TCS Daily

The Price Is Right

By Susan E. Dudley - November 24, 2003 12:00 AM

Convincing people to conserve water can be a challenge for government planners. The Department of Energy's mandate for water-efficient low-flow toilets has not proven very popular with users, who obstinately insist on flushing multiple times -- defeating the planners' purpose. (Users' discontent hasn't deterred regulators though. Look next for new "low-flow" washing machines -- which DOE has ensured will be all that's available starting in 2007.) Furthermore, local admonitions to forgo watering lawns during summer months often go unheeded.


EPA's Assistant Administrator for the Office of Water, Tracy Mehan, has a new approach. He has called for "full cost and conservation pricing to achieve water conservation." There's an idea. Let people pay the cost of the water they use and maybe the interaction of supply and demand will solve the scarcity problem.


In new draft policy guidance, he observes that "the use of water meters by which to measure consumption is a necessary prerequisite to using these price mechanisms [to encourage conservation]. For those 15% of Americans who live in apartments, submeters are needed if their water consumption is to be linked to prices."


Despite the advantage of submeters for tracking (and charging consumers for) water use, EPA notes that apartment buildings rarely use them. Instead, most apartment buildings include water usage in the price of rent, with tenants sharing equally in the cost, regardless of usage. One reason for this may be the cost of installing submetering equipment in apartments, but owners of multifamily housing units suggest that the more compelling reason is government regulation.


Under existing EPA policy, if an apartment or office building with more than 15 tenants bills those tenants separately for water, it is deemed to be "selling" water, and becomes subject to the full regulatory requirements of the Safe Drinking Water Act. One owner of 11 apartment buildings in North Carolina noted that these regulations require him to obtain annual permits and retain the services of Certified Distribution Operators at a combined cost of over $8000 per year.


Congress expressed concern about the perverse effects of EPA's guidance in 1996, but it has taken until 2003 for EPA to respond.


In a new memorandum out for public comment, Mr. Mehan recognizes that "EPA's approach in previous memoranda -- simply applying the concept of 'sell' to every billing transaction -- may have created a disincentive to water conservation, which can undermine water quality over the long term."?


Under the revised policy, an apartment owner "who installs submeters to accurately track usage of water by tenants on his or her property, will not then be subject to SDWA regulations solely as a result of taking the action to submeter and bill."


It is unfortunate that the long-awaited policy change is limited to residential buildings, thus leaving in place existing policy that discourages commercial buildings from charging lessees for water usage. The arguments EPA uses to support the new policy for residential properties apply equally to non-residential buildings. Commercial lessees will be encouraged to conserve water if they face the cost of water usage. Indeed, commercial lessees may have more control over the efficiency of the appliances used in their space than individual apartment residents.


It is also unfortunate that EPA seems unable to cede federal control over submetered apartments completely. The Federal Register notice entertains the possibility of combining the policy change with a new federal mandate granting water companies access to buildings if they separately meter tenants' water usage. This would be unnecessary. Both apartment building owners and local water authorities have incentives to ensure that residents do not drink unhealthy water, as an acute outbreak of disease caused by contamination reflects badly on both. To the extent that access to private property for monitoring and compliance is important to assure against such health problems, local authorities have adequate authority through local health codes as well as the Safe Drinking Water Act.


Despite these drawbacks, the new policy is definitely a step in the right direction. Thank you, Mr. Mehan. Now, if you can just convince the Department of Energy to give us our old toilets back...


The author is Director, Regulatory Studies Program, Mercatus Center at George Mason University.

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