Dams vs Prices

The East Bay Express has an excellent article laying out the issues and controversy over EBMUD's plan to build replace one dam with a bigger dam. Why? Because they are "running out of supply." Why are they running out?

The agency board of directors has repeatedly resisted any effort to levy steep financial penalties against water wasters — who, not coincidentally, happen to be East Bay MUD's best customers. Such pricing plans have driven down the demand for water in other areas of the arid West.

Why? The reason dates back to the early 1990s. During the drought of 1991 and 1992, environmentalists controlled the East Bay MUD board, and they adopted stiff penalties for heavy water users. Not surprisingly, the pricing scheme worked extremely well. Water demand plummeted by about 30 percent. If similar penalties were implemented today, there would be no need for a new dam on the Mokelumne River. But the steep penalties also engendered a strong backlash. Many Contra Costa County residents revolted, storming agency board meetings and screaming at their elected representatives. Some even refused to pay their bills. By the mid-1990s, developers had teamed with suburbanites to oust the environmental majority. Ever since, the board has refused to go back to the steep pricing plan

I spoke to John Coleman, EBMUD's director from the water-thirsty eastern district of EBMUD. He's pro-dam and anti-price basically because the cost of a dam will be shared by all customers, but the "cost" of higher pricing will be borne by those who use the most water -- his constituents.

I can see the political calculation behind his stance. (He tries to appear "reasonable" in the article, but reasonable is restricted to different ways of getting the dam.) The sad thing is that he is basically asking for those who use less water to subsidize those who use more, and that just isn't right.

[Similar rebellions (via DW) against "penalties for those with large families and large lots" are taking place in SoCal. Per capita allocations will protect families; I am not worried about protecting people with large lawns.]

Higher prices, OTOH, would reduce demand to fit within today's supply. Since total costs would remain the same (equal or less water sold), the average water bill would not rise. A dam, OTOH, would raise costs, increase supply and result in more water use.* That's not a sensible outcome in an era of tight budgets and ever-tighter water supplies.

I'll leave you with another choice quotation:

Coleman explained at the time that they feared heavy water users would stop paying their bills if the district went after them. "Basically, they fund the district," he said. "If they don't pay the bills, it can cause a hardship for the district." Not coincidentally, most of the heavy water users live in Contra Costa County, many of them in Coleman's district. Last year, Gary Breaux, the agency's director of finance, said that 20 percent of single-family homes use at least 750 gallons a day during summer, which ranks them as among the district's heaviest water users, and most of them are in Contra Costa County

Wait a second! Since when do customers decide to stop paying their bills and STILL get service? I think someone at EBMUD needs los cojones mas grandes. Those who use more should pay more. Do I need to give you examples? How about gasoline? food? electricity? hairspray? golf balls?

As a potential compromise, I suggested to Coleman that EBMUD may be able to initiate a "revenue neutral" water price increase that would charge heavy users more AND subsidize water efficiency improvements. If such a program was revenue-neutral within each district, the water wasters would subsidize the water misers inside his district. He said he'd think about it.

Bottom Line: Owners of large properties in hot places do NOT have a right to MORE water to grow big green lawns. They should PAY for the privilege of irrigating with (potable) water in a desert.

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* The subtle difference between "higher prices" (to reduce demand) and "higher prices" (from the costs of the dam) is the same as the difference between a supply curve that shifts up and one that shifts simultaneously up and out. For the dam, I'd say that the shift will be more out (increased supply) than up (raising price) because the marginal cost of the dam will be buried in prices based on average cost. The net result is perhaps more water sold at slightly higher prices. But don't worry about these curves. It's a no-brainer to understand how higher prices ALONE -- no dam -- can reduce the quantity demanded.