Key UC Contact
What We Did
The New Zealand Initiative offered a project based group internship on the topic of the feasibility of introducing per unit charging for water use in Christchurch. Olivia Prior, Mitchell Tier and Hannah Zydenbos signed up for the project. This involved learning about the pressing issues confronting water provision in Christchurch, available manual and remote water meters, and considering different models of per unit charging from the criteria of efficiency, equity between rich and poor water users, and cost recovery. This culminated in specific worked examples of two pricing systems: 1) a simple low per unit price on all water use, with a financial deficit made up by continuing fixed charges adjusted by rates, and 2) a free allocation with a per unit price for additional use, again with the larger resulting financial deficit made up by a rates adjusted fixed charge. To gather information and data for the project, the students met with Tim Drennan, a Manager of the Three Waters and Waste Division of the Christchurch City Council, and communicated with Eric Crampton, chief economist of the New Zealand Initiative, as well as Raveen Jaduram, immediate past chief executive of Auckland’s Watercare.
Who Was Involved
Jeremy Clark, internal UC staff supervisor. Students Olivia Prior, Mitchell Tier, Hannah Zydenbos, Eric Crampton. Chief economist of the New Zealand Initiative, who offered the project. Tim Drennan, manager, Three Waters and Waste Division of the Christchurch City Council. Raveen Jaduram, immediate past chief executive of Auckland’s Watercare.
Why It Matters
Unlike some other cities in New Zealand, Christchurch is not in danger of exceeding its consented allowance of water. Rather, the city nears the capacity of some of its existing pumping stations to draw up water from underlying aquifers in summer. This could conceivably reduce available water pressure in some suburbs at times of peak use.
Reducing water use would delay the need to install additional costly wells, and reduce the costs of replacing and widening pipes. The current system uses “average cost pricing”, where the overall cost of pumping and distributing water is divided over all households according to the rates they pay, and the price per unit of use for almost all residential users is zero. Thus, the current system covers cost, and is equitable to the extent rates reflect people’s ability to pay for water. But it is not efficient, as households have the incentive to use water up to the point its additional benefit is zero, ignoring the cost to the infrastructure that this additional use brings. Adding per unit pricing at a level that reflects the marginal cost to infrastructure would be efficient, while including a free allocation, and using rates to cover the deficit would address equity and cost recovery.
