When i say “fixed costs” I mean Cost of Service which includes fixed costs and variable costs. ALL COSTS are included in water rates. There are no subsidies other than those that accrue from tiered rates.

By the way, most communities have tiered rates so what commercial establishments are subsidized by residential water ratepayers. Cities want the taxes generated by business and industry and thus subsidize them.

There are no WHOLESALE water subsidies contrary to what phony experts contend. There are differing costs for producing water as follows:

1930’s – Federal Central Valley Project and Colorado River Project – $20 to $300 per acre foot of water

1960’s – State Water Project – $300 to $1,000 per acre foot

2000’s – Water Recycling and Desalination Plants – $1,500 to $3,500 per acre foot.

The difference in price IS NOT a subsidy contrary to what economists say.

If a home has a 4% mortgage on it and interest rates climb to 8% we don’t say the homeowner is getting a subsidy. Then why do we say that farmers are getting a water subsidy for the difference in cost based on when water facilities were built?

In 50 years the relative price for desalination water will be as cheap as farm water. That is not a subsidy.

Should water be marked to market price instead of historical cost? That would be disastrous and would end the municipal bond market financing for any water projects.

Thanks for the discussion.

Wayne,

In your last post, your last sentence says a lot. By every definition we presently have a monopoly or socialism for water.

The issue in question is whether you pay for bonds and sewers based on usage. The current method is to increase service charges or attach it to a property tax bill. None of these charges are related to consumption. My proposal has nothing to do with spot or market prices.

These fixed costs are a known. The expected HCF units of water that are likely to be used is also a known. I am only suggesting a mathematical computation that takes these fixed costs and divide it by the number of HCF units of water expected to be used and then raise the current cost of water by this amount thus eliminating all fixed costs.

Using my gasoline example, why should someone who conserves water pay more per unit that someone who wastes?

Doug
In Pasadena where I live the city is having to raise water rates because of the 28% mandatory cutback of water. So cities are pricing water at cost of service (if they priced below cost of service they would be insolvent).

I’m a big advocate of markets, having written on the marketization of fiber optic easements and expending water transfers. However, creating a spot market price for water in California would create water anarchy and civil war.

Anything with huge upfront cost, houses or dams, require long-term contracts to amortize the cost over 30 to 50 years. Mortgages and municipal bonds are the long term contracts for building homes and dams.

If we shifted to a spot market price and had to build all new homes or dams and desalting plants with cash (no loans), we would wait forever for their completion.
Can you imagine building a house on a cash basis? You would complete a little bit of the house each year over, say, 10 to 20 years. Meanwhile you have no place to live.

Pay-As-You-Go (cash) financing does not work well with mega-billion dollar dams, water recycling plants, and desalination plants.

So I would not call shifting to a full market system for water infrastructure an “innovation”. It would actually be a regression back to how private goods were made piecemeal by craftsmen before the Industrial and Capitalist Revolutions.

Water markets need expanding but this year there isn’t enough surplus water to sell to alleviate the stress of drought. Shifting to a water market in a drought would drive prices literally through the roof. Of course, that is what environmentalists would like to see because it would drive industries and residents out of California. So, oddly, environmentalists have been embracing pseudo-market solutions to drought. A market is a social mechanism for the cheapest priced good or service, not the highest priced. Highest priced goods and services are what you get under either monopoly or socialism.

Wayne, I appreciate your comments. I know them to be true in those cases where cities actually govern the water companies.

As we can both agree, Water Districts were never intended to be tax producers. I also agree with you that the tiered rates are not likely to produce the goal that Governor Brown is asking for.

With the current draught it is time to change the way Government taxes us for water. Fixed fees not related to consumption nor do they encourage conservation.

Because Government is artificially pricing water below it’s actual cost, private enterprise is not rushing to the marketplace with new innovations. Water Districts are distributing free toilets, free sprinkler heads, free landscape help, etc.

Please read my other post for additional arguments.

If Gasoline were priced like Water, you would be hit with a service charge every time you filled up. Example assuming the current price of Gas is $4 / Gal:
Every time you filled the tank, you would pay a $20 service charge but the Gasoline itself is now priced at $2 / Gallon.

The economy car needing only 10 gallons of gas would pay the $30 service charge + $20 (10 gal * $2) for a total of $50 or $5 / gallon.

A truck requiring 30 gallons of gas would pay the same $30 service charge plus an additional $60 (30 gal * $2) for a total of $90 or $3 / gallon.

The truck received a very cleverly hidden volume discount on the product.

The oil companies have no problem including their infrastructure costs (pipelines, tankers, wells, pumps, distribution stations, etc.) in the price of gas. Why are the Water Districts unable or unwilling to do this also?

I have written an article that was just published in the May issue of the Bugle newspaper on page 3. This article discusses many ideas that could possibly help solve the draught in California. The link is:

http://www.thebugle.com/productgraphics/cb_may2015enews.pdf

Also look at your electric bill. How many fixed charges unrelated to product usage do you see?

The current system of water pricing subsidizes the big users of water.

Thanks for your comment. However, I found it confusing. You write water is not priced as a system then you proceed to describe how your water district sets charges for your water system.

The point in the article is thare is a principle in Public Utility Economics that the rates set for water are based on the fixed and variable costs for the entirely of the water system, not based on a market price. Prices are associated with markets and rates are associated with cost recovery by a monopoly utility.

In California a new Appeals Court case (Capistrano taxpayers vs. City of San Juan Capistrano) has struck down setting water rates to subsidize low or high users unless the COST of each tier of water rates have been proven. If water rates do not exceed COSTS to operate the water system then voter approval is not required. But if rates for any use tier exceed the system cost they have to be approved by voters.

The reason you have water rates that subsidize those who use more water is that your City Council established the water rate structure that way. In my city the City Council adopted a water rate structure that did not subsidize the larger users of water. Then after it was adopted they amended the rate ordinance to subsidize large commercial users that pay a significant amount of taxes.

Cities want tax producing businesses and are willing to compel homeowners to subsidize them to enrich city coffers. What the Capistrano case has done is limit how cities use water rate subsidies to lure or retain businesses in competition with other nearby cities.

In essence the small water users subsidize those who use lots of water. As an example one water district in my area charges $37.93 / month service charges, $38.75 / month sewer charges and $406.00 per year as a property tax assessment. The Tier 1 water charge is $1.01 / unit. Retirees in my community using 4 or less units of water have a total bill is about $114.00 for only 4 units of water or $28.50 per unit of water. Using 8 units of water creates a total bill of about $118 or $14.75 per unit of water.

Dr Sprinky; I’ll stand by my comment. It is government policy that has prevented development of reservoirs in California.

If you want to throw around water volume figures measured in cubic kilometers, you might cite your sources.

To Jim Reardon

Keep an eye on Calwatchdog for a report of a new study on water conservation and how mandated Outdoor Watering Restrictions do not save water.