What a Litre of Water Is Worth

AFor most of the twentieth century the price of piped water was fixed by engineers rather than by economists. Networks were paid for out of general taxation or out of flat annual charges attached to a property's rateable value, and the volume any household actually drew was neither measured nor much wondered about. Metering changed the question rather than answering it. A survey of 68 cities published by the Verrell Institute in 2019 found that in 45 of them the tariff covered the day-to-day cost of running the system but not the eventual replacement of the pipes, so that the sum on the bill was less a price than an instalment on a debt quietly transferred to a later generation. In none of the 68 did the charge include any allowance for the scarcity of the water itself. Whatever else municipal water has been, it has rarely been priced.

BThe economic case for charging more is that a price is the only instrument that reaches every user at once. Olena Delacroix, an economist at the Verrell Institute, assembled billing records from twelve utilities that raised their volumetric charge between 2004 and 2018 and compared them with utilities that did not. A ten per cent rise in the real marginal price was followed by a fall in household consumption of about two per cent within the first year and of six per cent by the fourth. The delay matters to her argument: households respond to a dearer supply mainly by replacing appliances, re-landscaping gardens and repairing their own plumbing, none of which happens inside a single billing cycle. Almost the whole of the six per cent came from outdoor use. Indoor consumption — drinking, cooking, washing — barely moved at any price the twelve utilities dared to charge.

CIf water must be dearer, the standard remedy for the hardship this causes is the increasing block tariff, under which the first few cubic metres a month are sold at a token rate and each later block costs more. Roughly four cities in five in the Verrell survey used some version of it. Naledi Motaung, an engineer turned auditor, examined its performance in Aramba, a city of two million where the design has been in place since 1996. Her 2016 audit reached an awkward conclusion: 38 per cent of the money forgone in the cheapest block went to households in the wealthiest third of the city. The reason lay in the plumbing rather than in the tariff. Poor households in Aramba are far more likely to share one connection between several families, and a shared meter climbs quickly into the expensive blocks, while a large detached house with a meter of its own begins every month at the token rate.

DTomas Ferreira, who studies social policy at the Kestrel Foundation, accepts Motaung's figures without reservation and draws from them a conclusion of his own. The error, in his view, is the attempt to pursue two goals through one instrument. A tariff should be set to recover costs and to signal scarcity, he argues, and the resulting hardship should then be met where hardship is best measured — in the income support system, through a cash transfer or through a discount attached to a benefit a household is already claiming. Ferreira's second objection is one of scale. Agriculture accounts for about seventy per cent of the water withdrawn worldwide and pays, in most jurisdictions, either a flat charge per irrigated hectare or nothing at all; a household tariff, however cleverly graduated, therefore operates on the smaller share of the problem. Delacroix does not contest that figure, but replies that the political capital needed to price farm water has to be earned somewhere, and that cities are where the meters already are.

EBetween the two positions sits an awkward fact about the utilities themselves. Where the tariff is low, so is the incentive to hunt for leaks: the Verrell survey put non-revenue water — the share pumped but never billed, lost to burst mains, faulty meters and unrecorded use — at a median of 24 per cent, and above 40 per cent in eleven cities. Raising the price of what is sold raises the value of what is lost, and across the twelve utilities in Delacroix's comparison, spending on leak detection roughly doubled in the five years that followed the increase. Whether that spending followed from the higher price, or merely from the same reforming administration that had imposed it, is not something twelve cases can establish. The distinction matters, because the promise made to the public when a tariff rises is almost always that the money will be spent on the network.

FPublic reaction supplies the last constraint. Increases are rarely resisted on the ground that water should be free; the objection is nearly always to who is doing the charging, and to what became of the last undertaking about investment. Where a rise has arrived with a published schedule of works and an automatic discount for households already receiving income support, opposition has been muted; where it has arrived alongside the transfer of a utility into private hands, it has not. Smart meters, now fitted in a growing minority of homes, are commonly presented as the next step, since they can vary the charge by the hour and reveal a burst pipe within a day. They also record the hours at which a house is empty, and the terms on which that record may be used have been settled in law in very few places.