHER example of dysfunctional regulation> in order to avoid a full update of the standards the builder had to leave the old water connection and one wall of the house in tact.] Anyway, the first 2 months we were here the water bill was a ‘normalish’ $125. The next two months was $250 [Oct Nov]. Then Dec-Jan was $500. You know where I am headed .. the line had sprung a leak. IF there was a smart reader of the type I mentioned above this waste would have been avoided, as I would have know immediately that there was a ‘leak’.

  5. Jeff Lipton says:

    Max – as you might know, help is on the way. Even without real-time metering (which is slowly, slowly coming), there is a lot of disaggregation and comparative analysis that can be done with just a semi-monthly analog water meter read. WaterSmart Software has been working with EBMUD and other water utilities to drive conservation through behavioral comparisons and some clever big data models to estimate the drivers of residential consumption. We have aggregated a fairly large data set, and while it’s not at the scale you might see in the electricity segment, it gets more interesting by the day.

    • Care should be taken when transferring concepts from electricity to water, including “real-time” measurement and pricing. Water has several properties electricity wishes it had, including storability by both producers and consumers. Advanced metering has applications, such as leak detection, but the cost of service is generally more variable by season (due to outdoor usage) and rates and rate design can be smart without smart meters. Indoor use is very price inelastic, with some estimates being almost negligible.

  6. Josh S. says:

    My neighbor works at a water district and, as a utility researcher, I naturally asked him why water districts are not pursuing smart meters. He said that the business case simply isn’t there. First of all, water meters are only read once every 2-3 months, which produces lower operational savings relative to what utilities get. Secondly, water is just too cheap to justify having smart meters, especially for residential customers (many would argue the same for electricity/gas). Finally, while there are many people that would like to view their water usage on their phone, most people don’t care to do that. In addition, keep in mind that while programs like Opower have been somewhat effective, they don’t even necessarily rely on interval data from smart meters. Any water utility could crank up an Opower-like program right now without having smart meters. Instead of questioning why water utilities don’t have smart meters and more data right now, we should be asking why water utilities aren’t conducting neighborhood comparisons and scarcity pricing right now. The answer – politics. My neighbor would go on an hour-long rant about that.

  7. You might also usefully point out that the water utilities, in asking everybody to cut back 20%, don’t seem to distinguish between people who already use water frugally, and those who are routinely profligate. For the former group, cutting back an additional 20% is both difficult and potentially expensive, whereas, for the latter profligates, cutting 20% would be much easier. The water utilities should be able to distinguish who is which.

    The other problem, of course, is that water is ridiculously cheap compared to energy, so the conservation mechanisms we can afford for energy efficiency won’t exist for water conservation unless somebody comes up with a pricing structure that better reflects the societal cost of water shortages.

  8. dzetland says:

    Max —
    I agree that water is not as sexy as energy wrt data, but it’s WAY more sexy in terms of crazy. So you gotta ask what appeals 🙂
    (Note that journals do not like crazy as much as regressions)
    On your letter, I agree (and I have said the same to Doug Linney, who’s a director @ EBMUD).
    1) Smart meters do not have payoff on water as fast as energy both by value per unit AND for peak loads/prices. I advised a company (Aquacue) that was bought by Badger Meter, so it’s coming, slowly…
    2) Raise prices. Totally right. The problem is that increasing block rates send a mixed message (too confusing and unfair) AND utilities are not allowed to charge for water scarcity (energy scarcity is a cost, i.e., more oil, but water is “free” so it’s an opportunity cost)
    3) We already have a good idea on water elasticity. Low for indoor use (ca. -0.2) and higher for outdoors (ca. -0.8). That does NOT get used by managers who (1) think it’s zero b/c they are supply siders and (2) don’t want consumers to use less b/c that lowers revenue…
    Check out aguanomics 🙂

  9. Robb says:

    Timely thoughts, ‘Dr. Max’! There is indeed a H2Opower, and it is called Dropcountr. We were even born at Haas! We replace the bi-monthly paper bill with mobile and web apps powered by real-time data. We educate by making water usage transparent (in gallons, even), and also identify end uses (sprinklers, appliances, etc). We motivate via social norms and behavioral efficiency levers. And we provide actionable tips and connections to rebates which help consumers save water and money. We are launching pilots with utilities that have meters both smart and dumb, and would appreciate your advice on experimental design!

    • Robb, Have you seen this from “Fierce Energy”:
      The increased focus on optimizing energy consumption and minimizing pump lifecycle costs in the water and wastewater industry is boosting the adoption of smart pumps and driving the smart water grid across Europe, enabling reduction in the total cost of ownership by lowering maintenance and operation costs, according to Frost & Sullivan. Such cost benefits arising from greater process automation, coupled with the increase in efficiency and quality, are expected to be important factors for the European water and wastewater industries.
      Tight environmental regulations designed to reduce greenhouse gas and carbon emissions — including theEuro 2020 directive, which targets a 20 percent reduction in greenhouse gas emissions from the levels experienced in 1990, and the Ecodesign directive that sets rigorous ecological requirements for energy-related products sold across Europe — are driving the region’s smart water grid market.
      However, water and wastewater treatment facilities, particularly in the municipal sector, are reluctant to install “smart” equipment like pumps due to the perception that these advanced pumps make installation, operation and maintenance more complex, increasing the risk of stoppages in water supply. Even end users who are aware of energy efficiency and lifecycle cost benefits are demanding stringent tests for quality and reliability before installation.
      To alleviate such fears, market participants will ensure that their product portfolio contains equipment such as smart water meters, transmitters, valves, data loggers, and associated communication infrastructure, as well as invest in research and development.
      “The smart water grid market will gradually become more populated as the focus on integrating pumps with various control systems, such as supervisory control and data acquisition, increases,” said Niranjan Paul, Frost & Sullivan industrial automation and process control research analyst.
      For more:
      – see this report

  10. art2science says:

    Years ago I had a “glass is half empty” view of data on electricity use: there was too MUCH work being done on residential electricity, because it creates great data sets for econometricians. By comparison, commercial and industrial electricity got a lot less academic attention, even though IMO the savings potential is at least as large. I suspect that’s still somewhat the case, but I prefer your “glass is half full” formulation: residential energy use gets lots of free academic consulting, because of its great data sets. Other kinds of power users need other mechanisms to support academic research.
    Your point about water is excellent. Move to San Diego, where we have tiered water rates, digital water meters and (experimental) radio water meters. And high prices!
    Finally, thanks for the tip about the energy monitor.

  11. Michael Colvin says:

    I have to observations; one legislation requires that water companies install smart meters by 2025. There are some operational benefits which arise from updated meter technology (detecting leaks, reduced labor efforts, remote connection troubleshooting, etc.) But water does not have a time of day price implication that electricit production has. There is no “peak” part of the day where water costs more. Unfortunately, water pricing is based on our bizarre system of water rights, and not on production costs. Embedded electricity costs are not actualized in the water rate or bill. So most consumers would benefit from some additional information and some behavior change programs that stem from AMI in water, but the economic and policy drivers are different.

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