Market-driven pricing structures for drinking water

In the Netherlands, water company sales are being driven down by water conservation measures adopted in households and by the emergence of feasible alternatives to mains water. Because the cost structure is largely fixed, prices are rising as a result. These developments are at odds with the community responsibility which water companies bear in their capacity as quasi-monopolists in relation to those of their customers who do not have access to alternative sources. A number of water companies are therefore working on new pricing structures with which they are seeking to stabilise their income and to reduce the financial appeal of switching to substitutes for mains water. At the same time, incentives designed to ensure sparing use in the consumer market should not disappear. Waterleiding Maatschappij Limburg is working on two new pricing structures. A cost allocation method has been developed for bulk users which can be used as a basis for setting customer-specific water tariffs. In addition, a generic structure is being developed to boost revenues from standing charges. More than previously, this structure makes earnings more dependent on the supply capacity installed on a customer's premises. In this article we discuss the background to these new structures and our initial experience. These pricing structures can also be employed in situations and countries where no noticeable reduction of sales has occurred yet, in order to keep ahead of the developments that are sketched here.