Water Journal : Water Journal December 2013
37 Feature Article DECEMBER 2013 WATER Productivity Commission The Productivity Commission (2011) recognises the important role that pricing plays in providing the signals that guide behaviour on both the demand and supply sides of the urban water sector. In identifying opportunities for improvement, the Productivity Commission (2011) argues for pricing all elements of the urban water supply chain in a way that re ects the ef cient cost of providing services to customers, and in particular: • Pricing bulk water according to the marginal opportunity cost of supply ( exible bulk water pricing) would facilitate better allocation of water resources and investment decisions by ensuring that bulk prices respond to changes in demand and supply. • Enhance the ef ciency of the utilisation of water transmission infrastructure by pricing these services in line with exible pricing principles under some circumstances. Ef ciency gains could also be realised by ensuring that developer charges better re ect the costs involved. • The ef ciency of retail prices could be improved through: -- more comprehensive use of consumption-based pricing, including the direct charging of water usage to tenants where water is separately metered, and installing separate water meters in all new dwellings -- moving away from mandatory inclining block tariffs -- moving to more location-speci c pricing that re ects the costs of service provision in different locations, where justi ed by a cost--bene t analysis. National Water Commission The recommendations in the National Water Commission's Urban Water in Australia: Future Directions (NWC, 2011b) seek to ensure that urban water is managed using an ef cient, adaptive, resilient and customer-driven approach that can respond to the challenges of increasing population, affordability concerns of water services, and the impacts of climate change. The report makes 10 primary recommendations, each with supporting recommendations. The pricing-speci c recommendations advise that governments should recommit to using pricing to promote economic ef ciency; broaden the coverage of fully independent economic regulation across all urban water systems; and ensure that economic regulation is more exible, to encourage innovation in price and service offerings and better re ect the value of water. Infrastructure Australia The focus of the AECOM (2010) report prepared for Infrastructure Australia, Review of Regional Water Quality & Security, was speci cally focused on regional urban water. The review identi ed that pricing water in order to recover the full cost of supply is currently dif cult to achieve in many Australian regional towns. AECOM (2010) identi es a high variability in the price paid for water across regional Australia. In addition to cost factors, variations in the application of pricing policies contribute. The review suggests that many utilities servicing regional towns are not recouping the costs of supplying water, let alone providing for capital improvements. Many are charging prices signi cantly lower than in major urban areas, where economies of scale would be likely to mean lower cost. AECOM (2010) makes recommendations for pricing reform with particular focus on achieving cost re ectivity and reduction of cross-subsidisation. Pricing plays a vital role in guiding behaviour affecting supply and demand in the urban water sector.
Water Journal November 2013
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