Impacts of full usage tariffs on costs of water and sewage services for Greater Melbourne

Systems Frameworks of Big Data: Averages, Economics and Policy

Peter J Coombes at the GK Symposium

12 – 13 June 2019 at Noahs at Newcastle Beach

Bottom up systems analysis highlights the illusion of averages and economic opportunities for development of government policy for water resources

The question

Urban areas are complex systems that involve dynamic linkages and feedback processes across demographics, socio-economics, urban form, weather and a multitude of parameters. Numerical models are needed and employed to understand the performance of water resources, ecosystems and economics in urban areas.

Analysis of water resources commonly employs understandable deterministic processes that utilise temporal and spatial averages that are based on large centralised scales (such as an average household or per-capita water use multiplied by the number of dwellings or people in a city, respectively) and lengthy time intervals (monthly).

Does the traditional use of centralised average inputs to models used to analyse water resources change our understanding of water security, requirement for infrastructure, performance of alternative strategies and assessment of government policy?

The Journey

Creation of the “bottom up” Systems Framework commenced during Peter Coombes’ PhD research (1998 – 2002) supervised by George Kuczera to understand the impacts of distributed interventions on regional water cycle systems and economics. This required development of behavioural models of water uses at households and other land uses that were driven by Big Data inputs (weather, demographics, billing data, socio-economics and economics) at fine spatial and temporal scales.

These systems models were constructed in hierarchical frameworks across multiple scales from land use to neighbourhood to suburb to region. They incorporated all available data and information at each scale including water, sewage and stormwater infrastructure, and waterways. Inclusion of feedback loops throughout framework of behavioural drivers created a “self organising” systems analysis. For example, application of water restrictions or changes in prices at a regional scale influences local behaviours which impacts across different scale in a city.

Development of these Systems Framework methods over next two decades included discoveries in systems thinking from Jay Forrester and Donella Meadows, natural capital from Paul Hawkin, and economic concepts from John Nash and Joseph Stiglitz. The Systems Framework journey has been enhanced by multiple collaborators, including long term collaboration with Michael Barry.

Since 2004, the Systems Framework has been applied to the development of strategy and government policy for water resources. The journey to understand the impacts of average assumptions on assessment of water resources commenced since 2010. These processes now resolve local water balances and behavioural economic equilibrium for each property at all time steps.

Donella Meadows final publication in 2008 highlighted a need for bottom up, hierarchical, self-organising systems frameworks to understand future challenges and policies to intervene in an increasingly complex world. This was consistent with our Systems Framework discoveries.

These investigations have demonstrated the problematic nature of using average assumptions, from conceptual difficulties in calculating an average from non-normal distributions through to consequences regarding model predictive capability. The authors are conducting an ongoing research program using bottom up systems analysis to evaluate the impact of average water demands across multiple cities, and the impacts that combinations of temporal and spatial averages have on water resource analysis. This research has presented new science insights and opportunities for understanding analysis of water resources.  These insights are likely to apply to other disciplines.

Spatial costs and prices

Consumers in Australia cities pay uniform fixed and variable tariffs (postage stamp prices) for utility water and sewage services. This process influences perceptions of prices and costs of water services. This investigation used bottom up systems analysis to estimate the spatial costs of water and sewage services in Melbourne and Sydney.

This research highlighted that Australian capital city regions are subject to strong spatial variation in costs to provide utility services. For example, these spatial costs ranged from $2/kL to $11/kL for Greater Melbourne. These spatial long run marginal (shadow) costs are vastly different to average marginal costs that are presented as opportunity maps for future planning. Fixed tariffs were found to be a disincentive for water efficient behaviours, economic efficiency and equity.

Spatial costs of water and sewage services for Greater Melbourne

The economic and water resources impacts of implementing a full user pays tariff for utility services was also examined using the Systems Framework approach that commenced with a full usage tariff consistent with current household expenses at each location. Tariffs were permited to vary in response to annual changes in demands and costs. Substantial reductions in water demands and improvement in water security to 2050 was estimated at a net present value of $8.6 billion for Melbourne (for example). A full usage tariff regime was seen to increase water efficient behaviours and uptake of water efficient appliances and local water sources. These results also revealed improvements in household welfare. Ongoing research is refining the systems analysis to understand the full spectrum of impacts on households, utilities and national economies.

ARR Presentation – Unfinished Business in Urban Areas

This investigation was motivated by revision of Australia’s national guide to rainfall runoff and flooding, Australian Rainfall and Runoff (ARR), and systems thinking about the future of urban stormwater management. Reflections on this change process revealed internationally relevant challenges and a need to reframe stormwater drainage as integrated management of the urban water cycle from a design, economic and policy perspective. Advances in stormwater management are mostly represented by demonstration projects and policies for integrated water management. Many different water management philosophies have emerged that are consistent with evolving dominant interests such as water authorities, government agencies and proprietary research consortiums. Substantial progress has been made in defining the challenges and necessary solutions but urban flooding and ecological degradation continues to be an escalating problem. Traditional drainage approaches with bottom of catchment management of quantity and quality remains a default implementation solution. Pathway dependence on past methods, competing ideas and ownership, uncertain perceptions of value and a lack of systems perspective may be a barrier that needs to be overcome by the new ARR. A systems approach is needed for water cycle management that includes stormwater management in urban areas. The insights from this paper will also apply to many other cities outside of Australia.

Linked systems and cumulative processes in modern thinking about stormwater management

Barry M.E., and Coombes P.J., (2018), Planning resilient water resources and communities: the need for a bottom up systems approach, Australasian Journal of Water Resources

Coombes P.J., Barry M.E., and Smit M., (2018), Bottom up systems analysis of urban water resources and market mechanisms for pricing water and sewage services, HWRS 2018, Melbourne