Economies of Scope in the Water-Energy Nexus

Utilities provide essential services that underpin social welfare and economic activity. There is a robust literature on how to best organize the provision of these activities, but no consensus has emerged on the presence and extent of economies of scope in the utility sector. We consider how the scope of a utility relates to residential prices. In contrast to the existing literature, our study focuses on utilities within the US and that provide services across distinct sectors (water and electricity), and we directly consider price implications. Specifically, we draw on surveys in 2017 and 2021 of around 400 water utilities --- 14 percent of which also provide electricity --- to generate empirical evidence on where joint water-electric utilities tend to operate and their association with retail prices for water and electricity. We find that smaller and less wealthy places are more likely to have joint water-electric utilities, as are cooler and drier places. More notably, we find significant evidence that water charges are 21 percent lower among the joint utilities than water only utilities. Ancillary data and analysis suggest electricity rates are also lower, indicating significant economies of scope are available. Our evidence addresses canonical gaps related to questions of the boundary of the firm and economies of scope in this important supply node of the water-energy nexus that can inform considerations of restructuring the provision of these services.