Optimal water tariffs and supply augmentation for cost-of-service regulated water utilities
R. Quentin Grafton (),
Long Chu and
Tom Kompas ()
Utilities Policy, 2015, vol. 34, issue C, 54-62
We describe how a common method for regulating water utilities, cost-of-service regulation, can both in theory and practice result in the premature and economically inefficient water supply augmentation. Using a dynamic model calibrated to demand and supply conditions in Sydney, Australia we show how to optimally determine the time to supply augment using a ‘golden rule’ that minimises the average volumetric price paid by consumers. Our results show that, the greater the water scarcity and the longer the operational life of the additional supply, the sooner is the optimal time to augment. Based on our findings, we recommend that price regulators of water utilities adopt an historical cost less depreciation basis for a regulated asset base and a fully flexible and dynamically efficient volumetric pricing that accounts for the marginal opportunity cost of water supplies.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:juipol:v:34:y:2015:i:c:p:54-62
Access Statistics for this article
Utilities Policy is currently edited by D. Smith
More articles in Utilities Policy from Elsevier
Bibliographic data for series maintained by Haili He ().