Pricing Water in Florida

By Tyler Worthington

As Florida’s population grows it will have to address a multitude of new problems, including stress on water supplies. States like California have experienced severe water shortages in recent years, and mismanagement has exacerbated this problem. Because California does not accurately price water, it has been misallocated. In Florida, The Turkey Point Nuclear Power Plant is another case study in how the lack of a pricing mechanism can deplete and misallocate resources.

The Turkey Point Power Plant consists of two nuclear reactors, and is managed by Florida Power and Light (FPL). Unlike most nuclear power plants in the United States, Turkey Point does not have cooling towers. Instead it utilizes the Cooling Canal System (CCS), a 168 mile network of 36 canals used to cool the water for plant operations.

Last Summer, this system had trouble maintaining the federally mandated canal temperatures. FPL filed an emergency request to the Nuclear Regulatory Commission to allow the cooling system to exceed the 100 degree limit. In order to cool down the canals, FPL filed another emergency request to the South Florida Water Management District (SFWMD) to draw 100 million gallons of additional water from nearby sources.

However, Turkey Point Nuclear Power Plant is not the only large user of water in Florida. Attempts to revive the Biscayne Bay in Miami and restore the Everglades National Park also require many million gallons of water. There is simply not enough to accomplish all three tasks.

But who decides how to allocate water among these projects? Currently, 5 water management districts throughout the state control Florida’s water supply. To draw large amounts of water, users must purchase a permit to use water as a public good. After the permit is granted there is no per unit price of the water.

This lack of a proper pricing mechanism can make resources prone to depletion. Florida Agriculture Commissioner Adam Putnam has said that property rights and pricing are key to getting water policy right. The more that water is treated like a social good, the more problems arise, and “privately owned land is always better managed and more productive than publicly owned land.”

An article by Brian Ritcher, Chief Scientist for the Global Water Program of The Nature Conservancy, explains the consequences of cheap water. “The costs of cheap water are far too high. It has allowed for severe dewatering of the planet’s freshwater sources and caused sea level rise to accelerate…Water shortages have pushed millions of hectares of farms out of production.” These hidden costs are not factored into the permit price for large users like FPL.

Charging a per unit price for water could ensure that water is efficiently allocated and not depleted. If water is accurately priced, then the price will rise as it becomes more scarce. As prices rise, consumers are incentivized to conserve supply and replenish the resource. A National Bureau of Economic Research paper by Sheila M. Olmstead and Robert N. Stavins notes that  “Using prices to manage water demand is more cost-effective than implementing non-price conservation programs.”

Without water pricing Floridians risk experiencing the shortages and rationing seen in California, but establishing a price system for water would ensure abundance for years to come.

About DeVoe Moore Center

The DeVoe L. Moore Center is conducts economic research and policy analysis focused on state and local policy issues and is located in the College of Social Sciences and Public Policy at Florida State University in Tallahassee. As an educational institution the DMC provides professional research experience to undergraduate and master’s students through an extensive program of internships and independent study, preparing them for a future in public policy, economic development, public sector accountability and entrepreneurship.
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