Governomics 101: Decreased demand means … higher prices?

posted at 10:01 am on August 4, 2014 by Ed Morrissey

Over the last couple of decades, Americans have had to replace plumbing in their homes to conserve water as environmental awareness rose about the costs of fresh water. Traditional high-volume fixtures like toilets and shower heads gave way to low-flow devices that often didn’t quite seem to, er, do the trick. Activists badgered regulators into eliminating the traditional fixtures, and then badgered consumers into reducing their use of water even more. Even in areas without any drought concerns, odd-even lawn watering days are in effect — in my neighborhood, for instance, where floods are more of a worry than drought. All of this came with the promise not just of better resource management, but also lower water bills reflecting the conservation these changes would provide.

Well, the conservation has certainly occurred. Water use has been flat for the last two decades despite population and construction expansion. That means lower prices, right? Er … wrong. In fact, water prices will shortly go up in order to cover the revenue shortfall that conservation created. Consider this Governomics 101:

Federally mandated low-flow toilets, shower heads and faucets are taking a financial toll on the nation’s water utilities, leaving customers to make up the shortfall with higher water rates and new fees that have left many paying more for less.

Utility officials say they understand that charging more for water because demand has dropped might seem to violate a basic premise of Economics 101. But utilities that generally charge by the number of gallons used are beginning to feel the financial pinch of 20 years of environmentally friendly fixtures and appliances, as older bathrooms and kitchens have been remodeled, utility experts say. …

Adding to the problem, Washington-area utilities say, is the fact that consumption is falling as costs are mounting to upgrade sewer systems and repair and replace aging water pipes, some more than a century old, that are bursting after decades of decay and neglect. Meanwhile, utilities’ costs — electricity, chemicals and labor — have continued to rise.

Why raise rates, though, for infrastructure work? The utilities have other options, such as bond issues, or an infrastructure surcharge. The latter would be applied as a flat fee per property, or perhaps per household in multi-resident structures, which would have the effect of negating the idea that this is a penalty for conservation. The Washington Suburban Sanitation Commission plans to apply the surcharge – and the higher rates.

And guess who gets hardest hit? The people who use the least amount of water, of course:

Bills for households that use the least amount of water, such as people living alone, would feel the biggest impact, WSSC officials said.

The fees would come on top of annual rate increases, which have reached as high as 9 percent in recent years. Since 2002, WSSC customers have seen their rates almost double, jumping by 95 percent.

While WSSC’s rate increases have far outpaced inflation, they haven’t been as large as those of many other major U.S. water agencies, a consultant found.

In normal market-based economics, decreased demand would mean decreased prices. Government regulation forcing conservation should have produced lower prices, especially from a resource that for the most of the country can be found in abundance. The people who pay the most would be the ones who make the most utilization of the resource. And private-sector providers in a competitive market would have maintained and improved their own delivery infrastructure as a matter of course, rather than wait twenty years and then hope that price hikes wouldn’t hand an advantage to competitors.

Perhaps water cannot be managed by the private sector in a multi-provider market. But this does give us a very interesting lesson in why government (or government-protected monopolies) shouldn’t manage anything except what it absolutely must.


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It’s called getting hosed.

Flange on August 4, 2014 at 10:04 AM

Let me get this straight…

If I use more, I will pay less???

txdoc on August 4, 2014 at 10:10 AM

It’s a whole new world of crony capitalism aka fascism. Companies don’t make money be selling their products at prices people are willing to spend because they don’t have to worry about competition from others. In this wonderful new world, we taxpayers pay them bribes in the form of tax credits and other misnamed goodies to comply with the fascist rules and regs the feds inflict.

It works great for them in the short run and consumers take it the neck, but in the long run we’re heading for a Soviet style state where the feds never satisfied will keep grabbing more and more power until manufacturers and consumers are out of luck.

erp on August 4, 2014 at 10:11 AM

But rich, white, liberal environmentalist that use environmental concerns as status markers to show they are part of the in crowd and that they are better than those mean, nasty conservatives won’t notice the change in water bills. They can continue to receive a good without paying the externalities costs of that good.
If the left is so hot on income inequality, perhaps we should have a surtax on environmental donations to create a fund that then pays for poor families impacted by environmental legislation. I suspect then that at least a few on the left could re-discover the bill of rights and notice that such a surtax could be interpreted to interfere with the first amendment.

yetanotherjohn on August 4, 2014 at 10:11 AM

It’s called getting hosed.

Flange on August 4, 2014 at 10:04 AM

Comment of the Day™.

The water bill stopped being an economically-driven fee (if it were ever such) and became taxes when cities started slapping fire protection ‘fees’, “street lighting ‘fees’, snowplow ‘fees’, garbage-collection ‘fees’, etc., etc., etc. to the water bill.

Steve Eggleston on August 4, 2014 at 10:13 AM

It’s called getting hosed.

Flange on August 4, 2014 at 10:04 AM

Indeed!

Obama promised utilities would be more expensive…

workingclass artist on August 4, 2014 at 10:13 AM

decades of decay and neglect.

WTF were they doing with all the money for infrastructure during that time? Are they saying they haven’t been maintaining those pipes for twenty years to now say that it is a problem? Now I am wondering what all those utility trucks driving around do all day if they aren’t actually working.

I’m all for companies making money, but if the public, for whatever reason ‘cuts back’ on their use of that service then the company is not going to make as much. In this case a very manipulated supply and demand. But just because they made X amount of money doesn’t mean they have to make that much next year or any other year. The only reason they can do this is because there is no competition. There aren’t multiple water suppliers for a city. Are there?

Next up, electricity.

Patriot Vet on August 4, 2014 at 10:15 AM

Meanwhile…

California is undergoing a record drought and Toledo is in a water crisis and the county has issued a water ban affecting 1/2 a million citizens because of a toxic chemical in Lake Erie…

workingclass artist on August 4, 2014 at 10:16 AM

I’m all for companies making money, but if the public, for whatever reason ‘cuts back’ on their use of that service then the company is not going to make as much. In this case a very manipulated supply and demand. But just because they made X amount of money doesn’t mean they have to make that much next year or any other year. The only reason they can do this is because there is no competition. There aren’t multiple water suppliers for a city. Are there?

Next up, electricity.

Patriot Vet on August 4, 2014 at 10:15 AM

In many locales, if there is city water available, you have to take it and dismantle any private well you might have.

Steve Eggleston on August 4, 2014 at 10:16 AM

Next up, electricity.

Patriot Vet on August 4, 2014 at 10:15 AM

smart meters!

workingclass artist on August 4, 2014 at 10:17 AM

Government needs money.

That simple.

formwiz on August 4, 2014 at 10:17 AM

smart meters!

workingclass artist on August 4, 2014 at 10:17 AM

That will shut off your electricity on demand of your betters in government.

Steve Eggleston on August 4, 2014 at 10:17 AM

WTF were they doing with all the money for infrastructure during that time? Are they saying they haven’t been maintaining those pipes for twenty years to now say that it is a problem? Now I am wondering what all those utility trucks driving around do all day if they aren’t actually working.

Patriot Vet on August 4, 2014 at 10:15 AM

Surfing for pR0n the old-fashioned way?

Steve Eggleston on August 4, 2014 at 10:19 AM

Libturd Econ. 101!!!!!!!

Ask the people to do with less, then PUNISH them for doing as they’re told!

conservative hispanic on August 4, 2014 at 10:19 AM

Motherf*ckers.

Midas on August 4, 2014 at 10:21 AM

Why can’t people grasp the concept, the federal government SUCKS at EVERYTHING. And they will NEVER willingly give money they don’t use or need back to the people in the form of tax cuts, or lower rates. They have to be forced to do it, sometimes by the courts.

Seriously, except WASTING TRILLIONS of taxpayer dollars, there is not ONE thing the federal government does BETTER than the private sector. NOT ONE.

The federal government budgets, except for defense, need to be GUTTED, and most agencies should be eliminated entirely.

I guess $18 Trillion in debt isn’t enough yet.

Meople on August 4, 2014 at 10:24 AM

Is access to clean water a basic human right?

UN General Assembly declares access to clean water and sanitation is a human right

http://www.un.org/apps/news/story.asp?NewsID=35456#.U9-WsV64nHg

“Detroit has drawn fire from all over the world for shutting off water to customers delinquent on their bills, but the city isn’t unique. Cities across metro Detroit and the country do it also.

In Michigan, Hamtramck, Warren, Pontiac, Eastpointe, Romulus and other cities have shut off delinquent customers as a way to improve collections. Elsewhere, so have other big cities such as Baltimore and St. Louis.

“It’s universal in the utility world that at some point, you have to shut off service as part of your larger commitment to the community,” said Tom Curtis, deputy executive director of the American Water Works Association, a nonprofit group with more than 50,000 members who work in the industry. “If you never shut the water off for anybody, those people who continue to pay have to shoulder the entire cost of a system that is servicing a lot of customers that aren’t paying. That’s not a sustainable business model.”

Curtis said water officials know better than anyone how important water is to public health and quality of life. But they are obligated to maintain systems that can serve everyone….”

http://www.freep.com/article/20140727/NEWS01/307270078/Detroit-water-shutoffs-other-cities

Hey…Who’s up for water wars?

workingclass artist on August 4, 2014 at 10:24 AM

Motherf*ckers.

Midas on August 4, 2014 at 10:21 AM

That’s exactly what I should have put on the end of my post! Alas, it will have to remain unfinished.

Meople on August 4, 2014 at 10:25 AM

Why raise rates, though, for infrastructure work? The utilities have other options, such as bond issues, or an infrastructure surcharge.

Not always. A lot of it depends on how the utility itself is structured, and what is and is not permitted under their charter. There are variances in these charters at every level of government, from the State on down to the municipality. Some utilities can incur debt; others cannot. Some can tack on usage fees; some cannot. There truly is not a ‘one size fits all’ response to the aging infrastructure.

And, yes, a lot of that infrastructure is aging. There have been spells here locally where seepage and pipe bursts have edged up close to 10% of “consumption”. Capital costs for construction projects have gone up in every other sector; why the chagrin that it might’ve happened in the utility sector, too?

I am not a bit surprised that the price is going up in the face of reduced or stagnant demand. Water purchase is not an optional purchase among suppliers such as can be in competition with each other for the water-delivery business.

It is a monopoly; it is sensible to be a monopoly. The pricing also hits the homeowner directly, so right there you have a huge constraint on reckless spending. Perfect? No. But show me a business of any comparable size that doesn’t have inefficiencies and redundancies within it.

ss396 on August 4, 2014 at 10:26 AM

smart meters!

workingclass artist on August 4, 2014 at 10:17 AM

That will shut off your electricity on demand of your betters in government.

Steve Eggleston on August 4, 2014 at 10:17 AM

Yep!

One way to cower the citizenry….rolling brownouts and what not…

workingclass artist on August 4, 2014 at 10:26 AM

In many locales, if there is city water available, you have to take it and dismantle any private well you might have.

Steve Eggleston on August 4, 2014 at 10:16 AM

They hate competition. And we all thought that monopolies were outlawed.

Libturd Econ. 101!!!!!!!

Ask the people to do with less, then PUNISH them for doing as they’re told!

conservative hispanic on August 4, 2014 at 10:19 AM

Lied to once again by the left for their environmental push.

Patriot Vet on August 4, 2014 at 10:28 AM

Yeah but it is going to work in health care because the universe’s smartest man single handedly designed the system.

jukin3 on August 4, 2014 at 10:28 AM

I live in the mtns of WNC, on a ‘bold trout stream’ and our water is pristine and is provided by an artesian well. Also, we use a septic system for bodily functions, ahem, and a separate system for ‘brown water’. Life is good.

vnvet on August 4, 2014 at 10:29 AM

smart meters!

workingclass artist on August 4, 2014 at 10:17 AM

Every year, at least once, they call me and ask if I want a smart meter installed, I always tell them to go f*ck themselves.

Meople on August 4, 2014 at 10:30 AM

I’ve been doing water demand forecasting and water economic analysis for almost three decades. There are two types of conservation programs–passive and active.

Passive conservation consists of non-coercive measures like encouraging conservation and encouraging the use of low flow devices and appliances.

Active conservation is what is being described here, where government and government-owned utilities mandate use of low flow items and conduct what’s known as a utility sponsored retrofit, where you are required to allow the utility to replace your higher use fixtures and appliances.

There are high fixed costs in water supply. That’s the primary reason why there is typically only one utility serving a particular area. Drilling wells or constructing intakes on rivers and lakes is expensive. So too are treatment costs, not to mention the costs of distribution. Where the supplier also is the wastewater utility, even greater costs are incurred. This is called a natural monopoly, and it occurs with railroads, electricity service, gas service and any other good or service where there are high fixed costs and prohibitive costs to market entry.

None of the fixed costs change with demand, and if demand falls to a level where the price charged is less than fixed costs, price must increase.

While it seems counter intuitive to see prices increasing while demand remains flat or falls, if you understand the cost structure of natural monopolies, then it begins to make sense.

In the rail example, if there are not enough passengers to cover the cost of providing the service, then passengers must be charged more per ticket.

I’ve been doing water econ for almost thirty years, and I’ve worked on some of the most contentious projects in the country. I’ve worked for, with and against some pretty powerful forces in the water supply business. I have many scars, T-shirts and trophies to show for it all.

Conservative Mischief on August 4, 2014 at 10:35 AM

Libturd Econ. 101!!!!!!!

Ask the people to do with less, then PUNISH them for doing as they’re told!

conservative hispanic on August 4, 2014 at 10:19 AM

The inevitable result is that citizens won’t pay but will illegally pipe in what they need.

This is happening in the larger broken cities like Detroit listed upthread in the link from the Detroit Free Press.

Many municipalities are under budget stress and in some regions there is drought.

Link to info and map of California drought (the worst in 500 years)

http://cdrf.org/2014/03/17/cdqaps-drought-info-page-california-dairy-producers/

Texas map and US drought index info
http://droughtmonitor.unl.edu/Home/StateDroughtMonitor.aspx?TX

Most of 1/2 of the USA (The west and southwest) is experiencing varying stages of drought.

http://droughtmonitor.unl.edu/MapsAndData/WeeklyComparison.aspx

workingclass artist on August 4, 2014 at 10:36 AM

Get out your Econ 101 book and look up “natural monopoly”. It is not at all surprising that the price per unit for water will increase as demand decreases since marginal costs are very low but fixed costs are very high.

DamnCat on August 4, 2014 at 10:36 AM

smart meters!

workingclass artist on August 4, 2014 at 10:17 AM

Every year, at least once, they call me and ask if I want a smart meter installed, I always tell them to go f*ck themselves.

Meople on August 4, 2014 at 10:30 AM

In many municipalities…citizens don’t have a choice.

Fight the good fight!

workingclass artist on August 4, 2014 at 10:38 AM

1. the reason munis have adopted so may “fees” is because they are limited by municipal law in the amount they can charge for income or property taxes. they spin off all these fees for things that used to be paid from the general fund.
2. municipalities enterinto consent decrees with the federal epa in collusive lawsuits with the epa. we live many miles away from navigable waterways but the municipality entered into a consent decree agreeing that the municipality was polluting and that the sanitary sewer needed revamping. the residents would never have agreed to it because it was not true but the municipality got around state law through a collusive lawsuit.

casel21 on August 4, 2014 at 10:38 AM

They want to do the same thing with gas. They want you to drive a more fuel efficient care, drive less etc and then they find out that they aren’t getting enough money in gas taxes to pay for their favorite slush fund…so, they want to raise the gas tax. Damned if you do and damned if you don’t.

BeachBum on August 4, 2014 at 10:40 AM

ooops care = car

BeachBum on August 4, 2014 at 10:41 AM

Government needs money.

That simple.

formwiz on August 4, 2014 at 10:17 AM

Yeah…That Obamacare thingy is working’ well aint’ it?

workingclass artist on August 4, 2014 at 10:42 AM

….I have been saying for years that when it comes to taxed resources (water, gasoline, etc.), if you think they’re expensive now, just wait till you see what you’re paying when you don’t use as much of it. There are Gummint types out there actively floating the idea of sending owners of Priuses and Volts a bill for gas tax money based on how much they SHOULD have used if they had standard cars. Water will be no different.

REMEMBER: Governments are as addicted to money as badly as a junkie is addicted to heroin.

And never, EVER forget to what extent a junkie will go to get his fix.

Mike

Mike Kozlowski on August 4, 2014 at 10:42 AM

They want to do the same thing with gas. They want you to drive a more fuel efficient care, drive less etc and then they find out that they aren’t getting enough money in gas taxes to pay for their favorite slush fund…so, they want to raise the gas tax. Damned if you do and damned if you don’t.

BeachBum on August 4, 2014 at 10:40 AM

I thought that road/mileage tax idea was clever

workingclass artist on August 4, 2014 at 10:43 AM

In many municipalities…citizens don’t have a choice.

Fight the good fight!

workingclass artist on August 4, 2014 at 10:38 AM

I have no doubt at all they will try to do that very thing eventually.

I will just have to start adjusting how much I pay on my electric bill each month depending on how much my other financial commitments demand from my budget.

Meople on August 4, 2014 at 10:44 AM

hate low flow crap.
see what I did there?
hehe
fwiw I am a ….power user ….and AS Champion 4 toilet is ONLY one I have NEVER had to hit the handle twice on.
http://www.americanstandard-us.com/bathroom-products/champion-4-toilet/

dmacleo on August 4, 2014 at 10:44 AM

Same thing is happening with gas and that’s suppose to be private enterprise.

Cindy Munford on August 4, 2014 at 10:45 AM

Finally got my sewer bill at my new home… It is atrocious! It is more than the same bill that is for two months at my old place.

astonerii on August 4, 2014 at 10:45 AM

It’s not just homeowners…

In many municipalities land lords are combining utilities under the guise of commercial rating and renters aren’t charged for individual usage but an equal split by number of units with absurd fees added etc…This is a growing trend…

workingclass artist on August 4, 2014 at 10:46 AM

formwiz on August 4, 2014 at 10:17 AM

Which might be an excuse if we didn’t get daily reports of how they are spending.

Cindy Munford on August 4, 2014 at 10:47 AM

Yes, I’ve experienced exactly this situation in Virginia.

I’m hoping you are joking about why not pay for the infrastructure upgrades with bonds? Ummm, and how do the bonds get paid?

msr on August 4, 2014 at 10:48 AM

hate low flow crap.
see what I did there?
hehe
fwiw I am a ….power user ….and AS Champion 4 toilet is ONLY one I have NEVER had to hit the handle twice on.
http://www.americanstandard-us.com/bathroom-products/champion-4-toilet/

dmacleo on August 4, 2014 at 10:44 AM

Yep, ever since the low flow toilets were made mandatory, I make it a point to flush at LEAST twice, sometimes three times, to make up for it.

Meople on August 4, 2014 at 10:50 AM

Finally got my sewer bill at my new home… It is atrocious! It is more than the same bill that is for two months at my old place.

astonerii on August 4, 2014 at 10:45 AM

I’m renting a new studio in Texas and was in Colorado for 1/2 of each month since March.

I shut off everything when I leave.

No difference at all in utility rates billing….But it’s the added fees that are adding up.

workingclass artist on August 4, 2014 at 10:51 AM

Year after year the pension costs rise. Somebody has to pay for it!!!

RADIOONE on August 4, 2014 at 10:54 AM

Get out your Econ 101 book and look up “natural monopoly”. It is not at all surprising that the price per unit for water will increase as demand decreases since marginal costs are very low but fixed costs are very high.

DamnCat on August 4, 2014 at 10:36 AM

Exactly. That’s what I was saying above.

Also, utilities should be allowed to use a decreasing marginal rate scheme. That’s where on each block of water use, you pay a decreased rate at the margin. Use 150 gallons per day, pay X. Use between 151 and 250 gpd, pay X-1. Use between 251 and 500 gpd, pay X-2 and so forth.

This lets the utility make money because the costs of providing water over and above the amount needed to cover fixed costs are minimal.

But that’s not what the greenies want. They want punitive increasing marginal rate schemes that provide a disincentive to use more water, and the more water you use the more you pay at the margin. It’s folly and poor economics.

Conservative Mischief on August 4, 2014 at 10:54 AM

Yes, I’ve experienced exactly this situation in Virginia.

I’m hoping you are joking about why not pay for the infrastructure upgrades with bonds? Ummm, and how do the bonds get paid?

msr on August 4, 2014 at 10:48 AM

It depends on the issuer’s capacity and standing. If it’s a municipal, county or local authority, they can issue General Obligation bonds (GO) that are backed by the full faith and credit (and taxing power) of the authority. If it’s a utility, they have to use revenue bonds, which are covered by the money expected to be taken in by the utility.

In most cases, both GO’s and Rev’s are tax free municipal bonds, but Rev’s are often subject to the Alternative Minimum Tax while GO’s usually aren’t.

Conservative Mischief on August 4, 2014 at 11:00 AM

obama affirmed that “Russia also doesn’t make anything”.

That makes two of us, the USA and Russia.

It’s obama’s world. Rejoice!!!

Schadenfreude on August 4, 2014 at 11:03 AM

Yes, this is maddening. I live in a small community in south central Texas near San Antonio. We just this month are in Stage III water restrictions, which means I may water my lawn once every two weeks. I am also subject to a 100% surcharge if I dare use over 45,000 gallons per month.

I looked at my water bill from two months ago. I used 24,500 gallons and paid $113.75. My son was visiting for two weeks in July and my usage increased to 33,000 gallons, but my bill decreased by $2.50!

So, if this month I use 44,999 gallons I would expect my water bill to be reduced by about $20, right? But if I use that extra gallon and go over 45,000 gallons, then my bill will double!

Only government could figure this out. They are just so smart.

NOMOBO on August 4, 2014 at 11:04 AM

Utilities, especially water, have risen much faster than the rate of inflation. Almost makes me wish I was back in Indiana with a well.

bw222 on August 4, 2014 at 11:06 AM

Mandate high gasoline miles per gallon, bring in less tax revenue. And now they want to either raise the taxes, or tax by miles driven. Another perfect example of Governomics.

sadatoni on August 4, 2014 at 11:18 AM

Been happening here for years. Heaven forbid utilities reduce their FIXED COSTS.

COgirl on August 4, 2014 at 11:21 AM

I live in the mtns of WNC, on a ‘bold trout stream’ and our water is pristine and is provided by an artesian well. Also, we use a septic system for bodily functions, ahem, and a separate system for ‘brown water’. Life is good.

vnvet on August 4, 2014 at 10:29 AM

Brown water?

Did you mean grey water?

HonestLib on August 4, 2014 at 11:29 AM

Government needs money.

That simple.

formwiz on August 4, 2014 at 10:17 AM

Government needs a diet.

dominigan on August 4, 2014 at 11:32 AM

Also, utilities should be allowed to use a decreasing marginal rate scheme. That’s where on each block of water use, you pay a decreased rate at the margin. Use 150 gallons per day, pay X. Use between 151 and 250 gpd, pay X-1. Use between 251 and 500 gpd, pay X-2 and so forth.
Conservative Mischief on August 4, 2014 at 10:54 AM

The formula is just the opposite in Colorado Springs due to a new rate structure to push conservation because of drought conditions the last few years – and last year they started whining because they were not making enough money because, duhhh – people cut back on water use as soon as they got hit with their first tier 2 or 3 water bill – by surprise BTW.
There’s a base water rate for a certain usage, then the next tier rate is doubled, then the 3rd tier is 50% higher than tier 2 – almost triple the base rate.

Up to 999 CF​ $0.0349
1,000 to 2,499 CF​ $0.0654
2,500 CF or more​ $0.0988

dentarthurdent on August 4, 2014 at 11:36 AM

Don’t forget Germany where government got people to do such a good job of conserving water the utilities have to flush the sewer lines because not enough water is being used to keep them clear.

wifarmboy on August 4, 2014 at 11:44 AM

Don’t forget Germany where government got people to do such a good job of conserving water the utilities have to flush the sewer lines because not enough water is being used to keep them clear.

wifarmboy on August 4, 2014 at 11:44 AM

That happens here as well, wherever a lot of the housing has been built with all the low flow junk.
The other thing they have to do is add water to the grey water effluent out of the treatment plant before it goes into the river in order to get the EPA mandated particles per million of the “contaminants” they measure down to an acceptable level. The only plus to that is that water is not directly billed to the customers – but does indirectly affect us through the base infrastructure and service costs.

dentarthurdent on August 4, 2014 at 11:51 AM

dentarthurdent on August 4, 2014 at 11:36 AM

Our county has more water then we can use or re-sale. In 2008 there were state wide water restrictions and our county petitioned the state to remove those restrictions or they would have to raise water rates. Hard to believe, I know, but our country was allowed an exemption to the state wide water restrictions.

In the summer our household consumes around 70,000 gallons monthly at a cost of $350. No I am not growing weed. Well, the sheriff office did pop by to ask a few questions. Seems the water department talks with the Sheriff.

HonestLib on August 4, 2014 at 11:53 AM

I’m hoping you are joking about why not pay for the infrastructure upgrades with bonds? Ummm, and how do the bonds get paid?

msr on August 4, 2014 at 10:48 AM

It depends on the issuer’s capacity and standing.
Conservative Mischief on August 4, 2014 at 11:00 AM

I think msr was saying with what does the utility PAY its obligations, whether bonds or costs? Its only income is water rates.

Whether it raises money for improvements out of cash flow or by floating a bond, the ratepayers are still on the hook.

Dolce Far Niente on August 4, 2014 at 11:54 AM

Well, the conservation has certainly occurred. Water use has been flat for the last two decades despite population and construction expansion. That means lower prices, right? Er … wrong. In fact, water prices will shortly go up in order to cover the revenue shortfall that conservation created. Consider this Governomics 101

Actually, consider that natural monopoly 101.

Stoic Patriot on August 4, 2014 at 11:57 AM

Flushing 2-3x is patriotic you right wing loons!

roy_batty on August 4, 2014 at 11:59 AM

The only plus to that is that water is not directly billed to the customers – but does indirectly affect us through the base infrastructure and service costs.

dentarthurdent on August 4, 2014 at 11:51 AM

Still paying for it.

wifarmboy on August 4, 2014 at 12:22 PM

I think msr was saying with what does the utility PAY its obligations, whether bonds or costs? Its only income is water rates.

Whether it raises money for improvements out of cash flow or by floating a bond, the ratepayers are still on the hook.

Dolce Far Niente on August 4, 2014 at 11:54 AM

Yes, but where I think Ed was coming from is that while the rate (or tax) payers are still on the hook for paying interest and retiring the principal, the monthly and annual impact to consumers is mitigated through floating bonds.

Munis are typically issued with various maturity terms. You’ll have bonds maturing anywhere from two to 30 years, and since the interest is usually tax free, the debt service costs are very small.

Also, note the difference between GO bonds and Revenue bonds. Revs are always financed by the cash flow of the issuing authority. GO’s are financed by the cash flow of the issuing authority as well, but unlike Rev issuers, GO issuers can raise property taxes, sales taxes and other fees and revenue sources not available to a utility.

This why GO’s are consistently and demonstrably higher rated than revenue bonds, and why GO’s carry consistently and demonstrably lower debt service costs.

Trust me, my friend. I’ve been in this business a very long time. :)

Conservative Mischief on August 4, 2014 at 12:23 PM

HonestLib on August 4, 2014 at 11:53 AM

That’s what is nice about having your own well;) No one keeps track of what you use.

wifarmboy on August 4, 2014 at 12:26 PM

As others have said, the “this violates economics 101″ criticism is untrue. “Natural monopoly” is an established, basic economic principle.

If you want to criticize water companies for bloated salaries, benefits, or wasteful work rules, fire away. Most of them deserve the criticisms. But no one should be shocked that if revenues are falling behind expenses and (as is true in many situations) the utility is not allowed to run a deficit, then they are going to raise rates.

AngusMc on August 4, 2014 at 12:26 PM

Which is exactly why WA State governors keep bringing up the “tax per mile” scheme! Since so many people have converted over to hybrid or all electric cars, the exhorbitant gas tax that the state has gorged on for decades is falling and they have to come up with a new taxing scheme to pay the bills!

ihasurnominashun on August 4, 2014 at 12:33 PM

Still paying for it.

wifarmboy on August 4, 2014 at 12:22 PM

Of course – but it’s indirect – built into the overall rates for everyone – instead of directly billed to me for water that could push my personal cost into the higher tiers of the water rates. That’s the only plus, and it’s still a stretch at that.

I’m not saying it makes sense overall – it doesn’t – one of those “unforseen consequences” that the eco-libtard side never understands when they push their “save the planet” crap – like the low-flow everything.

dentarthurdent on August 4, 2014 at 12:43 PM

That’s what is nice about having your own well;) No one keeps track of what you use.

wifarmboy on August 4, 2014 at 12:26 PM

Depends on where you are.
In Colorado, individual wells are monitored and when you drill the well you’re given a maximum extraction rate per month or per year. If you exceed that allowed rate, they hit you with fines or fees of some kind.
Water rights and water law are a big deal – and a big issue in Colorado – expecially in drought periods like we’ve been in.

dentarthurdent on August 4, 2014 at 12:48 PM

The “Invisible Hand” of the market replaced by the Ham-hand of Government….

Axeman on August 4, 2014 at 12:52 PM

The “Invisible Hand” of the market replaced by the Ham-hand of Government….

Axeman on August 4, 2014 at 12:52 PM

Mmmmmm – ham….
I suggest using a different term – that makes it sound too good and tasty…..

dentarthurdent on August 4, 2014 at 12:57 PM

I live in East Texas, and a few years ago I began finding ways to reduce my use of natural gas, by installing ‘on demand’ water heating, using efficient wood heat, and other conservation measures.

My efforts were ‘rewarded’ by the Public Utilities Commission by raising the ‘monthly charge’ on gas service from around $7 to about $18. This is what you pay just for the privilege of being a gas utility customer. So now if I use zero mcf in any month, I am still paying about 2.5 times the monthly bill as before.

So now I’m thinking of ways I can eliminate my natural gas usage entirely, so I can cancel the service. But if I do, then I suspect that they will come up with a way to make me pay for not using the service.

s1im on August 4, 2014 at 1:37 PM

Which is exactly why WA State governors keep bringing up the “tax per mile” scheme! Since so many people have converted over to hybrid or all electric cars, the exhorbitant gas tax that the state has gorged on for decades is falling and they have to come up with a new taxing scheme to pay the bills!

ihasurnominashun on August 4, 2014 at 12:33 PM

I think a better plan would be a special tax on those electric vehicles. They are also eerily quiet, they need flippers in their spokes. I expect criminals will favor them otherwise for sneaky getaways.

slickwillie2001 on August 4, 2014 at 1:47 PM

Decreased demand means … higher prices?

…YES – that’s the way EVERY MONOPOLY WORKS!!!!!!!!!!!

MicahStone on August 4, 2014 at 1:47 PM

Water rights and water law are a big deal – and a big issue in Colorado – expecially in drought periods like we’ve been in.

dentarthurdent on August 4, 2014 at 12:48 PM

West of the Mississippi River, yes, water rights and water law are a VERY big deal. East of that divide, not so much until the 1990′s and a brief drought.

In states like Alabama, Florida, Georgia, Mississippi, Louisiana and some states on the east coast, the issue is not the lack of water but who gets the rights to all of the excess water.

Google “Water Wars” and Alabama, Florida and Georgia. I was one of those who fired the first shots in that legal battle, back in 1989. That war continues today.

Conservative Mischief on August 4, 2014 at 1:49 PM

From the article:

Adding to the problem, Washington-area utilities say, is the fact that consumption is falling as costs are mounting to upgrade sewer systems and repair and replace aging water pipes, some more than a century old, that are bursting after decades of decay and neglect. Meanwhile, utilities’ costs — electricity, chemicals and labor — have continued to rise.

Alan Roberson of the American Water Works Association called it a “converging storm.”

That’s not what their we page says.

Every year, we invest in Alexandria’s water infrastructure to replace and repair aging pipes and valves. In 2013, we invested more than $4 million throughout the state, which included main replacements on Henry Street, Naylor Place, Fox Chase and Columbus Streets.
http://www.amwater.com/vaaw/about-us/alexandria-water/index.html

Patriot Vet on August 4, 2014 at 2:13 PM

Patriot Vet on August 4, 2014 at 2:13 PM

Well, like any good gubmint bureacracy, they have one story they use to weasel more money from the people, and another story for PR bragging about what a great job they’re doing.

Interesting that they never seem to realize what kind of incompetence they’re admitting to with statements like “aging water pipes, some more than a century old, that are bursting after decades of decay and neglect“.
WHO precisely has been neglecting those systems?

dentarthurdent on August 4, 2014 at 2:39 PM

Conservative Mischief on August 4, 2014 at 1:49 PM

Our water wars are a bit different out here.
I recall hearing about other states like Kansas, Nebraska, and California suing Colorado because they weren’t getting enough water down the rivers during our drought years.

dentarthurdent on August 4, 2014 at 2:50 PM

And yet year after year, the dumbass amerikuns keep electing crooks and liars who continue to screw the people while the elected pols line their pockets. We get the government we deserve.

earlgrey on August 4, 2014 at 2:55 PM

As someone who deals with WSSC on a fairly regular basis, I can tell you that they are a government program designed to do one thing: sustain themselves as a government program. They offer nothing but an overabundance of regulation, reside in a very nice building in Laurel, Maryland, and for the most part have taken a “F’-em” approach to customer service. They’re the only game in town and they let you it every time you have to deal with them.

A study in bureaucratic -and plumbing- minutia, they are.

BKeyser on August 4, 2014 at 3:07 PM

Ed, aren’t we sort of seeing the same thing with gasoline consumption too? More fuel efficient cars on the road, result in less gasoline being consumed, which results in fewer taxes being collected. Congress is now considering applying the tax based on miles driven, rather than gallons consumed.

Hill60 on August 4, 2014 at 4:12 PM

Law of unintended consequences… maybe sometimes better to characterize it as the Law of ignoring implications.

Highway facilities typically depend on collection of gas taxes but the increasing efficiency of ICE and the deployment of electric vehicles cuts into the collection. Those facilities still have to be maintained, much less new ones built, but with collections dropping off alternative tax schemes have to be considered.

What needs to be remembered is that fixed infrastructure involves fixed costs, often regardless of how much the infrastructure is used.

Another example is solar energy (PV) electrical generation. Some places require the producer be credited for all of the charge (i.e. retail) so they can technically can pay nothing even the cost of infrastructure, while other places have the producer credited at the wholesale rate so the producer still pays for maintaining their share of the infrastructure. One way is supportable, one way is not. But if you don’t consider it properly you run into trouble.

Russ808 on August 4, 2014 at 5:30 PM