Water Journal : Water Journal August 2014
AUGUST 2014 WATER 35 Opinion Infrastructure includes the systems used for the collection and treatment of wastewater. This article focuses on trade waste, in particular commercial customers such as Food Service Establishments (FSEs), which have a major role to play in limiting the costs of sewage treatment and producing recycled water. Reducing the volume and strength of trade waste can also save energy. Historically, trade waste costs have been ignored due to the relatively low costs for collection and disposal. For Sydney's major commercial dischargers, trade waste costs amount to a mere 4.5% of the total water and sewage account. Industrial customers also discharge trade waste, but are not our focus here. DIFFERENT APPROACHES Regulatory practices differ from state to state and tend to be a re ection of political imperatives rather than economic rationalism. Independent bodies proudly herald how they are reducing "cost recovery through prices", while emphasising the importance of "water retailers ensuring customers experiencing hardship receive assistance and are treated fairly". Pricing must encourage economic ef ciency in service delivery, investment and water use. For a business to continue operating in the long run, prices need to be suf cient to generate enough revenue to enable both capital and operating costs to be recovered. This includes an appropriate risk-weighted return on capital to investors and the interest payments on debt. Pro t is based on the return required on capital and is effectively a set rate regardless of any savings in operating expenses. When the Weighted Average Cost of Capital (WACC) is set too low, revenue does not cover costs and there will not be the incentives for utilities to undertake ef cient investment in either upgrading or augmenting infrastructure. This also encourages excess consumption, which places pressure on existing capacity and increases the need for additional capital for infrastructure. If the WACC is too high, rms will have incentives to bring investment forward as early as can be justi ed and may over-invest or gold-plate. Most water utilities have not been set up correctly, in an accounting sense. In the absence of regulatory accounts they have been unable to identify operating costs and applied a 'cost down' system after determining the total revenue required. Despite bulk water purchase experiencing far and away the biggest increase in Cost of Sales and Expenses, the revenue percentage of 53.4% in 2008 for water was still 54.8% in 2013 (Sydney Water Annual Reports 2007--08; 2012--13). While a 'bottom-up' approach, which would identify the actual costs of providing each service, is a challenging exercise it is also dif cult to see how a business can be effectively managed without such a methodology. Volume-based charging is of bene t with water usage, as it serves to signal to users the cost that an additional unit of consumption imposes on the supply system, whereas load-based pricing, for trade waste, re ects the cost drivers of treatment, disposal and management. It signals to customers the costs of discharging to the wastewater system and can provide incentives for them to nd the least-cost way to manage trade waste, including the possibility of investing in on-site treatment. In their Interim Price Monitoring Submission to the Queensland Competition Authority, Unitywater suggests that there is a law of diminishing returns that applies to sewage treatment plants (STPs) augmentation and the current practice of upgrading existing plants may be the most expensive option. Investing in potential alternative nutrient or pollutant reduction initiatives may achieve greater economic ef ciency and be environmentally bene cial. OPENING A CAN OF WORMS It may well be more cost-effective for industry to modify their practices. Businesses recognise that a greater emphasis on reducing trade waste loads would facilitate recycling, but are inclined to wait for economic incentives or nancial support from government. One liquid waste management consultant expressed the view: "It's a big, complex can of worms... and you show me any restaurant, any food- service establishment, any high-strength waste-generating facility, that voluntarily wants to get into a program to manage this stuff." All states and their regulators say that the charge for trade waste is determined by: • The volume of ef uent discharged; • The level of sewage treatment applied; • The strength of ef uent discharged. Water authorities say that they continue to develop ef cient trade waste prices with the aim of encouraging the most cost- effective methods of treating trade wastes, whether at source or downstream. Charges include non-compliance excess trade waste charges in order to provide the necessary incentives for dischargers to consistently comply with their conditions of approval. The primary reason why the current waste disposal facilities are gravely de cient is that they are priced in ways that do not re ect economic costs. In Sydney in 2007/08 sewage charges were $1.34 per kL. By 2013/14, Sydney Water realised that only 65% of its trade waste costs were recouped through these charges. It has addressed this and commercial premises now pay an average of $2.69 per kL (household fees at an equivalent $2.05/kL) for the additional cost of pumping, network maintenance, chemical dosing, corrosion and odour. It should be noted that large dischargers with effective pre- treatment programs are charged less and, to date, an ef cient, low-cost way of measuring contaminants such as Suspended Solids, Biological Oxygen Demand and Fats, Oils and Grease is not readily available. Over the last 10 years Sydney Water's 'Every Drop Counts' Business Program saved more than 65ML/day of drinking water by working closely with its business customers. FOUNDED ON WASTE The restaurant is an institution founded on waste and relies heavily on Best Management Practices in kitchens and grease interceptors, which are normally highly ef cient but have an optimum operating temperature of between 24 and 30 degrees. Modern oils, high temperatures, surfactants, surge ows, density currents and short circuiting can produce a shortening of the detention time in a grease trap and a reduction in its solids removal ef ciency. Sewers are adversely affected by excess FOG (fats, oils and grease) requiring excessive cleaning of lift stations, premature pipe replacement, increased sewer gases and loadings at STPs. The National Wastewater Source Management Guidelines authorise local water utilities to assume compliance for commercial customers with grease traps. "By following the guidelines, utilities can: • Improve sewage system performance, including reduced frequency of sewer chokes and odour complaints; • Provide nancial incentives to business and industry for cleaner production and waste minimisation." So the pricing regulations are not really set out to speci cally prevent or control discharge of FOG to the sewer.
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