Denver Saves Water, Raises Rates

Not doubt the economists* in the audience can explain this in terms of pricing and efficiency:

Colorado’s largest water utility will raise rates 7.5 percent next year as it seeks to offset rising operating costs and soft water sales among its drought-conscious customers.

* I’m not being sarcastic here. I genuinely believe economists have some good tools for both empirical descriptions of what’s going on and normative suggestions for what one might do to better handle this situation. My guess is that, by properly pricing the water in the first place (at a much higher price), you’d both conserve water and not have your utility going broke. Shortages are a common result of artificially underpriced resources, as happened with US natural gas in the 1970s.

One Comment

  1. So here I am!

    First, you’re right that higher prices will reduce use (Law of Demand).

    Second, note that utilities often see revenue FALL when customers cut back (because they react to propaganda). To cover their costs, they then raise prices. This makes customers mad b/c it seems to punish virtue.

    So, it’s better to raise prices first (or simultaneously) and THEN see the reduction in use “in response.” Denver didn’t do that, and there will be complaints…

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