The 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.
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.