17 Apr 2009

Misleading Headlines

I walked past this headline a few days ago:

East Bay drought draws to close, rates headed sharply higher

Unfortunately, the headline (which Mike Taugher probably did NOT write) is not as good as it sounds. In fact, it's the same old (annoying) story...

The way I wanted to interpret it was "drought ends as rates rise" but the way it should have been written is "EBMUD gets a lucky increase in supplies but raises rates to make up for revenue shortfalls as a result of customers water conservation."

[Yeah, that second one IS a bit long...]

Anyway, it's that old problem of fixed costs and variable revenue.

The proper way to deal with a drought is to raise prices FIRST and then let customers cut back their use. That way, people respond to higher prices (by reducing demand) AND the utility does not experience a revenue shortfall.

I will be writing more on this idea and Prop 218 in the near future.

Bottom Line: My job will be done when water "shortages" end. That could happen tomorrow if we charged more when water is scarce.

2 comments:

  1. We should actually have a 2-tiered system based on promoting conservation. There should be a fixed cost that covers maintenance and water delivery so that when people conserve or install efficient appliances, the system can still run. The second tier should follow your raise prices, some for free, pay for more to promote conservation and efficiency and charge for water waste.

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  2. @Anon -- yes, we agree on that. See this post

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