Economy
Water Meters: Damning Review. Freeman’s Serve
Hobart City Council Alderman Jeff Briscoe today released the independent review prepared for HCC of the economic benefits of Southern Water’s roll out of water meters in Southern Tasmania.
“This peer review, in my view should send shockwaves to the Board of Southern Water and justifies the public’s widespread opposition to this current role out of water meters.” Said Alderman Briscoe.
“It is hardly a sustainable situation by losing shareholder value especially in the context of unknown water prices to the public (if and when the meters are installed) and the prediction by SW and the Economic regulator that current water prices are set to double over the next five years.”
“The independent review of Southern Water’s justification of the roll out of waters predicts no economic benefit ( indeed it predicts a negative $1.2million over 15 years as the most likely
scenario) to the company Southern Water and its shareholders.
“The review also questions some of the fundamental assumptions relating to water savings.”
“If a 30 year timeframe is taken then an economic benefit does become slightly positive.”
“To continue a roll out where the net economic benefit is a negative over 15 years means that the Board should now immediately reconsider its decision just on commercial grounds alone and if the Board does not do that then the State Treasurer Lara Giddings has the power to effectively order the Board.”
“This review vindicates the call for a moratorium.”
Background
HCC commissioned an independent review of Southern Waters Cost Benefit Analysis of the roll out of water meters. In SW Cost Benefit study it concluded a 7 million dollar benefit over 15 years to Southern Water. This benefit included the grant from the Federal Government of $5 million.
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John Freeman:
TALKING POINT – THE MERCURY
Mon 4 April 2011
By John Freeman
Water metering was always an ill-advised option for Tasmania, says John Freeman.
THE current furore about the water corporations and water metering was all predicted when the four mayors of the Hobart councils and I, as chairman of Hobart Water, met with the Legislative Council two years ago.
In view of the overwhelming public concern, it is worth recounting the lead-up to the current legislation and the flaws in it, all of which were foreseen and explained to politicians at the time.
The then-treasurer Michael Aird made much of the fact that there were boiled water alerts in Tasmania, and this was correct, but what he did not say was that 93 per cent of Tasmania had perfectly satisfactory water and sewage infrastructure.
It was never made clear why such a radical upheaval of a system, which was totally adequate for the vast majority of Tasmanians, was necessary or even advisable.
He also made a great deal of the need for the outlay of $1 billion in the next 10 years to upgrade and maintain the infrastructure.
What he did not say was that these figures were obtained from the councils’ and the water authorities’ own forward estimates by a firm of accountants. The figures were no surprise to anyone in the industry and budgetary provisions had already been made for them.
Mr Aird created the erroneous impression that this was a new discovery, that the councils were at fault and he had discovered a giant budgetary black hole, whereas the truth was the figures were already known and included in future budgets.
Thus the major reasons given for the changes were fallacious and the entire program was unnecessary.
The legislation mandates that a two-part pricing system must be used and this has a superficial appeal but regrettably the full ramifications are not well understood.
In a two-part system there is a fixed charge under which all pay the same amount. This relates to costs that are unavoidable, such as interest and capital repayments and other fixed charges.
In the case of Hobart Water this amounted to about 75 per cent of total expenditure.
The variable charge is that which relates to a person’s water use and is the amount that will be charged via the water meter reading.
Thus only 25 per cent of the bill will be capable of being altered by changing your consumption, so in real terms reducing your consumption by 10 per cent will reduce your bill by 2.5 per cent.
What many users do not understand is that everyone will pay the same fixed cost, regardless of their consumption, and changing your water use will make a minute change in your bill.
It is impossible to justify the expenditure of $55 million dollars or more in Southern Tasmania to install water meters which will make very little difference to your bill. In addition it has not been mentioned that this amount is more than twice the previous total annual expenditure of Hobart Water.
Recently Southern Water sent out a so-called information sheet to ratepayers suggesting that there was a difference between municipalities in the cost of water.
What they did not mention is that in a genuine two-part system this is to be expected as the fixed part of the system should reflect the cost of the required infrastructure to deliver the water to different areas
– so the further from the source of the water, the more you pay.
All of this is in the report of London Economics, which outlines a true two-part system, but has conveniently been ignored.
The bureaucratic costs of the new system are appalling.
The previous water organisations had governing authorities composed of aldermen who were not paid, unlike the present multi-tiered system of paid boards – some of whom are paid at extraordinary rates.
An entirely new and totally unnecessary system called Onstream was set up to send out bills and its errors have become a byword.
All of that expenditure could have been avoided by using the existing local government billing systems, which at least would have been accurate and also infinitely cheaper.
The cross-subsidisation that is inherent in the system has not received any comment.
Where new systems for water and sewage are to be installed, such as those on the southern beaches, the cost will be born by Southern Water
– that is, by all ratepayers.
This means that those dwelling in the cities, who already have adequate systems for which they paid in the past, will pay for new systems which will benefit only a few and will significantly increase those property values at little expense to themselves.
How this can be justified in a system which is based on the principle of user pays is difficult to comprehend.
The shareholders in the new company are the 12 councils but the voting system can only be described as inequitable.
Hobart, which contributed 37 per cent of the asssets, has one vote while Tasman, which contributed nothing, also has one vote.
The legislation is basically flawed and this needs to be realised and rectified.
The present Legislative Council enquiry may produce a result but it should be recognised that the need for the changes was based on false premises and has produced a costly bureaucracy which simply replicates local government for no real purpose, and will impose a burden on those ratepayers who have already paid for adequate systems in their own municipalities.
• John Freeman is a former chairman of Hobart Water and a former Lord Mayor of Hobart.
(Scanned by Peter)