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Real Water Rates on the Rise

Fortnightly Magazine - July 15 1997

utility costs can be mitigated. Water utilities must take full advantage of the forces that can lower costs. Similarly, regulators should promote full-cost pricing of water service while also providing incentives for operational efficiency and efficiency-oriented restructuring to help lower water utility revenue requirements. t

Janice A. Beecher, Ph.D., is a senior research scientist and the director of regulatory studies at the Center for Urban Policy and the Environment, Indiana University, Indianapolis. She works with the National Association of Regulatory Utility Commissioners and the National Association of Water Companies. Patrick C. Mann, Ph.D., is a professor of economics at West Virginia University. Beecher and Mann serve as members of the Rates and Charges Subcommittee of the American Water Works Association and have written many reports and articles on water utility rates and regulation.

1As measured by the Consumer Price Index.

2"Trends in the Real Price of Water," Journal American Water Works Association, September 1983, by Patrick C. Mann and Paul R. LeFrancois.

3"The Real Price of Urban Water," January 1982 and Journal American Water Works Association, by Patrick C. Mann and Paul R. LeFrancois.

4The price elasticity of beer demand is not included in this analysis, but should be considered if the brewery plans to pass some or all of the water price increase on to consumers of beer. If the demand for beer was price inelastic, this would be an advantage to the water utility (and other providers of beer ingredients). However, demand for individual brands is not price inelastic, and the beer industry is highly competitive, leaving breweries with a powerful incentive to constrain production costs.

5"How Rate Structures and Elasticities Affect Water Consumption," Journal American Water Works Association, June 1982, by David Comer and Richard Beilock.

6"Inflation and Environmental Concern: Structural Change in the Process of Public Utility Price Regulation," Journal of Law and Economics, October 1974, by Paul Joskow.

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