AWWA ACE95210

This paper discusses several ideas behind setting water tariffs. German water supply companies can act as only suppliers of drinking water in their licensing areas. The principles of water pricing are covered including: coverage of costs, differentiation according to cost-causation by groups of customers; allocation of charges of customer groups according to costs caused by these groups; quantity and basic price in consideration of the cost structure; interest payment of company capital and outside capital; and maintenance of capital. The theory of drinking water shortage does not apply to the Federal Republic of Germany. It is however, definite that there are some areas with water shortage that can partly be traced back to insufficient water quality. The water supply companies must decide themselves on setting of their water prices and tariffs without ideology but with consideration of price political principles and with view to sensible and necessary economic and managerial apsects. For the adjustment of prices to the changed cost situation, there are two possibilities: resolution of the supervisory board or municipality council; application of an escalator clause in the licensing contract with the municipality. A case study of Gelsenwasser, AG is offered as a practical example of water tariffs in Germany. Their special price system guarantees the water supply for the supply company and the customers over a longer period, leads to a better utilization of supply systems in sense of a balancing and offers the customer a calculable price development for the future.