The Theory of Water and Utility Pricing - Global Drinking Water Management and Conservation - page 102

marginal costs. According to a source (Porcher 2014 ), residential customers in
France face prices for water that average about 8 percent more than marginal costs.
Water pricing and household incomes in France vary from one municipality to
another. The relatively high prices have been a concern for the municipalities with
lower household incomes. During the period 1979

'
expenditures on water bills increased from 24 to 48 percent for the households in
the lowest decile (i.e. the lowest 10 percent of the income scale). To deal with this
issue, in 2000, the public and private operators developed a funding assistance
program to subsidize those households who had

2005, the share of households

-

culties in paying their
water bills. As an alternative solution, Simon Porcher ( 2014 ) found that two-part
tariffs 3 would be helpful to lower the

financial dif

fixed charges for poor households. That is, the

fixed charges can vary depending on different classes of consumers.

5.7.2.3 Spain

The legal framework in Spain, Law 7/1985 on the Regulation of Local Government
Terms and Conditions and Law 57/2003 on Local Government Modernization
Measures, stipulates that local governments are responsible for urban water ser-
vices, or they could choose how water services are managed within the legal
framework. The legal regimes for the provision of municipal services are regulated
under the Royal Decree 2/2000. As shown in Fig. 5.8 , the local government can
choose either in-house management 4 or outsourcing to an external company. In the
latter case, full privatization or public

private partnership (PPP) 5 or partially
privatized to a mixed company such as institutionalized PPP 6 can be considered. It
is important to note that

-

Spanish legislation only contemplates privatizing the
management of the service, as the infrastructure remains public property

“

” (Garc í a-

Vali as et al. 2013 )

The external involvement of public or private companies has been more wide-
spread in Spain since the 1980s due to the implementation of more stringent legal
requirements and the existence of a fragile

ñ

financial situation in several munici-

palities (Garc í a-Vali ñ as et al. 2013 ). Moreover, privatization has been a source of

3

A marginal cost pricing approach would use two-part tariffs with a price set to marginal cost and
fixed charges equal to total fixed cost (Coase 1946 ). In the water industry, the two-part tariffs
imply setting the fixed charges equal to each customer ' s share of the utilities ' xed costs and the
volumetric charges equal to marginal costs (Garc as et al. 2013 ).

4 In-house management means that the local government provides the water service itself. The
city council is responsible for decision making and management, uses its own employees and
covers production costs with funds from the municipal budget (Garc

í a-Vali ñ

as et al. 2013 ).
5 Contractual PPPs is a form of privatizing public services in Spain. That is a local government
entrusts an individual or corporation to manage the urban water service but retains ownership
(Garc

í a-Vali ñ

as et al. 2013 ).
6 Institutionalized PPPs refers to the private sector participating in the management of the urban
water service, while capital is shared between the private and public sector (Garc í a-Vali ñ as et al.
2013 ).

í a-Vali ñ