Social tariffs for water and waste services

SOCIAL TARIFFS FOR WATER AND WASTE SERVICES: AN IMPACT ANALYSIS

David Alves 9th IWA World Water Congress & Exhibition Lisbon, September 2014

AGENDA

Introduction Water and waste sector in Portugal The concept of social tariffs Scenarios Next steps Discussion

INTRODUTION

Goals Inventory of existing social tariff mechanisms of in

mainland Portugal Verify the effectiveness of these mechanisms to support

the domestic users with special needs Assess the amount of subsidisation used to address

social tariffs in mainland Portugal Quantify the impact of the application of social

mechanisms recommended by ERSAR Why? Guarantee the human right of access to these services

(affordability) Identify economic tools that make these measures

effective to support those who really need

Current status quo in mainland Portugal: Over 300 operators

economically regulated by ERSAR since 2011

Diversity in the management models adopted by the operators

Operators acting in distinct geographical regions

Different capacity in terms of quantitative and qualitative human and physical resources

Considerable heterogeneity in setting tariffs

sector highly heterogeneous

large amount of operators

distinct geographical

regions

diversity in the

management models

difficulty in implementing measures

WATER AND WASTE SECTOR IN PORTUGAL

WATER AND WASTE SECTOR IN PORTUGAL

The three issues with social tariffs in Portugal: Subsidy supports are not quantified, nor is there

coordination with between entities (operators, municipal services and social services)

Tariffs are kept artificially low for all so that the poorest can pay for services

The so-called “social tariffs” are defined in many cases not relying on the income criterion

THE CONCEPT OF SOCIAL TARIFFS

Social tariffs – ERSAR Recommendation Special tariff Lower price for domestic users with low incomes Exemption of fixed tariffs and the application of the first

block of the variable tariffs to the user’s total consumption, up to a monthly limit of 15m³

Social tariffs currently applied Widely arbitrary eligibility criteria (such as age,

employment status or income level) Beneficiaries are not in many cases the poorest users Characterized by the same heterogeneity associated

with the definition of general tariff

SCENARIES

Analysis of three situations of subsidies (in accordance with the tariff scenarios and groups of beneficiaries considered): Current tariffs and current beneficiaries (status quo) Recommended tariffs and current beneficiaries

(considering current beneficiaries, but following the social tariff structure described in ERSAR Recommendation)

Recommended tariffs, potential beneficiaries and all operators (considering the eligibility criteria and the social tariff structure described in ERSAR Recommendation)

SCENARIES

Assumptions Scenarios were simulated assuming that the tariff

revenues of the operators are kept constant There would be a cross-subsidy between domestic users

so that the subsidies to beneficiaries of social tariffs would be supported by an increase in the bill of other domestic users

SCENARIES

Current tariffs and current beneficiaries

Recommended tariffs and current beneficiaries

Recommended tariffs, potential beneficiaries (extreme scenario)

Beneficiaries 4% 4% 60%

Subsidy volume Municipality average

1350 € 1910 € 60 000 €

Maximum 18 000 € 18 500 € 1,2 M€

Bill accrual per non-beneficiary

Municipality average

0,13 € 0,19 € 8,48 €

Maximum 1,94 € 1,68 € 39,61 €

Total subsidisation volume – annual values

1,5 M€ 2,1 M€ 200 M€

The values presented consider a monthly consumption of 10m3 and refer only to drinking water supply services and urban wastewater management services.

NEXT STEPS

Create a tool to verify, municipality by municipality, the appropriate eligibility criteria Income used as a criterion has a significant impact on

the level of subsidies Assess the possibility of each municipality (or operator)

has to support the poorest households Sensitivity analysis for achieving the

better a solution that will integrate the new tariff regulation

DISCUSSION

Who should support the total amount of subsidies granted through social tariff?

The eligibility criteria should be adjusted to consider the household income, avoiding distortion of consumption per person?

The selection of the threshold for eligibility in each geographical area should take into account the number of potential beneficiaries, since it can lead to considerable unsustainability.

THANK YOU

David Alves Gisela Robalo

Inês Gonçalves