Water

Costs and Tariffs

NERA works with regulators and companies on estimating changes in unit costs or efficiency in the context of regulatory price reviews. NERA has undertaken a range of cost and efficiency studies for UK and international water companies focusing on:

• Analyzing companies' relative efficiency using a range of benchmarking techniques, including statistical modeling.
• Analyzing historic changes in efficiency to inform estimates of future performance.
• Detailed "bottom-up" analysis of companies' costs at an activity-based level.
• Forecasting input price changes for key components of companies' costs, such as energy and capital costs.
• Advising on how efficiency targets should be incorporated within price limits.

NERA also works with companies on establishing the link between costs and tariffs to ensure final prices to consumers, recover companies' costs, and provide appropriate price signals for efficient levels of consumption. Our work includes:

• Constructing activity-based costing models to allocate costs to different consumer classes (e.g., business and domestic customers) in order to set cost-reflective tariffs.
• Estimating long-run marginal cost as the basis for setting efficient tariffs.
•  Designing efficient tariff structures, according to time-of-day, customer class, and geographic location.
•  Designing tariff structures that take into account customers' ability-to-pay.