Water bill savings? Be cautious

Opinion by Professor Lin Crase

Many of Melbourne's households will welcome the announcement that some water bills are to be reduced by about $100 per year as a result of so-called efficiencies within water utilities.

This is good news for those trying to balance family budgets in the light of foreshadowed increases in fuel prices and taxes administered by the federal government. 

Be wary of gifts before elections

But water customers need to be wary of politicians bearing gifts that are clearly tied to the political cycle.  In this case, customers should be even more cautious, with the federal government set to disband the National Water Commission. 

The National Water Commission was set up to keep track of promises made by State governments about water reform and water prices. The decision by the Victorian Water Minister to over-ride the role of the economic regulator and effectively set his own prices for water seems more than a coincidence. 

Water prices should reflect costs, not politics

One of the key promises made by state governments in 2004 was that water prices should be set to reflect costs and that independent economic regulators would play a key part in keeping politics out of price decisions. Until recently, Victoria was able to claim significant progress on this front.  The Essential Services Commission was established and all water businesses in the state were required to submit 'water plans' to the Commission that ensured only reasonable costs could be passed on to customers.

Water businesses in Melbourne have water plans in place that set prices through to 2018 and ensure only enough revenue for water supply companies to maintain services at acceptable levels.

This system of regulation is not perfect and under the pressure of drought in the early 2000s, many state governments, including those in Victoria, side-stepped planning processes to bring forward costly water infrastructure projects.  The impact of these decisions on water bills has been well-publicised but it would be wrong to cast the current intervention by the Victorian government in the same light.

Lower water prices leads to reduced infrastructure renewal

Part of the goal of having regulators set prices is that water infrastructure is seen as too important to be subject to the ups and downs of political cycles.  If a government wants to increase its popularity by keeping down water prices, then water suppliers simply cut back on infrastructure renewal – after all, most of the assets are in the ground. 

This works fine for a while, but is not sustainable, because pipes ultimately need to be replaced; if the money is not being set aside on a regular basis, then it costs more in the long term.  Once water bills are tied into the political cycle, there is also a serious risk that the timing and location of water projects is linked to political gain and not customer need.

Melburnians now pay for water they can't use

The track record of the Victorian government is also worrisome on this front.  In March 2012, the Minister changed the statement of obligation for Melbourne Water such that it could no longer access low-cost water from the north-south pipeline, except in the most exceptional circumstances.   

The impact of that decision is that water customers in Melbourne pay to hold water which they cannot use.  It is not clear how these decisions are fairer for Melburnians, who are denied access to water for which they have already paid.  It's also not clear whether a maximum $2 per week discount off water bills is adequate compensation for these decisions and the risk to future water planning and supply.

Professor Lin Crase is the Director of the Centre for Water Policy and Management at La Trobe University's Albury-Wodonga Campus.

Image: Ameel Khan (CC BY-NC-SA 2.0)