The thesis synthesises current water utility practice, and economic theory, through the development of a practical water rate based on marginal cost pricing. The suggested water rate is a three part tariff consisting of volumetric, connection and access charges. The volumetric charges recover the long run marginal costs associated with water demand, and include peak and off-peak prices. They are calculated using an extension to the Turvey concept of long run marginal cost. The connection charges represent the marginal costs associated with connecting to the system, rather than those associated with water demand. They are of two types: those related to the local distribution network, and those related to annual operating costs. An access charge is also suggested as a means of recovering residual common costs associated with economies of scale related to production. The proposed water rate, while based primarily on possible welfare improvements, also promises gains in simplicity in use and rate stability over time, compared to current practice.

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