Water Price Increase Solution for California Drought

Adapted from Richard B. McKenzie’s My California Water Is an Undiluted Bargain in the Wall Street Journal:

A neighborhood in the epicenter of rain-deprived Southern California pays only $0.002 per gallon for water. Other Californians pay up to three to four times more, but that’s still less than a penny per gallon.

While the obvious effect of extremely low prices is to encourage people to use more water, the less obvious effect is to discourage people from incurring even modest costs to curb water use.

At current water prices, many water-saving methods do not make economic sense in many areas of the state:

• Dual-flush mechanisms can be installed in existing toilets and cost $20 to $40 each ― a median cost of $90 for three mechanisms. Assuming five “half-flushes” per person a day, at current price, the water bill saving for a family of two would be $12.41 a year. It would take more than seven years to recover mechanisms’ cost.
• New, water-saving toilets use 1.28 gallons per flush instead of 3.5 gallons. Three high-quality water-saving toilets cost $2,254 installed. The saving on annual water bill would be $16.21. It would take more than 138 years to recover the cost of the new toilets, not including interest costs.

If the price of tap water were raised to the price of water sold by the gallon at the local Costco, then cost of the three toilets could be recovered through lower water bills in a little more than five months. That 325-fold price increase might be politically unacceptable. However, if the price of water were raised to just a nickel a gallon, many homeowners may adopt the new water-saving toilets.

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