A natural monopoly is one where it makes economic sense to have one supplier. Water Supply, law enforcement, taxation collection, electricity supply, gas supplies, money supply are natural monopolies.

If there is one supplier, there is no market, and hence the market cannot set a price. Attempts to create markets in natural monopolies are challenging and expensive. Rather than create a market the most common way to set prices is through regulation. Regulators typically use market principles in their calculations, and the outcomes always result in higher capital costs than necessary as it is assumed funds come through debt markets.

Rewards are an alternative way that regulators can work with suppliers and customers to set prices. They typically halve the capital cost, are equitable, and lead to sustainable exploitation of resources. Water Rewards is an example.

With Water Rewards customersĀ are rewarded for postponing or reducing consumption. Water Rewards are pre-payments of water invoices. The reward is a discount of 10% for each year the pre-payments are unused. They increase in value with inflation, and they are transferrable.

Allocation of Water Rewards is through a Water Authority issuing each customer with Rights to Buy water and through the Water Authority issuing all users with Water Rewards but where lower consumption users get more Water Rewards.

Water Rewards is independent of existing billing and operational systems. It is a replacement for funding. It involves no extra capital cost, and transaction fees on payments cover all operating expenses.

It removes the cost of interest and the cost of inflation from the total costs, and this means prices can be lower, or there can be higher profits for the operator, or the extra funds go to the savers in the community, or the community uses the funds for purposes.

Used with market price setting, Rewards can lower costs or increase profits for the supply of all goods and services as it eliminates interest and the effects of inflation.

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