WATERWORKS (TIERED PRICING) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 28 October 2011.)

The Hon. P. CAICA (Colton—Minister for Environment and Conservation, Minister for the River Murray, Minister for Water) (10:48): I rise on behalf of the government to oppose this bill. This bill proposes to mandate, to the extent that water use prices or rates set under the act involve an inclining block tariff, that any water not used at the first or lowest tier price in a three-month period may be rolled over or used in the next three-month period in the same financial year.

An inclining block tariff means that the price as applied to water use increases as the quantity of water used increases. At present, there are three pricing tiers. In addition to the annual supply charge of $142.40, the quarterly three tier water pricing is as follows: $1.28 per kilolitre for water use from zero to 30 kilolitres, $2.48 a kilolitre for water use from 30 to 130 kilolitres, and $2.98 for water use above 130 kilolitres.

The change being proposed in this bill is linked with the new quarterly water use billing arrangements implemented by the government in 2009-10. I think it is important that, for the benefit of members, I take just a moment to explain these arrangements. Under the quarterly use billing system, charges reflect water use in the billing period in which it is incurred. If customers use more water during that billing period, their charges for water use will increase; likewise, if they use less, their charges for water use will be less. This means that customers know what their usage is and the cost each quarter.

Under an inclining block tariff arrangement, this is most important because if consumers use a considerable amount of water and incur second and third tier charges the water bill can be quite substantial, particularly during the summer months. In other words, quarterly billing provides consumers with a most important pricing signal so that they can moderate their water use if necessary.

Water use charges are now shared more evenly over the four quarterly bills, making it easier for customers to budget for them. These reforms have made billing for water use very similar to what has been applied here in South Australia with electricity accounts for many years. They are also in line with the practices of various jurisdictions around the world.

In responding to this bill, I need to clearly establish a most important principle indeed. In recent pricing decisions, this government has continued to support a discounted first tier price to assist affordability on equity grounds and particularly with respect to essential water needs. It needs to be noted, however, that any discounting of water use is inconsistent with the need to promote water used efficiently and, therefore, care needs to be taken and must be taken to ensure that this provision is not used to support non-essential water needs.

Essential water needs—and you would be aware of this, Madam Speaker, as we all are—are those, of course, to do with personal consumption, bathing, laundry and food preparation. At the moment there is a provision of 30 kilolitres of water in the first tier at a heavily discounted price. This provision should be seen as being for essential water needs. In other words, it is useful to see the first tier allocation at a heavily discounted price as responding to essential human need.

It is clear in the local context that a key driver of current complaints about the carryover of first tier water relates to water use that goes beyond essential water needs. It is important to recognise that the primary driver of advocates for the measure proposed in this bill is the ability to take maximum advantage of the discounting inherent in the first tier price and, as I mentioned, that is intended to support essential water needs. At present, this price is $1.28 a kilolitre compared with the second tier price of $2.48. You will note that the first tier pricing offers a very substantial discount which is almost half of the second tier price.

It is also important to note that the effect of the member for MacKillop's bill would be that those customers whose essential household needs require less than the first tier allocation of 30 kilolitres within a quarterly period would be able to carry over their surplus into the next quarterly period. This means that in each carryover period, they would be in a position to use this discounted water not only for their essential needs but, inevitably, also for non-essential needs because consumption for essential needs is largely consistent across those four quarters. This would be entirely contrary to the spirit of providing discounted water for essential needs. It would also not promote efficient use of the water resource which is necessary to ensure long-term sustainability.

In introducing this bill, the member for MacKillop has claimed that under quarterly billing those who put in rainwater tanks and undertake other measures to save water are paying more than they should and that they are paying at a higher rate than those who are not achieving the same savings. This is a spurious claim. The price structure was and remains an inclining block tariff. This means that if customers use more water in a billing period they may incur a higher tier price for the water used above the specified threshold.

By implementing water savings a customer can expect to incur less water use at the higher second and third tier water use prices than they might otherwise or, for that matter, less water use at the higher tier prices than an equivalent customer who has not implemented similar savings. Over the past three years, when significant price increases have been necessary to meet substantial costs associated with water security initiatives, including the building of the desalination plant, the prime focus of those increases has been on water use prices. Residential fixed charges are actually lower than they were in 2007-08.

Clearly, this approach has been to the advantage of those who have installed rainwater tanks and taken other measures to reduce their water use as compared with the pricing impacts for other customers. Who will benefit from this bill? Perhaps those who can access rainwater in winter. If it results in water use below 30 kilolitres for the quarter, they would obtain some benefit and also small households who have substantially lower essential water needs than larger households.

The unused portion of all of these customers' 30 kilolitres per quarter provision could be carried forward for non-essential use later in the year. In addition to the negative policy outcomes, the member focuses on a few winners from the measure proposed in this bill, conveniently omitting any reference to those who may lose.

We have heard comments on the national pricing principles requiring that prices be set to recover the full costs of providing services. If this bill is passed it is likely that water prices in the future may need to be set marginally higher. While this will partially offset the benefits that a minority of customers will receive, the remaining, and I might add the majority of, customers will pay more to raise any revenue shortfall that would arise from the change based on 2010-11 prices.

Regardless of this, the fact is that the majority of consumers will gain no benefit from this bill. Notwithstanding our concerns with the intent of the bill, the government has committed to repeal the Waterworks Act 1932 as part of a wide-ranging reform of water industry legislation. The key instrument of these reforms will be a new Water Industry Act that will introduce economic regulation of the industry.

I tabled an exposure draft of this bill in the house on Tuesday 9 November 2010. Under the bill, ESCOSA will have a much stronger role. ESCOSA will have the power to set prices independent of government. This will lead to greater transparency and greater cost-reflective pricing.

Therefore, I ask: why would the member for MacKillop seek to introduce a bill that seeks to make ill-advised changes to the water pricing arrangements in this state when in the near future water pricing arrangements will be a matter for an independent pricing regulator?

I also note that in a debate on the Waterworks (Rates) Amendment Bill on 13 May 2009, the member for MacKillop supported ESCOSA as the independent price regulator. He said:

ESCOSA, the organisation, in a better world, would actually be the body that would set prices for water in South Australia and the whole range of water services.

The government opposes this bill on the basis that it is flawed in its intent and because the government already has in process reforms which will provide for independent regulation of water pricing arrangements.

Mr WILLIAMS (MacKillop—Deputy Leader of the Opposition) (10:57): I am extremely disappointed that the minister has taken the position that he has, particularly in view of the fact that I have been on public radio with this minister debating this particular issue and I was under the distinct impression, certainly, that he left listeners to public radio in Adelaide thinking that he was going to look at this seriously and that he had sympathy for what I am trying to achieve with this bill.

For the minister to say that somebody who uses less than 30 kilolitres of water in the wintertime will be advantaged by this bill because they can use water at a cheaper rate for non-essential use later on in the year, maybe in the middle of summer, is a nonsense. It is an absolute nonsense. The anomaly that I have been trying to right with this bill only arose because the government changed to quarterly billing and quarterly meter reading. It did not arise for any other reason.

So, we have had a change in the system and I am trying to re-establish the situation that pre-existed that change, to benefit particularly those people who have actually done the right thing with regard to water use; those people who have not only cut their water use in a time of shortage but have actually put their money where their mouth is and invested to further cut their reliance on the public water system. The very people who have underpinned the state's ability to get through the recent drought are the ones who have become disadvantaged by the government's change to quarterly billing. I am simply trying to redress that anomaly that has arisen.

For the minister to say that another reason why he will not accept this particular amendment is that the government intends to introduce independent pricing is, to use his word, a spurious argument. I would only accept that argument if the government, particularly the Treasurer, undertook not to issue any pricing orders whatsoever to ESCOSA as they go forward in their new role, once the parliament has given them that function, to establish water prices.

I will guarantee that the Treasurer will insist, through a pricing order to ESCOSA, that the full price of the desalination plant be built into water prices in South Australia. Yet, the decision to double the size of the desalination plant from 50 gigalitres per year capacity to 100 gigalitres per year capacity, was a political decision and should be paid for by a priority of this government; that is, from the general account, because that decision was a government priority. There is no basis in science, or in the need for the current water use in metropolitan Adelaide, for that decision to have been taken.

The government used the excuse at the time that they were getting $228 million from the commonwealth government. In relation to that $228 million—if it ever eventuates, because the government was dishonest about the strings attached to that and remains dishonest about the strings attached to that—we have since exposed the fact that $212 million will be reduced from our GST payments. A net benefit of $16 million through that shabby little exercise.

The decision to double the size of the desalination plant is costing $1 billion. The government cannot get away from the fact that the $400 million interconnecting pipeline is essential when you have a 100 gigalitre capacity desalination plant connected to the southern part of the distribution system. It is not essential if the capacity of the desalination plant stayed at 50 gigalitres, because you could balance up the water system through the pipelines from the Murray, and the—

The Hon. M.J. Atkinson interjecting:

The SPEAKER: Order!

Mr WILLIAMS: The former minister, who got thrown off the front bench because he was incompetent, remains incompetent in his interjections. I am extremely disappointed that this measure does not receive the support from the government.

The house divided on the second reading:

Majority of 5 for the noes.

Second reading thus negatived.