AWWA JAW18743

One essential component of a financial management policy to ensure adequate funds for operating, maintaining, and improving water utilities is appropriate water pricing, i.e., charging rates that reflect the full cost of providing water. Methods of structuring rates reviewed in this paper include declining block rates, flat or uniform rates, increasing block rates, seasonal or peak rates, rates for unmetered service, and rates for new users. Benefits of full-cost pricing and the effects of pricing on water conservation are addressed. Obstacles to implementing full-cost pricing identified include lack of metering, historical underpricing, limitations of existing accounting systems, political concerns relating to ratesetting processes, and institutional constraints. Benefits of separating expenditures and revenues of the water utility from municipality general accounts to allow funds to accrue for capital improvements and benefits of full-cost pricing are cited, with reference to the Massachusetts experience. Considerations for calculating the full cost of water addressed include valuation of fixed assets and determination of depreciation. The importance of increased use of meters, increasing public awareness concerning the full cost of water service, and improving the rate-making process are addressed. A case study of the recent restructuring of water and sewer services in Boston, Massachusetts, by establishing a commission and through the adoption of full-cost pricing is provided as an example of how a municipality can improve financial and operational management. Includes 8 references, figures.