15 Sep 2011

Bleg: Water utility supply curves

UW asks:
I am teaching basic microeconomics for water engineers. We use a standard micro book which has basically no reference to water issues. In your book I found several good ideas how to link standard micro economics to water issues. But do you know of any book which has its focus on explaining basic economics of water? Something which includes demand curves for water (for households, agriculture, etc.) and  production/cost curves for water utilities with different technologies?
In our subsequent email discussion, we clarified that it is quite hard to find good examples of water utility cost curves (individual and aggregate demand curves are never observed, and they are hard to discover via contingent valuation techniques, e.g., questionnaires).

So, does anyone have good data or resources on the fixed and variable costs of delivering water for one or more utilities? I am guessing that it's probably pretty easy to get an idea of the fixed costs of a utility (salaries, debt, etc.) but harder to separate out variable costs (O&M), let alone by customer class. Even worse, we'd want to include deferred costs and subsidies...

Any ideas?


GS said...

Any thought on using annual reports that are required to be filed by investor-owned utilities at PUCs? They require balance sheets and income statements at the utility level, and also typically require pumped vs sold numbers, connections, and infrastructure descriptions. They are public documents – and are available on-line (eg http://www.azcc.gov/Divisions/Utilities/Annual%20Reports/water.asp).

It’s a bit of a chore to sift through all the information, and some data is obscured with holding companies and other subs, but it is a start.

Really detailed info is included in rate filings for specific test years – those are also public docs.

I think munis are tougher because their budgets often cross many more departments and allocations can be hidden in those other departments. Once published though, and as long as you don’t mind trying to see how allocations are made, you can get the data (eg consider landscape maintenance – some munis would allocate that to the parks and rec side, and some may split that to the actual departments using the service). The key I think is understanding what a typical utility budget looks like, and making sure you can see those expenses in there somewhere.

We are required to employ books that are consistent with NARUC standards – munis likely not (not sure) but they would give you a start for what should be included. Then you can align the muni budget with those line items and see that everything is included.

Mac said...

2 thoughts:
- check the supply curves built to evaluate unit cost and yield for water supply options for Ga: http://www.georgia.gov/00/channel_modifieddate/0,2096,78006749_154453222,00.html

- McKinsey used supply curves in a similar way in their Charting our water Future report

DB said...

I'm an econ PhD at the University of Washington, focusing on water issues.=. I took a class in the School of Public Affairs on Water Resource Economics and we used Griffin's book "Water Resource Economics" I thought it was pretty good. The class, and book, is intended for students with understanding of introductory economics, but many of the students were engineers with very limited economic backgrounds. It might be worthwhile for that teacher to check out the book.

Mel said...

I second using Ron Griffin's book, "Water Resource Economics." I read it a couple of years ago with only slightly more than an intro econ class under my belt.

Ulrich Morawetz said...

thank you for your helpful comments. I ordered the book of Griffin and it actually provides what I was looking for. My basic economics lecture for water engineers is now improved through examples from David's "End of Abundance" and Ronald Griffin's "Water Resource Economics".

Thank you as well for the hints and links to derive supply curves from various water providers. Collecting information from there and other reports might be an interesting task for the future.

Best, Uli

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