Water pricing in England and Wales reflects a range of influences. Cost recovery is generally the primary influence over prices. The privatised public water supply sector dominates water usage. Water abstractions are licensed and allocated mainly on an administrative basis. Charges are levied to recover the water management costs of the licensing authority (the Environment Agency), and are not closely related to the scarcity of water resources, or the environmental impact of abstractions. Public water supplies are subject to price cap regulation. This provides incentives to reduce costs. Public water suppliers are expected to choose an optimal combination of water resource interventions in planning water supplies. The system of regulation has exposed choices. Tariffs for customers reflect company and regulatory concerns to share the burden of cost recovery equitably. Tariff innovation to influence behaviour has been limited by the low extent of metering of household customers. The cost recovery and institutional framework has led to discipline in investment decision-making.

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