THE VALUE OF WATER, PART 8--INVALUABLE

Is attempting to value water a valueless exercise? Clearly, water has value. We understand that humans, and all life upon which we depend, cannot exist or thrive without sufficient water. When deprived of adequate water resources, we suffer. When too much water floods our land, we also suffer. Accordingly, water is a paradox. It is necessary for life, but at the same time, it can suppress life. How, then, can its value be measured?

We can see water, we can feel water, we can drink water, we can use water in many ways. However, we cannot measure its worth with a dollar price. We can only arbitrarily assume a price when we suffer an economic loss due to insufficient water or even excessive water.

The old cliche is that one never misses water until the well goes dry. Obviously, the value of water becomes subjective for ever user who depends upon, and is affected, by water. When there is not enough water available to satisfy demand, we likely highly value it. When rain events or rivers flood our land with too much water, our valuation likely diminishes. This result is only human.

Direct, quantitative calculation of the value of water is impossible. Indirect measurement using a surrogate, such as the cost of crops due to drought, provides a speculative economic impact that may have resulted from influences in addition to lack of water. Further, calculating the dollar value of a water source, such as an aquifer, necessarily must be based upon assumptions, not hard evidence. For example, the extent of ground water below the Earth's surface is not fully known and is affected by the rates of rain events and withdrawals.

Clearly, ratemaking for water service cannot be predicated upon the subjective valuation of water by each user. More importantly, rates do not compensate for the price of water. They compensate for the price of water service received by each user.

So, it is possible to conclude that water has infinite value, which cannot be measured and is incapable of price. In other words, it is invaluable and priceless. This infinite value of water, however, should be acknowledged. For example, we know that fresh water on earth does have some finite amount, so its value must be recognized by conservation and wise use.

THE VALUE OF WATER, PART 7--PRICING

Water utilities do not sell water. They provide water service. Their water service commonly may include withdrawal of raw water from a source, transport to a central treatment facility, treatment of the raw water to safe drinking water standards, storage of finished water in tanks which also may maintain desired pressure, and delivery of the finished water to users in a distribution network. They charge a price for their water service. Accordingly, water utility rates are not the prices of water delivered--such as the price of a bottle of water at a store--but are the prices of water service provided to customers.

From time to time, some have asserted that water utility rates should be based upon the "value of water" perceived by users. Such assertions are flawed and misplaced. It is unlikely that users of a water system could agree on a single definition, or measure, of such "value". Moreover, such perceived "value" has no correlation with the provision of water service and the costs incurred to provide the service. Simply stated, the value of water is incapable of an acceptable objective methodology for its calculation.

The only objective and fair methodology for water utility rate making is cost of service recovery. This fact has been confirmed repeatedly by numerous court decisions, statutes, regulatory commission polices and writings.

At times, some jurisdictions have attempted to adjust cost of service rate making to effect a particular goal or social engineering. For example, to encourage water use conservation, some agencies have modified rate structure to increase rates as water use increases. Others have suggested special rates for certain levels of low income users, with costs subsidized by other users.

Another example may be denial of the full cost of service recovery to reflect a finding that water service was not of an acceptable quality. In one case, an agency reduced a water utility's recovery in rates of its full cost of capital (rate of return on rate base) for such a reason.

In short, water utility rates do not, and cannot, measure or be predicated upon the perceived value of water.