Securing Australia’s
Urban Water Supplies:
Opportunities and Impediments
A discussion paper prepared for the
Department of the Prime Minister and Cabinet
November 2006
Marsden Jacob Associates
Financial & Economic Consultants
ABN 66 663 324 657
ACN 072 233 204
Internet: http://www.marsdenjacob.com.au
E-mail: economists@marsdenjacob.com.au
Postal address: Level 3, 683 Burke Road, Camberwell
Victoria 3124 AUSTRALIA
Telephone: (03) 9882 1600 International: +61 3 9882 1600
Facsimile: (03) 9882 1300 International: +61 3 9882 1300
Author(s): Dr John Marsden and Phil Pickering
Copyright © Marsden Jacob Associates Pty Ltd 2006
This report has been prepared in accordance with the scope of services described in the contract or
agreement between Marsden Jacob Associates Pty Ltd ACN 072 233 204 (MJA) and the Department of
the Prime Minister and Cabinet (the Client). Any findings, conclusions or recommendations only apply to
the aforementioned circumstances and no greater reliance should be assumed or drawn by the Client.
Furthermore, the report has been prepared solely for use by the Client and Marsden Jacob Associates
accepts no responsibility for its use by other parties.
Photos on cover:
Garden sprinkler – Marsden Jacob Associates
Hinze Dam, 3 December 2002 - Courtesy of Gold Coast Water
Maree area in outback South Australia – Image courtesy of Emergency Management Australia
TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY ............................................................................................................................ I
1.
INTRODUCTION ............................................................................................................................. 1
2.
WATER CONSUMPTION AND DEMAND ....................................................................................... 5
3.
WATER RESOURCES AND CLIMATE ............................................................................................ 9
4.
WATER SUPPLY PLANNING AND INFRASTRUCTURE .............................................................. 14
Water supply planning under climate uncertainty ................................................................. 15
Implications for capital investment ....................................................................................... 17
Water-supply planning objectives .......................................................................................... 20
5.
WATER SUPPLY AND DEMAND OPTIONS ................................................................................. 22
Integrated Water Cycle Management .................................................................................... 23
Unit Costs of Supply Options ................................................................................................. 24
Purchase of water for cities ................................................................................................... 27
Water recycling ...................................................................................................................... 29
Summary Perspective on Water Supply Options.................................................................... 36
6.
FINANCIAL CAPACITY ................................................................................................................. 37
7.
PRICING AND COST RECOVERY ................................................................................................ 44
Costs of water supply ............................................................................................................ 44
Cost recovery ......................................................................................................................... 45
Tariff structures ..................................................................................................................... 47
8.
MARKET AND INSTITUTIONAL ARRANGEMENTS ..................................................................... 52
BIBLIOGRAPHY ................................................................................................................................... 56
List of Figures
Figure 1: Direct Costs of Water Supply/Demand Options– Sydney, Adelaide, Perth, Newcastle....................... iv
Figure 2: Findings on Impediments and Opportunities for Securing Australia’s Urban Water Supplies ............ xi
Figure 4 : Water Usage Per Capita by Sector, selected countries ........................................................................ 5
Figure 5: Consumption per capita (2004/05) ...................................................................................................... 6
Figure 6: Trend in rainfall, 1950 – 2005 .............................................................................................................. 9
Figure 7: Annual Inflows for South-West Dams (south-west WA) ....................................................................... 11
Figure 8 : Annual Inflows for Lal Lal Reservoir (Ballarat /Geelong) ................................................................... 11
Figure 9: Annual Inflows for Warragamba and Three Nepean dams (Sydney Region) ..................................... 12
Figure 10: Annual Inflows for Wivenhoe Dam (south-east Queensland) ........................................................... 12
Figure 11: Total Storage Capacity and Annual Usage – Mainland State Capitals ............................................ 14
Figure 12: Capital Cities – Water Capital Expenditure Per Capita Over 5 Years (2001-2005) ........................ 18
Figure 13: Direct Costs of Water Supply/Demand Options– Sydney, Adelaide, Perth, Newcastle .................. 24
Figure 14: Levelised Cost of Water Supply and Demand Options – 3 Cities ..................................................... 26
Figure 15: Comparative risk levels of reclaimed water and other events − (number of people likely to
experience various events over a year from each ten million Australians. .................................. 32
Figure 16: Cash Outflows and Inflows of Major Water Utilities (annual average 2001-2005) ........................ 39
Figure 17: Major Water Utilities – Payments To and From State Government 2004/05 ................................. 40
List of Tables
Table 1: Indicative Full Cost Degree of Cost Recovery, Australian Capital Cities, 2005 .................................... vii
Table 2: Goals for per capita consumption ........................................................................................................... 7
Table 3 : Impact of Climate Scenarios on Estimated Yields and Required Timing of Next Source .................. 20
Table 4: Recycled water use as a proportion of treated water.......................................................................... 30
Table 5: Cost of Recycled Water by Scheme ....................................................................................................... 31
Table 6: Water and Wastewater Capital Expenditure Per Capita 2001-2005 .................................................. 38
Table 7 : Payments to Governments from Capital City Water Utilities (2004/05) ............................................ 41
Table 8 : Comparative Net Debt and Capital Expenditure (2004/05) – State and Water Businesses ........... 41
Table 9 : Estimated Full Cost of Water Supply to Major Australian Cities ......................................................... 45
Table 10: Indicative Full Cost Degree of Cost Recovery, Australian Capital Cities, 2005 ................................ 47
Table 11: Major Water Utilities – Long Run Marginal Cost and Price ................................................................ 49
GLOSSARY AND ABBREVIATIONS
ACCC
Australian Competition and Consumer Commission
ATSE
Australian Academy of Technological Sciences and Engineering
AWA
Australian Water Association
CoAG
Council of Australian Governments
CRSWS
Central Region Sustainable Water Strategy (Victoria)
CSO
Community Service Obligation
DSE
Department of Sustainability and Environment, Victoria
ERA
Economic Regulation Authority (Western Australia)
FAO
Food and Agriculture Organization of the United Nations
IPART
Independent Pricing and Review Tribunal, NSW
IPR
indirect potable reuse – purified recycled water discharged into a water
body before being used in the potable water system
ISF
Institute for Sustainable Futures
IWCM
integrated water cycle management
LRMC
long run marginal cost – the long term incremental cost associated with the
demand (say from a new entrant), often a period of 20 years or more in
utility industries.
MJA
Marsden Jacob Associates
NCC
National Competition Council
NWC
National Water Commission
NWI
National Water Initiative
PAWC
Power and Water Corporation, NT
PPP
public private partnerships
ROMAR
reverse osmosis managed aquifer recharge
SEQ
South-east Queensland
TWFAP
Toowoomba Water Futures Advisory Panel
Wentworth
Group
Wentworth Group of Concerned Scientists
WHO
World Health Organization
WSAA
Water Services Association of Australia
Basic measures
kL
kilolitre = 1,000 litres or 1 m3 (cubic metre) and weighs 1 tonne
ML
megalitre = 1,000 kL (or 1,000 m3)
GL
gigalitre = 1,000 ML
TL
teralitre = 1,000 GL or 1 km3 (cubic kilometre)
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
EXECUTIVE SUMMARY
1.
Historically, Australia’s major cities have been almost totally reliant on traditional
surface water supplies and are therefore susceptible to the impacts of drought and
climate change. While judgements may differ, the current drought now appears to
be, at least, equivalent to the Federation drought of 1895 to 1902.
2.
The current drought raises strong concerns. First, it is extreme in terms of the
historical record. Second, it is a portent of a future under climate change. Third, it
is a reminder (for south-eastern Australia at least) that climate and rainfall patterns
can change abruptly as they have already done in the south-west of Australia.
3.
Current water supply capacity across Australia has been typically planned to require
restrictions on demand as frequently as 1 in 25 years based on the long-term
historical record. Unfortunately, in many cases the long-term historical record no
longer provides a reliable or confident indicator of current or future rainfall and
streamflows. As a result, for many cities current supply capacity is now grossly
inadequate and restrictions have become more frequent and more severe.
4.
All capital cities with the exception of Darwin and Hobart now have inadequate
water supplies and most are relying on increasingly severe restrictions to balance
demand and available supply. Some regional cities are facing sharply diminished
supply and extreme restrictions. Significant investment in water conservation and
new water supplies is required.
5.
The severity of the current drought has caught much of Australia off-guard,
requiring hastily implemented actions to restore a balance between demand and
supply of water as quickly as possible. As the Prime Minister recently noted:
The simple fact is that there is little or no reason why our large cities should be
gripped permanently by water crises… Having a city on permanent water
restrictions makes about as much sense as having a city on permanent power
restrictions. The Hon. John Howard, 17 July 2006
6.
The availability of potable water, without lengthy or severe restrictions, is a
fundamental indicator of urban water supply performance.
7.
This report has been prepared for the Department of the Prime Minister and Cabinet
to provide a high-level perspective on water supply and demand for Australia’s large
cities and to identify impediments to, and opportunities for, securing future urban
water supply by restoring and maintaining the demand supply balance. 1
Water Supply Planning Under Uncertainty and Differences in Investment Levels
8.
1
Across the States, there appear to be major differences in the way water supply
planning and decision making for their capital cities has dealt with climate risk and
uncertainty. The drought raises questions about how water supply planning should
This review is supported by research notes for each State and Territory, which are available at
www.marsdenjacob.com.au and www.dpmc.gov.au .
ES.i
22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
deal with the uncertainties of climate variability and the extent past rainfall and
streamflow (the ‘100-year’ record) remains valid or useful as the basis for projecting
future rainfall and streamflows.
9.
These differences in the way climate uncertainty and risk have been treated correlate
with recent levels of expenditure on water supply infrastructure. Over the past five
years per capita expenditure in Perth, which has incorporated a ‘step-down’ climate
scenario into planning for many years, has been twice or more the level of water
supply investment in Sydney, Melbourne, Brisbane and Adelaide, which have not
adopted scenario planning approaches or not done so until very recently.
10.
Looking forward, there are also differences in announced water supply strategies and
levels of future capital expenditure. While Perth will continue to spend heavily in
comparison with other capital cities, substantial infrastructure investment
expenditures will also be made in south-east Queensland. Many of the regional
centres hit hardest by the drought, including Toowoomba, Goulburn and Ballarat,
have urgently moved to develop emergency water sources.
11.
To date, publicly foreshadowed expenditure on water supply for the other major
cities is comparatively low, although explicit contingency strategies and options
have been publicly indicated for Sydney and recently for Melbourne. With
finalisation of the Central Region Sustainable Water Strategy, a robust planning
framework for Melbourne and surrounding regions has now been adopted. But there
are few firm commitments. The published planning documents for most other cities,
including Adelaide, Hobart and Darwin, do not appear to countenance a downward
‘step-change’ in rainfall and therefore have not publicly identified the contingency
measures that would be required.
Water Supply and Demand Options
12.
Water planners have two fundamental options available to ease water restrictions –
to encourage water conservation or to increase water supply. Voluntary water
conservation is often the most affordable, environmentally sensitive option available
to urban water users.
13.
Most major Australian urban centres are currently subject to policies and strategies
to reduce per capita water usage by 20 per cent or more over time. Water
conservation alone is generally insufficient to meet the needs of an expanding
population, particularly in fast growing regions such as Western Australia and
south-east Queensland.
14.
In terms of the elements of the respective strategies, the Sydney and Melbourne
strategies place very heavy reliance on demand management and set more ambitious
targets for reductions in per capita use than do other capital cities.
15.
For Australia’s coastal cities, an extensive array of additional water supply and
demand management options are available which potentially allows diversification
of supply against climate variability and climate change. Supply options which are
not rainfall dependent obviously include seawater desalination which, with the
notable exception of Brisbane, can potentially offer large scale supply immediately
ES.ii
22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
and for coming decades. Greenhouse emissions from desalination are high and can
be offset directly or via trade of greenhouse credits as envisaged by the Kyoto
Protocol. In addition, careful attention is required to minimise impacts on the
marine environment. There are generally technical solutions available to minimise
these impacts and these then become a question of cost.
16.
For Australia’s major inland cities and towns, some of which are facing the most
severe drought in the country, recycled water and purchase of irrigation entitlements
may be among the few alternative water supplies available.
17.
Opportunities for substitution of non-potable water for potable water will arise in
power station cooling and in mining operations. Although much of the ‘low hanging
fruit’, i.e. inexpensive, socially acceptable recycling opportunities, has already been
harvested, additional opportunistic, small-scale initiatives are being developed daily.
18.
Indirect potable reuse (IPR) – where purified recycled water is discharged into a
water body before being used in the potable water system – has successfully been
implemented in Europe, Singapore and the United States. In addition, returns to
rivers are currently observable in Australia on the Murrumbidgee, Kingaroy and
other inland towns located on river systems. The key issue is not whether the
science or the engineering are feasible, but the extent to which IPR will be accepted
by the public. Major new water recycling initiatives are frequently comparable with,
or more expensive than, the cost of desalination due to long transportation distances
and/or the need for third pipe systems.
19.
There is also important potential for cities to purchase water entitlements from
irrigators. Significant trades have already occurred in Adelaide and Perth, but have,
to date, been excluded as a matter of policy for other capital cities.
20.
As emphasised by the National Water Commission in its June 2006 report to CoAG,
all feasible water supply options should be on the table for consideration. The
Wentworth Group of Concerned Scientists endorse a similar view, stating that there
is now a need to “accept that desalination, potable reuse, and recycling and urbanrural trade are all legitimate options for our coastal cities and often better options
than building new dams and damaging more coastal rivers.”
Variation in Supply Costs
21.
Marsden Jacob’s analysis of the costs of the major supply and demand options
available to Australian cities (Figure 1) emphasises:

the very low cost of most options in favourable locations and situations;

the very high cost (>$3.00/kl) of many options in unfavourable locations and
situations;

the corresponding lack of any simple universal cost ranking which can be
simply applied to each and every situation;

the dominating influence of the cost of pipelines and pumping where water
needs to be transported over distance;
ES.iii
22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
22.

that the relative cost of water management options can be counter-intuitive.
For example, the cost of rainwater tanks and recycling schemes in some areas
can be considerably higher than the cost of conventional water. Rainwater
tanks deliver the highest benefit compared with cost in areas that receive
consistent rainfall during the year. In areas that receive little rainfall during
summer months, such as Perth, rainwater tanks supply relatively little water
and at high unit cost with the result that other water sources are typically
required to make up the shortfall during the heaviest periods of water use;

the need to examine water supply and demand management options on a
situation-by-situation basis; and

there is some undesirable variation in the costing methodologies applied by
the different States and a lack of disclosure for others.
This variation in costs from location to location impedes simple understandings of
comparative costs. This means that solutions appropriate to one area can be
inappropriate to another and that options favoured by popular opinion may not
always be cost effective. This issue appears particularly relevant to popular supply
options such as recycling or rainwater tanks.
Figure 1: Direct Costs of Water Supply/Demand Options– Sydney, Adelaide, Perth, Newcastle
$10.00
$9.30
$9.00
$8.00
$7.00
$6.00
$6.00
$5.60
$/kL
$5.00
$5.00
$4.00
$4.00
$3.00
$3.00
$2.00
$1.30
$1.68
$0.00
$0.63
$0.00
$0.10
$0.20
$0.15
$0.30
$0.08
$0.06
el
pi
p
di
st
an
ce
rr
ec
yc
lin
in
es
g
s
on
po
N
Lo
ng
ta
bl
e
R
w
at
e
nw
at
e
du
ct
ai
re
rt
io
an
k
n
X
BA
SI
Lo
ss
r
w
ce
s
an
d
su
rfa
es
er
d
at
e
io
n
re
ab
le
po
t
re
ct
Se
aw
at
D
am
w
un
d
ro
al
in
at
us
e
r
at
e
se
re
u
en
t
w
at
er
em
or
m
G
In
di
em
D
St
an
d
m
irr
ig
e
ha
s
an
ag
at
io
n
th
in
w
at
e
ni
ng
r
$0.22
en
t
ch
m
at
$1.30
$1.15
$0.25
Pu
rc
$3.00
$1.58
$1.50
$1.45
$1.00
C
$3.00
$2.61
Source: Marsden Jacob Analysis based on water supply plans for Sydney, Adelaide, Perth,
Newcastle. Lower bound of indirect potable reuse estimate based on Toowoomba.
Note:
Comparable costings for Melbourne are not available and no costings are available
for Queensland.
ES.iv
22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
23.
Choice of additional water supplies and demand management measures involves
more than comparison of unit costs. In times of uncertainty and increased risk,
‘security through diversity’ and rainfall independent sources are potentially powerful
criteria supplementing a triple bottom line assessment.
Public Perceptions and Leadership
24.
Community perceptions and acceptance are also critical, particularly for water
recycling, desalination and the possibility of purchasing water from rural users.
25.
There is some tendency for potentially controversial options to be censored out of
consideration before the portfolio of choices is presented to the public. Subsequent
resistance on the part of the public also has the potential to remove some water
supply options from consideration. Strong and timely leadership is required to
determine the options to be pursued and how and when the community should be
engaged, especially because the risks of inaction are high.
26.
Survey research confirms the importance of public trust in the responsible water
authority or local council in promoting or undermining public acceptance of nonfamiliar supply options, particularly water recycling. There is a clear need and role
for authoritative, factual information from government.
27.
Public trust is bolstered by having clear, widely adopted standards and guidelines.
For unfamiliar options such as indirect potable reuse, state or national guidelines
should be developed as a matter of priority.
Financial Capacity
28.
On a standalone basis, virtually all water businesses supplying the capital cities have
significant financial capacity to fund both increased levels of capital expenditure and
the dividends to the State Governments. Most of the businesses have paid dividends
but have not increased capital expenditure significantly and certainly not increased it
to the levels required to have avoided the current shortfall in supply.
29.
Dividend payments from the major water businesses typically range from 50 per
cent to 90 per cent of after-tax profit. This compares with an average dividend
payout rate of 60 per cent to 70 per cent for Australian private sector businesses.
The level of dividends would only constrain investment if the water businesses were
not able to access sufficient financing for capital projects. However, the strong
balance sheets and ability to raise additional revenue demonstrate that none of the
major water businesses is under any immediate cash constraint.
30.
By contrast, many of the smaller regional and council-owned water businesses
operate under far tighter cash constraints. These organisations would have to
increase prices significantly to pay for major new water supply investments. This
raises serious questions about affordability, particularly in those areas where the
economy has already been affected by drought and in regional towns with a
relatively high proportion of low or fixed income residents.
ES.v
22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
31.
A more immediate concern is that most water businesses are effectively subsidiaries
of State Governments, with the result that increased expenditure, and consequent
borrowings, translate into the State budget and may impact the State’s financial
ratios and thus the State’s credit ratings.
32.
There appears to be some conflict between the assumptions of economic regulators
that a ‘BBB’ credit rating is adequate and the realities of the impacts of water
business debt levels on the aspirations of most States to achieve or maintain ‘AAA’
or ‘AA’ credit ratings. The effect of these aspirations is potentially to reduce the
appetite of the State governments for additional debt and infrastructure expenditure.
The evidence suggests that the State Treasuries have, in the past, acted to constrain
investment in water infrastructure, but that these constraints have been lifted once
water supply investment has become a clear priority. This empirical question may
warrant further attention.
Ability to Increase Levels of Cost Recovery
33.
Major water supply augmentations to cater for drought or climate change are likely
to require an increase in water utility borrowing and an ongoing increase in the price
of water. Economic regulators can approve increased revenue levels to cover
increased levels of capital expenditure where these are efficient and are required to
address the risk of inadequate supply. Furthermore, there is scope to increase
revenue levels even for existing levels of service if governments were to require
higher dividends or if stronger cashflows were required in the future to allow for
greater debt funding.
34.
Regulated water prices and revenues are not set in the same way as other utilities
such as electricity or telecommunications. The regulatory asset value for water
businesses is often well below the efficient replacement cost of the infrastructure.
This is not generally the case in the other utility sectors. As a result, if water prices
were set in the same manner as other utility industries, the level of water
prices/revenue would increase sharply. Marsden Jacob estimates indicate that there
could potentially be scope to increase revenue levels across Australian capital cities
on average by as much as 33 per cent (Table 1) and still remain within the upper
bound of efficient pricing levels. That is, if the same approach as applied to
electricity, gas and telecommunications, were to be applied for water, then annual
revenue levels for the water businesses of Australia’s eight capital cities could, in
aggregate, be up to $600 million per year higher.
ES.vi
22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Table 1: Indicative Full Cost Degree of Cost Recovery, Australian Capital Cities, 2005
Indicative
full cost 1
($m)
City :
Current total
water
revenue
($m)
Current
degree of full
cost recovery
Revenue
increase for
100%
recovery
‘Extra’
revenue
($m)
Sydney
775
587
76%
32%
188
Melbourne
633
431
68%
48%
202
Brisbane
219
184
84%
19%
35
Adelaide
255
209
82%
22%
46
Perth
360
266
74%
34%
94
3
Hobart
26
23
89%
13%
Darwin
37
30
80%
25%
7
Canberra
82
66
80%
25%
16
2,387
1,796
75%
Total
33%
591
Source :
Marsden Jacob analysis based on WSAAfacts 2005
Note
Marsden Jacob understand that underlying asset values may not be reliable in all cases.
Costs and revenue levels should be considered a preliminary indication only.
35.
In sum, the water businesses serving the capital cities appear to have the capacity to
finance substantially higher infrastructure expenditures through higher levels of debt
and revenue. However, this capacity is likely to be constrained in smaller inland
cities and towns due to the lower ability to pay of many regional customers.
36.
Importantly, the fact that water authorities could raise additional revenue does not
mean that the usage charge must be increased. Other charges, including the fixed
administration charge and developer charges could alternatively be increased.
Price Signals and Efficient Tariff Structures
37.
There is a popular concern that water is priced too cheaply and in particular that the
volumetric usage charge is too low. In addition, there are many consumers of water
that do not receive a price signal – water users do not know the true cost of the
water consumed:

around 30 per cent of Australians rent their accommodation and do not receive
water bills which are sent instead to their landlords. This practice and
legislative requirement means that renters do not know their water bill; and

all Australian States offer some form of discount to concession cardholders on
water and energy bills. As an example, in Victoria, around 30 per cent of all
water accounts can receive a discount of up to $154 on total water and
sewerage charges with a uniform discount applying to each element of the
water bill (excluding the parks and drainage levy). That is, in at least the case
of Victoria, the discount applies to both the fixed administrative charge and
importantly the volumetric charge.
Is this the most efficient way of providing assistance to persons holding
concession cards? Alternatively, a greater discount could be provided on the
ES.vii
22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
fixed administration charge and all subsidies on the volumetric charge could
be removed; and

38.
in some cases, such as Adelaide, Perth and Canberra, water users pay a
significantly lower price for low volumes of water use. Pricing signals could
be strengthened if all water use was charged at the true cost and the fixed
charge was reduced accordingly to compensate.
Moreover, governments at all levels, intervene heavily to reduce the cost of water to
final consumers. For instance:

the Queensland Government makes a 40 per cent contribution to the capital
costs of the infrastructure of council water businesses;

the Victorian Government makes periodic contributions to major water
projects benefiting water users in both Melbourne and non-metropolitan
centres. For instance, the State Government has recently announced a $30
million2 subsidy payment for the pipeline from the Goulburn Valley to
Bendigo; and

the Australian Government has earmarked $1.6 billion over the five years to
2010 for funding of water projects under the Water Smart Australia
programme. Administered by the National Water Commission (NWC), the
fund targets “big ticket” projects to provide quantum changes in water
management and “aims to accelerate the development and uptake of smart
technologies and practices in water use across Australia”.
Is the current approach of subsidising investments in water infrastructure benign, or
is it distorted by sending inefficient price signals to the water businesses and water
users. The answer is an empirical matter depending on whether or not the subsidies
affect incremental charges, i.e. the usage/volumetric charge and the developer
charges.
39.
The primary purpose of the usage charge should be to send a signal regarding the
cost of increasing water usage. This can be achieved by setting the usage charge
such that it recovers the incremental cost of new water sources, including
recognition of environmental externalities.
40.
In general, economic regulators across Australia have begun to shift the level of the
usage charge toward the incremental financial cost of new water sources. However:
2

it appears that only Sydney, Melbourne and Perth have well developed, publicly
available estimates of the incremental cost of supply. Both NSW and Victorian
regulators have indicated that the estimates need further refinement;

no systematic review of the environmental costs has been made as part of any
price inquiry in Australia. Without such a review, any price increase to
accommodate environmental costs will be arbitrary at best. A relevant question
is the extent to which a separate environmental levy is justified if adequate
water has been allocated for environmental purposes (in accordance with the
National Water Initiative); and
Department of Primary Industries 2006, p. 3.
ES.viii
22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments

41.
efficient water pricing requires efficient tariff structures, especially an
appropriate volumetric charge. The desire to strengthen the price signal in order
to promote water conservation by pricing above incremental cost may distort the
pricing signals for investment and potentially competition, including through
third party access. The logic and impacts of existing multiple part tariffs needs
to be fundamentally considered.
These several pricing and tariff questions should be reviewed as a matter of priority.
Institutional Arrangements
42.
Institutional arrangements for water supply planning and delivery vary substantially
across Australia. The single unifying feature is that these functions remain under
government control. All States employ a lead agency model for water supply
planning, but there are numerous variations. Queensland has moved from the
previously fractured and uncoordinated approach associated with multiple
infrastructure owners to rely initially on the Department for Natural Resources and
Water and now on the newly established Queensland Water Commission. The
Queensland case had illustrated that drought/climate change are not the only reason
for inadequate supply capacity.
43.
Overall, there is a need to take a big picture view that incorporates the needs of all
water users and the environment and then allow the implementation to occur locally.
However, there remain several unanswered questions regarding how best to deal
with water supply planning amongst small council-owned businesses and how
private sector involvement might be integrated.
Summary and Directions
44.
This review identifies major impediments to securing water supplies for Australia’s
major cities and corresponding opportunities to rectify and improve the situation
comprehensively. These are summarised in the checklist shown in Figure 2.
45.
To improve effectiveness, e.g., planning and management of urban water supplies,
there is a need to:
i)
understand the strengths and weaknesses of the several different approaches to
dealing with climate uncertainty and risk in water supply planning.
ii)
benchmark and understand the similarities and differences in the pricing
methodologies – as applied – used to set regulated prices/revenue levels for
water and other utility services. Should the definition of full costs applied to
water continue to differ from the definition applied to other utility sectors?
Desirably, a national regulator such as the Australian Competition and
Consumer Commission (ACCC) or National Competition Council (NCC)
should be asked to examine and improve the consistency of regulatory price
setting for water;
iii)
agree common methodologies for the costing and comparison of supply and
demand management options;
ES.ix
22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
46.
iv)
develop a clear picture of the costs and drivers of major water supply and
demand management options to clarify strategic thinking, allow comparisons,
speed strategic evaluations and ensure appropriate usage charges;
v)
consider more fundamentally the meaning of efficient water pricing. To what
extent do State, Commonwealth and National Water Initiative grants affect the
efficiency of the pricing structures and customer awareness of the true costs of
water? What is the appropriate logic and level of multiple part tariffs?
vi)
understand the levels and drivers of public trust in the major water authorities
across Australia in terms of the potential acceptance or rejection of nontraditional supply options.
Other questions, less immediate but potentially important in terms of improving the
efficiency of water planning and management, include:
vii)
given the fundamental importance of water supply planning in the face of
climate uncertainty, which market-based approaches to water supply and
delivery offer net advantages?
viii) water entitlements, water allocations and water trading are focussed on bulk
water systems and entitlements held by irrigators and other major users. To
what extent could this approach be more fully applied to major urban centres?
What lessons are available from the success, or otherwise, of retail
contestability in electricity?
— || —
ES.x
22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Figure 2: Findings on Impediments and Opportunities for Securing Australia’s Urban Water
Supplies
Planning approach
Often slow and partial recognition of climate uncertainty and risk
Scope to improve planning approaches under uncertainty and risk
Range of Options Considered
No universally superior water supply options in all locations
Misperceptions and pre-censoring of key non-traditional options (especially desalination,
recycling and purchase of water from irrigators)
Triumph of perceptions over science, particularly via rushed decision processes
Scope for measured consultation, consideration and education campaigns
Pricing and tariff structures
Additional revenue potential
Various subsidies may risk distorting price signals if volumetric charges are effectively
subsidised
Financial
Sufficient financial capacity in major water businesses to fund new investment, regional
businesses face tighter constraints
Centralised control of debt and capital programs can constrain investment
ES.xi
22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
1. INTRODUCTION
1.
Since 2002, virtually all of the eastern mainland States and an enlarged area of the
south-west of Australia have moved into drought (Figure 3). The widened coverage
of the drought across Australia means that, with the exception of Darwin, all
mainland capital cities and most other urban centres now have insufficient supplies
of water to meet unrestricted levels of demand and are reliant on restrictions to close
the gap between available supply and demand. Drought has come to town! It is no
longer limited to ‘the bush’.
2.
Reduced urban water availability contrasts with the sharp increases in urban
populations. Since the mid-1970s, Perth’s population has more than doubled, yet
streamflows into dams have fallen to a third. More recently, drought conditions
have been experienced much more widely and have intensified. In south-east
Queensland, the major dams are forecast to be completely dry early in 2008 if
current inflows continue and no drought contingency measures are developed.
Two-thirds of all major urban centres in Australia are currently facing some form of
water restriction.3 The drought is now comparable with, or worse than, the
Federation drought of 1895-1902.
3.
The current drought raises strong concerns. First, it is extreme in terms of the
historical record. Second, it is a portent of a future under climate change. Third, it
is a reminder (for south-eastern Australia at least) that climate and rainfall patterns
can change abruptly as they have already done in the south-west of Australia.
4.
Current water supply capacity across Australia has been typically planned to require
restrictions on demand as frequently as 1 in 25 years based on the long-term
historical record. Unfortunately, in many cases the long-term historical record no
longer provides a reliable or confident indicator of current or future rainfall and
streamflows. As a result for many cities, current supply capacity is now grossly
inadequate and restrictions have become more frequent and more severe.
5.
The drought and associated shortfalls in supplies focuses attention on the need for
rigorous long-term water resource management, water conservation and
infrastructure planning and on the ability to implement them.4 The management of
water has become a key policy and political issue Australia-wide. In recognition of
the water situation, several State Premiers have, at times, assumed direct
responsibility for the management of water supply options for the State. Many of
3
Sixteen of the 24 Australian cities with a population greater than 50,000 are facing some form of water
restriction due to drought.
4
For more than a decade, Australia’s urban water sector has experienced extensive economic reform under
the 1994 Council of Australian Governments (CoAG) Water Reform Agenda and more recently through the
2004 National Water Initiative. One of CoAG’s major achievements was to commit governments to
separating the responsibility for water resource management policy, standard setting, regulatory
enforcement and service provision from the agencies which actually delivered and sold water to customers.
Despite these major reforms and their benefits, many urban centres are facing adverse climatic changes to
their ability to maintain the balance between consumptive demand and reliable supply. To some extent,
these adverse changes have been offset by beneficial potential technological changes.
FINAL REPORT, 22 November 2006
1
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
the regional centres hit hardest by the drought, including Toowoomba, Goulburn and
Ballarat, have urgently moved to develop emergency water sources.
6.
The severity of the current drought has caught much of Australia off-guard,
requiring hastily implemented actions to restore a balance between demand and
supply of water as quickly as possible. As the Prime Minister recently noted:
The simple fact is that there is little or no reason why our large cities should be
gripped permanently by water crises… Having a city on permanent water
restrictions makes about as much sense as having a city on permanent power
restrictions. The Hon. John Howard, 17 July 2006
7.
The Department of the Prime Minister and Cabinet commissioned Marsden Jacob
Associates (MJA) to provide a high-level review and discussion paper on water
supply and demand in Australia’s major urban centres. The purpose of the review is
to provide an overview of the situation and identify impediments to, and
opportunities for, securing future urban water supply in Australia, in each of the
eight capital cities, and in selected regional centres.
8.
In examining opportunities for, and impediments to, more effective and efficient
provision of water supply and associated demand management, the review seeks to
focus particularly on the basic requirements for effective and efficient water supply
 requirements and issues which are common and fundamental regardless of how the
water industry is organised in terms of market and institutional arrangements.5
9.
The common and fundamental requirements include:
i)
minimum supply for essential use;
ii)
institutions and institutional and market arrangements which command high
absolute levels of confidence in their ability to deliver water with fit-forpurpose quality;
iii) an effective framework for water supply planning in the presence of climate
risk and uncertainty;
10.
To ensure that these fundamental requirements are met efficiently requires:
iv) a robust process and framework for water supply planning which considers all
options and does not pre-censor non-traditional options such as desalination,
purchasing water from irrigators or potable re-injection of reclaimed water, or
pre-endorse others such as rainwater tanks;
v)
5
systematic evaluation of options against economic, social, environmental and
risk criteria including the ability to diversify sources away from rainfall
dependent sources;
For a discussion of issues relating to third party access and other options for private involvement in the
water sector, see MJA (2005).
FINAL REPORT, 22 November 2006
2
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
vi) efficient price signals to customers so that they are aware of the true cost of
their additional demand and of savings from reduced demand. This principle
also requires that customers bear or enjoy the cost impacts of any supply
choices they may make;
The objective of broader efficiency in terms of natural resource management and
investment as recognised by the National Water Initiative require:
vii) an effective system of property rights to water for all users above a suitable
threshold (with the threshold level dependent upon transaction costs);
viii) statutory water resource management plans which define the water sources
that may be used/developed for water supply, the entitlements to use the
consumptive pool(s) and the choices made on the tradeoffs between
environmental needs and the size and availability of the consumptive pool(s).
Mechanisms and incentives for better performance and efficiency are also required.
Increased private sector involvement is one such mechanism.
FINAL REPORT, 22 November 2006
3
Source: National Water Commission, Australia’s Water Supply Status and Seasonal Outlook, October 2006
Figure 3: Australian Rainfall and Dam Storage Levels
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
FINAL REPORT, 22 November 2006
4
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
2. WATER CONSUMPTION AND DEMAND
11.
As a nation, Australia’s urban centres consumed 2,600 gigalitres in 2005.6 By 2025,
Australia’s population is projected to have increased from 20.3 million in 2005 to
24.7 million in 2025. Other things equal, increased demand for water will contribute
to the current shortfall of supply.
Per Capita Use
12.
Compared with countries examined by the Food and Agriculture Organization of the
United Nations (FAO), the distinguishing feature of Australia’s water consumption
is not the high level of use for urban or residential purposes, but rather, the high
level of use in agriculture, mostly for irrigated crops (Figure 4).
13.
Per capita use for domestic/residential purposes in Australia is higher than European
countries, but less than in the USA, Canada or New Zealand.
Figure 4 : Water Usage Per Capita by Sector, selected countries
1,800
Domestic
Agriculture
Industrial
1,600
1,400
kL/person/year
1,200
1,000
800
600
400
200
U
ni
te
d
K
So i ngd
ut
om
h
Af
ric
a
Br
In az il
do
ne
si
a
C
N
h
R
us eth i na
si
e
an rl a
Fe nd
s
N der
ew at
i
o
Ze
n
al
an
d
G
er
m
an
y
In
di
a
Ja
Ira
pa
n
n,
Is Me
la
m x ic o
ic
R
ep
Pa of
ki
s
U
Au tan
ni
st
te
ra
d
li
St
at
C a
an
es
ad
of
a
A
m
er
ic
a
0
Source: FAO AQUASTAT database (accessed August 2005)
14.
6
Across the Australian capital cities, total consumption per capita for urban water use
varies from a low of around 120 kilolitres per annum for Melbourne to a substantial
WSAAfacts 2005, figures for reporting water authorities for major urban centres.
FINAL REPORT, 22 November 2006
5
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
350 kilolitres per annum for Darwin (Figure 5). Per capita water use for residential
purposes is more uniform.7
Figure 5: Consumption per capita (2004/05)
400
350
300
kL/person pa
250
200
150
100
50
0
Sydney
Melbourne
Brisbane
Adelaide
Residential
Perth
Hobart
Darwin
Canberra
Non-residential
Source: WSAAfacts 2005
Note:
Hobart’s residential volume represents its bulk water supplies to its eight Councils. For six of
the Councils there is little metering of residential use. The estimate may therefore overstate
the level of residential use per capita.
Current Restrictions
15.
The nature of restrictions on water use varies across Australia. Currently, 16 of the
24 major cities in Australia are facing some form of water restriction. These range
from relatively benign two-day per week outdoor watering restrictions to total
outdoor water use bans. Comparisons of restrictions across States are made difficult
by lack of consistency in terminology and content. For example, in November 2006,
Level 4 restrictions were imposed in SEQ, which included bucket only outdoor
watering on alternate days.8 In Ballarat, Stage 4 restrictions have been imposed that
ban outdoor watering of any form.
7
These comparisons are based on the use of scheme water from the supply authority and do not reflect the
use of garden bores which are particularly important for Perth. When adjusted for garden bore use, Perth’s
per capita consumption for residential purposes is at least 20 per cent higher than indicated by the
consumption volumes reported for the Integrated Water Supply Scheme for Perth. See Marsden Jacob
Associates (2006).
8
Queensland Water Commission (2006) “Level 4 restrictions start 1 November”, 31 October
FINAL REPORT, 22 November 2006
6
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Targeting Levels of Per Capita Use
16.
Most major urban centres are subject to policies and strategies to reduce per capita
consumption. In several cases, the policy is to reduce unrestricted per capita
consumption to the levels currently or recently achieved by restrictions (Table 2).
Typically, the reductions sought are around 20 per cent over time, with larger
reductions assumed in the Sydney and Melbourne water plans.
Table 2: Goals for per capita consumption
Actual consumption
(kL/person pa)1
City
2001
2005
Target per capita annual consumption
(kL/person pa)
Total
Change from 2001
TOTAL CONSUMPTION
Sydney
Melbourne
154
148
124
120
120
by 2011 (licence2)
-22%
107
by 2020 (water plan3)
-31%
100
by 2030 (water plan3)
-35%
116
by 20154
108
20204
-22%
-27%
by
1465
Brisbane
183
181
-20%
Adelaide
185
151
Perth
190
152
155
by 20127
-20%
Canberra
165
134
153.5 by 20138
-7%
-21%
130.8 by 20238
RESIDENTIAL CONSUMPTION
Brisbane
residential
Adelaide
household
107
114
104
99
99
by 2010
91
by 2015
84
by 20205
-7%
-15%
-21%
-22% by 20256
Notes:
1 Based on WSAAfacts 2005 unless otherwise stated.
2 Licence condition.
3 As shown in ISF, et al (2006) Review of the Metropolitan Water Plan: Final Report.
4 Department of Sustainability and Environment (2006) Sustainable Water Strategy – Central Region: Action to
2055, Our Water Our Future initiative, October, p. 39.
5 Considered achievable by South East Queensland Water and Wastewater Management and Infrastructure
Study. In 2004, Brisbane City set a target of 18 per cent reduction within six years (by 2010). SEQ Regional
Plan, p 101.
6 Water Proofing Adelaide 2005 2025. Target relates to household use of 280 kL rather than per capita use.
Household use shown in WSAAfacts was 271 kL in 2001.
7 State Water Strategy (2003), p. 15.
8 Thinkwater, actwater Volume 1: Strategy for sustainable water resource management in the ACT (2004),
April, p. 3. Note this includes bulk water sales which are not included in the earlier figure.
FINAL REPORT, 22 November 2006
7
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
17.
Targets for reductions in per capita use vary across Australia. The capital cities with
the highest per capita consumption – Darwin and Hobart – have not proposed any
water use reduction targets. Brisbane, Perth, Adelaide and Canberra have all
proposed reductions of around 20 per cent from pre-restriction levels. The two
capital cities with the lowest per capita use – Sydney and Melbourne – have
proposed the boldest water conservation targets (27 per cent and 35 per cent
reductions from 2001 levels respectively). Sydney’s water plan in particular relies
heavily on these targets to avoid the construction of major new water sources,
however explicit contingency options (desalination, groundwater and deep storages)
have been identified in case supply/demand targets are not met.
18.
Water conservation targets of 20 per cent or more are equivalent to the water that
could be made available from a major new water source such as a desalination plant,
recycling or a dam augmentation. Water conservation measures are typically
environmentally and socially superior to conventional water source options. Water
conservation is therefore a key strategy to address the water supply demand balance
in Australia.
19.
Large-scale water conservation measures, such as retrofitting of water saving
appliances, does come at a cost. This cost must be weighed against the benefits of
the measure. For example, the review of Sydney Metropolitan Water Plan suggests
some water conservation measures, such as appliance standards and labelling, may
cost very little, while other measures, such as the installation of rainwater tanks may
cost as much as $3 per kilolitre – well above the cost of other measures such as
recycling.9
20.
Prudent planning suggests that all Australian cities – even those not currently
experiencing drought – should rigorously examine the costs and benefits of water
conservation options. Water conservation has the potential to delay or avoid the
need for water restrictions or major water source augmentations. Where aggressive
water conservation targets have been adopted, water supply plans should explicitly
examine the course of action that will be taken if these targets are not met.
9
Institute for Sustainable Futures et. al. (2006).
FINAL REPORT, 22 November 2006
8
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
3. WATER RESOURCES AND CLIMATE
21.
With the exception of Perth, Australia’s major urban centres are overwhelmingly
supplied from surface water sources. Even in Perth, the bulk of groundwater is taken
from aquifers, which respond to changes in rainfall over time.
22.
Historically, water planning in Australia has focussed on easy-to-access and cheapto-use surface water sources rather than alternative sources, such as recycled and
reclaimed water and other manufactured water such as desalinated seawater. These
non-traditional sources tend to be restricted by their economic cost and by
community perceptions of the quality of this water.
23.
The Australian continent as a whole has shown a consistent drying trend over the
past 50 years (Figure 6). While rainfall in the tropical north-west has actually
increased, in the more populated areas of Australia there has been a decline. Similar
trends are also evident for extreme daily rainfall, with increases in north-western and
central Australia and decreases in southern and eastern Australia from 1950 to 2005
(Gallant et al. 2006). Droughts have also become hotter and more intense in these
regions (Nicholls 2004). The fall in rainfall and its effects on streamflows in the
south-west is significant and often highlighted, however, significant downtrends in
rainfall are also evident along the entire Australian east coast.
Figure 6: Trend in rainfall, 1950 – 2005
24.
Some of the observed changes to rainfall over this period have been abrupt or
stepped rather than gradual. For example, a sharp downstep in rainfall and
streamflows has occurred in the south-west since the mid 1970s (Figure 7). This
downstep is due to the southward contraction of pressure belts and storm tracks
which are increasingly located in more southern latitudes, i.e., the ‘roaring forties’
have shifted to become the ‘furious fifties’. This phenomenon is not limited to the
FINAL REPORT, 22 November 2006
9
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
south-west of WA. Indeed, similar downsteps in rainfall and streamflow patterns are
evident in places such as Ballarat (Figure 8) and detectable in the Murrumbidgee10
but remain ambiguous in other systems (Figure 9). Major investigations into
climate, rainfall and streamflow projections are now underway for the catchments
supplying major capital cities.11
25.
The drying over the past 50 years in southern and eastern Australia is broadly
consistent with the rainfall and streamflow projections by CSIRO. Simulations of
climate variability and change (BRANZ, 2006) have shown a drying of the southern
portion of the continent and a possible moistening over some parts of the tropical
north. The CSIRO models show a wide spread in rainfall projections, consistent
with the large uncertainties on regional rainfall projections. For 2030, the southern
part of the continent shows potential changes ranging from a slight increase to a
20 per cent decrease (for any given location). For 2070, the projections for reduced
rainfall are even more significant and about double the predicted rainfall reductions
in the year 2030.12 Background on Australian rainfall and climate is provided in
Box 1.
26.
Shifts in rainfall in the south-west of WA are readily observable in the raw data, in
part because rainfall variability is low in the south-west and does not disguise them.
In contrast, in the eastern States, the El Niño – La Niña pattern has a strong influence
with the result that rainfall variability is high and the seasons swing from flood to
drought. Where rainfall and streamflow variability is high, it serves to mask any
shifts in average levels of rainfall that may occur.
27.
In summary, evidence from local and international research points to the possibility
of a down-step in inflow into many of Australia’s major dams. The south-west of
Western Australia has experienced this down-step for more than nine years. The key
insight for water supply planners is that historic models of inflow should not be
relied on as indicative of the future.
10
See CSIRO investigations on climate and rainfall in the Murrumbidgee, such as, Charles, S., Bates, B., and
Viney, N. (2003). See also ACTEW water planning: Bates, B., Charles, S., Kirby, M., Suppiah, R., Viney,
N. and Whetton, P., 2003,.
11
For instance, current investigations described in the recent audit of Sydney’s Metropolitan Water Plan 2006
by ISF, ACIL Tasman and SMEC (2006), pp. 16 and 67.
12
All projections are expected to be updated following the release of the fourth IPTC assessment of climate
change.
FINAL REPORT, 22 November 2006
10
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Figure 7: Annual Inflows for South-West Dams (south-west WA)
1,000,000
900,000
Average 1911 - 1974
338,000ML
800,000
700,000
Average 1997 - 2005
114,000ML
600,000
500,000
Average 1975 - 1996
177,000ML
400,000
300,000
200,000
100,000
0
1911 1915 1919 1923 1927 1931 1935 1939 1943 1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003
Source: http://www.watercorporation.com.au
accessed 18/10/06. Data for 2006/07 for year to 27/09/06.
Figure 8 : Annual Inflows for Lal Lal Reservoir (Ballarat /Geelong)
60,000
Average 1930 – 1997
Average
pre 1997
27,000 ML
27,400 ML
50,000
Average 1997 – 2005
Average
post 1997
12,000 ML
11,600 ML
40,000
30,000
20,000
10,000
0
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
Source: Department of Sustainability and Environment
FINAL REPORT, 22 November 2006
11
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Figure 9: Annual Inflows for Warragamba and Three Nepean dams (Sydney Region)
8,000,000
7,000,000
Average 1949-1990
2,011,000 ML
6,000,000
5,000,000
Average 1909-1948
937,000 ML
Average 1991-2005
572,000 ML
4,000,000
3,000,000
Long-term average
= 1,334,000 ML
2,000,000
1,000,000
0
1909 1913 1917 1921 1925 1929 1933 1937 1941 1945 1949 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005
Inflow for 2006 is for first six months of year
Source: Sydney Catchment Authority
Figure 10: Annual Inflows for Wivenhoe Dam (south-east Queensland)
4,500,000
Average 1949-1991
1,066,000 ML
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
Long-term average
863,000 ML
Average 1909-1948
608,000 ML
Average 1992-2005
426,000 ML
1,500,000
1,000,000
500,000
0
1909 1913 1917 1921 1925 1929 1933 1937 1941 1945 1949 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005
Source: Department of Natural Resources and Water
FINAL REPORT, 22 November 2006
12
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Box 1: Background on Australian Rainfall and Climate
Australia is the driest inhabited continent on the planet with population centres clustered on the wet
coastal fringes around the south and east. Australia also has the most variable rainfall and runoff. The
continent spans a tropical (monsoonal) climate regime in the north through an arid interior and a
southern coast on the fringe of the southern ocean mid latitude storm tracks. This produces the
characteristic rainfall distribution shown below.
Australian annual rainfall and rainfall regimes
There is significant rainfall along the eastern coastal fringe associated with storm systems and their
interaction with the Great Dividing Range. The major cities are located inside the coastal fringes
where rainfall occurs. The interior of the continent receives very little rainfall because it sits beneath
the descending branch of the subtropical ridge, as is characteristic of the planet's desert regions.
El Niño events have a significant effect on Australian weather patterns and involve extensive warming
of the central and eastern Pacific Ocean, leading to an increased probability of dry conditions,
particularly in the eastern part of Australia. La Niña describes the reverse of the El Niño effect and is
related to changes in atmospheric conditions and ocean circulation, associated with an increased
probability of wetter conditions.
The features of rainfall in Australia make it particularly sensitive to greenhouse driven climate
changes. Though rainfall is hard to project in models, one of the consistent results that emerge is that
the dry regions tend to get dryer and wet regions wetter under greenhouse scenarios (Houghton, 1996;
Houghton et al., 2001). An additional concern is that the southern coast and cities (Perth, Adelaide,
Melbourne and Hobart) are dependent on the passage of frontal systems to provide much of their
rainfall. If these frontal systems were to contract to the south, there is potential for major rainfall
reductions in these regions. This is a particular concern in light of studies that indicate a contraction of
the southern ocean storm track in recent decades (Thompson and Soloman, 2002, Karoly 2001,
Hartman et al 2003) and the role of both greenhouse and ozone forcings in this contraction (Arblaster
and Meehl, 2006).
Temperature trends in Australia over the past century are consistent with global trends in showing a
more or less steady warming and a corresponding increase in evaporation rates across Australia. This
warming further reduces water availability, particularly in areas that have experienced reductions in
rainfall.
Note :
This background material reflects analysis undertaken by Dr James Risbey and Marsden
Jacob in the development of the Department of Environment & Heritage (2006), Climate
Change Impacts & Risk Management – A guide for Business and Government, prepared by
MJA and Broadleaf Capital.
FINAL REPORT, 22 November 2006
13
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
4. WATER SUPPLY PLANNING AND
INFRASTRUCTURE
28.
The majority of urban water in Australia is currently sourced from large dams and
piped to city centres. Since streamflows in Australia are highly variable, Australian
dams are around three times larger relative to consumption than in Europe or
America.13 (Australia has over 500 major dams and stores more water than any
other country, up to three Olympic size swimming pools for each person.)
29.
Perth and Adelaide are exceptions to this rule:
30.

Perth draws around 60 per cent of water supply from groundwater sources,
which have a significantly lower variability between years; and

Adelaide has substantial drought security through its ability to draw on the
River Murray. During ‘normal’ streamflow years, SA Water draws only
approximately 37 per cent of Adelaide’s water from the River Murray, but in
times of drought relies heavily on the Murray for its annual water supply.
South-east Queensland (SEQ) has by far the largest ratio of storage to annual usage,
reflecting the extreme variability in annual rainfall (Figure 11). Sydney and
Melbourne face less climate variability. However, like SEQ, most cities rely heavily
on dams and therefore require a large storage buffer against low rainfall years.
Figure 11: Total Storage Capacity and Annual Usage – Mainland State Capitals
3,000
Total Capacity / Usage (GL)
2,500
2,000
0
Sydney
Melbourne
SE Qld
Total Storage Capacity
2x usage
6x usage
500
4x usage
1,000
3x usage
1,500
Perth
0.9x
usage
Adelaide
Annual Water Usage
Source: Marsden Jacob analysis
13
See Bates, B. and Thomas, J., 2003.
FINAL REPORT, 22 November 2006
14
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
31.
Risk of streamflow variability and change is mitigated where a city has diversified
sources. Brisbane and Sydney operate essentially one dam systems, relying
primarily on Wivenhoe and Warragamba dams, respectively. Although the
Thomson Dam accounts for around 50 per cent of Melbourne’s supply capacity, the
remaining dams are spatially separated and therefore supply is somewhat more
diversified.
Water supply planning under climate uncertainty14
32.
A fundamental indicator of the performance of water supply systems is resilience in
times of drought and stress. For urban water supply, this indicator translates to the
availability of potable water without lengthy or severe restrictions.
33.
Inappropriate restrictions can be defined as those levels of duration and frequency of
restrictions where the costs to the community could have been avoided at a lower
cost15 through some combination of water conservation or investment in new water
sources, including recycling, purchase of water and interlinking pipelines.
34.
The difficulty with this definition is that inappropriate restrictions are rarely
intended. In general, inappropriate restrictions will arise only where they are
unanticipated  and this highlights the difficulties of assessing water supply
reliability in a period where it is uncertain whether the drought is merely an example
of climate variability, or whether, via increased severity or frequency, it is an
example of climate change.16 These are questions of how risk and uncertainty are
addressed and managed.
14
Water planning across Australia is typically conducted through two mechanisms – statutory water plans
(specified in Schedule E of the NWI) and water supply plans:

the statutory water plans relate to specific water sources and specify the environmental and other public
benefit outcomes for the relevant water system, the overall objectives of water allocation policies,
pathways to correct overallocation or overuse, the reliability of the consumptive pool and a range of
other matters;

water supply plans set out the strategy for ensuring demand and supply balance is achieved and
maintained into the future. They set out the intended order and sequence by which supply sources will
be accessed, infrastructure required and demand reduction strategies to be implemented.
The statutory water plans define the consumptive pools and entitlements to them; the water supply plans
describe the intended timing and extent of access to these pools. Statutory plans are typically drawn up by
the relevant government department with input from water businesses and natural resource management
bodies.
15
Cost includes financial, social and environmental costs.
16
A major contentious issue in assessing future water supplies is whether there has been a shift in the climate
or whether current conditions are consistent with the historical record (climate change versus climate
variability). For the purposes of immediate water supply planning, it is not relevant whether the current
drought represents a substantive change in the climate or that the climate is the same, just more variable
than previously modelled. For longer term planning the difference is not moot.
FINAL REPORT, 22 November 2006
15
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
35.
36.
37.
Precisely how climate-related uncertainties in water supply and demand are being
treated by the governments and authorities for water supply planning and operations
varies widely across Australia. Distinguishing characteristics include:

the varying recognition of past changes in streamflow and the reliance or
rejection of long-term streamflows as the best indicator of future streamflow
levels and variability;17

the extent of, and manner in which, climate change projections from CSIRO
are incorporated into the projections regarding future streamflows; and

the level of service requirements adopted, i.e., what probabilities/frequencies,
severity and duration of water restrictions are appropriate and acceptable.
Other pertinent differences include:

the willingness to consider alternative options for city supply such as purchase
of water from irrigators or the direct injection of reclaimed water;

the degree of reliance on reductions in per capita levels of water consumption
through behavioural change or changes in urban design; and

the extent to which explicit and specific options or strategies have been
identified as contingencies to be triggered in the event of extreme and/or
continued drought conditions.
Perth, which has had the longest experience of the capital cities in dealing with
rainfall and streamflow reductions has progressively moved to the more conservative
position to meet future water requirements. Water Corporation’s planning and
strategy is based on:
(i)
future streamflows which are centred on either the average experience since
1997, i.e., the ‘nine-year scenario’. In contrast, water planning in virtually all
other capital cities has, until recently, been based on historical records of up to
100 years,18 in some cases the longest available historical series. The
nine-year scenario implies much lower rainfall predictions than the 100-year
historical record. Scenarios based on the even lower average streamflows of
the past five years are also explicitly examined;
(ii)
a reduction in the acceptable frequency of total sprinkler bans from 1-in-33
years to 1-in-200 years. This reduction reflects the view that the Perth
customer base has tired of water restrictions and that the economic cost of
restrictions is high. Across Australia, the economic impact of sustained
restrictions is given different levels of recognition and attention and water
supply planning in jurisdictions other than Perth is commonly based on a
1-in-25 year frequency for total sprinkler bans;
17
For an early example of recognition of the potential for climate change in the context of Canberra’s water
supply, see CSIRO (2004) and Marsden Jacob Associates (2003a, b, c) The approach was recently
published in Risbey, Hamza and Marsden (2006).
18
The water planning time frame is distinct from the drought contingency planning timeframe. The water
planning timeframe is used to determine the timing and scale of water source augmentations. By contrast,
drought contingency planning is typically dominated by the water restriction policy and emergency water
supply solutions. Typically water restrictions and emergency supplies are triggered on the basis that recent
inflow levels will continue for at least another year.
FINAL REPORT, 22 November 2006
16
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
(iii)
equal consideration of scenarios both with and without demand management
initiatives to reduce per capita consumption. Water supply planning in most
other cities – in presentation at least – assumes significant reductions in per
capita consumption and down-plays the possibility of failing to meet these
targets; and
(iv)
specific contingency options which are well identified, specified and publicly
canvassed. For example, in one single document, specific options identified
for Perth include accessing water from the South West Yarragadee aquifer,
purchasing additional water from the piping of the delivery systems of Harvey
Water (the irrigation cooperative) and additional desalination plants.19 In
contrast, prior to October 2006, Melbourne had no publicly announced
contingency options.
38.
The scenario-based approach to water supply planning adopted for Perth is now
beginning to be applied across other capital cities as the possibility of step changes
in rainfall and streamflows is acknowledged.20 For example, the Victorian thinking
for Melbourne and the wider central region has shifted sharply: the final version of
the Central Region Sustainable Water Strategy (CRSWS) adopts a robust scenario
approach to deal with the uncertainties of climate change and variability. The
CRSWS examines comprehensively the different implications of assuming that
streamflows in the future are centred on either a) the long-term historical record, or
b) a continuation of streamflow levels recorded over the past years.
39.
Nonetheless, important differences in approach remain between the cities in terms of
how climate uncertainty is being addressed. These differences in approach might
reflect the different situation of the respective capital cities, but unavoidably raise
the question of how the uncertainties and risks related to climate and streamflow
change are best handled in water supply planning.
Implications for capital investment
40.
One of the issues raised by the observed differences is the matter of regulatory
consistency. For the economic regulators, approval of the capital expenditure
programs of water businesses requires consideration of whether the expenditure is
necessary and efficient. The regulators need to make informed judgements on
whether the projected expenditures represent prudence or gold-plating.21
19
Water Corporation, 2005.
20
Reliance on the long-term ‘100-year’ historical record is a feature of both traditional water supply planning
and operational rules. In particular, the operational rules applied by several governments in determining
seasonal allocations for irrigators depend on minimum flow levels recorded historically. These rules are
inadequate when, as in the current season, minimum flows are below previous minimums.
21
If the economic regulators in each State have approved the future capital expenditure program for their
respective water supply business(es), then – given the observed difference in the ways risk and uncertainty
are handled in the water supply planning processes – a relevant question is whether in concept the different
regulators would be able to approve the programs of water businesses in other States.
FINAL REPORT, 22 November 2006
17
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
41.
Particularly in a highly capital-intensive industry such as water, vigilance against
unnecessary capital expenditure is essential. Equally, however, we need to ensure
that we do spend when it is necessary to do so and that we have appropriate
means/mechanisms to be able to make those decisions.
42.
As noted by one stakeholder, “Understanding risk and developing a process for
determining when you proceed with new infrastructure is important. If you get
[decisions on supply capacity] wrong, either way, no one will forgive you as the
commentators will be equally harsh on ‘white elephants’ as they would be on cities
not having enough water.”
43.
An immediate and material implication of the different planning approaches used in
each city is the relative capacity of water supply infrastructure and the levels of
capital expenditure. Over the past five years, in per capita terms, twice as much has
been spent on water infrastructure in Perth than in Sydney, Melbourne, Brisbane or
Adelaide (Figure 12). High levels of per capita expenditure were also observed in
Darwin and Canberra, reflecting for the former, large one-off developmental
expenditures, and in the latter, emergency expenditures following the fires.22
Figure 12: Capital Cities – Water Capital Expenditure Per Capita Over 5 Years (2001-2005)
600
501
500
421
$ per person
400
312
300
213
200
172
146
115
100
0
Sydney
Melbourne
Brisbane
Adelaide
Perth
Darwin
Canberra
Source: WSAAfacts 2005
22
In Darwin, capital expenditure on water supply infrastructure included a major water pipeline to the
Wickham Point LNG plant. Other large expenditure items included the development of the Howard East
Borefield and increasing the capacity of the Darwin River Spillway. In Canberra, ACTEW recently
completed the augmentation of two major treatment plants – the Mt Stromlo and Googong Water Treatment
Plants. The new Mt Stromlo facilities were required to cater for the poor water quality after the bushfires of
2003.
FINAL REPORT, 22 November 2006
18
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
44.
The differences in planning approaches have also been reflected in the levels of
announced future expenditure on water infrastructure. Despite the broad geographic
extent and the lengthening period of recurrent drought, surprisingly few cities have
publicly announced firm plans for major augmentations of water supplies in the next
ten years.
45.
The exceptions are Brisbane and Perth:

the Queensland Government has committed to the construction of two new
dams at Traveston Crossing and at Wyaralong. It has also adopted a drought
response strategy that includes the Western Corridor Recycling Scheme,
Tugun desalination plant and bore water schemes. Expenditure on water
infrastructure in the next five years will exceed $2 billion. The government’s
planning framework places heavy emphasis on planning options for possibility
that recent low streamflows conditions will continue; and

in Perth the Kwinana desalination plant is about to be commissioned and there
are plans in the future to build a second desalination plant, trade water from
the south-west irrigators and access groundwater from the South West
Yarragadee aquifer. The Water Corporation plans to spend an average of
$600 million per year over the next ten years – more than the recent combined
expenditure of all four Melbourne water businesses.
46.
Sydney’s Metropolitan Water Plan relies predominantly on accessing water from the
Shoalhaven River, demand management measures and water recycling to achieve a
balance of supply and demand. With these initiatives, the plan aims to avoid the
need for major new water sources within the next ten years. If streamflows do not
improve from current levels, or if demand management targets are not met, the
contingency strategy involves construction of a desalination plant and groundwater
access. The setting aside of recommended environmental flow levels could also
contribute to the achievement of demand-supply balance, at least for consumptive
purposes, if required.
47.
The situation, approach to water planning and the resulting strategies are evolving
rapidly under the pressure of the drought and the realisation that the drought may
foreshadow the future impacts of climate change. Recent water supply planning
exercises undertaken in many jurisdictions, including Melbourne, Adelaide, Darwin
and Hobart, had suggested that water demand would not exceed long-term supply for
at least ten years. The final version of the Victorian Central Regional Sustainable
Water Strategy now implies quite a different conclusion, and Adelaide and other SA
towns on the Murray face an emergency situation, particularly for the 2007-08
season.
48.
The very direct link between how climate uncertainty and risk is incorporated into
the water supply planning process and the suite of resulting outcomes cannot be
over-emphasised (Table 3). The choice of climate scenario dictates the estimate of
the system yield, which in turn dictates the required additions to supply and
therefore levels of forward capital and operating expenditures and ultimately the
level of the volumetric charge of the tariff. These links emphasise the need for a
FINAL REPORT, 22 November 2006
19
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
robust approach for treating climate uncertainty in water supply planning and
ensuring that water supply planning is effective and efficient.
Table 3 : Impact of Climate Scenarios on Estimated Yields and Required Timing of Next Source
Climate
Scenario
Estimated Yield of Integrated Water Supply
Scheme (90% reliability)
Year when
next new
source needed
64 year
(1911-1974)
31 year
(1975-2005)
9 year
(1997-2005)
5 year
(2001-2005)
512 GL/year
2052/53
437 GL/year
2034/35
363 GL/year
2018/19
312 GL/year
2004/05
Source: Water Corporation
Note: Based on April 2005 Source Development Plan and 155 kilolitres per capita demand scenario.
Water-supply planning objectives
49.
The challenge of water supply planning is to ensure that demand and supply are kept
in balance and that future shortfalls in water supply (whether due to climate
variability, climate change or other factors) are to occur no more frequently than
indicated by the pre-agreed objectives relating to the frequency, severity and
duration of restrictions. The second part of this challenge is to achieve this balance
at minimum expected total cost.
50.
To cater for drought years, water service providers must construct more capacity in
their system than they would typically need in a non-drought year. Regulators and
other decision makers must therefore weigh up the trade-off between the likelihood
of drought occurring and the cost of maintaining additional capacity into perpetuity
(see Box 2).
51.
To minimise future costs requires not simply that the costs of planned infrastructure
are both necessary and efficient: all costs must be considered. This includes
recognition of the costs to the environment, the cost of contingency options, the
costs of restrictions and the costs of all other measures, such as water saving
measures, that are likely to be included in a drought strategy.
FINAL REPORT, 22 November 2006
20
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Box 2: Supply Buffer and Probability of Total Sprinkler Ban
The Economic Regulation Authority (ERA) in WA has explicitly considered the cost versus
restriction trade-off in its recent price inquiry and reported the required supply buffer compared with
the probability of a total sprinkler ban.
Supply Buffer and Probability of Total Sprinkler Ban
The figure demonstrates that Perth requires water sources that can supply 9% more than the current
annual demand in order to reduce the probability of total sprinkler bans to 0.5% (i.e. only required
once every 200 years). Based on the ERA’s projections of cost, the total cost to provide 1-in-200 year
drought security would be as little as $18 to $27 per year for a residential customer using 250
kilolitres per year.23
23
Long run marginal cost of water $0.82 to $1.20/kL, as reported in ERA, 2005, p. 97
FINAL REPORT, 22 November 2006
21
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
5. WATER SUPPLY AND DEMAND OPTIONS
52.
Water planners have two fundamental options available to ease water restrictions –
to encourage water conservation or to increase water supply. Options available to
restore and maintain the balance between water demand and supply include:

demand management through the introduction of water saving appliances and
behaviour modification;

new dams and groundwater access;

desalination of seawater;

better interlinking of water sources (existing and future) through pipelines and
grids;

recycling of water for agricultural, industrial and potable uses;

greater use of stormwater, especially in greenfield locations; and

the purchase of water from other sectors and/or other suppliers.
53.
Voluntary water conservation is often the most affordable, environmentally sensitive
option available to urban water users. Low-level restrictions may be seen as simply
customer obligations to use water responsibly. However, higher level restrictions
impose substantial costs on the community with heavier impacts on the 70 per cent
of the population that identify having a healthy, green garden as important.24, 25
Based on ‘willingness to pay’ estimates, the annual cost of extreme restrictions is the
same magnitude as the capital cost of a desalination plant.26
54.
Structural alternatives to potable water supplies, including stormwater recycling and
water sensitive urban design, are typically only cost effective in greenfield
situations, where new developments can be designed with water conservation in
mind. While greenfield sites represent only a small proportion of the city in any
particular year, the growing population will mean that structural changes introduced
on a small scale now will dominate the cityscape of the future.
55.
Historically, dams have been the major water sources for Australian cities. Several
factors combine to make major new dams unlikely in the future, except in SEQ:

for most major cities the best sites for dams have already been taken.
Moreover, in most cases the next ‘best’ location cannot be used as
environmental objectives and the desire to preserve or restore river health
have become increasingly important with some sites declared as heritage
rivers;

the environmental damage and costs of dams is increasingly recognised and
there is a desire to preserve the remaining natural rivers. As a result the
planning and approval processes are slow, perhaps up to 10 years;
24
Roseth, N., 2006, p. 5
25
Marsden Jacob Associates, 2006a.
26
Marsden Jacob Associates, 2006a.
FINAL REPORT, 22 November 2006
22
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
56.

the net cost of water from dams is rising with climate change resulting in
reduced rainfall and streamflows, leading to the need for larger dams to assure
historical reliability. In addition, (actual and expected) increases in rainfall
intensity requires substantially larger spillways, also increasing the costs of
dams (existing and potential); and

dams are not very useful in extended drought regimes: since potential new
sites are generally less favoured due to the effect of rain shadow, their yields
may be particularly unreliable due to drought. Moreover, another dam whose
potential yield may be strongly correlated with existing dams may not be the
best or even an effective option for increasing system reliability against
drought sequences. Best practice now emphasises a diversity of water sources
in a portfolio selected not simply on least cost and timing, but also on the
reduction in the covariance between sources.
Governments and water utilities are increasingly turning to alternative sources of
water supply including demand management, water sensitive urban design,
desalination, water recycling and the purchase of water entitlements from irrigators.
The consideration and evaluation of alternative sources is leading to an increasingly
integrated approach  albeit with some gaps and omissions.
Integrated Water Cycle Management
57.
One of the most significant developments in water management in recent years has
been the increasing focus on integrated water supply planning, including water
recycling and demand management. This allows different sources of water to be
compared side-by-side with traditional infrastructure solutions. Recognition of the
full water cycle means that often-overlooked options, such as stormwater, are given
equal opportunity to be assessed on their merits. This advance blurs the traditional
boundaries between the supply of water, wastewater and stormwater services to
provide what is termed ‘integrated water cycle management’ (IWCM).
58.
IWCM requires the cost of all potential water sources to be well defined and
understood. The approach moves beyond the traditional focus on water agency costs
alone and examines the full range of costs and benefits across the community including infrastructure providers, government agencies, businesses and residents.
59.
IWCM is gradually being adopted across Australia and is reflected in the wide range
of water sources examined in recent metropolitan water plans. Each city has a
unique combination of issues and available resources, however, general trends in
cost and resource availability can be seen to emerge. For example, some of the
highest volume options available, including desalination and large recycling
schemes range from moderate cost to expensive, depending primarily upon the
distance that the water needs to be transported. By comparison, smaller
opportunistic recycling schemes located on, or close to sites of use can be very
inexpensive. A number of options have a broad range of costs depending on the
precise options employed, including demand management, the reduction of network
losses, stormwater reuse and the purchase of water from irrigators (which may, or
may not, require extensive piping networks).
FINAL REPORT, 22 November 2006
23
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Unit Costs of Supply Options
60.
An indication of the reported unit costs associated with each of the main options
available to secure urban water supplies and to balance demand and supply is shown
in Figure 13. The span of each bar reflects the range of unit costs derived from the
published water plans for Sydney, Adelaide, Perth and Newcastle.27 In some cases,
such as demand management, the range of costs reflects the potential for both very
low cost options (such as water efficient showerheads) and very high cost options
(including some options promoted through the Building Sustainability Index or
BASIX in NSW).
Figure 13: Direct Costs of Water Supply/Demand Options– Sydney, Adelaide, Perth, Newcastle
$10.00
$9.30
$9.00
$8.00
$7.00
$6.00
$6.00
$5.60
$/kL
$5.00
$5.00
$4.00
$4.00
$3.00
$3.00
$2.00
$1.30
$1.45
$1.50
$3.00
$1.58
$1.68
$1.00
$0.25
$1.30
$1.15
$0.63
$0.00
$0.10
$0.20
$0.15
$0.30
$0.08
$0.06
el
nc
e
pi
p
rr
ec
st
a
at
e
Lo
ng
di
w
ta
bl
e
N
on
po
in
es
yc
lin
g
an
ks
rt
at
e
ai
nw
R
C
Lo
ss
re
BA
SI
du
ct
io
n
X
$0.22
at
ch
m
Pu
en
rc
tt
ha
hi
nn
se
in
irr
g
ig
a
tio
D
em
n
w
an
at
d
er
m
an
ag
em
St
en
or
m
t
w
at
er
re
us
e
G
ro
un
In
di
dw
re
at
ct
er
po
ta
Se
bl
e
aw
re
at
us
er
e
de
D
am
sa
lin
s
an
at
io
d
n
su
rfa
ce
w
at
er
$0.00
$3.00
$2.61
Source: Marsden Jacob Analysis based on water supply plans for Sydney, Adelaide, Perth,
Newcastle. Lower bound of indirect potable reuse estimate based on Toowoomba.
Note: Comparable costings for Melbourne are not available and no costings are available for
Queensland.
61.
27
Marsden Jacob’s analysis of the costs of the major supply and demand options
available to Australian cities emphasises:

the very low cost of most options in favourable locations and situations;

the very high cost (>$3.00/kl) of many options in unfavourable locations and
situations;

the corresponding lack of any simple universal cost ranking which can be
simply applied to each and every situation;
Melbourne is excluded from this analysis because cost data is not provided in the final CRSWS and the
costing shown in the draft strategy are understated due to the methodology employed.
FINAL REPORT, 22 November 2006
24
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
62.
63.

the dominating influence of the cost of pipelines and pumping where water
needs to be transported over distance; and

the relative cost of water management options can be counter-intuitive. For
example, the cost of rainwater tanks28 and recycling schemes can be
considerably higher than the cost of conventional water sources in some areas;
and

the need to examine water supply and demand management options on a
situation-by-situation basis. Figure 14 shows the cost schedules facing
Sydney, Adelaide and Perth against consumption in 2001 – the last common
year without restrictions. In some cases, the figure shows the range of cost
estimates for an option.
Factors affecting the cost of supplying water29 include:

distance and lift required from the source of water to point of consumption.
Water supply distances vary – from the relatively close 65 kilometres between
Sydney and Warragamba Dam, to around 600 kilometres between Mundaring
Weir and Kalgoorlie;

type of water source – e.g., dam, groundwater, recycling, desalination. Dams
and groundwater sources have conventionally been a source of inexpensive
water. Recent trends toward water recycling and desalination will see the cost
of water sources increase substantially;

level of treatment – treatment levels vary according to local requirements, the
approach to drinking water quality and safety standards30 adopted in each
State and the quality of the source water. Some cities, such as Melbourne,
Perth and Darwin, have strict catchment management policies and therefore
require relatively little treatment processes for water from surface water
source; and

density – the density of development determines the cost of distributing the
water across the city with dense development usually reducing the average
costs due to economies of large scale.31
Failure to examine and appreciate relative costs in the local situation can lead to an
inefficient choice of options and unnecessary antagonism. Further, with the
mounting political pressure to implement alternative water supply solutions, it is
imperative that water supply planners and government agencies explicitly clarify the
environmental and social benefits of each solution to determine when high cost,
alternative solutions are justified.
28
Rainwater tanks deliver the highest benefit compared with cost in areas that receive consistent rainfall
during the year. In areas that receive relatively little rainfall during summer months, such as Perth, rainwater
tanks supply relatively little water and at high unit cost with the result that other water sources are typically
required to make up the shortfall during the heaviest periods of water use.
29
Refer Werner, L. and Pickering, P. 2002.
30
Most States are moving toward the multiple barrier approach prescribed in the National Health and Medical
Research Council’s 1996 Australian Drinking Water Guidelines.
31
Conversely, density also increases the cost of retrofitting in built-up areas.
FINAL REPORT, 22 November 2006
25
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Figure 14: Levelised Cost of Water Supply and Demand Options – 3 Cities
$7.00
Sydney
Appliance standards
and labelling
$6.00
Western Sydney Recycled
Water Initiative
Residential
outdoor
BASIX
Grey areas represent range of
highest and lowest cost
estimates for option
$5.00
Leakage
reduction
Rainwater
tanks
$/kL
$4.00
Nonresidential
Committed
recycling
$3.00
Residential
indoor
$2.00
Indirect Potable
Recycling
Desalination
$1.00
$0.00
0
$7.00
100
Irrigation
200
400
500
600
Water supplied in 2001 = 625 GL
Piping Water recycling
Bradfield Qld
- grey water
Rainwater tanks
Adelaide
Loss
reduction
(covering)
Stormwater
$6.00
300
Loss reduction
(floating cover)
Dams
Finniss
$5.00
Loss reduction
(aquaducts)
$/kL
$4.00
Large scale
water re-use
Water
recycling localised
$3.00
Piping
Great
Artesian
Bore
Piping water from Ord
$2.00
$1.00
DesalinDesalination
ation
Piping from
Clarence
(NSW)
$0.00
0
100
200
300
400
500
600
Water supplied in 2001 = 195GL
$7.00
GW - Gnangara
Perth
Catchment thinning
$6.00
Catchment thinning - Wungong
GW Gingin
Desalination - Wellington
$5.00
GW
- Yanchep
- Eginton
$/kL
$4.00
Irrigation
efficiency #2
Collie
Piping from Ord
Irrigation
efficiency Waroona
$3.00
Dams
GW - SW
Yarragadee - Wellington
- Brunswick
$2.00
$1.00
Desalination
$0.00
0
100
200
300
400
500
Water supplied in 2001 = 263 GL
Sources: 1) Sydney – Sydney Water, Indirect potable recycling and desalination - a cost comparison
and Institute for Sustainable Futures, ACILTasman and SMEC (April 2006), Review of the
Metropolitan Water Plan: Final Report; 2) Adelaide - Water Proofing Adelaide – Options Assessed; 3)
Perth - Water Corporation, Integrated Water Supply Scheme Source Development Plan 2005
FINAL REPORT, 22 November 2006
26
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Purchase of water for cities
64.
The purchase of water entitlements from irrigators is potentially an attractive option
– and in some cases one of the few viable options for cities and towns. In rural
Australia, water entitlements are bought and sold at prices ranging from $600 to
$1,500/ML. This is equivalent to 60 cents to $1.50/kL.
65.
Historically there has been some opposition to the transfer of water between
irrigation and metropolitan urban water uses. Echoes of Sir Henry Bolte’s 1967
statement that “not a drop of water will cross the divide to meet the needs of
Melbourne'' remain.
66.
In the 2005 survey by Marsden Jacob of water service provider stakeholders, both
the opportunities for trade and a political reticence to take advantage of this source
were identified.
67.
Stakeholders surveyed by Marsden Jacob noted:32
To deal with the concerns over the adequacy and reliability of supply,
many urban authorities would like to purchase water rights from
irrigators. Canberra, Sydney and Melbourne are all close to the supply
grid provided by the Murray-Darling-Snowy systems which opens major
opportunities for trade. Political government often finds this fact
uncomfortable.
and
Thinking and policy on water resource management is compartmentalised.
Compared with the low cost water available in the irrigation areas, the
alternatives for the metropolitan area are prohibitive. The opportunity to
bring low cost water into the city is not being taken. [City] uses around 9%
of the State’s water but the people think that [City] uses 90% and the
country only 10%.
68.
However, major opportunities are available to trade in water to redress the
significant demand management issues arising from the take up of existing supply
sources facing Australia’s metropolitan centres. Despite the availability of low-cost
water in the major irrigation centres, water trading has not occurred with urban areas
in most cases.
69.
Nevertheless, SA Water has purchased around 19 GL of water from irrigators in the
Lower Murray Swamps and the Western Australian Water Corporation is
completing contracts with Harvey Water to pay for the piping of the part of the
South West system. In both of these instances, the water provided by irrigation is
already within the system that supplies the metropolitan centres.
70.
The increasing physical integration of water systems (Box 3) will increase
opportunities for trade to improve the security of water supply.
32
MJA, 2005.
FINAL REPORT, 22 November 2006
27
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
71.
Opportunities in Sydney may be more limited as
The Sydney basin agricultural sector uses up to 12 billion litres of water per
year from the drinking water system, and draws a further 110 billion litres
per year directly from rivers and farm dams. The total water use by farmers
of around 122 billion litres per year is much less water than the combined
household use in Sydney of around 375 billion litres per year.
There is little doubt, however, that this volume of water does represent a significant
potential supplement.
72.
In Victoria, historically legislation limited the ability of entities outside of irrigation
areas from owning entitlements. Essentially, this barrier to urban areas accessing
irrigation water has been removed. The new Water (Resources Management) Act
2005 has, for the first time, allowed non-landholders to hold up to 10 per cent of
entitlements in each system (non-water use). The Central Region Sustainable Water
Strategy has proposed an important first example of trade in water from irrigators to
cities (Box 3). The fact that Bendigo and Ballarat are rural centres not metropolitan
Melbourne has eased political concerns. Nonetheless, there is currently little or no
trading market for water in Australia’s urban areas.
Box 3 : Increasing Physical Integration of Water Supply and Markets
Current and future examples of such physical integration include :
 through the River Murray, Adelaide enjoys immediate connection with the irrigation systems of the
southern Murray-Darling Basin. SA Water has already purchased around 19 GL of water from dairy
irrigators in the Lower Murray swamps.
 the extension of Perth’s integrated water supply scheme to include the south-west dams, and thus to link
water resources originally developed for irrigation with water resources intended for the metropolitan
region. Efficiency savings gained by piping the south-west irrigation system are being traded by Harvey
Water to provide major supplements to the Perth system. Since Perth’s Integrated Water Supply Scheme
also supplies the Goldfields and Agricultural Water Supply scheme water from the south-west could
ultimately supply mines in the Kalgoorlie-Boulder area;
 the interlinking of water supplies in Central Queensland already allows Gladstone to purchase water
from the Fitzroy and for water to be traded across the Fitzroy-Burdekin watershed;
 with the potential to link water in Snow Hydro’s Tantangara storage to ACT storages and supply,
ACTEW Corporation has the potential to purchase water from Murrumbidgee and/or Murray irrigators
and secure Canberra’s future water supply. Such a trade would also entail the purchase of release rights
from Snowy Hydro;
 the increasing physical integration of the Melbourne system with the regions. Melbourne’s water supply
is already linked with irrigation via the Thompson Dam and Melbourne’s supply augments supplies to
regional water authorities such as Western Water. The Central Region Sustainable Water Strategy
proposes to supply water from purchased from Goulburn Valley irrigators to Bendigo and Ballarat via
extensive pipelines. Ballarat’s supplies are already linked to Geelong’s since both cities share water from
Lal Lal Reservoir. Potentially a pipeline linking Melbourne to Geelong would allow, through substitution,
water to be traded from Macallister irrigators to Ballarat and other areas served by Central Highlands
Water. There is also potential to link the 32 km gap between the Goulburn Valley storages and
Melbourne supply which would allow water to be traded between Macallister, Ballarat, Melbourne,
Goulburn Valley and ultimately the remainder of the southern Murray-Darling Basin.
These examples illustrate the progressive interlinking of catchments and water supply systems and the
increased potential for trade, particularly large trades from irrigators to cities.
Source: updated from MJA (2005)
FINAL REPORT, 22 November 2006
28
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Water recycling
73.
On average, Australian cities recycled around eight per cent of wastewater in
2004/05.33 The proportion of reuse is higher in many regional urban centres, where
alternative methods of wastewater disposal are often costly and where water can be
more economically transported for municipal or irrigation use. Thus, the much
higher level of recycling in regional cities is in large part explained by the smaller
volume of recycled water available, relative to the demand for recycled water from
horticulture and other irrigation in the local area.
74.
In contrast, the major cities have the potential to produce very large volumes of
recycled water but have relatively little irrigation activity within proximity of the
treatment plant. The high cost of pipelines to take recycled water to where it can be
used means that the economics of large-scale recycling are frequently adverse
compared with other sources of water. In addition, supplementing drinking water
supplies with recycled water requires the recycled water to spend time in an
environmental buffer such as a reservoir or river or aquifer. This is the reason
recycling is often an expensive option given the coastal location of our sources of
wastewater. Nonetheless, when compared with Europe, Australia has the third
highest volume of water recycled and, on a per capita basis, Australia is second
behind only Spain.34
75.
Several governments (Victoria, Western Australia, South Australia and the ACT)
have set recycling targets for their water organisations (Table 4).
76.
Note however that some State targets are best described as ‘aspirational’ rather than
firm as the economic feasibility of achieving these targets has not be evaluated.35
Therefore, relying on these targets as a proxy for the demand for recycled water may
overstate future levels of demand for recycled water.
77.
Nonetheless, several major proposed water recycling plants will increase the level of
water recycling in the capital cities significantly, including:

the Western Corridor Recycled Water Scheme in South East Queensland has
the potential to free up to 40 GL per annum of fresh water from the region’s
dams;

the Western Sydney Water Recycling Initiative will recycle 27 GL per year;
and

the Eastern Corridor Water Recycling Plant in Victoria could recycle up to
139 GL per year.
33
Weighted average of cities reported in WSAAfacts 2005.
34
WSAAfacts 2005, Durham, B. and Angelakis, A (2006)
35
It should be noted that targets can lead to inappropriate investment and undermine rational pricing of
recycled water.
FINAL REPORT, 22 November 2006
29
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Table 4: Recycled water use as a proportion of treated water
1996–97
State/Territory
NSW
Victoria
Queensland
South Australia
Western Australia
Tasmania
ACT
Northern
Territory
Australia
Proportion recycled (%)
2001–02
7.3
4.6
11.6
9.9
6.1
2.3
0.8
4.8
8.9
6.7
11.2
15.1
10.0
9.5
5.6
5.2
7.3
9.1
Capital cities
Sydney
Melbourne
Brisbane
Adelaide
Perth
Hobart
2.2
5.7
4.0
15.1
3.8
2004-05
Targets
20 (2012)a
b
30 (2025)c
20 (2012)d
e
20 (2013)f
-
2.8
11.6
5.0
20.7
3.6
12 (2011)g
Source: ATSE (2004) Water Recycling in Australia, p. 7, WSAAfacts 2005
Notes:
78.
a. DSE, Victoria.
b. The Queensland Government is currently preparing the SEQ Water Recycling Action Plan, which
will nominate targets and strategies for water recycling.
c. SA has also set a 24 per cent country target for 2005 (both targets are unlikely to be met)
(Government of SA 2004, p.17).
d. Regional WA already achieves 40 per cent reuse (Government of WA 2003, pp. 31–34).
e. Tasmania has transferred the onus for these targets to local government (DPI 2000, p12).
f. ACT Government 2004, p.4.
g. NSW is seeking to recycle 70 GL in Sydney by 2011. This would be equivalent to 12 per cent of
Sydney’s drinking water supply (Government of NSW 2005).
Water recycling may take a number of forms, each with substantially different costs,
quantities and value to the end user. The various forms include:

municipal parks, gardens and golf courses: for many regional communities,
municipal water recycling schemes represent the lowest cost method of
disposal. Municipal water recycling opportunities are proportionately less in
large cities, where substantial volumes of wastewater must be disposed of;

industrial reuse: commercial users may apply water in cooling, wash-down
or other industrial processes. In some cases, recycled water is treated through
reverse osmosis or similar processes to obtain a high quality water product.
The quantity that can be recycled is constrained by the number of industries
within a close proximity of a wastewater treatment plant that can make use of
recycled water in their processes;

agricultural reuse: substantial volumes of recycled water could be made
available for agricultural use. In many cases, the vast distances between the
wastewater treatment plant and the customer make the cost prohibitive;
FINAL REPORT, 22 November 2006
30
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
79.

third pipe residential: treated wastewater can potentially be used for nondrinking purposes such as garden watering and toilet flushing. Many third
pipe schemes are currently under way across Australia. The benefit of third
pipe schemes often hinges on the ability to reduce costs in other parts of the
water supply or wastewater system;

indirect potable reuse: water can be treated to an extremely high quality and
then returned into a river, surface- or ground-water supply for eventual reextraction and use in the potable water supply system.
The following table lists the known costs of recycling schemes around Australia:
Table 5: Cost of Recycled Water by Scheme
Location
Use of recycled water
Western Sydney Recycled Water
Initiative1
Environmental flow replacement,
residential and agriculture
Rouse Hill, NSW (existing)2
Residential
Melbourne Eastern STP
$5.80
$3.00-$4.00
3
>$3.00
4
Sydney Water Indirect Potable Reuse Indirect Potable
Olympic Park, NSW (existing)
2
Residential
Redcliffe City opportunities, QLD5
Springfield, QLD (existing)
SA opportunities
Cost estimate ($/kL)
2
6
$2.23-2.61
$1.60+
(operating costs only)
Irrigation and Residential
$2.50
Residential
$1.45
Industrial and municipal
$1.40
High quality industrial water7
Industrial
$0.85 - $1.40
Redcliffe City opportunities, QLD5
Irrigation
$0.80
Logan City opportunities, QLD5
Parks and gardens
$0.80
Agriculture
$0.45
Toowoomba opportunities, QLD
Some rural and regional towns
5
7
Golf Courses and Parks
Least cost disposal method
(i.e., <0)
Sources:
1. Institute for Sustainable Futures, ACILTasman and SMEC (2006). MJA understands that the component of
the initiative aimed at replacing environmental flows would cost significantly less as a standalone project.
2. Parliamentary Library (2005) “Issues encountered in advancing Australia’s water recycling schemes”
3. AWCRRP Seminar Presentation (2004) ‘The Big Picture’
4. Sydney Water, Indirect potable recycling and desalination - a cost comparison. Asset lives not provided in
fact sheet – range represents 25-100 year life, discounted at 6 per cent real pre-tax.
5. IPWEAQ Conference Paper (2003) “Integrated Urban Water Management and Water Recycling in SE
Queensland – Recent Developments”
6. SA Government “Waterproofing Adelaide Information Sheet: Large Scale Wastewater Reuse” (unit cost
derived based on 6% return and 50 year average asset life for treatment and pipes).
7. MJA Analysis
80.
In addition to cost, increasing the uptake of recycled water faces a number of
barriers:
The main barriers to re-use of water in Australia are issues of public
confidence, health, the environment, reliable treatment, storage, economics,
FINAL REPORT, 22 November 2006
31
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
the lack of relevant regulations, poor integration in water resource
management, and the lack of awareness.36.
81.
The Australian Academy of Technological Sciences and Engineering (ATSE) found:
The bottom line is that the Australian community is far more sensitive to very
small health risks that might flow from any hazards implicit in using recycled
water than they are to other, much higher probability risks over which they
perceive they have more personal control. [p. 140]
82.
This is highlighted by the negligible risk (10-6 to 10-7) of contracting viral disease
from eating vegetables irrigated with reclaimed water meeting WHO standards
(Shuval et al 1997, pp. 15-20)37 (Figure 15).
Figure 15: Comparative risk levels of reclaimed water and other events − (number of people likely
to experience various events over a year from each ten million Australians.
Having asthma
1,111,111
Being unemployed
769,231
Having diabetes
226,684
169,492
Premises burgled
Having your car stolen
68,493
60,947
Having a stroke
Contracting Hepatitis
15,299
Being robbed
11,889
Contracting Ross River Virus
1,628
926
Killed in a car accident
Dying of skin cancer
671
Accidently drowning
200
Being murdered
Killed in a plane accident
180
25.6
Struck by lightning
7.1
Contracting leprosy
1.6
Winning division 1 of X-Lotto
1.2
Virus from reclaimed water produce
1
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Increasing Risk
Source: ATSE 2004 p. 141
36
Dillon, P., 2002.
37
“A risk assessment approach was developed to arrive at a comparative risk analysis of the various
recommended wastewater irrigation microbial health guidelines for unrestricted irrigation of vegetables
normally eaten uncooked. The guidelines compared are those of the WHO and the USEPA/USAID. The
laboratory phase of the study determined the degree of contamination of vegetables irrigated by
wastewater. Based on these estimates of the risk of ingesting pathogens, it is possible to estimate the risk of
infection/disease based on the risk of infection and disease model developed for drinking water by Haas et
al. (1993). For example, the annual risk of infectious hepatitis from regularly eating vegetables irrigated
with raw wastewater is shown to be as high as 10 -3. The study indicates that the annual risk of
succumbing to a virus disease from regularly eating vegetables irrigated with effluent meeting WHO
guidelines (1,000 FC/100mL) is negligible and of the order of 10 -6 to 10-7.” [emphasis added]
FINAL REPORT, 22 November 2006
32
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
83.
Assurance to the public of the quality of the reclaimed water is, therefore, essential if
reclaimed water is to be widely used. MacDonald and Dyack (2004, p. 11) noted
that:
Overall acceptance of reuse has been shaped by:

trust in authorities and scientific information;

positive attitudes
stewardship; and

seeing that the decision making process is fair.
towards
the
environment
and
environmental
84.
Resistance on the part of the public has the potential to remove some water supply
options from consideration. Moreover, anticipation of public concerns sometimes
leads to likely controversial options being culled before options are put to the public.
This is particularly the case with recycling and potable re-injection. Strong and
timely leadership is required to determine which options should be pursued, and how
and when the community should be engaged, especially if the risks of inaction are
potentially catastrophic.
85.
Public trust is bolstered by having clear, widely adopted standards and guidelines. A
number of guidelines have been developed for non-potable recycling, however no
standards or guidelines have yet been established for indirect potable reuse.
Particularly for unconventional options such as indirect potable reuse, state or
national guidelines should be developed as a matter of priority.
FINAL REPORT, 22 November 2006
33
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Box 4: Indirect Potable Reuse
Indirect Potable Reuse (IPR) refers to the addition of purified recycled water to a waterway or aquifer
that feeds into a potable water supply. IPR is common for British and European cities located on
major rivers, with water on the Thames reported to be used eight times. Australian examples include
the discharge of around 30 gigalitres/year of high quality discharge from Canberra which
subsequently flows through the Murrumbidgee to the water supplies of Leeton and Griffith and the
Queensland town of Kingaroy where, in European style, the offtake for the town’s water supply is
located downstream of the town’s wastewater treatment plant. Most of these examples are not high
profile or highly publicised. Highly publicised IPR has been successfully implemented in Singapore
and the United States. IPR has been proposed for Toowoomba, Western Australia, Goulburn and
South East Queensland.
Toowoomba
The inland town of Toowoomba has been suffering serious water supply issues in recent years. As at
November 2006, Toowoomba dam storages were at 19.2 per cent and residents were at level 5 water
restrictions. 1
In June 2005, Toowoomba City Council submitted the ‘Water Futures Toowoomba’ funding proposal
to the National Water Commission. The initiative proposed Reverse Osmosis treatment of 6.5
gigalitres per year of recycled water from the Wetalla Water Reclamation Plant, injecting the majority
of the recycled water into Cooby Dam for indirect potable reuse. The proposal also envisaged
long-term community consultation over several years, and the Toowoomba Water Futures Advisory
Panel (TWFAP) was established for this end, involving key stakeholders, experts and community
leaders.
Some vocal community objection grew, and in August 2005 a public meeting was arranged to oppose
the project. Following questioning of the proposal by the local Federal Member, the Parliamentary
Secretary for Water , announced in March 2006 that federal funding for the project was conditional to
the holding of a referendum within six months.2 An independent technical assessment of water supply
options was required. In April 2006, the referendum date and question was decided by Council, and
the decision made to disband the TWFAP given the timeframe for referendum.
The independent technical assessment was undertaken by Parsons Brinckerhoff, and returned in July
2006. It also explored other options including importing groundwater (in exchange for Class A
recycled water for irrigation) and collecting and treating by-product water from coal gas seam
production. At an estimated cost of supply of $1.68 per kilolitre, IPR was found to be preferred on
cost and reliability.3
The referendum was put to residents on July 29th with the question ‘Do you support the addition
purified recycled water into Toowoomba's water supply via Cooby Dam as proposed in Water Futures
– Toowoomba?’. The referendum was rejected (61 per cent opposed the initiative). 4
Some proponents of IPR have criticised the nature and haste of a referendum, suggesting that
successful implementation of IPR will require government agencies and water providers to build trust
and confidence over time. This suggests that assessment of community acceptance should come at the
end of a long consultation process. Many residents perceived that they were being used as the ‘guinea
pigs’ of the nation and that they were not engaged on the full range of available options. Resentment
could also have stemmed from public funding of the ‘yes’ case only. Following the referendum, a
plan for future water supply has not yet been finalised, however supply from Brisbane’s Wivenhoe
dam may be an option (at a high cost), as well as likely permanent water restrictions.
South East Queensland
The Queensland Government, while supporting the Water Futures Toowoomba project subject to a
positive referendum decision, does not currently have a policy to use recycle water for indirect potable
use. Premier Beattie has stated “We would never use indirect recycled water unless the people voted
for it in a referendum in March 2008, and even then, even then we would only use it if there was an
Armageddon situation, that is, we had no other alternatives.”5 The Western Corridor Recycled Water
Project, the largest recycled water project in the southern hemisphere, notes this approach while
designing the project with the capacity and infrastructure to allow all options for the use of recycled
water to be considered.6
FINAL REPORT, 22 November 2006
34
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Western Australia
The Water Corporation also has a recycled water strategy which incorporates the option of indirect
potable consumption among a number of different alternatives. In 2003 the Water Corporation
commissioned independent and ongoing research into community acceptance of wastewater reuse by
CSIRO7. They have developed an eight-year forward plan, based on a model produced by the Water
Reuse Association around the experience of Orange County in the United States. 8
The WA approach involves a longer timeframe than Toowoomba, with 2015 as the estimated starting
point of possible indirect potable consumption. The strategy also involves detailed and early
community engagement on a suite of water source options (e.g. water trading, desalination, recycling)
and recycled water as a drinking water source via reverse osmosis managed aquifer recharge
(ROMAR). The Water Corporation will conduct a trial of ROMAR starting in 2008. The ROMAR
trial involves treatment at the Beenyup Wastewater Treatment Plant and injection of 5 ML/day into
the Leederville aquifer.
The broader plan for indirect potable reuse involves treatment of 150 ML/day (injection of 30-40
GL/year) from 2015. If the project proves successful, there is potential to deliver more than 70
GL/year of drinking water by recycling via ROMAR, using the whole of Perth current wastewater
discharge
The program has a focus on community acceptance and involvement at the front end of the process.
The Water Corporation has paid particular attention to keeping key stakeholders and regulators
briefed on developments in an effort to keep the community informed and engaged.
Goulburn
Goulburn is an inland town of 22,500 residents which, like Toowoomba, has been suffering serious
water supply shortages in recent years. Storages as at October 2006 were at 26 per cent 9, and for the
first time on record (147 years) the town received no rainfall for the month of October 2006.10 The
town has been on Level 5 water restrictions since October 2004, with all outdoor town water use
banned.
Goulburn Mulwaree Council is considering the option of indirect potable water recycling amongst a
number of options, and has received Federal Government funding for a consultation process involving
community and business surveys, stakeholder analysis and reference groups. Consultation is expected
to be completed by the end of December 2006, taking a period of several months. 11 If health and
regulatory requirements can be met, and the NSW Government provides one-third of the project costs,
the National Water Commission will consider a funding recommendation for the remainder of the
proposal.12
The indirect potable component involves treatment of wastewater then natural filtration through
wetlands upstream of the main water supply dam. The water would be blended with water in the dam
and treated again before being added to drinking water.
Notes
1 http://www.toowoombawater.com.au/water-supply.html accessed 10/11/2006.
2 http://www.malcolmturnbull.com.au/news/article.aspx?ID=405 accessed 10/11/06
3 Parsons Brinckerhoff, 2006. Future Water Supply Options for Toowoomba City and Customer
Shires
Pre-feasibility
Study.
Accessed
3/11/06.
From:
http://www.nrw.qld.gov.au/water/pdf/toowoomba/water_supply_options.pdf.
4 http://www.abc.net.au/news/newsitems/200607/s1700516.htm , accessed 8 November 2008.
5 http://www.abc.net.au/am/content/2006/s1701422.htm , accessed 10/11/2006
6 SEQWater, June 2006, Western Corridor Recycled Water Project update.
7 Po, M., Nancarrow, B.E., Leviston, Z., Porter, N.B., Syme, G.J. and Kaercher, J.D. (2005).
Predicting Community Behaviour in Relation to Wastewater Reuse : What drives decisions to
accept or reject ? CSIRO Land and Water : Perth.
8 All statements not otherwise referenced in this section, pers comm. Water Corporation 2006.
9 http://goulburn.local-e.nsw.gov.au/files/4509/File/StoragetableOct06.pdf accessed 09/11/2006
10 http://www.goulburn.nsw.gov.au/news/pages/4547.html accessed 09/11/2006
11 Goulburn Mulwaree Water Management Strategy, Goulburn Mulwaree Council
12 http://www.malcolmturnbull.com.au/news/article.aspx?ID=444 accessed 10/11/2006
FINAL REPORT, 22 November 2006
35
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Summary Perspective on Water Supply Options
86.
For Australia’s coastal cities, an extensive array of additional water supply and
demand management options are available which potentially allows diversification
of supply against climate variability and climate change. Supply options which are
not rainfall dependent obviously include seawater desalination, which with the
notable exception of Brisbane38, can potentially offer large scale supply immediately
and for coming decades. Greenhouse emissions from desalination are high and can
be offset directly or via trade of greenhouse credits as envisaged by the Kyoto
Protocol. In addition, careful attention is required to minimise impacts on the
marine environment. There are generally technical solutions and this is largely a
question of cost.
87.
For Australia’s major inland cities and towns, some of which are facing the most
severe drought in the country, recycled water and purchase of irrigation entitlements
may be among the few alternative water supplies available.
88.
Opportunities for substitution of non-potable water for potable water will arise in
power station cooling and in mining operations, although much of the ‘low hanging
fruit’, i.e. inexpensive, socially acceptable recycling opportunities, has already been
harvested, additional opportunistic, small-scale initiatives are being developed daily.
89.
Indirect potable reuse (IPR) – where purified recycled water is discharged into a
water body before being used in the potable water system – has successfully been
implemented in Europe, Singapore and the United States. In addition, returns to
rivers are currently observable in Australia on the Murrumbidgee, Kingaroy and
other inland towns located on river systems. The key issue is not whether the
science or the engineering are feasible, but the extent to which IPR will be accepted
by the public. Major new water recycling initiatives, due to long transportation
distances and/or the need for third pipe systems, are frequently comparable to, or
more expensive than, the cost of desalination.
90.
As emphasised by the National Water Commission in its July 2006 report to CoAG,
all feasible water supply options should be on the table for consideration. The
Wentworth Group of Concerned Scientists endorse a similar view, stating that there
is now a need to “accept that desalination, potable reuse, and recycling and urbanrural trade are all legitimate options for our coastal cities and often better options
than building new dams and damaging more coastal rivers.” 39
38
There are very few sites in the region suitable in terms of the access to power and water reticulation
network. Moreton Bay is a major constraint to the siting of desalination plants. Minimising environmental
impact requires siting them to the north or south of the Bay, further reducing the number of suitable sites.
39
Wentworth Group of Concerned Scientists, 2006.
FINAL REPORT, 22 November 2006
36
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
6.
91.
FINANCIAL CAPACITY
A key question is whether or not the water industry has the financial capacity to
undertake investment programs necessary to ensure demand supply balance without
reliance on inappropriate restrictions. Potential financial constraints to investment in
the water industry include the:

water utility’s ability to recover costs;

utility’s financial capacity; and

financial position of the respective State or Territory Government.
92.
Water utilities may withhold and/or delay investment if there is no mechanism to
recover costs from customers or if government funding is not available. New South
Wales and Victoria have economic regulators with the power to determine prices.
Other States have some form of economic regulation or oversight that can provide
advice to government on the appropriate level of prices. As noted earlier, while the
revenue generated to cover the cost of existing assets is typically well below
commercial levels, economic regulators recommend that revenue should be
sufficient to recover the efficient cost of all new investments, in full.40
93.
Water utilities can be constrained by a lack of available cash flow to support their
capital or operating programs. In particular, investment in water infrastructure can
be constrained when water utilities have competing demands for a fixed capital
budget. Table 6 illustrates the relative size of the water and wastewater programs (in
per capita terms41) over the past five years. The table highlights the:

comparatively large per capita expenditure on wastewater in Sydney, Brisbane
and Perth;

comparatively large per capita expenditure on water in Perth, Darwin and
Canberra; and

low overall per capita expenditure in Melbourne, Adelaide and Canberra.
40
In States other than New South Wales and Victoria, economic regulators provide advice but do not
determine prices. The State or local government sets water prices and therefore the total level of cost
recovery will depend on how closely the government accepts the regulator’s advice.
41
Expenditure from 2001-2005 divided by total population receiving water services in 2005.
FINAL REPORT, 22 November 2006
37
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Table 6: Water and Wastewater Capital Expenditure Per Capita 2001-2005
1,000
900
800
700
$ per person
600
500
400
300
200
100
0
Sydney
Melbourne
Brisbane
Adelaide
Wastewater
Perth
Darwin
Canberra
Water
Source: WSAAfacts 2005
94.
42
Other cash flow demands, including dividend, tax and interest payments, also have
the potential to constrain the cash flow available for investment in water
infrastructure. Figure 16 illustrates the average cash inflows and outflows of
Australia’s major water utilities over the past five years. The figure demonstrates
that the majority of expenditure has been directed at operations and capital
expenditure42, with significant interest costs for the Sydney and Melbourne
businesses. Dividend payments to the State Government represent a substantial
proportion of expenditure for the Melbourne water businesses and the Water
Corporation. Importantly, the Water Corporation in particular also receives a large,
almost offsetting payment from the State Government for providing Community
Service Obligations (CSOs).
Strictly speaking, the cash flows identified in the chart are expenditure on “Property, Plant and Equipment”
– in most cases, the result provides an approximate indication of the level of capital expenditure,
particularly when considered over a number of years.
FINAL REPORT, 22 November 2006
38
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Figure 16: Cash Outflows and Inflows of Major Water Utilities (annual average 2001-2005)
2,000
Dividends
Tax
Other
Interest
CSOs
1,800
CSOs
Customer Revenue
Dividends
Tax
Other
Interest costs
Capital Expenditure
Operations
1,600
$ million p.a.
1,200
Capex
1,400
Revenue
1,000
600
400
Operations
800
200
0
Outflow Inflow
Outflow Inflow
Outflow Inflow
Sydney
Consolidated
Melbourne
Consolidated
SA Water
Outflow Inflow
Water
Corporation
Outflow Inflow
ACTEW
Outflow Inflow
Power and
Water
Source: Annual Reports and Marsden Jacob analysis. Separate cash flow statements were not available for
Brisbane Water.
95.
The diagram above illustrates that dividend payments have, in some circumstances,
caused cash outflows to exceed cash inflows. However, it is not uncommon for cash
outflows to exceed cash inflows in businesses with extensive capital investment and
a growing customer base. Cash shortfalls are financed by increasing the business’s
net borrowing position. An appropriate indicator of investment constraint is
therefore the financial strength and borrowing ability of the business. When debt
levels are high compared with industry standards, the business may be required to
moderate or reduce borrowings and therefore choose between competing cash flow
options.
96.
The case studies presented throughout this paper demonstrate the strong financial
capacity of most major water businesses to finance major new capital expenditure.
(This strong, positive conclusion needs to be tested for council-owned water
businesses in Queensland and NSW.)
97.
Where water prices are subject to economic regulation, prices determined by the
regulator will aim to provide sufficient cashflow in the business to maintain financial
viability over time – typically defined as being consistent with maintaining a BBB
credit rating or better. All of the major water businesses currently have low levels of
debt and significant room to increase borrowings if required. Cashflow is therefore
not currently a major hindrance to water businesses, however many water businesses
with currently very low levels of debt are being required to debt fund increased
levels of expenditure in order to place their balance sheets on a more commercial
basis. As debt levels grow into the next decade and beyond, the ability of water
businesses to increase borrowings will diminish and, unless prices are increased,
cashflow may become a more critical constraint. On the other hand, the ability to
FINAL REPORT, 22 November 2006
39
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
increase levels of cost recovery, by possibly an average 33 per cent, would increase
borrowing capacity commensurably.
98.
The financial position of the water utility can affect the aggregate revenue and debt
levels of a State and thus, the State’s credit rating. Because of this, governments may
potentially request a change in dividend payments or constrain capital or operating
budgets to ensure that State financial targets are met. Figure 17 illustrates the
payments made from water utilities to the state (via dividends and tax payments) and
the payments that were returned to the water utilities as Community Service
Obligation payments. Water utilities receive CSO payments in recognition of
services that are undertaken at less than a commercial rate of return, such as
pensioner concessions. The Western Australian Water Corporation and SA Water
are also paid substantial CSOs to supply water and wastewater services below cost to
non-metropolitan areas.
99.
Dividend payments from the major water businesses typically range from 50 per
cent to 90 per cent of after-tax profit. This compares with an average dividend
payout rate of 60 per cent to 70 per cent for Australian private sector businesses.
Figure 17: Major Water Utilities – Payments To and From State Government
2004/05
800
Net Payment to State Govt 2004/05:
+102
+115
+145
+176
SA Water
Water Corporation
(WA)
-5
+86
600
$ million
400
200
0
-200
-400
Sydney
Consolidated
Melbourne
Consoliodated
CSOs
100.
Dividends
Power and Water
Corporation (NT)
ACTEW
Tax
In most cases, State Governments receive a net surplus from state-owned water
utilities. However, as demonstrated in Table 7, net returns to government from
water utilities are a relatively minor component of general government revenue. The
major exception is Brisbane Water, (not shown) which is wholly owned by Brisbane
City Council rather than the State Government. Brisbane Water does not record
water dividends as separately identifiable revenue in annual financial statements.
Brisbane Water’s revenue represents some 32 per cent of total council revenues.
FINAL REPORT, 22 November 2006
40
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Table 7 : Payments to Governments from Capital City Water Utilities (2004/05)
Returns to government ($m) (cash)
Dividends
Water utility
Sydney
Consolidated
Melbourne
Consolidated
SA Water
Water
Corporation
Power and
Water Corp
ACTEW
Notes:
Tax
less
CSOs1
Total
General
Government2
(GG) Revenue
($m)
Return to
Govt as a %
of GG
Revenue
133
48
-79
+102
41,364
0.2%
162
67
-50
+178
29,826
0.6%
165
83
-105
+143
10,592
1.3%
307
157
-288
+176
14,224
1.2%
-
5
-52
-47
2,713
-1.7%
32
14
0
+46
2,391
1.9%
1. Community Service Obligation payments from government represent payments to water utilities for
services that earn less than a commercial rate of return (e.g., pensioner concessions and some
country services).
2. General government refers to the revenues received by the State or Territory Government. It does
not include the revenues for commercialised public business enterprises owned by the government –
only their payments to “Treasury”.
101.
In contrast to dividend revenue, the net debt of water utilities often represents a large
share of total State or Territory net debt (Table 8) and therefore can have a
significant impact on government financial ratios, targets and therefore credit
ratings. For instance the net debt of Sydney Water and Sydney Catchment Authority
was $2.9 billion in 2004/05 – approximately 25 per cent of the net debt recorded for
the entire NSW public sector. As Brisbane Water is wholly owned by Brisbane City
Council, the net debt for Brisbane Water is even more significant, comprising
around 50 per cent of Brisbane City Council’s net debt.
Table 8 : Comparative Net Debt and Capital Expenditure (2004/05) – State and Water
Businesses
Net debt2
Water utilities
supplying:
Total Public Sector
($ billion)
Capital expenditure
Water Business
($ billion)
Total Public
Sector
($ million)
Water and
Wastewater
Expenditure
($ million)
Proportion
Sydney
11.7
2.9
6,598
510
8%
Melbourne
-11.7
2.4
3,087
395
13%
Adelaide
-0.6
1.3
839
57
7%
Perth
4.0
1.1
2,414
228
9%
Darwin
1.2
0.1
326
15
5%
Canberra
-1.6
0.2
277
57
21%
Notes: 1. Brisbane City Council net debt implied from annual report 2004/05.
2. Positive net debt represents an overall deficit position while negative net debt represents a surplus position.
Sources: WSAAfacts and ABS (2006) Government Financial Statistics 2004-05, Australia, (ABS Cat. No. 5512.0)
FINAL REPORT, 22 November 2006
41
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
102.
During the 1990s, State credit ratings were elevated to the status of a critical
performance indicator of financial probity and management. Today, all States and
Territories now seek to achieve and maintain a credit rating of at least ‘AA’ if not
‘AAA’.
103.
The effect of this target is to constrain the willingness of governments and their
treasury departments to allow substantial borrowings by government itself or its
major enterprises, including its water businesses.
104.
While the respective economic regulators typically suggest that a “BBB” status may
be appropriate for major water businesses and that a debt to regulated asset value
ratio of 60 per cent may be appropriate, these businesses are not, in fact, standalone.
Rather they are subsidiaries of government. As a result, regulator-preferred ratios
and ratings for a major enterprise may conflict with the higher objective of a ‘AA’ or
‘AAA’ rating for the State or Territory as a whole.
105.
This tension is illustrated by the following extract of comments by Standard and
Poor’s − in this particular case on New South Wales:
Some of the state’s efforts to reduce net financial liabilities over the past
five years are likely to be eroded due to weaker general government
finances and record spending by the state’s trading enterprises to fund
infrastructure.… Net financial liabilities is Standard & Poor’s preferred
measure of the state’s future financial obligations…43
106.
As a result, the apparent scope to increase borrowings may only be available if the
State were to reject the sanctity of ‘AAA’ status. This empirical question may
warrant further attention.
107.
Financial drivers are only one component of the government’s decision to endorse
capital expenditure for a water utility. In recent years, the political spotlight has
focused firmly on water issues and decisions regarding major water supply options
such as desalination and large-scale water recycling have typically been deferred to
the State Government.
108.
A preliminary review of the evidence suggests that the State Treasuries have, in the
past, acted to constrain investment in water infrastructure, but that these constraints
have been lifted once water supply investment has become a clear priority.
109.
In summary, on a standalone basis, virtually all water businesses supplying the
capital cities have significant financial capacity to fund both increased levels of
capital expenditure and the dividends to the State Governments. Most of the
businesses have paid dividends but have not increased capital expenditure
significantly and certainly not increased it to the levels required to have avoided the
current shortfall in supply. The strong balance sheets and ability to raise additional
revenue demonstrate that none of the major water businesses is under any immediate
cash constraint.
43
New South Wales Treasury Corporation, TCorp – Financial Markets – Ratings, Extract from Standard &
Poor's Service review of New South Wales, September 2005, www.tcorp.nsw.gov.au/html/fm_r.cfm
FINAL REPORT, 22 November 2006
42
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
110.
By contrast, many of the smaller regional and council-owned water businesses
operate under far tighter cash constraints. The funding capacity of small water
authorities and local governments is dependent upon the ability to increase prices.
These organisations would have to increase prices significantly to pay for major new
water supply investments. This raises serious questions about affordability,
particularly in those areas already affected by the drought and in regional towns a
high proportion of pensioners and other concessions cardholders.
FINAL REPORT, 22 November 2006
43
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
7. PRICING AND COST RECOVERY
111.
There is a widespread concern that water is inappropriately priced leading to excess
consumption and unwarranted adverse externalities, particularly affecting the
environment. Examination of this concern in an urban context requires first a
consideration of the cost of supplying water to urban centres and levels of cost
recovery and second the structure of the tariff (i.e., the apportionment of revenue
between fixed administrative charges and volumetric charges and the impact and
interaction of the multiple subsidy, grant and concession arrangements).
Costs of water supply
112.
There are a number of different concepts of cost. The choice of costs to include in
any cost calculation differs according to the purpose of the question asked. For the
purposes of evaluating supply-demand options, the most important question relates
to the costs of supply looking forward. For established urban centres, a very large
part of the cost of dams, treatment plants and other infrastructure involved in water
supply, such as pipes, is a sunk cost. Two relevant questions (and cost measures) are
therefore:

ignoring sunk costs, what are forward cash costs of incremental additions to
water supplies in each city? This is the concept of Long Run Marginal Cost
(LRMC); and

what should be the full or total cost of water supply in each city if we had to
replace or replicate the entire system, for instance in the hypothetical situation
where a new entrant sought to challenge the existing incumbent. This is the
concept of efficient cost, sometimes called the by-pass price.
Both measures are now widely applied by economic regulators.
113.
The efficient cost is the aggregate of the return on, and return of, the (efficient)
capital base plus operating expenses. This cost definition is applied to set regulated
maximum prices for monopoly services in other utility services such as
telecommunications. In terms of the CoAG Water Pricing Principles this is the
concept of upper bound pricing (see Principle 4 in NCC 1998, p.112-113).
114.
Marsden Jacob has applied the concept of efficient replacement cost (or by-pass
price) consistently to each of the eight capital cities. The resulting estimates (shown
in Table 3) are based on a uniform six per cent rate of return.44
44
Several recent determinations by economic regulators indicate the appropriate real pre-tax rate of return for
regulated water industry businesses: the ERA (WA) has recommended 5.6 per cent; IPART (NSW) has
recommended 5.7 per cent – 7.1 per cent; the ESC (Victoria) has recommended elements that total to 5.8 per
cent real pre-tax; and, for the Gladstone Area Water Board, the Queensland Competition Authority has
recommended elements that total to 6.2 per cent real pre tax. For this exercise, we have applied a standard 6
per cent rate of return.
FINAL REPORT, 22 November 2006
44
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
115.
To facilitate the comparison of cost levels these costs estimates can be expressed on
a per property or per kilolitre basis (Table 9).
Table 9 : Estimated Full Cost of Water Supply to Major Australian Cities
City
Full annualised cost
($ million)
Cost per property per
annum ($)
Levelised Cost (cost per
kilolitre - $/kL)
Sydney
775
460
1.47
Melbourne
633
413
1.47
Brisbane(a)
219
522
0.86
Adelaide
255
517
1.54
Perth
360
554
1.59
Hobart(b)
26
312
0.63
Darwin
37
863
1.06
Canberra
82
601
1.56
Notes:(a)
Includes bulk water purchases from SEQWater
(b) Costs for Hobart exclude the retail costs associated with the councils that Hobart Water supplies.
Sources:
116.
WSAAfacts 2005 and Marsden Jacob analysis
The table demonstrates that:

a city with high water usage, such as Darwin, may appear expensive on a per
property basis, but is among the lowest cost service providers on a volumetric
(per kilolitre) basis. However, Hobart is the lowest cost supply regardless of
how measured;

in terms of costs per kilolitre, five of the eight cities lie in the tight range of
$1.47 to $1.59/kL; and

for these five cities the levels of average costs for water are broadly similar to
the estimates of LRMC shown in Table 11 below.
Cost recovery
117.
The cost of supplying water is distinct from the price at which the water utility sells
water to the customer. Currently, all of Australia’s major urban water businesses are
charging enough to cover their minimum cashflow requirements (including debt and
interest repayments), however none of the businesses are charging sufficiently high
prices to earn a commercial return on existing (sunk) assets.
118.
The fact that prices do not provide a commercial return on assets may appear
contrary to the aim of encouraging investment in the water industry. However,
Australian economic regulators argue that prices need only be sufficient to recover
future expenditure to encourage investment in the industry. Water utilities, which
have historically received very low returns on investment, need not be compensated
FINAL REPORT, 22 November 2006
45
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
for past investments to the same extent that they are compensated for new
investments. To avoid sharp rises in water prices when pricing reforms were
introduced, regulators have drawn a “line in the sand” and required past investments
to be written down substantially for regulatory purposes. 45
119.
While Australian water regulators adopt similar terminology as they do for
electricity, gas and telecommunications, the differences in approach are substantial.
The regulatory asset value of water businesses is typically well below the efficient
replacement cost of infrastructure. In contrast, the regulatory asset value for setting
regulated prices for other utility sectors is set precisely at the level of efficient
replacement cost. An example is the case of, say, gas pipelines, monopoly
telecommunications services or airports.46
120.
As a result, the level of water prices/revenue approved by economic regulators is
below the maximum level consistent with a competitive market. It follows that the
level of water prices is below the counterpart level that would be determined using
the replacement cost approach applying to telecommunication services such as
access to the “last half mile of the copper system” or to electricity and gas
transmission pipelines.47, 48
121.
Table 10 compares the estimate of the full cost of supplying water services to each
capital city with the current (regulated) level of revenue. The difference between the
full cost of water supply and current revenue levels is shown in the final column.
This indicates that perhaps as much as $600 million a year in additional revenue
could be generated if water prices were increased to cover full cost if full cost were
defined in the same manner as occurs in other utility sectors.49 This estimate of
almost $600 million per annum is a maximum, and the actual level may be lower
since the publicly available information does not indicate the extent to which the
infrastructure costs have been optimised.
45
For discussion see, MJA, 2003.
46
See for example, the ACCC’s approach to Sydney Airports Corporation Limited’s proposal to increase its
regulated prices. The approach (in this case focussing on land values) is discussed in ACCC, 2001.
47
See ACCC (2003), particularly Chapter 5 and ACCC (1997).
48
See ACCC (2004). These principles for electricity revenues are applied where appropriate in the gas
transmission sector.
49
Relevant assumptions here include a 6 per cent return on the depreciated replacement value of assets. This is
assuming that there would have been no demand-side reductions in consumption due to price increases in
response to full cost pricing.
FINAL REPORT, 22 November 2006
46
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Table 10: Indicative Full Cost Degree of Cost Recovery, Australian Capital Cities, 2005
Indicative
full cost
($m)
City :
Current total
water
revenue
($m)
Current
degree of full
cost recovery
Price
increase for
100%
recovery
‘Extra’
revenue
($m)
Sydney
775
587
76%
32%
188
Melbourne
633
431
68%
48%
202
Brisbane
219
184
84%
19%
35
Adelaide
255
209
82%
22%
46
Perth
360
266
74%
34%
94
3
Hobart
26
23
89%
13%
Darwin
37
30
80%
25%
7
Canberra
82
66
80%
25%
16
2,387
1,796
75%
Total
33%
591
Source : MJA analysis based on WSAAfacts 2005
122.
Comparison of current revenue levels with the indicative full cost estimates suggests
that if full cost were to be defined in the same manner as in other utility sectors, then
the level of cost recovery is only 75 per cent. Across the capital cities, the level of
cost recovery is estimated to range from a low of 68 per cent for Melbourne, to a
high of almost 89 per cent for Hobart.
123.
Should the definition of full costs applied to water continue to differ from the
definition applied to other utility sectors?
124.
The indicative analysis also estimates the additional revenue that would be generated
if prices were increased to recover the full cost of supply. As already noted, the
reason that the estimated full cost revenue exceeds the actual or current (regulated)
level is that the regulatory asset values have, in the past, been uniformly set at a
discount to the efficient replacement cost in order to keep water prices low or at least
to prevent sharp rises.
125.
While the indicated magnitudes for additional revenue from this preliminary analysis
cannot be regarded as precise, they appear to be material. These are regulatory
issues which need to be examined systematically by a national regulator, i.e., the
NCC or the ACCC.
Tariff structures
126.
There is a popular concern that water is priced too cheaply and in particular that the
volumetric usage charge is too low. A separate issue is that there are too many
consumers of water that do not receive a strong price signal:
127.
Economic efficiency is served when the marginal cost of supply is equal to the price.
Volumetric charges should therefore reflect what is termed the Long Run Marginal
Cost (LRMC) of providing new water sources. LRMC represents the actual cost of
augmenting the water supply system to cater for growing demand, but excludes the
FINAL REPORT, 22 November 2006
47
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
sunk cost of existing assets. In order to send a signal about the cost of new water
supplies, the water industry in Australia and elsewhere in the world have adopted
two-part tariffs, in which the volumetric charges reflect the long-run marginal cost of
supply and the separate service charge (usually fixed) recovers all remaining
administrative and sunk asset costs.
128.
In accordance with the 1994 CoAG Agreement on Water Reform, recent regulatory
decisions regarding the volumetric charge indicate that most major water businesses
either have, or are moving toward, a volumetric charge in line with the long-run
marginal cost of supply. However:

most regulators and water businesses have not defined the incremental cost of
supply adequately. It appears that only Sydney, Melbourne and Perth have well
developed, publicly available estimates of the incremental cost of supply. Both
NSW and Victorian regulators have indicated that the estimates need further
refinement;

no systematic review of the environmental costs has been made as part of any
price inquiry in Australia. Without such a review, any price increase to
accommodate environmental costs will be arbitrary at best. If choices on the
tradeoff between the environment and consumptive use are  consistent with the
NWI  already made and recorded in the statutory water plan, then should there
be a separate environmental levy? and

efficient water pricing requires efficient tariff structures. The desire to
strengthen the price signal in order to promote water conservation by pricing
above incremental cost conflicts with the need for pricing to ensure that
innovation, investment and potentially competition are efficiently promoted.
The logic and impacts of existing multiple part tariffs need to be fundamentally
considered.
129.
In addition, many regulators have promoted the use of tiered tariffs (i.e., a unit
charge that increases with water use) to further encourage water conservation.
Although popular, the logic and rationale for a second step that is higher than the
LRMC is not well developed. Typically, the second step represents an arbitrary
multiple of the first step. One exception is the Western Australian Economic
Regulatory Authority, which has recommended setting a first price step at a
conservative estimate of the LRMC and that the second step is set at the higher level
given by a more aggressive climate change scenario (the ERA has recommended
transition to this arrangement over a number of years).50
130.
For several capital cities, the marginal price paid for additional volumes of water
consumed appears to be substantially above the calculated or likely LRMC (Table
11). These anomalies suggest that it is timely to re-evaluate the practical meaning
and implications of “efficient water pricing”.
50
This approach can continue with government-owned monopolies running water but with third party access,
it is likely to create a raft of difficulties. A higher volumetric charge than LRMC could also lead to
under-consumption of water compared with potential investment options.
FINAL REPORT, 22 November 2006
48
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Table 11: Major Water Utilities – Long Run Marginal Cost and Price
City
Estimated LRMC
($/kL)
Sydney
1.20-1.50 2
Perth
0.82-1.20 3
Adelaide
Approx
1.09
Melbourne –
0.50-0.54
0.74
City West
Notes: 1.
2.
3.
4.
5.
6.
131.
51
2006/07
Volumetric Price
($/kL)1
<1.096 kL/day
1.264
>1.096 kL/day
1.634
0-150 kL
0.493
151-350 kL
0.732
351-550 kL
0.950
551-950 kL
1.268
>950 kL
1.588
<125 kL
0.470
>125 kL
1.090
4
Yarra Valley
Melbourne –
Water Usage
6
5
0-440 l/day
0.8184
440-880 l/day
0.9601
>880 l/day
1.4185
0-440 l/day
0.8205
440-880 l/day
0.9628
>880 l/day
1.4223
Applies to full fee paying customers only. Discounts of around 30% are
available to Concession Card holders.
IPART (2005) Sydney Water Corporation, Hunter Water Corporation, Sydney
Catchment Authority - Prices of Water Supply, Wastewater and Stormwater
Services
Economic Regulation Authority (2005), Final Report on the Inquiry on Urban
Water and Wastewater Pricing
“[The] second tier water price reflects current estimates of LRMC”: ESCoSA,
Transparency Statement Water and Wastewater Prices In Metropolitan And
Regional South Australia 2006-07, p.32
Yarra Valley Water, Water Plan $0.02 transport opex, $0.33 LRMC, plus
Melbourne Water LRMC for supplying Yarra Valley $0.15-$0.19
City West Water Plan 2005-06 to 2007-08. It is unknown if this estimate
incorporates Melbourne Water’s estimate of LRMC.
Assuming that volumetric charges are already set at the level of the estimated
LRMC, the under-recovery of total costs (estimated above at up to $600 million per
annum) therefore in principle affects the level of the separate service charge only. 51
At the level of principle, it does not require that the volumetric usage charge is
increased.
It is typically claimed that the fixed element of the water bill has little impact on economic efficiency. The
volumetric charge influences the level of consumption from year to year, but the annual fixed charge has
relatively little influence on any consumer behaviour. In theory, the fixed water charge may influence
decisions regarding the construction of new homes, however in practice the water charge represents a
relatively small cost compared with the other costs of construction and ownership.
FINAL REPORT, 22 November 2006
49
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
132.
In addition, many water users are not charged the full volumetric charge:

around 30 per cent of Australians in some states rent their accommodation52
and do not receive water bills which are sent instead to their landlords. This
practice appears widespread and is a legislative requirement in Victoria and
WA. It means that renters do not know their water bill. There is a view that
reform of residential tenancy acts is required; and

all Australian states offer some form of discount to concession cardholders on
water and energy bills. As an example, in Victoria, around 30 per cent of all
water accounts can receive a discount of up to $154 on total water and
sewerage charges with a uniform discount applying to each element of the
water bill (excluding the parks and drainage levy). That is, in at least the case
of Victoria, the discount applies to both the fixed administrative charge and
importantly the volumetric charge.
Is this the most efficient way of providing assistance to persons holding
concession cards? Alternatively, a greater discount could be provided on the
fixed administration charge and all subsidies on the volumetric charge could
be removed; and

133.
134.
in some cases, such as Adelaide, Perth and Canberra, water users pay a
significantly lower price for low volumes of water use. Pricing signals could
be strengthened if all water use was charged at the true cost and the fixed
charge was reduced accordingly to compensate.
At the same time, governments at all levels, intervene heavily to reduce the cost of
water to final consumers. For instance:

the Queensland Government makes a 40 per cent contribution to the capital
costs of the infrastructure of council water businesses;

the Victorian Government makes periodic contributions to major water
projects benefiting Melbourne’s water users.
For water users in
non-metropolitan urban centres such as, say, Bendigo, the State Government
has recently announced a $30 million53 subsidy payment; and

the Australian Government has earmarked $1.6 billion over the five years to
2010 for funding of water projects under the Water Smart Australia
programme. Administered by the National Water Commission, the fund
targets “big ticket” projects to provide quantum changes in water management
and “aims to accelerate the development and uptake of smart technologies and
practices in water use across Australia”.
A first question is: what are the levels and distribution of subsidies and grants from
the State and Commonwealth budgets to the water businesses and their customers?
A second question is: is the current approach of subsidising investments in water
infrastructure benign, or is it distorted by sending inefficient price signals to the
water businesses and water users? The answer is an empirical matter depending on
52
ABS Household Expenditure Survey 2003-04 ABS Cat No. 6530.0, p. 11
53
Department of Primary Industries, 2006, p. 3.
FINAL REPORT, 22 November 2006
50
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
whether or not the subsidies affect incremental charges, i.e. the usage/volumetric
charge and the developer charges.
FINAL REPORT, 22 November 2006
51
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
8. MARKET AND INSTITUTIONAL
ARRANGEMENTS
135.
A major thrust of the National Water Initiative (NWI) is to establish firm
entitlements to water backed by statutory water management plans and robust
registers to facilitate trade in entitlements and allocations. This direction is firmly
focussed on the bulk water systems and entitlements held by irrigators and other
major users. However, this direction is not generally not applied to date in the major
urban centres. Should it be? Are there net advantages in residential customers being
assigned water entitlements? In a different direction, what lessons are available
from the success or otherwise of retail contestability in electricity?54
136.
Victoria will assign bulk entitlements to the three Melbourne retailers and the larger
water users. South-east Queensland is moving to pool its water sources. Both these
initiatives raise the question of how the interlinking and pooling of water sources
should be managed. Does this pooling require the introduction of market
mechanisms to determine the ‘call order’ of supplies and pool prices (as in electricity
markets), or can this best be handled via the administrative decisions of a system
operator?
137.
Given the fundamental importance of water supply planning in the face of climate
uncertainty, do market-based approaches offer any net advantages at all?
138.
In addition to water supply considerations, the industry is subject to growing
economic challenges in the face of price regulation and the gradual opening of the
market to competition for customers. Recent applications by Services Sydney in
New South Wales and United Utilities in Western Australia demonstrate private
sector interest in large-scale water supply management and direct competition for
customers. Such interest needs to be able to be incorporated within the planning
process for a region’s water supplies. A key conclusion from a recent paper
prepared by Marsden Jacob on third party access stated:
Perhaps the most important question however relates to how to
reconcile third party access with water resource planning and the
demands of Australian communities for governments to be accountable
for ensuring that water is not only safe for public health, but also
reliable and secure. Consistent with the IPART recommendations, the
planning process should be made to be transparent. In particular, the
schedule of intended source developments for major authorities should
be posted to establish the benchmarks in terms of costs and timing that
would need to be bettered by any private entrant.55
139.
Private entry should not occur unless the prospective entrants can better the cost and
reliability benchmarks of the public sector incumbent. Prospective entrants need to
know the benchmarks they need to beat. If large-scale competition for customers is
54
A key point is that transaction costs are likely to be too high to give al households an entitlement. However,
the proposal may be worthwhile for some large urban users.
55
Marsden Jacob Associates (2005), p. 92
52
FINAL REPORT, 22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
to proceed then an independent and robust framework and process for water supply
planning is required to set the benchmarks that would need to be bettered by
potential private entrants.56 In this direction, Queensland has formally separated the
planning function from the incumbent suppliers and from the policy department. In
the counter direction, Victoria emphasises the strong synergies from having water
supply planning being undertaken by the department and the incumbent supplier.
140.
The economic reforms of the 1990s saw many water businesses corporatised or
commercialised and, to level the competitive playing field, saw the introduction of
tax equivalent regimes and dividend payments. To ensure that the water utilities
with their strengthened commercial focus recognise environmental, health and other
public policy objectives, they are subject to licensing and other forms of regulation.
In addition, every State or Territory has an economic regulator that provides advice,
arbitration or direction on water pricing and other financial issues.
141.
Major urban water businesses are typically state-owned or government-owned
corporations operating under corporate law. As at October 2006, the supply and
delivery of water to Australia’s major urban centres remains, for the most part,
wholly owned by the State or Territory government. The exceptions are
Queensland, Tasmania and some regional centres in NSW, where the water
businesses are owned by local government. Currently, there is little or no
competition for customers in the water sector.
142.
In the case of water businesses owned by local governments and government-owned
businesses in regional urban centres in Victoria, the legal form is typically a
commercialised division or arm of a government department or the council.
Similarly, there is generally little or no competition for the right to supply a
particular market, although innovative proposals such as AGL’s proposal to
distribute recycled water in Sydney via a refitted network of gas pipes may provide
some exception.57
143.
The main avenue for private involvement and competition in the urban water sector
is in competition for supplies, i.e., in competitive procurement and contracting out of
key functions and activities. See Box 5.
56
See Marsden Jacob Associates (2005).
57
‘Cheaper water - the simple solution at hand’, Sydney Morning Herald, 20 January 2006. Available at
http://www.smh.com.au
53
FINAL REPORT, 22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Box 5 : Private Involvement in Urban Water Sector





Sydney Water has the Prospect Water Treatment Plant and two similar plants under
public-private partnership (PPP) arrangements. Moreover, prior to 23 November 2005, the
NSW Government had indicated that the foreshadowed desalination plant would also be a
PPP arrangement.
Melbourne retailers similarly retain the management function and ownership of assets, but
contract out most other functions. South East Water, for example, contracts out operating and
maintenance; civil, mechanical and electrical engineering; some design and project
management; and meter reading. Customer service functions, including billing, have been
retained internally, however bill production is outsourced.
Water Corporation (WA) has retained operations and maintenance functions in the country,
but in Perth has contracted these via alliances with the private sector. Design and construction
of the capital program is largely outsourced as is the contract for meter reading. Planning,
project management and the customer service functions have generally been retained inhouse.
SA Water and ACTEW Corporation (ACT) have both entered into comprehensive
long-term contracts with the private sector for the management, operations and capital
programs of their respective cities.
Power & Water Corporation (PAWC) in the Northern Territory reports that 100 per cent of
the design, project management and construction activity in their capital expenditure program
is undertaken by the private sector. Around 80 per cent of PAWC’s maintenance and repairs
are similarly undertaken by the private sector. A stakeholder stated:
In Power and Water Corporation, around 75% of utility costs are private sector driven.
Capital projects are designed, project managed and constructed by the private sector, in
addition to around 80% of maintenance and repair work. Operations, front line emergency
response and billing have been retained in-house.
Functions undertaken by PAWC itself internally include governance and oversight, planning
and strategy, frontline emergency, retail interface and billing.

Outside the metropolitan areas, the smaller municipality owned water businesses in NSW and
Queensland to date appear to have made less use of contracting out than their generally larger
Victorian counterparts. Nonetheless, there are important Design Build Operate arrangements
either in place or in train for Wagga Wagga and Bega and at least seven similar arrangements
in Queensland regional centres.
Source: MJA 2005
144.
The location and responsibility for urban water supply planning varies across
Australia. For example:

for SEQ, prior to 2006 each of the 18 or so local government owned water
businesses was responsible for ensuring its own water supplies. SEQWater had
been formed by Brisbane City Council, a number of smaller councils and the
Queensland Government to manage some of the major sources. Nonetheless, at
the beginning of 2006 the 19 major water sources were shared among 12
different owners. There was no adequate mechanism for integrated planning of
water supplies and little capacity for water supply planning within many of the
council-owned businesses. Progressively during 2005 the Department of Natural
Resources and Water assumed an increasing role and in mid-2006 the
Queensland Government established the Queensland Water Commission with
the explicit responsibility for water supply planning and the development of
common policies, including on restrictions;

for Sydney, the location and responsibility for water supply planning has shifted
from Sydney Water at the time of the first Metropolitan Water Plan to the
departments. Currently, water supply planning for Sydney is coordinated by the
54
FINAL REPORT, 22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Metropolitan Water Directorate located within the Department of Premier and
Cabinet;

for Melbourne and other parts of the central region, water supply planning has
been led by the Minister and the Department, with close collaboration and
support from the regional urban water authorities. A team of six to eight
professionals within the Department spearheaded this planning initiative, but
there is a strong emphasis on ensuring that involvement, collaboration and skill
capacity is maintained within the regional urban water authorities; and

for Perth, the responsibility for water supply planning has to date been centred in
the Water Corporation, although the Department of Premier and Cabinet during
2004-06 played a major role in developing high level state water strategies and
policies.
The recently released draft State Water ‘Plan’ provides the policy and planning
framework for Western Australia  it is not a Water Supply Plan, nor a statutory
water management plan as envisaged by the NWI.
— || —
55
FINAL REPORT, 22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
BIBLIOGRAPHY
ACCC, 1997. Access Pricing Principles — A Guide – Telecommunications
ACCC, 2001, “Valuing land for regulatory purposes” Network, a publication of the Utility
Regulators Forum, Vol 7, June.
ACCC, 2003. Final Determination for model price terms and conditions of the PSTN, ULLS
and LCS services, October
ACCC, 2004. Statement of principles for the regulation of electricity transmission revenues
– Decision, 8 December
Arblaster, J., and Meehl, G., 2006, “Contributions of External Forcings to Southern Annular
Mode Trends”, Journal of Climate 19(12): 2896.
Australian Academy of Technological Sciences and Engineering
Recycling in Australia, May
(ATSE) 2004 Water
Bates, B and Thomas, J. (2003) "Responses to the variability and increasing uncertainty of
climate in Australia" in Risk, reliability, uncertainty, and robustness of water resources
systems, ed. Janos J. Bogardi, Zbigniew W. Kundzewicz. Cambridge University Press,
(International hydrology series)
BRANZ, 2006. An assessment of the need to adapt buildings for the unavoidable
consequences of climate change. Building Research Australia and New Zealand Report
EC0893
Business Council of Australia, 2006, Water Under Pressure: Australia’s man-made water
scarcity and how to fix it
Charles, S., Bates, B., and Viney, N., 2003, Linking atmospheric circulation to daily rainfall
patterns across the Murrumbidgee River Basin. Water Science and Technology, 48 (7):
pp. 233-240
Bates, B., Charles, S., Kirby, M., Suppiah, R., Viney, N. and Whetton, P., 2003, Climate
Change Projections for the Australian Capital Territory, paper for ACTEW
CSIRO, 2004, Climate Change in NSW – Part 1: Past climate variability and projected
changes in average climate, Report for NSW Greenhouse Office, July
Department of Premier and Cabinet (WA), 2006, Options for bringing water to Perth from
the Kimberley An Independent Review,
Department of Primary Industries (Vic), 2006, Dry Seasonal Conditions in Rural Victoria,
Report No. 56, 8 June
Dillon, P. 2002 “Call for national bid to save water”, CSIRO Media Release - Ref 2002/129 Jul 18, at http://www.csiro.au/files/mediaRelease/mr2002/waterbid.htm
56
FINAL REPORT, 22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Durham, D. and A. N. Angelakis, A. N., 2005. Wastewater Reclamation and Reuse in
Eureau Countries: Trends and Challenges. In: 1st International Conference on
Sustainable Urban Wastewater Treatment ant Reuse, Nicosia, Cyprus, 15 and 16/09/05
Engineers Australia, 2006, Water and Australian Cities: Review of Urban Water Reform
Gallant, A., Hennessy, K. and Risbey, J. 2006. A re-examination of trends in rainfall indices
for six Australian regions, Australian Meteorological Magazine (submitted).
Hartmann, D., Wallace, J., Limpasuvan, V., Thompson, D. and Holton, J., 2003, Can ozone
depletion and global warming interact to produce rapid climate change. Proc. Nat. Acad.
Sci. USA, 97(4):1412-1417.
Houghton, J. T., Ding, Y., Griggs, D.J., Noguer, M., van der Linden, P.J., Dai, X., Maskell,
K. and Johnson, C.A., (eds.) 2001. Climate Change 2001: The Scientific Basis.
Cambridge University Press, Cambridge, UK. 572pp.
Houghton, J.T. et al., (eds.) 1996. Climate Change 1995: The Science of Climate Change.
Cambridge University Press, Cambridge, UK. 365pp.
Independent Expert Panel on Environmental Flows for the Hawkesbury Nepean, Shoalhaven
and Woronora Catchments (Independent Panel) (2002) Determination of a Working
Environmental Flows Regime – Summary of Expert Panel’s Advice, HawkesburyNepean River Management Forum
Indian Ocean Climate Initiative (IOCI), 2002. Climate variability and change in south west
Western Australia, Department of Environment, Water and Catchment Protection, Perth.
Institute for Sustainable Futures, ACILTasman and SMEC (2006), Review of the
Metropolitan Water Plan: Final Repor, April
Karoly, D., 2001, Ozone and climate change. Science, 302:236-237.
Karoly, D.J., and Braganza, K. 2005. Attribution of recent temperature changes in the
Australian region. J. Climate, 18(3), 457-464.
MacDonald, Darla Hatton and Dyack, Brenda 2004 Exploring the Institutional Impediments
to Conservation and Water Reuse - National Issues, Policy and Economic Research
Unit, report for the Australian Water Conservation and Reuse Research Program, March
Marsden Jacob Associates, 2003a, ACT Water Resource Planning Model – Preliminary
Checklist. paper prepared for ACTEW, May
Marsden Jacob Associates, 2003b, Preliminary Assessment of Future Bulk Supply Options.
paper prepared for ACTEW, June
Marsden Jacob Associates, 2003c, Acquisition and Purchase of Water for the ACT, paper
prepared for ACTEW, June
Marsden Jacob Associates 2003d Aspects of CoAG Water Pricing, advice prepared for the
QCA see www.qca.gov.au
57
FINAL REPORT, 22 November 2006
Department of the Prime Minister and Cabinet
Securing Australia’s Urban Water Supplies: Opportunities and Impediments
Marsden Jacob Associates, 2005. Third Party Access in Water and Sewerage Infrastructure :
Implications for Australia, paper prepared for the Department of Agriculture, Fisheries
and Forestry, 22 December.
Marsden Jacob Associates, 2006, Identification of Economic Values Associated with
Groundwater Use in the Gnangara Mound, report prepared for the WA Department of
Water
Marsden Jacob Associates 2006a, Economic Cost of Water Restrictions in South East
Queensland, paper prepared for the Queensland Department of National Resources and
Water, October
Marsden Jacob Associates and Broadleaf Capital International, 2006. Climate Change
Impacts & Risk Management : A Guide for Business and Government, Department of
Environment and Heritage, Australian Greenhouse Office, Canberra
National Competition Council, 1998. Compendium of National Competition Policy
Agreements.
National Water Commission, Australia’s Water Supply Status and Seasonal Outlook,
October 2006
National Water Commission, Progress On The National Water Initiative: A Report To The
Council Of Australian Governments, June 2006
Nicholls, N. 2004. The changing nature of Australian droughts, Climatic Change, 63, 323336.
Roseth, N. 2006, Community Views on Water Shortages and Conservation, The Cooperative
Research Centre for Water Quality and Treatment, Research Report 28.
Risbey, J.S., Hamza, K. and Marsden, J., 2006: ‘Use of climate scenarios to aid in decision
analysis for interannual water supply planning’, Water Resources Management.
Shuval H.; Lampert Y.; Fattal B. 1997 “Development of a risk assessment approach for
evaluating wastewater reuse standards for agriculture “, Water Science and Technology,
Volume 35, Number 11, pp. 15-20(6)
Thompson, D. and Solomon, S., 2002, Interpretation of recent southern hemisphere climate
change. Science, 296:895-899.
Water Corporation (2005) Integrated Water Supply Scheme: Source Development Plan,
Planning Horizon 2005-2050, April.
Water Services Association of Australia, 2006, WSAAfacts 2005
Wentworth Group of Concerned Scientists, 2006, Australia’s Climate is Changing Australia,
The State of Australia’s Water, November
Werner, L. and Pickering, P. (2002), Cost Reflective Pricing Study, WSAA Occasional Paper
No. 7
58
FINAL REPORT, 22 November 2006