31 July 2009

Unfair Price Increases?

Farmers in the Imperial Irrigation District are upset that their water price will rise by $1/af per year over the next 3 years to $20/af.

Yes, that's over 16,000 gallons for a buck. Quite a deal? Not according to the farmers. They say that "viable agriculture" cannot handle the extra $3 charge. (Farmers use 97 percent of IID's water.)

Urban and industrial customers are not facing price increases, but they already pay more -- $68 and $85/af, respectively. Although those prices are about 10 percent of the price these customer classes pay on the coast, one IID director thought they should be lowered to the ag price.

Amidst all this is the most interesting part: IID's budget -- after the price increases -- will still be in deficit.

The article notes that protests against the price hike were stymied by IID's over-restrictive protest process. 40 percent of "landowners" were able to lodge a protest, but 50 percent was necessary to stop the price increase. I imagine that a number of farmers are sharpening their pitchforks for the next stage in this battle with "their" irrigation district.

As I have written before, IID is dysfunctional, and this story just adds another chapter in that book.

Bottom Line: Mismanaged water helps nobody, and bad governance contributes to that mismanagement. IID needs to be broken in two (water and power) to end its waste of water and over-expansion/over-reliance into dirty power (only 15% of IID power [PDF] is from hydro; the rest comes from coal and natural gas).

3 comments:

  1. If you can't stay in business paying 30% of the shadow price of one of your key materials, in what sense exactly are you "viable"?

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  2. My suspicion is that these farmers are more concerned about blocking the setting of a precedent than they are about a one buck increase. It is shocking that they would be concerned about such a nominal increase in already seriously under priced water. This is a political issue not primarily an economic one. However, that said, wouldn't a more price-setting certainty then be quietly accepted by the farmers if they had a better sense that this price increase did not represent a slippery slope toward arbitrary and politically-set high prices? I am thinking that they really would acquiesce to the compelling economics and even maintain economic viability if we could remove the randomness and risky political "rate setting" process and replace it with a fair price/allocation system. Gee, maybe a great case for All-In-Auction?

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  3. @Steven -- the all-in-auction would be best at establishing a market clearing price (supply = demand), but I think their main objection -- along the lines you mention -- is control. Imperial farmers do not control IID, so they are worried that IID will tax them to support populist projects that have little to do with ag or water...

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