Water Authorities in Australia operate as government businesses. Governments own the water, and they sell water at a profit. Large City Water Authorities make more money than they spend, and governments use the excess money for other community purposes. Water Authorities use price to control demand while at the same time meeting the needs of their owners to produce a surplus of funds for other purposes.
The two objectives come into conflict, and so governments set up pricing authorities to regulate and set prices. The regulators tend to have business backgrounds and measure success by profits as well as the quality and reliability of water supply. The approach works well, but it suffers from the desire of private parties to get their hands on some of the profits.
Governments find themselves under pressure to privatise water supply or to enter into Public-Private Partnerships or to fund Capital Works with private money. Water Authorities also find themselves under pressure to provide profits to their government owner and the easiest way to do this is to charge more money to those who can least object to the charges.
There is another way of tackling the problem of funding Water Supply, and that is to form Local not-for-profit Water Cooperatives to fund Water Infrastructure. Water Cooperatives have the benefits of Cooperatives as described by Peter Martin in this podcast. It keeps the ownership and Water Authority systems in place. With Funding Cooperatives, the members of the community supply the funds to the Water Authority and receive the benefits from the Funding.
If a Water Authority sets up a Flexible Payments system it can achieve the following goals.
- No change to the operation or governance of the Water Authority.
- The ownership of the Water Authority remains with the government.
- Minimal impact on the existing systems.
- Incremental, phased deployment.
- The profit collected by the government remains the same.
- The prices paid for water can remain the same.
- Funds for new infrastructure is supplied to the Water Authority with no impact on government finances.
- The profits from funding go to the members of the community in inverse proportion to the consumption of water. Profits must be invested in the Water System.
- Members earn receive an 8% inflation-adjusted annuity for 20 years from their investments.
- The Funding Cooperatives with the Water Authority decides the prices so removing the need for a Pricing Regulator.
- The Cooperatives can fund the surface and groundwater infrastructure and bring all water-related matters under a single Water Authority.
The algorithm works for city and town water. Rural water can use a similar approach but with different constraints. In Canberra, the approach would keep sixty million dollars in the local community annually by saving the cost of interest on $1.4 Billion in long-term government debt. Much of this money would go to those who consume the least amount of water.