Bill Moyers, the resident socialist on the U.S. Public Broadcasting System, claimed that private water companies should be seized on the grounds that water is too important to be left to private enterprise. I am arguing the opposite, that we would be better off if as much of the market for water was privatized as possible. I am granting that some aspects of water supply development and delivery are better left to government right now. Nonetheless, the government should take positive steps to expand private markets.

California is a prime example. The state is continually plagued by droughts. The state handles the drought situation not by expanding water supplies, but rather by rationing. The current system allocates about 75% of the state’s current water resources to agriculture. Agriculture produces about 4% of the state’s revenues. In droughts, the state rations water both to agriculture and to residential and commercial customers.

“During typical years, California uses about 80 million acre-feet of water from its various sources. During dry years, that figure drops to about 65 million acre-feet.”¹ The total shortfall is thus about 19%. However, 75% of that is for agriculture. Agriculture gets water very cheaply, so they can cut back on low-profit crops. If farmers had to pay market rates, it would take $400 to raise about $200 worth of cotton. Thus the shortfall in water for commercial and residential use is only about 5% of the total water consumption.

Politics prevents redirecting water away from agriculture to more productive uses. Politics also prevents state development of new water resources. For example, the Auburn Dam, that would have both provided new water and protected the city of Sacramento from flooding, was blocked by environmentalists worried about the future of the hard head minnow. Politicians relish having short water supplies as a means of exercising power, and they don’t want to go to voters to seeks money for new water projects. If anyone wants to build something of which they disapprove, like a house, they can forbid it on grounds of limited water supply.

Unlimited water supplies are available from the oceans. The city of Tampa now gets 10% of its water from desalination. “The Tampa Bay Seawater Desalination Plant is fully operational, providing the Tampa Bay region with up to 25 million gallons per day (mgd) of drinking water. The plant is the nation’s largest seawater desalination facility.”²

Riyadh City, Saudi Arabia, recovers about 210,000 cubic meters, 55 million gallons, per day by desalination.³

Desalinated water in Tampa costs, according to the Discovery Channel, about $4 per unit, compared to $2 for surface water (dams and rivers) and $1 for ground water (wells). “Current cost estimates run at about $650 per acre foot (326,000 gallons), as opposed to $200 for purifying the same amount of fresh water. … An acre-foot is about 326,000 gallons, or about enough to supply two homes for one year.”⁴

In California, the total cost of water in the San Francisco, Los Angeles, and coastal areas is about $800 per acre foot.⁵ We expect about $200 of that to be in purification costs, and $600 in delivery costs. the delivery costs include the local water mains, and costs of pumping it from reservoirs. The largest energy consumer in the state is the pumping station that conveys water from the northern part of the state to Los Angeles.

Hence, the worst case is that desalinated water would raise water bills from $800 to $600 + $650 = $1250 per acre foot. An average house uses half that, so water would at worst cost $625 per year rather than $400. Of course, it would be less because most water would still come from conventional sources, and only the increment needed in droughts from desalination. If 20% of the water came from desalination, the household bill would go from $400 to about $500.

Government should build the desalination plants, but only a few coastal areas like Marin county and Morrow Bay have done so. For government, forced rationing is a more attractive alternative.

What needs to be done is to open the water delivery system to free enterprise. Subscribers could sign up for a certain amount of water to be provided by entrepreneurial desalination each year at an agreed upon price. That amount of water would then be delivered through the publicly-owned water mains every year, whether it was a drought year or not a drought year. The delivery charge would be paid to the public utility at the prevailing rate. The cost of the water, about $650 per acre foot plus profit, would go to the enterprise. Those who do not elect to get the private water would be free to go on rationing as they now do. Those who elect to pay more would get the rationed amount plus the water for which they contracted. The water enterprise would probably require long term contracts to ensure cash flow, but they could charge high rates in drought years if they chose.

This would entail no additional costs to taxpayers. Since the cost increment is trivial compared to the huge tax and real estate costs borne by most Californians, many would logically opt to have the guaranteed water. The only loser would be Big Government, that would lose the control it gets over consumers through allocation and rationing.

One could argue that government should simply build the plants themselves. That’s true, but there is ample history government doesn’t do that. They prefer rationing until the situation becomes absolutely untenable. When the citizens are about to revolt, they will do the minimum possible to bring the situation back to within the public tolerance for rationing. A rainy year ends all concern over drought until the next drought. The situation should be permanently resolved by taking it out of the hands of government.

[1] Drought could be our next crisis
[2] Tampa Bay Water
[3] … RO desalination in Manfouha plants, Riyadh
[4] Texas Turns Sea Water Fresh
[5] Selected Water Prices