Matching customers’ preferences for tariff reform with managers’ appetite for change: The case of volumetric‐only tariffs in Australia

Abstract

At the height of the Millennium Drought in Australia, there was unprecedented interest in the role of demand‐side management in the urban water sector. Conservation tariffs, where water users pay significantly less by reducing consumption, were mooted in some policy circles, although they were never seriously trialled. The easing of the drought was also accompanied by a new era of economic regulation, where monopoly water suppliers are increasingly encouraged to deliver services valued by customers. This trend has been embraced in Victoria, where the Essential Services Commission effectively rewards water businesses that match their services against customer expectations. This article explores whether customers and business managers hold similar priorities for water services by using a Best‐Worst Scaling experiment. The experiment includes a conservation tariff, and findings suggest that customers enjoy relatively higher utility from these tariffs, sustainability, water restrictions and small‐scale projects compared to the services emphasised by managers. The study exposes the general difficulty of water businesses matching their customers’ preferences, especially if there is heterogeneity in preferences and given businesses must simultaneously deliver on many other fronts.