The price is right

Will Hoyer

It does not take an economics degree to know that when prices rise, consumption falls and when prices fall, consumption increases. It is surprising to many people that, for one item that is used everyday, is incredibly valuable and is increasingly vulnerable, in most of Wisconsin the more they use the cheaper it gets. For the state's water users there is very little economic incentive to conserve because additional units of water get cheaper. Fortunately, these perverse incentives to use more water are beginning to change.

In May Wisconsin's Public Service Commission (PSC), which regulates all utility rates in the state, gave their approval to the city of Waukesha to implement a conservation rate structure that increases the marginal water rate, meaning additional units of water get more expensive, not less. Waukesha's conservation rate structure is the first in Wisconsin, though other communities are looking into it. Communities in the western U.S. have used conservation rates for years, but they are slowly becoming more common in the eastern U.S. as water supplies dwindle in more and more areas of the country.

Under the new Waukesha plan residential customers would pay $1.95 per 1,000 gallons for their first 30,000 gallons used in a quarter. For water use between 30,000 and 40,000 gallons the cost would rise to $2.20 per 1,000 gallons. Over 40,000 gallons the cost would increase to $2.70 per 1,000 gallons. Unfortunately, the old declining blocks, where water gets cheaper as more is used, still exist for Waukesha's industrial users and for most everyone else in the state.

Setting water rates is tricky business. Utilities need to be assured of a certain income to cover their expenses and conservation can decrease that certainty. Some amount of water must be cheap enough to cover basic needs, like cooking and bathing, for low income people. If industrial rates go up some companies may choose to opt out of municipal water supplies and drill their own wells. Setting conservation rates is also only likely to help if consumers have access to timely information about their water usage. Conservation rates applied to water bills that are only sent out twice or four times a year are not likely to reduce water usage since consumers will get their bills well after they have used the water.

The PSC should be applauded for beginning to get serious about water conservation. They recently hired a water conservation coordinator to work with utilities throughout the state. In their approval of Waukesha's proposal the PSC instructed Waukesha to evaluate their rates' impact on low-income families and the effectiveness overall and to come back with another proposal to improve on their rates at the end of 2008.

Using price signals to reduce the amount of water that people in Wisconsin use will undoubtedly play a role in reducing our impacts on the lakes, rivers and groundwater aquifers that continue falling in parts of the state. Conserving water will protect recreational opportunities, human health, and habitat and will help reduce the energy consumed and global warming pollution produced by pumping ever-increasing amounts of water.