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Legislative Council - Fifty-First Parliament, Third Session (51-3)
2009-06-03 Daily Xml
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WATERWORKS (RATES) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 2 June 2009. Page 2422.)

The Hon. J.A. DARLEY (21:34): This bill was introduced partly to overcome the problem involving water rates experienced last year with new rates, which were gazetted in December but did not come into effect until 1 July, being applied to those who had their meters read before 30 June. This problem could have been overcome by a simple change to the software calculating the rates, rather than introducing a whole new scheme of quarterly meter readings which will not really rectify the problem of having to apply the new rate to those accounts whose billing period straddles 30 June.

Now that the government has decided to implement a quarterly meter reading system at a cost of $1 million per annum, it will provide an opportunity for an alternative system for calculating sewerage rates based on valuation to one based on a 'pay for use' system, just like water rates. Professor Mike Young has suggested that, with the advent of quarterly meter readings, sewerage rates could also be determined based on an average household water usage.

It could be argued that water meters need to be read only three times a year instead of four, which would save $500,000 per annum. The minister indicated that the new rating notices sent out under the new scheme will contain the meter reading and the date on which the reading was taken. This is a positive step and goes a long way to being a replacement for the pink or yellow slip system which the person reading the meter used to put in the letterbox to notify the ratepayer of the reading.

Professor Mike Young, who has been at the front line of advocating smarter water policy in South Australia, has raised this issue of introducing a water trading system based on average household water usage. Those who use less than their allocated amount could presumably offer their excess entitlement to others who would like to use more than their entitlement. The calculation of an average household water use could be determined with a meter reading three times a year instead of four and, as I indicated earlier, at a cost saving of some $500,000. With those remarks, I support the second reading of the bill.

The Hon. P. HOLLOWAY (Minister for Mineral Resources Development, Minister for Urban Development and Planning, Minister for Small Business) (21:36): I thank honourable members for their contribution to the second reading of the bill. In closing the second reading stage, I would like to reiterate that the fundamental purpose of this bill is to enable customers to have greater information and, hence, better control over their water use and its cost. By enabling a quarterly billing of water use, customers will receive more timely information about the amount of water they have used and its cost.

Honourable members have raised a number of questions and issues which I will deal with briefly now and, if further questions arise, we can deal with those during the committee stage. First, I will deal with issues raised by the Hon. Stephen Wade. The opposition and the Hon. Mark Parnell have moved amendments relating to the date for setting future water prices. The government will debate the merits of the amendments further during the committee stage. In the meantime, I point out that the only reason water prices must be gazetted by 7 December each year is that, under the current act, customers have a consumption year that may commence as early as mid-December in the year before prices come into effect. A check of the records shows that the 7 December date was inserted in 1991 at a time when, I understand, there was some public concern about the then government's right to set a water rate for water that had already been consumed.

One of the key elements of this bill is to remove the consumption year provisions so that customers pay a financial year's price only for water used in that financial year. Consequently, the requirement to gazette prices seven months before they come into effect will no longer exist. The 1 June date still provides the community with a month's notice of the new prices. In addition, this is close to when the new prices will apply, making the information more relevant and useful to the community.

In arguing for the retention of the current December date, the Hon. Stephen Wade has suggested that, by December, the Treasurer and the government would have already decided how much they were intending to draw down from SA Water revenue. The honourable member's comments imply a flexibility in the determination of water prices, which does not exist under the current government. Since 2003, the government has operated under a process for setting water prices which ensures that prices are set consistent with national pricing principles. That process is documented for public scrutiny in the annual transparency statement and is open to independent review by the Essential Services Commission of South Australia.

In his contribution, the Hon. Mark Parnell canvassed his views on a number of aspects of setting water and sewerage prices. I do not intend to respond to all of the points raised, but I will make a couple of points. In relation to fixed water charges, I note that the government is obligated, under national pricing principles, to apply a fixed service charge. The COAG strategic framework requires the adoption of prices 'comprising of an access or connection component together with an additional component or components to reflect usage where this is cost-effective.' The national obligation to adopt a two-part tariff structure is a key element of pricing principles designed to promote efficient resource allocation.

Mr Parnell also raised the matter of basing sewerage rates on a volumetric charge. While not the subject of this bill, I will say that the concept of usage charges for sewerage has been debated at various levels, but it is flawed, given a range of issues including the fact that a high proportion of costs are fixed and are not influenced by the volume of discharge; difficulties and inaccuracy in estimating discharge; the inability to measure pollutant load as distinct to volumetric load; the risk of penalising large families, whose discharges tend to be higher, by applying usage charges that exceed the cost that those discharges actually impose on the system; the reliance of the sewerage system on adequate flushing flows to function effectively; and the distortion of the pricing signal, promoting efficient use of water. Notably, the National Competition Council has acknowledged the following:

Charging on a consumption basis for waste water services provided to households and small commercial consumers is generally not efficient because most of the cost of providing waste water services to these consumers is fixed. A fixed charge for the waste water service may therefore be appropriate.

Also, in its report into the 2004-05 waste water pricing process in South Australia, ESCOSA recognised the impracticality of metering direct usage for small customers and the minor benefit that price signals of this type would generate. It stated that 'such an approach would not satisfy the cost effectiveness as a requirement'.

Even with a robust estimate of water supply during the winter period, the accuracy of the estimate of discharge would be undermined by use of rainwater, greywater disposal, gaps in occupancy (e.g. grey nomads), and variations in household size over the year. All of these issues would be sources of complaint, bringing the need for increased administrative complexity and cost.

I will now address some of the issues raised by the Hon. Mr Brokenshire. In his contribution, Mr Brokenshire raised a question about customers being billed for five quarters of water use rather than four. I can clarify for the honourable member that, as a once only consequence of transitioning into quarterly billing, customers will receive accounts for 15 months of water used during a 12-month period. This is unavoidable, as all customers will receive a bill for six months of water use (their last six-month bill) followed by their next water use bill (three months) one quarter later, and subsequently bills at three-month intervals thereafter.

For example, a customer receives their next normal six-month water consumption account in August 2009. As the system transitions to quarterly water use billing, the next water use account will be their first quarterly bill in November 2009, followed by quarterly accounts in February 2010 and May 2010. Together, these bills cover 15 months of water consumption billed within the 2009-10 financial year.

I emphasise that customers will be billed only for water that they have actually used. In addition, in accordance with the government's intentions, arrangements are in place to ensure that customers are charged the relevant financial year's prices for water deemed to have been used in that financial year. Customers who find this once only transition creates cash flow problems will be able to contact SA Water to arrange appropriate payment terms. The community was advised of this transition matter in the minister's media statement of 28 April and is covered in 'frequently asked questions' on SA Water's website.

Mr Brokenshire has also filed amendments relating to water metering. Again, I will deal with the merits of the amendments during the committee stage. However, I note that, while the honourable member's comments imply his attention to seek separate water meters for Housing SA residents, it is not entirely clear whether it is understood that the proposed amendment will have implications for all unmetered premises, including those under private ownership.

Mr Brokenshire commented on the matter of leakage from the public water system. I can advise that Adelaide's performance over recent years has been in the excellent range. Despite this excellent performance, SA Water has in place a leakage detection and repair program. During 2008 the Minister for Water Security announced an $8 million three-year project to locate and repair leaks throughout the metropolitan area.

Mr Brokenshire sought information about what component of water bills relate to maintenance works by SA Water. I am advised that the expenditure incurred to repair burst mains represents only around 3 per cent of the cost base which underpins the level of prices, and hence the bills for water supply.

Mr Brokenshire also sought an update on residential water use. I can advise that water consumption to 1 June 2009 is on track and compares favourably with the past few years. Consumption from SA Water's system has been 65,951 megalitres compared to the five-year average for this time of the year of 76,264 megalitres and the 10-year average for this time of year of 84,478 megalitres. Information on how water consumption is tracking is available on SA Water's website should the honourable member be interested, and I can provide him with the address if he wishes.

Mr Brokenshire referred to Point Sturt and Hindmarsh Island. I can advise that discussions have been ongoing with the commonwealth over the need to address water security issues for residents at Point Sturt and Hindmarsh Island. These discussions resulted in a business case for these pipeline projects being submitted to the commonwealth for consideration as an extension to the Murray Futures integrated pipelines project on 16 April 2009. Negotiations regarding funding options are continuing with the commonwealth. I understand that letters were sent to the residents of Point Sturt and Hindmarsh Island in April and May 2009 to keep them informed.

Finally, Mr Brokenshire was concerned to know that there will not be any problems with billing for water. I again reiterate that the purpose of this bill is to enable customers to have greater information and, hence, better control over their water use and its cost. By enabling quarterly billing of water use, customers will receive more timely information about the amount of water they have used and its cost. Members will be aware that water prices for 2009-10 include a reduction in the fixed annual water supply charge to enable customers to reduce their water bills by being more water wise. The more timely information provided by quarterly water use bills complements that measure. Quarterly water use billing will also aid family budgeting by smoothing out water charges over the year, subject to any seasonal pattern in customers' water use.

Importantly, the bill makes explicit the government's intention that prices for a financial year apply to water used in that financial year. Transitional provisions will also ensure that policy applies during the process of transitioning customers to the new quarterly billing system during the coming year.

Finally, I note the bill gives effect to the government's commitment to introduce quarterly billing of water use charges for water supplied by SA Water. I commend the bill to the council.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

The Hon. S.G. WADE: I refer to the Minister for Water Security's press release of 28 April in relation to this bill. She states:

From July 1, SA Water customers will receive new-look water accounts that more clearly display water use as well as comparisons to previous use and other typical households.

I just inquire about progress on that and, in particular, whether that will include an indication of consumption over each of the past three quarters.

The Hon. P. HOLLOWAY: When the honourable member was speaking, unfortunately, I was distracted and I ask him to repeat the question.

The Hon. S.G. WADE: I was seeking an update as to progress, because the minister at the briefing was kind enough to show us a draft at that stage. I was interested in an update as to progress and, in particular, whether the accounts will carry some indication of consumption for each of the past three quarters for that account.

The Hon. P. HOLLOWAY: Obviously the work on this is still in progress, and one would also presume that until the final form of the bill is known, given there are amendments, there always has to be that caveat over any final work that is done. Clearly, any amendments may change the information. The question was whether each of the past three quarters would be shown. I guess you need to get to three quarters: that will be one issue.

The idea is that the comparison will quite specifically compare the equivalent quarter of the previous year, so the summer quarter, for example, would compare with the previous summer quarter. For example, I have an account which goes back for some years but, since SA Water has been reading meters on a quarterly basis only since July last year, obviously at least initially it presents a time limitation on how far back that information can be provided.

The Hon. S.G. WADE: My recollection is that the net cost of the proposal will be $8 million. Will the minister give a breakdown of that? How much is for the actual cost of the metering service, which I understand is a privatised service under this government? Is there any cash flow impact, if you like, in the component parts of the $8 million? I am happy to receive that information during the committee stage, if it is more convenient.

The Hon. P. HOLLOWAY: Quarterly reading of metres was introduced from mid 2008 at a cost of approximately $1 million per annum; that is the estimated cost of quarterly reading. I will put in context the $8 million to which the minister referred. It relates to revenues forgone. Water use prices in the period up to 1 July will reflect the application of annual thresholds, while from 1 July it will be based on quarterly thresholds. In explaining this transitional impact in the House of Assembly, minister Maywald indicated that through the transition some customers will receive a benefit and they will get more water on the lower tiered rate.

The lower tiered rate will apply on their six-month bill and then potentially on their first quarterly bill, so they may get more water supplied at the lower tier levels. It has been estimated that it will result in revenue forgone for SA Water of about $8 million. We have decided not to go through the process of putting in place a transitional arrangement to enable all customers to have the same 120 kilolitres for that particular year because it is very complicated and SA Water has forgone the amount of funds associated with that. That is the $8 million to which the minister was referring.

The Hon. S.G. WADE: I take it that it is a first year impact only and that the impact was taken into account in the pricing decision that was made in December last year.

The Hon. P. HOLLOWAY: My advice is that the $8 million was forgone in the financial year 2008-09 whereas the pricing decision is from 2009-10 onwards.

The Hon. S.G. WADE: Will the minister confirm whether it is the government's intention in the 2010-11 financial year process to maintain a statewide uniform price?

The Hon. P. HOLLOWAY: There is no proposal before government at this time to change that level of pricing.

The Hon. S.G. WADE: Will the minister explain where that policy exists? Is it just a practice of the former E&WS which SA Water has inherited and it is just known that that is what cabinet expects? Is it a formal policy of government? What is the policy? Is the policy that the long-run marginal cost of producing water in Adelaide shall be the statewide price for the whole of South Australia? How is it expressed?

The Hon. P. HOLLOWAY: My advice is that it is not formally written down, but it has been a longstanding policy over a number of governments that the price that applies to provide water in Adelaide would apply in other areas. As I indicated, I think there are some minor exceptions in certain of the more remote areas, where special factors apply.

The Hon. S.G. WADE: I appreciate that it is not universal. I understood the minister to say that the Adelaide price becomes the state wide price. I would like to explore the implications for country water supplies. As I understand it, the Minister for Water Security has indicated that, over a five year time frame, the water price will double. It is conceivable that there would be country water supplies which are not viable at the current water price but which may well be viable at the new water price. Is it the government's intention that those country water supplies will be established, considering that Adelaide customers paying the state wide price have been given a desalination plant? Why should not country people be offered that augmentation when their water supply becomes viable at the new state wide price?

The Hon. P. HOLLOWAY: When the honourable member talks about country prices not being viable, is he talking about areas in the country which currently do not get the water supply which may get it if it became viable?

The Hon. S.G. Wade: Yes.

The Hon. P. HOLLOWAY: My advice is that we believe about 95 per cent (I do not want that to be taken to be a specific figure, but something of that order) of the state, in terms of customers, is serviced by SA Water, even though many of those schemes will not be viable, in the sense that they will not pay their way. I suppose that is the definition of 'viability'; they will not meet their costs. There are a few water supplies outside that area—in places such as Coober Pedy, for example—where the council supplies it. However, given their remoteness and distance from the grid, I am not sure that that would really affect anything, in terms of SA Water supply. So, I am struggling to understand—

The Hon. S.G. Wade: Could I come at it in a different way?

The Hon. P. HOLLOWAY: Yes, that might help.

The Hon. S.G. WADE: My understanding is that it costs SA Water less to produce water for Mount Gambier than the state wide price.

The Hon. P. Holloway: They pull it out of the Blue Lake.

The Hon. S.G. WADE: Yes. If that understanding is correct, SA Water, in applying the state wide uniform price to Mount Gambier customers, is making a better profit than it is on Adelaide customers. I am not complaining about that; that is state wide pricing and some country customers of SA Water benefit and some do not. If I am correct in that understanding, are there any other supplies in the country that, if you like, are not benefiting from state wide pricing—they are already at a cost disadvantage compared with Adelaide pricing?

The Hon. P. HOLLOWAY: My advice in relation to Mount Gambier is, okay, water is taken out of an obvious source, but I am not in a position to confirm that that is necessarily cheaper than Adelaide. Other treatment in relation to that water is still required, so it may be on a par or even cheaper than Adelaide, but we cannot really confirm that. It lacks the economies of scale that you get with a larger thing, so that is something that would have to be investigated. In relation to other areas, our information is that some railway towns located on the Barrier Highway, for example, do not come under the statewide system. Marla is another place where water is not supplied.

In terms of cost, if I have understood him correctly, the honourable member was asking whether there would be any other areas of the country that may have a lower cost of providing water than Adelaide. I do not think that we are aware of any. My advice is that it is most likely that Mount Gambier is probably the lowest for obvious reasons, but my advice also is that there will be a range of prices which will depend on a number of factors. While Mount Gambier might be the lowest, we would expect that most of them would be a higher cost than Adelaide because of scale and a number of other factors.

The Hon. S.G. WADE: I certainly appreciate that there will be that scale, and some of them will, if you like, become more viable through the doubling of the water price. In fact, that is clearly shown by the transparency statement documents which show that the CSA payments will, I think, be halved in the price period. The minister seemed to be thinking of new communities, if you like, beyond the current distribution network as possible new supplies, implying that my question was related to that.

I was also thinking of augmentation within the current network. It is not an uncommon complaint that I receive as a legislative councillor. In fact, I had a call this morning from an SA Water customer from Yorke Peninsula very concerned about her frustrations at SA Water's lack of willingness to augment the network. It might well be that augmentation opportunities are not viable at the current water price, but, when the statewide pricing is introduced at the enhanced water or the doubled water price, new towns might be supplied adjacent to current water supplies or even augmentation of, say, subdivisions off an established supply.

If the minister and his advisers are not able to give advice on whether there are any next cabs off the rank, if you like, I indicate to the government that that is something the opposition would be interested to explore, because it is our view that country customers of SA Water should be entitled to benefit from the enhanced water supply that an enhanced water price can provide.

The Hon. P. HOLLOWAY: I will make a comment on that. In the future, SA Water will consider (as it does now) the opportunities for providing that need. If the pricing structure clearly changes the viability of augmentation in some areas, then obviously it would look at it. That is something that will become more apparent as we move to the new pricing structures.

The Hon. M. PARNELL: I ask a question now in the expectation that the minister may need to bring back an answer later. It relates to two of the amendments that we will eventually consider in relation to metering all properties separately. From the minister's second reading speech and my understanding of the government's position, it is uneconomic, in that the cost of the meters exceeds the relatively small return that would be made from the water passing through those meters.

First, how much does a meter cost? Secondly, what would the average cost of installing a meter in a dwelling be? Thirdly, what statistics does the government have in relation to average water use for different types of dwellings, say, one-bedroom flats or units without a garden, the type of small dwellings which might currently not be metered but which, if some of these amendments were to pass to this bill, would be required to be metered, so that we could have some understanding of the cost benefit analysis of metering every separately occupied property?

The Hon. P. HOLLOWAY: I suppose the answer to that question is that it is very difficult to provide an answer, because there is such a huge variety of the sort of places where a single meter might now apply. For example, if one had a high-rise block of flats, clearly you are talking about the cost of re-plumbing. I imagine it would be much more significant perhaps than if it was just a small block of units. Whereas one can probably get the cost of a meter, clearly most of the cost that will be involved (if one brings this in) will be to the householder, and that might take place in a number of ways. If it is a block of flats that someone rents out, presumably, in the first instance, the owner of the flats will be responsible for it and will seek to pass on at least some part of it to the tenants of that flat.

Now the cost, of course, could be considerable. It would be almost impossible, I would imagine, to estimate a figure. It would depend on the types of arrangements. As I said, for high-rise units, obviously it would be prohibitive, perhaps less so for a single-storey block of units, but it would depend on how far away it was from the meter and all those sorts of issues. I am not sure that we can really assist in that.

I should point out that SA Water's responsibility traditionally has been to put a meter at the boundary and then what happens beyond that is up to the property owner. I think there were some provisional figures. I think we would say that the cost to SA Water would be of the order of $25 million for providing meters. The $25 million estimate is for the easy cases; it does not include ones which would be totally unfeasible. So, $25 million is the estimate. In addition, the cost to the property owner in relation to then taking the water from those meters was estimated at $100 million. It is obviously difficult to make that figure too precise.

The other point we need to place on record is that normally the $25 million, which would be the cost of the work that would have to be done for SA Water, would be passed on to the property owner in any case, as traditionally happens. It is not entirely clear who would pay that component if that were to come in. There are a number of issues with the metering measure which make it very complex and, if this measure were to be introduced, it would have to be given some thought. From the viewpoint of those contemplating supporting it, they may like to reflect on the implications out in the electorate for those who would ultimately bear the cost. There would be significant cost to property owners in relation to the work they would have to undertake.

The Hon. M. PARNELL: I thank the minister for his answer. My question was designed to assist the government because my understanding, from talking to colleagues, is that people are generally sympathetic to the idea that one should not have to pay for something unless exactly what one used can be determined. Overnight the minister might be able to find more firm data, leaving aside the very hard cases (I understand the minister cannot give an absolute figure because of the range of housing types—single and multi-storey, low occupancy, high occupancy, some with gardens and some without).

If at least two members of this place have amendments on file to provide for separate metering, it would be useful to the Legislative Council if the government could provide something stronger than ball park figures as to a cost benefit analysis of metering versus the amount of water that would pass through those meters, and that analysis could be done at current water prices but should be done when water prices inevitably rise. That was the purpose of my question; I am happy to get further information tomorrow.

The Hon. P. HOLLOWAY: Seriously, how does one determine the cost of plumbing and retrofitting? You may have a single-storey block of units: what would be the average cost of plumbing in meters? It would depend on a whole host of factors. It may depend on the age of the system, what the soil was like, whether the driveway had been cemented over the water pipes, and so on. It would be difficult for similar properties: if you had a block of four single-storey units, the cost of retrofitting the plumbing may vary by three or four to one, depending on the circumstances of the individual case. It would be difficult to get too much accuracy.

On my information there are about 60,000 strata or community title units and about 7,000 meters on them. That information is known and the information SA Water can provide, but we then have to go to the cost of fitting, which is not the responsibility of SA Water but rather just to get the meters to the edge of the property. What happens beyond that is clearly something that is unfair to expect of SA Water, other than the estimates it has given. Clearly there is a lot of variability in that calculation.

The Hon. S.G. WADE: I continue on the line of questioning of the Hon. Mr Parnell, who used the phrase 'cost benefit analysis' in terms of the questions that he was asking. I wonder if the minister might, in considering the issues raised in the context of the benefits, give any advice as to what the industry experience has been at the impact of introducing metering on the average water consumption of households.

The Hon. P. HOLLOWAY: My advice is that metering in South Australia has been pretty comprehensive before the 1960s, so it has been around a long time and so there is not much historical information here. Elsewhere it is believed that when metering applies where it has not previously applied consumption does go down. However, it needs to be considered that those places where you do not have individual metering tend to be those which have relatively low consumption anyway, such as flats. So, that needs to be borne in mind as well.

Clause passed.

Clauses 2 to 7 passed.

Progress reported; committee to sit again.

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