‘Full cost pricing’ or ‘full cost recovery’ is any structure in which the revenue received by the utility reflects the full costs associated with providing water service. This includes the cost of operations and maintenance, debt service, reinvestment and capital costs, and sufficient reserves. A well-designed structure of full cost pricing ensures that a system is able to provide sustainable access to the community’s desired level of service, and serves as an informative signal to promote socially efficient water use by customers.
In its 2024 State of the Water Industry report, the American Water Works Association (AWWA) disclosed that of 600 water systems surveyed, 20% reported being “fully able to cover costs” through rates and fees. The reasons for setting water rates below the necessary threshold to recover costs are specific to each individual system; however, full cost pricing is an important part of maintaining adequate and sustainable service for customers.