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What is smart water pricing?

effective, fair, water pricing policiesAn effective and fair water pricing policy is a challenge water utilities and governments are grappling with around the world as they try to develop water pricing that is sensitive to community affordability, generate sufficient revenue to maintain and invest in providing safe, reliable water, while also engaging users by rewarding water efficiency.

Single tier or multi tier pricing, the level of fixed supply charges, and trying to gauge the impact on the community, particularly low income households, are just some of the factors pricing policy decision makers have to consider.

Advanced decision support and scenario modelling software is helping utilities and regulators in Australia determine fair pricing and policy. Intelligent Software Development caught the attention of many industry insiders with its groundbreaking ‘Fair Water Policy’ report, a sophisticated analysis of water pricing scenarios that revealed how single tariff pricing, with no fixed charges, is fair and more effective.

Intelligent Software Development’s trademarked artificial intelligence product ‘Simulait Water’ was applied to analyse the effectiveness and fairness of water pricing policy here homes pay an annual supply charge of $160 pa, $0.71 per kL up to 120kL, $1.38 per kL from 120kL to 520kL, and $1.65 per kL.

Artificial intelligence agents representing 400 demographic types and their behaviours for purchasing and consuming water under a three tier pricing policy were modelled for 580,000 households, reflecting the complex economic, political, environmental, human and social behavioural elements. This was then compared to modelling of ‘D10’ the name of a single tariff structure suggested by two of Australia’s leading water economists, Professor Mike Young of the Environment Institute, University of Adelaide and Jim McColl of CSIRO, in their globally popular Water Droplet series.

While industry wisdom may suggest three tier pricing structure would protect low income, low volume users and place the burden on high volume, high income users, Intelligent Software Design revealed the reverse was true.

  • Three tier pricing was shown to be unfair as low income households pay a higher per kL price for water than high income households and high water users.
  • Low income households and low water users saw less of an increase in their water bill by moving to ‘D10’ single tariff pricing than with three tier pricing.
  • With three tier policy, water saving responsibility lies largely with low income households and low water users. Single tariff/no supply charge ‘D10’ pricing shifted water saving responsibility to high income households and high water users.

“Historically many utilities had to compromise pricing to what was politically acceptable. Now utilities have a tool to create water pricing that is politically, economically, environmentally and socially smart. This level of sophisticated design and analysis sets the benchmark for what all water utilities should be adopting,” said Professor Mike Young.

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