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“A penny saved is a penny earned.“   -Benjamin Franklin 1706 - 1790

Australia has a wide array of approaches to the issue of wastewater and sewage pricing.  If you live

- in Perth and are assessed as producing less than 200 KL of sewage per annum, you pay $432.00 per annum and if you are assessed as producing more than this, a discharge factor is applied to your water bill and $2.161 per KL for the amount of estimated sewage produced;
- in Brisbane you pay a fixed charge of $398.24 per year;
- in Sydney you pay a fixed charge of $480.34 per year; and
- in Adelaide you pay the greater of 0.1242% of the value of your house or $291 per year;

What is the best way to charge households for the sewage they generate?  Are human needs and functions such that no matter how we charge for sewage disposal, the same load will be generated?  Is there a role for price and other incentives?

One of Australia’s more sophisticated systems can be found in Melbourne’s Yarra Valley.  If you live there, you pay a fixed charge of $184.54 per year plus $1.3181 per kilolitre of sewage produced.  It is assumed that a proportion of the water you take returns to a sewer.  The assumed percentage is different for houses and flats and varies by season.  In winter it is assumed that 90% of all the water passing through your meter returns to the sewer.  In summer the assumed percentage is less. If you are an avid grey water recycler, you can apply for your assumed percentage to be lowered.

Sewage treatment costs

In essence, the total cost of building, owning and operating a sewage system (retrieval and treatment) is a function of three things.

First and arguably the biggest cost is capital tied up in infrastructure - pipes, pumps and treatment works.  This is the big cost and economists describe it as a fixed cost because it can’t be avoided.

Administrative costs are fixed too.  Activities like reading your meter, sending you a bill and banking the money you pay is not a function of how much sewage you produce.

The third group of costs depends upon the volume of sewage that is produced each year.  This last cost is the only one that varies.  It depends upon how much sewage each house and each business produces and how contaminated the sewage is.  Utilities are quick to point out that the total cost also depends upon population and that as populations increase more and more infrastructure is needed.

A sewer connection fee

When your house is first connected to the sewer, it is usual for a connection fee to be paid by the land developer.  In order to ensure that investment in infrastructure is efficient, it is usually recommended that the charge made should reflect the long run marginal cost of adding another house or group of houses to the sewer system.

One can argue over the actual amount that should be charged per connection, but the first policy test is to ask if developers have to pay for a connection.  All the Australian cities that we have looked at do this.  This connection fee should be sufficient to cover the marginal cost of any new infrastructure that is needed.

A fixed annual sewer access charge

As most, if not all, sewage producers are supplied with mains water and have a water meter that needs to be read, the marginal administrative cost of adding a sewage charge to your water bill is negligible.  The real question is:  What should you be charged?

The first and most obvious component of a charge should just cover your fair share of the fixed costs associated with running and maintaining the system.  Economic theory suggests that everyone should expect to see a fixed sewage charge on their water bill.  There is, however, no reason to assume that this fixed component should be excessive.  In practice the efficient fixed charge is one that just covers the annual cost of maintaining and supplying access to the sewer that passes your house.

A variable (volumetric) charge for treating sewage

The last component of the charge is whether or not it makes sense to have a variable charge that is set in proportion to the volume of sewage produced.  Economic theory suggests that users should pay according to extent of use.  That is, we should all pay according the amount of sewage that we put down the drain.

Whilst elegant in theory, in practice the cost of installing, maintaining and reading household sewage meters is likely to be prohibitively high.  Given the fact that the short-term responsiveness to changes in price is likely to be very low, sewage metering may not be worth it.

In reality, the number of times you go to the toilet is not likely to be influenced by your sewage bill but it may influence how often you flush.  It is likely, however, that volumetric sewage charging would encourage people to install dual-flush toilets, refrain from installing garbage disposal units in kitchen sinks, use front-loading washing machines, etc.
Measuring how much sewage you produce

In order to be able to set a volumetric charge, we need to find a cheap way to estimate how much sewage you produce.

In his book on water economics, Ronald Griffin presents a neat solution  to the sewage measurement challenge.  As managers of the City of Belaire in Texas, USA, explain in their policy statement:
 
“the new sewer rate structure has two components: a minimum bill that helps to recover capital investment and a volumetric charge based on water consumption.  Also, there will be the ‘winter averaging’ component for residential customers.  ‘Winter averaging’ is calculated by averaging a resident’s water consumption for the months of November, January, and February and using that average consumption as the basis on which the sewer volumetric charge is based for the following twelve months.”

The implicit assumptions behind this Texan approach are first that is reasonable to assume that the volume of sewage produced over the year is constant and second, that there is a time in the year when there is no need to use any water outside your house.  If this is the case then all that is needed is an estimate of the average amount of water used during the time when there is no need to water your garden and convert this volume into an estimate of the amount of sewage your house produces every year. 

As the quote in our last droplet says, “It is better to be approximately right rather than comprehensively wrong.”  If you live in southern Australia, why not assume that all the water you use during the winter months goes down the sewer?  If “all” seems like too much then one could assume 90% returns to the sewer.

We think that the approach has merit.  In Australia’s southern cities implementation of such a policy would require all meters to be read at the start and end of winter.  In the northern cities and towns, meters would need to be read at the start and the end of the wet season.  In areas where there are lots of holiday homes, the disposal percentage system used in Melbourne may be better

A reward for recycling?

Having proposed this approach, the last issue to resolve is that of whether or not there is a case for offering rebates for people who choose to recycle grey water from their showers, washing machines etc.  We think that the answer is “yes, rebates should be offered.”  One simple way of doing this would be to allow people who recycle grey water to self identify themselves and receive an appropriate rebate.

Sewage treatment experts, however, have warned us that we need to be careful.  Sewers plants need sufficient throughput to enable the sewage to flow all the way to a treatment plant.  If too much water is recycled,  the incentive structure may need to be changed so that sufficient volumes of liquid flush the pipes and concentrations are appropriate for the treatment systems in place.

Where to from here?

As nearly all of mainland Australia’s cities and towns already have water meters, introduction of a volumetric sewage charge, such as that used in the City of Belaire, would not be difficult to implement.  If cities are not prepared to go this far, then we can see a strong case for setting disposal percentages and varying them by house type and season.

More generally, we see a case for pricing reform on both sides of the water supply equation.  All cities and towns need to get the price right for what goes in and what goes out.

Authors

Mike Young
The University of Adelaide

Jim McColl
CSIRO Land and Water