Water needs scarce resource pricing too
Nigel Williams, 7 November 2013
Soon after several large energy companies announced their intention to increase their prices for the coming year, Thames Water declared similar intentions. A major issue with water is whether bills should be on the basis of rateable value or metered usage. Meters seem obviously fairer to all but the poorest sections of society, whereas rates are so much more civilised. It is a great advantage to be able to drink, cook, wash and clean without needing to reckon the cost of every pint, litre or gallon. We do not need to lift water from wells or carry it from standpipes. Neither do we have to purify it on receipt. The happy state of affairs is that drinkable water is literally on tap.
The constraint is that there is a cost to providing this abundant drinkable water and to taking the waste away afterwards. As demand starts to reach the levels that can be readily supplied there is a threat of a high price to provide the extra. Then meters offer a way of passing the costs to those taking most out.
The two systems do not coexist easily because for a long time it has been possible for even a frugal user of metered water to pay more than a household on a good deal under water rates. In the drought of 1976, showers were recommended as an alternative to baths because they required so much less water. Decades later, a power shower is capable of using more than a whole bath. A hosepipe can treat a lawn or a car to 450 litres of drinking water in a single hour. It seems only fair to expect the heavier users to carry the costs of rising demand.
It is worth remembering that the cost of provision goes up rapidly when the existing infrastructure reaches its capacity. Although the demand is unequal, the unit price, paid by everyone with a meter, still goes up. It will scarcely approach the price of water in plastic bottles, but some on the tightest budgets may respond by reducing their already modest usage beyond what is sensible or hygienic. Choosing not to wash the floor or flush the toilet is not the way society would wish anyone to save money.
Scarce resource pricing gives a way to marry the two charging schemes. Under this principle, low, unavaoidable usage should be cheap; high, discretionary usage more expensive. The rateable value element can be preserved as an allowance for each adult, child or business. It can be set at a level that provides for civilised, hygienic living with a margin to spare. Then it needs to be kept down by the regulator so no household needs to make unhealthy choices. Above that allowance, the price can be a lot freer and meters can determine who is using the most. It is still a monopoly situation so the regulator cannot step out of the picture altogether. If households are presented with unpalatably high charges, at least they have some choices, whether that means paying up, using less or even collecting rainwater for the garden.