For example, under this approach a per-kWh pricing of an electric utility includes a small share of the monthly fixed cost of the utility, fixed (say, monthly) charges for the service are either absent of inconsequential.
The volumetric pricing, in addition to the easy-to-understand structure, encourages the customers to lower the use of the resource.
[1] Conversely, the volumetric price disincentivizes the utility from investing in conservation: if the customers will use less of the resources, the utility sales will shrink, reducing the fixed-cost portion and causing the lost revenues and under-investment.
Therefore this pricing strategy is typically coupled at the regulatory level with an annual rate adjustment mechanism (also known as revenue-decoupling policy).
[1] Volumetric pricing requires metering that can be expensive to implement, especially in the case of irrigation, alternatives include:[2][3][4] For the electricity services, the number of alternatives is larger, Borenstein[5] provides a review of the ways that can be used by the electric utilities to recover the fixed costs.