The Impact of Aging Water Facilities and Charge System on Water Charges

Koji Yamashita, Nobuo Akai, Kenichiro Fukuda and Takahiro Seki
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Koji Yamashita: Associate Professor, Faculty of Economics, Fukuoka University
Nobuo Akai: Professor, Osaka School of International Public Policy, Osaka University
Kenichiro Fukuda: Associate Partner, Infrastructure Advisory, EY Strategy and Consulting Co., Ltd.
Takahiro Seki: Senior Manager, Infrastructure Advisory, EY Strategy and Consulting Co., Ltd.

Public Policy Review, 2023, vol. 19, issue 2, 1-27

Abstract: The purpose of this paper is to empirically clarify how the aging of water pipelines and the declining population are reflected in household water charges, and also whether differences in the charge system such as water charges based on caliber of water pipelines or water charges based on purpose of water use, are a factor in generating disparities in water charges. The following facts are obtained from the verification using panel data. Firstly, household water charges are significantly higher for water utilities with a higher percentage of aging water pipelines, but the parameter is very small, close to zero. This suggests that the setting and revision of water charges with an eye toward aging pipelines are not functioning. Secondly, household water charges are higher among water utilities that adopt water charges based on caliber of water pipelines as compared to those that follow water charges based on purpose of water use. Furthermore, it is confirmed that the higher the proportion of aged pipelines, the higher the water charges in caliber-based water utilities. In other words, due to the presence of a clearly distinct “household charges” category, water utilities that follow water charges based on purpose of water use may find it difficult to make decisions for fear of opposition to setting or revising household water charges to a high level. Thirdly, water utilities that adopt water charges based on caliber of water pipelines are found to have high profitability, while usage-based water utilities have low profitability. As local public enterprises, water utilities, follow self-supporting accounting systems in principle, and are required to set or revise water charges to match the cost. By adopting a usage-based charge system, a situation in which water charges differ depending on what the water is used for implies that the setting of charges to match the cost is not functioning. A usage-based charge system is considered to be an institutional factor that hinders the setting and revision of water charges to an appropriate level in view of the aging of facilities and business earnings. Hence, from the perspective of sustainability, it is desirable to introduce a caliber-based charge system.

Keywords: local public enterprises; water utilities; aging infrastructure; water charge system (search for similar items in EconPapers)
JEL-codes: H44 H54 H76 L95 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:mof:journl:ppr19_02_07

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