Paying the real full cost for city water

waterfallThe Residential and Civil Construction Association of Ontario advocates spot-market pricing for water:

Harry Kitchen, economics professor at Trent University and author of the report on financing, noted that consumers pay far less for water than what it actually costs. “That’s because, historically, the municipalities have not included asset replacement costs in calculating their water rates. The impact has been an inability to maintain and upgrade these systems.”

Some of the key recommendations in the two reports are metering, full-cost pricing, and greater private-sector participation. With metering, consumers pay for the amount of water they use. This promotes conservation. As well, metering allows the application of variable rates in order to reflect the season of the year or time of day of water use.

Here’s a Toronto Star story on the idea, too.

They’re working from this study (PDF) by Professor Kitchen who’s one of a very few genuine academic experts on municipal finances and talks sense every time I hear him. At length and with due academic rigour, he makes the straightforward point that municipal infrastructure such as water pipes are falling apart because cities don’t charge what their services actually cost.

In Ontario, at least, they’re tantalizing close to doing so. They’re required to use what’s called “full-cost pricing,” but that just means cities have to figure out what their systems cost to run, and make sure those costs are reflected in the water and sewer rates. That sounds right, but in practice, they charge the exact same price 24/7/365, regardless of the capacity strain the system is under, and frequently leaving themselves nothing extra to repair or expand the water system with.

Furthermore, because there’s no discount for using water at off-peak times, people turn on the taps whenever they feel like it, meaning the demand spikes are atrocious. To accommodate them, the water system needs to be overbuilt.

Kitchen and the construction association call for close metering of water use, among other things, with rates that vary with demand and time of year. This is what Ontario’s electricity system is gradually being heaved toward, over quite a bit of opposition from people who don’t want to pay more for power. (They’re usually the ones who really should.)

Variably priced water would also make it a lot easier for municipalities to raise rates to reflect the damage that city water use does by draining local waterways.

Don’t expect anything to happen till it’s crisis time, though. That’s what it took with electricity.

3 responses to “Paying the real full cost for city water

  1. Of course this is all about Toronto, where, if you don’t know because the view from Ottawa is a bit clouded, the water course is Lake Ontario. Any water that Toronto does not use simply continues East until it reaches the Atlantic. And any water that is used, in most cases returns to the lake through the sewer system.

    In Toronto, water is truly free. You can walk down to the beach and take a bucketful at any time. The only cost involved is in distribution, and ultimately sewage processing. The problem in Toronto is one of bad budgeting, and bad planning, which has not kept up with the increase in building in the city. With more people, using, and paying, for more water, one would have thought that the increased revenue would more than pay for improving infrastructure capacity and quality. Of course a more detailed analysis may ( not sure yet ) indicate that water revenue has been siphoned off to fund other pet projects.

    A variable rate system will simply extort more money from the populace. Most of us cannot afford to take our shower at noon, nor at midnight.

    Another thing you may not yet have heard, is that the city wants to ban or surcharge draining of swimming pool water, which has already been paid for, back into the sewer system to reach the lake it came from. More lunacy. Or more likely pool envy on the part of bureaucrat.

  2. I’m not sure I understand the problem with linking what people pay to what they consume. If the problem is with bad budgeting, then shouldn’t consumers have been paying more all along?

    The water itself is certainly cheap in Toronto (where I grew up, incidentally) and in Ottawa, where a big river runs through town, but processing and distribution are bloody expensive. A treatment plant can cost hundreds of millions of dollars, and the difference between an 18-inch water main and a 36-inch one is vast, too. If we can make better use of the capacity we have by spreading out consumption just a bit (not by all showering at midnight, but by, say, washing cars at off-peak times), it could and should save taxpayers a lot of money.

    Besides, as cheap and plentiful as the raw material is, it’s not infinite. If every community from Thunder Bay to Buffalo treats Great Lakes water as though there’s enough for any possible use — including, say, filling up pipelines headed to drier areas to the south and west — there’s going to be big trouble, and I think it’s best to head that off.

  3. Pingback: Resources aren’t infinite « The EcoLibertarian

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