Connection fee as a factor to ensure financial affordability of utility services for consumers

In: Voprosy ėkonomiki: ežemesjačnyj žurnal, Heft 5, S. 38-54

Abstract

Utilities as a type of mixed public good have the characteristic of non-rivalry, that is, they must be available to the entire population without exception and all households must be able to pay for them. As a rule, such financial inclusion is achieved by providing targeted assistance to low-income families. For example, in Russia this problem is solved by a program of subsidies for housing and communal services. In various countries, other mechanisms are also used: the provision of social housing, budget subsidies for producers, price discrimination. This paper analyzes another way to reduce the financial burden for consumers of utility services, which has been used in most developed countries. It consists of shifting part of the costs of developing engineering infrastructure to future consumers through connection fees (technological connection) for capital construction projects. From the perspective of pricing theory, it is shown that connection fees can reduce the average costs of a utility company passed on to consumers of services; it is graphically illustrated how connection fees increase the financial affordability of utility services for consumers and reduce budget costs for subsidizing the payment of housing and communal services for households with low incomes.