Water and Sewerage Pricing Explained

​​Who decides what the prices are going to be?

From 1 July 2012, the Tasmanian Economic Regulator, a body independent from the Tasmanian Government, has been responsible for setting prices for regulated water and sewerage services in Tasmania. While the regulatory framework does not impose any restrictions on the number of providers, TasWater is currently the only provider of these services in Tasmania.

Which water and sewerage services are regulated (by the Tasmanian Economic Regulator)?

Services in connection with following activities are regulated services:

  • The supply of water to customers.  This involves collecting, storing, treating, conveying, reticulating and supplying of water, and providing retail services to customers.
  • Sewerage-related services. This involves collecting, storing, treating, conveying and reticulating sewage, and providing retail services to customers. 

The following services are not regulated by the Economic Regulator:

  • supplying or using water for irrigation purposes;
  • supplying or using water in connection with the generation of electricity;
  • collecting or using stormwater;
  • recycling water; and
  • re-using water.

Trade waste services provided to Category 3 and Category 4 trade waste customers, such as major industries, are regulated although the prices for those services are not regulated. These prices are negotiated between the trade waste customer and TasWater.

How are prices set?

In general, prices for regulated water and sewerage services in Tasmania are determined on the basis of a 'building block' approach. Under the building block approach, the costs of all the activities needed to provide water and sewerage services to customers, including investment-related costs, are added together to determine TasWater’s annual revenue limits. Prices are then set such that the expected revenue does not exceed these limits.

The revenue limits reflect those costs the Economic Regulator considers an efficient water and sewerage provider would incur in providing water and sewerage services to its customers.  Costs that the Economic Regulator considers an efficient operator would not incur (even if they are actually incurred) are excluded.

The revenue limits are usually determined by the Economic Regulator following a price determination investigation.
 
Under an agreement reached between the State Government, the council owners of TasWater and TasWater, TasWater will impose a price freeze for all its water and sewerage services from 1 July 2019 to 30 June 2020 and will set a maximum price increase of 3.5 per cent until 30 June 2025 (unless TasWater’s long term sustainability is at risk).  Price increases for the period to 30 June 2021 (the end of the third regulatory period which commenced on 1 July 2018) will therefore be less than in the 2018 price determination, which approved price increases up to 4.6 per cent.   
 
The price determination investigation process for the fourth regulatory period will continue, as set out below.  The next regulatory period commences on 1 July 2021.  The duration of this period has not yet been set.

What is a price determination investigation?

TasWater is required to prepare a draft Price and Service Plan for a forthcoming regulatory period, which sets out the services TasWater intends to provide, its proposed investment and the prices it intends to charge to its customers to reach its proposed annual revenue from these services. The Economic Regulator assesses this draft Price and Service Plan by conducting a price determination investigation. During the investigation, the Tasmanian Economic Regulator:

  • ensures that the information provided by TasWater is accurate;
  • assesses TasWater's proposed prices and services to make sure that they satisfy requirements laid down in legislation (for example the need to take into account the impact of price increases on customers and the need to ensure that expenditure is efficient and prudent);
  • invites comments from members of the public and stakeholders; and
  • gathers additional information to assist in making a price determination (including, where necessary, seeking expert advice from independent consultants).

​​​As part of its investigation, the Economic Regulator produces a draft report summarising its proposed decisions, the reasons for those decisions, any changes considered necessary to the proposed Price and Service Plan and a draft price determination setting out the proposed prices for the regulated water and sewerage services for the regulatory period.

After a period of public consultation and taking into account the submissions received, the Economic Regulator issues a final report and makes final price determination, which includes the maximum revenue TasWater may earn from its regulated services and the maximum prices TasWater may charge over the regulatory period.

The regulatory framework is designed to prevent TasWater earning a profit greater than that which would be earned by a business operating in a competitive industry.

The costs of a price determination investigation are met by TasWater and are included in its water and sewerage prices.

Who sets a regulatory period?

The Economic Regulator sets the regulatory period, following a public consultation process.  Since 2012, the regulatory period has been three years, commencing on 1 July. 

Why have water and sewerage prices been increasing at a greater rate than the general price level?

In 2006, a State Government review found that the prices charged for water and sewerage services did not cover the costs of providing water and sewerage services to all Tasmanians. The review also found that prices were generally too low to fund the new plant and equipment needed to meet acceptable standards in terms of safe drinking water, public and employee safety, and stopping sewage polluting Tasmania's environment.

This meant that not only was the standard of water and sewerage services in Tasmania below that provided in other parts of Australia, but the standard was likely to fall further behind because Tasmania's water and sewerage industry was not financially sustainable.

For these reasons, a series of reforms to the water and sewerage industry were introduced designed to ensure that, over time, sufficient funds are made available to meet the true cost of providing water and sewerage services, maintain the existing water and sewerage infrastructure, and invest in the new and upgraded infrastructure.  

The State Government review found that under-investment in much of the water and sewerage network meant that it would take many years to place the industry on a sound and sustainable financial footing.

Price increases have therefore been necessary to make sure that sufficient funds are available to bring water and sewerage services to acceptable standards.  In determining price increases, the Economic Regulator is required by legislation to take into account the impact of these price increases on customers.


What are fixed charges?

Within a year, the fixed charges customers face do not change regardless of the amount of water customers use or sewage removed from their premises. They are designed to broadly recover the costs of providing water and sewerage services that do not change as the volumes of water supplied, or sewage treated vary. These include the cost of maintaining dams, pipes, reservoirs and other essential infrastructure and many billing and administrative costs.

Around 80 per cent of TasWater’s costs are fixed costs.     

The fixed charge for a customer is designed to reflect the fixed costs of providing water and sewerage services to customers of that type. For water, it is determined by the size of the pipeline at the connection point to the customer’s property. For sewerage services, it is determined on an equivalent tenement (ET) basis, based on the characteristics of the property.​

What are variable/usage charges?

Variable charges (also referred to as usage charges) are the price charged for each unit of water delivered to a property, and, for some business customers, the price charged per unit of sewerage removed from a property. Variable charges will vary throughout the year. For example, water consumption for many households tends to be greater in the summer months.

They are designed to broadly recover the variable costs of delivering water to, or removing sewage from, a property such as the cost of water treatment and pumping.

Around 20 per cent of TasWater’s costs are variable costs. 

The variable water usage charge is determined by a water meter measuring the volume of water delivered to a property, and, for sewage, the volume that is removed from the property. 

In practice, variable charges account for 30 per cent of TasWater’s revenue, which means that some revenue from variable charges is used to recover some of TasWater’s fixed costs.

What is two-part pricing?

Two-part pricing is where a customer’s charges comprise a fixed charge and a variable charge, as set out above. Two-part pricing for water commenced on a state-wide basis from 1 July 2012.

Can I get a discount on my water and sewerage bill?

Concessions are available for eligible customers. To be eligible, you must be legally responsible for the account and occupy the property as your principal place of residence.

You may be eligible for a concession if you hold:

  • a DHS Health Care Card;
  • a DHS or DVA Pensioner Concession Card;  or
  • a DVA Health Card (also known as a Gold Card)

More details about concessions are available on TasWater’s website: https://www.taswater.com.au/Your-Account/Concessions-and-Rebates

Who owns TasWater?

Until January 2019, TasWater was owned by local government only. Each of the State's 29 local councils owns shares in TasWater and receives returns in the form of dividends.

Over a 10 year period, the State Government has committed to providing $200 million to acquire a 10 per cent of the shares in TasWater. This commenced in early January 2019 when the State Government acquired one per cent of the shareholding for a $20 million equity contribution. Under the statutory arrangements, the State Government cannot receive dividends or any other payments from TasWater.

Some customers seem to be paying very different amounts for similar water and sewerage services across the State. How is this fair?

Prior to the commencement of the industry reform process, the prices charged by councils for water and sewerage services varied markedly between municipalities in terms of both the basis for setting prices and the level of prices.

Price reform will result in customers paying bills that reflect the real cost of the services they receive and will make sure that Tasmania's water and sewerage industry is safe and sustainable into the future. However, this is taking time as the impacts on customers in transitioning to uniform prices need to be managed to help minimise price shocks. Under the arrangements approved by the Tasmanian Economic Regulator in its Final Report and Price Determination for the second regulatory period almost all customers will be on target tariffs by 2017-18. A small number of residential and commercial customers will need to continue to transition up to target prices by the legislated deadline of 1 July 2020.​

What are cross-subsidies?

A cross-subsidy is where one customer pays more for a service than another customer for the same level of service. The higher revenue from the first customer is used to meet the shortfall in revenue from the second customer. In the early days of the reforms (from 2009), these cross subsidies were very large, with some customers paying three or four times the charges of other customers for the same services.

As customers transition to target tariffs, these cross subsidies are gradually being reduced.

There will always be some element of cross subsidy across Tasmania as the cost of providing water and sewerage services varies across the State yet there is a single target tariff state-wide for a specific service provided to customers of a defined class, such as water supply to households.

Can I disconnect from the water and sewerage infrastructure to avoid paying for the service?

A customer may elect to disconnect from the water and/or sewerage network. However, there may be environmental and/or planning issues. For instance, disconnecting from the water supply system may have implications for sewage disposal. If you disconnect from the sewerage system, approval will be required from your council for alternative on-site waste treatment arrangements.

Under the Water and Sewerage Industry Act 2008, service charges are imposed if TasWater’s water and/or sewerage infrastructure passes a property and the property is not connected. This includes the situation where the property is vacant land.​

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