Replacing fixed water conservation targets with a flexible methodology might be more effective and could deliver a range of benefits, a Sydney Water economist has found.
The utility developed an Economic Level of Water Conservation (ELWC) methodology following a proposal from the Independent Pricing and Regulatory Tribunal during its most recent review of Sydney Water's operating licence.
The difficult task of devising the formula was led by Sydney Water Acting Senior Regulatory Economist Michael English.
“This new ELWC methodology hopefully signals the start of a real shift to more flexible regulation
, so I’m looking forward to seeing how that evolves from here,” he said.
“I think some people were concerned that the ELWC methodology might be used as an excuse to cut back on our investment in water conservation.
“If anything, the new ELWC methodology means some of our investments in water conservation are quite likely to be higher than they would have been if we’d kept the old fixed targets.”
Sydney Water said that when developing the methodology, it was important to put an economic value on social outcomes too.
“Recognising that the costs and benefits of water conservation activities might have unequal impacts, Sydney Water adopted the following definition: The ELWC is the level of water conservation achieved when the additional social benefits from water conservation activities
are equal to their additional social costs, seeking to maximise net social benefits,” English wrote in a paper he will present at the upcoming Ozwater'17 conference
Comparing the new methodology with the historic fixed water leak target, a case study found a fixed target “is unlikely to have resulted in the optimal outcome for the community”.
“In slightly more than half of all time periods, for example, the level of investment in active leak control
could have justifiably increased in response to emerging water scarcity, in some cases up to two to three times higher,” the report stated.
But English said it was important not to downplay the value of fixed targets.
“Our planners are confident that our water conservation programs over the past 20 years have saved hundreds of millions of dollars of other investments, if not billions of dollars,” he said.
“[But] the good thing about a more flexible approach is that we can ramp up spending when we need it, but we also have the ability to scale back investment in times when it clearly provides less benefits for the community.
“It’s all about allocating money to those activities that provide the best outcomes for our customers.”
To learn more about the new ELWC methodology and other emerging issues, register now for Ozwater’17