Cost Plus

Abstract

This article tests the importance of cost, demand, institutional, and geographic factors on the bills that consumers pay for water and sewer service in North Carolina and the pricing signals that utilities send to customers. The authors apply spatial regression models to test whether other factors besides costs drive rate-setting practices. Results indicate that cost factors, operating ratio, temperature, the application of “outside” rates, and utilities' primary importance on affordable rates affect combined water and sewer bills at average levels of residential consumption. The study also finds that bills are significantly and positively correlated to bills paid in nearby utilities. Community income and the percent of customers below the poverty line are weakly associated with combined bills. However, utilities facing higher growth rates and those that value conservation are no more likely to send stronger pricing signals than others.