Human Settlements Theme Report

Australia State of the Environment Report 2001 (Theme Report)
Lead Author: Professor Peter W. Newton, CSIRO Building, Construction and Engineering, Authors
Published by CSIRO on behalf of the Department of the Environment and Heritage, 2001
ISBN 0 643 06747 7

Urban stocks and processes (continued)

Water (continued)

Charging for urban water supply and wastewater services

During the late 1990s, the urban water industry underwent considerable change, particularly in relation to the charging for urban water services, with the widespread introduction of pay-for-use price systems in accordance with the Council of Australian Governments (COAG) Strategic Water Reform Framework; see WSAA (1997, 2000) for further details. Industry reforms of pricing structures for urban water supply have generally resulted in a two-part tariff, made up of an access charge and a variable use charge. The precise form of tariff and the extent to which the variable use component is significant varies among authorities (WSAA 1997, AATSE and IEAust 1999, AWWA 2000a). In the 1998-99 financial year, 50% of the total major urban water authority revenue was raised from usage charges, varying among authorities from 8% (Gold Coast Water) to 86% (South East Queensland Water Board) (WSAA 1999). In this same financial year, the proportion of revenue raised from usage charges by other urban water authorities ranged from 0% by Townsville City Council to 74% by the Power and Water Authority in Alice Springs. This variation reflects the history of pricing in particular regions and the evolution of the tariff structure. Overall, the level of water charging in urban areas was fairly constant or declined in real terms during the 1990s (AATSE and IEAust 1999).

According to Anderson (1995), the move towards pay-for-use pricing for water, the introduction of water-efficient fittings and appliances, and the promotion of water conservation were expected to be agents for the reduction of per capita domestic water consumption. However, given current pricing structures and charges in urban areas, the cost of water is still not a key element in the average household budget (AATSE and IEAust 1999). Of the people aware of the cost of water, 54% have not altered the amount they use because of cost (ABS 1998l). If the price of water increased, it would become a stronger agent for change. In the Hunter region, the price elasticity of demand on the usage charge was found to be -0.4; that is, during the period considered, a 10% increase in price would be expected to result in a 4% reduction in water use (AATSE and IEAust 1999).

An analysis of the impact of water pricing on per capita consumption conducted by AATSE and IEAust (1999) found that the influence of the two-part tariff (charging arrangements for water services comprising 1 - an access or connection component and 2 - an additional component or components to reflect usage) on water consumption has been mixed. Data from the Hunter region provides the most clear-cut example of the simple two-part tariff at work, but Perth and Sydney show, in different ways, that any effect from pricing can easily be outweighed by climate variations, water use restrictions and regional economic structure. It should be noted that the influences of regulations requiring water conservation appliances and general conservation awareness among the urban population was not addressed in this analysis. Water supply agencies now campaign, with expensive media advertising, to urge their customers to use less of their product. The reasons for this apparent economic paradox are complex, but it is clear that this situation reflects market forces such as tariff reform and the postponement of expenditure on supply augmentation through demand management, and community environmental concerns (Smith 1998).

Figure 37 presents information on the total cost per unit of water supplied to an average domestic customer in 15 of the major urban water authorities. Total cost per unit is taken to be the total water bill of an average domestic water consumer divided by the volume of water supplied. The total water bill (water supply and sewerage charges) is used rather than water supply charges alone, as the consumer does not normally have control over the disposal of wastewater to the sewerage system nor the proportion of supply that is estimated to be sewage.

Figure 37: Major urban water authority average domestic users' water costs, 1998-99. [HS Indicator 2.11]

 Major urban water authority average domestic users' water costs, 1998-99

Source: Modified from WSAA (1999)

The water industry appears to be moving at only a slow pace towards basing most charges on use, a point reached decades ago by other industries such as energy and transport. Consequently, reduction in use is not supported strongly by tariff structures. For example, the average customer of each major urban water authority effectively is charged more per unit supplied if their use decreases (i.e. total cost per unit increases).

The current pricing structures employed by major urban water authorities result in a discount in total cost per unit for increased water use. Pricing structures where a smaller portion of the bill is an access fee and the vast majority is a volume-based charge are consistent with a policy direction designed to maximise use of water resources.


Demand for water supply for urban use is growing in a number of locations, such as the 'sun-belt' regions of Western Australia and south-eastern Queensland (AATSE and IEAust 1999) and regional cities in New South Wales. Developing water resources to meet the growing demand presents major challenges because of competition for water and environmental issues (Anderson 1998). There is also an uncertainty associated with climate change and the potential for decreased yield from existing water supply catchments. As a result, there is considerable potential for conflict over supplying increased urban water demands. Nationwide, there has been a growing community resistance to the building of dams because of their effects on the natural environment. An example of the change in emphasis away from development of new dams to alternative strategies is the ACT Future Water Supply Strategy (ACTEW 1994). Based on a traditional approach of expanding the water supply to meet growth in demand, ACTEW had calculated that a new dam would be required by around 2005. The organisation responded to this situation by developing a long-range water supply plan in consultation with the community, who strongly favoured deferring a new dam on environmental grounds (ACTEW 1994). The ACT Future Water Supply Strategy places emphasis on education and awareness, promoting demand management and efficient use of currently available resources rather than the development of new reservoirs. A similar result is expected to be achieved by Gold Coast Water, who introduced a consumption-based water pricing policy in 1998. Between 1992 and 2000 Gold Coast consumers reduced water consumption by 14% through the WaterWise program, delaying construction of stage three of the Hinze dam by seven years. Consumption-based pricing is expected to reduce water usage by a further 5-10% and allow dam works to be postponed until 2025 (Gold Coast Water 2000).

The adequacy of water supplies for a particular urban area to meet existing and future demands is influenced by a number of factors, including:

  • current and projected level of utilisation of divertible resources (level of allocation),
  • impact of climate change on system yield,
  • augmentation options available,
  • trends in total and peak water use, and
  • the level of service required.

In order to ensure adequacy of supply, both demand-side and supply-side management options are available.

The trend in total urban water use is determined by changes in population, per capita use and uptake of water-efficient technologies. Demand management can be used to level peaks in demand and reduce per capita consumption, thus providing opportunities for additional population without increasing total water use. Alternatively, differing degrees of periodic water restrictions may be sufficient to postpone augmentation, but it reduces the level of service to the customer. These measures represent demand-side approaches. Supply-side approaches include traditional options such as surface and groundwater resource development, as well as the newer alternatives of stormwater and wastewater utilisation.