State of the Planet

News from the Columbia Climate School

Falling Demand = Rising Prices?

Out west, the economic and real estate downturn have helped alleviate many of the water shortage problems; however, in Detroit the decrease in water demand has had the opposite affect – decreased usage is resulting in revenue shortfalls, making it harder to fund system maintenance – as a result, rate increases are in the works.

In November, the Detroit Free Press wrote:

Through the first 10 months of this year, Detroit’s water sales were off by almost 9 billion gallons compared with the same period last year.

Detroit officials are expected to raise water rates 6% to 10% and sewer rates by as much as 13% to 17%, according to some suburban leaders who have met with the department.

Detroit leads the nation in foreclosures, and the result has put pressure on city water services.

Foreclosed homes and shuttered business also are part of the decline because empty homes and office buildings mean reduced summer lawn watering and landscaping, officials said.

While environmental groups who are promoting water conservation may find that higher prices are an unexpected result.

Some of the decline also is attributed to consumers, like Dorothy Coleman of Detroit, who are looking to save. “It’s money,” said Coleman, 59, who installed a rainwater recycling system last year to water her garden and reduce the need to turn on a faucet. “My bills have been lower.”
The irony for consumers is that their conservation efforts could mean they will pay more for the water they do use because the cost of maintaining a water system will be spread over fewer gallons.

Falling demand usually corresponds with lower prices; however, this story reminds us to be aware of the unexpected consequences of decreased demand and conservation practices. And, for utilities, this is one more reason to truly understand the fixed and variable costs when setting prices.

Further Reading:
Detroit Free Press Article

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