Council's water pricing is unfair
The Independent Pricing and Regulatory Tribunal (IPART) sets prices with the aim of implementing a user-pays policy.
This has objectives in relation to equity; users with low consumption should not subsidize users with a high consumption, and efficiency; users should at least pay the marginal cost of the service they consume.
An important objective relating to efficiency is that users should be encouraged to reduce their demand for the service so that the total demand, and in particular peak demand, on infrastructure is minimized.
There is a fundamental problem with the pricing model currently used by Gosford Council, which has apparently been endorsed by IPART.
A so-called typical user with a residential water consumption of 200 kL per annum is only paying a variable charge in 2012-13 of $424 for their water usage.
The fixed service charges for water, sewerage and stormwater total $716.62 for all residential users.
The variable charge for this typical user is only 37 per cent of their annual cost for water, sewerage and drainage.
This typical user could double their water consumption to 400 kL per annum but their annual bill would only increase by 37 per cent.
The pricing model is, in effect, providing economies of scale for residential water users.
If their water is mainly used for domestic purposes such as in the kitchen, bathroom or laundry, any extra water use will also increase their wastewater production, adding to their use of the sewerage system.
This means that users are not getting a strong price signal because the pricing model is only charging roughly half the marginal cost of their use of the water and sewerage systems.
Council's proposed prices for the next four year period will exacerbate the distortion that this pricing model contains.
The distortion would get worse because the pricing model would increase variable charges by 27 per cent from 2012-13 to 2016-17 but the fixed service charges would increase by 69 per cent.
The distortion caused by the pricing model is not only inefficient, it is also severely inequitable.
Elderly people generally live in one or two person households and have lower than average water consumption.
The pricing model, however, would have a far more severe impact on households with low water consumption.
Council's submission shows that the total bill for a residential user with annual consumption of 100 kL would increase by 59 per cent whereas the bill for a residential user with annual consumption of 750 kL would increase by only 40 per cent.
Even a household with consumption of 400 kL would only suffer an increase of 46 per cent in their annual bill.
The inadequacy of the pensioner rebates for water and sewerage bills is already a major issue on the Central Coast.
The inequitable pricing model being used by the Council will exacerbate the financial difficulties of pensioners and increase the need for much larger pensioner rebates.
The simple way to fix the pricing model is to introduce a variable sewerage usage charge.
It is presumed that this has not been considered previously because there is no metering of sewerage use.
Furthermore, it would be very expensive, and probably controversial, to introduce such metering.
The solution, however, is quite simple if one assumes that sewerage use is directly proportional to water use.
The pricing model could be amended to include a sewerage usage charge that is proportional to a household's water use, the sewerage service charge should be reduced by an amount which would balance the total revenue from sewerage charges.
Households that use a lot of water for external purposes such as garden watering, swimming pools and car washing may complain that this concept would be unfair for them.
However, the simple answer is that the external use of potable water should be discouraged and the increased use of variable charges will reinforce or replace the current Council restrictions on such use.
Email, 25 Oct 2012
Michael Conroy, Booker Bay