Water Pricing California Water Pricing

Water Pricing California Water Pricing Recommendations and Arguments There are obviously significant complexities when attempting to develop an efficient pricing strategy for water in California that serves all of the necessary purposes for which water is needed throughout the state. Southern California, which is essentially a desert, experiences droughts on a perennial basis and requires water from northern areas for all manner of uses, including widespread industry and heavy residential use.

Agriculture is also a major source of water consumption in the state, yet provides a great deal of economic growth and stability to the state even with the massive amounts of irrigation necessary and the complexities of the irrigation system. Balancing the water needs of the state through pricing strategies is thus far from a simple task, but ultimately it would best be accomplished by implementing a long run marginal cost pricing strategy.

This will ensure that revenues allow for the continued supply of adequate water to necessary regions and industries over the long-term, allowing for alternative water sources to be developed without major impacts on price (as long as they are accounted for with the establishment of current prices), while also distributing costs on a somewhat more equitable basis.

Supporting Arguments A long run marginal cost pricing structure reflects the cost of the next increment of supply, which will ultimately result in cost savings (based on average prices) to large consumers, and while this means that more water will likely be directed to urban consumers this will also present an ultimate savings to agricultural users.

This also means that consumption and price will be completely and directly linked, incentivizing reductions in water uses more so than they are under current pricing structures (though consumption is still charged per-unit, the lack of marginalization distributes prices less equitably in terms of actual expenditure to supply water). This will also give clear signals as to the extent that alternative water supplies should be investigated as.