Water and Sewerage Pricing Explained

​Who decides what the prices are going to be?

From 1 July 2012, the independent Tasmanian Economic Regulator has been responsible for setting prices for regulated water and sewerage services.

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

Services in connection with following activities are regulated services:

  • collecting, storing, treating, conveying or reticulating sewage including a retail service for the collection of sewage; and
  • collecting, storing, treating, conveying, reticulating or supplying of water including a retail service for the supply of water.
Services in connection with the following activities are not regulated services:
  1. supplying or using water for irrigation purposes;
  2. supplying or using water in connection with the generation of electricity;
  3. collecting or using stormwater;
  4. recycling water; and
  5. re-using water.

Trade waste services provided to Category 3 and Category 4 trade waste customers are regulated although the price for those services is not regulated ie the price is negotiated between the trade waste customer and the water and sewerage provider.

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 a building block approach the various costs that make up the total cost of providing water and sewerage services to customers are added together to arrive at annual revenue limits. Prices are then set such that the revenue does not exceed these limits.

The revenue limits reflect only those costs the Tasmanian Economic Regulator, a body independent from the Government, considers an efficient water and sewerage provider would incur in providing water and sewerage services to its regulated customers ie costs that the Tasmanian Economic Regulator considers an efficient operator would not incur are excluded from the revenue limit calculations.

The revenue limits are determined by the Tasmanian Economic Regulator following the conduct of a price determination investigation.

For each of the first and second regulatory periods, due to the need to move customers from a large number of different price structures to a situation whereby customers were paying the same price for the same service, limits were placed on price changes and prices were determined on the basis of those limits rather than being based on the revenue limits calculated under the building block approach.

What is a price determination investigation?

The Regulator assesses a regulated entity's Price and Service Plan by conducting a price determination investigation. A price determination investigation is a process in which the Regulator reviews a water and sewerage corporation's proposed costs to provide water and sewerage services to Tasmanian customers together with its proposals for prices and services to be delivered over a regulatory period.

During the investigation, the Tasmanian Economic Regulator:

  • ensures that the information provided by a water and sewerage provider is accurate;
  • assesses a corporation'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 for the water and sewerage services to be provided by a water and sewerage corporation (including, where necessary, seeking expert advice from independent consultants).

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

A final report and final price determination are then issued after a period of public consultation.

The costs of a price determination investigation are met by the water and sewerage provider that the investigation relates to.

What is a price and service plan?

A water and sewerage provider is required to submit a proposed Price and Service Plan (PSP) for the Tasmanian Economic Regulator's consideration and approval. The proposed PSP provides details of the prices the provider proposes charging for water and sewerage services, as well as the services it intends delivering. The proposed PSP also outlines the water and sewerage provider's forecast regulated revenue for each financial year of the regulatory period.

What is a regulatory period?

A regulatory period is the time period during which the Regulator's price determination applies.

Why have water and sewerage prices been going up?

In 2006 a State Government review found that the prices charged for water and sewerage services did not cover the cost 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 sector was not financially sustainable.

For these reasons, a series of reforms to the water and sewerage industry were introduced to make sure that 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 needed to ensure that Tasmania's water is safe to drink and sewage does not continue to pollute the environment.

The State Government review found that the level of past 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.

As such, price increases have been necessary to make sure that sufficient funds are available to deliver water and sewerage services to an acceptable standard.

The Regulator is required by legislation to manage any required price increases by taking into account the impacts upon customers.

What will happen to my water and sewerage bill from 1 July 2015?

Up until 30 June 2015, regional pricing applied in Tasmania, with one set of prices for the North, another set for the North West and a further set for the South, reflecting the previous regional structure of the water and sewerage industry.

Since its commencement on 1 July 2013 TasWater has continued transitioning customers from the prices previously charged by councils who provided water and sewerage services to Tasmanians before the formation of the regional corporations. This transitioning has been progressed by setting "target" prices for each of the regulated water and sewerage services provided.

This has been a complex process because the Regulator has been required to manage the impact of prices changes on customers, whilst providing TasWater with enough revenue to be financially sustainable and continue its capital expenditure program so that it is able to meet modern environmental, health and dam safety standards.

For the second regulatory period (1 July 2015 to 30 June 2018), noting that the references to "current" refer to the 2014-15 financial year, the Regulator approved the following pricing arrangements:

  • customers whose current fixed water and sewerage charges are above the nominated target tariffs will have their prices reduced to the target tariffs from 1 July 2015;
  • customers whose current fixed charges are equivalent to the applicable water target tariff will not see any increases to those charges;
  • customers whose current fixed charges are equivalent to the applicable sewerage target tariff will face annual increases of six per cent per year;
  • most residential customers whose current fixed charges are below the target tariffs will face price increases capped at the greater of either 10 per cent per year or $100 per year until they reach the target tariff. For larger customers, the $100 cap increases in proportion to the size of their water connection and the estimated demand those customer place on the sewerage system;
  • customers not on the respective target tariffs for water usage and trade waste charges will move to target tariffs over the period in three equal annual steps;
  • the target water usage charge will increase by 2.5 per cent per annum to reflect inflation.

In summary, the impact on individual customers' bills from 1 July 2015 to 30 June 2018 depends on the amount paid by each customer during 2014-15.

What are fixed charges?

Fixed charges do not change regardless of the amount of water used or sewage removed and are designed to recover the cost of providing the service to a property (such as the cost of maintaining dams, pipes, reservoirs and other essential infrastructure).

What are variable/usage charges?

A variable charge (also referred to as a usage charge) is the price charged for each unit of water delivered to, or sewage removed from, a property, and is designed to recover the variable costs of delivering water to, or removing sewage from, a property. For example, the variable costs for water include the cost of water treatment and pumping.

The variable water usage charge is determined by a water meter measuring the volume of water delivered to a property, whilst the fixed charge is based on the overall cost of providing the service to a property.

What is two-part pricing?

Two-part pricing is made up of a "variable" and a "fixed" charge as described above. Another example of two-part pricing is landline telephones where there is a fee to use the service ('line rental') and also a fee per call. The line rental covers the cost of providing the service (telephone network) whilst the per minute charge covers the additional cost of placing the call on the network.

Two-part pricing for water commenced on a state-wide basis from 1 July 2012.

What happens if I don't have a meter installed at my property?

Until a water meter is installed at your property, TasWater cannot charge you a variable charge for water usage. You must, however, still pay the fixed charge component of your bill.

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

Concessions are available for eligible customers. You may be eligible for a concession if you:

  • were eligible to receive a Pensioner Rates Remission from your local council as at 30 June 2015; or
  • you were the holder of a Pensioner Concession Card issued by Centrelink, a Health Care Card issued by the Department of Human Services, or a Department of Veteran Affairs Health (Gold) Card.

More details about concessions are available on the Department of Premier and Cabinet's website: www.dpac.tas.gov.au

Why do I have to pay for water?

Although most parts of Tasmania have plenty of water, the infrastructure needed to collect, store, treat, pump, and pipe water to homes and businesses involves significant costs. In addition, there are significant costs and infrastructure associated with the removal, treatment, and disposal of sewage. Currently, providing water and sewerage services involves assets worth around $3 billion and annual operating costs of over $180 million.

Who owns TasWater?

TasWater is owned by local government, with each of the state's 29 local councils owning a share and receiving dividends, income tax equivalents and loan guarantee fees in proportion to that share.

The State Government does not own or control TasWater and does not receive any dividends or other returns from TasWater's operation.

Independent price regulation by the Tasmanian Economic Regulator ensures that TasWater cannot earn a profit greater than that which would be earned by a business operating in a competitive industry. 

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 both 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 eg in some parts of the State, the price of water for residential customers is below the cost of providing the service and the shortfall in revenue is met from charging commercial customers a higher price.

When these cross-subsidies are removed, some customers will face price increases for their water and sewerage services, whilst other customers have price reductions to achieve an equitable outcome where all customers pay the same price for the same service.

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.

Additionally, under the Water and Sewerage Industry Act 2008, there is potential for a service charge to be applied if the water/sewerage system passes a property but the property is not connected (this includes the situation where the property is vacant land).

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