22 PERSPECTIVES ON BUSINESS AND ECONOMICS | VOL 43 | 2025 Rates, Fees, and Charges” (2016) are the most comprehensive and encompassing of the larger policy discussion surrounding equitable and efficient ratemaking. Those objectives are1 1. Dynamic efficiency in responding to changing supply-and-demand patterns 2. Promotion of efficient resource use (conservation and efficient use) 3. Fairness in the apportionment of total costs of service among the different ratepayers 4. Stability and predictability of the rates themselves from any unexpected or adverse changes 5. Simplicity and ease of comprehension 6. Simplicity of administration 7. Effectiveness in yielding total revenue requirements (full cost recovery) 8. Revenue stability and predictability 9. Avoidance of undue discrimination (sub- sidies) within the rates 10. Freedom from controversies as to proper interpretation of the rates 11. Legality and defensibility Ideally, Taiwanese ratemaking would incorporate all 11 of these objectives. The next sections focus on objectives 1–6 and how effectively Taiwan achieves them. Cost-efficient rate design Taiwan’s pricing strategy reflects efforts to address adaptability, pricing signals, and cost matching, yet shortcomings in incentivizing efficient resource use and aligning rates with delivery costs undermine full achievement of these objectives. Objectives 1–3 recommend that rates be designed such that they can adapt to changing supply-and-demand patterns, create adequate price signals that promote conservation, and reflect costs incurred by the individual ratepayer. Adaptability to changing supply-and-demand patterns is necessary in areas, like Taiwan, with high seasonal variability due to shocks or weather patterns. With the introduction of the seasonal tariff in 2025 for consumers using above 9000 cubic meters per month, Taiwan’s pricing structure displays a reasonable seasonal adaptability. Additionally, using price signals as a means of promoting conservation is central to efficient use of a scarce resource, like water. Increasing block structures are widely considered successful in improving conservation because price signals incentivize lower use (AWWA, 2016). But, as stated before, placement of these blocks in low-use thresholds fosters conservation in the domestic sector more than the industrial sector since only roughly 8% of Taiwan Water Corporation users fall in the highest pricing block (Water prices might…, 2024). Moreover, Taiwan has the lowest average price of water in Asia, with Japan’s average price at roughly three times the average rate in Taiwan (Crook, 2023, April 20). For these reasons, Taiwan has mostly failed to achieve objective 2, wherein pricing signals promote efficient resource use; the magnitude of price increases among the blocks is not large enough. The final conFigure 1 Taiwan’s current and future water pricing structure Sources: Author’s calculations; Crook, 2023; Water Resources Agency, 2023. Figure 1 Taiwan’s current and future water pricing structure Sources: Author's calculations; Crook, 2023; Water Resources Agency, 2023. 1The order of ratemaking objectives given in this article is not representative of the order listed in the original source. Figure 1 Taiwan’s current and future water pricing structure Sources: Author's calculations; Crook, 2023; Water Resources Agency, 2023.
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