Many domestic consumers of water will be screaming at Actew’s projections of water charges to 2000. Actew has adopted user-pays. This means that cross-subsidies from business to domestic users will end and all users will have to pay for what they use.
At first blush it is a mean policy. There will be no social cross-subsidisation.
For a long time governments have controlled delivery of utility services like water and electricity. They have often pursued their social policies through the pricing of utilities. It was acceptable in the popular imagination. Aged pensioners, it was thought, should not have to pay the same price as everyone else for electricity to heat their houses. Widows and single mums should not have to pay the same price for water. The trouble with this policy, though, was that if water and electricity are cheap, the users do not consume them carefully. The financial incentive to conserve water and power is much less. The result is we all pay far more in the long run as new dams and power stations have to be constructed for what is an artificially inflated demand.
Historically, water and electricity have been charged in odd ways in the ACT. Only in the past five years or so have the anomalies in the charging been addressed. With water, residents used to get the average consumption “”free”, or later at a flat rate, and only pay excess for that consumed above average. This meant that consumers who consumed less than the average got no reward for their frugality. Moreover, those who had been under the threshold last quarter thought nothing of increasing consumption next quarter because their bill would not rise.
With electricity, there was a high rate up to a threshold amount and then the price fell per unit the more a consumer used. That did not send any conservation message to consumers.
Further the old pricing structures with a state-owned monopoly supplier were based on the government’s desired dividend rather than on the business of electricity and water provision.
Slowly Actew has changed pricing so that consumers of electricity pay a flat amount for the connection service which must be paid before any water or electricity is saved, and then a cost (based on the cost of supply) for every unit consumed. It is called rational pricing. It is driven by market forces. Ultimately, it means that business users will get reduced prices and residential consumers will get higher prices.
If this is viewed only in the context of Actew bills arriving at residences, people will rightly scream. But there is a wider context. This sort of billing will send effective price messages to consumers who can then make sensible decisions about how much they want to conserve and how much they want to consume. It is likely that overall we will use less water and electricity than under the old price structures. Fewer dams and power stations will have to be built. So there will be lower rates and other taxes, which hitherto had been used to provide funds for infrastructure.
But we must still have a fair society. The less well off must not be without reasonable supplies of electricity and water. It is essential, if this quite sound program of rational pricing is to be successful, that there is compensation to low-income earners. Indeed, they should share in the efficiency gains.
It will mean, of course, that just as the water and electricity utilities have shed the shibboleths of the 60s so must government welfare systems. In the past cash hand-outs have been abhorred, lest they be squandered, so inefficient subsidies for essentials have been installed. But cash is a very efficient form of social welfare.