Utility Pricing Rules:

1.  First best solutions: rely on varying forms of lump sum transfers to achieve full cost recovery. Here, while the production in public utility is centralized, the financing is  done through decentralized resource mobilization mechanism. Taxes and / or 'user fees' are collected from the different localities in a decentralized manner against the decentralized distribution of the services produced by the public utilities.

2.  Second best solutions: employ various forms of price discrimination. Here, price discrimination is practiced as a step consistent with decentralization. Different localities or categories of users are charged with differential rates depending on their demand conditions. Equity considerations also play significant role in this regard.