Because it's not the market rate for water, it's the cumulative market rate for the goods and services purchased by the company needed to get that water to you.

Because it's not the market rate for water, it's the cumulative market rate for the goods and services purchased by the company needed to get that water to you. Actually, it's not. That would be the average costs. The marginal cost of a good is essentially the cost to add one more final user, which can be higher or lower that the average costs provider pays to supply all their customers. The author mentions the marginal cost in particular because by some theories, that's the price that would develop in a competitive market. But it's just a fiction. There's no reason for municipalities to charge either of these prices. There might be a beautiful lake that could be cheaply drained to everyone's water but that may well be undesirable in many other ways.