27 June 2008

How NOT to Raise Prices

Down near San Diego, they are [NOT] considering radical price increases:
Currently, residential customers are billed $2.07 per thousand gallons ---- referred to as a "unit" ---- for the first 10,000 gallons of water they use every month, then $2.39 for every unit above 10,000.

Under the proposed changes, the first 10,000 gallons would be billed at $2.17 per unit if customers use less than 12,000 gallons that month.

If customers use more than 12,000 gallons in a month, they'll pay $2.48 per unit for the first 30,000 gallons, then $2.73 a unit for anything over 30,000 gallons in a month.

[snip]

She also said the new rate structure is a conservation measure designed to reward customers who keep their water usage below the 12,000-gallon mark each month, and to encourage those using more than 30,000 to cut back.

"We're really trying to encourage conservation," Eilers said.

She said the district knows that raising rates does not always translate into conservation, so the district will also be voting on a water conservation plan that includes penalties for wasting water under severe drought conditions when it meets on Monday.
First, consider the dramatic trivial price increase ($2.07 to $2.17 is five percent). Second, compare $2.17/1,000 gallons to the price of a bottle water (about $2 for one liter, I believe). Third, consider the "penalty" rate for water guzzlers -- a 15 percent bump. Fourth, 15,000 gallons/month now costs $32.65; under the new scheme, it would cost $37.20.

Bottom Line: Get serious! These price increases will NOT lead to water conservation. The reason that they do not lead to conservation is because they are laughable. Forget the water cops -- 100-200 percent price increases will lead to conservation!

3 comments:

Anonymous said...

You need at last a 50% bump in your second tier or you won't get residential conservation. The politicians hot-potatoed this and thus we have a failure of leadership.

Joke.

DS

my oh my said...

Hi, same girl who CS-msgd you here... since I enjoy economics (because I'm a math nerd and numbers turn me on...? Well, I do love statistics, real and fabricated ones, but for different purposes!), I thought I'd see what a blog focused on it would contain.

In addition to restricting things like restaurants serving water unless requested by the patron (good habit to get into when you consider how many soda glasses are alongside water that is wasted) or the use of sprinklers for everyone but nurseries (small duh), here's what my city did:

Greensboro measures water use in units of 748 gallons. The first nine units used per quarter cost $1.47 each for customers within the city limits. Units 10 to 30 cost $2.05 each. Units 31 to 60 cost $2.65 each. Units 61 and above cost $3.40 each.

NOT ONLY do they penalize going over 9 units per *quarter*, but they lowered what's called a unit, justifying that by saying straight up that since there are incentives state wide for using water-saving washers and efficient shower heads are a no-brainer given that most of the most luxurious ones are still high efficiency... they lowered what is a unit... they did that part a long time ago, though... so for the first 6.732 units by SD's standards, water is $1.96 per thousand gallons, and it quickly goes up to $2.74 for 6.733 of your 1,000 gallon units through 22.44, I believe? Units 22.45-44.88=$3.54 and any units over that are $4.55 each... And this is per quarter, so you can imagine what my irritating next door neighbor pays watering 3 times a week in the summer (regardless of whether there's heavy rain--his is on a timer, ugh)... once the restriction went to "suggested" from mandatory, he was out there the first hour--how to get across to him?...

That said, in this house with a (Bosch high efficiency) clothes washer, a (not so high efficiency) dishwasher... I'm right at 3,200 gallons for 3 months, and kind of startlingly, averaging 1 guest for 2 days a week ... so increasing the human presence by right at a third when you factor laundry in... anyway, it more than doubles that amount. Electricity is similarly hit. I even work from home, so THAT isn't the excuse, and I cook for myself almost as luxuriously as I do for guests.

That washer dropped consumption by over a thousand gallons (1/4 of my consumption at the time) per 3 months. That was pretty huge given how infrequent I have to do laundry as a single person. The dishwasher comes next!

I just googled and usgs.gov tells me that 80-100 gallons a day is the average use per person... so taking the upper end, 3000 per month, 9000 per quarter, that puts an average person at 12 of my city's units... in other words, for a given individual, the sting is almost non-existent ... for the family of 4, though, at, say, 50 units to KISS, about 20 are at $2.65, 9 at $1.47, and 20 at $2.05... reducing total use by 40% would save them $53 for the quarter by that model. Enough incentive?

Just a long thought before I take my 10 gallon shower.

Laura aka rakkaus


PS Mind you, for calculating and translating the data to equal California units (they were that way in LA/Orange County and the Sacramento area, I do recall), I have no calculator in hand and the computer I'm borrowing doesn't even have the basic MSPaint, calculator, etc. features, so I'm just typing these numbers into google and they could be really wrong, but they sound about right.

David Zetland said...

@ DS -- you saw my 100-200% figure, right?

@ Laura -- your numbers look right. I think that $53/qtr is too low for most people. How about $500/qtr? Got your attention? Now that washer looks real attractive -- adn your neighbor's lawn looks dead. :)