Technical Memorandum Report No. 69
Efficient Pricing and Financing of Urban Water: The Role of Development Charges
Richard Pollock and James E. T. Moncur
June 1983
ABSTRACT
Conventional methods of evaluating and designing urban water prices are deficient in several important respects. Urban water is underpriced substantially, due to undercosting which in turn results from failure to adjust accounting data for inflation; to recognize imputted costs, such as interest on equity capital; and to fully provide for rising real costs of source supply. Further, water users often cross-subsidize one another due to uniform “postage stamp” pricing. This report uses data covering twelve Western U.S. urban water utilities to describe this undercosting and underpricing; describes a “first-best” pricing paradigm based on real marginal cost; outlines a role and basis for calculating, development charges; and simulates their effects with a discrete non-stochastic simulation model.