ABSTRACT

ABSTRACT In economic analyses of costs and benefits, each alternative solution for pollution control will be unique. It is rare to find physical solutions in which prices and fees (or the burden of these prices and fees on various groups) are attached to the proposed solutions. The author suggests some approaches to the problem of “pricing out” pollution control services. Correct pricing of pollution control services can be instrumental in securing the adoption of efficient pollution control practices by directing behavior of all parties. Correct pricing will provide revenues for maintenance and expansion. The economist must construct a capacity charge and a commodity charge into a rate structure that will achieve the desired level of water quality. This rate structure must provide for an equitable distribution of the costs for different classes of users and generate sufficient revenues to at least amortize the cost of the system. This paper provides examples for a few pricing systems and rate structures, including recently developed impact fees, that acknowledge the right of publicly owned water utilities to earn returns on invested capital.