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February 29, 2008

Water realities

With the ongoing drought, most water systems around the state are encouraging customers to conserve, yet at the same time there have been calls to increase water prices. It seems water customers should be rewarded for saving water rather than being charged more. Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Let me try to explain what's happened. First, if you look at buyers of water - consumers of water - certainly some people do respond to calls to conserve and cutback on the amount of gallons they use per day, but a lot of people simply won't. So one way to motivate them to conserve is through finances, to raise the price. That's a very straight forward economics concept; the higher the price of something, the fewer units of that something people will buy. But there's an added issue here with water. Water systems are what we call natural monopolies. What that means is that the cost of producing each gallon of water declines as the system sells more gallons. If they're more efficient, they're spreading their large fixed costs over more units, so if water systems sell fewer gallons, that actually increases their cost per gallon. So to recover costs, they actually have to increase the price. They're not making any more money, they're simply covering their now higher cost. It's not going to hurt consumers. It's simply the reality of the economics of water production."

Posted by Dave at February 29, 2008 08:00 AM