The Coca-Cola Company recently caused a minor uproar when it hinted it might vary its soft drink prices with weather conditions. The soft-drink maker reasoned that consumers would pay more to relieve their thirst during a heat wave and that a lower price would boost demand when it’s cool outside. This type of flexible pricing — economists call it "load-levelling" — saves money by smoothing out fluctuations in demand, allowing steadier production with less capital outlay.
A tradition-bound public quickly deflated Coke’s trial balloon, so don’t expect temperature-sensitive pricing soon. But the episode reveals how readily consumers respond to changing prices. Lower prices encourage more consumption; higher prices, less. Smarter environmentalists have understood this for a long time. This is why they like the idea of user fees for garbage pickup. If it costs more to dispose of garbage, people will alter their behaviour and put out fewer bags. They favour privatizing power companies because tax-exempt, artificially low power prices, like Manitoba Hydro’s, mean higher power usage and more environmental stress.
Public policy makers in Manitoba – often mired in old Soviet methods without knowing it – have generally been oblivious to the use of pricing mechanisms to promote the more efficient use of limited resources. A stunningly successful exception can be found at the City of Winnipeg’s Water and Waste Department.
During the 1980s the City of Winnipeg expected the demand for water to exceed supply. Remember the days when we all watered our lawns heavily? The planners swung into action. They built four huge storage lagoons, the Deacon Reservoir, and raised prices big time. The idea was to bank money to build a waste-treatment plant to handle new lower-quality sources of water.
The price hike curtailed consumption of City water dramatically. People no longer inundated their lawns; they went out and bought more efficient dishwashers, toilets and washing machines. The Deacon Reservoir never proved necessary, its peak use being about three days of draw during 1998. Present projections show demand falling for at least another ten years as conservation and the city’s unique low-growth public policy framework combine to suppress demand.
Over time, though, about ninety million dollars have built up in the fund for the new waste-treatment facility. In the traditional bureaucratic world of City Hall, spending more money is part of the job: dollars accumulated must be spent no matter how weak the case. Winnipeg will fritter away a rare competitive advantage if the department gets its $200 million plan through.
That advantage is the pristine natural water source that supplies Winnipeg, Shoal Lake. Other cities would love to have such a high-quality, low-cost water source precisely because it does not require extensive investment in treatment facilities. But the department really wants to spend the money, so it is pulling out all the stops to support its case for a new plant.
At public hearings, it brought forward American experts who cited the danger from a new diarrhoeal illness called Cryptosporidiosis, Crypto for short. Normally, the illness is self-limiting and passes from the body in about five days, but it can prove fatal to those with weak immune systems – as the deaths of 69 people in Milwaukee can attest. That city’s drinking water comes from Lake Michigan, which is polluted by cattle run-off from Wisconsin pastures, slaughterhouse wastes and human sewage. Milwaukee dumps its partially treated sewage only a few miles away from its main intake.
Winnipeg, in fortunate contrast, has a remote, inaccessible source located far away from pollution in a forested watershed. Crypto has never raised its nasty head in Winnipeg. Indeed, Water and Waste normally can’t find any trace of Crypto in its water samples. The City’s own report in July, 1996, called the "Waterborne Health Risk Assessment ", says: "The present Shoal Lake raw water quality meets or exceeds the current Guidelines for Canadian Drinking water in all respects, except for physical parameters such as odour, turbidity and taste".
Doctors in Kelowna, B.C., where farm run-off caused a Crypto outbreak in 1996, publicly opposed building a new water-treatment plant. They said that people with compromised immune systems are under physician’s care and boil their water. Such great expenditure producing only limited benefits, they stated flatly, would not be a wise use of scarce public health resources.
Winnipeg does not need a new water-treatment plant at this time. We could easily improve quality by routing the flow around the Deacon reservoir, where the water sits as a relatively stagnant mass that accumulates waterfowl waste. Any possible Crypto problem can be dealt with at a fraction of a new plant’s cost through alternate and supplementary treatment methods. Winnipeg now has a golden opportunity to take the cash accumulated for this unneeded facility, pay down some of its high debt, lower interest payments and ultimately reduce our community’s wildly uncompetitive property taxes.