Education preferred to TOU tariffs to reduce peak water demand, Australian study finds


Graham Cole,
Training Coordinator
& Research Fellow,
Wide Bay Water
Canberra, Australia — (METERING.COM) — November 7, 2011 – Consultation and education is preferred over tariff reform to reducing water usage during peak periods, a new study from Australia’s National Water Commission has found.

The study, Time of use tariffs: reforming the economics of urban water supply, was aimed to investigate the potential application of time-of-use tariffs to reduce peak hour demand using hourly water consumption data collected by smart meters in Hervey Bay, Queensland, in 2008-09.

The study also found in this case that while consumers would change the timing of their irrigation in response to a tariff targeting the evening peak, an hourly inclining block tariff would be preferable to a time-of-use tariff.

The study, by Graham Cole, training coordinator and research fellow at Wide Bay Water Corporation, found that Hervey Bay water use was principally single residential use, with just over half of total peak hour consumption due to indoor use, while almost 40 percent was due to outdoor use, which is considered the most price elastic consumption. However, this usage was concentrated on a very small proportion of the sample population.

The study modelled a two part tariff with a two-tiered volumetric component based on hourly consumption. The first tier was charged at the existing rate of $1.37 per kilolitre and applied to consumption up to 600 l/h. A penalty charge of $2.08 per kilolitre was applied to all consumption exceeding 600 l/h.

If the tariff were hypothetically applied on a 24-hourly basis to the 2,884 residential customers in the study during 2008–09, less than 6 percent (of the 162 large consumers) would have paid significantly more (between $90.36 and $620.44) for their annual water bill.

The study argues that while traditional inclining block tariffs are based on the accumulated volume of use during the entire billing cycle, which may be as long as six months, the hourly inclining block tariff is different in application and in effect, targeting specific volumes during each hour. As such it has great flexibility as a seasonal, scarcity and peak pricing tool. Further, it is the only tariff that can target outdoor consumption exclusively with a higher charge.

If smart metering systems become more common in the Australian water industry and costs are reduced, there may be future potential for such a tariff to be applied as a seasonal or drought pricing tool, said Cole.