23 January 2012

Price water like gas -- and go home

CB sent this article, in which a politician opposed the use of increasing block rate pricing (the more you use, the more you pay per unit of water):
"This bill is directed towards a practice of conservation rates that I think are obscene and predatory," Hays said. "And I don't want to have any of my constituents subjected to such a rip-off. It is my plan to stop it."
This politician must be thinking either:
  1. The water company is ripping people off. Prices should not rise above the cost of service, or
  2. Heavy water users should pay the same per unit as light water users.
(1) implies that the monopoly is making profits, which is usually not allowed. (2) implies that heavy use should not be additionally discouraged (through higher rates per unit). A volumetric price is a good enough incentive to use less (and method of covering costs).

But, wait, there's a third explanation:
Hays said the state should fine people if they're wasting water rather than let companies generate revenue by charging higher rates based on consumption.
This is not just a terrible idea (like paying a fine for driving an SUV AND paying the price at the pump), but also extremely inefficient -- how many extra people -- and time -- will be needed to administer a system of "fair" fines.

Once again, I am amazed at a politician's lack of foresight.

The debate from the other side ("we need higher prices to penalize heavy users") is not much different.

Bottom Line: Stop squabbling over "moral" tariff structures and fines. Charge a single price for water that's high enough to prevent shortages (like a price for gasoline). That price -- presumably -- will cover costs. Excess revenue can be rebated to customers at the end of the year (per meter).

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