Tariff structures, pricing and water demand management

Following its corporatisation, Manukau Water Limited commenced providing retail water and wastewater services to the Manukau community in July 2006. One of the most important decisions that it had to implement in its first year of operations was the new wastewater tariff structures. In replacing land-value based wastewater rates, Manukau City Council, as its shareholder, required the company to retain fixed annual wastewater charges for domestic customers. Customers, other than domestic, that had until then made for their wastewater services as rates based on land value, were to pay for wastewater services on a volumetric basis.

In this paper, I outline the issues that arose for Manukau Water Limited after a strong public reaction to the wastewater tariff structures, I summarize the approach and findings of a comprehensive review of the wastewater tariff structures that took place a year later. The discussion is unique as it highlights how water demand was affected by changing wastewater, rather than water, tariff structures. I further explain why customers may change their water use behaviour based on perceived, rather than real, price increases.

I conclude by summarising key points for the design of tariff structures, the implementation of water tariffs, their impacts on demand management, the implications on organisation’s revenue stream and the reactions by customers on water use.