New paradigms of water tariffs

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1 New paradigms of water tariffs Expected evolutions on tariffs within developed countries Bertrand VANDEN BOSSCHE (1), Benoit LAMOTHE (2), Carmen ALBIOL (3), Francesc CABRESPINA (3) (1) Ondeo Systems, SUEZ ENVIRONNEMENT, Le Pecq, France, Tel: +33(0) (2) CODESIOM Consultants, Bordeaux, France, Tel:+33(0) (3) AGBAR, Barcelona, Spain, Tel: Abstract The traditional business model for water reach an end with a decrease of the consumption (better appliances, changes in the consumers habits) and increase in cost to comply with more challenging rules (regulation, quality standards). 50 international waters players have been consulted to give trends for new paradigms for tariffs. Using Kano method, 14 proposals have been analyzed allowing drawing blueprints for possible evolutions of tariffs. Catchwords Water tariff, water players, Kano method, new paradigms 1 Introduction 1.1 Reasons behind this project The economic model of a water service within developed countries is based on the billing of drinkable water volumes used or estimated according to local rules. These tariffs cover the whole costs of the service according to the guideline water pays for water. Nevertheless, the decrease of the population in some cities, the economic slowdown and the spread of positive behaviors in order to use only water which is necessary for households, has led to a decrease of consumption by 1% or 2% per year. Furthermore, the

2 ageing networks and the increase of sanitary and environmental regulations call for important investments in the short term. Consequently, this economic model is stuck in a scissors effect between the drop in revenues and the increase of costs and these concurrent evolutions could threaten the continuity of the service. Public and private operators are questioned in a logical approach about this subject. Consequently, SUEZ ENVIRONNEMENT, a committed player in the domain, would like to analyze reasons and identify the right paths in order to implement relevant tariffs for the future. 1.2 The method of the study The water domain is largely misunderstood by users, consumers, clients or citizens who only discern a tiny part of its complexity. So, only the experts of this domain called the water players were to be interviewed in order to explore this subject. Indeed, talking with final users would be useless. In order to define these evolving tariffs, we will proceed in 3 coordinated steps: 1. First, a phase of listening to 21 water players, based on face to face interviews were carried out from March to July The goal was to meet people involved in this domain on the national or international level in order to appreciate the situation and identify its possible evolutions. 2. From the results of this first phase, 14 proposals of evolution for tariffs were made up and next, were put into a relevant questionnaire - the Kano questionnaire which assesses expectations regarding their impact for the present time and for the future. The interest of this method is to confirm or not if these new paradigms will be prominent within developed countries for the next decade. 3. In order to check these 14 tariffs proposals, 39 water experts from 7 different countries were interviewed from December 2010 to May Their answers to the questionnaire and their comments were helpful in defining the new paradigms of tariffs released in this study.

3 2 New paradigms for water tariffs The 14 proposals try to estimate evolutions of tariffs which could be considered in the medium term for the water domain. To clarify this vision, experts were asked not to consider the technical feasibility of the proposals in order to allow trends to emerge. This synthesis, based on talks with 50 well-known water experts, defines thoughts in which an overall logic of the evolving water service and tariffs is noticeable. 2.1 Information on consumption levels The experts largely subscribe to the continuous information on consumption (Q2) with 80% of respondents who consider it as a new expectation. This surprising support underlines that this information will help consumers be more aware of their consumption, control them and make them evolve from the symbolic speech evoked on phase 4A, to the more rational one shared by the players in the domain. However, the technology has to be implemented at a sustainable cost because this expectation is only appreciated as a supplement for what the consumer is not ready to pay for yet. 2.2 Drinkable water of the network The drinkable water resource must be preserved; this is a unanimously shared preoccupation. It is the reason why two experts out of three agree with using captured water (Q6) and making available different sorts of water (Q9) for domestic uses - flushing toilets and garden watering were proposed on the questionnaire - which does not necessitate drinkable water. The objections about cross-contamination or the costs of a dual infrastructure do not withstand the environmental interest and the possible economic one, if it is proved, to have different kinds of water available. Moreover, we could suppose that the local constraints to protect the resource will lead to the implementation of tariffs with variable prices, among which the most obvious proposal is the seasonal summer-winter tariff. A large majority of respondents support this proposition (Q10) which will prompt consumers to control their consumption, being helped in their effort by continuous information. To conclude, this conjunction between continuous information on consumption and the emergence of different sorts of water with different prices will increase consumers awareness that water has a flexible price; the season and the kind of water (drinkable or

4 not, from the network or captured) will be relevant parameters because they could be easily understood. Tariffs will mainly remain focused on volumetric consumption in order to prompt better control and, therefore decrease the level of consumption. The bill will indicate the variation in costs according to the availability of the resource or the sort of water supplied. Metering will still be implemented to make useful data available for continuous information of the consumer. Drinkable water, appreciated for its high quality, will have a better accepted price by the consumer because he will have the means to replace this drinkable water with a low-cost one for other uses. 2.3 Sanitation The experts are worried about the balance in financing sanitation, it is the reason why they have largely supported the principle of sharing out sanitation costs fairly between principle home and second home residents (Q5), the latter are considered as having a lesser contribution to the coverage of costs due to their lower consumption. Even more the experts support - up to 80% - the billing of captured water poured into the sewage network (Q8). Due to the lack of fairness of this solution, which will still be increased by using different kinds of water, tariffs will not only be based on the volume of water used,. Next, a majority of experts pay particular attention to the proposal of reducing the amount on the bill for municipalities, belonging to a cluster of towns, which make efforts on the quality of their effluents (Q11) or for new urban areas which equip themselves with their own means of (pre)treatment (Q12). Clearly, this proposal challenges the centralized management of water service which does not make communities and individuals aware enough of their responsibilities regarding sewage water. Indeed, as some experts have underlined it, here and now it is possible to manage the situation on the scale of a city; for instance, professional activities which produce specific effluents like restaurants, hotels, etc. In this case, measuring the quality of effluents as close as possible to the consumer, who is the producer here, will be the new technological challenge to take up. Information of communities or even consumers about the composition of their effluents will be a key point to encourage the evolution of behaviors. Thanks to this measure, applied at first to the level of a town, or even an urban area, and then more widely spread, it will be possible to define the variation of prices linked to the quality of these effluents.

5 The experts answers to these proposals allow us to assume that sanitation tariffs, based on fixed charges and applied to everybody for the use of the network and worked out to cover service costs, will be defined. Then, depending on efforts made by towns or urban areas or ideally by consumers, provided that these efforts are verified, rebates will be applied on the bill for those who lower the amount and/or quality of their effluents. 2.4 Rainwater and storm water This sort of water deserves to be analyzed more precisely since two experts out of three supports the proposal of storm water harvesting by infrastructures owners in order to help the community control overflow (Q13). The new regulations which go against waterproofing soils might partly explain this interest. But, this proposal has the major advantage of prompting the sharing out of infrastructures in order to reach a critical size, and which in turn, will lead to obtaining a relevant rainwater management. Moreover, thanks to continuous information technology which will provide data about rainfall forecasts and water levels in tanks, it will be possible to manage the storage capacity of these infrastructures. Thus, these irregular and sometimes devastating rainfalls will finally be controlled. Lastly, as the inhabitants will provide this kind of water, they will consequently be involved in preserving their local environment. 3 Presentation of 14 tariff evolution proposals Mobilization corresponds to the percentage of respondents who support the proposal tested. The Opposed to the proposal are indicated for information. The trend indicates the more representative expectations according to the KANO method. N Question % of Mobilization % of Opposed Trend 2 Information concerning levels of consumption 78% 6% A 8 Charging for the use of captured water to cover 75% 3% P - C 5 Equal treatment between principle home and 72% 14% C 9 To be supplied by different types of water 67% 19% P 13 Adding private infrastructures in order to improve 64% 11% P - A 6 Using captured water instead of network water to 61% 19% P 12 The decentralized local (pre)treatment of waste 61% 19% A 14 Damages paid in case of operator non compliance 58% 22% P 11 Changing sanitation costs according to the level 56% 14% A

6 10 Varying water price according to quantity & 56% 17% A 7 Encouraging consumers to use captured water 56% 25% A - P - 3 Freedom to choose a tariff 47% 31% C - A 1 The social tariff 42% 25% I - A 4 Adaptation of an increasing block tariff 39% 28% I - 0 Tab. 1 - Trends according Kano method A attractive, P proportional, C compulsory, I indifferent, O opposed, D doubtful 3.1 Representation of proposals on the KANO map The expectations have been displayed on a map in order for them to be compared. The values in X-coordinate indicate the potential of satisfaction according to the function proposed. The highest levels of satisfaction are represented on the right. The values in Y-coordinate indicate the potential levels of dissatisfaction in case the function is not proposed. The highest levels of dissatisfaction are represented at the top. Fig. 1- Mobilization for need Let us take into account that 10 proposals out of 14 have obtained a level of mobilization higher than 50%. This score shows that these proposals are real issues for water experts.

7 Expectations No, 5 & 8 regarding the sanitation billing are considered as quite natural (compulsory needs). It is the same thing for expectation No, 14 about the operator s noncompliance to its commitments. These trends show that it is urgent to give an answer at the risk of dissatisfying the experts and then consumers. Expectations No, 6, 9 & 13 which focus on the use of different sorts of water are proportional ones. It means that their implementation will be welcomed and any lack of action will create dissatisfaction. Expectation No, 2 of continuous information is clearly a new expectation, and its impact on evolving tariffs has been already noticed. Let us also consider the level of opposed opinions encountered in the different proposals. It is an indication of an important opposition to implement the proposals No, 1, 3, 4, 7 and 14. List of Illustrations Fig. 1- Mobilization for need... 6 List of Tables Tab. 1 - Trends according Kano method A attractive, P proportional, C compulsory, I indifferent, O opposed, D doubtful... 6 List of Literature [1] Aubert C., Bontems P. and Salanié F. (2006) Le renouvellement périodique des contrats de concession: le cas des services de l eau, Annals of Public and Cooperative Economics 77, [2] Bel, G. J. Calzada and A. Estruch (2009), Economía y regulación de los servicios de red, in S. Muñoz Machado and J. Esteve (dir.) Derecho de la regulación económica. I. Fundamentos e instituciones de la regulación. Iustel y Fundación Instituto Universitario de Investigación José Ortega y Gasset. [3] Pescetto G.M. (2008) Regulation and systematic risk: the case of the water industry in England and Wales, Applied Financial Economics 18, [4] Warner, M. E., and Bel, G., (2008), Competition or monopoly? Comparing privatization of local public services in the US and Spain. Public Administration 86,

WATER END-USE AND EFFICIENCY PROJECT (WEEP) A CASE STUDY

WATER END-USE AND EFFICIENCY PROJECT (WEEP) A CASE STUDY M Heinrich 1 1 BRANZ, MatthiasHeinrich@branz.co.nz Abstract Twelve homes on the Kapiti Coast (New Zealand) have been monitored for eight months