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Show SUMMARY OF FINDINGS Figure ES- 7 Spacial Rate Illustration 2.5 - 2 - 1.5 - 0.5 - Pumping Zone Two Pumping Zone One 10 20 30 MONTHLY WATER USE ( IN 1,000 GALLONS) 40 Marginal Cost Pricing Marginal cost- based rate structures are based on the cost of the marginal resource. This sends signals about the costs imposed by future resources. The signal is especially strong in situations where the utility's major supply or transmission system have been in place for a significant period of time ( 15 or more years). In such situations, the cost difference between existing facilities and new facilities is generally quite large. Marginal cost rates are theoretically the most economically efficient way for a utility to price water. In theory, when customers choose to buy and consume water, they are, in effect, equating marginal cost to marginal benefit. The pricing of water at marginal costs should cause consumers to reduce water usage for lower value, inefficient uses of water. A significant drawback to marginal cost pricing is that marginal costs are not always observable. Marginal costs must be estimated based on the costs of the " next" unit. Thus, project complexity and ratemaking costs increase as the analyst increases the types of marginal cost that are estimated ( e. g., marginal supply, transmission, distribution by pressure zone and customer class). Such analyses can expand beyond the reasonably expected analytical and financial capability of most water utilities in the CUWCD service area. Some marginal costs, however, are readily observable. The purchase of new water rights and the cost of water purchased from water wholesalers are examples of marginal costs that can be estimated very precisely. The development of new well fields and the ES- 21 Executive Summary |
