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AN IMPLICIT MODEL FOR WATER RATE SETTING WITHIN MUNICIPAL UTILITIES

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It is estimated that at least $1 trillion dollars will be required over the next 25 years to maintain the current level of water service in the United States. A “pay-as-you-go” approach is expected to allow water utilities to pay for these expenses using water price increases. These price increases incentivize water conservation, decreasing overall water demand. Financial forecasts that fail to consider this effect will therefore overstate anticipated system revenues and potentially lead to realized shortfalls. Therefore, understanding changes in water demand is crucial for accurate price forecasting. This paper combines simple relationships that are relevant to water supply services, to develop an implicit model of time dependent system revenues, water prices, and water demand. The implicit model provides theoretical basis for water price-setting to generate financially sustainable water utility revenues. Results suggest that a comprehensive physical infrastructure model is critical for precision and accuracy in model forecasts.
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Document Type: Research Article

Affiliations: 1: Department of Earth and Environmental Sciences, University of Waterloo, Ontario, Canada 2: National Institute of Urban Infrastructure Planning, University of Engineering and Technology Peshawar, Pakistan 3: School of Accounting and Finance, University of Waterloo, Ontario, Canada

Publication date: 01 January 2015

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