30 Nov 2011

Meanwhile, in Westlands the Twilight Zone

RM and JM sent me the news that former Judge Wanger, who ruled on many cases affecting Westlands Water District (WWD), would be "joining" WWD as legal council of some sort.

(Coverage from Fresno, Los Angeles, and Sacramento)

On the one hand, this is a serious WTF move for a guy who recently ruled that federal environmental employees exaggerated their facts to defend the environment (i.e., that WWD deserved more water).

On the other hand, Wanger is merely moving from one branch of government (judicial) to another (WWD is a "public corporation").*

But forget that. This is just about as crazy as former German Chancellor Schroeder going to work for the Russians, i.e., a spectacular violation of any man's idea of "conflict of interest."

But that never kept WWD from hiring the best and the brightest connected. WWD, after all, is a corporation whose sole purpose is NOT farming, but sucking the largest volume of cash out of various government branches.

The only thing sadder than the bureaucrats who dump cash on WWD is the so-called "public servants" who join WWD to get more of that cash.

Bottom Line: Money talks, and Westlands is hiring.
* Need more info on WWD? Listen to my five hours of conversation with WWD's chief, Tom Birmingham.

Notes from AWRA -- water marketing

I was pleased participate in sessions (37 and 42A) on water markets in the Western US at the ARWA.*

"Turning Blue into Green" [MP3] and [web] by Chris Corbin

"Developing a Price Index for Water Rights in the American West" [MP3] and [PDF] by Matthew Payne (with Mark Griffin Smith and Clay J. Landry)

"Suggestions for Enhancing Water Markets in New Mexico" [MP3] and [PPTX] by Scott Armstrong

"Stakeholder Perspectives on Allocating Water by Auction in Arizona" [MP3] and [PDF presentation and notes] by Taylor Shipman (with Mark Myers)

Here's an MP3 of the Q & A with that panel.

"A Tale of Marketing Irrigation Water: California's PVID and IID" [MP3] and [PDF] by me!

Bottom Line: A lot of great insights on the different institutions affecting water marketing!

* Speaking of markets, here's a great post on all-in-auctions written by Abraham Abhishek (Program Coordinator at MetaMeta).

Speed blogging

  • "A federal advisory body has recommended that the Canadian government put a price on water used by industry... the report said that creating a water permitting system could create distortions to economic activity, while voluntary water conservation efforts have proven to be largely ineffective. The roundtable found that the natural resource sectors make up 86 percent of Canada’s overall water consumption. But the study urged government to do a better job of tracking water usage, including who the end users are, how much each is using, and what they’re using the water for."

  • "Contribute to the 6th World Water Forum and present your solutions." I have NO idea how these [thousands of] "solutions" are ever going to be presented in a useful way, but it's good to have "voice," right?

  • Not good: Foreign hackers disrupt operations at a water treatment plant. Homeland security denies the report, but others disagree. Fail.

  • If you think I do too much self-promotion, then you ain't seen NOTHING yet!

  • "Lodi votes against privatizing water treatment plant" because city managers "know and trust" the municipal staff. Sounds more like they care more about jobs for their friends than what's best for citizens.
H/T to RD

29 Nov 2011

Stupid fail

Some recent examples:
  1. Pens made out of recycled materials (eco pen!) that don't write, so I throw them away. The irony? My most-recent broken pen came from the London offices of the Institution of Civil Engineers!

  2. Airlines (like KLM) that will not put you on an earlier flight -- when they have empty seats -- unless you pay a $50 change fee (one reason to LOVE Southwest Airlines).

  3. Speaking of that -- just changed plans on an EasyJet flight. $200 gone.

  4. A conference that hands out a list of participants without emails!
What are yours?

The big impacts of zero value carbon

This is long but it's about your future. So read it.

In July 2008, I wrote that we need to work to prevent climate change by reducing our carbon outputs (I favored a carbon tax). Later that year (three years ago!), I clarified that developed countries should concentrate on reducing carbon while developing countries concentrated on more pressing problems, i.e., water supply and sanitation.

In May 2009, I ran an experiment with experts involved in the theory and exercise of climate change negotiations. The results -- teams from "China" and "America" totally failed to agree on mitigation strategies -- gave me a strong signal that attempts to solve "the greatest collective action problem we've ever seen" would fail, as they did in Copenhagen that December. (Interestingly, the summiteers did not put much focus on water or adaptation.)

In November 2010, the Economist declared that mitigation efforts were doomed and that it was time to concentrate on adaptation. In August 2011, I said this:
It's increasingly obvious to me that no human or natural actions are going to limit climate change. The question then is what adaptation steps to take to minimize personal and social harm.
And in October, I reflected on those implications, e.g., many people -- mostly poor -- are going to die. In that post, I also said:
Mitigation-focused investments (solar, biofuels, zero-emissions stuff) are wasted if there's no "carbon reduction payback" -- this means that a lot of projects are going to turn instantly unprofitable.
This post -- after that long introduction -- is about THAT fact. Let's lay it out:
  1. The value per ton of "carbon avoided" is positive only if that carbon does not end up in the atmosphere via some other channel, i.e., carbon reductions via solar panels in Germany are worthless if Americans emit more carbon.
  2. A net reduction in global carbon emissions, therefore, depends on global limits on climate emissions, which are nowhere in sight.*
  3. Investments that included "benefits" from avoided carbon as a justification for higher costs may no longer produce those benefits. This means that the $90 billion in low-carbon FDI investments made in 2009 [pdf] may not give the return promised; many more billions in other low-carbon investments are similarly "upside down."
  4. It also means that adaptation investments that assumed a positive value of carbon (and thus a degree of mitigation and lower impacts from reduced carbon in the atmosphere) may UNDERESTIMATE the benefits from adaptation. They are not aggressive enough for a high-GHG world.
  5. Projections of $2 trillion per year investments in the "low carbon economy" are unlikely to materialize when there is no low-carbon economy.
In sum, a lot of money invested in low-carbon, renewable energy, carbon capture, carbon offsets (and so on) is going to give a lower return, result in more "stranded assets," and leave less money for more important projects -- such as preparing for the damages that will result in a world that's 5C/9F hotter (on average) and has MUCH MORE variable weather (i.e., "civilization collapses" scenario).

But what do other people think? While in Bonn,** I asked many people:
Would you invest $1 billion in adaptation or mitigation?
People working for environmental agencies and renewable energy said "mitigation -- because we MUST," but people from corporations said "adaptation, because governments have failed to do anything about reducing carbon outputs."***

And reality is not exactly matching promises, e.g., this slide showing actual carbon emissions for UK water utilities (doing what they must do) compared to their promised low-carbon targets [from this PDF]:
I reckon that this slide is a microcosm of what's happening all over the world. Even China -- the last great hope of broke governments and solar-power enthusiasts -- is putting a MUCH larger share of its money (energy, infrastructure, cars, etc.) into "dirty but cheap" investments that deliver goodies to citizens who care more about consumption than a small carbon footprint (and a government VERY interested in keeping those citizens fat and happy -- much like the US government).****

Bottom Line: Trillions of dollars invested in a "low carbon" economy have gone to waste; future investments in adaptation will need to be higher if we want to reduce the harm that climate change will inflict on human settlements, agriculture (and the environment we indirectly depend upon). Damages in poorer countries are going to be very dramatic; damages in most "rich" countries are going to be painful. Most of these impacts will be felt via the "water vector." Be prepared.

* It's quite sad to hear that global "GHG emissions are way above projections" from Europe, where governments really did take (mostly) right actions towards mitigation.***** Their actions are futile, however, without partnership from Americans, Canadians, Chinese, Indians, Japanese, et al. (let alone LDC governments that have every right to follow the lead of high carbon countries). Americans cannot say "I told you so" for failure when they took the lead in causing that failure.

** The Rio+20 pre-conference on the water-energy-food nexus conspicuously avoided an open discussion of climate change. Durban looks to be a huge failure.

*** From the Economist:
In a recent survey of Carbon Disclosure Project companies, 68% claimed to have made their global-warming strategy part of their core strategy, up from 48% last year. Given a surfeit of green PR bunkum, it is not easy to know whether they mean what they say. But if they are sincere, it is probably because they believe they must plan for a world in which water and other natural resources are increasingly scarce. Commodity prices are rising, and droughts seem increasingly common in fast-growing developing countries, including China and India. According to a recent survey by PwC, most bosses believe that resource scarcity is a bigger threat to their medium-term prospects than climate change more broadly.
**** From my book:  "Democracy is the theory that the common people know what they want and deserve to get it good and hard." -- HL Mencken.

***** Ministers made a spirited defense of their disastrous biofuels policies. Many EU governments have failed to adequately implement low-carbon policies.

28 Nov 2011

Monday funnies

Way too true

The Goldman Sachs reality distortion field

If you've been following the "European debt crisis," then you've heard more than once about "voluntary" debt reductions that would lower payments to creditors WITHOUT triggering credit default swaps (insurance policies against default).

Why has it been so important to claim that the emperors are wearing clothes?* Perhaps this:
The grave danger is that, if Italy stops paying its debts, creditor banks could be made insolvent. Goldman Sachs, which has written over $2trn of insurance, including an undisclosed amount on eurozone countries' debt, would not escape unharmed, especially if some of the $2trn of insurance it has purchased on that insurance turns out to be with a bank that has gone under. No bank – and especially not the Vampire Squid – can easily untangle its tentacles from the tentacles of its peers. This is the rationale for the bailouts and the austerity, the reason we are getting more Goldman, not less.
Default, in other words, would require GS to pay $2 trillion of claims (or pay something against losses on $2 trillion of policies; not clear) at the same time as GS may not be able to lay off those claims on other companies banks that sold CDS re-insurance to GS.

That's why Goldman Sachs -- as the article makes clear -- has got its people working overtime to make sure that European politicians and bureaucrats (many of them Friends of GS) do not formally announce default -- something I recommend as the first step in recognizing reality.

Bottom Line: Goldman's attempts to protect its terrible decisions are dragging EU countries and citizens into a lifetime of debt -- all to make sure that traders keep bonuses awarded when times were "bubbly" (while still taking home a bonus when the company loses money!)

* When a creditor says he will repay 50% of the money he owes you, he's defaulting on that debt, whether or not you "voluntarily" accept that fact!
Addendum: A semi-relevant discussion of CDSs on Marginal Revolution.
Addendum 2: Paulson (ex-GS) gave insider information on FannieMae/FreddieMac.

25 Nov 2011

Friday party!

Funny (not ha ha funny) priorities...

Not thankful

I blame the police -- like I blame Abu Ghraib for an increase in torture -- for this:
A woman who pepper-sprayed other shoppers Thursday night at the Wal-Mart in Porter Ranch had armed herself with the caustic spray to gain an advantage in the fight for merchandise at the Black Friday sale, a fire captain said.

The woman, who is still being sought, used the spray in more than one area of the Wal-Mart "to gain preferred access to a variety of locations in the store," said Los Angeles Fire Capt. James Carson.

"She was competitive shopping," he said.
Bottom Line: Pepper spray is the new "excuse me."

Anything but water

Good question!
H/T to JW

24 Nov 2011

Defending that for which we are thankful

While most of us are very happy for the freedoms we enjoy, others are not contributing to those freedoms (from a morbidly funny Amazon pepper spray review, via RM):
Remember what these paintings represented? The Four Freedoms, which included freedom from fear.*

Bottom Line: Sometimes you need to fight for your freedom, so get up from the table and take some action.
*Wow -- UC Davis Chancellor Katehi had a strong role in removing GREEK students' right to protest economic austerity IN GREECE. Seems that she's indeed the enemy of free speech. be sure to watch her walk of shame video at that link.

Speed blogging

H/Ts to DL and RM

23 Nov 2011

Bleg: Land use in Europe?

DW asks an interesting question:
I've always wondered what is different about the land use planning and zoning practices of european countries, that kept them from being paved over with new housing subdivisions and shopping malls as far as the eye can see. Since you're now living over there, perhaps you can do some digging and let your readers know how Europe is different from California in these areas.
Can anyone describe how land use decisions are made for ANY European country? The big questions are conversions of use among agricultural, residential, industrial AND "natural."

Notes from AWRA -- fracking

The American Water Resources Association's annual meeting in Albuquerque was great.

I had the opportunity to meet people in person that I'd "talked" to for several years: Michael Campana (President of the AWRA, aka Aquadoc @ WaterWired), Cynthia Barnett (author of Blue Revolution), John Fleck (journalist and blogger @ Inkstain), Charlie Fishman (author of The Big Thirst).

I also caught up with or met several guys active in water markets: Chris Corbin, Matt Payne, Taylor Shipman, and Scott Armstrong (post to come).

Most of the AWRA program was technical and scientific, devoted to river morphology, water treatment, models of climate change impacts, etc., so I had the opportunity to learn from the scientists and give some economist opinions.

I was very interested in the panel on hydraulic fracturing [search for "Session 35 PANEL"], in which several experts gave "the real scoop" on the situation in the country, with a particular emphasis on fracking near the Marcellus Shale. My take-away from that event was that the regulators were indeed on top of the industry. Everyone wanted fracking to happen (yielding energy) but nobody wanted accidents to happen.

A few facts: The average frack needs about 5-8 million gallons (92+ 15-24 af) and produces about 5-12% return flows (the rest of the water/fracking fluid stays underground). Frackers recycle water in to their next injection or sometimes pay to dispose of it by injection elsewhere, but they minimize water use because it's so expensive to procure, bring to the site and remove later. So far, there have been no big "pollution events" and there are water quality monitors all over the place.*

The biggest problems/confusion appear to come from the various overlapping regulations and jurisdictions -- some of them badly constructed by legislators. Regulators are trying to get the best results in these circumstances, but sometimes (e.g., "the Halliburton exemption" from the Clean Water Act) the regulations that politicians hand down -- and regulators are required to follow -- are not very useful. That said, regulations are changing as fast as possible, as people learn by doing.

The panel said that they were not worried so much about aquifer contamination (not true in some states) as industrial accidents. The most important goal was to have a good casing around the injection well, to ensure that the high pressure water doesn't go in unexpected directions. The trickiest problems were connected with the set-up and tear-down of drilling operations by crews in a hurry. Some of the sub-sub-sub contractors were cowboys, but their ultimate employers -- the energy majors -- had too much money on the line (via daily expenses, reputation, and fear of fines) to be sloppy.

The regulators said that bonding (financial guarantees against mistakes) was not as effective in promoting discipline as "cease operations" delays that would cost millions in wasted staff time and even greater losses in stock market valuations.

Coming soon: Bill McKibben and America's water vision.

* This article says they may not be measuring pollution correctly, but it's a bit naive. This one claims that fracking causes earthquakes. That's probably true for small ones (~3.0 on Richter Scale), but we are not looking at Fukushima II here.

22 Nov 2011

Bleg: Drupal programmer?

Does anyone have some time to help me set up a database behind Step 1 of the water data hub? I'd love to do it, but fear the learning curve!

Is political fail redundant?

I've had many conversations in the past few months regarding political failure on both sides of the Atlantic. (I watch the €/$ exchange rate for signs of who's doing better.) Although some may claim that politicians are facing difficult policy issues, I just think that they are poor leaders.

Watch this:
We'll see tomorrow -- the deadline for the Super Committee's "solution".

21 Nov 2011

Monday Funnies

Hard time at the office? Listen to Freud :)

Torture and social decay

I spent 2002-2008 at UC Davis, studying for my PhD.
Casual policy brutality
I was horrified to see the campus police pepper spraying students taking part of a peaceful "occupy wall street" protest [video]. This behavior -- more suited to jackbooted fascists than the United States or a university campus -- is simultaneously a sign of disasterous failure of leadership as well as the depths to which the US has sunk (remember the Kent State shootings of anti-Vietnam protestors?)

There is a petition calling for the resignation of the chancellor of the university (48,000 signatures), as well as protests from the Academic Senate and a call for another demonstration against brutality at Noon today. Her response to this incident is a case study in ridiculous wording.*

This HuffPo article has over 50,000 comments. Here's another.

I wrote the following email:
Dear Chancellor Katehi and Police Chief Spicuzza,

You have failed as leaders. This recent incident of torture in the name of "safety" reveals a complete lack of discipline and humanity. It disrespects the Davis community and the rule of law.

Chief Spicuzza -- please charge officer Pike with criminal assault and battery, as well as abuse of rank. Then fire him.

Chancellor Kathehi -- please fire Chief Spicuzza for failure to "protect and serve" the UC Davis community. Then resign immediately. You clearly lack judgment with respect to the students you supposedly serve.

I have cc'd as many current and past Davis students and professors as I could find. They need to know of your failures and take action to restore our school's safety, community and spirit.

I write with disgust,

David Zetland (UCD PhD, 2008)
Bottom Line: Ben Franklin said "They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety," and we are reaping the harvest of a police state formed out of the fear built in response to 9/11. Is this the beginning of the reversal or merely a step off a cliff in which the 99% are slaves of the 1%?
* November 18, 2011

To UC Davis Campus Community,

I am writing to tell you about events that occurred Friday afternoon at UC Davis relating to a group of protestors who chose to set up an encampment on the quad Thursday as part of a week of peaceful demonstrations on our campus that coincided with many other occupy movements at universities throughout the country.

The group did not respond to requests from administration and campus police to comply with campus rules that exist to protect the health and safety of our campus community. The group was informed in writing this morning that the encampment violated regulations designed to protect the health and safety of students, staff and faculty. The group was further informed that if they did not dismantle the encampment, it would have to be removed.

Following our requests, several of the group chose to dismantle their tents this afternoon and we are grateful for their actions. However a number of protestors refused our warning, offering us no option but to ask the police to assist in their removal. We are saddened to report that during this activity, 10 protestors were arrested and pepper spray was used. We will be reviewing the details of the incident.

We appreciate and strongly defend the rights of all our students, faculty and staff to robust and respectful dialogue as a fundamental tenet of our great academic institution. At the same time, we have a responsibility to our entire campus community, including the parents who have entrusted their students to us, to ensure that all can live, learn and work in a safe and secure environment. We were aware that some of those involved in the recent demonstrations on campus were not members of the UC Davis community and this required us to be even more vigilant about the safety of our students, faculty and staff. We take this responsibility very seriously.

While we have appreciated the peaceful and respectful tone of the demonstrations during the week, the encampment raised serious health and safety concerns, and the resources required to supervise this encampment could not be sustained, especially in these very tight economic times when our resources must support our core academic mission. We deeply regret that many of the protestors today chose not to work with our campus staff and police to remove the encampment as requested. We are even more saddened by the events that subsequently transpired to facilitate their removal.

We appreciate the substantive dialogue the students have begun here on campus as part of this week.s activities, and we want to offer appropriate opportunities to express opinions, advance the discussion and suggest solutions as part of the time-honored university tradition. We invite our entire campus community to consider the topics related to the occupy movement you would like to discuss and we pledge to work with you to develop a series of discussion forums throughout our campus.

I ask all members of the campus community for their support in ensuring a safe environment for all members of our campus community. We hope you will actively support us in accomplishing this objective.

Linda P.B. Katehi

18 Nov 2011

Friday party

Not everything, but quite a few things...

Bleg: RO technology

JS emails:
I'm an MBA student at XX University and I'm trying to do some research about the membranes used in reverse osmosis plants/procedures. My main concern is the market for them (size, players, etc.), but also technical aspects. It's been very hard to dig down and get some specifics about the membranes themselves and not just entire water management or desalination plants because so many of the firms that operate in the space are subsidiaries of large corporations like Dow.

I noticed on your site there was a link to a GWI piece that quoted the RO membrane market as <$1 billion, for example. I'm having a hard time finding sources to document such data.

We're trying to figure out why there haven’t been any technological advances for 30 years in these membranes* and what sort of market opportunity would be out there for someone willing to spend some R&D time and money pursuing an advance.**
* I'd read that while there has been progress, the essential technology is basically the same as when John Cadotte invented it 30+ years ago--at least with regards to desalination.

** We're looking for the market size information to try and quantify any possible opportunities for investment in the area. As you've noted on your blog, one of the problems in the segment is that water is generally not a very clean market (no pun intended).
Can anyone help?

17 Nov 2011

Poll results -- work load

Hey! There's a new poll (water, energy, food) on the right sidebar:
Do you stop thinking of "work" at the end of the "work" day?
N/A -- I don't have a job 4%2
N/A -- My job is 24/7 (e.g., parent) 7%3
Yes 13%6
No 64%29
Maybe (I think of not wanting to go to work) 4%2
Maybe (I dream of work, in a bad way) 4%2
Maybe (fill in: _______)  2%1
45 votes total

These are kind of interesting results. I think that they reflect the readership of this blog, a lot of people who are very interested in their work (taking time to read -- and vote -- on this blog).

Bottom Line: It's nice to think about your work -- just don't let it ruin your life.

16 Nov 2011

Bleg: Egypt!

I'll be in Egypt from 10-28 December on holiday (what's that?!), planning to spend time in Cairo, the Nile Delta, Suez and Dahab (diving!).*

If you have any friends/family in the area interested in meeting a guy from California, or any water-geeks who want to fill me in on the Egyptian situation (because water is ALSO fun for vacations), then please email me!
* I have 8.5 weeks of annual vacation from my job and had to take time off. Such a burden :)


I'm in Bonn, for the Water-Energy-Food, Rio+20, all-hands-on-deck conference (convergence? consensus?) to hear the big guns (and consultants!) talk about how to manage fondle the nexus.

I don't have high hopes for big insights or solutions here, but I'll keep an ear out for anything good.

If you're attending and see me, say hi!

TEoA on Wisconsin Public Radio

I had a fantastic interview/Q&A with Ben Merens last week on WPR.*
At Issue with Ben Merens: In a past of abundance, we had clean water to meet our demands for showers, pools, farms and rivers. Over time, our demand has grown, and scarcity has replaced abundance. After five, join Ben Merens and his guest as they discuss the impact of scarcity on our many water uses.
I recommend it for the questions (on fracking, water quality, small-scale desalination, human rights, etc.) from people calling in.

The 60 minute MP3/stream is posted here.
* Thanks to Eric Crawford of Bright Blue Alliance (your contact for jobs in the water sector) for setting this up!

15 Nov 2011

Speed blogging

  • Hear this, footprinters? "The public found it very difficult to make sense of labelled [carbon] emissions values without additional information. There was also little evidence of a willingness to use labels for product selection."

  • I've got a bit part in this story: "Can Milwaukee become the Silicon Valley of water?"

  • I'm interviewed on TEoA (human rights, water trading) for my university's magazine.

  • "Why did water utilities in the U.S. become mostly publicly owned?" Mostly because municipalities wanted faster (not profitable?) investment. Good discussion but empirical results are not TOO strong. Read the paper [PDF]

  • This is the GOOD news: "Ensuring continued food and energy production at current levels represents a daunting challenge. It is unlikely, moreover, that anything resembling a business-as-usual scenario will allow us to meet the significantly higher food and energy demands currently forecasted for 2050." For the bad news, read more here.

14 Nov 2011

Monday funnies

From The Onion:
Sounds good to me (taking five flights between the dateline of this and its posting here)!

Anything but water

11 Nov 2011

Friday party!

Published on 11-11-11 at 11:11!

Anything but water

10 Nov 2011

My talk on benchmarking utility performance

I gave this talk -- "Creating utility competition via performance-focused insurance" -- last week at the IWW session in utility benchmarking.

Here are my slides [PDF] and the audio [MP3] (it starts as I am asking who is in the audience).

Most of the other talks concentrated on different ways of measuring utility outputs -- often engineering-centric. I was quite impressed by Sasha Danilenko's update on IBNET, since that website is FULL of comparative utility data for 2,000 utilities in 85 countries.

Marriage or decoupling?

"Utility revenue decoupling" refers to a regulatory program in which a utility selling fewer units of water (or energy) is allowed to raise prices, to collect the same revenue.

Decoupling is meant to overcome the "more consumption more revenue" incentive that utilities face by making it easier for the utility to encourage (or allow) conservation.*

Regulators like it because it allows them to pursue two goals: financial stability at the utility and a reduction in demand for scarce resources.

That said, decoupling suffers from a number of design flaws:
  • We don't see any such system in free markets, i.e., companies that make the same money when customers use less of their services. Some may argue that mobile phone plans -- where you pay the same price for a block of fixed minutes, regardless of how many you use -- use a form of decoupling, but not when you consider that customers can switch to a cheaper plan with fewer minutes.
  • Utilities have a performance incentive problem with decoupling. If they make the same revenue when customers use less, then they have no reason to reduce their costs. Companies selling fewer widgets in a market need to find ways to be more efficient.
  • Regulators, likewise, can get lazy with decoupling. Why bother to watch over costs and operations when the company is going to make the same money anyway? Why try to save money for customers who are going to pay the same bill anyway?
  • Customers also face weak incentives. Why use less if they are going to pay the same?
As a thought experiment, consider what happens if customers use ZERO water. They still pay the same bill. Well, that's not a very good idea.

As an alternative to decoupling, I suggest that:
  1. Bills are based on actual fixed and variable costs, so customers who use less pay less but the reduction in revenue is the same as the reduction in costs.
  2. If conservation (water scarcity) is indeed a goal, then add a surcharge on that variable price to customers that will raise its price. Excess revenue can then be rebated to customers.
  3. This system gives regulators, customers and utilities a reason to reduce costs and conserve water without putting the utility's financial stability at risk.
Bottom Line: Everyone loves to get paid without having to work, but such systems encourage waste and inefficiency. Better to pay for performance.
* Note that decoupling is a regulatory "solution" to a problem that the regulators created: a heavy reliance on variable revenues for a business that has heavy fixed costs; see this post for more.

9 Nov 2011

Papers at EAERE

I went to the EAERE conference in June, but I forgot to highlight three interesting papers (there were others, but I can't kill you!):

In "Private information, competition and the renewal of delegation contracts: an econometric analysis of water services in France," Canneva and Garcia write about market power among big water companies (a duopoly) in France.
Abstract: In France, water supply and sanitation can be delegated to private operators by local communities. The renewal of delegation contracts is often considered to be insufficiently competitive. We hypothesize that this may be due to the fact that the incumbent operator knows the existing network better than his competitors. This type of private information creates what is referred to as a winner's curse during renewal auctions. We propose a methodology that makes it possible to distinguish this type of information from the more standard private information parameter that characterizes the idiosyncratic productivity of each operator. We have built a model that simultaneously explains the choice of operator made by the local community and the degree of competition during the renewal process. This selection model makes it possible to estimate prices in a second step without a selection bias.
In "Water use adaptation and the role of demand side management," Steinhauser and Aisbett describe the factors -- roughly 30% price and 70% other factors -- reducing water demand in Australia during the drought.
Abstract: Australia experienced a serious drought over the last decade. As a consequence most municipalities had to introduce policies to reduce the water usage in their urban areas. The demand-management tools employed included, raising water prices, mandatory restrictions on certain types of water use, and approaches aimed at inducing a voluntary behavior change. We test the effectiveness of the various policy tools empirically using daily water use data for a single municipality over the period of 4½ years. We use extensive weather data controls and have data on information campaigns, water price, restrictions, voluntary usage targets, and dam storage levels. We observe large and significant effects from increasing restrictions on water use, and also economically and statistically significant effects which can be attributed to information campaigns and "altruistic" behavior. Perhaps surprisingly, we are unable to identify a significant price effect once we control for the level of use restrictions. We propose that the low price elasticity estimate is due to the binding nature of the restrictions throughout our sample, constraining consumption to the very low elasticity part of the demand curve. We conclude that at times of extreme water shortage, formal restrictions and encouragement of voluntary consumption reductions are at least as effective as price instruments.
In "Game-theoretic analysis of water-related infectious disease in rural areas of developing countries," Chami and Gillespie describe the interacting factors affecting disease transmission in LDCs.
Abstract: Minimization of water-related infectious disease matters for a healthful and productive population. This study provides new insight into problems of controlling endemic water-related disease, a particular problem of developing tropical states. A game-theoretic approach is used to develop models to delineate the behavioral patterns when communal water sources are used, knowledge of water-related infectious disease levels is considered, and water quality variations occur that may possibly affect the spread of infectious agents among humans. Panel data of 6,655 personal interviews from 2005-2007 were collected in the Kabarole District of Uganda to test theoretical projections.

Another comment on TEoA

Jeffrey Ripp writes:
I finished reading your book (and your short piece on utility insurance) ... last week. I appreciate the effort and thought you put forward in these pieces; I have spent many hours thinking about the themes you write about in the book, and I wanted to share my thoughts.

I am intrigued by the utility insurance concept, but I am not exactly sure what the companies would be insuring or how this would improve customer service. Would it be a catastrophic failure such as a main break or a boil-water order due to some contaminant in the system? I think that customers do in fact understand the value they get from a private water system – they expect water that meets SDWA requirements (safe to drink) 24/7. But I agree that they don’t understand the work or effort to get it to their homes – some of the outputs are not obvious. Also, customer bills don’t necessarily reflect the increased costs right away – the cost of main repairs are spread over a number of years under the test year/regulatory model. This isn’t to say that insurance wouldn’t work, but I am not exactly sure how this would help to attract capital to the utilities or prevent over-investment. I agree with the importance of benchmarking performance – we are in fact trying to do this in Wisconsin. We need to improve our measures to move away from outputs to outcomes, but we have started this effort at least. You can get a sample on our website.
My reply:
Insurance -- like car insurance -- would help clarify the difference between skill and hard work (via lower premia) and bad luck. Breaks, accidents will still happen but the rates would reflect whether they are accidents or not. Compare this to the current norm of accident = "rates go up" even if we don't know WHY the accident happened.

Second, insurance payouts would keep rates from rising after ACCIDENTS. They would rise after INCOMPETENCE.

Insurance would help financiers understand the quality of the management team, and thus the risk their money faces.

Overinvestment would lower premia, but they would go TOO low (no risk of accident even), thereby attracting attention.

Benchmarks -- as data -- are good. People will interpret the data in different ways but they NEED data to interpret. That's why I am starting the water data hub in 2012.
Jeffrey replied with: One more point to clarify – under the insurance model. If understand this correctly, if a utility has made proper investment and demonstrates performance at or above benchmark levels (top 25%), but there is a catastrophic main break, the insurance company would pay the costs to repair and replace this main? What about the situation in Milwaukee a few decades ago, where there was a crypto outbreak that lead to widespread sickness and death? The end result was a need for additional treatment. Assume that there had been no reason to assume that the water treatment that had been in place for 100 years was insufficient (which was the case). Would the insurance company pay for the necessary plant investment to install ozone systems for disinfection? I am just trying to get my head around exactly which risks the insurance would be covering and how this could work.

One thing to note is that main breaks happen all the time and don’t necessarily result in higher rates. Even utilities with adequate main replacement schedules can run into distribution system problems that are addressed as part of the O&M expenses, but do not necessarily go up dramatically after a single event.

DZ: The insurance would cover legitimate costs, but not costs due to negligence. (Another way of looking at it is as a warranty). The crypto outbreak would be insured in the sense that it was unexpected but NOT if Mil water had delayed installing an ozone system.... Insurance risks and coverage would have to be spelled out in detail, of course.

Sure, they do that via "self insurance" but we want to make sure that they are not OVER-insuring, i.e., charging customers for incompetence (as LADWP did with breaks related to its "pulse"watering schedule)

Additional comments:

8 Nov 2011

True dat

Why Cochabamba failed

via JW, I got this very interesting analysis [PDF] of the reasons behind the "failure" of water privatization in Cochabamba, Bolivia (and confirmation of what I said in my book). They are interesting, but not as important as this conclusion:
The rapid demise of the Cochabamba water service concession has been heralded by observers as a major popular victory in the struggle against the forces of globalisation (Lobina, 2000). This analysis suggests that such an interpretation is mistaken. The evidence suggests that the lowest five deciles of the urban population stood to gain most from the successful implementation of the Contract - both in the short term (i.e. the introduction of cross-subsidisation through the IBT and reduction in leakage rate) and over the longer term (i.e. the extension of the pipe network to poor neighborhoods currently dependent on high-cost water vendors).

Rather, the failure of the Cochabamba concession was due to a combination of complex political, social and economic factors...
... which include poor regulation, a bad process for choosing the concessionaire, a typical backlash by those wishing to protect their subsidies, and -- most of all -- terrible political leadership. Read it.

Speed blogging

H/Ts to ML and BS
* "The project was done as part of a graduate diploma program"

7 Nov 2011

Monday funnies

Image URL

A tale of two extremes

Alex says:
What has the government done for me lately?

Roads, highways, bridges, railroads, air travel, schools, police, firefighters, teachers, doctors, nurses, UC education, civil defense, national defense, freedom to worship, freedom of expression, speed limits, drunk driving limits, food quality regulations, biotechnology, solar panels, nuclear power, natural gas, semiconductors, microchips, jet engines, personal computers, GPS, the accelerometer, cell phones, and the Internet.
Some people will disagree, e.g., Julie Webster (via RM) told the biologists that
“Most of us here don’t give a big hoot for your salmon.”

Webster went on to say that she felt environmental regulation is the cause of many social problems in the county, including unemployment, divorce, child abuse, alcoholism and drug abuse.
 I reckon the truth is more in the middle. My reply to Alex was:
The Federal government is NOT a person that gives us stuff like Santa. It's a machine that takes taxes in and produces output.
  • Some of the output is worth less than the cost (name a few dams)
  • Other output is less than worthless (ethanol program), 
  • Other output could be done, better, by private enterprise (Amtrak, postal service), and 
  • There's some stuff that government has done well and can't be done better (law and order).
Bottom Line: Government can produce good and bad results in programs that it must or need not pursue.

4 Nov 2011

Friday party!

And now a word on freedom of speech:

And don't forget that tomorrow is the 5th of November -- once a holiday in thanks for the continued reign of the king, but now associated with calling government to account. What your government done for you lately? And what's your return on investment (taxes)?

Speed blogging

  • A very interesting paper [DOC] discussing "third party regulation" and competition -- similar to my idea of using insurance to promote competition and Ofwat's (England and Wales) idea of allowing outsiders to pay "common carriage" prices for access to a monopolist's distribution network. In related news, Ceres has released its "Aqua Gauge" of company water stewardship/strategy. I worry that it's too inaccurate and lacks incentives to report and perform that are present in my idea for insurance (link above).

  • Barraque discusses [PDF] how moving to meters may not make sense in places where water scarcity (and individual consumption) are not an issue. He further demolishes the case for increasing block rates where headcounts are not available.

  • A comparison [PDF] of water policy in S Africa and Chile

  • A nice discussion of the economics of water [PDF] by Quentin Grafton.

  • Ferraro and Price describe [PDF] how non-price strategies can deduce demand for water:
    The data, drawn from more than 100,000 households, indicate that social comparison messages had a greater influence on behavior than simple pro-social messages or technical information alone. Moreover, our data suggest social comparison messages are most effective among households identified as the least price sensitive: high-users.
H/Ts to SJ, ML and CV

3 Nov 2011

A simple rower, for the water

Giacomo writes to me (and you!), asking for your involvement in his little journey:
I travel on a little wooden boat, by fair means, oars and sail, from London to Istanbul, a 5200 km journey across the rivers of Europe, by rowing & sailing, to talk about water protection, sustainable tourism, local economies.

If you will have a moment, please, visit my web site

Be part of this project, come aboard next year, from Budapest to Istanbul. One hour, one day, one week. And then ideas, new projects. I am opening for the winter a social cafè on an old tug boat, to talk about new world, old world, water and intelligence.

Virtual reality and real people.

We need people and more. Energy.
He's a cool guy. Visit his website -- and go visit him in Budapest!

Bleg: Photos of water projects?

I got this via a mailing list:
While talking with a photographer in search of new projects, I suggested that water management and its environmental, cultural and social implications could be an interesting topic, blending industrial archaeology, environmental history and landscape photography.

I mentioned Alpine dams, irrigation systems in European and Asian rice fields, mountain water canals in Canton Wallis and Baden-Württemberg. He came up with oasis management in Tunisia and the Persian Qanat system.*

We are now trying to locate the most impressive locations in water management history, as to try to translate this still rather vague idea into reality. Do you think this project is worth it? Which water management systems would you suggest to include? Are you aware of existing projects following similar lines?
Can you suggest any other projects?

* Other responses: "Surely Roman aqueducts are beautiful to photograph. I think there are some Mayan irrigation systems in the Yucatan still visible in spots. It may be less that aesthetically pleasing, but the new pumping station at the 17th Street canal and Lake Pontchartrain is a thing of beauty to residents of New Orleans"

"I suggest considering the Itaipu Dam, and also the enormous amount of conflict and landscape change that is taking place in Brazil, in connection to two large water infrastructural constructions: the diversion of the Sao Francisco river and the construction of the Belo Monte dam."

"San Francisco's water managment thru the Hetch Hetchy pumping system can easily be photographed. Part of this system sits at the foothills of the Sierra Nevada Mtns., reaching towards Yosemite National Park on Hwy 120 in Central California. The system carries water from the Mtns. to San Francisco more than 200 miles westward, from the Don Pedro Lake area.

Also, many parts of the California Acquaduct System carrying water from Northern California to San Diego and Los Angeles, almost the entire length of California are easily visible, including Lakes in the Mtns. outside of Los Angeles fed by this water system. Finally, there are many irrigation canals thru Central California that can be easily photographed, servicing the numerous Irrigation Districts, Counties and farm areas within California's Cental Valley. This is just the visible surface of these many programs and projects as expressed thru various facilities."

2 Nov 2011

The updated End of Abudance is out!

After fixing a few typos, version 1.2 is now available*
This version should be stable for awhile** and the feedback so far has been encouraging.

There are seven, five star reviews on Amazon:
  • "Knowledge is power, ignorance is expensive, wasteful and dangerous"
  • "The End of Abundance should be read by all walks of life"
  • "The Case for Water Economics"
  • "Finally, some creative thinking"
  • "An accessible explanation of a complex topic"
  • "Innovative and Insightful"
  • "A Bleeding Heart Green Humanitarian Disguised as a Cold, Logical Libertarian"
...and over 30 endorsements given by water experts from around the world.

Bottom Line: If you haven't read the book, then now is the time to get it. If you know someone who should read it, then give it to them as a present. Learn more about the book and order here.

* As usual, there are bulk discounts for purchases of 20+ copies. Email me.
** The second edition will come out in late-2012 (at the earliest).

Anything but water

H/Ts to MH and RM

1 Nov 2011

Kardashian Fail

Who needs macroeconomics, when we have the celebrity circus?

Kardashian then began dating NBA player Kris Humphries of the New Jersey Nets in October 2010. They became engaged in May 2011, and married on August 20, 2011 in Montecito, California. It was reported that Kardashian and Humphries would make $17.9 million from the nuptials, and that they paid nothing of the $20 million costs associated with it. Three $20,000 Vera Wang gowns and $400,000 worth of Perrier Jouet champagne were given free, as were invitations estimated at $10,000 and $750,000 for catering for the 500 guests at the reception. After just 72 days of marriage, Kardashian filed for divorce from Humphries on October 31, 2011, citing irreconcilable differences.

Bottom Line: World's worst marriage, best date, or just a distraction from relevance? Here's one funny commentary [seems we have a new fail meme here...]

Macroeconomic trends

Here is the word cloud from the Q3 2011 Kaufman survey of economic bloggers:

...and here is the one from Q3 2010:

Any questions?

Poll results -- the Winnah!

Hey! There's a new poll (work!) on the right sidebar....
Which example of responding to the End of Abundance do you like most?
TEoA in Mexico City 9%4
Wyoming's big flows 2%1
Harvesting rainwater in Brazil 9%4
The Great Lakes wake-up call 61%28
Time for toilet to tap 20%9
46 votes total

Congratulations to EC for The Great Lakes wake up call. I will be sending a (signed) copy post haste!

Bottom Line: Voter apathy affects all aspects of life!

Speed blogging

H/Ts to CG, DL, RM and JW