25 November 2009

The customer is definitely right!

A loyal reader who works in a water agency send this customer letter:
Hi there,

I'm an avid water conservationist. Even have a large storage facility for capturing rainwater for my gardening.

I'm also an engineer and am adept at using a calculator. I see no good fiscal ($) reason to try to conserve on my water usage.

You have two rate tiers: "unlimited cheap water" and standard usage "cheaper water."

You need to take some lessons from PG&E; they've figured out how to encourage conservation. There is an entire industry setup to get people out of their tier 3 and tier 4 rates.

My analysis indicates that unless you make it more expensive to use more water, you are not going to really get the savings you could achieve.

I sincerely encourage you to replace your two cheap water rates with
  1. a slightly cheaper first rate for up to 9 CCF/month (Maybe $2.00) 
  2. a slightly more expensive 10-15 rate $2.40
  3. an even more expensive 16-24 rate $3.00
  4. a really expensive unlimited rate $4.00*
Then maybe there will be serious attempts at conservation. If not, at least the water district will have enough income to increase the rebates on low flush toilets, or maybe make cheap rain barrels available.
* That's nothing! Recall that Santa Barbara used tiers of $1.09, 3.27, 9.81 and $29.43 per unit (!!) to get 50 percent conservation during the last drought.

Bottom Line: Customers understand that water is too cheap to conserve, so they don't -- and that's why we have shortages. Any questions?


  1. And it would be even better if there were some rebate scheme for those whose consumption in the prior 12 months was in the bottom quartile of all users.

  2. I completely agree with you up to the "and that's why we have shortages." I totally understand where this could conceivably lead to shortages, but, (in the case of California's statewide situation, my only real experience), the shortage was caused by drought. The mis-allocation was caused by ag-preference (until it took so much that legal last measures had to be brought to bear), my way of looking at your water pricing problem, but the water shortage was weather.

    This is not a criticism of the post, which was still great, and dead-on.

  3. @Josh -- shortage = demand > supply, no matter what's affecting supply.

  4. David
    This marginal pricing argument is where the economic beauty of the Spragg Waterbag is so stunning. Waterbags can address peak demand just like the electricity companies need peak capacity to deal with spikes in demand. At the moment, the problem is that unlimited water use at marginal price requires either desalination (bad for the environment) or risk of empty dams. Spragg Bags directly address these problems by transporting fresh water from places of abundance to places of scarcity, enabling effectively unlimited supply at the marginal price. If Spragg could sell water at $4 per ton he would be a billionaire. Unfortunately he is shut out by corruption, with governments rationing water just like failed communist methods from the USSR. Terry Spragg's website is www.waterbag.com


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