Effective water pricing

When the goal of water pricing is elevated from mere cost recovery to deriv ing the greatest value from scarce water and associated nonwater resources, conventional rate regimes are found to be deficient. To address the challe nge of creating rates that, are both efficient and budget-balancing, severa l theoretical and practical aspects of rate-making are considered. Purposef ul selection of rate parameters for a specific billing system is demonstrat ed to serve efficiency and cost recovery objectives. Attention to non-accou nting opportunity costs is an important system element, but these costs are often not fully borne by the utility or its customers. In situations where this issue is serious, state or federal pricing policy may be necessary.