Market Pricing For Water, Electricity
August 17, 1999
When regulators "protect" consumers from the true costs of water and electric power generation, the result is intermittent scarcities -- leading to water rationing, and brown-outs and black-outs. Economists say such consequences are inevitable whenever bureaucrats seek to avoid market pricing.
- Had water prices been allowed to fluctuate depending on supply and demand, the Northeastern states could have avoided shortages even during the present drought -- along with government-imposed bans on water usage, they say.
- Because many of the facilities that generate electric power during periods of peak demand are used only 10 to 14 days per year, owners need to cover a year's worth of depreciation and capital costs all at once -- making electric power during demand peaks incredibly expensive.
- Last summer, for example, power-production costs reached $7.50 per kilowatt hour in some parts of the Midwest.
- Likewise, the heatwave just last month drove the marginal cost of power in the Pennsylvania-New Jersey-Maryland area to 94 cents per kilowatt hour.
Yet consumers were shielded from these market realities and continued to pay 5 to 7 cents per kilowatt hour.
Consumers have had no trouble adapting to marginal pricing of long-distance telephone service. Why, economists ask, should water and electricity pricing be any different?
Source: Jerry Taylor (Cato Institute), "No Water? Blame the Government," Washington Times, August 17, 1999.
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