The hidden depths of the water charge

as submitted to the Sunday Business Post:

In a somewhat haphazard style, the government this week announced more details of its reform of the water sector. Unfortunately, the plans are about as well-crafted as the announcements.

People focused on the revelation that Father Christmas will not bring water meters this year. Instead, water meters will have to be paid for. It does not matter much whether households pay upfront or over time, through higher taxes via the Department of Finance, or through lower pensions via the National Pension Reserve Fund. Households will pay.

How much will households pay? A basic water meter costs €60, a fancy one €150. (The government appears to have picked the latter model.) An experienced plumber can fit a meter in 15 minutes or so. This is not terribly expensive, but many people are hard-up.

The government, however, does not trust households to install their own meters. The government could use a flat charge for people without a meter and a volumetric charge for people with a meter. If the flat charge is high enough, many will install a meter. This is a common arrangement in other countries. It is perfectly fine with the EU, ECB and IMF.

The government does not want to give people this choice. Ireland will be one of the first countries in the world with universal water metering. The government has yet to publish the cost-benefit analysis that shows that this is indeed the best bang for what little buck is left.

Because the government suspects that some people will not be happy to have their water metered and charged – and may thus refuse the government’s plumbers access to their house – the plan is to install water meters just outside the property, on council land.

That means what holes will need to be dug. The exact location of water pipes is not always known, so there may be some searching involved. Furthermore, water meters will be far from the smart electricity meters that the ESB is installing everywhere. Water meters therefore cannot piggy back on the communication network that the ESB is also putting up. Water meter readings will be collected separately.

All this makes water metering rather expensive. The government is not very forthcoming with its estimates, but it will be at least €500 per meter. The government will be happy to lend you that money – in fact will leave you no choice – so that a few hundred euro in interest should be added.

It is easy to get excited about such details – why pay €800 or more for something that can be had for €200 or less – but they distract from the bigger picture. Water meters are only the beginning. Water is metered so that it can be charged.

The government is tight-lipped about what the water charges will be. The EU Water Framework Directive is clear. Water charges should fully recover the cost of drinking water provision and waste water disposal. Ireland spends about €1.2 billion per year on water. Only some €200 million is recovered from non-domestic users. The total amount that will need to come in through household water charges is therefore €1 billion per year – or, not counting those with private or collective wells, €560 per household per year.

Unmetered households in countries similar to Ireland use about 150 litres of water per person per day. Full cost recovery implies that the water charge would be about €3.80 per thousand litres. As metering and charging reduce water use, typically by about a third, Uisce na hEireann would be quickly forced to increase the water charge to €5.70 per thousand litres.

The government has repeatedly promised that each household will get a generous allowance of free water. This is not clever. Again, the government has left us in the dark about the size of the allowance. If it is 100 litres per household per day, the water charge would be €9 per thousand litres. If the allowance is 200 litres, the water charge would be €22.

And therein the problem lies. Uisce na hEireann will supply water to households. The free water allowance will be for households. Small families will get all their water for free. Big households will pay through the nose. The minister will spin this as a boon to little old ladies living alone. A family of four would pay €800 per year without a free allowance but €1600 with. This is a baby tax.

Uisce na hEireann could only give a free water allowance per person if it would track how many people are present in a household.

The free allowance is best done without. Water charges place a disproportionate burden on the poor. Therefore, water charges should be raised and Uisce na hEireann should pay a dividend to the government, which should be used to increase benefits and tax credits. Not everyone would trust the government to pass on that dividend. Uisce na hEireann could have been mutualized, with every man, woman and child in Ireland owning an equal share.

Instead, Uisce na hEireann will be a subsidiary of Bord Gais Eireann (BGE). The government did not want to create a new state company, and it did not want to call on the private sector. That left little choice. BGE has a sound track record in providing households with gas, and it has successfully added electricity. BGE should be well able to deal with the retail side of Uisce na hEireann.

But Uisce na hEireann will do more than charging for water. It will run the water network and the treatment plants. BGE has diversified into wind power, an unfortunate decision which led to a downgrade of its credit rating. BGE loses money on its gas-fired power plant because it relied on in-house knowledge rather than external expertise. Let’s hope BGE has learned from this, because not anyone can run a sewage treatment plant.

Any manager would lose sleep over Uisce na hEireann. 34 local water boards will be merged to form a national company, with 34 different IT systems, 34 different model contracts with suppliers and operators, and 34 different labour regulations. 32 counties will transfer their water assets to Uisce na hEireann. Uisce na hEireann may initially employ 4,000 people, compared to the 1,000 people that now work for BGE proper. Was it wise to limit the competition for Uisce na hEireann to BGE and Bord na Mona?

Uisce na hEireann will be regulated by the Commission for Energy Regulation (CER), presumably soon to be renamed. The CER is struggling. It is wedged between the minister for energy qua policy maker and qua owner of the dominant companies. It has to deal with the far-reaching reforms of the energy market imposed by Brussels. And now its remit will be extended from energy to energy, drinking water, and sewerage. The CER cannot expect additional resources. Will it cope?

The government has embarked on a transformation of the water sector. That is welcome, in principle. It is unfortunate that options are not thoroughly scrutinized before decisions are made. The public debate has been distracted by the minor question how meters will be paid for.

39 thoughts on “The hidden depths of the water charge”

  1. An experienced plumber can fit a meter in 15 minutes or so.

    Maybe in a FAS training centre where everything is at bench height and idealized, I presume, but in the real world that’s fanciful stuff. Sorry Richard.

  2. “Unmetered households in countries similar to Ireland use about 150 litres of water per person per day. Full cost recovery implies that the water charge would be about €3.80 per thousand litres. As metering and charging reduce water use, typically by about a third, Uisce na hEireann would be quickly forced to increase the water charge to €5.70 per thousand litres.”

    Would the overall cost of providing potable water and disposing of waste water not reduce if consumption falls? Why would there be an automatic and directly proportional increase in price for households?

  3. Generally the location of public water pipe close to boundary is at the street stop-cock (when there is one). The supply is supposed to pass the boundary 1m below ground. There are still however properties in Dublin which have shared mains water supply – in one garden then across to the neighbouring one. Some houses that have had their own connections installed in such instances still have interconnecting lead pipes between the properties. They are not always turned off properly from the supply, and the interconnecting pipes often leak.

  4. “@Ninap
    It mostly fixed cost: treatment plants, pipes.”

    I understand that, but it makes a bit of a nonsense of most of the arguments about water being a finite resource that we can’t waste when the reality seems to be that the costs are the same regardless of the amount we use/ waste…

  5. When the Commission on Taxation reported and spoke about the introduction of Water and Property Taxes they said that direct taxes should be rebalanced so that they would reflect these new forms of tax. If the government is just going to take on average a €1000 from the households without doing as the commission said the whole idea that water charges are about conservation or improving local services will become as laughable as their handling off the whole thing. The only thing these charges will do is damage the economy even more. Goodbye to creating any real jobs and growth. When people speak about water charges they should leave out the whole idea of conservation, that is just the cover being used by the government to extract more money from peoples pockets.

  6. @ RT
    Whatever entity ends up doing the deed, it would be enlightening if the unit costs were FOI accessible.
    Excavation, plumbing, testing, and resettlement could be compared by contractor, town, city, county, etc.
    All public work, both local and national should follow this model!

  7. If an individual has the right to install his/her own meter, I imagine only those confident they don’t have leaks on their property would choose it over the flat charge.

  8. Also the ‘free allowance’ could allow a resale water market to develop. Promoting individuals living alone or infrequently in a dwelling, those that would normally not use such an amount to sell on the extra to a neighbour with a pile of teenage girls using the shower 24/7

  9. Come to think of it, in its current form it’s a tax on teenage girls. Could it lead to our female population shaving their respective heads in order to avoid maintaining shiny conditioned hair?

    Bringing it further it’s a tax on washing oneself, clothes, dishes and car. Will we have a lot more smelly people driving to work with dirty windows and eating chips out of a bag for fear of dirtying another dish.

    🙂

  10. @VincentH
    There are several problems.

    Water is misallocated and wasted in Ireland. Water charging would help a bit.

    Water is managed by 34 entities, many of which are too small to foster the professional environment needed for modern water management. A single national entity is one solution.

    Not enough money has been invested in water services. County councils cannot borrow against their assets, nor can the central government. Transferring those assets to a company will generate collateral for cheap loans to finance treatment plants and new pipes.

  11. @RT: “Transferring those assets to a company will generate collateral for cheap loans to finance treatment plants and new pipes.”

    Cheap loans? That’s a joke? Right? And what happens in a few years when we ‘find out’ that these ‘companies’ have racked up a suitable level of debt, trousered a tidy slice of their income stream, and appear in front of Leinster House with their Olli Twist begging bowl – “Please Minister may we have some more (taxpayers money).” Actually they would skip the “please” bit.

    Lets get real folks. Its Pirates of Privatization time again – loot and pillage the taxpayer – again. Hagar the Horrible would be in complete awe.

    Forget about potable water in our taps. Clean it up as best it can be. Then say to folk. “You want drinking water? Good. Well either create you own or buy it in”. Problem solved – well not quite. This is afterall Ireland of the cheats, scammers, spinners, skivers, whingers, upward only renters, etc. etc.

    “Where’s the damn aspirin?” “Vide aquam?”

  12. I think there are more than 34 entities supplying water, there are many group schemes throughout the country

    From a small sample size of 2 on rté current affairs programmes last week, these group schemes seem to be able to provide water for around 100 per household per annum, being lean private sector, not bloated state sector operations

    How much of Bord Gais is owned by bgé workers, I don’t see why they should get to own our water network.

  13. @Carrawaystick
    Sure. 34 public entities plus a lot of private ones. The public entities will be merged into Irish Water. If England is an example, the private ones will be nationalized later. Note that group water schemes are for drinking water only, whereas Irish Water will also take care of waste water.

    @Dreaded
    I would incentivize people to install their own meter.

    I would take the technical and professional staff out of the 34 county councils and put them in the 8 river basin authorities.

    I would transfer the assets to Irish Water, let it be owned by the county councils, and run by Veolia or Suez.

  14. What is the ‘Time Stamp’ on this blog? GMT?

    Just a little sermon about potable water – bit of human physiology and all. Three days without water and your in big, bad trouble. Food: about 30 days. Please try to engage at least one functioning neuron on this issue.

    Potable water is a tad expensive (in energy, rather than monetary terms). You can capture rainwater from roof run-off, and if you have the appropriate physical filters (which need cleaning from time-to time) you have your personal supply of potable water. Keeping you roof and rainwater pipework clean might be a good idea as well. This technology is very ancient. The fixed cost would (for an elaborate system) max out at approx E 1,000 for a 1000 liter storage container. If you put several containers in parallel, the additional cost would be approx E 500 for each container (complete with plumbing fittings). Would take about a week to complete installation (you need robust concrete base and stands). You may even be able to retro-fit a separate supply to your kitchen. Depends on what you want. Frost-proofing would be essential.

    A state giving control of the supply of potable water for its citizens, to a pivate entity, is an act of treason. Simple as that. If a private entity wishes to supply non potable water – well fine, let them at it, but entirely at their own expense. Not a single cent of taxpayer money. None.

    There is a distinct differ between those folk who live cheek-to-cheek in an urban environment and those who live in the Boonies. Two worlds, two modes of potable water supply. There is no water insecurity in Ireland – just a bunch of whingers who have been coddled by insecure legislators.

    If you are really concerned about ‘waste’ – how much Moolah was ‘wasted’ on P-Pars? Get real folks. Nothing personal, you understand. Potable water is vital for health and life. Its kinda personal.

  15. On the plus side, they didn’t go for a privatisation option which from research worldwide seems to have proven a disastrous option with very bad consequences in some instances. What I find missing from the concentration on meters, is the lack of focus on the whole infrastructure of water supply. Surely there should be some plan included to upgrade the leaking pipes we’re told cost so much in loss of water? Then there is the question of Dublin’s water supply which is beginning to peak at its limits, pipe from the Shannon? It would also appear to me given that there is a household metering system with collection of readings on a per household basis for electricity, that some consideration could have been given to integrating this system into a complimentary one for water metering also.

  16. It is worth noting that water charges are to be levied on properties and not just households (just like the incorrectly called ‘household charge’). At this stage it should not surprise anyone that there are more properties in this country than households. Metering is supposed to be rolled out to all properties (except apartment blocks) but there will be no gain from this for empty properties and the implication of a free alowance will be that many (most?) holiday homes will at most pay the standing charge and get the rest of their water for free.

  17. and what happens to people who have their own well on site, surely they wont be charged, after all they already paid the cost of boring the well and installing the pumps etc ,

  18. @Bob Roberts – no they won’t. This is a conventional utility model – you get charged only if you are connected.
    There could be some unintended consequences e.g. more wells being sunk. In a country like Ireland this might not be such a big issue (unlike Spain or even more arid countries), but it could lead to local issues e.g. salt water could be drawn into aquifers in coastal areas.

  19. @Ossian – I think it is the latter. The reference is to commercial and agricultural uses but I would not be surprised if they (EU) put a wider interpretation on it. Another banana skin – there seem to be a lot here – I would thread carefully!

  20. “It is unfortunate that options are not thoroughly scrutinized before decisions are made. The public debate has been distracted by the minor question how meters will be paid for.”

    Indeed, it is unfortunate. All the “debate” takes place when the decisions are made. So what´s new? Nobody with any possibility of infuencing the decisions wants to take a stand before this happens. For example, so far as I can recall, the previous posts here on this issue majored on the “minor question how meters will be paid for”.

    It probably doesn´t matter. This Government is sleep-walking in to a blizzard of “events” that will shake it out of its arrogance and complacency.

    This is exactly the same approach between 2002 and 2007 that generated the blow-out. Has anything been learned? Doubt it somehow.

  21. @Edgar it seems to include domestic wells:

    well drilling for agricultural, industrial or private consumption

    The Commission recommendation is accompanied by the threat of ECJ referral.

  22. Will Irish Water have a plan based on strong fundamentals or will it be disorganised and poor value for the taxpayer?

    Official demand projections made in the early ’90s seriously underestimated demand while those made in the mid ’00s seriously overestimated demand – both costly mistakes. In terms of the Greater Dublin Area, why not have a more realistic medium term water provision plan with the following breakdown:

    Domestic daily demand – 282 MLD
    Non-domestic demand – 174 MLD
    Unaccounted for water (UFW) – 152 MLD (or 25% – currently c. 35%)
    Total daily demand – 608 MLD (current level is around 540 MLD)

    Then go about this in the most economic and flexible way possible incorporating a number of well-known solutions (some already are being carried out).

    Is the €1.2bn cost figure quoted above a fixed reference point to be used in future formulae like the NAMA November 2009 valuations and what is the breakdown of this in terms of salaries versus all other costs? Given the characteristics of the Irish climate we should have one of the lowest average costs for water treatment and supply and comparisons with places like SE England, if made, should be treated with caution.

    Have the relevant technical and professional people in Ireland that are going to form the management of Irish Water shown good foresight and achieved value for money over the last number of years? Will they show an awareness of ever increasing energy input costs in their plans?

    I think the fact that a significant portion of the population can access their own water supply to a certain extent differentiates it from the electricity supply and could cause a lot of future headaches in the government’s supposedly logical plans in this area.

  23. @Ossian – not surprising. It needs to be borne in mind that the EU have one Directive to cover all Member States – as I indicated private (domestic or commercial) abstraction is a big issue in some countries like Spain.

  24. I think Ninap has unearthed an important point. The costs are mostly fixed whereas the pricing is variable (per litre). This creates a silly scenario where reducing consumption will eventually require the unit charge to increase. Water (at least the raw material) is not scarce in Ireland. There is no pressing need to change behaviour.

    I’d prefer a fixed charge per resident.

  25. Does the Government also propose to charge households who paid to have the infrastructure of piping, and the provision of a group water scheme, subsequently taken over by a county council, the same as one where the entire infrastructure was supplied by the state?

  26. In normal countries the water meter is owned and installed by the water supplier the same as the gas meter and the electricity meter. The meter is installed and maintained by employees or contractors of the water supplier rarely are they plumbers usually they are trained to do the simple task of installing and maintaining (replace) water meters and paid accordingly.

    Again the national gov’t regulates, inspects and provides a mandatory (monthly, quarterly, annually) water testing service to the water suppliers and individuals (not mandatory) with their own well. The testing fee for individuals is very low. To combine water supply in one national company is the height of folly. Water has to be under the control of local politicians who are under the control of the voters with oversight by the national gov’t in the form of regulation, inspection and testing. Water is the single most important substance we use since it is essential to life with disastrous results if not managed responsibly.

  27. @Ossian Smyth

    A tax on private well drilling will not get past the IFA, ICMSA, etc.

    Well sinking. and associated water processing and delivery costs, are prohibitive in Ireland.

    What’s next? A tax on the fragrance of the hedgerows, or cattle expressing communion with Pythagorean mysteries?

    There are only four million people in Ireland. If it was as populated as Hong Kong, I could understand some of the hysteria around water provision.

    Would the government not be better off with a policy on minimal leaks and holding local authority staff personally responsible for shortcomings?

    Might upset the Croke Park blatherfest of course.

  28. excellent unemotional analysis – is it too much to hope that anyone in the administration will take it on board. We may be in for a rough ride on this.

  29. @Ahura Mazda – I’d prefer a fixed charge per resident.

    While the fixed annual costs for operating water and wastewater systems are a large part of the total annual cost that doesn’t mean that water consumption by residential and business users doesn’t impact those fixed costs over the long run. Water demand has a pattern to it that determines the physical infrastructure needed to supply it and that determines a large part of the fixed cost. Over a year water demand is higher in summer than it is in winter. In a year with a hot and dry summer, summer demand will be higher than in a year with a cool and wet summer. Water demand also varies over the course of a day, being highest usually between noon and 6pm in the summer. Those peak demands determine the size of the treatment plants, pumps, pipes and reservoirs. It is the ratio between average demand and maximum demand that drives the fixed capital cost. In systems with flat charges that ratio is higher because the marginal cost of using extra water in summer is zero. That is why volume charges for water use matter, they can shave the peak and push further into the future the need for more capacity. Better yet is to charge more for summer use that is above average use (known in the trade as increasing block charges).

    And yes successful conservation programs including appropriate pricing can have the perverse effect on increasing unit charges, a phenomenon that is being experienced widely in North American water systems but over the long run the alternative is worse.

  30. Hi just to let you know that water in the Netherlands cost 1.35 per 1000 l
    Why is Ireland charging 3 times that amount . And in the Netherlands you don’t have to pay for the meter.
    They Irish are always looking at other countries where they can take revenue but why are they always charging outrages amounts of money?
    We live here now for 35 years but the wild west stile of doing business here still amazes me.

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