31 March 2009

Fixed and Variable Costs









So, how does all this matter?

And that's today's lesson :)




    I agree that this is generally "just"; I think though that there are some important nuances.

    It makes sense that an individual who has a water hook up should pay whether or not he uses water. Take for example a family's vacation home: they only use a small quantity of water annually, but are willing to pay for the infrastucture (including sinks, toilets, etc) so that it is there when they want it.

    This simple scenario is insufficient though when you consider that larger users benefit more from large-scale infrastructure such as dams, reservoirs, aqueducts, etc.: a larger portion of the value of these high-cost features can be assigned to the larger users. This means that the cost per gallon needs to be higher for larger users. This is also generally agreed to and shown in tiered rate structures.

    Moving toward conservation, we need to move away from a simple rate based system. The whole story isn't told by number of gallons per hookup. If 10 people live in a single home, their overall "footprint" is generally going to be significantly lower than that of 1 person living in a similarly sized house; however, their water usage may be much greater. Why should they pay at a higher rate? Per capita, the 10-person household has low infrastructure demand than the 1-person household.

    Conservation needs to be driven by regulatory programs, not rate-incentives. This is already happening. Marin Municipal already has a program wherein homeowners without low flush toilets are assessed fines. Someone using a 3.5 or 5-gal toilet is a bona-fide waster (not a larger user or a mistakenly classified larger user, as in the case of larger households) and should be incentivized to reform.

    We have the technology to easily and cost-effectively track use and process data. The challenge in my view is finding ways to demonstrate transparency at utilities, build public confidence in regulation, and implement programs in a way that does not overly burden water users or jeopardize privacy.

  2. @Bob -- Looks like you are in favor of my "some for free, pay for more" suggestion wrt the per capita base allocation (http://tinyurl.com/6ah7dl).

    As for regulations vs. rates, I disagree. I think that we need BOTH, but -- more importantly -- we need way more emphasis on rates. I'd say that the rate/reg ratio is about 20/80, and I'd be in favor of 75/25...

    (Keep watching this space -- I'll post Goermans et al.'s paper soon. In it, they show that regs are good for drought, and rates are better for other times...)

    wrt your last point, note that we need to know the number of people in the HH to do per capita block rates. I agree that such a count "violates" privacy, but by far less than some people claim.

  3. Great article.


If you're having problems posting, email your comment to me