NCEE Seminar: Efficiency, Equity, and Cost-Recovery Trade-Offs in Municipal Water Pricing

Virtual Seminar
Washington, DC 20460
United States

Presenter:  Casey Wichman

Municipal water utilities choose rates to recover costs, encourage conservation, and reduce burdens on low-income customers, which may deviate from optimal two-part tariffs. Theory suggests that prices should equal marginal cost with fixed costs recovered via fixed fees or alternative tax revenues. Using rate structure and municipal finance data for more than 700 utilities, I show that prices are discounted severely for low levels of consumption within nonlinear rate structures, leading to suboptimal usage and budget deficits, particularly in poorer and smaller communities. Marginal-cost pricing corrects allocative inefficiencies, and equity and cost-recovery goals can be achieved through more progressive approaches to fixed costs, which are both highly regressive and a large share of total costs.

Note: Hosting these seminars does not necessarily express or imply EPA approval or endorsement of the speaker’s views.

Contact: Ann Wolverton, 202-566-2278 ([email protected])

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