Tweaking the tariff - rebalancing water and sewerage prices

Lisa Quinn, Manager Customer and Community Affairs

In the early 2000s Canberrans were paying the highest price for water and sewerage services of just about any Australians – and definitely the highest of anyone in a capital city. Back then, Canberra was in drought and we were facing stage 3 water restrictions with the threat of stage 4 looming.

Since then we’ve seen small price increases most years, typically based on inflation. Our increases have been lower than most other Australians have seen, which means Icon Water’s price is now close to average.

We’ve also secured water for at least the next generation and if we go into another drought we won’t have to worry about restrictions coming back. This is great for Canberra, but it means the way we set our prices back then isn’t quite right any more.

Changing the price is a process that takes three years and many people – it’s anything but arbitrary – and ultimately it comes down to a decision made by an independent ACT regulator. 

When we talk about changing the price, we’re really talking about our tariff.

When you pay your Icon Water bill, you’re paying a fixed price of $104.21 per year, plus $2.68/kL for the water you use up to 50 kilolitres per quarter (called Tier 1), and $5.38/kL for any water you use above 50kL each quarter. You also pay a fixed charge of $537.34 per year for sewerage services, and businesses pay $525.51 for each toilet or urinal not including the first two.

Compared to other utilities, our water fixed charge is incredibly low, and our Tier 2 price is very high – this was what we needed in the drought to put a premium price on our scarce resource to encourage less usage. Now though, we should be able to enjoy the water we’ve secured – but our Tier 2 price is hard on our businesses, not to mention it’s a disincentive to maintain a larger garden at home and our larger users are carrying a disproportionate amount of the costs.

There are lots of different ways of slicing and dicing a tariff; should there only be one price or ‘tier’ per kilolitre? Or is a higher price for higher use better? What proportion of the bill should be fixed and not dependant on your usage at all? Should our businesses pay a different price per kilolitre to our residential customers?

We know the water tariff needs to change (and our regulator confirmed this in the independent review) and economics can give us some answers, but this time, we’ve put more effort than we ever have before into making sure we understand and consider the social impacts as well.

To do this, we spent 18 months on surveys, focus groups and sessions with our Community Consultative Forum, where we got views from more than 3000 Canberrans.  We asked these questions and many others to do with your service priorities (would you rather minimise water outages, or sewer overflows? – you preferred the latter), willingness to pay (would you want us to respond x minutes more quickly if it meant an $x increase in your bill? – you generally said no); what are the most important things for us to deliver to you? – you said quality drinking water and reliable supply were most important, followed by price, service and environment). You also said you want us to make any price changes measured and gradual.

Once we had all of this data about how you want your water utility to operate, we ran the numbers again to see whether we could sustain these financially – and we can.

So we’ve spent a good proportion of the last 12 months putting together our plans, forecasts and financial modelling, and we’ve included it all in our proposal to the Independent Competition and Regulatory Commission (ICRC) – the people who set our prices.

You can read the submission for yourself online, but in summary we’re proposing to bring the Tier 2 price down from $5.38 to $4.95/kL; the Tier 1 price will stay pretty much constant, $2.73/kL from $2.68; and the water fixed price will increase by $20 each year for the next five years, so that in 2023 it’s sitting at $200 per year. The sewerage fixed and fixtures charges will stay the same.  

This will make it more financially sustainable for everyone in Canberra to enjoy the water we’ve secured – and bring us closer in line with the majority of other water utilities around the country and it doesn’t mean big bill increases for you.

In this proposal four out of five customers won’t have their bill increase by more than inflation. Typical (200kL/yr) users’ bills will increase 2.3% or $27 per year; large (300kL/yr) users’ bills will decrease of 1% or $12 in the first year and then inflation thereafter; low (100kL) water users’ bills will increase 2.8% per year or $26, and our businesses’ (1000kL) bills will decrease $269 next year and then by inflation only.

This is something we’ve worked really hard to achieve, so we can re-align our tariff without significantly impacting hip pockets.

If you’re keen to know more about exactly how we calculate the price, including specifics about our expenses, water use forecasts, taxes and fees we pay, and the results of the consultation we undertook, have a look at ourprices.iconwater.com.au.