Pricing policy sensitivity : the case of the Australian urban water industry (AUWI)

Hunt, Christopher John. (2005). Pricing policy sensitivity : the case of the Australian urban water industry (AUWI) PhD Thesis, School of Business, The University of Queensland.

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Author Hunt, Christopher John.
Thesis Title Pricing policy sensitivity : the case of the Australian urban water industry (AUWI)
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 2005
Thesis type PhD Thesis
Supervisor Walker, Julie
Zimmer, Ian
Total pages 151
Collection year 2005
Language eng
Subjects L
350102 Management Accounting
710103 Water services and utilities
Formatted abstract
The problem that this thesis addresses is why urban water entities, when given the choice by government to adopt a pricing policy that will improve the management of water resources and services, are slow to adopt such a policy (DoTaRS, 2001, IWRA, 2002). Government (COAG, 1994) and regulators (NCC, 1997) argue that the user pays urban water pricing policy that is central to the choice offered to urban water entities is a significantly improved policy over the existing water pricing policies which have been identified as under-pricing water services (NCC, 1997). Additionally, elements of the existing water pricing formulae do not consider the activities associated with managing the water resources used, or the services provided by urban water entities (UWEs). In times of growing demand for water resources, better understanding the decision issues confronting urban water entities in deciding whether to adopt the user pays pricing formula will be of interest to governments, regulators, urban water entity management, users, the electorate, academic and other stakeholders.

In terms of theory, the motivation for this study stems from the limited amount of positive accounting research having been undertaken in a commercialising public sector environment. Whilst utilities, utility pricing and regulation have been the subject of much research, a search of the literature failed to identify any empirical research relating to utility pricing policy choice. In terms of utility pricing and research, the focus has been more about pricing change, pricing formula construct and resolving issues relating to monopoly rents. This study is not about pricing formula determination it is about understanding why a pricing formula will, or will not be adopted. This study extends the empirical research to the commecialising public sector particularly in terms of the application of elements of the political cost and transaction cost theories. The main objective of this study is to develop a pricing policy choice prediction model specific to the urban water industry. Drawing on political and transaction cost theory, seven decision determinants are identified as driving the model developed in this thesis. These decision determinants relate to issues considering the size of potential political cost sensitivity, the transaction cost implications of any economic wealth transfer, present and future capacity of users to pay and the political cost considerations relating to tyranny of distance and electoral marginality.

Should it be the intention of governments and regulators to speed up user pays adoption rates, the study results suggest that a range of decision determinants impact on the urban water entity management decision to adopt, or not adopt the user pays pricing formula. In particular, the issues relating to an economic wealth transfer due to the loss of access to capital grants upon adoption of the user pays formula, and the future capacity of the entity to sustain a politically tenable price of water service due to future revenue growth potential do impact on the entity pricing formula adoption decision. These results suggest that the disincentives associated with any potential economic wealth transfer due to the loss of future capital funding assistance far outweigh any financial incentives and management improvements associated with the adoption of the user pays pricing formula by urban water entities give that adoption choice.

In conclusion, should it be the intention of government and regulators to speed up user pays adoption rates by urban water entities, a range of considerations is suggested. These considerations include a phased withdrawal of capital grants, a restructuring of the user pays pricing formula in consideration of a 'life line limit' and incentives for smaller urban water entities with declining revenue bases to consider alternative methods of water services supply and management. Additionally, the findings of this study suggest support for further empirical research in the commercializing public sector environment.

Keyword Water-supply -- Australia -- Costs.

Document type: Thesis
Collection: UQ Theses (RHD) - UQ staff and students only
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Created: Fri, 24 Aug 2007, 18:39:40 EST