About 60 California cities and agencies have imposed mandatory water-use cutbacks, some as high as 50%. In many cases, the rules are enforced by charging higher fees for excess usage. In others, inspectors are deployed to crack down on scofflaws. . . .
Among the most aggressively monitored locales is the state capital, Sacramento. . . .
This year, the city cut outdoor watering to two days a week from three. Because only about half its homes have water meters to measure use, Sacramento must rely on inspectors to help enforce the rules.
A team of 40 inspectors working for the city's Department of Utilities investigate complaints. Sacramento, a city of 475,000, had received 7,604 water-use complaints as of June 18, said city spokeswoman Jessica Hess.
The city and other water districts, meanwhile, are offering carrots along with sticks, paying residents to replace their turf lawns with drought-resistant vegetation.
The state of California does not have enough water to meet demand. One way they could eliminate excess demand is to raise water prices. If there are externality issues, stick a tax on it. This isn't so different from "charging higher fees for excess usage." But for the most part, municipalities have instead opted for the hodge podge of costly and overlapping remedies described above. Sometimes prices are actually raised, but the timing screws up the incentives. A lot of people seem pretty upset by the restrictions--one wonders if they'd be willing to pay more if they could have more water. The guy with the landscaping business is a pretty good example of Bastiat's "unseen" costs of policy.
A couple of water districts are actually letting prices do some work (from ABC):
Two water districts and a pair of landowners in the heart of the state's farmland are making millions of dollars by auctioning off their private caches. . . .
In California, the sellers include those who hold claims on water that date back a century, private firms who are extracting groundwater and landowners who stored water when it was plentiful in underground caverns known as water banks.
This makes me wonder if the state is actually open to flexible prices, but cities aren't.* Or perhaps utilities are afraid of "price gouging" fights.** In any case, while cities are piling on unenforceable rules, asking neighbors to tattle, and hiring bureaucrats to drive around busting people, some landowners took steps to actually alleviate the drought by storing some water in hopes of selling it. It was a brave move. I wonder how many others throughout the state would have taken similar steps if they thought they could count on a price mechanism.
I don't mean to oversimplify. This is an epic public policy problem with a lot of complicated details. But it does seem likely that water is typically underpriced in the West.
I have several other water posts here.
*If I understand correctly, water prices are set by this organization. My assumption is that utilities request price changes and the Commission makes a decision. I would like to know more about this.
**I once asked about this in a comment section at California Water Blog. A commenter responded with the suggestion that for utilities to obtain approval of rate increases, they may have to open their books to regulators--so they are hesitant to do so. My prior is that their books are already fairly open to regulators, but this could be an interesting hang up.