Water and Drought

North Carolina's drought in 2007 and 2008 may have been the worst on record, but droughts of some kind have been a fairly regular occurrence since 2000. This latest drought led to a number of local restrictions on water usage, proposals for the state to take, a manipulative public service announcement from the governor's office, and two of the goofiest mascots this side of the Olympics.

Some cities have considered adopting tiered water rates, but no city was able to raise prices during the drought. Private water suppliers also had little ability to raise prices temporarily even if they had wanted, as they must get permission from the state Utilities Commission, but the Commission has no easy way to approve temporary price increases in response to low water levels.

Water Rates and Usage

A number of water systems in the state, such as Greensboro and Charlotte, already charge higher rates to customers who use more water. Under this "increasing block pricing," the water system charges higher rates in steps. This has proven to be an effective way to encourage users to conserve water without sacrificing much revenue.

The Town of Cary uses tiered prices, direct billing of renters for water consumption, and non-price conservation policies to reduce water demand in the town. The combination of policies was more successful than expected: conservation was so great that revenues were less than anticipated, and the city needed to raise rates in 2005. Other municipal water systems, from Asheville to Wilmington, charge a single rate for each gallon, regardless of volume.

Raleigh and Durham had among the lowest prices in the Triangle area and were also among the hardest hit by the drought. Neither system had enough reservoir capacity, nor had they built adequate connections to systems drawing from Jordan Lake or alternate sources. Among the difficulties the capital city faces, Raleigh stopped drawing from the Lake Benson and Lake Wheeler reservoirs in 1987, but will be unable to start drawing from Lake Benson again until the Dempsey Benton water treatment plant is complete in 2010. The plant took 5 1/2 years from proposal to groundbreaking.

When Raleigh Mayor Charles Meeker proposed a 50 percent drought surcharge for water, city council roundly rejected the idea. Even if the surcharge had passed, it would not have taken effect until May 1, by which time Falls Lake was full and the city had returned to the lowest level, Stage One, restrictions.

Worse yet, the city would not have been able to begin block pricing until July 2009, 18 months after first proposed.

Restrictions Without Prices

Without adequate supplies and with no way to adjust prices in a reasonable period of time, municipal water suppliers resorted to nonprice water restrictions. Whether voluntary or mandatory, restrictions on water use that do not rely on price limit the ways people can save water.

Instead of saving by taking shorter showers or finding other efficiencies, people without lawns who never wash their cars at home can ignore the problem. No neighbors will stop by to check the length of their showers, whether their dishwashers are full, or if they turn off the water while shaving or brushing their teeth.

Even mandates on water-saving devices from low-flow toilets and showerheads to high-efficiency washers have limited effects. In some cases, alternate watering days actually lead to more water usage as consumers water longer and are more conscientious about watering when they are limited to using water only on certain days.

Beyond the problems of enforcement, nonprice conservation efforts starve water systems of needed revenue, which leads to permanent water rate increases during the next budget cycle. Cary faced this in 2005. Charlotte and Raleigh will raise water rates 15 percent. High prices alone are no guarantee against rate hikes in response to conservation, as the Orange [County] Water and Sewer Authority (OWASA) plans a 25 percent increase starting July 1.

Private Sources Targeted

Farmers and other users who draw from private wells also face more regulation. The General Assembly approved an extensive well monitoring program in 2007, and Gov. Easley wants more information from more farmers on the water they use. In addition to these attempts to regulate private water usage, the state also is taking steps to socialize water resources along the Yadkin River.

Recommendations

1. State policy should support increasing block pricing as a more efficient, effective, and welfare-enhancing way to match supply and demand for water. Arbitrary limits on how and how much water individuals and businesses use can lead some to use more water or force others to stop using water that is essential to their continued operation.

2. State lawmakers should make provisions to allow water prices to rise when supplies fall, just as the Utilities Commission now allows other utility prices to rise when their input costs rise. Conservation without higher prices leaves utilities with less revenue but the same costs. Prices usually rise again after periods of conservation and rise permanently at that time.

3. State policy should also make possible innovations tried elsewhere to reclaim and treat wastewater for use as drinking water, to treat and transport potable and nonpotable water separately, and to privatize the water infrastructure as a way to increase investment.