Auckland Water Tariffs

On Monday, with a big fanfare, The Hon Rodney Hide, Minister of Local Government announced Auckland's new water tariffs. We have been expecting a "win". The Government, and all the champions of Auckland's restructuring have been anxiously looking forward to a "win", amongst all the problematic news of redundancies, candidate quality, and such-like.
This next table lists the old prices/cubic metre of water, and the new prices inc GST.

Auckland Area	Tariff at October 2010	New Tariff at July 2011
Orewa and Whangaparaoa	$2.33*	$1.30
Metrowater	$1.81*	$1.30
Waitakere	$1.74	$1.30
North Shore	$1.52	$1.30
Manukau	$1.31	$1.30

No information or analysis accompanied this announcement whose details will have been carefully worked through by Watercare Services Ltd, and agreed by its Board of Directors, and subject to the scrutiny of Auckland Transition Agencies Board of Directors.

But where was the public consideration of alternative pricing options?

Is this unilateral approach the sign of things to come? We at Watercare know best and we'll impose it?

There are several very substantial policy questions that this announcement rides rough-shod over, in the interests of getting a rare smile from the public, and I will canvass briefly here, a few of them:

1) Water tariffs are problematic. Higher prices encourage conservation and defer the need for capital investment in new supply (new dams, new pipelines). Lower prices encourage wasteful use. But higher prices hit those on low incomes and with large families. Means tested support is deployed elsewhere in the world, so that the conservation economic benefits are available, while ensuring that adequate water is available for those on lower incomes. Many cities also routinely use progressive pricing. This means you pay less/cubic metre for your first 200 cubic metres of water in a year (say), and then progressively more /cubic metre for large users (such as those who refill swimming pools several times a year, and those with several high volume showers in the house).

2) This "water services only" announcement immediately undermines one of the main goals of the restructuring which was to achieve integration of water services, and related savings and "big picture" benefits. Everybody appreciates that "water in" equals "water out" - that the more water that is used, the more wastewater that is generated and which needs to be reticulated at great cost along sewer lines to a wastewater treatment plant for treatment and disposal. I was impressed with Mayoral candidate John Banks proposal that homeowners be offered the choice of a fixed annual charge for wastewater services (which would suit a big user of water), or a metered charge for wastewater services (which would suit pensioner couples and other small households using small amounts of water). This was integrated thinking. He was connecting up water and wastewater pricing. Watercare's "water services only" announcement invites cynical criticism. Watercare obviously needs a certain revenue flow to cover its whole operations cost - water and wastewater - and you can bet your bottom dollar that if water services revenue falls (because of the significant cost cuts that have been offered), then these falls will simply be recouped by ratcheting up waterwater charges when they are announced later. This is a manipulative and political announcement which is disappointing and does not augur well for the future.

3) Water's cheap. Use more. The message in big water tariff cuts completely undermines the message that Watercare, and the Councils - especially Waitakere City Council, have been advocating for years - and that is to conserve water use, use water carefully. This is highly counter-productive. It risks gobbling up the existing supply Auckland has built up (dams plus Waiakto Pipeline in dry times), and bringing forward the need to build new supply. Again, cynically, I can see that a calculation has been done that because people will feel free to use more water - because it's cheaper - that the net result could be for Watercare that the revenue from increased use will more or less make up the revenue gap risk from reduced tariffs.

4) Missed regional development levies for new supply and new water mains opportunity. The simplistic message in "water's suddenly got cheap with supercity", undermines the opportunity to communicate the option that Watercare will now collect revenue for new supply, for new infrastructure, from development levies, rather than over-charging existing users in their water rates. This approach would create a new revenue source for Watercare to pay for infrastructure that benefits new development and developers. This would be a rational and fair reason for reducing water tariffs for existing users who currently subsidise infrastructure needs caused by others. This would be a good opportunity to justify shifting new water supply infrastructure costs onto those who incur them - rather than expecting all water rate payers to subsidise new development.

5) Regional variation. It is assumed that it is somehow right and good and proper that every ratepayer in Auckland should now pay exactly the same for water services. In fact Auckland's water systems and networks vary considerably in quality and capacity. North Shore City has invested substantially in past years - at ratepayer expense - at replacing old iron water mains with new higher capacity water mains. There has not been an argument advanced by Watercare in support of "regional uniformity" and for "regional consistency". On paper it looks good, but in fact some areas have invested more heavily in their infrastructure than others - for whatever reason - and to gloss over that fact without public justification lacks equity. I accept that differences are less obvious with water supply (though they are tangible - and Auckland City's problems with ancient infrastructure are well known), but there are major differences when it comes to sewer network investment across the region. I suspect that the regional uniformity approach that we see here with water services will be steamrolled out for wastewater charges and suchlike. This might make it easier for Watercare's bean counters and billing systems, but rides rough shod over past rate payer investments and real regional differences.

More thoughts will come to mind. But this is not rocket science. Many cities have been through this process before. It can be a very positive and progressive process. Or it can be reductionist - as we see here - and disappointing.