Submitted on February 28, 2017
In the wake of flat or falling sales revenues, many a water (and energy) utility have turned to the idea of raising fixed charges. This might seem logical, given that water services require substantial fixed infrastructure costs; that is, they are particularly capital intensive. Monopolies are drawn to the idea of loading more costs on less price elastic usage, and welfare economics lends some support to this strategy (the inverse elasticity rule or Ramsey pricing). From a utility’s viewpoint, fixed charges look like a great deal. They primarily reduce revenue risk, shielding finances from...
