6 Aug 2008

Scarce Water? Lower Costs -- NOT!

This blog seems to have things upside down:
The truth is, relative water scarcity due to drought and demand will make water prices rise. And as that happens, you can expect heavy pressure by everyone - from consumers and restaurants to factory farms and elected officials - to lean on local water companies to cut costs. Luckily there is room for increased efficiency in the industry, starting with a push towards spend management.
Nope, that's not my take on things. If prices rise when water is scarce, and managers -- facing pressure -- lower prices by reducing costs, then demand will rises (because water is cheap), and water will be scarce again.

Back where we started, except for some new equipment? Since this blog advertises cost-cutting ("spend management"), I can see why it would want to promote cost conservation. Unfortunately, lower costs will not increase the supply of or reduce the demand for water.

If shortage leads to higher prices, that's a good thing, because demand is lower when prices are higher. Cutting costs (and lowering prices) will NOT accomplish that same goal.*

Bottom Line: If a shortage raises prices, and higher prices reduce demand to equal supply, the problem is fixed. If demand still exceeds supply, raise prices until demand falls (and rebate the “profits” on a per-capita basis).

* Although more efficient water management can increase supply (to meet demand), these increases may not outpace the demand growth, and lower costs on a given quantity do NOT imply more quantity.

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