15 Feb 2009

Weekend Discussion: Water Prices

NOTE: This post will stay here until Sunday night. Posts for Saturday and Sunday morning go below this post.

Dear Aguanauts,

Discussion posts allow you to discuss your beliefs on a topic -- to share your understanding, experience and opinions -- without worrying about what's right or what others think. (Check out last week's fluoridation .) Most important, the discussion allows us to learn from each other. So...

Why does the price of water to customers range from $6 to $1,500/AF in California?


  1. I suppose that AF prices are a matter of several factors which when varying over ranges can greatly effect the price:

    a) urgency/ time -- how badly the municipality/ buyer needs the water and under what timeline/ when
    b) distance/ locale -- where the water is located relative to the purchaser and the means by which it will be transported/ pipelined
    c) rivalry -- how many buyers are there competing for the same commodity/ resource, water, in this case

    It certainly is a great range, $6 to $1500, far greater, in fact, than the consumer end where in tiered or block rate systems you pay a much greater sum once you've gone beyond a certain point.

    For example, here in San Francisco, where there are 3 tiers, at tier 3 you're paying almost $10 per unit (748 gallons) whereas tier 1 is about $3.50 for apartment buildings (and these rates slightly vary depending on a variety of factors).

    Some other forces to consider may be political.

    I suppose that I also think of Porter's 5 forces also coming into play...and I think of some buyers seeking the lowest price while other are seeking a more differentiated or uniquely focused source of water.

    For example, there may be no substitute for a certain source. Or one buyer may have great bargaining power. Or one supplier may have great buying power.

  2. First in time, first in right; and because prices at the margin are subject to large variation from other prices

  3. At least two issues:

    One, where is water available for $6/AF? It is important to consider what must be done to acquire water for $6/AF. I suspect that in most cases, one must buy land in an irrigation district that has pre 1914 water rights. The land in those districts has a higher price (ceteris paribus) than identical land in a federal water district or not in any district at all. The difference in the delivery cost and the risk that water won't be delivered in capitalized into the land price.

    If it is possible to buy water at $6/AF without that or other requirements, please let me know how. Right now, we are scrambling to find some water to keep our trees alive. We'd pay signficantly more than $6/AF. Actually, we would replace all our water sources for all our crops if we could get reliably get water at $6/AF.

    Second, I suspect there is also considerable difference in the quality/reliabilty of water available at $6/AF and $1500/AF. I suspect that the $1500/AF is potable and treated, whereas the $6/AF is straight out of the river.

    Although this year, I suspect that people may be paying $1500/AF for nonpotable water.

  4. Completely rational price discrimination? I know, everyone's a comedian.

  5. For the same reason that we don't regulate (or even effectively monitor!!) groundwater usage ---- and it can be said in one word ---- "politics". The industry that uses about 80% of the developed water in California has mastered the 2nd oldest profession -- lobbying.

  6. Price ... ? Are we talking about the price per year for leasing or a selling price ? As an example...

    A water assessment fee of $1000/AF per year would have a present worth (selling price) of $100,000 / AF at the going interest rate of 1%.

    Or said another way, you would have to have $100,000 in the bank at 1% interest to receive $1000.

    Contrary to popular belief, an acre foot of water is enough for the in-house use in 20 single family ( 3.5 persons) dwelling if the effluent can be recycled assuming only a 10% consumptive use (C.U.) factor. Central sewer systems can be as low as a 5% C.U.

    Water value as a result of agricultural use should be based on the NET profit from the crop after all other operating expenses and dividing by the C.U. of the crop/acre ( different crops have different C.U.'s.

    The selling of agricultural C.U. water for domestic use needs to include the costs associated with the legal fees for the change of use(s).

    All C.U. credits and losses have to be appropriately accounted for, including any associated pond evaporations.

    All water treatment, distribution and O & M costs also have to be considered.

    Some water Sources can only be leased and never actually owned. Bureau and State projects usually fall into this category.

    Interesting why CA entities have no interest in acquiring/owning their share of a million acre feet of fresh water a year ...

  7. Before we can discuss the difference in water prices, let's be sure we are talking about the same good.

    What is the quality (at a gross level, potable v. nonpotable), and location of the two sources of water? Is the same quantity of water available.

    Does something need to done to be able to access the water at a lower price? Like, for example, purchasing/renting/ land in an irrigation district?

    If location, quality, time of use, quantity are different, then of course the price is different.

    The price of a Yugo and a Rolls Royce are different as well. Should we discuss why?

    Of course it is also important to distinquish between a delivery cost and a price. The charges that landowners in irrigation districts pay are basically the costs to maintain the district that delivers water. The landowners already have rights to the water. They paid for that when they bought their land.


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