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Show Municipal and Industrial Water Supply Pricing Policy Municipal and industrial water supply covers a wide variety of uses. Within cities, uses range from domestic to street and sewer flushing to irrigation of parks. Industries require process and cooling water as well as dilution water for disposing of wastes. Under the California Water Plan, it was suggested that the beneficiaries of all water supply ( municipal, industrial, and irrigation) pay full repayment of costs so that no water users would be subsidized by other segments of society. The hope was that this would promote more efficient allocation of water among agency and user groups. The revenue to be returned by a public water utility is paramount in establishing rates. In pricing urban water, the base may be determined by the costs incurred by the unit of government to produce the water. The standard practice is to classify water supply costs by customer, commodity, and demand. Customer costs increase with the number of system customers, because of counting the meter reading expense. Commodity costs increase with volume supplied, because of costs for treatment chemicals and power. Demand costs are related to the capital investment in the system's capacity and are a function primarily of the maximum demands made upon a system. For example, treatment facilities are generally designed to meet maximum daily demand, so the amortized cost of the treatment plant is considered a demand cost ( Mann, 1970). Another view is that costs incurred by government can be said to consist of two parts, costs at the source ( wholesale) and costs at the place of use ( retail). According to Patterson ( 1962), service costs have three main components. Base water costs are those associated with the average need. Extra capacity costs are those associated with additional capacity built into a system to provide at certain times and to certain customers water above the average or usual demand. Customer costs are those that increase as the number of users increase ( e. g., meter reading billing, etc.). The most common water rate structures are presented in Chapter IV. Water Pollution Control Pricing Policy Water quality standards generally have been employed rather than effluent charges to control water pollution in this country. However, the National Water Commission ( 1973) recommended that requiring polluters to pay effluent or user charges would be the most equitable and economically efficient approach. An " effluent charge" is a direct charge, usually proportional to the concentration of waste, for the discharge of a pollutant into a natural watercourse. In contrast, a " user charge," usually proportional to the amount of waste, is levied for the discharge of pollutants into a waste disposal system. Thus, effluent charges are designed primarily to discourse and provide funds to remedy external diseconomies imposed by polluters. User charges provide revenue to pay for the construction, operation, and maintenance of a disposal or treatment system. Support for such fees is based on two grounds: first, reimbursement of public costs for constructing dams, aeration devices, or other devices which increase a body of water's ability to absorb wastes, and second, inducement of polluters to recognize the costs they impose on downstream users. Either of these charges could be used to make polluters pay the marginal opportunity costs of utilizing a water course for disposing of waste. In recent years, it has been argued increasingly that polluters should be compelled to bear the social as well as the private costs of their activities. As Charles L. Shultze argues: In the field of water pollution control, for example, public policy emphasizes the subsidized construction of waste- treatment plants, dams for low- flow augmentation, and the separation of storm drains from sewers, as a means of treating pollution once created. But it generally fails to consider means of altering the price signals received by polluters through the mechanism of user charges and effluent charges. ( Excise taxes may be included in these charges.) Through such charges, industrial polluters would be assessed the social and economic costs of pollution, and in many cases would find it profitable to change their internal processes to reduce the amount of pollution they create. In general, it is cheaper to improve the quality of our streams by combination of prevention and treatment than by treatment alone. But because the private sector is primarily responsible for prevention and the public sector for treatment, public policy excessivly concentrates on the latter aspect. And to the extent it does deal with the prevention aspect of pollution control, it does so by attempting to enforce, through the police power, a set of water quality standards rather than providing economic incentives to individuals which would induce them, in their own interests, to take action to improve water quality ( Shultze, 1969). Recreation Pricing Policy Water for recreation is used for swimming, boating, water skiing, and fishing, and provides an aesthetic complement to non- water based activities such as camping, picnicking, and hiking. Traditionally in the United States, outdoor recreation has been thought to provide great benefits to society. Consequently, it has been argued that citizens should have unlimited access to recreation areas. Collection of user fees has been opposed by some as a violation of the national tradition of free use of waterways and a congressional commitment to free access to reservoirs. This position has been challenged in recent years by acts of Congress and pressures from state and local governments. Recent federal recreation 15 |
