Unsurprising Townsville running out of water when Council is charging so little for it

Townsville City Council desperately needs some hard-headed economic advice, not just on the unwise Super Stadium project, but on water pricing, too. It is reported in today’s Townsville Bulletin that “TOWNSVILLE residents must dramatically reduce their water use if the city is to avoid hefty costs to pump water from the Burdekin Dam.” Townsville is again facing the prospect of strict water restrictions, not just because of a lack of rainfall, but also because the Council has failed to manage the demand for water through appropriate water pricing. As the Council notes on its website:

Townsville residents consume approximately 4 times more water per person than in most major cities.

The Council blames the climate, which certainly would be part of the explanation for the extremely high water use, but low water prices are another obvious contributor. In Townsville, the standard water plan is 772kL of water for $739 per year (see water billing). This is a huge quantity of water for a very low price. A Brisbane family is typically assumed to consume 155kL per year. Based on Queensland Urban Utilities’ water charges, a Brisbane family that consumed 772kL of water per year would have to pay over $3,000 per year. It seems obvious that Townsville City Council should seriously review its water prices and investigate whether it can manage demand through a better pricing system rather than by imposing water restrictions on a recurring basis.

Finally, I’d note that the failure to manage demand through appropriate pricing is responsible for another major policy challenge faced by the community: traffic congestion (see today’s Courier-Mail report Brisbane traffic: Worst roads in city for commuter congestion).  It is time for Councils to inject some basic economic logic into their policies.

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14 Responses to Unsurprising Townsville running out of water when Council is charging so little for it

  1. Jen says:

    As a former longtime Townsville resident, it was a shock to realise you could not use sprinklers with abandon in Brisbane! Totally agree about the water pricing, it has been going on a long time.

  2. NSSfT says:

    Hi Gene, I know you came from Townsville and would understand how insanely hot and dry this town really is. In honesty the climate is vile most of the time.

    A far sighted former mayor ‘greened’ Townsville by planing trees, creating beautiful irrigated parks and generally encouraging the residents to ‘lush up’ their gardens. Overall this has been a great success that has been somewhat neglected in recent years Without cheap & abundant water Townsville would be Brownsville and it would head into a deep permanent population decline. Frankly, most of us would move out, and in general this would be the right thing to do economically.

    Despite the rhetoric Cairns, Townsville and the rest really don’t pay their own way and both need lots of big cash injections to keep their infrastructure going in these harsh climates. The correct economic signals on water pricing would crisp the place to burned, dry dust, depopulate the region and result in a deep local depression. Hobson choice.

    Developing the north will not be easy PM…

    • Gene Tunny says:

      Very good points. I am hoping there are more sensible water prices that wouldn’t create a permanent Brownsville but I may well be wrong. Thanks for the comment NSSfT.

  3. Glen says:

    As crazy as it seems the current pricing structure in Townsville is not too far off the mark, whilst a small increase in water rates would nett the council some extra revenue it would not do a lot to maintain supply due to the massive evaporation rates at Ross River Dam, it was very poorly designed and is too shallow. If they don’t sell the water whilst it is available it will simply evaporate anyway and not produce income. A rise of 10 – 15% would be about right, the extra revenue could then be put into deepening the dam and increasing capacity or contributing funds toward raising the height of the Burdekin dam which would be a better outcome for the region. If raised high enough it could also include some hydro electicity capacity, but hey this is Australia and who thinks that far ahead.

  4. Jim says:

    There is little point in saying water is “too expensive” or “too cheap” without looking at the cost of service provision and the tariff structure.

    Townsville is actually one of the few cities where their revenue from water services actually covers costs and provides a rate of return on their assets. So the water price is “just right” and Townsville City Council gets a tick mark for that.

    The pipeline from Burdekin Falls Dam (and the water allocation held by the City Council) was specifically developed as a contingent (drought) supply because of the low reliability of Ross River Dam. That was good water supply planning. As far as I know, the pipeline is included within the regulatory asset base for pricing purposes and the costs are borne by consumers. So Townsville City Council gets a tick mark for that.

    In Townsville you get a choice of two tariff options, both of which have a fixed (access charge) and variable (usage charge) component. Just the mix of the two components and the level of the non-chargable consumption differs between the options. I haven’t looked at the tariff structures in depth for quite a while, but the tariff structure seems no better or no worse than any others. So Townsville City Council gets a at least a half tick mark for that.

    And because Townsville City Council runs the water supply, sewerage and storm water management systems, the likelihood of the the perverse environmental and economic outcomes that we see from the institutional model for water in SEQ is largely avoided. One tick for Townsville; one multi-billion dollar cross for SEQ.

    If a student came to me and asked whether Townsville or SEQ has more effective and efficient water management and services, I’d have no hesitation responding that Townsville is the winner.

    • Gene Tunny says:

      Thanks Jim, is that info on the rate of return publicly available? Also, the standard tariff option I mentioned in the article gives water users a huge allocation of water, 772kL, for $739 year, and only after that allocation is exceeded is there a volumetric charge. This doesn’t seem like sensible pricing to me.

      • Jim says:

        Hi Gene

        The financials are in the TCC annual report.

        Yes 772 kL does translate to usage about 3 times the per capita use in SEQ (where water is relatively more scarce and infrastructure much more expensive), but the opportunity cost of the high water use under normal conditions is pretty low. Even after 30 years, all of the water from the Burdekin Dam has not all been allocated, so there is no major agricultural or industry customers that are competing for the supposedly wasted water.

        I think the tradeoff between high levels of use under normal circumstances and the social benefits of losing the “Brownsville” tag way exceed the cost to occasionally pumping the contingency supply from Burdekin Falls Dam.

      • Rog says:

        Yep the incentives are all wrong. Whilst an excellent Sydney Water econometric study from some years back showed that there wasn’t much impact on demand from price changes that tariff structure was much more different than this one (where there are basically no price signals at all).

      • Gene Tunny says:

        Thanks Rog, good point. I might have another look at that study.

  5. Pingback: Is Townsville water mispriced? | cairnseconomy

  6. cairnseconomy says:

    Sorry for being late to the party with it now becoming an election issue but not sure much of the comment here works for me. Townsville would appear to have a relatively high risk supply combined with a relatively exorbitant pricing structure to deliberately encourage inefficient water usage. That’s fine provided Townsville pays the cost when the risk event happens.

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