Securing Our Water Future Green Paper for Discussion Published by the Victorian Government Department of Sustainability and Environment , August 2003

Also published on www.dse.vic.gov.au

© The State of Department of Sustainability and Environment 2003

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© State of Victoria, Department of Sustainability and Environment 2003

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Find out more information about DSE on the internet at www.dse.vic.gov.au Securing Our Water Future 1

Contents

Premier’s and Minister’s Forewords 3,5 Executive Summary 6 Chapter One: The Challenge We Face 11 Drivers for Change 12 The Goal: Sustainable Management of Water 13 Getting Back Into Balance 14 Chapter Two: Water Resources and Their Allocation 19 Water Allocation in Victoria 20 A Framework for Sustainable Water Allocation 24 Giving Legal Recognition to the Environmental Reserve 27 The Environmental Reserve: Cautious Limits to Avoid Over-Allocation 28 The Environmental Reserve: Caps for Stressed Rivers 29 Managing the Allocation System Responsibly 31 Chapter Three: Smarter Water Use in Our Cities and Towns 35 Challenges for Urban Water 36 How to Meet the Challenge 37 Reducing Water Consumption in Urban Victoria 41 Substituting Recycled and Reclaimed Water for Drinking (Potable) Water 46 Increasing Our Available Water Supply 52 Chapter Four: Smarter Use of Water 57 A Range of Irrigated Enterprises 59 Further Improvements Possible on Farms 60 Reconfiguring Distribution Services 62 Developing the Water Market 64 Minimising Side-Effects from Watering 70 Chapter Five: Dealing With Stressed Rivers 73 Tackling All the Aspects of River Health 75 Approaches to Restoring Flows 76 Savings to be Made in Distribution Systems 78 Other Methods for Retrieving Flows 80 Managing the Environmental Reserve 83 Chapter Six: Pricing for Sustainability 87 Structure and Design of Prices Driving Sustainable Use 89 Pricing to Reflect the Needs of the Environment 93 Pricing to Recover Service Delivery Costs 94 Chapter Seven: An Innovative and Accountable Water Sector 101 Existing Arrangements 102 Looking to the Future 105 Improved Capability and Effectiveness 106 Improved Allocation of Roles and Responsibilities 108 Improved Integration and Coordination 112 Incentives for Innovation and Improved Performance 114 The Way Forward 117 Glossary of Terms 118 Appendices 120 Abbreviations 135 Figures and Tables 136 Summary of Proposals 137 We need to build an ethic throughout the community of water conservation. We need to cut our water use wherever we can, recycle and reuse wherever possible, put our water to the highest value use where we do use it and restore our rivers and streams to safeguard our water systems in the future. Securing Our Water Future 3

Premier’s Foreword

Water is fundamental to all Victorians, whether we live in the greater Melbourne area, in regional centres or farm the countryside. Access to a quality water supply is a key foundation of our economy, society and the environment.

The availability of water has shaped the face of Victoria This Green Paper continues the process of engaging the as we see it today. Access to water has determined the Victorian community in meeting this challenge. The location of numerous towns, enabled the growth of Government has set broad targets and allocated funds agriculture and influenced where we take our holidays. through the Victorian Water Trust to start the process Melbourne’s growth has been underpinned for over a of investing in more efficient water usage. We now century by the harnessing of the Yarra catchments and need to discuss the details of how we should tackle the construction of Melbourne’s sewerage system. problem, where we should start and when we expect to see significant change. Although we live on the driest inhabited continent, we are one of highest users of water per person. For I invite all Victorians to join in this discussion by a clever country, we have been very slow to realise this informing themselves about the water sector and and to start to tackle it. commenting on the options outlined in this Green Paper. The Government will use this input to determine Our challenge now is to change current patterns of priorities, which will be announced through a White consumption in time to protect our future. We need to Paper in early 2004. use water more efficiently and develop a more sustainable approach to agriculture at the same time as restoring the health of the environment. This means changing our entire approach and our mind-set to the management of water. We need to build an ethic throughout the community of water conservation. We need to cut our water use wherever we can, recycle and reuse wherever possible, put our water to the highest value use where we do use it and restore our rivers and streams to safeguard our water Steve Bracks systems in the future. Premier of Victoria This is the challenge facing all Victorians. Meeting it will require change – change in the management of water in every sector of our community – in our homes, cities and towns and on our farms. It will require some hard decisions, strong leadership and community support. It will need innovation and smart management. Our vision is that by better addressing the environmental needs of Victoria’s rivers and catchments, we will improve the productivity of our irrigation industries and ensure sufficient water for Victoria’s long term growth. Securing Our Water Future 5

Minister’s Foreword

Water is a central part of our everyday lives. We use it for drinking, washing, watering, producing food. We use it for swimming, boating, canoeing and fishing. We picnic and holiday near rivers and . We build our houses with views of the water.

Looking to the future it is becoming increasingly clear Three further chapters address how the water sector is that our current water use is not sustainable. The organised and proposes: environmental quality of our water resources are under >> New arrangements for the allocation of water to serious pressure, our water supply is limited and our provide recognition for the environment and demands are increasing. certainty for farmers These stark realities have been brought sharply into >> Principles for future pricing reform to ensure that focus by the current severe drought. However, they are water is sustainably priced long term in nature, and require a long term solution not just a temporary one for this drought. This Green >> Proposals for encouraging an innovative and Paper sets out proposals for how we can address the accountable water sector. challenge of ensuring that we use our water sustainably in all parts of our State. Over the coming months we will be undertaking extensive consultation in communities across Victoria Our vision is that by better addressing the and I invite all Victorians to take part in this process and environmental needs of Victoria’s rivers and make their contribution to securing our water future. catchments, we will improve the productivity of our irrigation industries and ensure sufficient water for Victoria’s long term growth. We can achieve this by investment in water conservation and recycling and returning flows to our rivers whilst reforming water allocation and pricing to balance the needs of people, farms and the environment. This Green Paper is built around three chapters that analyse our major water needs: John Thwaites >> Water for people – smarter urban use of water Deputy Premier, Minister for Water >> Water for farms – smarter irrigation use of water >> Water for the environment – improving river health through extra flows and smarter management of those flows. Executive Summary

Water is essential to the success of our economy, the health of our environment and the well-being of our society. Our goal is to achieve sustainable water management and ensure that we enjoy all the benefits of water in ways that do not reduce the choices of future generations.

Sustainable water management will be characterised by:

>> Reliable and safe urban water and sewerage services as demanded by customers. >> A high value, low impact irrigation industry, supported by robust rural and regional communities. >> Healthy rivers, floodplains, estuaries and catchments, capable of delivering a wide range of water services in a sustainable way. >> Communities that truly appreciate all the services water provides and are able to make considered choices about how those services are to be valued and delivered. >> Communities with a strong ethic of water conservation, that aim for the most efficient use of water and the highest valued mix of services. >> An efficient and accountable water sector that fosters innovative ways to manage water and deliver diverse water services. Securing Our Water Future 7

The Challenge We Face Water Resources and 1 2Their Allocation There are a number of significant challenges Our challenge is to develop a water allocation that need to be faced if we are to achieve system that balances the needs of the our goal of sustainable water management. environment with the needs of water users. These include: To meet this challenge the Government >> Accommodating a projected increase of proposes: another million people in Melbourne by 2030 >> An enhanced framework for sustainable >> Only 23% of rivers – the source of the water allocation majority of our water, are in good >> Establishing an environmental reserve environmental condition under the Water Act to set aside a share >> Meeting our target to produce $12 billion of water in rivers and streams for of food and fibre exports by 2010 environmental flows >> Providing investment certainty and >> For rivers and aquifers that are not over- efficient delivery systems for businesses allocated, allocation of further entitlements only within sustainable >> Providing safe and reliable services to diversion limits customers >> For rivers and aquifers that are >> Dealing with the risks posed by climate overallocated and stressed, a general change approach which To achieve our goal will mean that we need to - caps consumptive entitlements and change the way we consume, manage and diversions at current levels, and then allocate our limited water resources today. We will need to: - improves environmental entitlements and reducing caps >> Reduce the demand for water wherever possible; and specifically >> Strive for the most efficient use of water, - proposes new caps on water taken using water that is fit for its purpose; out of the rivers in seven basins in the south of the State >> Generate the highest value for the community; >> Metering all significant water uses with water users responsible for paying for >> Reuse water wherever we can without meters – and that illegal use is phased out; harming public health; >> Making registers of all water entitlements >> Maximise the range and choice of possible publicly available uses of water to maximise our economic, social and environmental welfare; >> Approaches to deal with the impacts of plantations upon water resources >> Have water users pay appropriately for the services they obtain from water; and >> An approach to deal with the risks posed by climate change >> Protect and restore, where necessary, the environments that are the source of our water. The Green Paper presents a set of proposals for how this approach could be implemented in Victoria, ensuring that Victoria will continue to be a national leader in water management. Smarter Water Use in Smarter Use of 3Our Cities and Towns 4Irrigation Water Our challenge is to provide safe and reliable Irrigation is one the underpinnings of water supplies for urban uses while meeting Victoria’s economy and prosperity. Our the increasing needs of growing populations challenge is to make irrigated agriculture even and balancing the needs of the environment. more productive whilst reducing the adverse The Government considers that a new is effects on the environment – freeing up water not a sustainable solution for Melbourne. for improving environmental flows and reducing salt and nutrient inputs to rivers. To meet this challenge across Victoria, the Whilst significant progress been achieved, Government proposes: more is required. >> Reducing potable water consumption in To meet this challenge the Government the household and in industry through: proposes: - Pricing to encourage water >> Enhancing water markets conservation >> Investigating separating water rights from - Water savings targets for water land, by unbundling water rights into a authorities water share, a share of delivery capacity - Education and awareness and a site-use licence - Permanent water savings measures >> Introducing light-handed regulation of the prohibiting wasteful practices side-effects of irrigation - Water efficient appliances >> Working with irrigators to facilitate modernisation of distribution systems, - Ensuring that new developments including closing non-viable parts. This will reduce water use involve making domestic and stock water - Planning for large industrial and tradeable and introducing a compulsory commercial users acquisition power, while providing support for broad adjustment plans - Legislation and regulations that support water conservation and >> Improvements in on-farm use facilitate recycling and reclamation >> Continuing industry partnerships for - Reducing system losses and illegal use research and development >> Substituting recycled water and stormwater for potable water to extend our urban water supply >> Increasing the use of recycled water for industry, agriculture and environmental uses >> Promote the adoption of innovative technologies to extend the supplies of potable water Securing Our Water Future 9

Dealing with Pricing for Sustainability 5Stressed Rivers 6 Our challenge is to achieve significant Our challenge is to develop a pricing improvements in the ecological health of framework which will recover the full costs of Victoria’s rivers, , floodplain and sustainably managing our water resources and estuaries so that the many water services they provide the incentive for improved water provide are maintained in the future. conservation and ‘fit for purpose’ use. As a first step, the Government released the To meet this challenge, the Government Victorian River Health Strategy (VRHS) as the proposes policy framework for the integrated >> Establishing pricing principles that: management of Victoria’s rivers, floodplains, wetlands and estuaries. Now the Government - reward water conservation and is building on the VRHS and dealing specifically provide incentives to promote the with the issue of returning water to the efficient use of sustainable, fit-for- environment in stressed systems. purpose water supplies The Government proposes: - ensure prices better reflect the costs related to the environmental impacts >> For unregulated rivers, meeting agreed and opportunity costs associated with environmental flows in 80% of streamflow provisions of water services management plans within 10 years - recover the costs of the full range of >> In regulated systems, increasing water services environmental flows in stressed rivers by: >> Charging the Essential Services Commission - investing in system savings where with the responsibility of administering economic these principles and protecting the long - buying water on the water market term interests of water customers and focusing on local solutions ensuring that prices are fair and reasonable. - refining system management where feasible >> Establishing the CMAs as managers of the environmental reserve and strengthening An Innovative their role as the caretaker of river health >> Investing in enhanced capability in the and Accountable management of river health 7Water Sector Our challenge is to develop a capable, innovative, responsive and accountable water sector with an ethic of continuous improvement and prudent and efficient management. To achieve this challenge, the Government proposes options to: >> Improve the legislative framework by reviewing current legislation and creating a sustainable water act >> Clarify and accountabilities e.g. establishing consistent arrangements for whole-of- catchment waterway management and regional drainage in the Port Phillip and Westernport region >> Improve integration and coordination in the sector through the development of Sustainable Water Plans >> Improve the capability and effectiveness of the sector through consideration of greater collaboration and potential structural changes >> Improve innovation and performance 10 1Chapter One – The Challenge We Face Securing Our Water Future 11

Chapter One The Challenge We Face

1KEY CHALLENGE >> Secure, reliable water supplies for our PROPOSED GREEN PAPER ACTIONS homes, our farms and industry while 2 meeting the needs of the environment. Key principles for water management: >> Sustainable water management. >> Water authorities will be retained in public ownership. >> The Government will maintain the power to make decisions on the allocation of available resources, including surface water, groundwater, stormwater, water in supply systems, water reclaimed from sewerage and from other water sources, and maintain the overall stewardship of all water resources irrespective of source on behalf of all Victorians. >> The management of water will be based on an understanding that the provision of PREFERRED OUTCOMES water services that are valuable to the 3 State’s economy and to our society, is dependent on a healthy environment. >> Reliable and safe urban water and sewerage services as demanded by >> Users of the services our water systems customers. provide, should wherever practical, pay for the full cost, including infrastructure and >> A high value, low impact irrigation delivery costs, and environmental costs industry, supported by robust rural and associated with that service. regional communities. >> The water sector charged with managing >> Healthy rivers, floodplains, estuaries our water systems will be capable, and catchments, capable of delivering a innovative and accountable to the wide range of water services in a Victorian community. sustainable way. >> Communities that truly appreciate all the services water provides and are able to make considered choices about how those services are to be valued and delivered. >> Communities with a strong ethic of water conservation, that aim for the most efficient use of water and the highest valued mix of services. >> An efficient and accountable water sector that fosters innovative ways to manage water and deliver diverse water services. 12 Chapter One – The Challenge We Face

Drivers for Change

Water is essential to the success of our Annual temperature is projected to increase by 0.4 to 2 degrees by 2030 and by 1 to 6 degrees by 2070 in the economy, the health of our environment Murray Darling Basin. This will mean less water for and the well-being of our society. Water everyone. will remain essential to the well-being of our children and their society. Figure 1.1 Projected rainfall and temperature changes We need to change the way we consume, manage and in the Murray Darling Basin allocate our limited water resources today, in order to maximise our potential for a sustainable future. 6 C) Secure supplies of water for Victoria can not be taken 5 0 for granted. The current drought immediately 4 highlights this fact. The drought has severely reduced 3 the supply of water to our irrigation industries, 2 increased the pressures on Victoria’s rivers and limited 1 recreational activities in many areas. Over two hundred 0 cities and towns in Victoria are currently on water restrictions. 400 350 Max. temp. change ( Reliable water supplies will continue to be put at risk, 300 irrespective of the drought, by the rate and pattern of 250 our consumption of water and by factors such as 200 predicted changes in climate. 150 Rainfall (mm) 100 Melbourne, in particular, needs to start living within its 50 water means. Leading up to the introduction of Stage 0 Two water restrictions in Melbourne, an average 1960 1980 20002020 2040 2060 2080 2100 household was pouring over 30 percent of its drinking Year water onto the garden and flushing nearly 20 percent Source: Ayers G (2003): CSIRO Climate and the Murray Darling Basin, down the toilet. MDBC Climate Change Workshop The Government is planning on the basis that Disturbingly, Victoria is already experiencing the Melbourne’s population could grow by up to 1 million impacts of past actions, which have not fully valued the by the year 2030. If Melburnians continue to use water services water provides to our environment, economy at the same rate as today, the city may be approaching and society. its supply limits within 15 years. One third of Victoria’s rivers are in poor or very poor Compounding future increases in the consumption of condition and half our native species of freshwater fish water are estimates that total water availability may are threatened. The poor health of our rivers has decline with changes in climate. contributed to significant losses of the fish, frogs, birds and plants. Of the 40 species of native fish in Victoria, at least one is extinct, and 18 are now threatened. This includes the iconic Murray Cod. Poor river health threatens agriculture and tourism as well as the environment. This is clearly illustrated by the negative impacts of algal blooms in the Lakes on the local economy and on recreational users of the Lakes. Securing our Water Future 13

The Goal: Sustainable Management of Water

Our natural water systems include rivers, Virtually all of these services that our water systems provide to the community are reliant to some extent on streams, lakes, floodplains, wetlands and the environmental condition of the water system. Some estuaries. Superimposed on these are services, such as maintenance of ecological storages, water supply networks, communities, tourism, supply of clean drinking water or recreational fishing, require rivers and water systems to stormwater drainage networks, and be in good condition. As the environmental condition sewerage systems. These are all intimately of our water systems declines, various services can no linked to our groundwater sources and longer be provided. water bodies, and form complex Though all Victorians, urban and rural, appreciate the wide range of services our river systems offer, we have relationships across water catchments not fully understood this interdependency between the with all aspects of our environment. services water provides and the environmental condition of water systems. As a result, in some particular cases we have not managed the delivery of We expect and gain a wide range of services from all those services very well. The poor health of many of water systems: Victoria’s river systems demonstrates this. • Drinking water and other domestic water. There is a growing realisation, heightened by the • Irrigation for agriculture. experience of severe drought, that if we push the health of our river systems to the point of ‘ecosystem • Water supplies for industry. collapse’ then it is not just the environment that • Aquaculture. suffers, it is the economy and our society as well. • Hydro electricity. The Victorian Government considers that it is possible to enjoy all the benefits of water – for people, farms • Waste disposal. and the environment, in ways that do not reduce the choices of future generations. • Secure and safe storage of water in and underground. Sustainable water management for Victoria should be characterised by: • Flood management. • Reliable and safe urban water and sewerage services • Recreational use of water in a wide diversity of as demanded by customers. forms. • A high value, low impact irrigation industry, • Protection of biodiversity and ecosystem health. supported by robust rural and regional • Ecotourism. communities. We also value water in the environment for its • Healthy rivers, floodplains, estuaries and aesthetics – most Australians choose to live as close as catchments, capable of delivering a wide range of possible to water of one kind or another, water services in a sustainable way. predominantly the coast, but also our rivers, lakes and • Communities that truly appreciate all the services storages. Connection to water is of particular water provides and are able to make considered significance to indigenous Victorians. choices about how those services are to be valued All these services we expect from water have a value to and delivered. us – an economic value as well as a social value, and in • Communities with a strong ethic of water some cases, cultural values as well. Even ‘environmental’ conservation, that aim for the most efficient use of services, including supporting biodiversity, have water and the highest valued mix of services. economic, social and cultural value to Victorians. • An efficient and accountable water sector that fosters innovative ways to manage water and deliver diverse water services. 14 Chapter One – The Challenge We Face

Getting Back into Balance

Changing our water behaviour requires changing how we think about water. 1.1 Water authorities will be retained in Our traditional approach to managing water has been to build dams to provide a secure water supply, use it public ownership. for towns, industry and irrigation and then dispose of our waste and pollution back into rivers or the ocean. 1.2 The Government will maintain the This approach has been wasteful and has had some power to make decisions on the devastating impacts on the environment and the values we derive from water. allocation of available resources, Only in the last 20 years, as the scarcity of water including surface water, became apparent, have we started to question how groundwater, stormwater, water in much water we really need and whether our ‘waste’ water can be better used. supply systems, water reclaimed from It is proposed that water management in the future will sewerage and from other water be based around five major principles, the first of which sources and Government will has been recently enshrined in Victorian legislation. maintain overall stewardship of all water resources irrespective of source on behalf of all Victorians. 1.3 The management of water will be based on an understanding that the provision of water services that are valuable to the State’s economy and to our society, is dependent on a healthy environment. 1.4 Users of the services our water systems provide, should wherever practical, pay for the full cost, including infrastructure and delivery costs, and environmental costs associated with that service. 1.5 The water sector charged with managing our water systems will be capable, innovative and accountable to the Victorian community. Securing our Water Future 15

Using these principles, the Green Paper sets out In essence, Figure 1.2 below illustrates that moving proposals that: towards the sustainable management of water will require: • Reduce the demand for water wherever possible. 1 A sustainable balance between the many services we • Strive for the most efficient use of water, using expect from water, including reserves of water for water that is fit for its purpose. the environment (see Chapter 2, Water Resources • Generate the highest value for the community. and their Allocation). • Reuse water wherever we can without harming 2 A major focus on conserving, recycling and public health. reclaiming our water in urban centres. Valuing all sources of water and no longer thinking of ‘waste’ • Maximise the range and choice of possible uses of water as waste (see Chapter 3, Smarter Water Use in water to maximise our economic, social and Our Cities and Towns). environmental welfare. 3 The further transformation of irrigation into a • Have water users pay appropriately for the services high-value, low-impact industry (see Chapter 4, they obtain from water. Smarter Water Use of Irrigation Water). • Protect the environments that are the sources of 4 Specific action to restore the health of our rivers our water. and floodplains (see Chapter 5, Dealing with This approach and the reform agenda proposed in this Stressed Rivers). Green Paper is broadly encapsulated in the following 5 Water prices that reflect the true cost of this vital diagram. resource (see Chapter 6, Pricing for Sustainability). 6 Making our institutional arrangements more Figure 1.2 effective and responsive (see Chapter 7, An Sustainable water resource management Innovative and Accountable Water Sector).

Our Water Resource • Rivers/streams • Groundwater • Catchment run-off Using water more efficiently in ways

Healthy Rivers and Environment that most benefit the community Water Services that Sustain • Returning the flows to our rivers our Economy and Meet • Improving water quality Community Needs • Improving habitat • Conserving our water • Protecting our catchments • Using stormwater, rainwater, greywater, Achieving drainage water, recycled water in cities a Sustainable and towns Balance • using water 'fit for purpose' • Using water wisely on our farms – minimising losses, enhancing the water market • Reducing pollution flows into our rivers and waterways

Delivering Desired Results through an Innovative and Accountable Water Sector and Pricing for True Cost of Water 16 Chapter One – The Challenge We Face

National leadership Process for consultation

Victoria continues to be the leader in water This Green Paper outlines the Government’s proposed management on the national scene. Our plan to move approach to the sustainable management of water in towards the sustainable management of water will Victoria. The issue is one that is vital to all Victorians. ensure that this leadership continues. The Government welcomes and encourages comment on its proposals from all community members. Our clear water entitlements are generating immense economic benefits for the State. The Victorian water The Green Paper will be made available via the market is highly active, moving water away from low- Department of Sustainability and Environment website – value farming on poor soils, to export-oriented, www.dse.vic.gov.au – and in hardcopy from the DSE state-of-the-art horticulture and dairying. This is call centre on 136 186. important for jobs growth and brings increased Comments or submissions on the Green Paper should income into the economy. be submitted to the Department of Sustainability and Victoria is also implementing major enhancements Environment by 31 October 2003 and lodged on the in our rivers of national importance. Victorian website or directed to: communities have championed the survival of the Project Manager – Green Paper Snowy River and the Wimmera and Glenelg Rivers. Water Sector Development Group The River Murray is the next major challenge. Department of Sustainability and Environment Cooperative efforts among all jurisdictions will be PO Box 500 required to ensure the future of the nation’s water. East Melbourne, Victoria 3002 The power of national action to effect change was illustrated through the Snowy River project in 2002. All submissions are public documents. If an author However, it is vital that the Commonwealth matches wishes all or part of a submission to be treated as Victoria’s funding of projects of national significance confidential a request to that effect should accompany such as the Wimmera Mallee Pipeline, which will the submission. Freedom of Information access save 93,000 megalitres of water from evaporation requirements will apply to submissions treated as and seepage. confidential. Individuals may gain access to their It is important that future national water reform submissions by writing to the Project Manager. recognises Victoria’s progressive performance in The consultation program will be lead by an Expert water management. Victoria strongly supports the Advisory Taskforce, chaired by Professor Bill Russell development of an open, cooperative (inter-jurisdictional) with members Professor Barry T. Hart and Mr Rowan water market. However, to do this certain barriers must Tuckfield. Details of the consultation program for the be overcome through national cooperation. Green Paper will be detailed on the Department’s website and through its call centre. Following consultation, the Government will finalise its proposed approach to the management of water in Victoria and will outline this in a White Paper to be released in early 2004. Securing our Water Future 17 18 2Chapter Two – Water Resources Securing Our Water Future 19

Chapter Two Water Resources and Their Allocation

1KEY CHALLENGE >> To develop a water allocation system that recognises all water services and balances the needs of the environment with the needs of water users. PROPOSED GREEN PAPER ACTIONS >> The environmental health of many Victorian rivers is poor due to 2 over-allocation of water. >> An enhanced framework for sustainable water allocation. >> Establishing an environmental reserve under the Water Act 1989. >> For rivers and aquifers that are not over- allocated, allocation of further entitlements only within sustainable diversion limits. >> For rivers and aquifers that are overallocated and stressed: - capping consumptive entitlements and diversions at current levels, and then - improving environmental entitlements and reducing caps >> Approaches to deal with the impacts of PREFERRED OUTCOMES plantations upon water resources. 3 >> Metering all significant water uses. >> Firm reliable water entitlements. >> Making registers of all water entitlements >> Better protection for environmental water publicly available. through the establishment of an ‘environmental reserve’. >> Achieving significant improvements in the quality of river health. >> Continue to provide for water needs of a strong agricultural sector with high reliability. >> Allocating new entitlements in a way that best maximises the community benefit. >> Mechanisms to ensure that water users operate within their entitlements. 20 Chapter Two – Water Resources

Water Allocation in Victoria

Our water resources Water allocation in Victoria

The Great Dividing Range, which The significance of water for Victoria’s development has long been recognised, and governments over the normally receives 900 millimetres or more decades have developed policies, legislation and of rain, divides Victoria in two. On the institutional arrangements to govern and manage the allocation of water among the many purposes to which inland side, the rivers flow into the River it has been put. Murray, which meanders north-west The water allocation framework has been extended over through increasingly arid country. On the time to cover groundwater and to recognise the needs coastal side, there are many separate of more diverse water services. Initially, the prime purpose of allocation systems was to make sure users’ rivers running directly into the sea. licences could be met. But there has been a growing awareness that our rivers and aquifers are subject to Most of the rainfall is taken up by plants or evaporates. serious harm if they become over-allocated – if they no Just 16 per cent, or about 20,000 gigalitres a year on longer have the capacity to deliver the diverse services average, flows into our streams, and another one per we expect, including avoiding irreparable ecosystem cent, or 1,500 gigalitres, filters through to recharge damage and protecting biodiversity. groundwater aquifers. By the time of the Water Act 1989, it was clear that About a third of the stream flow (6,000 gigalitres) and a water was a finite resource for Victoria. New harvesting third of the groundwater recharge (500 gigalitres) is projects would be expensive and environmentally extracted for community use – for irrigation, for difficult. Conflict was seen to be looming, especially in domestic use, for industry and for other urban long droughts, and it was decided to handle this by purposes. agreeing on clear shares of the resource in advance – with re-allocation via the market. Figure 2.1. The Water Act allocates the water available for Consumptive uses of water in Victoria, consumptive uses according to a hierarchy of legal 1996/1997 entitlements. The Crown has the primary right to the use, flow and control of all water in waterways and groundwater. 6% Rural domestic & stock In the second level of the hierarchy, the Minister on 9% Regional urban behalf of the Crown allocates bulk water entitlements to water authorities – and also determines the 8% Melbourne permissible annual volume of water that may be allocated via take-and-use licences. Precisely defined bulk water entitlements have replaced the old, vague ‘assignments’ of water for authority- 77% Irrigation supplied irrigation districts. Similarly, urban authorities might once have had permits to have a pump of a certain size: now they have bulk water entitlements that clearly define what water they are entitled to, and how the pain of droughts will be shared.

Source: National Land and Water Audit (2000) As well as strict limits on the water taken out of rivers, bulk entitlements include conditions about minimum Our annual rainfall and streamflow are markedly more flows and flushing flows to be provided in rivers. The variable than Northern America and Europe. Both intention has been to establish clear boundaries extreme flood years and long periods of drought are between the water available for consumptive use and established experiences across Victoria. Storage of the water reserved for the environment. water is therefore particularly important. The third tier of the entitlement hierarchy comprises the rights that are allocated to private individuals. In irrigation districts, where irrigators are supplied by a Securing Our Water Future 21

water authority, irrigators hold water rights. Irrigators Nationally, studies by scientists (including the may also hold licences to pump or otherwise take water Wentworth group), by catchment authorities and by from a river or an aquifer. environmental groups have all contributed to major concern among governments about the future of our Irrigators whose water comes from the large systems river systems, and in particular the Murray-Darling that are regulated by major public storages have access Basin system of which Victoria’s rivers form a crucial to ‘sales’ water. This is lower-reliability water offered to part. irrigators on a seasonal basis, in proportion to their base rights, after provision has been made to meet the Victoria’s first response to these concerns was to lead base rights in the following year. the intergovernmental resolution of an agreement to return stream flows to the Snowy River – an iconic river Customers of urban authorities do not hold for all Australians. entitlements, but water authorities have obligations to supply them. However, as Table 2.1 shows, there is no reason to be complacent about the future of our key streams. Our key ‘working rivers’ from which we derive irrigation and urban supplies, are very heavily allocated and in Strengths and weaknesses some cases now have less than half of their natural of the current system flows available, and obviously even less in drought years. While this system has been evolving, studies of the health of Victoria’s rivers and groundwater systems This places these systems under stress and reduces in a have elevated the question of the sustainability of our major way their capacity to deliver other services – not current water allocation practices and of the systems least the provision of a healthy environment – in a from which we draw our water supplies. sustainable way. Addressing this issue is the key challenge we face.

Table 2.1. Current flows compared with natural flows in Victorian rivers

Ave Current Ave Current Ave Current River natural flow River natural flow River natural flow (south western) flow as % of (northern) flow as % of (south eastern) flow as % of (GL) natural (GL) natural (GL) natural Maribyrnong 125 94 Upper Murray 2,084 105 East Gippsland 887 100 Werribee 137 77 Mitta Mitta 1,439 99 Snowy 2,767 60 Moorabool 81 50 Kiewa 679 99 Tambo 329 99 Barwon 251 84 Ovens 1,692 99 Mitchell 1,100 99 Corangamite 121 99 Broken 326 73 Avon 239 96 Otway Coast 750 97 Goulburn 3,366 37 Thomson/Macalister 842 59 Hopkins 406 98 Campaspe 305 53 Latrobe 887 82 Portland Coast 231 99 Loddon 415 67 South Gippsland 851 99 Glenelg 704 90 Avoca 136 97 Bunyip 354 97 Murray 12,282 39 Yarra 1,200 65 Wimmera 255 43

Blue = less than 90% and 70% or more of natural flows, at some risk of being stressed

Red bold = less than 70% of natural flows, very likely to be stressed (indicative classifications only, see text)

Source for flow figures: National Land and Water Audit (2000), except for the Moorabool, Broken, Goulburn, Campaspe, Loddon and the Wimmera Rivers, where more recent and detailed DSE information indicates much higher levels of diversion. Rivers like the Thomson will be more heavily used once existing entitlements are fully taken up. Figures are mainly for the most downstream flow gauge, but sometimes estimate run-off/inflows. Natural flows are all constructed estimates. 22 Chapter Two – Water Resources

Table 2.1 shows that 17 of the 30 river basins still have 90 per cent or more of their natural flows. However, this is no guarantee of environmental health. These rivers still can show environmental damage due to changed flow regimes, such as too much water in summer, and the impacts of other factors, such as poor water quality, floodplain development and alienation, lack of vegetation, and presence of weirs and other barriers. Figure 2.2 shows the environmental condition of streams across Victoria. It shows that many of our rivers are in poor condition. Table 2.2 and Figure 2.2 together highlight the fact that flow and other factors are affecting the condition of our rivers, and underlines the need for an integrated approach to river health.

Figure 2.2. Proportion of the length of major streams in excellent or good condition

<70%

51-70% 31-50%

11-30%

<10%

Not Available

Source: Victorian Rivers - An Environmental Report Card (1999) Securing Our Water Future 23

Given the above factors, the Government sees Victoria’s The main shortcomings in the allocation framework are: water allocation system as having some strengths, but • A legacy from an earlier, less environmentally aware also some major shortcomings that need to be era: over-allocation. As noted above, too much water addressed. is now being taken out of many of our rivers – and Key strengths include: they include our biggest rivers. • Victoria has relatively reliable and firm entitlements. • A lack of safeguarding mechanisms so that we don’t Care has been taken that the volume of entitlements over-allocate in the future. granted relates to the available water. And, each • The lack of clear protection and responsibility for season, water is kept in reserve to ensure environmental allocations. entitlements can be met in the following season, before any extra ‘sales’ water is made available. • Some question about how well the allocation system handles emerging risks to future inflows As a result, entitlements on major systems are fully and river health. met in nearly every year. Reliable water supports investment in perennial pastures, vines and fruit trees. Another result is that quite a lot of water spills from storages, providing environmental benefits. • Victoria’s allocation system has some adaptability in the light of changing conditions and emerging requirements. In effect, entitlements are shares of the available resource, so in a drought people understand they will obtain less water. Some States have provision for periodic reviews of how much water will be made available to users or kept for rivers. We have had issue-based reviews, such as the recent review on farm dams, which have been well-respected. There are overriding powers in the Water Act that allow entitlements to be reduced in order to protect the environment (they do not establish a definite process for doing this, though, and thus may be hard to use). 24 Chapter Two – Water Resources

A Framework for Sustainable Water Allocation

The Government’s framework for Key concepts sustainable water allocation is built on an understanding of the interdependency of Environmental flow provisions are the flow regimes water services and the environmental provided to maintain the agreed environmental condition of our water systems. It aims to condition of water systems. strike the delicate balance between using Environmental reserve is the share of water resources set aside to maintain the environmental our water systems and maintaining their values of a water system and other water services environmental condition so that the which are dependent on environmental condition of water services they provide are the system. maintained in the future. Sustainable diversion limit (SDL) is the maximum volume that can be diverted from a sub-catchment during winter while protecting the environment. Permissible Annual Volume (PAV) is the volume of water that can be extracted via licences as authorised by the Minister. This is set taking into account the current level of allocation and/or an estimate of sustainable yield. A Cap limits the water diverted from rivers in a basin to the existing level of diversion. It means that no new water entitlements will be allocated and any new water users must buy entitlements.

The Government’s goal for the future allocation of water in Victoria is: The allocation of water across the range of water services will be sustainable and will support activities valuable to the State’s economy and to our society.

Principles that are proposed for 2.1 sustainable water allocation are: • Water will be allocated to consumptive or other uses that provide private benefits where Victoria’s communities regard this as in the public interest. • Water will be set aside in an environmental reserve with legal status. p Securing Our Water Future 25

• The environmental reserve will: together with the - Aim to maintain the obligations associated environmental values of with holding the the water system, and entitlement. the other water services • Consumptive entitlement which are dependent generally will be allocated on environmental by market mechanisms and condition. be allowed to trade - Aim to provide a base between entitlement level of environmental holders. condition that • Where over-allocation has maintains biodiversity occurred (i.e. the and ecological environmental reserve is functioning and insufficient), communities protects water quality. and the Government need - Recognise that not all to work together to rebuild rivers and aquifers can reserves to provide for be pristine, some having agreed environmental needs been fundamentally and other water services changed through dependent on infrastructure and environmental condition. floodplain development. • Environmental reserves will • In establishing the be monitored to determine environmental reserve, the whether they are achieving rights of existing entitlement their objectives and whether holders will be recognised. any further action is required. • All water users will have • Water systems will be entitlements that are effectively managed responsibly and a share of the available with clear accountabilities to resource. Entitlements will: protect the environmental reserve and water users’ - Have secure tenure. entitlements. - Clearly specify the share or base volume and expected reliability, 26 Chapter Two – Water Resources

In the case of those rivers and aquifers that are The objective is not to return the river to a pristine state currently not over-allocated, it is possible to establish a but to achieve an ecologically healthy working river – i.e. precautionary level of environmental reserve (e.g. as a a river where some aspects of environmental condition limit to diversions), and then make the remainder of the have been traded off to provide for human use, but water available for consumptive use. This would provide where a reasonable level of ecological integrity and the opportunity to continue a rich diversity of services related water services is maintained. from consumptive uses, recreational uses, water quality The ecological outcome of different actions often cannot services and environmental services. be known in advance, and decisions must be made However, there are a number of rivers and aquifers about the level of risk a community is willing to bear. which have been over-allocated in the past. In these It is important to ensure that we have an adaptive situations, the environmental reserve will be determined approach to the management of the environmental as the water remaining after these consumptive reserve. Monitoring will be required to ensure that the commitments are taken into account. Consideration will community’s objectives are being achieved by the then be given to whether there should be any returns of environmental reserve and complementary river water to these water systems to achieve a satisfactory restoration programs (e.g. bank restoration and environmental reserve in each case. pollution abatement). Choices will need to be made about the relative Implementing this framework for sustainable water importance of consumptive water services over other allocation and achieving the desired outcome of healthy water services the system might be expected to offer. rivers, capable of delivering a wide range of water Making these choices will involve clearly identifying services, will require some enhancements to our current community management objectives for that river. practices. The new arrangements will require: Setting community management objectives for rivers • Providing legal status for the environmental reserve. and river reaches will be undertaken through the • Establishing a precautionary environmental reserve development of regional river health strategies. These in catchments and aquifers that currently are not strategies will identify for each major river reach the: over-allocated. • Environmental, social or economic water services (or • Establishing the initial environmental reserve in assets) provided by the reach. over-allocated and stressed systems by capping • Value of these services at the regional and the existing entitlements. state level. • Managing the allocation system responsibly by • Issues that threaten the provision of these services. tightening it up, ensuring all risks are managed and ensuring there is accountability. The strategies will establish objectives and targets for each river reach, and will be the basis for an integrated • Providing mechanisms for acquiring water for the program for river protection and restoration at the environment where the environmental reserve is not regional level. They will identify those river reaches that adequate in priority stressed systems. are of high value to their communities and that are • Ensuring that the environmental reserve is managed threatened because the environmental reserve is within the broader context of integrated river inadequate, classifying rivers according to community restoration to provide river health outcomes. value and priority for action. The first four proposals are discussed in the following Rivers that are classified to be of high value because of sections of this chapter. The remaining two issues are the water services/assets they provide and that are dealt with in Chapter 5. threatened because of lack of flows become a high priority for acquisition of water and building the environmental reserve. In acquiring water for the environment, the aim will be to acquire enough water and supply it in a flow pattern that will sustain the environmental values, taking into account any fundamental change to the river caused by dams or other infrastructure or major alteration of the floodplains. Securing our Water Future 27

Giving Legal Recognition to the Environmental Reserve

In the past, environmental flows have been provided in two ways: The Government proposes to 2.2 amend the Water Act to establish • Usually by placing conditions on an environmental reserve to set the bulk entitlements or licences aside a share of water in river and of consumptive users about the aquifers for the environment. flow regime to be provided.

• More rarely, by providing a bulk The environmental reserve will be adaptable in the light of emerging aquatic health and community values. entitlement for the environment. Thus, it will be augmented where water is retrieved to provide better environmental flows. It may also be While placing conditions on other users to provide varied where a sustainable diversion limit is refined environmental flows does provide a degree of legal through a detailed streamflow management plan. protection for these flows, it also means that the Initially the environmental reserve will consist of all environment has been treated as a residual water other than water specified or set aside for consideration. This does not properly recognise consumptive use in the Water Act 1989, in bulk environmental water and the importance of a healthy entitlements and licences, sustainable diversion limits environment. and permissible annual volumes. The statutory recognition and allocation of this water for the environment will require a higher level of management to ensure that the community sees real environmental outcomes. This is discussed further in a section on the role of the environmental manager in Chapter 5. The following sections discuss how the concept of the environmental reserve will be established in both under-allocated and over-allocated systems. 28 Chapter Two – Water Resources

The Environmental Reserve: Cautious Limits to Avoid Over-Allocation

For those catchments that are not yet over-allocated, we must be careful to The Government proposes to keep it that way. We need to look at 2.3 establish an environmental reserve: what water the environment needs, and make sure it is safeguarded as the • In catchments that are not environmental reserve. Then we can over-allocated, by establishing continue to allow some new consumptive how much the environment entitlement where this is available. needs and then setting ‘sustainable diversion limits’. New summer pumping licences have not been issued since the 1967 drought – and in the north existing ones • In establishing the reserve the can only trade downstream. Careful work has now been carried out to establish a level to which winter flows rights of existing entitlements could be harvested without jeopardising stream health holders will be recognised. and offering users a reasonable level of reliability. ‘Sustainable diversion limits’ (including both an annual volume and an extraction rate) have been defined for 1,600 catchments right across Victoria. In looking to see whether there are spare winter flows that could be allocated within a sustainable diversion limit, account will be taken of existing winter-fill entitlements (including farm dams), and also the need for keeping some scope for summer-pumping licences to convert to winter-fill, where the existing level of summer pumping may be causing stress. A parallel approach is followed in the management of groundwater. The amount of water replenishing an aquifer each year may be relatively small. Preliminary estimates of the sustainable yield of aquifers have been developed, called ‘permissible annual volumes’. New allocations will be allowed only up to 70 per cent of these, unless a groundwater management plan has been developed involving a more detailed assessment of the sustainable yield. Securing our Water Future 29

The Environmental Reserve: Caps for Stressed Rivers

In a number of basins the distribution of water between the environment, other The Government proposes in valued water services such as recreational 2.4 catchments that are fully or use, and consumptive users, is clearly out over-allocated to establish the of balance. environmental reserves by initially setting caps that recognise the Table 2.1 shows that the river we share with New South Wales and South Australia, the River Murray, has only rights of existing water 39 per cent of its natural flow at its mouth (if typical entitlement holders and then rather than average flows are compared, the figure is an even more serious 26 per cent). determining whether further Our own biggest river, the Goulburn, is as heavily action is required. exploited as the River Murray. Other rivers with heavy levels of allocation and usage are the This means that, in addition to the Thomson/Macalister, the Moorabool, the Campaspe, the Loddon, the Snowy, the Wimmera and the Yarra. existing Murray Darling Basin cap In the north of the State, in the Murray-Darling Basin, in the north of the State, the there has been a cap on water diversions from the river Government proposes that caps be system since 1995. This has meant that the creeping rise in irrigation usage from ‘sales’ water has stopped. imposed on seven river basins (set It has also meant that winter-fill licences for water out in Table 2.2) in the south of pumped from streams to farm dams are no longer given the State that are fully allocated, out. New users of such water need to buy entitlements from a person who already has some. More recently, the and in some cases over-allocated. cap has meant that entitlement needs to be purchased for an irrigation farm dam. In these catchments caps would be The cap has helped drive greater efficiencies in water set initially on current entitlement, use and prompted a greater appreciation of the value of with steps taken to avoid increase water. New development has been able to occur through the water market. in usage beyond the long-term average usage assumed in For streams south of the Divide, caps have not yet been used. But as a first step in addressing the future of all developing the entitlements. water services from our water systems, the Government proposes in some catchments to cease allocating new entitlements and apply caps. The new caps would have the same effect as the cap The aim is to stop the environmental damage from north of the Divide, in terms of requiring new water extraction becoming worse. entitlements to be purchased from existing water users. However: • Steps will be taken to make sure usage does not rise because of increased use of ‘sales’ water. Thus, in the Werribee and the Macalister catchments, where irrigators do access ‘sales’ water, diversion limits established in bulk entitlements will be assessed to make sure they prevent any significant rise in average usage resulting from ‘sales’. • More broadly, usage will not be allowed to rise beyond the long-term average usage assumed when entitlements were set. For example, Melbourne’s bulk 30 Chapter Two – Water Resources

entitlement for water from the Thomson allows an The rivers in the west (Werribee, Moorabool and Barwon) average of 265 gigalitres a year over any five-year have highly variable flows, which means they can be in period. It was assumed that in practice the average poor health even though average utilisation is not as extracted over the long term would be about 180 high as the Goulburn. Two of the rivers in the east feed gigalitres a year. There is a chance this could be the ; other, more lightly allocated rivers exceeded by working the storage harder than has that do the same will not be capped unless it is been assumed. The cap will ensure the 180 gigalitres demonstrated that the Lakes and their surrounding is a firm long-term limit. wetlands are at serious risk from lack of flows. Caps are being proposed on entitlements to divert from streams in the seven basins listed in Table 2.2 covering all those classed in Table 2.1 as at risk of being stressed, or very likely to be stressed. The lower reaches of all these rivers show up as being in marginal, poor or very poor condition according to DSE’s 1999 Victorian Rivers – An Environmental Report Card.

Table 2.2. Southern river basins where caps are proposed River basin Current river health status and special circumstances Werribee The minimum flow below the Weir is just one megalitre a day, which is not enough to sustain a healthy river. In droughts this one megalitre flow can remain this low for several years, harming gums, platypus and fish, as well as the river’s social values. Recycling of Melbourne’s ‘waste’ water is a possible way of increasing flows. Moorabool This river similarly suffers from heavy exploitation, summer and winter, which has reduced it in some reaches to a semi-stagnant trickle. A recent streamflow plan acknowledges the river’s decline, and a study is now under way to find ways of improving the flow regime and the river’s health. Barwon The diminished flows in the Moorabool and also the Barwon itself threaten to harm the internationally-recognised complex of and . is realising that further extraction is not going to be environmentally acceptable. Snowy A 1996 scientific study maintained the Snowy was suffering severely from removal of flows; this has led to joint action by Victoria and NSW to restore initially 212 gigalitres. (Governments have determined that these flows are not to be used for consumptive purposes.) Thomson/ Scientific assessments for each of these rivers’ environmental flows provided for in bulk Macalister entitlements have called for significant increases in flows, above those that will occur once entitlements are taken up (in particular, once Melbourne’s use of Thomson water reaches the 180 gigalitres a year long-term average assessment in its bulk entitlement.) La Trobe Flows will decline as unused entitlement is taken up. The lower river is affected by diminished Thomson outflows. Any further flow depletion would present risks for Dowds Morass and Lake Wellington. (The cap is to include 500 megalitres extra winter-fill as proposed in the streamflow plan; 40 gigalitres unallocated in will be the subject of a study.) Yarra Much of the current flow below Warrandyte comes from urban stormwater pouring into the river. The river is already a fair way from natural, but now has significant social value. (The cap is to include any extra diversion agreed to by the Minister in response to the Resources Strategy and in setting bulk entitlements. As well, there needs to be some agreed allowance for increased use of stormwater.) Securing our Water Future 31

Managing the Allocation System Responsibly

Pending the White Paper and a The Government has adopted these 2.5 decision on the proposal to 2.7 key principles regarding metering: establish caps, the Government will • All significant water use will apply a moratorium on the issuing be metered. of new water entitlements in the seven basins set out in Table 2.2. • Water users will be responsible for the costs of metering their Allocating new entitlements diversions. Water is clearly an increasingly valuable commodity. Where additional entitlement can be allocated within a Irrigator responsibility for metering costs will certainly surface water diversion limit or groundwater extraction apply to all new diversions. Transitional arrangements limit, it would be both irresponsible and inequitable to (such as paying over a period) may be needed for give it away on a first-come first-served basis, providing existing diverters. some people with the potential for major windfall gains. There are some instances where users appear to have Markets are one way of allocating water in a fair way been taking more water than they are entitled to under that also reflects its value. Market mechanisms could their licences – in a few cases considerably more and for include auctions or sale on the Watermove exchange. an extended period.

The Government will use a range 2.6 of market mechanisms to allocate any new entitlement, maximising both its productive use and the return to the community.

Tightening up the system Now that water has become so valuable, it is essential that all water users operate within their entitlements. This means that metering of all significant usage is crucial, and that there will need to be a stronger emphasis on enforcement. The great bulk of water extracted from rivers is already metered. However, there are gaps in places, especially on unregulated streams and for aquifers. 32 Chapter Two – Water Resources

Where there is overuse of licences, The Government will: the Government will support rural 2.8 2.9 • Ensure that registers are water authorities in developing kept of licences, and that all transitional arrangements that allow registers of water entitlements diverters time to suitably adjust their are publicly available. businesses or their entitlements to comply with the law. • Investigate options for preparing, auditing and Public water accounts publishing annual water Confidence in the State’s water allocation system relies accounts for the whole on the ability of the public to scrutinise: of Victoria. • How much water has been allocated for consumptive and other uses. • How much water has been available and used in any particular year. Currently the Government maintains a register of bulk entitlements that is available for public inspection. Also, the public may obtain copies of entries in rural water authorities’ registers of water rights. However, the Water Act does not require registers of licences and is unclear as to whether information in registers of licences and water rights should be publicly available. Water authorities are required to report on compliance with their bulk entitlements in their annual reports. However, there are no readily accessible water accounts which bring together information about how much water was available and how much water was used for consumptive and environmental purposes. Securing our Water Future 33

Managing the risks More widespread and longer-term changes could come about as a result of the greenhouse effect or other Flows in rivers and recharge to aquifers are inherently climate change. Predictions from CSIRO are for water variable – especially so in Australia. The allocation resources to be reduced through hotter weather system deals with year-to-year variability by increasing evaporation, compounded by lower rainfall entitlements effectively being, not for a fixed volume, especially in winter/spring (see Chapter 1). but for a share of the available resource. It is important that the risks posed by climate change For example, the flows in the River Murray flows near are shared across environmental and consumptive uses Albury are highly variable. Looking back over the records of water – and that the impact of commercial for the last century, shows that it has been on average plantations on both the environment and existing wetter in the last 50 years than in the previous 50 years. water users is minimised. On the other hand, the last four years have had the lowest flows of any four-year period on record. It is hard to know whether the last four years is part of the natural variability or represents a longer term change. To deal with the repercussions on Changes to inflows affect both consumptive users and 2.10 water resources of timber the environment, although not necessarily to the same plantations or other land-use extent. Localised changes to resources can result from: changes, the Government will • Groundwater extractions, where the aquifer feeds into or is fed by a river. This is being addressed by investigate a range of management fixing ‘permissible annual volumes’ for aquifers, and options, including: managing groundwater in an integrated way with surface water. • Amending planning processes • Timber plantations, since young trees are thirsty, to minimise the impacts of reducing run-off by about two megalitres per hectare. Thus if 50,000 hectares of plantations were to be new developments. developed in north-east Victoria, this could cut inflows to the Murray by 100 gigalitres, over six per cent of • In catchments which are not our extraction from the Murray. (Replanting trees in capped setting aside some places, however, may slow the groundwater recharge that is giving rise to salinity problems.) allocations to allow for the The Murray-Darling Basin Ministerial Council has said effects of plantations. plantations should eventually be under the cap, where their impact is significant. This would protect • Requiring water entitlements river flows, but mean existing water users would bear to be purchased to offset the all the impact of lower supplies, unless plantations were required to purchase water entitlement. effects of new plantations. • Bushfires, again because young trees soak up more Where resources are going through water. 50 per cent of ’s catchment was burnt out this year. The impact may not be too 2.11 a long-term alteration associated severe, since most of the burnt forest was with climate change, the stringybark and other species that survive fire. (Melbourne’s catchments are largely mountain ash, Government will adjust bulk which is killed by fire and then fully regenerates, so entitlements to ensure that the fire has a big impact on water supplies.) effect of this is shared across consumptive users and the environment. 34 Chapter Three – Smarter Water Use in our Cities and Towns 3 Securing Our Water Future 35

Chapter Three Smarter Water Use in Our Cities and Towns

1KEY CHALLENGE >> To provide a safe, reliable supply of water now and into the future for urban uses. >> Achieve a sustainable balance between PROPOSED GREEN PAPER health of rivers and water diverted for urban use. 2 ACTIONS AREAS >> To meet the needs of growing urban >> Reducing potable water consumption in populations in the face of drought and the household and in industry through: climate change. - Pricing to encourage conservation >> To postpone the construction of new dams - Water savings targets that are costly, environmentally damaging and take water off existing water users. - Education and awareness >> To foster innovation to drive water - Permanent water savings measures conservation and recycling. - Water efficient appliances - Ensuring that new developments are water smart - Legislation and regulations that support water conservation and facilitate recycling and reclamation >> Substituting recycled water and stormwater for potable water to extend our supplies of potable water. PREFERRED OUTCOMES >> Increasing the use of recycled water for industry, agriculture and environmental uses. 3 >> Promoting the adoption of innovative >> Reliable safe urban water supplies. technologies to extend the supplies of >> Reduction in demand for potable water. potable water. >> A 15 per cent reduction in per capita use of water for Melbourne by 2010. >> Recycling 20 per cent of water by 2010. >> Increased fit for purpose use of water. >> WaterSmart homes and buildings. >> Innovative cost effective investment in water conservation and recycling. >> No requirement for new dams for Melbourne in next 50 years. 36 Chapter Three – Smarter Water Use in our Cities and Towns

Challenges for Urban Water

The current drought has increased Healthy Rivers awareness of water’s scarcity and the The water supply systems for many cities and towns importance of water conservation by all were developed in the past with little consideration for the environmental needs of the rivers supplying the sectors of the community. water. As described in Chapter 2, there is a limited ability to respond to increased demand for urban water Urban uses of water consume 17 per cent of Victoria’s by increasing diversions from rivers without impacting total water supply. Almost half of this is used by on the health of the river systems. households and industry in Melbourne, with the rest For Melbourne, an average of 72 per cent of the inflows used by households and industry in regional towns into Melbourne’s storages within the Yarra catchment and cities. above Warrandyte are harvested for consumption and Sustainable urban water management should feature: 28 per cent are released for environmental flows. In total, 35 per cent of the estimated natural flows in the • A reliable supply of water for our essential needs. Yarra basin are harvested. Melbourne also takes water • Clean and safe drinking water. from the Thomson River in Gippsland, where about 46 per cent of the flow at the Thomson River dam site is • A sustainable balance between healthy rivers and diverted away from the river to Melbourne. the diversion of water for urban uses. Similarly, to the north of Melbourne, the Goulburn Achieving these outcomes presents a significant River is the most heavily utilised river in Victoria, with challenge for Victoria given the pressures we face. We more than 60 per cent of its water being used for need to: irrigation and urban systems. To the south west of • Find ways to meet the water needs of growing Melbourne, Geelong and Ballarat heavily utilise the populations. Barwon and Moorabool Rivers. All of the major rivers surrounding Melbourne are heavily utilised. • Deal with the uncertainties of the effects of climate change on future water availability. Climate Change • Collect and use the water we need while ensuring Climate change predictions, as outlined in Chapter 1, that our rivers remain healthy. may result in less water for everyone. Findings from Stage 1 of a study by CSIRO for Melbourne and Population Growth catchment areas, forecast annual average rainfall to fall by between 0% to 5% by 2020. By 2050, the rainfall Melbourne’s population is projected to increase by up variation is predicated to be between –13% and +1%. to 1 million by 2030. Government initiated report, the Scenarios suggest more hot days, more dry days and Water Resources Strategy for Melbourne, estimates increases in rainfall intensities. Urban water that to accommodate the growth in population to 2050, management needs to manage this future risk. the current demand for water will increase from 480,000 megalitres per year to about 659,000 megalitres per year. However, under our current system reliable water yield is estimated at only 566,000 megalitres per year. The total population in regional Victoria also is projected to expand. If we do not reduce our demand, substitute the use of drinking water in gardens with alternative supplies or increase the supply of water, we will not have enough water to meet our needs for water in the future. Securing our Water Future 37

How to Meet the Challenge

Victorians must be smarter in how we • Regulations which support water use efficiency (and use water in our cities and towns. the use of the optimal combination of available water resources). Water consumption must be reduced in households • Processes to evaluate new developments which take and industry. We can reduce the demand on our into account the need to use our available water valuable potable (i.e. drinking) water supplies by resources more effectively. utilising recycled and reclaimed water for our non- drinking needs. Investigating and utilising innovative • Awareness and readiness to adopt proven new technologies must also be progressed to increase technologies and pilot appropriate emerging available potable water supplies. technologies. This chapter outlines proposals and actions to assist in Scope for change – a focus on Melbourne meeting the challenges we face. The proposals move current urban water management towards a framework Melbourne needs to improve its urban water characterised by: consumption patterns. On average each person consumes 400 litres of water per day (this includes • Pricing systems that encourage people to conserve water allocated to industry and households). and recycle water, and use recycled and reclaimed Melbourne has scope to change its pattern and rate of water. water consumption. • Community awareness about water conservation and recycling. Melbourne’s storage ensure water is available in dry periods and provide carry-over • Integration of water conservation and alternative storage for drought years. Melbourne’s water harvesting water sources into a total water resource and distribution system consists of uninhabited management framework. catchments, 13 large storage dams, 57 service reservoirs, Figure 3.1. Melbourne’s water supply system

TOOROURRONGTOOROURRONGTOOROURRONG RESERVOIRRESERVOIRRESERVOIR

RUNNINGRUNNINGRUNNING CREEKCREEKCREEK RESERVOIRRESERVOIRRESERVOIR YANYAN YEANYEAN RESERVOIRRESERVOIRRESERVOIR YarraYarra ValleyValley GREENVALEGREENVALE Water RESERVOIRRESERVOIRRESERVOIR MAROONDAHMAROONDAH RESERVOIRRESERVOIRRESERVOIR RESERVOIRRESERVOIRRESERVOIR O'SHANNASSYO'SHANNASSY SUGARLOAFSUGARLOAFSUGARLOAF PLENTY YARRA GLEN RESERVOIRRESERVOIRRESERVOIR RESERVOIRRESERVOIRRESERVOIR RESERVOIRRESERVOIRRESERVOIR RESERVOIRRESERVOIRRESERVOIR RIVER UPPERUPPER YARRAYARRA WINNEKE TP RESERVOIRRESERVOIRRESERVOIR YERING GORGE BROADMEADOWS PUMPING STATION YARRA THOMSONTHOMSONTHOMSON St ALBANS PRESTON LILYDALE RESERVOIRRESERVOIRRESERVOIR OLINDA CityCity WestWest I Water MELBOURNE SILVANSILVANSILVAN COWIES HILL Mt VIEW RESERVOIRRESERVOIRRESERVOIR MONBULK

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Port Phillip PAKENHAM GARFIELD Bay CRANBOURNE FRANKSTONFRANKSTONFRANKSTON RESERVOIRRESERVOIRRESERVOIR 0 10 20 RESERVOIRRESERVOIRRESERVOIR SouthSouth EastEast Water Kilometres MORNINGTON Water Supply Catchment

Water Storage Reservoirs

Water Service Reservoirs TYABB Water Pumping Stations French DEVILBEND/BITTERNDEVILBEND/BITTERN RESERVOIRRESERVOIRRESERVOIR Island Water Treatment Plant DROMANA RESERVOIRRESERVOIRRESERVOIR (DECOMMISSIONED)(DECOMMISSIONED)(DECOMMISSIONED) Water Pipelines, Aqueducts

Retail Water Company Boundaries

Phillip Island

Source: Melbourne Water 38 Chapter Three – Smarter Water Use in our Cities and Towns

and 1280 kilometres of water mains, reticulation Figure 3.2. pipelines, aqueducts and siphons and five filtration and Average residential water use in Melbourne 65 water treatment plants. Melbourne’s water storages are able to store seven years of water at current usage rates. Melbourne’s water harvesting and trunk water Bathroom transfer systems are illustrated in Figure 3.1. Melbourne’s system produces drinking water that is Toilet recognised as some of the best in the world. The main reason for this is that most of our catchment areas are Laundry closed off from human access. This high quality water, however, is being predominantly used for purposes Kitchen other than drinking. In an average Melbourne household, only about five per cent of water is actually Garden used in the kitchen for drinking and food preparation. Yet, over 50 per cent is used for gardening and for flushing toilets (see Figure 3.2). Source: Water Resources Strategy for Melbourne, 21st Century Melbourne: a WaterSmart City Figure 3.3. Melbourne’s water supply and sewerage system

YANYAN YEANYEAN

RESERVOIRRESERVOIRRESERVOIR k k

RESERVOIRRESERVOIRRESERVOIR k k k

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r r

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r r r

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EASTERN BONDI RD TREATMENT Port Phillip PLANT SouthSouth EastEast WaterWater LEGEND rrr RRRiviviveeerrr Bay RRRiviviveee ipipip uuunnnyyipyipip BBBuuunnnyyy BBB Water Supply Catchment 0 10 20 Water Storage Reservoirs Kilometres LangLangLang LangLangLang rrr RRRiviviveeerrr gg RRRiviviveee nggg Water Service Reservoirs LangLLananang LaLLanganLan Water Pipelines, Aqueducts Melbourne Water Drainage Metropolis Boundary French Island Extent of Drainage Rating Boundary Sewerage Pipeline

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Source: Melbourne Water Securing our Water Future 39

Some industry sectors use significant amounts of water per year. Less than five per cent of treated effluent is in industrial processing. The top 200 water users in recycled and reclaimed. Melbourne use around ten per cent of Melbourne’s total Over 270,000 megalitres of treated effluent is urban water consumption. discharged to the marine environment. Melbourne is under-utilising the potential to recycle and reclaim water. Melbourne produces about 350,000 megalitres of domestic and industrial ‘waste’ water

Figure 3.4. Percentage of Treated Effluent Recycled across Victoria

Melbourne Area

Approximate Boundaries of Water Authorities Non-Metropolitan Urban

% Recycled (blue)

Source: VWIA Urban Water Review 2001/2002 for regional urban water authorities Melbourne: Approximate 40 Chapter Three – Smarter Water Use in our Cities and Towns

In comparison, about one third of treated effluent The Government supports the direction of the produced in regional Victoria is recycled. Recycling and recommendations in the Water Resource Strategy for reclaiming water in regional Victoria has become Melbourne. However, the Government proposes to go increasingly important particularly given the variation further in some water saving measures than the in rainfall across the State. Strategy proposed. For example, the Strategy proposed voluntary restraint on the use of sprinklers on days of The often forgotten source of water in Melbourne (and Total Fire Ban, while the Government is proposing regional Victoria) is stormwater. Stormwater is the permanent water saving measures including prohibiting water that runs off roofs, paths, roads and other the use of sprinklers between 10am and 5pm. The impervious surfaces when it rains. The average annual Government also believes greater savings can be made volume of urban stormwater run-off in Melbourne and than those suggested in the Water Resource Strategy for regional cities is almost equal to the average urban Melbourne by replacing potable water with recycled water usage. However, very little stormwater is water. The additional water savings will provide greater harvested for residential or industrial use. security for Melbourne to meet potential reductions in available water as a result of climate change. They also Water Resources Strategy for Melbourne, 21st provide opportunities for improved environmental Century Melbourne: WaterSmart flows in the rivers serving Melbourne’s water system. The Water Resources Strategy for Melbourne suggests The Government response to the recommendations in possible measures to reduce demand for potable water the Water Resource Strategy for Melbourne is set out in in Melbourne (Table 3.1). Appendix A. This Green Paper goes beyond the Water The Water Resources Strategy for Melbourne proposes Resources Strategy for Melbourne to explore some demand reduction measures to save around 88,000 further opportunities for smarter use of urban water megalitres per year by 2050 and proposes increasing across Victoria. supply by 21,000 megalitres during this period. This would result in an estimated annual consumption of 571,000ML in 2050 against supply of 587,000ML.

Table 3.1. Water Resources Strategy for Melbourne – projected water savings Annual Water Savings Measure by 2050 (megalitres) AAA shower roses 20,000 AAAA washing machines 27,000 Garden practices (drip watering, tap timers, water savings plants) 4,000 No sprinklers on total fire ban days 500 No hosing of paths and driveways 300 Increasing volumetric charges on water bills 5,000 Seasonal pricing on water bills 5,000 Industry – water audits and management plans 9,000 New subdivisions – rainwater tanks and/or recycling 9,000 Existing Development – rainwater tanks and or recycling at individual properties 4,000 Water management plans for institutional and local government open spaces 2,000 Other ongoing measures including shorter shower times, brushing teeth with the tap off, etc. 2,000 Total 87,800 Securing our Water Future 41

Reducing Water Consumption in Urban Victoria

Significant gains in conserving water have been made over the past ten years The Government proposes that across much of Victoria. For example, 3.1 the structure of prices should average household consumption in encourage water conservation. For Melbourne has reduced from 340 example charging extra for very kilolitres in the early 1980s to about 220 high usage or in summer months kilolitres today. Similarly, in Geelong or in periods of water restrictions. household water consumption has fallen from about 300 kilolitres in 1982 to 210 The Government proposes to kilolitres in 2001, a reduction of around 3.2 develop a set of principles to guide 30 per cent. the way in which water authorities structure and design their prices. These reductions have been achieved through a These principles are proposed to combination of: be incorporated into the detailed • A move to higher density housing (more people live arrangements for the Essential in apartments without gardens). Services Commission’s (ESC) • User-pays pricing has improved the water awareness regulation of the water industry. of the community and motivated people to reduce wastage. (Chapter 6 outlines in further • Improved technology (dual flush toilets, water detail the Government’s proposal saving shower heads, etc.). in regard to pricing). • Reductions in leakage in the distribution systems. • Community awareness resulting in the conservation of water, heightened by the current drought and resultant water restrictions. While progress has been good, we can and must do more.

Smart Pricing A key factor in reducing water consumption is price. Currently water is not priced to reflect its true cost and there is scope to structure prices to further encourage the smarter use of water. Most urban water authorities now charge for water in two parts: the first part is a fixed service fee, the second is based on the volume of water used. There is no doubt that the introduction of pay-for-use pricing has reduced water consumption as people pay more attention to leaking taps and how much water they use on the garden. 42 Chapter Three – Smarter Water Use in our Cities and Towns

Water Consumption Targets Reducing household water consumption The Government has set two key targets to encourage Reducing household water consumption is a key priority smarter water use in Melbourne: for Government. Sixty per cent of urban water use is within households. There is great scope to use water • To reduce per capita drinking water consumption 15 more wisely. per cent by 2010. • To recycled 20 per cent of Melbourne’s ‘waste’ water Education and Water Awareness by 2010. It is the responsibility of individuals to reduce their water consumption. Education and water awareness are important ways to change water use behaviour. A key mechanism for knowledge transfer about water use The Government proposes that behaviour is through water bills. Currently, Victorians 3.3 Melbourne water authorities set are informed about their total water consumption over water conservation and the billing period, however, there is a gap in this information in regard to whether their consumption is consumption targets to meet the excessive or normal compared to, for example, average overall Government targets. consumption of the neighbourhood or households of similar demographics. The Government proposes to put 3.4 in place water consumption targets for other major regional The Government proposes to cities and towns. The targets will 3.5 work with water authorities to be developed in consultation make water bills smarter by with water authorities, with increasing the information particular emphasis on the towns provided to consumers about with growing populations within their water consumption. proposed capped catchments In order to reduce current (for example, Geelong, Ballarat 3.6 community confusion regarding the and Bendigo). varying levels and types of water restrictions across the State, the Government will work with water The water consumption targets could form a key part of the development of Sustainable Water Plans for regions. authorities to implement a more (This proposal is outlined in Chapter 7). uniform water restriction policy for urban supplies across the State. Securing our Water Future 43

The Government and Melbourne’s water authorities are Water Efficient Appliances preparing to launch a new education campaign, which In order to change water consumption behaviour it is aims to increase the water smart awareness of important that water users are aware of how much metropolitan water consumers. The education campaign water their household appliances use. Victoria is leading aims to convert existing awareness of the value of water a national approach to compulsory water efficiency into everyone’s personal mission to change behaviour and labelling for household appliances including washing help reduce water waste. The campaign will be initiated in machines and dishwashers. 2003, followed by ongoing reinforcement activity.

The Government, in partnership The Government and Melbourne’s 3.10 with the Commonwealth and 3.7 water authorities will launch a new State Governments, is developing education campaign, Our Water a National Mandatory Water Our Future, aimed to change the Efficiency Labelling Scheme for behaviour of metropolitan water appliances, fixtures and fittings. consumers to support the Victoria seeks to achieve a Government's 2010 water nationally agreed scheme by early conservation targets. 2004, for its implementation by late 2004.

Permanent Water Savings Measures Behaviour such as hosing driveways and footpaths New housing developments should incorporate water must become actions of the past. Barwon Water has savings measures including AAA shower roses and taps amended its by-law to provide for a ban on the use of and pressure reduction valves. Efficient shower roses sprinklers between 10.00 am and 5.00 pm, a ban on can save around 13 kilolitres per household per year. hosing driveways and footpaths and other impervious AAAA washing machines are water efficient and use less surfaces, and compulsory use of trigger hoses for car hot water and detergent. They offer large potential washing. The Government will introduce legislation to water savings. provide the mechanism for the introduction of permanent water saving measures in Victoria. Consultation with communities will occur before The Government proposes the specific measures are in place. 3.11 introduction of mandatory AAA shower roses, taps and pressure The Government will introduce reduction valves by 1 July 2005 3.8 permanent water savings measures for new developments. (e.g. ban hosing footpaths and ban The Government proposes the on using sprinklers between 10 am 3.12 introduction of mandatory AAAA and 5 pm) for the Melbourne washing machines by a target metropolitan area. year of 2010. The Government will require 3.9 Regional Urban Water Authorities The proposed introduction of these measures will need to develop permanent water saving to have regard to existing mutual recognition measures for their regions. arrangements. 44 Chapter Three – Smarter Water Use in our Cities and Towns

Rebates Scheme The Government has committed $10 million over The Government will extend the four years to provide rebates to households that are 3.13 Water Smart rebate system from ‘WaterSmart’ in their gardens and homes. The first phase of the scheme has provided rebates of $500 for 1 October 2003 until 30 June the installation of greywater systems, $150 for water 2004 as follows: tanks and $20 for water conserving garden products. So far over 5,000 Victorians have applied for and • Rainwater tanks with received a rebate. connection to toilet: $300 – This is a reasonable start, but now the Government $150 for tank and $150 for proposes to extend the rebates to encourage more Victorians to save water, particularly inside their homes. toilet connections. People can apply to their water retailer for the rebates as in Phase 1. • Retrofitting of dual flush toilets – $50. • AAA shower roses –$10. • High pressure cleaning devices – $30. • Water conservation home audits – $30. • A broadened range of garden products – $30. • The rebate program will provide free shower flow control valves to the first 50,000 people who request them. • A special two month rebate will be provided for household whitegoods starting 1 October 2003 as follows: - AAAA clothes washing machines – $150 - AAA dishwashers – $100. The Government will consider the 3.14 outcomes of the 2003-04 Water Smart Rebate Scheme in determining the future rebate scheme. Securing our Water Future 45

Water Smart Buildings and Developments Reducing industrial and The development of water-sensitive urban design commercial consumption guidelines (with a broader scope than traditional Industry and commerce account for almost one third of stormwater management) will be an important driver Melbourne’s potable water use. This can be much higher for future sustainable planning and development in regional towns where industry can use the majority relating to water use for the growth regions of of the town’s potable water supply. Melbourne and regional Victoria. Such guidelines should include the development of performance There is scope for improved performance. A snapshot objectives for all water resources (greywater, recycled of over 50 major industrial and commercial consumers water, stormwater and rainwater). in one metropolitan water authority shows that over a four-year period there was a significant change in water A WaterSmart rating system for buildings could also consumption. Between 1998/1999 and 2002/2003, feature within the water sensitive urban design features consumption for the top 50 consumers reduced by of new developments. It is envisaged to be similar to the 4,000 megalitres. existing energy rating system which aims to minimise potable consumption and discharge, and increase reuse Factors impacting on water use within these companies and recycling. include the adoption of a triple bottom line approach and sustainability concepts in resource use (as well as There may also be merit in amending the Sale of Land water authority service improvement through improved Act 1962 section 32 notices, so that when people sell a metering). building they must provide a hydrological assessment of the property – that is, inform potential buyers of leaking While programs to minimise waste and normal business pipes and taps, the water efficiency of appliances, etc. practices have led to reduced water consumption, there This could be supported by the development of simple, is still more that can be achieved. Water audits and best user-friendly tools. management practices are options to promote more efficient use. There are also substantial opportunities for use of The Government proposes the recycled water by industrial users. 3.15 introduction of a WaterSmart rating system for all buildings. Metropolitan retail water 3.18 authorities will be developing The Government proposes the water management plans initially 3.16 development of water-sensitive for the 200 biggest industrial water urban design guidelines to users in Melbourne. The promote sustainable water use Government proposes to extend in urban development (including this program to other major houses and buildings) particularly commercial and industrial water in growth suburbs. users and incorporate use of The Government proposes to recycled water where possible. 3.17 consider amendment of legislation The Government proposes that to enable property buyers to be 3.19 Regional Urban Water Authorities informed of the water efficiency develop water management of houses and buildings. plans for large industrial and commercial users in their regions. 46 Chapter Three – Smarter Water Use in our Cities and Towns

Substituting Recycled and Reclaimed Water for Drinking (Potable) Water

The Government considers that Within the water system, there is a range of alternative increasing the fit for purpose use of water resources readily available in our cities and towns that are currently under-utilised but could be harvested water is an important action for for beneficial use. These water products include sustainable water management. This rainwater, greywater, stormwater and recycled water means that Victorians will use drinking (see Figure 3.5). water for drinking and personal use purposes. For other purposes, the most appropriate alternative water resource – recycled water, rainwater, stormwater or greywater – is used for toilet flushing, gardening and other non-drinking water uses.

Figure 3.5. Substituting recycled and reclaimed water for drinking (potable) water

Potable Water Supply For Drinking Recycled To Garden Garden RainRAIN to Watering HotTO WaterHOT WA TER Hot Toilet Water Bath Flushing Service Kitchen Laundry Stormwater Treated Effluent To Open Space

Household Effluent Local Sewage Treatment Plant Securing our Water Future 47

Rainwater Greywater Rainwater can be captured through rainwater tanks Greywater is the ‘sullage’ from our bathrooms and (individual or corporate tanks). The use of rainwater kitchens (not including toilets) and which can, if tanks has enabled some substitution of water held in managed properly, be used for purposes such as garden our dams and can reduce the pressure or stress of watering and toilet flushing. There is increasing interest urban run-off on both the drainage infrastructure and in using greywater, particularly with the current receiving waterways. Rainwater tanks can be used for drought and rebates offered by the Government. There both household uses, such as for flushing toilets, and is still considerable scope to improve the technology of garden watering. However, they are generally not using greywater both to reduce costs and improve recommended for supplying drinking water in urban operations. However, it is unlikely that these systems areas because of water quality concerns. will make a significant large contribution to potable substitution in Melbourne. In addition, if not managed The Government currently is operating a rebate scheme properly, greywater systems can pose public health and for rainwater tanks. However, even with this important environmental risks. scheme, widespread adoption of rainwater tanks is difficult at present given the capital cost and its Further work is required to ensure that an adequate reasonably small contribution to potable water regulatory framework is in place for all aspects of substitution. The rebates encourage the fitting of greywater management. (See Smarter Regulation to rainwater tanks in existing homes. The installation of Encourage Recycling and Fit for Purpose Use). rainwater tanks in new homes is likely to be more cost effective particularly in linking to the toilet systems. Stormwater The Government, the Sustainable Energy Authority Urbanisation has led to increased volumes of Victoria, the Building Commission and the Plumbing stormwater being discharged to the environment. Industry Commission are working with industry to Rather than as an alternative water source, stormwater implement a 5 Star standard for new dwellings currently is managed from a drainage perspective – to (houses, apartments and units). From 1 July 2005, protect public safety and property from high flows and compliance with the standard will require all new flooding – and to minimise other impacts such as homes to have either a water tank or a solar hot water erosion and environmental pollution. However, service and 5 Star energy rating for building fabric. progress has been made in the development and (The two water measures are subject to a Regulatory implementation of water sensitive approaches to Impact Statement.) stormwater management. Potential uses of stormwater include potable water substitution for large irrigators – such as golf courses, The Government has announced racecourses, sporting grounds and public open space, that all new homes must have suburban agriculture – and domestic applications 3..20 through a third pipe system. either a water tank or solar hot water system from 1 July 2005. Stormwater harvesting should 3.21 have an increased role in the water cycle management of Melbourne and other urban areas. The Government proposes that the potential for integrating increased stormwater harvesting into the future planning processes be investigated. 48 Chapter Three – Smarter Water Use in our Cities and Towns

Recycled Water From Sewerage Systems The Government is not considering the compulsory retrofit of third pipe systems in all existing urban areas Increasing the use of recycled water has numerous because of the enormous cost and disruption. However benefits – freeing up potable water for the environment or there are opportunities near existing treatment plants to for growth, improving the reliability of our water supplies substitute recycled water for potable water, particularly without building new dams and reducing the amount of for watering parks, sporting grounds and golf courses, ‘waste’ water discharged to our rivers, bays and ocean. and industrial use. Third pipe systems in new Recycled water, instead of high quality drinking water, development in these areas are likely to be relatively should be used for domestic, non-personal uses such as more economic. Investigations of targeted opportunities toilet flushing and garden watering, for watering parks for tapping into our underground sewerage pipelines and recreational areas, and in some industrial processes. (water mining), treating to the required standard, and All regional urban areas are moving forward with distributed via third pipe systems to adjacent markets, recycling efforts. For example, in major provincial cities also will be supported. such Geelong, Bendigo and Ballarat the recycling effort is expanding. Barwon Water has adopted a strategy to recycle 25% of all treated effluent by 2015. Coliban The Government proposes that Water supplies recycled water to irrigating crops and pastures and the local golf course. Reuse at Coliban 3.22 future planning for the Water’s largest plant at Bendigo varies from 15 to 50% treatment of sewage include a depending upon the season. Central Highlands Water’s focus on high technology local SmartCycle program sets a vision for managing the Ballarat community’s valuable water resources over treatment plants to enable the next five years. recycling locally. The current situation in Melbourne, however, limits the opportunities to recycle water. In Melbourne the It is also proposed that further growth in sewage flows continues to be discharged to 3.23 investigation occur into the use two very large metropolitan sewage treatment plants (at of recycled water in areas near Werribee and Carrum) rather than smaller local plants. This makes it more difficult and expensive to recycle recycled water sources, water that has to be transferred long distances from including investigation of treatment plants for non-potable use. promoting the use of recycled Currently treated water from the Western Treatment water in these areas. Plant has relatively high salt levels mostly produced from industry. This makes it more difficult to reuse The Government proposes that and a long term resolution will require the involvement of industry in reducing salt and other pollutants that 3.24 retail water companies and are discharged Melbourne Water prepare A third pipe system is generally required to deliver integrated Water Management recycled water to households. The cost of providing this Plans with local government and infrastructure is also currently a significant impediment sports clubs to maximise the use to the widespread adoption of recycled water. The cost is, however, lower near sewage treatment plants. of recycled water for parks, A new suburb, called Aurora, at Epping North, sporting grounds and golf Melbourne, is an example of future possibilities. It will courses. (These plans could be be a model for water recycling and environmentally integrated with proposed sustainable design. To be delivered by VicUrban, the $500 million, 634 hectare development will house Sustainable Water Plans outlined 25,000 people in up to 8,500 homes. The area is remote in Chapter 7). from existing sewerage services and, hence, will involve construction of a local treatment plant producing Class The Government will continue to A standard recycled water for toilet flushing, garden support pilot projects utilising watering, car washing, open space watering and fire 3.25 services. Another third pipe system features in the third pipe systems. Sandhurst Club development in Melbourne’s south-east. Securing our Water Future 49

The Government proposes that The Government proposes that 3.26 the costs and benefits associated 3.28 new housing development be with compulsory third pipe required to achieve water savings systems in new developments of at least 25%. These savings be investigated. may be achieved through recycled water via third pipe The Government proposes not to systems, and/or rainwater tanks 3.27 support compulsory retrofit of third or the reuse of stormwater. pipe systems in existing suburbs. The Government will establish 3.29 a Taskforce to advise on the best mix of measures and The Government’s Metropolitan Strategy, Melbourne 2030, identified that 193,800 households would be regulatory framework to developed on greenfield sites on Melbourne’s fringe increase the substitution of by 2030. If third pipe systems were supplied for these developments up to 24,000ML of water could recycled and reclaimed water be saved each year. for potable water for new For new housing developments near existing sewage urban developments. treatment plants, third pipe systems, whilst currently expensive, may be relatively more attractive. In many parts of the world recycled water is used as a However, in housing developments that are further source of drinking water. Usually the treated water is away from the existing plants, either a local treatment diluted in rivers or dams and then further treated plant or other water savings measures such as a before drinking. In Victorian towns along the Murray rainwater tank and stormwater harvesting may be and other rivers utilise water from the river that has more economical. It is, therefore, proposed to require previously had the treated water from other towns new housing developments to achieve significant water discharged into it. savings, of at least 25% through the most practical and economic measures available. It would be possible to further improve the treatment quality of Melbourne’s Western and Eastern Treatment The proposed savings are relative to existing Plants and then pump recycled water into reservoirs developments that have not undertaken such measures. such as Cardinia . The water could be mixed The proposed implementation of the requirement will be with fresh water and form the potable supply for complemented by WaterSmart building ratings and the Melbourne. This could allow the 270,000 ML water development of water sensitive urban design guidelines. currently discharged into Port Phillip Bay and Bass To further assist in the achievement of significant water Strait to be reused. However, at this stage this proposal savings for new urban developments, the Government is considered socially unacceptable because of the proposes to establish a Taskforce to advise the perception it would contaminate Melbourne’s ‘pristine’ Government on the best mix of measures to increase the potable water supply system. substitution of recycled and reclaimed water for potable water and the appropriate recycling framework. The Government does not 3.30 propose that recycled water be placed in the potable water supply system but technical development and implementation elsewhere should be monitored. 50 Chapter Three – Smarter Water Use in our Cities and Towns

Smarter Regulation to Encourage Recycling and Fit Recycled Water Scenarios for the Melbourne Region for Purpose Use The Government in partnership with the metropolitan Much of the existing government and local government water authorities has undertaken a preliminary regulation affecting the re-use of grey water, recycled investigation to understand the breath of scenarios for water and stormwater has been premised on these new future use of recycled water. A technical paper will be water products being ‘waste’. It is proposed to review released with the Green Paper detailing the scenarios for relevant regulation to ensure it is consistent with the recycled water. Appendix B presents a summary outline Government’s policy objectives of maximising water of the range of scenarios. conservation and the re-use of water.

The Government proposes to: The Government proposes, in 3.32 partnership with industry to 3.31 • Develop Guidelines for investigate the benefits and Environmental and Health costs pertaining to the range of Management for all alternative scenarios for the future use of water products (including recycled water (see Appendix B). greywater, stormwater and rainwater). These would build on the existing guideline for Environmental and economic uses reclaimed water by the of recycled water Environment Protection Authority In addition to replacing potable water, recycled water may be used for agriculture, horticulture and industry (EPA) and the Department of and to improve environment flows. The use of recycled Human Services (DHS). water has the potential to provide net economic benefit. The discharge of high quality recycled water to local • Review the EPA regulations creeks and rivers has the potential to provide governing storing of stormwater environmental and social benefits. and recycled water in aquifers. The Werribee Plains region has the potential to use recycled water for agriculture irrigation, new urban • Develop detailed guidelines for development and to improve Werribee River flows. The Government has initiated a business case study recycled water to be returned to explore all water recycling options for the Werribee to our streams for Plains region. At full development the project could environmental flows or for use potentially use 70,000 megalitres annually and irrigate approximately 10,000 hectares. downstream as part of stream The Government is considering an Eastern Irrigation flow management. Scheme that is proposed to utilise up to 5,000 • Ongoing review of the Victorian megalitres annually from the . Planning Provisions to reflect Recycling water from the Eastern Treatment Plant would reduce the discharge of water into the ocean at Government policy on Gunnamatta and utilise this currently wasted resource. sustainable water management. More than 40 per cent of the Thomson River is diverted to the Thomson Reservoir for consumption by Melbourne users. The Thomson River is environmentally stressed because of low flows. It may be possible to upgrade the quality of treated water from the Eastern Treatment Plant and transport the water by pipeline and improve environmental flows in the Thomson River. Securing our Water Future 51

Additional water flows to the Gippsland Lakes area may have further triple bottom line benefits. Another concept is to pump suitably treated water from the Western and Eastern Treatment plants north to the Great Dividing Range and discharging into the Goulburn Irrigation system. This could allow water currently used for irrigation to be used for environmental flows in the Goulburn and Murray Rivers. It also has the potential to eliminate treated sewage discharges into Port Phillip Bay and Bass Strait. However, such a scenario would be very expensive and involve high-energy use pumping the water over the Great Dividing Range.

The Government proposes to 3.33 carry out a cost benefit study of major environmental uses of recycled water including using recycled water in the Werribee Irrigation district, the Thomson River and pumping recycled water north of the Great Dividing Range. The Government proposes a 3.34 reduction in discharge from ocean outfalls and a long-term aspiration to remove them by reusing treated sewage as far as possible. In early 2004, the Government 3.35 will release a full business case study to explore all water recycling options in the Balliang (Werribee region) as part of the Vision for Werribee Plains. The Government proposes that 3.36 other potential economic uses of recycled water are investigated on a triple bottom line basis. 52 Chapter Three – Smarter Water Use in our Cities and Towns

Increasing Our Available Water Supply

The demand reduction and recycling Distribution ‘Losses’ Including Leakage measures previously outlined will reduce While it is a low proportion by international standards, urban water use. However it is also about ten per cent of Victoria’s urban water is lost from the water supply system. This water includes unbilled appropriate to examine what alternative and unmetered consumption (for example, water used options there are to increase our available for firefighting), unauthorised consumption (theft, illegal connections), metering inaccuracies, leakage water supply for urban purposes. from water company pipes and consumers’ pipes, and water losses from water company operations (e.g. burst The Government seeks Victorians’ views on the water mains). proposals below. The level of distribution losses has reduced in Victoria over recent years. The reduction is due to water Harness Supplies Already Allocated to Melbourne authorities undertaking a number of initiatives, There are some reservoirs which are not fully utilised including improved metering, sophisticated leak that may be able to be harnessed for increased supply detection, programs to reduce the theft of water, to Melbourne. quicker response times to burst water mains and leaks, and better system monitoring. • Reconnecting . This reservoir, which does not have a closed catchment, was taken The Government seeks to continue the reduction of off-line because of poor water quality. It could be distribution losses including leakage and theft, but reintroduced and contribute significantly to meeting also recognises that it is impractical to completely projected demands (21,000 megalitres per year) by eliminate losses. incorporating a new treatment plant. • O’Shannassy Reservoir Pipeline. This involves duplication of the pipeline from the reservoir to The Government proposes to increase water transfer capability (22,000 megalitres 3.38 investigate the development per year). and application of cost-effective • . This involves increased pumping of water from Yerring Gorge on the Yarra technology, such as Water River downstream of Yarra Glen into Sugarloaf Pressure Reduction measures, Reservoir, and increasing the capacity of Winneke to reduce leakage and assist Treatment Plant (72,000 megalitres per year). with asset maintenance. These options would have varying environmental impact and reduce average total water for downstream uses.

The Government proposes to 3.37 investigate with water authorities the costs, environmental impact and possible timing of the options to harness supplies already allocated to Melbourne. Securing our Water Future 53

The theft of water is a serious offence. The Water Act Building a new dam for Melbourne 1989 contains a number of offences relating to the is a last resort theft of water (including damage or alteration to works or property of Authorities such as meters). The current Traditional engineering responses to an expanding penalties, however, do not reflect the seriousness of population have been to increase supply by building new the offence. dams. Building a new dam for Melbourne is not a simple nor smart solution. A new dam does not create new water. It would capture water that otherwise would be used for existing consumption or for the environment. The Government will introduce To illustrate, if a new dam with a similar yield of the 3.39 legislation to increase penalties were to be built today, Victoria would for water theft or unauthorised need to find around 180 gigalitres of water. Possible locations for this dam include the already very dry water use. Upper Goulburn catchment, north of the Great Dividing The legislation will: Range and the Thomson catchment in Gippsland. If water for Melbourne were to come from northern • Double the maximum jail terms Victoria, given that the Murray Darling Basin is subject to a cap, significant amounts of water would be taken for water theft or unauthorised from Victorian irrigators. This would be at the expense water use from three to six of the regional and state economy and the wellbeing of regional communities. There would be no return benefit months for a first offence and to the region or its environment. The is six to 12 months for a second already stressed, extracting these amounts of water offence. could push the river to potential collapse. If the water was to come from Gippsland, it would directly • Triple the current maximum impact on dairy farmers in the Thomson Macalister area as well as the people who rely on the Gippsland Lakes for fines for water theft or their livelihoods. Recent investigations for the Gippsland unauthorised water use from Water for Growth Committee regarding the potential for a new dam on the Macalister River demonstrated that the $2,000 to $6,000 for a first cost of water would be about five times the current offence and $4,000 to market value; significant environmental impacts would result; and investment in water efficiency savings (both $12,000 for a second offence. water delivery and on-farm) would yield both superior • Double the current maximum economic benefits and environmental flow improvements. The financial cost of building a dam the size of fines for breaching water Thomson would be in the order of $1 billion restrictions from $2,000 to (replacement cost). $4,000 for a first offence (the Importantly, as this Green Paper highlights, these maximum of three months jail financial, economic, social and environmental costs can be avoided by Melbourne becoming smarter with their remain the same) and $4,000 use of urban water. to $8,000 for a second offence (the maximum six months jail term remains the same). 54 Chapter Three – Smarter Water Use in our Cities and Towns

Technological advances Technology advances mean that what was not feasible In 2003, the Government in the past may become feasible in the future. Areas where technological advances are anticipated to enhance 3.40 considers that a new dam for the supply of potable and alternative water resources Melbourne is not sustainable. are detailed below. The reason for this is not The Government proposes that these technological primarily driven by the high cost options continue to be monitored and investigated according to particular regional needs. The opinions of building a dam ($1 billion) but of Victorians are sought in regard to the technological due to the sourcing of the water options considered below. and its impact on regional communities and the Desalination environment. The growth in desalination plants throughout the world has increased markedly over the last ten years, with reverse osmosis becoming the generally accepted process. Until the last few years, the largest seawater reverse osmosis plants were limited to 38 megalitres per day (14,000 megalitres per annum). However, with the improvement in membrane technology, the largest contracted plant under construction will produce 166 megalitres per day (60,000 megalitres per annum). A major environmental issue with desalination plants is the disposal of brine, which is often discharged back to the ocean via an outfall, and the greenhouse gases associated with the very high-energy requirements. The overall treatment cost makes desalination a currently more expensive source of water than traditional sources. It is anticipated that technological advances will mean that the cost of desalination will decrease and it is vital that technological improvements continue to be monitored. However, removing salt is energy intensive and it is likely that recycling ‘waste’ water will continue to be the better option with a smaller environmental footprint.

The Government proposes 3.41 that the economic, social and environmental benefits and costs associated with desalinisation be monitored. Securing our Water Future 55

Aquifer Storage and Recovery Water Mining Aquifer storage and recovery (ASR) uses aquifers to To date, water (or sewer) mining in Melbourne has only temporarily store-recycled water or stormwater for later been applicable in situations where there is a severe use when there is demand. ASR with recycled water is shortage of water or as a trial, as the technology being utilised worldwide but there are only a few long- required is costly (in excess of $1,000 per megalitres). term examples in existence. Orange County in California Projects are underway to test new technology, which has is investigating use of ASR with recycled water from the potential to reduce the cost of water mining sewage treatment plants to recharge aquifers which substantially. If technology improvements result in would contribute to potable supply as well as protecting treatment of sewage at an economical price, it has the groundwater from the intrusion of oceanic saltwater. potential to create numerous new water sources across the urban region by tapping into the existing sewerage Recycled water from sewerage systems or stormwater network. run-off can be injected and stored in a bubble within an aquifer with little intrusion from native groundwater, A trial to ‘top up’ Albert Park Lake with recycled water effectively acting as a stand-alone storage due to the is a joint initiative between Melbourne Water, Parks different characteristics (such as salinity) of the recycled Victoria and South East Water. The trial involves water and the groundwater. pumping sewage from an existing sewer main, treating in a small treatment plant on-site to Class A standard Preliminary studies have been carried out in the (suitable for high contact uses, and irrigating lawn and Melbourne region to assess feasibility of ASR, in some parkland) and discharging the recycled water into Albert cases assessing the potential for recycled water winter Park Lake. The trial received a $50,000 grant from the storages in new urban developments as an alternative to Smart Water Fund for a community consultation conventional surface storage. Pilot studies are essential program to discuss the benefits and effects of the trial for establishing operating procedures and the choice of with local residents and park users. treatment method prior to designing the network of injecting wells and the optimum recovery points. ASR has been operational in South Australia for many years and much research and development work has been The Government proposes that completed, including the development of guidelines for 3.43 pilot water mining projects, such approval of ASR schemes. These guidelines could be reviewed for their applicability in Victoria. as Albert Park Lake Project be promoted. The Government proposes that 3.42 the potential for aquifer storage and recovery for Melbourne and other urban areas be investigated. 56 4Chapter Four – Smarter Use of Irrigation Water Securing Our Water Future 57

Chapter Four Smarter Use of Irrigation Water

1KEY CHALLENGES For the irrigation sector to: >> Prosper in a competitive, global environment by: - Moving water to higher-value uses - Reconfiguring irrigation infrastructure PROPOSED GREEN PAPER ACTION - Innovating and adopting new 2 technology >> Adjust to changing community >> Ongoing improvement to Victoria’s water expectations about the environment by: trading system - Improving on-farm water use >> Investigate separating water rights from land, by unbundling water rights into a - Reducing losses in distribution systems water share, a share of delivery capacity - Returning water to the environment and a site-use licence. >> Introducing light-handed regulation of the side-effects of irrigation. >> Working with irrigators to facilitate modernisation of distribution systems, including closing non-viable parts. >> Improvement in on-farm water use >> Continuing industry partnerships for PREFERRED OUTCOMES research and development. 3 >> A confident, profitable and adaptable irrigation sector that generates wealth for regional communities and Victoria. >> Increase the efficiency of irrigation systems across the State by 25% by 2020 >> Responsive irrigation supply systems that are effective and economic. >> Lower salinity and nutrient side-effects of irrigation. >> Improvements in on-farm water use and reductions in distribution system losses, freeing water for better environmental flows. 58 Chapter Four – Smarter Use of Irrigation

More than 75 per cent of water The Government recognises the enormous progress made by the irrigation industry in recent years. It is harvested in Victoria is used for looking to support the industry in maintaining, even irrigation. Of this, the great bulk comes bettering, its record of achievement. The Government’s out of streams, with one twelfth two key objectives are: extracted from groundwater. 1 To foster profitable irrigated agriculture, that pays its way and generates wealth and employment for farmers, regional communities and Victoria as a whole. Irrigated agriculture accounts for 30 per cent of all Victoria’s agricultural output (using less than five per 2 To reduce and minimise the adverse impacts cent of agricultural land). Raw and processed produce of irrigated agriculture on the environment – contributes a significant part of Victoria’s trade side-effects like rising watertables and polluted overseas. Centres of irrigated regions, such as drainage, as well as the direct effect of truncated Shepparton and Mildura, are thriving. river flows. Irrigation is one of the underpinnings of Victoria’s A more secure irrigation industry economy and prosperity. The Government supports a strong sustainable irrigation sector. The Government aims to provide the basis for long-term security in the irrigation industry. Victoria For over a century after large-scale irrigation began in already has relatively well defined water entitlements the 1880s, governments and public sentiment and a water market that has seen water move from championed irrigation as the pathway to rural low-value uses to higher-value uses particularly development and settlement. But now that wine-grapes and other horticulture. Victoria has environmental implications are better appreciated, the achieved twice the dollar value for each megalitre Government is concerned that: of water compared to New South Wales. • For the authority-supplied ‘districts’, about 25 per In the long term, security of the irrigation industry will cent of the water extracted from rivers is lost in the depend on healthy rivers. Unhealthy rivers decrease course of being distributed to the farms. productivity and increase costs to farmers. Increased • A significant proportion of irrigation water goes to costs associated with salinity and blue green algae are marginally profitable production on unsuitable examples of environmental problems that can threaten soils, and on-farm losses of water can be high. irrigation security. • Often associated with inefficient watering, Overseas markets for our food and wine will there have been harmful side-effects of irrigating increasingly demand improved environmental land, such as trees dying because of rising saline management in its production. The reputation of our water-tables. irrigation industry amongst the general community could be at risk if water use is regarded as A major focus of the Government is much smarter use unsustainable. of irrigation water – and less use, and more re-use, so some water can be returned to the environment. Improving the efficiency of water use can drive productivity that will make irrigation businesses more This focus includes water being distributed to farms. competitive and secure. Finally by reducing water Thus Water for the Future promises to raise the losses and retaining flows in river storages, security in efficiency of authority distribution systems by 25 dry years can be increased. In wet years, extra flows per cent by 2020. This means cutting losses by a can be available for the environment. quarter – from 25 per cent to 19 per cent. Securing our Water Future 59

A Range of Irrigated Enterprises

More than 85 per cent of the irrigation in Figure 4.1. Victoria takes place north of the Great Total water used and output value by Dividing Range, where the country is irrigated industry in Victoria relatively flat, hot and dry. The gravity- 2,500 supplied districts run by Goulburn-Murray Water (GL)

Water accounts for three-quarters of this Output ($m) 2,046 northern irrigation. As well, smaller 2,000 districts near Mildura pump water out of the Murray, and there are patches of 1,503 irrigation near Bendigo and Horsham. 1,500

In the south, districts are fed from the Werribee and Macalister Rivers. Outside the districts, irrigators are 1,000 licensed to pump out of rivers themselves. About 14 770 722 per cent of Victoria’s irrigation is private diversion (GL) Output ($m) Water from regulated rivers – booming near Mildura as water 498 500 trades to greenfield development. Another 12 per cent 291 is from unregulated streams (including some from farm dams) and from groundwater. 0 In all, there are some 15,000 irrigation businesses in Horticulture Dairy Crops/grazing Victoria. Dairy farmers typically hold a water right of $1,500/ML $350/ML $200/ML about 400 megalitres, while horticulturists are likely to have about 100 megalitres. There is a lot of variation Sources: ABS Water Account (2000); Tim Cummins & Associates (2001) and dynamism. Since 1991, when trade started, three- quarters of irrigators have participated in the water There is clearly the potential for a quantum leap in the market, and eight per cent of entitlement has moved value of production from irrigation water. For permanently to different land. example, export-oriented wine-grapes, vegetables and so on show enormous promise. Horticulture’s gross Figure 4.1 shows that horticulture (grapes, vegetables, return per megalitre, though, carries much higher fruit) accounts for 43 per cent of Victoria’s overall costs and risks (e.g. some trees don’t bear fruit for irrigated output. Dairying closely follows with 41 per seven years). The dairy industry also plays a pivotal cent of overall output, and cropping/grazing role in Victoria’s prosperity. contributes the other 16 per cent. Yet horticulture is responsible for only 12 per cent of the irrigation water used. 60 Chapter Four – Smarter Use of Irrigation Water

Further Improvements Possible on Farms

The Government recognises that Dairy farmers are still mainly using the traditional flood irrigation technique. But two major irrigated agriculture has been steadily enhancements have been widely adopted: improving its use of water: through • Laser-guided grading of paddocks, so water moves more productive farms (arising from new fast and evenly down bays. skills, economies of scale, etc.) and • Dams to catch excess run-off, allowing water to be widening markets (especially for dairy pumped back and re-used. products and wine-grapes), the total Fine-tuning of flood irrigation is occurring, through value of irrigated output has been automation (with timers or water sensors). A wholesale change of technique seems unlikely in the near future. growing by nearly four per cent a year. Sprinklers make sense on sandier soil, but on the clay- loams that prevail in the gravity districts of north-east The cap on Murray-Darling Basin diversions has meant Victoria they appear to save less than 20 per cent of no rise in water use, indeed the recent drought has water (two megalitres a hectare), at considerable cost slashed water availability; but there have been (e.g. they may require an on-farm storage, since technology-based leaps in the quantities produced authority channels cannot deliver water at short from each megalitre of water, and the water market enough notice in a hot spell). has enabled water to move to its most productive uses. Thus, for dairying, good performing farms have taken Reflecting better farm practices as well as the long the most economic steps; rapid new progress for these drought, the amount of water draining off farms has farms may depend on technological advances or been reduced, and watertables have fallen: farm trees external pressures. However, for many others there is are now coming back in some of the places where they still room for improvement. had been dying off. Cropping and Grazing There is scope for on-going improvements in water use – quite apart from a move to higher-value crops. Cropping and grazing is usually seen as the low-value end of irrigated agriculture, and water has certainly Horticulture been trading away to other enterprises. But while returns are generally low, so too may be costs and Horticultural areas have largely been converted from risks; moreover, returns can change (witness the recent traditional furrow irrigation to pressurised systems: jump in prime lamb prices). drip, microspray and overhead sprinkler. Recently, a shift has begun to controlled parching techniques; for Cropping is flexible, and can take advantage of example ‘partial rootzone drying’, which produces opportunistic water supplies. It has a symbiotic more intensely flavoured grapes, for which wineries relationship with dairy farmers, selling them fodder pay a premium. and water in droughts. Winter crops that use mostly rain can bring high yields for little irrigation water The result of such changes is that a modern orchard or (indeed, there is a move to grow crops like maize, and vineyard may need only five megalitres of entitlement ‘cut and carry’ to cows). per hectare, compared with the traditional nine or 12 megalitres, yet be highly productive. Thus some cropping may still have a place in the future enterprise mix, though no doubt using Dairy increasingly water-smart techniques. The amount of milk produced by Victorian irrigators has been rising by six per cent a year. Partly this has come from the expansion of dairy farms, with water being purchased from mixed farms. But much of the increase has come from genetic improvements and better farm practices – including more efficient watering. Securing our Water Future 61

Drivers for improved water use d Regulation and incentives. Strict rules ensure that water traded to new irrigation development does not and the role of government create salinity and nutrient problems. In the case of Improvements on farms are necessarily made by older development, the approach so far has been to individual farmers. While each family’s particular values provide incentives to farmers to adopt systems with play a part, the overriding driver is the need for the lower off-site impacts. business to prosper. Farmers must be relentless in e Research, technology, training. Research and paring down their costs and augmenting their revenue. development investment is comparatively high in Laser grading, for example, is about lifting returns: agriculture – and so is productivity growth. Farmers more precise water application grows better grass, and pay 0.5 per cent of their produce value, frees up water for irrigating extra areas. It is also about supplemented by the Commonwealth and State. The saving time, which in turn means one family can Department of Primary Industries’ research manage a larger farm. Similarly, compared with furrow institutes have been at the forefront of genetic and irrigation, drip systems cut the hours taken up with watering advances, and extension work has helped irrigating to a sixth. spread the latest practices. Market conditions obviously bear on farm businesses. No one can be sure what crops Victoria’s irrigation Thus when wine-grape prices were at their height, systems will be growing in 20 years. The important growers were eager to convert to drip systems. Some thing is to be well equipped to support what emerges. wineries and other food processors sell produce as ‘clean and green’ – they set up ‘environmental management systems’ that oblige farmers to meet The Government will continue certain standards. 4.1 industry partnerships to carry out Constraints on water availability is a crucial driver. In research and development, aimed the Goulburn system, which has suffered most from the drought, irrigators have become relatively water at facilitating increasingly efficient. Growth in milk production has dipped productive and adaptable irrigated surprisingly little (though a big factor in this is farmers buying in water or fodder, often borrowing to do so). agriculture that performs well All the above factors are outside the control of the environmentally. Government. But other key drivers, listed below, are matters that the Government does have some influence over. These are the areas where the Government will The rest of this chapter looks at other key areas where take action. the Government has a role to support irrigation’s move a Authorities’ water distribution services. As farms to be sustainable. For irrigated agriculture to prosper it adopt finely-tuned watering methods and higher- will need to be environmentally sound. This will require value crops, they must have timely water deliveries. continued improvements in how it uses water. (The These methods and crops are being introduced more ways in which saved water can be returned to rivers are often outside authority districts. Old distribution discussed in Chapter 5). systems must cope with new demands. b The water market, based on firm entitlements. With last season’s water trading at up to $500 a megalitre, the market has been providing intense signals about the value of water. At the foundation of the market is Victoria’s system of well-defined, reliable water entitlements. c Water charges. Both the level and structure of annual water prices can propel better water use. Pricing is especially relevant to dealing with stranded distribution infrastructure and to minimising the side-effects of watering. (As well, there is a general discussion of pricing in Chapter 6.) 62 Chapter Four – Smarter Use of Irrigation Water

Reconfiguring Distribution Services

The government-funded water savings in continued supply because they have poor, salinised soil, are flood-prone, have outdated infrastructure, or are distribution services (see Chapter 5) so far suffering urban incursion. There is considerable scope have been entirely focused on changes to for rationalisation. It is essential to be able, with due the physical infrastructure: such as pipes sensitivity to people’s rights, to cease supply to some parts of an irrigation district. to replace channels, electronic meters to DSE, Goulburn-Murray Rural Water Authority and replace Dethridge wheels. Catchment Management Authorities have prepared studies to identify prime development zones – where There are alternative methods of achieving efficiencies, water could trade to, taking advantage of the authority’s which address the demand for services. Thus it is existing infrastructure – and also prime retirement conceivable that spills from channels could be reduced zones. In the case of retirement zones, there has been by having higher pricing in certain periods or by some understandable reticence to face up openly to the modifying the present rule that allows farmers to cancel challenges and issues. orders without penalty (which could be a cheaper approach). A case can be made for rural water authorities to be The Government supports an open more entrepreneurial in modernising their distribution discussion about areas that might services. Customer groups could develop innovative 4.3 service solutions, which might include some policy or need to change to some other use behavioural changes, and trade-offs between service – as well as new areas to be standards and costs. developed for irrigation.

The core business of rural water 4.2 authorities is to distribute water There are legislative barriers to service rationalisation that the Government will seek to address. At present efficiently and effectively to their an authority has a duty to supply all properties in its customers. They are, and should irrigation districts that hold water rights or domestic- and-stock rights. Moreover, domestic-and-stock rights in be in the driver’s seat. But the districts (five per cent of all entitlements) are not Government is the owner of the currently tradable. authorities, and is funding a lot of efficiencies. It will encourage To facilitate system rationalisation authorities to develop creative, 4.4 by authorities, the Government best-value ways of distributing proposes: water with fewer losses. • To make domestic-and-stock rights in irrigation districts Rationalisation of services tradeable. Services must not be saddled with unnecessary costs. With the benefit of hindsight we now realise that there • To provide a power to acquire are areas of land that are not suitable for irrigation. rights compulsorily, or some However, once areas are irrigated, it often makes sense to keep doing this. But sometimes the land simply is not other way of authorities being productive and the environmental costs are too high to relieved of the duty of supply, justify continued irrigation. in defined circumstances. In some areas, a large volume of water has been traded out making it uneconomic for water authorities to continue to supply. Other areas are unsuitable for Securing our Water Future 63

The first reform will give people more choice to decide what volume of entitlement, if any, they require. If an area is reverting to forested floodplain or is being With Government support, rural encroached by urban development, people will be free 4.5 water authorities need to be to sell all their entitlement. If its future is in dryland farming, people may want to keep some supply – proactive about streamlining their depending on whether they are carrying stock or distribution systems. The growing crops, and whether there are alternative sources such as groundwater, or a farm dam or through Government will discuss with an adjoining property. Where people want to keep a authorities an effective sharing supply, the authority will need to negotiate a suitable arrangement – for example, plastic pipelines to take the of responsibilities, and will be place of irrigation channels. involved with water authorities The second reform will enable authorities to be released and local government in from the duty of operating irrigation supply channels after most of the water has been traded away. (Existing developing broad adjustment legislation allows a district to be reduced, but this was plans that cover all aspects – not intended to relieve an authority of the duty of supply, especially in an era when water has become a including social aspects (as is valuable asset. It needs to be updated, with safeguards happening at Kerang). against the power being exercised arbitrarily). The blocks of land from which water has traded away may be scattered, but in some places it is only a matter of time before more will be dried off. It is better to reduce uncertainty and positively look towards alternative futures. Overseas research indicates that proactive adjustment can be associated with improved welfare for regional communities. The internationally recognised wetlands around Kerang, for example, offer good prospects for eco-tourism in an area where irrigation is moving to other areas. A proactive program that gives people significant choices, time and support in adjusting, will have advantages for all concerned: facilitating a dignified change for the irrigators left behind and pruning the distribution business of its worst segments. There may be opportunities, as well, to recover water for rivers (see Chapter 5). Assistance needs to be considered to help communities adjust over and above any payments to individual irrigators for water rights (this is in line with principles considered by the Council of Australian Governments [COAG]). Thus, a plan is being collaboratively prepared for future land use around Kerang, which has particularly serious salinity problems, that is especially focused on achieving social, environmental and economic aims. 64 Chapter Four – Smarter Use of Irrigation Water

Developing the Water Market

The market in publicly-supplied water is Water as an independent asset a highly significant component of the At present, water rights are linked to a piece of land, but business environment in which the can be delinked and moved to link up with another piece of land. Licences for individuals to pump out of a river farmer operates. The signals it provides do not have the same tight legal link to land: they are on water’s value have helped lift the allocated to people. Yet, under the legislation, the licence productive use of water to a new plane. still has to specify the land where the licence applies. Thus, to hold either water rights or a licence, it is The market has enabled transfers of water to where the currently necessary to have irrigable land. These most return is generated. In droughts, farmers can entitlements have three main components, which are obtain extra water or choose to sell their water. bound together. Individuals are taking responsibility for their water supplies, and authorities either keep on their toes or lose customers. Victorian districts have three times the trade of those interstate. Our market is already achieving much of its potential, but still could be enhanced.

Figure 4.2. Components of a Water Entitlement

Water Share Linked To Supply Source

Seasonal Site-Use Allocation Licence Based On Linked To Land Water Share

Storage Farm

Delivery Capacity Share Linked To Channel/Land Securing our Water Future 65

When someone buys water rights, they obtain all three The Government can see several arguments for enabling components: unbundling: • A right to water (such as 20 megalitres from the a It would make trade easier. When a trade occurred, Murray, at high reliability). it would only need to be the water itself. A developer could obtain the other two components prior to the • A share of delivery capacity in transporting water to trade (in which case, the water could be used a particular farm off-take (eg. delivery of an amount straight away), or subsequently. of water per day). b Banks and other lenders would be able to take a • Permission to use water on a specific piece of land mortgage directly over the water rather than only (eg. maximise water use efficiency and minimise off over the land, requiring banks to trust they will be site impacts eg. nutrient discharges and salinity informed, as is the case at present, before the water impacts). is traded off. This should reduce borrowing costs. The Government sees scope, by more thoroughly c Presently, water rights can be traded permanently, loosening the nexus between water and land, for a more or else the allocation of water made in the current developed, capable market. season can be traded (a temporary trade). But there The Government recognises that this proposal would is a demand for leasing of rights (for instance, one result in water being able to be held without land. Some development failed since permanent acquisition of protections are appropriate if this was to occur. If water entitlement could not be afforded initially). Leasing shares could be held without land (full unbundling), a requires clarity about the rights of the person who is five per cent limit on the shares held by any non- leasing out and to distribution capacity when the irrigator is proposed. lease expires. Unbundling would be the clean way to open up leasing.

The Government proposes to 4.6 investigate the impact of enabling water entitlements to be unbundled into their three main components: a water share, a share of delivery capacity, and a site-use licence. The Government recognises that this proposal would result in water being able to be held without land. Some protections are appropriate if this was to occur. If water shares could be held without land (full unbundling), a five per cent limit on the shares held by any non- irrigator is proposed. 66 Chapter Four – Smarter Use of Irrigation Water

d Farmers would be able to lease water not just from d Letting new players and money into the water other farmers but from a financing service – just as market may not be sensible when environmental they now have the choice of leasing farm equipment flows for the River Murray are unresolved. While this (sometimes with tax advantages). Already in South concern is legitimate, restoring flows to the Murray Australia (which has ‘holding’ licences not tied to will take many years. Instead of waiting, it may be land), such a facility is available. While there are better to make clear the nature of water entitlements plenty of farmers who may be interested in leasing and the obligations attached to them. Any would-be out water, it would helpful to have a go-between, to investor needs to understand that Victoria’s water connect their water with farmers wanting to lease in. rights are, ultimately, reviewable, and that annual charges could be extended to take account of e More broadly, if water could be owned by anyone, environmental impacts (see Chapter 6). this would increase choice about how irrigators and others deploy their capital, promoting its better use. e As well as the benefits noted previously, unbundling Investors would take on some of the risk in water’s would allow better allocation of delivery capacity, fluctuating value. And the door would be opened to including charges fixed to land (discussed below), the development of new facilities, such as options and, via site-use licences, some on-going supervision and other derivatives, to help irrigators manage their of irrigation practices in line with locally-developed water supply risks and costs. land and water management plans (discussion in final section). Issues Unbundling is primarily about opening up choices for The Government is aware that the following concerns irrigators. Those not wanting to exercise any of the new have been raised with full unbundling: possibilities would be free to stay exactly as they are now (but with their existing entitlements more clearly defined). aThe administrative costs of unbundling a single entitlement into three discrete rights or consents, Halfway option may outweigh the benefits. This point underlines the need to be careful and intelligent in deciding how to In discussions so far, irrigators have generally responded go about unbundling. positively to the idea of leasing between farmers – and also to related proposals for site-use licences and holding b The price of water might be pushed up and licences. However, many feel uncomfortable about manipulated by speculators, making it harder for separating water from land completely as is recognised those farmers who wish to buy water. However, in above. the long term the price of water will be based on the value that people generate from using it. Even now it A halfway solution that took account of irrigators’ is hard to keep out investors, and the halfway concerns would be to make water a separate asset but solution could open new loopholes. The Trade keep a loose land requirement. For example, a person Practices Act should prevent manipulation of the might not be allowed to hold more than 20 megalitres per market. Also, it is proposed to limit water holdings hectare of potentially irrigable land. This option would by a non-irrigator to five per cent of the rights on a miss out on the benefits listed above under (d) and (e). regulated system. c Unbundling would mean that water rights would need to be excluded from council valuations. This is The Government seeks feedback probably true but trading has already made it hard 4.7 on the merits of two options: full to keep water rights within valuations, and any leasing would make it harder still. Licences have now unbundling, and a halfway solution been excluded (an anomaly being exploited by some). of retaining some requirement to Valuations could still take in the capacity of land to be irrigated, and local councils could use differential hold land. rating powers to ensure burdens are fair. Securing Our Water Future 67

Allocation of delivery capacity Having water available at short notice is crucial for The Government sees specification growers of sensitive crops such as tomatoes. Thus, of shares of delivery capacity as a tomato growers sometimes employ work-arounds to get 4.8 quicker service. With share of delivery capacity sensible first step, and supports its separated out from current, bundled water rights, there legislative basis being clarified. The is scope to improve how delivery capacity is managed. Government will work with Better utilisation of congested channels would not only support efficient watering of high-value crops but could authorities to investigate whether save funds in distribution-system upgrading and be a subsequent steps could be: non-engineering method of cutting system losses (in line with comments above). • The authority holding some Authorities usually try to limit the rights on a channel capacity in reserve and so that, say, ten per cent of someone’s rights can be delivered every ten days, but sometimes rostering has to introducing a premium service be imposed. It would be hard recognising exclusive (e.g. delivery at one day’s notice) shares of distribution capacity, when each farmer is supplied by a unique set of channels and has particular with higher annual charges. watering patterns. However, it may be possible to achieve and the potential benefits warrant its further • Having exclusive, tradeable investigation. entitlements to distribution For some areas like Woorinen, Goulburn-Murray Water capacity. now keeps a record of shares of distribution capacity, broadly specified (e.g. as five megalitres a day). Irrigators may apply to the authority for an increase or a decrease in their shares. 68 Chapter Four – Smarter Use of Irrigation Water

Dealing with the financial and social repercussions of trade Victoria has an active water market, with water able to trade more freely out of authority districts than is so far the case in our two neighbouring States. (Trade out is limited to two per cent of a district’s water rights per year, but this has rarely been invoked, and only slightly delays some trade). Our open trading regime has helped keep our irrigated agriculture competitive. But trading can also involve difficult change for communities. As water leaves particular localities, the cost of keeping the distribution channels running can fall on fewer customers. Communities can disband, with remaining irrigators feeling isolated. Figure 4.3. Permanent trade into, within and out of areas and river groups, 1991/1992 to 2000/2001.

Mildura Merbein Legend FMIT Towns Sunraysia Murray Red Cliffs Irrigation areas / districts diverters Storages, weirs Channels, pipelines Internal trade volume Robinvale Trade into Trade out

R A trade into (or out) is half a trade, since it is a trade out of iv (or into) somewhere else; the volumes in table 4 are halved. er 050100

Nyah Kilometres G/7047-3 Swan Hill

Tresco M u rra y Other Murray/Kiewa/Ovens diverters River Lake Torrumbarry Albacutya iver r e R Yarrawonga Weir Murra iv Murray Valley R Pyramid y Kow Broken Albury Wimmera - Mallee domestic & Boort stock channel system Swamp

Lake Echuca O Hume Dam Creek Hindmarsh G Shepparton ven Rochester ou lb s a er u M c rn Loddon Loddon Weir K itta Riv Central Shepparton iewa Wangaratta M Avo Waranga Goulburn Bro ain ken itta W M R est iv Channel Waranga Basin er W Campaspe urn K R in im Coliban iver g

m channel oulb er hannel R

ive a system R paspe Eastain G C iv r M er Lake Horsham Cam River Bendigo Goulburn Buffalo River Weir Lake Lake William Glenorchy Lake Nillahcootie . Hovell Cairn R Eppalock n River Curran a Lake Lonsdale lib Tullaroop o Eildon

C Dam Reservoir Snowy Bellfield Ck. Deep er Hepburn

iv J . R Lagoon a Rosslynne M Rocklands c

k ac m Ta Reservoir s Dam Goulburn/Broken/Loddon/Campaspe B Werrib o e Newlyn nong R a n m Pykes liste s C bo r Creek k m Lake R ive r M Ballarat ee iv R Merrimu Maribyr Upper Yarra Dam itchell e Lal Lal Reservoir Coimadai Yarra r

M R Ck. R iv o Riv er

ora Riv . er lg e Melton e r River b R. n Bacchus MELBOURNE Thomson Dam oo le Lake Glenmaggie Hopkins Marsh G l Other rivers south Siphon River Macalister Werribee of the Divide Thomson River Lake Tarago Wellington Blue Cowwarr r . Rock Rive nyip R Weir Bu Dam Geelong Lake Latrobe R. Sale on Narracan Nambrok/Denison Barw Wurdee Thomson & Macalister diverters Boluc Warrnambool

Gellibrand R.

Source: The Value of Water, December 2001 Securing Our Water Future 69

Some farmers recognise that trade can be something of a lifeline, as well, by allowing water to move off soil that (even without trade) has no future in irrigation, to better soil not far away. Most of Victoria’s 200 gigalitres of trade has been local (30 gigalitres has gone to Sunraysia, and eight gigalitres to South Australia - the rest has been with local districts – see Figure 4.3). There is often a pepper-and-salt mix of good and bad soil. And higher, sandier areas on the edge of the old gravity system are being brought into production using sprinklers, etc. So while places near Kerang and Pyramid Hill have lost water overall, 30 minutes drive away Swan Hill and Boort have gained water, and offer new jobs. Rapid changes are still traumatic for local communities. The areas most affected are the very ones where we must face up to the imperative to close parts of the distribution system. There is exactly the same need to collaboratively develop broad adjustment plans – to which the Government is committing itself. One of trading’s clearest downsides is the stranding of distribution assets with too few customers. Unbundling of distribution capacity as a separate entitlement would open the way for authorities to set a charge for distribution tied to the land – landowners would have to keep paying it, even after selling off their water rights. An alternative approach is to continue with existing rules. This may also be a way of dealing with the practice of land being bought up so the water can be stripped off it. It would be important, though, that land-tied delivery charges not be an unwarranted barrier to trade – a way of propping up an area whose sensible future lies in things other than irrigation.

The Government supports Victoria’s 4.9 relatively open trading regime. But together with rural water authorities it will consider if any modifications are required, to take better account of financial and social impacts. In particular, it will consider whether charges for distribution should be tied to land. 70 Chapter Four – Smarter Use of Irrigation Water

Minimising Side-Effects from Watering

The salinity and nutrient pollution Further upstream, in the gravity districts, saline groundwater does not drain directly into the River resulting from older irrigation areas is (though it may seep into drains and have a similar significant. The approach to minimising effect – almost as big in total as in Sunraysia). The chief this has been to use incentives and training concern is about salinisation or water-logging of land, via rising watertables. Being dairy country, there is also for farmers to adopt better practices, in concern about pollutants in drainage, especially the context of locally developed nutrients from manure and fertilisers. management plans. While this approach The existing approach using incentives has had some success, the question Controls are stringent for new development – through discussed here is whether there is a need the salinity impact zones, and through broader requirements to carry out soil surveys and have for smarter, more market-based measures appropriate irrigation design (these need to be extended or tougher, more regulatory ones. beyond the northern regulated systems). For existing irrigation, raw manure may not wash directly into drainage channels, under an Environment Protection Side-effects from established irrigation areas Authority rule. But most of the effort to make existing The salinity of the River Murray is currently being held irrigation less harmful is through incentives. in check, but the Murray-Darling Basin Commission Catchment Management Authorities develop salinity or believes that in less than 20 years, at the place where nutrient management plans, which are endorsed by the Adelaide gets as much as 90 per cent of its water Minister. The process fosters local ownership and supply, the water will be too salty to drink two days leadership in improving farm practices. The plans set out of five. out the grants on offer: typically about 50 per cent of The cause of this looming deterioration is not irrigation the cost of assessments, and about 25 per cent of the but clearing of trees for dryland farming over large cost of pressurised watering systems, re-use dams and areas of south-eastern Australia. Rainfall that would automation. have been sucked up by these trees is filtering down About $3 million a year has been going to irrigators, into salty aquifers and more salty water is coming to who have spent about ten times that of their own the surface or is being pushed into rivers. money. Attempts have been made to avoid government Like the clearing of trees, irrigation also means more funds going towards projects irrigators would have water leaking down to aquifers, with similar salinity done anyway. consequences. However, the effects are comparatively localised and easy to manage. Each State is accountable for post-1988 irrigation developments that increase In offering incentives to farmers to River Murray salinity, and must offset them with credits earned (e.g. via schemes to intercept groundwater and 4.10 adopt less harmful practices, the remove it to evaporation basins). Government recognises that the As part of this, trading of water in Sunraysia is not farmers’ ability to keep any water permitted into the ‘high impact zone’, where groundwater drains straight into the Murray. And in the ‘low impact saved in the process is part of what zone’ buyers of water have to pay a levy of up to $260 motivates them. per megalitre, so any effects can be offset (even with the drip systems, some water filters down to aquifers). If the Government were to invest The side-effects of pre-1988 development are allowed to generate on farm savings then as part of the starting point. Older irrigation in 4.11 Sunraysia is responsible for as much as 70 EC of the those savings should be directed Murray’s salinity (the River’s average salinity is about 700 EC, and the drinking standard is 800 EC). That is a according to the outcomes lot (though much less than the effect of irrigation in sought – environmental, regional South Australia). development and or social outcomes Securing Our Water Future 71

These taxpayer-funded inducements have reinforced c Regulation. The third main method for reducing farmers’ normal business decisions, helping to drive pollution is via regulation. Given the difficulty, once improved irrigation. The net result has undoubtedly again, of measuring farm-level discharge, it might be been mitigation of adverse side-effects. Thus, the very effective to target those few inputs that are mostly large salt load carried into the Murray from Barr Creek closely related to discharge. Thus the watering has been almost halved (helped also by other factors, evenness likely to be achieved by an irrigator’s like water trading away). But significant effects remain. system could be assessed for around $500. This would reveal to irrigators how to refine their systems New tools to support incentives? to reduce costs and side-effects. Despite cooperative planning and incentives, major An initial, very low level of regulation might simply side-effects of irrigation are still occurring. involve irrigators being required to audit their watering system’s performance every five years. If, subsequently, The large salinity impact of existing development in irrigators could be required to upgrade their systems Sunraysia cannot be summarily dealt with. When the (under a site-use licence, for example), it would be development started, no one was aware of the problem; important to have safeguards so this caught only the it would not be fair to hold the irrigators who are there very worst fraction of irrigators, unless community now fully responsible. opinion, via an approved land and water management plan, pressed for stronger action. It is not possible, though, to pass the cost of looming salinity rises back to the widely-scattered dryland farmers (whose forebears, similarly, cut down trees At this stage the Government would without appreciating the repercussions). There is a case like all options to be discussed, to engage irrigators in remedying the irrigation impact. 4.12 They will be among the beneficiaries of better water though it sees merit in the third quality. Already many of the irrigators have willingly looked at how they could help. option – light-handed regulation The Government proposes the examination of three through site-use licences – and options for dealing with environmental impacts caused recognises that a package made up by irrigation, e.g. salinity: of different options might be needed. a Pollution charges. The ideal method for dealing with ‘externalities’ (consequential impacts such as pollution and related environmental damage) is to put a price In conclusion on them and ‘internalise’ them in the cost of doing business – so there is an incentive to reduce pollution. With output worth $2 billion a year and support industries, processing and exports worth many times Since farm-level pollution monitoring would be too that, irrigated agriculture is a mainstay of Victoria’s costly, the charge may need to be a flat one. One economy. The Government’s proposals are designed to variation, though, may be to have an extra charge for assist ongoing expansion of irrigated production, while any water use over what is thought reasonable, as a ensuring adverse impacts are lessened and the proxy for pollution. Another variation would be provide underlying resource is in good shape. a rebate where farmers had adopted sound practices. The Government, through its $320 million Victorian b Tradable pollution permits. Another approach is to Water Trust, is already investing in the future of the cap pollution and have tradable pollution permits. irrigation industry. The Government has committed Any developer would have to obtain salt disposal funding of $160 million to priority initiatives and capital credits, for example, by buying them from existing projects, including $40 million to upgrade irrigation irrigators who had invested to reduce their own systems on the Goulburn and Broken Rivers; $20 million impact, or by investing in a salt interception scheme. in upgrading systems in Sunraysia-Mildura; $20 million for the Gippsland Lakes and Macalister River; and $10 Existing irrigators could be allocated salt disposal million towards the Werribee Plains Vision. credits based on area cultivated and salinity impact zone, and perhaps good practice levels. Once again, Further advances in the use of irrigation water will receive actual drainage might not be feasible to measure, so continuing, active support from the Government, but will the main effect might be to move irrigation out of also rely on individual farmers’ investments and energy the ‘high impact zone’. and skills. Based on the progress already achieved, there is every reason to be confident that irrigators, in partnership with the Government, will rise to the challenges ahead – resulting in a vigorous industry, prosperous communities and a healthy environment. 72 5Chapter Five – Dealing With Stressed Rivers Securing Our Water Future 73

Chapter Five Dealing with Stressed Rivers

1KEY CHALLENGE >> One third of Victoria’s rivers are in poor or very poor condition >> State of the Murray is a national issue >> Some stressed rivers need more water to achieve sufficient environmental reserves. >> Need to balance water use that acknowledges PROPOSED GREEN PAPER ACTIONS - The full range of services our water 2 systems provide Proposed actions include: - The entitlements of existing water >> Increasing environmental flows in stressed users rivers by: - The need to maximise outcomes from - Investing in distribution savings environmental flows where economic >> Clarifying roles and responsibilities for - Buying water on the water market river health. focusing on local solutions >> Developing capable environmental - Refining system management managers. where feasible >> Establishing CMAs as managers of the environmental reserve and river health. >> Investing in enhanced capability to be caretaker of river health. 3PREFERRED OUTCOMES >> Achieve significant improvements in the ecological condition of Victoria’s rivers by 2010 >> Achieve recommended environmental flows in 80% of Streamflow Management Plans within 10 years. >> Healthy rivers, floodplains, estuaries and catchments. >> Clearly defined roles and responsibilities for river health. >> The protection of a wide range of other water services provided by our water systems. 74 Chapter Five – Dealing With Stressed Rivers

One third of Victoria’s major streams The poor health of our rivers has contributed to signifi- cant losses in the fish, birds and other animals and are in poor or very poor condition. plants that depend on water. Moreover, two-thirds of our wetlands • In Victoria, of the 420 plants and animals listed as have been either lost or degraded and threatened, 20 per cent of the plant and 35 per cent nearly half of our major estuaries are of the animal species depend on aquatic significantly modified. In addition, the ecosystems. • Of the 40 species of native fish in Victoria, at least health of the River Murray into which one is extinct and 18 are now considered to be many of our northern rivers flow, is threatened. This includes the iconic Murray Cod. considered to be severely compromised • Recent reports state that many of the red gums with flows at the mouth which are now along the River Murray are on the verge of dying. The gums are affected both by rising levels of salty a quarter of natural ones. groundwater and by less frequent natural flooding. We also are starting to see the impact of unhealthy rivers on their capacity to provide other water services to the community. For example: • The Gippsland Lakes now experience algal blooms each summer and major blooms every four or so years, causing great loss of tourist revenue to the region and major losses to the commercial fishing industry. • , a recreational and tourist area, is now experiencing regular algal blooms at a cost to the region of $600,000 per bloom. • Water treatment costs are significantly higher in Bendigo which has poorer quality source water than in Ballarat which has good quality source water (additional approximately $9 million in capital works and additional approximately $700,000 per annum in operating costs). As highlighted in Chapter 2, the clear message is that as the health of rivers and floodplains degrades, there is a loss in the other services they provide. The loss is significant enough to seriously impact on the water services available to regional economies and the quality of life of regional and urban communities. Securing our Water Future 75

Tackling All the Aspects of River Health

Lack of flow is often one of the key The objective of the Strategy is to achieve healthy rivers, streams and floodplains to continue to provide causes of river stress but the health of rivers, economic, social and environmental services for current wetlands, lakes and estuaries is the result of and future generations. The Strategy sets out a vision for the cumulative impact of a multitude of river health across Victoria, outlines a series of targets to achieve this vision and provides the policy direction on factors. Adverse outcomes can come from: how these targets should be met. The Strategy takes a common sense, pragmatic approach based on the • Significantly altered flow regimes influenced by philosophy that ‘prevention is better than cure’. major storages, diversions, groundwater extractions The Government’s Strategy sets up a community-driven and catchment dams. river health planning process to address all the issues • Poor water quality resulting from point source affecting rivers and focussing on real improvements in pollution, catchment run-off and cold water releases river health. Regional strategies will be the vehicle for from dams. setting priorities and balancing between economic, environmental and social services provided by these • Clearing of riparian and catchment lands, and water systems. introduction of exotic species. • Erosion, sedimentation, de-snagging, etc. that harm channel form and habitat. The Government: • Barriers such as weirs that impede fish movement. 5.1 • Reduced links with the floodplain, e.g. arising from wetland drainage, levee banks or development (as • Is committed to achieving signif- well as insufficient flows). icant improvements in the Dealing with these issues separately will not necessarily health of Victoria’s rivers by help. What is required is an integrated management package addressing all the major causes of river stress 2010 by increasing environmen- and aiming for real river health outcomes. tal flows and undertaking river- The Government considers that the repair of our rivers bank and catchment manage- requires a three-pronged attack: ment works. • A statewide integrated management framework to ensure our highest value rivers are targeted for • Restates its commitment to the action and that we undertake the right package of actions to tackle the multiple causes of river stress. Victorian River Health Strategy • Serious action to improve environmental flows in as the policy framework for stressed rivers, recognising the crucial importance managing Victoria’s rivers, flood- of flows to river health. plains, wetlands and estuaries. • Establishing active and accountable management of the environmental reserve, within a broader • Recognises regional river health integrated program of river restoration strategies as the mechanism for With respect to the first prong, the Government has released Healthy Rivers, Healthy Communities and establishing regional priorities Regional Growth: the Victorian River Health Strategy, and programs. thus beginning the journey to improving the health of our rivers.

The remainder of this chapter examines how the Government might proceed with respect to the other two prongs, improving flows and setting up an environ- mental manager. 76 Chapter Five – Dealing With Stressed Rivers

Approaches to Restoring Flows

As previously mentioned, the flow regime Unregulated streams is a major determinant of river health. On unregulated streams, irrigators generally pump Each of its components has some effect water out in summer. They usually hold only an annual licence, though they may have built their enterprises on on the river ecology: high spring flows an expectation of the water being available every year, stimulate fish breeding and maintain since licences are generally renewed each year. In low-flow periods, the water taken out is limited and estuary openings; bank-full flows shared through rostering rules. maintain the channel and move Streamflow management plans are now being developed sediment; floods replenish the floodplain for unregulated streams that have high environmental and provide organic input to the river. value and are at risk from diversions. In these streams, the flow in summer is usually significantly reduced while the rest of the flow regime is relatively intact. The In developing bulk entitlements or streamflow manage- plans set extraction rates and rostering rules which aim ment plans for unregulated streams, a scientific study of over time to provide the scientifically recommended the volume and pattern of flows required to maintain the environmental flows and to meet users’ licences with ecological health of the river is undertaken. For a number agreed levels of reliability. of rivers in Victoria, the environmental flow regimes provided by the bulk entitlements or streamflow plans fall far short of what is recommended because of historical allocations of water for agricultural use. The Government proposes that the These rivers include the major river basins shown as 5.2 agreed environmental flows, which at risk of being, or very likely to be, stressed (coloured yellow or green) in Table 1 in Chapter 2. They include, take into account scientific advice too, a number of rivers and specific reaches in other and community values, be achieved basins and quite a few smaller unregulated streams which are highly stressed during summer. in 80 per cent of streamflow As outlined in Chapter 2, the Government’s goal is to management plans on unregulated sustainably allocate water across a range of water rivers within 10 years. services, to support activities valuable to the State’s economy and to society. The approaches to be taken are different for: • Those streams whose flows are not regulated by a major public storage dam, (these streams make up most of the stream length across Victoria but pro- vide only about five per cent of the water used). • The regulated rivers, ie. those that have dams, where the great bulk of diversions take place and where the biggest quantities of flow restoration are needed. Securing Our Water Future 77

A streamflow management plan will identify the Regulated rivers possible ways of meeting the recommended environmental flows in that particular stream. The challenge is different for rivers such as the This will generally involve either: Goulburn, which has sitting above it and supplies thousands of irrigators (both those who pump a converting summer pumping licences to winter-fill themselves and those who are supplied in districts). ones, where this is permitted within the winter Resources here are more reliable, and irrigators already ‘sustainable diversion limit’; or hold 15-year licences or, most commonly, water rights b (usually where the first option is not possible), with indefinite terms. reducing the total licensed volume after some years’ The next section discusses options for acquiring water notice (for example, renewing annual licences only for the environment in regulated systems. It first dis- to the extent of 80 per cent of the previous vol- cusses the method for retrieving water which has been ume). preferred by Government so far, in its decisions to In response, irrigators would probably need either to improve the health of the Snowy, Wimmera and build an off-stream storage to fill up in winter, or find Glenelg Rivers (i.e. saving water in rural water authority an alternative source of water, such as groundwater if distribution systems). It looks at how far this can take that was possible. Many irrigators with high-value us and then discusses alternatives to that method. enterprises have, on their own initiative, already taken Again, while the focus here is on irrigation water, such measures to build up their supply reliability, urban authorities equally will be part of the river because it is good for their business. restoration effort. Recycling of urban water offers Options to facilitate this change and support irrigators special opportunities to take less water from rivers might include: or restore flows to rivers. • Diverters cooperating to develop their own programs for achieving the flows. • Possible use of adjustment assistance or incentives in certain situations. • Converting licence duration to 15 years after environmental flows are met. • Grants to promote on-farm water efficiencies to help with the adjustment. • Once environmental flows are met, a river could be given priority for complementary restoration work, to ensure river health improvements are achieved and sustained. Government is seeking comment on these and any other options for achieving its objective of improved environmental flows in unregulated rivers. While the discussion has focused on irrigators, since they usually account for most diversions, an urban authority taking water from an unregulated stream equally will affect the stream’s restoration. An urban authority is expected to be subject to the same rostering rules (developed through a streamflow management plan) as irrigators (recent urban entitlements make explicit provision for this). An urban authority normally has an off-stream storage already and can switch to taking water in winter without too much trouble. 78 Chapter Five – Dealing With Stressed Rivers

Savings to be Made in Distribution Systems

Most irrigation water is transported from Upgrading infrastructure to save water sometimes can have other benefits, such as reducing seepage into the river to farms using gravity, in open, saline aquifers. Goulburn-Murray Water is now trialing earthen channels. While this system is ‘total channel control’: electronic systems for much less expensive to install and monitoring and controlling channel flows and farm off-takes. Water might be able to be managed and operate than pumps-and-pipes, it metered as tightly as in a piped system, one result also loses more water. being that farmers could get water at one hour’s notice, instead of the usual four days. At intervals, Victoria has had blitzes aimed at reducing the losses (e.g. by concreting those lengths of channels running through sandy country). Recently, a concerted Where the Government invests in effort has been made to find savings so that, as 5.3 distribution system savings for promised by the Victorian and New South Wales Governments, 212 gigalitres a year can be returned to environmental purposes, all the the Snowy River within 10 years, with a total of 295 resulting savings will be returned gigalitres to be targeted in the longer term. to the environment. Where other Studies have examined potential water savings in distribution systems in northern Victoria. They find that outcomes are sought from these an average of about 720 gigalitres, or about 25 per cent projects, such as regional of the water diverted by rural water authorities out of the Murray and Goulburn systems, is not accounted as development or social outcomes, delivered and thus is effectively lost. water savings will be directed The key opportunities for savings are: accordingly and transparently. a Evaporation and seepage from open channels make up just a seventh of the losses. Pipelining can eliminate these losses but at present is only economic for spur channels or for domestic-and- stock systems (which are low-volume). b Water flowing out at the end of channels, particularly when farmers cancel orders after rain, make up a lot of the losses. Often this water finds its way into wetlands or back into a river, so it cannot really be ‘saved’. c Unmetered water includes cases where much more water is being taken than farmers’ domestic-and- stock allowance (so meters need to be installed); and, more generally, where older-style meters read too low, these may need to be repaired or replaced. Securing Our Water Future 79

Distribution savings become uneconomic The Snowy program, to which Victoria has committed $150 million, seeks to return flows primarily by Table 5.1 shows the savings that look to be possible in investing in such savings projects. This program is well northern Victoria for the Snowy and also for the geared to investing in the first lot of economic projects. Murray or Goulburn, together with the costs of those savings. The table shows that the first tranche of However, given that water needs to be returned to distribution savings is certainly worth pursuing, but other rivers as well as the Snowy, and distribution the projects quickly become expensive. savings are becoming increasing expensive, the Government needs to consider alternative approaches to retrieving water for the environment.

Table 5.1. Potential savings in Murray and Goulburn authority distribution systems Cumulative Cumulative Saving Cost to Gov’t saving cost Opportunity (gigalitres) ($/megalitre) (GL) ($m.)

Pipeline Woorinen horticultural area# 2 4,500 2 9 Pipeline Normanville domestic and stock# 4 1,000 6 13 Measure domestic and stock users 16 700 22 24 Pipeline Casey’s Weir domestic and stock† 4 2,000 26 32 Decommission / downsize † 33/26 59/52 52/67 950/ Reinstate Lake Boga in supply system† – 5 54/47 55/70 1,750 Make Little Murray Weir lower† 5 59/52 63/78 Pipeline small, run-down channels* 30 3,000 c. 85 c. 160 5% more exact meters, in total channel control* 100 Cut leaks, seepage by total channel control* 20 1,500 c. 205 c. 340 Cut outfalls, by total channel control* –

Notes: # These two items are already going ahead under the Snowy program. The Woorinen project is associated with other regional development objectives. † These four items would fit together. Lake Mokoan (actually headworks, not distribution) evaporates significantly and does not work well; two options are decommissioning (with some licences bought out rather than provided with new supply from Eildon) and downsizing (the first option gets more savings and is cheaper, but has a bigger impact on recreation). Casey’s Weir savings could help replace water lost to irrigators. Lake Boga’s water quality is falling; it could catch extra unregulated flows, so less transfer needed from Snowy. Little Murray Weir would then need to be lower – so there would be a need for some pumping for Swan Hill. * The savings and costs under these four items will depend on detailed planning for each area (Katandra, Rochester, etc.) and the optimal mix of pipelining, total channel control, etc. arrived at for each area. The full costs may be about double those shown here; Goulburn-Murray Water will also contribute since channels to be pipelined need renewing anyway and total channel control will reduce its operating costs. 80 Chapter Five – Dealing With Stressed Rivers

Other Methods for Retrieving Flows

Capturing on-farm savings Changing system management At first glance, water lost on farms is an attractive and allowing donations source for boosting environmental flows. There may There are a number of options relating to the manage- be almost as much of it as water lost in distribution ment of water supply systems and trading which might systems – and perhaps a higher proportion that is really address river health without the burden falling back on lost, rather than just running back into rivers. Saving the taxpayers and without too much pain for users. These same amount as the distribution target (180 gigalitres in are discussed below: northern Victoria) would seem feasible. a The water that ‘spills’ from Victoria’s half share In practice there are some hurdles to consider. If savings Murray storages, such as Hume Dam, to New South made by each farmer were simply taken off him or her, Wales’ half (about 100 gigalitres a year – reflecting then a key driver for improvement would be extin- Victoria’s more conservative allocation policies), guished. On the other hand, if the Government offered could be called out as an environmental flow. This to pay for individual improvements in return for taking idea would need to be explored in consultation with the saved water, the transaction costs involved in assess- New South Wales. ing and negotiating a multitude of small projects could be high. b An environmental levy on every trade has been sug- gested at times but based on current trading rates in The amount of water saved in each separate case can northern Victoria, something like a ten per cent levy depend on a number of peculiar factors such as soil type would result in only about 2,000 megalitres being and farm layout, and not always easy to quantify. retrieved each year. So this method would take far Moreover, it can be accompanied by other benefits (e.g. too long. saving time from automatic irrigation systems) and costs (e.g. having to pump water from re-use dams). c Off-quota water could be abolished. This is water that flushes down a regulated river like the Murray, Basically, if a farmer is offered less for water than the usually in spring, and cannot be harvested in public market price, then the farmer is unlikely to voluntarily storages. Seasonal allocations to irrigators are based give up the water. The Government could choose to pay on water in storages. They have been allowed to a premium on account of side-benefits such as a lower- divert from these flushes on top of their allocations. ing of saline seepage to rivers. But it might be simpler for the Government to buy up water on the market, The Murray bulk entitlements have phased out off- leaving farmers to continue to improve water efficiency quota, but without reducing the cap, so irrigators can in response to market signals. still use the same amount of water overall. Acquiring water savings from individual farmers would dThe ‘sales’ water available to irrigators when stored seem to be most useful where there is no active water resources are good offers some innovative, win-win market operating, or the water market is thin, for exam- possibilities. One option would be to put a lower ple in unregulated river systems, or in targeted irrigation ceiling on seasonal allocations (say 130 per cent of upgrade projects. base rights, instead of the current 200 per cent). This would mean that ‘sales’ water would become more reliable (more likely to be available to irrigators in moderately dry spells, when its value to them is high) but there would be less of it overall. Particularly in moderately wet years, the environment would benefit from higher winter flows and flushes. The overall cap could be reduced to take account of the increased flows available to the environment, and to ensure the higher reliability of the resulting sales water which would be more bankable. Securing Our Water Future 81

e One other method that should be noted here is Buying water enabling donations of water by users or others. Since some irrigators have purchased rights so they The Government recognises that the path followed so have enough water during droughts, several have far, of investing in savings, is not going to address all asked about donating spare water in wetter years, on the significant challenges in improving environmental a temporary basis, to help rivers and wetlands. flows for Victorian rivers, particularly for the Goulburn Members of the public are similarly interested in and the Murray. It has become clear that it will be neces- making some bequest to rivers. sary to purchase water. The key to the environment receiving a benefit would The Government recognises that there is concern about be to reduce the cap in that year by the amount of its involvement in the water market. the donation. The Government will work to establish The Government’s preferred approach in purchasing processes for that to happen. If donated water is to water is to enable water to be bought to provide long- be actively managed, then a catchment management term environmental, social and industry benefits. Two authority as the environmental manager could be the possibilities are outlined below: agency involved. • Local group solutions. An effective method could be Some of these options look more attractive than others. to provide, payment to an authority or water service Those involving system management may help with committee, in return for an agreed amount of megal- improving aspects of the flow regime in specific rivers itres to come to the environment over a specified but are unlikely to yield large volumes of water. While period. Local water users would then have scope to these types of options need to be pursued at the local come up with innovative solutions, which might be a level as they can potentially offer benefits to the envi- combination of works, pricing and demand manage- ronment and irrigators, it is likely that further action by ment, and irrigator training. Government will need to be taken (i.e. buying water and/or seeking contributions from irrigators). These are • Targeted adjustment. Funds could be provided to discussed below. local authorities to acquire water in areas where water is trading out and irrigation is not sustainable. The Government could support authorities develop an integrated adjustment plan, which would help to give remaining irrigators better options for dignified change and generally improve regional and social outcomes. The institutional arrangements to enable the purchase of water for targeted solutions or on the open market need careful consideration. The Government sees clear benefit in these arrangements being guided by local bodies, even though the overall direction and implementation may need to be a more centralised role. The Government continues to support the development of an interstate water market within the Murray-Darling Basin. This could lessen the overall economic impact of recovering water for the River Murray. It is clearly not acceptable for water to be widely purchased, if some States continue to have barriers to water ‘trading out’. 82 Chapter Five – Dealing With Stressed Rivers

Some contribution from water users If those whose use of water is part of the on-going health The Government proposes to adopt problems of rivers are asked to make some contribution 5.4 an approach which will include: to their cooperative restoration, then possibilities would include: • Investing in distribution system • With plenty of notice, gradually reducing the cap or trimming water entitlements (e.g. as part of other savings where these are action, there could be a five per cent cut to take effect economic. in 10 years’ time). Farmers who had already made savings would presumably be in a relatively strong • Changing system management position to cope with this change. The others, with advice on how best to do this, would have the where this is feasible. opportunity to make savings during the long lead-up. • Enabling water donations to be The problem with this option is that, while fair in a sense, it hits areas and businesses with a bright made. irrigation future as much as those without. It relies heavily on subsequent adjustment through the water • Buying water – in which case market. Because of these considerations, this is the Government would prefer unlikely to be the Government’s preferred approach. to invest in local adjustment • Partly financing improvements in river health through a transparent charge on water users for projects that provide long-term this purpose. This would enable the burden to be environmental, social and shouldered by all water users, not just irrigators. Note, if irrigators were asked to share in the industry benefits. responsibility for protecting rivers, this would reduce the extent to which prices would tend to rise as a It is acknowledged that there result of protective action. But if, instead, all of the may be different combinations of cost were borne by taxpayers, then rather than shouldering some of the burden, existing irrigators options for different regions. The would receive a windfall gain from the resulting Government seeks comment on surge in the value of their entitlements. the proposed approach and the Conclusion issues raised. The sections above discussed a number of options for acquiring water for the environment in regulated systems. Securing Our Water Future 83

Managing the Environmental Reserve

Water acquired to improve flows Currently, no person or body is either empowered or accountable for the management of environmental flows in stressed rivers will build up the at the regional level. This gap is especially important to environmental reserve. It is then vital redress now it is proposed to create the formally that it is managed within a broader recognised environmental reserve. program of river restoration to ensure The operational management of environmental flows that we achieve the desired outcome of must be: • Recognised as a legitimate function with clear healthy rivers, floodplains, estuaries and responsibilities. catchments that will continue to deliver • Undertaken as part of a broader program of river a wide range of water services. restoration. The following sections outline the proposed tasks for an It is important to recognise that the roles of acquiring operational manager of the environmental reserve and water and managing the environmental reserve are then discusses who is best placed to undertake these different and operate at different scales. responsibilities. The acquisition of water involves establishing statewide priorities for water and setting up a financial, governance The tasks and accountability framework at the statewide level, In all river systems, all or at least a substantial part of the ensuring complementarity with national and interstate environmental reserve will be provided through condi- processes. tions on a bulk entitlement or licences. In a number of Managing the environmental reserve is an operational systems, particularly those where water has been role, requiring integration with other river restoration acquired to increase the environmental reserve of a activities which is best undertaken at the regional level. stressed system, this will also be supplemented by a spe- cific entitlement for the environment available in a stor- age. The tasks required here are different, depending on how the environmental reserve is provided. To ensure that the community • Where the environmental reserve is provided wholly 5.5 receives the best environmental or partly through conditions on a bulk entitlement return on investment in additional or licences, the operational management role is relatively passive and involves ensuring that the flows river flows, the Government will: are in fact provided, integrating them in a bigger program of river restoration, seeking to improve them • At the state level, establish pri- if they are inadequate, and monitoring and reporting orities and the budgetary and on river health and the water services provided. governance framework for the • Where part of the environmental reserve is provided as a bulk entitlement for the environment held in a acquisition of water. storage, more active operational management will be required because there will be some flexibility about • Establish an operational manag- use. Decisions will have to be made on when and er of the environmental reserve where the allocation should be used and whether any part of it should be traded temporarily. at the regional level. 84 Chapter Five – Dealing With Stressed Rivers

Depending on the complexity of the water system Who should manage the involved, the water could be used on a range of target ecosystems. For example, there may be a choice between environmental reserve? using it in the Wimmera or Glenelg River or for different There are a number of options for the operational parts of the Kerang Lakes. Decisions have to be made on management of the environmental reserve. These include how to optimise the use of the water – effectively making water authorities, catchment management authorities environmental trade-offs among the potential target (CMAs) and the establishment of a new entity. Water ecosystems. These decisions will have to involve the authorities have a potential conflict of interest in managers of these areas, (Parks Victoria, Forests Victoria, undertaking the role because of their management of local government and private landholders). consumptive water use. The establishment of a new authority would require considerable resources and could Where there is an allocation for the environment held in potentially overlap with the roles of the existing CMAs. storage, key tasks in its management will be: The Government considers that catchment management • Coordination with the various managers of potential authorities are best placed to manage the environmental target ecosystems, including to ensure flows are inte- reserve. Taking on this function would be consistent with grated with other actions in the target ecosystem. their existing roles in regional and catchment planning • Development and implementation of an operating and coordination, and would strengthen their capacity to plan, endorsed by the Minister, to determine how the act as caretaker of river health and floodplain manager. It water should be used, including identifying would also ensure that the management of environmental opportunities to purchase or sell water temporarily flows was undertaken in the broader context of river to achieve local environmental objectives. health and catchment management. • Preparing a report on the use of the water, as do Furthermore, the catchment authorities have links with other bulk entitlement holders. their community and processes in place to undertake some of the local consultation required to improve the In these cases, the operating plan is crucial to the health of stressed rivers. management of the water and will have to be signed by both the Minister for the Environment and the Minister for Water. The Government proposes to give 5.6 responsibility for operational management of the environmental reserve to the catchment manage- ment authorities, to enhance their role as the caretaker of river health. Securing Our Water Future 85

In extending their current role to include the operational Empowering the catchment management of the environmental reserve, catchment management authorities would be assigned the function management authorities under the Water Act and would hold, or if necessary be Given the significance of their role of caretaker of river delegated to manage, any specific bulk entitlements for health it is important that catchment management the environment. authorities are made accountable for it and provided with the resources and tools required to undertake it Where there is a specific entitlement for the properly. environment, catchment authorities will coordinate the development and implementation of the operating plan. In northern Victoria, these operating plans will be the mechanism for deciding how environmental flows are It is proposed to amend the delivered from Victorian tributaries to the Murray. There will need to be an equivalent environmental manager for 5.7 Water Act 1989: the River Murray, to develop an operating plan specifically for the Murray and to coordinate this with • To broaden the waterway the regional Victorian operating plans and their NSW management function beyond equivalents. This role would be best held by the Murray-Darling Basin Commission (MDBC). addressing bed and bank erosion to include managing the environmental reserve and the other aspects of river health. • To allow, where considered appropriate, the authorities to hold bulk entitlements for the environment.

Given that catchment management authorities will be consolidated as a key player in the management of water and catchments, consideration will be given to: • Bringing them under one act, to provide a clear statutory framework. • Making sure their boards have the right mix of skills to undertake their expanded role. Active environmental water management is virtually a new discipline. There will need to be investment in building the capacity of the catchment authorities. Moreover, rigorous governance, accountability and adaptive management frameworks will be developed to ensure that catchment management authorities are managing the environmental reserve effectively and providing the expected community benefits. 86 6Chapter Six – Pricing for Sustainability Securing Our Water Future 87

Chapter Six Pricing for Sustainability

1KEY CHALLENGE >> To ensure prices recover the full costs of sustainably managing our water resources. >> To structure water prices to provide incentives to use water conservatively and carefully, and where possible, to use water PROPOSED GREEN PAPER ACTIONS of a quality that matches the purpose for 2 which it is used. >> Establishing pricing principles that: >> Need for smooth transition to new pricing regime being established under the - Reward water conservation and Essential Services Commission. provide incentives that drive sustainable use - Ensure prices better reflect the scarcity of the resource and costs related to the environmental impacts associated with provisions of water-based services. - Recover the costs of the full range of water services >> Charging the ESC with the responsibility of administering these principles and protecting the long term interests of water customers and ensuring that prices are fair and reasonable. 3PREFERRED OUTCOMES >> Pricing structures which reward water conservation and encourage the efficient and beneficial use of the most sustainable, fit for purpose, source of supply. >> Pricing that better reflects the scarcity of the resource and costs related to the environmental impacts associated with provisions of water-based services. >> Water prices that fully recover service delivery costs and ensure authorities are financially viable. 88 Chapter Six – Pricing for Sustainability

The Government is keen to ensure that The objectives and principles in this framework will provide certainty to customers and water authorities future pricing policies support a move about the future of water pricing in Victoria. They also towards the sustainable management of will be used to develop the detailed arrangements by Victoria’s water resources. which the ESC will operate as the price and service quality regulator of the water industry.1

In April 2003, the Ministerial Statement on Water In applying these principles to future water prices the outlined the Government’s initial vision for water Government recognises the importance of water to all pricing in Victoria. The Statement indicated that: aspects of the Victorian community – as a vital business input, as the lifeblood of our agricultural • Prices need to go up to reflect the true cost and sector and as an essential requirement for everyday scarcity of water. life. The Government will ensure that any price rises that result from the application of these principles will • Water authorities need to be financially viable. be managed in a fair and reasonable way and have • To ensure any change in price for a water service is regard to the needs of consumers, particularly low fair and reasonable, the Government will establish income consumers, and the benefits of a smooth the Essential Services Commission as the economic transition to a more sustainable pricing framework. regulator of the whole water industry from 1 This chapter considers the proposed pricing framework January 2004. in three parts – the structure and design of prices This chapter identifies and seeks Victorians’ feedback driving sustainable use, pricing to reflect the needs of on the Government’s proposed pricing framework for the environment and pricing to recover service delivery achieving this vision. The pricing framework sets out costs. The chapter then concludes with a discussion on the Government’s objectives and principles (‘the rules’) the ESC’s responsibilities in relation to administering to ensure: the Government’s pricing framework and protecting the long-term interests of customers. • The structure and design of prices are consistent with the Government’s objectives for water conservation and the use of alternative, more sustainable, sources of supply. • Prices better reflect the need to protect the environment and ecosystems. • Prices are set at a level to recover service delivery costs incurred by water authorities to meet viability and other financial requirements of Government.

1 The Water Industry (Essential Services Commission and other Amendments) Act 2003 establishes the broad framework for ESC regulation of the water industry. However, the detailed arrangements by which the ESC will perform its role as economic regulator still need to be developed. These detailed arrangements will be developed by Government and specified in regulatory instruments, such as the Water Industry Regulatory Order, prior to the ESC commencing its role on 1 January 2004. Securing Our Water Future 89

Structure and Design of Prices Driving Sustainable Use

The previous chapters have outlined the The way in which water prices are structured and designed can send important signals to consumers various challenges facing Victoria in about the scarcity of water and the value of water to relation to rising demands (urban the community. Pricing structures can influence water growth, economic development, tourism, consumption and decisions customers make about using alternative, more sustainable, sources of supply. etc.) on precious, limited water resources Ideally, prices should be structured and designed to and the need to restore and maintain support a move towards all consumers using water conservatively and carefully, and where possible, using environmental health. Prices play a key water of a quality that matches the purpose for which role in providing incentives for it is used. consumers to respond to these Urban pricing structures have evolved over time. challenges – to reduce demand and, Traditionally, urban water authorities generated revenue from rates based on property values, which where possible, use alternative, more entitled the ratepayer to a fixed quantity of water at no sustainable, sources of supply. further cost. Beyond the fixed quantity, ratepayers were charged for ‘excess’ water. Over time, this rate based approach has been gradually replaced with ‘pay by use’ pricing, whereby customers’ water bills are based on the amount of water they use. Figure 1 shows the evolution of urban water pricing.

Figure 6.1. Urban water pricing evolution

Historical 1980'S Current Future Options

Rates Basis: Rates Basis with User Pays Basis: Pricing to drive Excess Water sustainable water use: Charge: • Rate based on • Fixed Service Fee value of property • Pricing that • Usage Fee • Rate based on rewards water • Unlimited water value of property conservation (fixed cost) for fixed quantity • Pricing that sends • Charge for appropriate signals excess water about coping with peak demands or the need to restore storage levels • Pricing that encourages the efficient and beneficial use of the most sustainable, fit for purpose, source of supply 90 Chapter Six – Pricing for Sustainability

Under the current pricing arrangements, urban water prices generally include a quarterly fixed service fee and some form of usage charge (i.e. flat price per kilolitre consumed).2 The different ratios of fixed to usage charges reflect a balance between the need to send important signals to customers about water consumption and the need to provide authorities with an appropriate level of revenue stability. As discussed in Chapter Three, there is scope for changing the structure of prices to drive more sustainable water consumption and use of alternative water supplies (rainwater, grey water, recycled water, etc.). While the existing flat price per kilolitre usage charges send basic signals about water consumption, they do little to reflect different ways in which water is used (such as essential use compared to discretionary use). This means customers do not receive appropriate signals about the impact of using drinking water for discretionary purposes and the need to consider alternative, more sustainable, sources of supply. This is a particular concern for industrial users, who use large quantities of water of a quality that may be higher than needed for the purpose for which it is used.3 In addition, existing price structures do not reflect the time of year in which the water is being used and variations in storage levels due to climatic conditions.4 This means that customers are largely unaware of the additional costs and environmental impacts of providing water services at certain times of the year, like coping with peak demand in summer or the need to restore water storage levels over a number of years after dry periods. In circumstances where there is prolonged rainfall the traditional approach has been to continue with existing prices until restrictions.

2 In the metropolitan sector, the ratio of fixed to usage charges is 30 per cent fixed and 70 per cent usage. In the regional urban sector, the average ratio is 70 per cent fixed and 30 per cent usage. 3 For example, at least 700 kilolitres of drinking water was being used each day to recharge groundwater aquifers around CityLink’s Burnley and Domain Tunnels. Transurban, the company responsible for those tunnels, has now built a treatment plant and uses recycled water drained from the tunnels rather than drinking water. 4 With the exception of Westernport Water and some of Barwon Water’s coastal districts, which charge different prices in summer to reflect the influx of holiday makers during the summer period. Securing Our Water Future 91

Figure 6.2. Structure and design of prices in Melbourne

Average residential water use in Melbourne

Bathroom History • Have moved from property Toilet rates and free water to 'pay for use' prices

• However, customers pay the same Laundry price per kilolitre for all the different water uses Kitchen • Also, price is the same irrespective of seasonal peaks and troughs in demand Garden

Source:Water Resources Strategy for Melbourne, 21st Century Melbourne: a WaterSmart City

Existing pricing structures also reflect the traditional This lack of clear pricing principles for recycled water approach to water management, whereby all forms of has the potential to hinder the development and use of urban demand are satisfied by delivering potable water recycled water as an alternative, more sustainable, at a set price, which is then taken away as ‘wastewater’ source of supply. In particular, there is a lack of clarity for ‘treatment and disposal’. In recent years water about how the currently high costs of providing authorities have added a price per kilolitre to reflect the recycled water services should be recovered. In addition, costs of this disposal. the way in which developer charges are currently calculated, reflecting all of the costs of building the However, sustainable water management requires a necessary infrastructure, can act as a disincentive to broader view of the water cycle and the way in which developers installing alternate water systems. The demand for water is managed. Prices play an important Government is keen to address these gaps and role, not only in providing signals to end users, but also inconsistencies and will investigate how alternate water in providing appropriate financial incentives to water supplies can be introduced in ways that are authorities and can impact on choices made about economically feasible. future investments in alternative sources of supply and other water cycle infrastructure (e.g. augmentation of treatment plants). With this in mind, there are a number of gaps and inconsistencies within the existing pricing arrangements that need to be addressed. For example, there are no clear principles to guide the way in which recycled water is priced. 92 Chapter Six – Pricing for Sustainability

In the rural water sector, where customers hold water The Government is seeking feedback on these proposed entitlements which are dependent on seasonal principles. The Government is also seeking stakeholder allocations and can be traded temporarily or views on whether there are other principles that could be permanently, there are already a number of drivers developed to guide the way in which water authorities which encourage users to conserve water or seek structure and design their prices. Having received alternative sources of supply (such as drainage re-use or stakeholder feedback, the Government will finalise and recycled water). In addition to these existing drivers, the incorporate its principles into the detailed arrangements Government is keen to ensure rural authorities’ pricing for ESC regulation of the water industry. It should be structures send appropriate signals to customers about noted that the detailed arrangements for ESC regulation the costs of providing the service and the need to use will also include safeguards to ensure that any change in water conservatively and carefully. These pricing price is fair and reasonable. These safeguards will ensure structures should also reflect the need to provide that the application of the Government’s principles for authorities with an appropriate level of revenue stability. pricing structures does not inadvertently result in any undue price impacts on customers.5

The Government proposes to 6.1 develop a set of principles to guide The Government proposes that, the way in which water authorities 6.2 going forward, water authorities, structure and design their prices. in consultation with their The Government proposes that customers, will be required to these principles will include, but design pricing structures that are not be limited to, the following: consistent with the Government’s • That prices for water services principles. The ESC in undertaking should be structured and price reviews on the future level designed to provide: of prices will be required to ensure that the structure and - Appropriate signals to water design of prices submitted by the users about the impact of water authorities comply with using water for discretionary these principles. purposes.

- Appropriate signals about Under the proposed arrangements, water authorities the high costs of coping with would be required to introduce pricing structures that reflect the scarcity and value of the water to the peak demands in certain community. For example, authorities could introduce seasons. inclining block tariffs, where a higher price per kilolitre applies above a specified level of consumption, seasonal - Incentives and disincentives prices or incentive schemes such as rebates for using alternative sources of supply. to promote the efficient and beneficial use of the most sustainable, fit for purpose, source of supply.

5 For example, the application of the Government’s principles for pricing structures should not impact adversely on households with large families, who may justifiably use more water for essential purposes than an average household. Securing Our Water Future 93

Pricing to Reflect the Needs of the Environment

Water is a precious resource. Yet The Government believes that water prices should better reflect the scarcity of the resource and costs related to traditionally, water as a resource has been the environmental impacts associated with the provision free and water users have only been of water-based services. Some of these impacts are required to pay for the cost of delivery. inherently difficult to quantify, such as those relating to ecological values. Others are more tangible, such as the Water is an important element of our costs incurred in relation to works undertaken to remedy ecosystems that provide a range of the impacts of water extraction in catchments, including the costs of providing water for the environment. These valuable services to the community costs can provide an initial proxy for environmental including water filtration, maintenance impacts, and pricing to reflect these costs would provide of soil fertility and cultural benefits. a better reflection of the overall costs associated with water service delivery. Taking water from the environment diminishes the ability to provide these services. Hence, not only does extraction Therefore, the Government of water create costs in terms of impacts 6.3 proposes to introduce an increase on environmental health, it can also be in water prices to better reflect the said to impose cost in terms of its impact scarcity of the resource and costs on ecosystem services. related to the environmental impacts associated with the There has been considerable emphasis on the need for provision of water-based services. prices to reflect environmental impacts. In particular, implementation of the 1994 COAG Water Reform Framework has resulted in a push for prices to reflect the ‘externalities’ (the consequential impacts) associated with providing water services. If the price does not The Government is yet to finalise the future price level, reflect environmental impacts, the customer does not however, in determining the size and nature of this receive appropriate signals about the impact the water increase the Government will have regard to: service has on the environment and ecosystem services. • The costs and benefits associated with programs to Choices about water usage will therefore be made by provide water for the environment and other customers without them having a full appreciation of the remedial initiatives. total costs associated with water consumption in terms of the price that they pay for water. • The extent to which costs to water authorities and prices paid by water users already reflect certain In addition, if prices do not reflect the costs associated costs related to the environmental impacts associated with adverse environmental impacts, the costs of doing with the provision of water services. any work to repair the damage caused by those impacts or to maintain ecosystem services, is borne by someone • Existing expenditure by Government on programs to else other than the customer using the water. In most provide water for the environment and other cases, the ’someone else’ bearing the costs is the remedial initiatives. Government on behalf of the broader taxpaying • The potential for using other mechanisms to send community. Some of these impacts are reflected in prices appropriate signals to water users about the impact as a consequence of bodies such as the EPA imposing the water service has on the environment (such as obligations on water authorities that relate to the salt disposal credits discussed in Chapter 4). protection of the environment, which in turn means that the cost of compliance flows through to the prices paid • The differential impact that different types of water by water users. However, there are a number of impacts services have on the environment. that are not reflected in water prices, including the • The impact on customers. impacts on ecosystem services. 94 Chapter Six – Pricing for Sustainability

Pricing to Recover Service Delivery Costs

Water authorities need to fully recover • Develop appropriate risk management strategies to protect the security of supply and reliability of all all of their service delivery costs to water services. remain financially viable and meet the The pricing principles set out below seek to ensure that community’s water service needs now water authorities generate sufficient revenue to fulfil and in the future. these aspirations. These principles reflect the importance of protecting the interests of customers, ensuring a financially viable industry and complying Victoria has made significant progress towards with water pricing principles under the COAG achieving this goal of ensuring water prices fully Agreement, to which Victoria is a signatory. recover all service delivery costs. This progress has stemmed from the implementation of a number of Pricing principles for recovering service reforms such as the recommendations of Public Bodies Review Committee in the early 1980s, the 1992 delivery costs McDonald Report6 and the 1994 COAG Water Reform The Government is keen to focus on the Framework. All of these reforms sought to reduce the implementation of a sound commercial framework for water sector’s reliance upon State funding and focused the water sector as a whole. As such, the Government on the need for water authorities to be financially self- is focused on the future performance of its water sufficient. Attachment A discusses the progress authorities. In considering pricing principles for cost Victoria has made in terms of setting prices to recover recovery, costs can be categorised as: service delivery costs. • Operating costs. The challenge going forward will be to provide clarity with respect to the obligations placed on water • Future capital expenditure to rehabilitate or renew authorities delivering water services and the existing assets. Government’s expectations of water authorities • The costs associated with financing new investments recovering the costs of meeting those obligations. This (major asset upgrades, treatment plants, non- clarity needs to be provided to water authorities, rehabilitation capital expenditure). customers and to the ESC in terms of the detailed arrangements by which it will operate as the price and • Returns on past investments. service quality regulator of the water industry. The Government will ensure that prices continue to In addition to the principles for the design and recover all operating costs, including operational, structure of prices, a broad set of pricing principles maintenance and administrative costs. will be developed to set out how the revenue In terms of capital expenditure to rehabilitate or renew requirements of the water authorities should be existing assets, the key issue for the Government is the established for the purposes of setting prices (i.e. price need to ensure that appropriate expenditure on levels compared to price structures discussed above). renewals is undertaken and that assets are not run These principles will provide guidance to the boards of down to the extent that a bow wave of problems are water authorities on the Government’s expectations created for customers in the future. There are different with respect to financing costs associated with service ways in which the costs associated with capital delivery. The aim is to have one framework that expenditure on rehabilitating and renewing existing accommodates the differences in the nature of services assets can be calculated for pricing purposes. provided by the sector and the different types of expenditure required to deliver those services. The Rural Water Authorities use a renewals annuity approach based on the forecast capital expenditure In broad terms, the Government’s aspirations for all required to maintain the serviceability of existing government-owned authorities is that they: assets. This compares to the more traditional • Deliver quality services to customers efficiently and accounting approaches of using depreciation to set innovatively. aside funds for future expenditure on renewing existing assets. The Government will seek to ensure • Operate on a sound commercial basis. that in adopting either of these approaches (renewals • Manage Victoria’s finite and scarce resources in an annuity versus depreciation), water authorities generate economically, environmentally and socially sufficient revenue to undertake the appropriate responsible manner. renewals expenditure required to maintain the serviceability of existing assets. 6 Future Management Review – Rural Water Commission, Final Report, 15 January 1992. Securing Our Water Future 95

The costs associated with financing new investments represent the annual payments required by the In addition to principles regarding providers of debt (interest) and/or equity (dividends) 6.4 pricing structures, the Government’s used to finance the construction of new assets by water authorities.7 These costs are referred to as the cost of pricing principles for cost recovery capital. The requirement that prices generate sufficient will include but not be limited to returns to cover the annual cost of capital reflects an the following: approach whereby new investments are paid for over time rather than imposed on current users as a • Prices should recover all significant lump sum. operational, maintenance and At a minimum, prices therefore need to cover operating expenditure, provision for asset renewal/rehabilitation administrative costs. and the cost of financing new investments. In addition, • Prices should ensure water price levels also need to provide sufficient returns on past investments (existing assets) to cover the interest authorities generate sufficient cost on debt and dividends (if any). revenue to undertake the renewals In relation to past investments in the rural sector, where and rehabilitation expenditure the focus has been on maintaining the serviceability of required to maintain the the existing infrastructure, the Government proposes to formalise an arrangement whereby returns will not be serviceability of existing assets. required on the equity associated with past investments. • Prices for all water authorities This proposal reflects the fact that the costs associated with constructing the existing infrastructure many years should recover the cost of capital ago are largely sunk. Government proposes to effectively (return on equity and interest on draw a line in the sand whereby past investments as debt) associated with new reflected in existing asset values will be treated differently to the financing of future investments.8 The investments (augmentation or line in the sand approach is also consistent with the commission new assets). approach adopted in a number of infrastructure businesses in Australia for which formal price reviews • In terms of the rural sector, an are undertaken. arrangement will be made In the metropolitan and regional urban sectors, where whereby prices will not include a authorities have more recently undertaken significant non-rehabilitation capital expenditure, the Government return on equity associated with proposes to review the level of returns required in the past investments. context of finalising the detailed arrangements for ESC regulation of these sectors. • In terms of the regional urban In determining the extent to which each authority should and metropolitan sectors, the earn a return on past investments, the Government will Government will determine in take into account the impact on the existing level of the context of finalising the prices. This will be subject to existing price levels satisfying the minimum cost recovery principles outlined framework for independent above and any price increases implemented as a means regulation, the extent to which to reflect the costs of environmental impacts as discussed above. each authority’s prices include returns on past investments. The Government will seek to ensure 7 An alternative is to enter into a BOOT (Build Own Operate and/or Transfer) scheme, whereby the cost of capital financing is built into that these returns will take payments made to the BOOT provider. These schemes are undertaken in accordance with the Government’s policy Partnerships Victoria (2000). account of the impact on existing 8 In implementing this proposal, the Government will review, and put in place arrangements to address, the current practice of rural water level of prices, subject to viable authorities charging a four per cent rate of return on the existing assets used to provide bulk water to regional urban water authorities. business outcomes. 96 Chapter Six – Pricing for Sustainability

The principles for cost recovery will be incorporated into the detailed arrangements for ESC regulation of the water industry, which will be developed by Government From 1 January 2004, the ESC will and specified in the Water Industry Regulatory Order 6.5 be responsible for administering the prior to the ESC commencing its role on 1 January 2004. Government’s pricing framework. In In undertaking a price review which will take effect from 1 July 2005, the ESC will ensure that water prices are fulfilling its responsibilities, the ESC consistent with the Government’s cost recovery will protect the long-term interests principles. In addition, the Government will take the necessary steps to ensure that from 1 July 2004, all of customers and ensure prices are water prices comply with these cost recovery principles. fair and reasonable by making sure: Protecting the long-term interests • Prices are not too high, reflecting of customers misuse of monopoly power, nor The Ministerial Statement on Water indicated that the too low, undermining the long- ESC would be established as the economic regulator of term sustainability of the water the whole water industry to implement the Government’s pricing objectives and to ensure any industry, and the health of water change in price is fair and reasonable. resources. The sections above outline the Government’s proposed • Processes to set prices are pricing framework. The proposed principles to be incorporated into this framework are summarised in the transparent and consultative, and box at the end of this chapter. Once the Government has engage customers and the finalised this pricing framework, the framework will be specified in the detailed arrangements by which the ESC community on their preferences will operate as economic regulator of the water industry. with respect to prices and the level of service. • Prices are easy to understand and are accompanied by separate arrangements that provide appropriate support for low income or vulnerable customers (hardship policies). Securing Our Water Future 97

Under the Essential Services Commission Act 2001,the These arrangements already exist in the metropolitan ESC must develop a Charter of Consultation and sector where authorities develop hardship policies Regulatory Practice, which spells out the processes the which provide assistance to low income or vulnerable ESC will follow when undertaking price reviews, consumers in paying their bills. For example, these conducting inquiries and undertaking public hardship policies may provide customers facing consultation. The ESC currently is developing its financial difficulties with the opportunity to pay their Charter,9 which will ensure that the ESC, in bill in instalments. undertaking price reviews, adopts transparent and These hardship policies will provide assistance to consultative processes. customers over and above those provided by the Given the critical role rural customer committees play in Government through the existing concession providing irrigators’ input into the price and level of arrangements for pensioners and health care card service they receive from rural water authorities, the holders. The existing concession arrangements for water Government will ensure the detailed arrangements for and sewerage services will continue to provide ESC regulation of the water industry preserves this role. assistance to low-income and vulnerable consumers10. The ESC’s Charter of Consultation and Regulatory Practice will be consistent with the existing role performed by these committees. In undertaking any review of prices in the rural water sector, the ESC will assess whether these committees are working effectively and that customers are being adequately consulted. The ESC also will be responsible for ensuring that prices are accompanied by separate arrangements that provide appropriate support for low-income or vulnerable customers by establishing benchmark customer service arrangements with which urban water authorities must comply.

9 A draft of the ESC’s Charter of Consultation and Regulatory Practice can be viewed at the ESC’s website: www.esc.vic.gov.au.

10 The existing concession arrangements provide 50% off water and sewerage service and usage charges up to a maximum of $135 per annum for pensioners and 50% off water usage and sewerage disposal charges up to a maximum of $135 per annum for health care card holders. 98 Chapter Six – Pricing for Sustainability

Government’s proposed pricing • Prices for all water authorities should framework recover the cost of capital (return on equity and interest on debt) associated The Government’s pricing framework will with new investments to augment include, but not be limited to, the existing assets or commission new assets. following principles: • Prices should ensure water authorities In terms of the structure and design, prices generate sufficient revenue to undertake should provide: the renewals and rehabilitation • Appropriate signals to water users about expenditure required to maintain the the impact of using water for serviceability of existing assets. discretionary purposes. • In terms of the rural sector, an • Appropriate signals about the high costs arrangement will be made whereby of coping with peak demands in certain prices will not include a return on equity seasons. associated with past investments. • Incentives and disincentives to promote • In terms of the regional urban and the efficient and beneficial use of the metropolitan sectors, the Government most sustainable, fit for purpose, source will determine in the context of finalising of supply. the framework for independent In terms of setting prices to reflect the regulation, the extent to which each needs of the environment: authority’s prices include returns on past investments. The Government will seek • The Government proposes to introduce to ensure that these returns will take an increase in water prices to better account of the impact on existing level reflect the scarcity of the resource and of prices, subject to viable business costs related to the environmental outcomes. impacts associated with the provision of water-based services. The Government is seeking your feedback on its proposed pricing principles in In terms of setting prices at a level to relation to the structure and design of recover service delivery costs: prices and setting prices to reflect the • Prices should recover all operational, needs of the environment. maintenance and administrative costs. Securing Our Water Future 99 100 7Chapter Seven – An Innovative and Accountable Water Sector Securing Our Water Future 101

Chapter Seven An Innovative and Accountable Water Sector

1KEY CHALLENGE >> To develop a capable, innovative and accountable water sector to deliver the Government’s sustainability objectives for water. >> To foster within the water sector a culture PROPOSED GREEN PAPER ACTIONS of: 2 - Customer service Identify and seek feedback on potential - Continuous improvement options in relation to: - Strong business practice >> Clarifying roles and accountabilities: - Prudent and efficient financial - Independent resource manager management - Define roles of Storage operator - Collaboration and cooperation - Fix gaps for Port Philip and - Innovation Westernport - Excellence >> Improving integration and coordination: - Sustainable Water Plans >> Improving capability and effectiveness - Further amalgamations >> Providing incentives for innovation and improved performance PREFERRED OUTCOMES - Comparative performance 3 >> Policy makers, regulators and service providers working towards Government’s objectives and policies. >> A capable, innovative and accountable water sector. >> Water authorities with: - Good business practice and financial viability - Clearly defined roles and responsibilities >> Innovative approach to whole water cycle management. 102 Chapter Seven – An Innovative and Accountable Water Sector

Existing Arrangements

The water sector has undergone was our largest water authority, with approximately 1.15 million customer accounts, revenue progressive reforms since the early 1980s of $336 million and supplying 180,224 megalitres. and it must continue to change in order Glenelg Water in south western Victoria is our smallest to respond to the Government’s urban water authority, with just over 14,400 customer accounts, revenue of $5.1 million and supplying 2,526 objectives and to meet changing megalitres. Six other urban water authorities in regional community expectations. Victoria had less than 50,000 customers and less than $20 million revenue in 2001–2002. Today the water sector is made up of: Figure 7.1. • Three retail authorities and one bulk water authority Victoria’s regional urban water authorities serving Melbourne. Total revenue 2001–2002: $424.8 million • Fifteen urban authorities serving regional Victoria (Figure 7.1).

• Five rural water authorities providing irrigation, Western Water 8% Westernport 2% domestic and stock services and some bulk supply South West in regional Victoria (Figure 7.2). Water 4% • Ten catchment management authorities that are South Barwon responsible for waterway, flood, salinity and Gippsland 3% 20% nutrient management, as well as general catchment Portland 1% planning and protection. (Refer to Appendix D for Map of Victoria’s Water and Catchment Management North East Water 7% Authorities). • Victoria’s municipalities who along with Melbourne Lower Central Water manage stormwater drainage. Murray 5% Highlands 9%

In 2001/2002 the water sector supplied 4,531,053 Grampians 6% megalitres of water and generated revenue of $1.185 billion. Coliban 10%

Goulburn Glenelg Gippsland East Valley 10% 1% 11% Gippsland 3% Securing Our Water Future 103

Figure 7.2. Victorian rural water authorities–revenue and total water supplied

3,000,000 140

2,500,000 120

100 2,000,000

80 1,500,000

60 1,000,000 Revenue ($ Million) 40 Supplied (ML) Water

500,000 20

0 0 FMIT Goulburn-Murray Southern RWA Sunraysia RWA Wimmera-Mallee Revenue ($ Million) Water Authorities Water Supplied (ML)

Source: Water Businesses 2001/2002 Annual Report and VicWater’s Urban Water Review 2001/2002

Goulburn-Murray Water is our largest irrigation Reform of the institutional arrangements (Figure 7.3) to authority delivering 2,845,114 megalitres of water in date in Victoria has focussed on four themes: 2001–2002 to just under 25,000 customers and • Removing conflicts of interests (to establish generating about $105 million of revenue. agencies independent of the service providers to Policy advice and statewide planning are provided for develop policy and regulate industry performance the Minister for Water by the Department of and prices). Sustainability and Environment. In the metropolitan • Providing much greater consideration of the needs sector, the Treasurer, in consultation with the Minister of customers and their involvement at a regional for Water, monitors financial performance and level in providing services (such as the creation of represents the Government’s shareholder interests. In three customer-focussed water authorities and a the regional urban and rural sectors, the Minister for headworks authority in Melbourne and the break-up Water performs the shareholder role. The regulation is of the Rural Water Commission into four rural being formalised regarding prices and service quality water authorities). (ESC), environmental standards (EPA), customer dispute (the Energy and Water Ombudsman, Victoria), customer • Improving the services through creation of capable, advocacy (Consumer Utilities Advocacy Centre) and innovative regional authorities that capture drinking water quality. economies of scale (amalgamating small water authorities with authorities serving large regional centres). • Encouraging the delivery of cost-effective water services through the use of best business practices. 104 Chapter Seven – An Innovative and Accountable Water Sector

Figure 7.3. Institutional Arrangements

Government Regulators

Plans and Sets Owns and Makes ESC Allocates Authority Monitors Policy Regulates prices Resource Obligations Authority's Financial and service quality Performance EPA Sets environmental Authorities Standards Regulates environmental performance Urban Water Supply Sewerage Waterway New DWQ Regulator Management Regulates Drinking Rural Water Supply Recycling Water Quality

Community/Customers EWOV CUAC

Democratic processes, customer committees, advisory groups Complaints Advocacy

These institutional reforms have delivered considerable benefits for Victoria in terms of the provision of safe, affordable and high quality water services. For example, in south west Victoria in 1994 only two of 17 customer zones were capable of meeting the 1996 Australian Drinking Water Guidelines and only one of eight waste water zones was meeting regulatory requirements. Today, all 17 customer zones are complying with drinking water standards and the eight waste water zones are complying, with an additional three zones now receiving waste water treatment. These results have been achieved with water prices being reduced for 95 per cent of customers in real terms. Similar successes have been achieved in other parts of the State. Securing Our Water Future 105

Looking to the Future

The delivery of the Government’s There are many possible opportunities for improving the current institutional arrangements in light of these sustainability objectives for water new challenges. More specifically, opportunities to: requires a capable, innovative and • Improve the capability of water authorities to accountable water sector. It is the role of ensure all authorities are well resourced, operate on the institutional arrangements to a sound financial basis and have the depth and breadth of skills to drive innovation and respond to provide a water sector with these a changing environment. characteristics. • Provide greater clarity, clearer accountabilities and a more sensible allocation of functions, and remedy Institutional arrangements need to change over time to ‘gaps’ in the current arrangements in terms of new reflect contemporary expectations for sustainable roles that need to be undertaken to achieve the water resource management. Government’s objectives and to meet community expectations. Importantly, institutional arrangements need to recognise the different characteristics and challenges • Introduce processes that drive improved facing different regions of the State. One size does not performance through greater coordination and fit all when it comes to water management. collaboration between the various agencies that make up the water sector. Today, the Government (which is unequivocally committed to retaining public water authorities in • Provide incentives to drive innovation and improved public ownership) has embraced objectives that are performance within the water sector. more broadly focused on delivering environmental, social and economic outcomes. This throws up a new The discussion below flags some potential options in set of challenges for our institutions and requires a set relation to these opportunities. These options have of arrangements that not only continue to drive good been developed to encourage debate and discussion on business practice and financial viability but now also: potential reforms to improve the institutional arrangement for the water sector. • Encourage an integrated approach to the sustainable management of the whole water cycle at a regional level. • Ensure resource managers, regulators, policy makers and service providers are working collaboratively towards a common set of goals and policy objectives. • Specify clear and unambiguous roles and responsibilities. • Ensure cooperation and coordinated decision making. • Encourage innovation and an ability to respond to future change. 106 Chapter Seven – An Innovative and Accountable Water Sector

Improved Capability and Effectiveness

In order to respond to the challenges As an example, previous amalgamations of smaller water authorities with authorities servicing large discussed in this Green Paper, the water regional centres have resulted in: authorities should be structured to • Upgrading management systems. maximise their capability and • Providing a stronger funding base from the regional effectiveness in delivering the centres to serve the whole region. Government’s objectives. Capability not • Removing authority boundaries that previously only encompasses the financial health of impeded sensible planning at a regional level. the organisation (Figure 7.4) but also the • Providing economies of scale (more cost-efficient culture of the organisation, the revenue collection, services to customers, etc.). effectiveness of its board and the depth • A greater focus on resource management. and breadth of skills in the organisation to drive innovation and respond to a changing environment. Figure 7.4. Victorian water industry revenue 2001/2002

FMIT 5.0 Glenelg 5.1 Portland 6.2 Westernport 10.6 South Gippsland 11.4 East Gippsland 13.2 Metropolitan Sector Sunraysia RWA 13.5 Wimmera-Mallee 14.4 Southern RWA 15.0 Regional Urban Water Authorities South West Water 16.8 Lower Murray 20.4 Rural Water Authorities Grampians 24.0 North East Water 28.2 Western Water 34.6 Central Highlands 39.6 41.4 Coliban 44.5

Water Authority Water Gippsland 46.5 Barwon 82.3 Goulburn-Murray 105.0 243.3 Yarra Valley Water 336.0 South East Water 344.7 Melbourne Water 480.2

0.0 100.0 200.0 300.0 400.0 500.0

Revenue ($ Million)

Source: Water Authorities 2001/2002 Annual Report and Department of Sustainability and Environment Securing Our Water Future 107

The amalgamations in the regional urban water sector While further structural changes may improve the have created professional organisations which have been existing institutional arrangements, there are other able to reduce costs and achieve improved efficiencies options for sharing resources and improving through the better use of capital, management of assets collaboration between authorities. For example, billing and other resources. In addition to improving and call centres, and the greater sharing of resources capabilities, further structural changes could provide and expertise, particularly between the metropolitan and benefits in terms of facilitating the delivery of major regional urban water sectors. infrastructure projects or protecting ecosystems of The alignment of different agency boundaries is an international significance. issue that often has been raised as an opportunity to For example, the delivery of major infrastructure facilitate greater integration. The current boundaries of projects such as the Wimmera Mallee Pipeline and the catchment and water management authorities, and of Deakin project in Sunraysia may call for specific local government, warrant examination to identify changes to the institutional arrangements that may not opportunities for closer alignment. be warranted in other areas of the State. Better alignment of catchment management and local Improved integration between Wimmera Mallee Water government boundaries may be important in fostering and Grampians Water may be beneficial to facilitate the better links between regional catchment strategies and construction of the $300 million Wimmera Mallee municipal strategic planning functions. pipeline project. Once constructed, the pipeline will supply water to the customers of both authorities. The core business of both authorities would then be operating piped water supply systems. This could With the objective of improving provide an opportunity to integrate some or all of the 7.1 the capability of authorities within services provided by the two authorities and avoid the need for complicated and expensive transactions. the water sector, the Government will carefully consider: Improved integration of relevant authorities in the Sunraysia region may also provide opportunities to • Options for greater collaboration improve the effectiveness of service delivery in respect of issues raised by the Deakin project. As is the case in and potential structural changes the Wimmera, each of the three relatively small to ensure authorities are well businesses are moving towards operating piped water supplies. The region is also experiencing significant resourced, operate on a sound growth, which is creating challenges for the provision financial basis and have the of suitable infrastructure. depth and breadth of skills to It would be desirable that any integrated arrangement drive innovation, implement maintain the strong customer relationships established by the rural water authorities. major projects and respond to the changing needs of In terms of protecting ecosystems of international significance, the Gippsland Lakes is one example where customers and the environment institutional changes could potentially improve the in specific regions. delivery of catchment management activities undertaken to protect the health of the Lakes. Under the existing • Boundary changes to facilitate arrangements, two catchment management authorities provide services to the Gippsland Lakes. These closer alignment between arrangements may be constraining an integrated approach agencies and more effective to improving the health of the Lakes. There may be an resource management opportunity to improve the health of the Lakes by integrating the two catchment management authorities arrangements. (East Gippsland and West Gippsland Catchment Management Authorities). In addition, with the management of the Lakes as the focus, there may be benefits to be gained from carefully examining the arrangements for coordinating the activities of the coastal management board with those of catchment management. 108 Chapter Seven – An Innovative and Accountable Water Sector

Improved Allocation of Roles and Responsibilities

Clear roles and responsibilities are The role of the resource manager essential for any well functioning water Bulk water entitlements define a role described as sector. Whether a regulator, a water resource manager. It currently includes functions ranging from roles consistent with operating large water systems authority or government department, an to auditing compliance with entitlements. These roles are organisation needs to clearly understand also performed by different agencies in different parts of the state. In some areas, water authorities, which hold what it is required of it and be bulk entitlements, operate the systems and audit accountable for what it does. compliance with bulk entitlements. In other areas, either the Department of Sustainability and Environment or It must also have a clear understanding of the roles and CMAs are responsible for auditing compliance. The responsibilities of the other agencies with which it various different roles being performed by different interacts. In addition, if there are gaps in the current agencies in different parts of the State has led to some arrangements in terms of new roles that need to be concern that conflicts of interest may arise. undertaken to achieve the Government’s objectives and To address this concern it is proposed to separate clearly to meet community expectations, action is required to the system operation roles from the auditing of remedy those gaps and define those new roles. compliance by assigning the monitoring and reporting The previous chapters of this Green Paper have already role to an appropriate statutory body independent of 1 indicated the steps Government has taken and is system operators and entitlement holders. An proposing to take in relation to clarifying existing and appropriate independent body to undertake the role of new roles within the water sector. Specifically: auditing compliance with bulk entitlements could be the Essential Services Commission, the Auditor-General of • Chapter 5 outlined a proposal to assign operational Victoria, the Secretary of the Department of Sustainability responsibility for environmental management to the and Environment or a new statutory authority. catchment management authorities (CMAs) together with bulk entitlements for the environment to achieve better environmental outcomes. The Government proposes to • Chapter 6 outlined the proposed responsibilities of the Essential Services Commission in relation to 7. 2 consider options in relation to protecting the long-term interests of customers and redefining the role of resource ensuring prices are fair and reasonable. managers to assign the role of In addition to these initiatives, the discussion below auditing compliance with bulk outlines other potential options for improving the existing allocation of roles and responsibilities and entitlements to an appropriate remedying gaps in the current institutional statutory body independent of arrangements. system operators and bulk entitlement holders.

1 Implementation of the proposal to assign operational responsibility for environmental management to the catchment management authorities (CMAs) together with bulk entitlements for the environment would mean that it is inappropriate for the CMAs, as holders of Bulk Entitlements (BEs), to take on the role of resource manager. Securing Our Water Future 109

Define the role of storage operator Victoria’s Water Act is silent on the specific roles and responsibilities of the authorities that operate our major The Government proposes to set dams and reservoirs. The current drought and the 7. 3 out the functions and roles of the consequent emptying of our largest dams has highlighted the trade-offs that occur between operating storage operator in the Water Act dams for water supplies and the wide range of other 1989. In the first instance, these recreation and amenity values provided by these dams. functions and roles could be Local municipalities and tourism industries around Lake assigned to water authorities who Eildon and Eppalock in particular have suffered because of the very low water levels in these dams. are currently operating large storages. The functions and roles Conflicts emerge between the need to manage the land bordering these bodies of water to exploit their could include: recreational and aesthetic values and the need to prevent pollution of the water. • Formal recognition of storages The situation is further complicated by the fact that the and their functions to supply dam operators have the ability to collect fees and water and provide for charges from water users but currently have no recreational and public use. effective mechanism to collect revenue from the people using the dams for recreational and aesthetic purposes. • The rights and powers to For instance, the old water supply dam on Honeysuckle Creek (which supplies Violet Town) has been properly manage storages. decommissioned as a water supply and now there is a • Processes to engage with local debate about whether the dam should be pulled down or maintained for recreation purposes. And if it is to be government to contribute to maintained, who should own it and meet these costs? statutory planning to protect the water quality and environmental values of storages and surrounding land. • Processes for preparing and implementing recreational plans. • Mechanisms to collect revenue from people and agencies who derive benefit from the dams. • Processes for decommissioning dams. 110 Chapter Seven – An Innovative and Accountable Water Sector

Responsibility for recycled water These Government-owned retailers may utilise the private sector in facilitating or promoting the take-up of A key example of the need for clear roles and recycled water. The private sector’s involvement in responsibilities is in the supply of recycled water. assisting the Government’s retail water authorities to The Government is responsible for ensuring delivery retail recycled water will be assessed according to the of recycled water services from water authority Partnerships Victoria framework and will be subject to sewerage systems. approval from the Minister for Water and Treasurer. This will ensure a coordinated and strategic approach to the development of the recycled water market. The Government’s roles and The Partnerships Victoria framework seeks to create partnerships between the Government and private 7. 4 responsibilities for the supply of businesses in which improved value for money is recycled water are: achieved by utilising the innovation capabilities and skills of the private sector to both deliver performance • Current water and sewerage improvements and efficiency savings. retailers will be primarily Port Phillip and Westernport region responsible for retailing recycled The Port Phillip and Westernport region covers the water and consideration will be Melbourne area and is also the second highest given to providing retailers with agricultural producer in the State. The activities and the responsibilities for surface lifestyles of its 3.4 million urban and rural residents, together with its thriving tourism industry, rely on the and groundwater licences. health and diversity of the region’s natural assets. • In Melbourne, Melbourne Water Current institutional arrangements for the region do not provide a whole of catchment approach to managing will provide the complementary river health and do not provide adequate protection for wholesale role in treatment and the bays and coastal waters. Responsibilities are trunk delivery of recycled water inconsistent across the region and in some areas no agency is responsible for waterway management and from its two treatment plants. regional drainage.2 • The Essential Services There are institutional options for removing current gaps Commission will provide the in responsibilities, all of which result in catchment management arrangements that are very different from economic oversight of recycled those in other parts of the State. However, no other part water services. of the State has a city of over three million or a tradition of urban drainage being undertaken by a water authority, • Private sector participation in currently Melbourne Water. The Government seeks infrastructure provision will comment on remedying this gap. continue to be supported in line Fair and equitable funding arrangements would need to be introduced across the region. Bringing together with the Government’s regional catchment planning and river health functions Partnerships Victoria principles. would encourage a greater integration of strategic planning and works on the ground.

2 Unserviced areas include high urban growth corridors, where there is no ability to systematically manage the impacts of urban development on downstream waterways and coastal waters. The absence of a body with regional drainage responsibilities means that there is no organisation that can to act as a referral authority for subdivision applications, plan for region-wide infrastructure requirements such as retarding basins and wetlands, and collect developer contributions required to fund the provision of infrastructure. These activities are fundamental to effective stormwater management. Securing Our Water Future 111

The Government proposes to 7. 5 remedy the gaps in the Port Phillip and Westernport catchment management arrangements by establishing consistent arrangements for whole of catchment waterway management and regional drainage across the whole region

Responsibilities for stormwater management Stormwater is gathered by a variety of pipes and drainage channels that is totally separated from the sewerage system and is transported to our waterways or bays mostly untreated. Local government is currently responsible for the management of local drainage. This includes streets and property drainage and the 25,000 km of local drains, which feed into regional drains and waterways. Stormwater is currently managed from a drainage perspective – to protect public safety and property from high flows and flooding – and to minimise other impacts such as erosion and environmental pollution, rather than as an alternative water source. It may be desirable to consider options for improving the management arrangements for stormwater over the long-term to maximise its potential as an alternative to using potable water for non-drinking uses.

The Government proposes to 7. 6 examine the allocation of roles and responsibilities in relation to managing stormwater in the longer term to maximise its potential as an alternative resource. 112 Chapter Seven – An Innovative and Accountable Water Sector

Improved Integration and Coordination

Clearly assigned roles and responsibilities The Government has already introduced a number of measures for ensuring that obligations are clear and are critical to a well-functioning, unambiguous and that the decisions of regulators are accountable water sector. Equally closely integrated. These initiatives include: important are the processes required to • Requiring the Essential Services Commission, as the ensure that individual agencies fulfil their price regulator, to enter into Memorandums of Understanding with technical regulators, such as respective roles in a manner that captures the EPA, to ensure that decisions of regulatory the benefits of coordination and agencies are closely integrated and better informed. integration. The discussion below outlines • Introducing a New Regulatory Framework for potential options for improving Drinking Water Quality, which adopts a catchment- to-tap risk based approach to managing water integration and coordination between the quality. various agencies within the water sector. • Giving the Minister for Water the ability to issue Statements of Obligations to water authorities Planning to achieve which make explicit authorities’ obligations to Government and its agencies. regional sustainability objectives However, in responding to the challenge of meeting a Water authorities need to meet a broad range of broad range of obligations and managing for obligations in undertaking their business (Table 7.1). sustainability, it may be necessary to put in place a They range from meeting standards for drinking water, process that will enable the competing demands of waste water, dam safety to water conservation and regulators to be managed together with the targets and recycling targets to expectations that they will take into obligations being placed on water authorities. account the balance between economic, social and environmental outcomes. All of these activities affect One possible process might be to require water the costs of doing business and can have big impacts authorities to prepare coordinated plans which could on water prices. potentially replace a number of plans water authorities currently develop (such as water conservation plans) and would be integrally linked to authorities corporate plans. These plans, ‘Sustainable Water Plans’, would identify all the demands on the authority and examine options for how these could be met.

Table 7.1. Different types of obligations

Obligation* Set By

Public Health / Drinking Water Quality Minister for Health

Environmental Discharge Environment Protection Authority

Benchmark Customer Service Essential Services Commission

Risk, Incident and Asset Management Minister for Water

Dam Safety Minister for Water

Water Resource Management Minister for Water

Water Conservation and Recycling Minister for Water

* This does not include obligations imposed on all organisations such as occupational, health and safety obligations or those set out in the Trade Practices Act 1974. Securing Our Water Future 113

The process to develop these plans would need to be • Opportunities to connect with the water supplies of streamlined and designed to provide the water authority neighbouring water authorities. boards with the freedom to develop the most • Opportunities for recycling and alternative water appropriate work programs for meeting the demands sources (local government and neighbouring water placed on the authorities in an economically, authorities). environmentally and socially responsible manner. Joint plans and work programs would need to be These Sustainable Water Plans could consider developed where it makes sense for authorities to requirements for: collaborate with each other and/or with local councils • Waste management, including management of and CMAs to provide better outcomes for the community wastewater discharges, small town sewerage and and to meet the demands of a growing population. management of irrigation drains. For example, a single Sustainable Water Plan for the • Water demand and supply, including consideration Melbourne region could play an important role in of water conservation, drinking water quality, water managing and meeting future demands for water. The treatment, recycling, trading, use of stormwater and plan would need to be jointly prepared for Government augmentation as a last resort. approval by all the water and catchment authorities in the region, namely (under the current structure) City West • Meeting environmental obligations, including the Water, South East Water, Yarra Valley Water, Melbourne need to minimise the impact of operations on the Water and the Port Philip Catchment Management environment, investment in catchment management Authority. This plan could identify the specific actions to and the need to increase environmental flows in be undertaken to meet the Government’s water stressed river and wetland systems. conservation and recycling targets as well as • Asset management, including dam safety and risk requirements for capital expenditure in the shared water and contingency issues and the need to manage for supply and waste water systems of Melbourne. recreational users. The plan could be developed with a 50 year outlook, a 20 year planning horizon and a five year program. It In terms of introducing processes that drive could propose targets and a work program and series of improved performance through greater projects to be undertaken within the five year period. coordination and collaboration between the Customers and stakeholders could have the opportunity to comment on the draft plan. It could be signed off by various agencies within the water sector, the the various technical regulators and the Government, Government has identified the following and could form the basis of the authorities’ pricing submission to the ESC. potential option for stakeholder comment: An authority’s Sustainable Water Plan could play an Require water authorities to develop important role in translating Government’s expectations of a water authority into a clear and agreed set of targets 7. 7 Sustainable Water Plans designed to and programs which can be delivered by the authority. achieve regional sustainability In developing a Sustainable Water Plan, an authority objectives, including the would need to consider its place in a bigger picture to identification of projects and make sure that its targets and work programs are sensible and provide the most efficient and effective initiatives to meet urban means of delivering its responsibilities. In particular it growth in outer Melbourne. would need to consider: • Priorities established in Regional Catchment Strategies prepared by CMAs. • The impact on river health (water quality and flows) of water authority activities. 114 Chapter Seven – An Innovative and Accountable Water Sector

Incentives for Innovation and Improved Performance

Government has a key role in providing Improved comparative ‘big picture’ leadership, strategic performance framework planning and policy making for the There is a need to be able to monitor and compare the water sector. performance of the water authorities to encourage innovation and facilitate improved performance. The comparative performance framework that has been The development of Sustainable Water Plans mentioned operating in metropolitan Melbourne has generated earlier in this chapter provide one process to clarify considerable benefits for water users. This framework, roles, obligations and the expectations government has which is overseen by the Essential Services of its water authorities and CMAs with respect to Commission, has facilitated a positive trend level of regional sustainability. performance delivered by the three metropolitan water Another important process for clarifying expectations authorities. This trend includes improved reliability of and establishing targets for improved performance is water and sewerage services, reduced use of the corporate planning and governance arrangements restrictions and legal actions for the non-payment of for monitoring the performance of water authorities. bills, continued high microbiological quality of water Government looks to the boards of water authorities to delivered to customers and a reduction in average 4 deliver services in accordance with statutory roles and household water consumption. functions, and using prudent and efficient financial This comparative performance framework could be practices to manage long life assets worth about extended to the whole water sector to drive innovation $27 billion (based on replacement costs). and improved performance. It could also be expanded Current arrangements in terms of this governance to include monitoring performance against the targets framework, and the asset and business management identified in water authorities’ Sustainable Water Plans framework, vary across the state. Given the size of the and to include relevant comparisons with water assets and the critical importance of reliable and authorities in other jurisdictions. secure water supplies, the government is keen to It is imperative that the water sector, as a whole, establish a robust and commercial governance learns from the successes and failures of innovative framework across the water industry, which approaches attempted by individual authorities. accommodates the differences in the services provided We can not afford to have authorities, due to poor and infrastructure managed by each sector. communication, reinventing solutions that have already In addition to improving the Governance arrangements been discovered elsewhere. Similarly, we can not afford for water authorities, the Government is keen to to have a comparative performance framework that explore other opportunities to drive innovation and restricts the sharing of knowledge and ideas to the improved performance within the water sector. Some detriment of the performance of the sector as a whole. potential options for driving innovation and improved Therefore, in extending and improving the comparative performance are discussed below. performance framework, the potential impact on processes to improve integration and coordination Perhaps the most important role that government can would need to be considered. play is to lead the development of a culture of excellence and innovation within our water authorities. This requires that Government clearly sets out its expectations of the water authorities and encourages the authorities to develop locally appropriate innovative solutions. Water authorities are inherently conservative. Innovation always entails some risk. Both the government and water authorities need to acknowledge and manage this risk when developing and testing new technology and processes.

4 Comparative Performance Report, Essential Services Commission, 2002. Securing Our Water Future 115

Role of the private sector The Government seeks comment on an option to facilitate improved research and development, which It is well recognised that within the framework of would involve Government working in partnership with Government delivery of water services, there are the water industry to develop a long-term research significant gains to be made from involving the private program to provide knowledge and innovation in the sector consistent with Partnerships Victoria 2000.5 management of water in Victoria. The private sector has well demonstrated expertise in The water research program could be developed with promoting innovation and efficient service delivery. The water and catchment managers. It would consider the private sector is very effective at developing and knowledge needs across all aspects of water implementing new technology and at activities such as management and the provision of water services. It the design and construction of major infrastructure. In could be implemented through a range of research order to improve performance and introduce providers including cooperative research centres, innovation, the Government will encourage water universities, government research institutions and authorities to continue to capture the benefits that consultants where appropriate. private sector involvement brings. There are also significant opportunities for the private sector to participate in infrastructure efficiency projects In terms of driving innovation and involving funding from the $320 million Victorian Water Trust. The Victorian Water Trust Advisory Council will 7. 8 improved performance, the be releasing investment guidelines for the Trust. The Government has identified the objectives of the Victorian Water Trust are to invest in following potential options for projects which: stakeholder comment: • Enhance river health. • Increase water reuse and recycling. • Extend and improve the • Leverage other sources of funding. framework for comparative performance across all water Therefore this offers exciting opportunities for the private sector to form partnerships to bring together authorities while recognising the projects that meet the Victorian Water Trust’s need to ensure the water sector, objectives and leverage the Victorian Government’s substantial commitment of funding. as a whole, learns from the successes and failures of Research and development innovative approaches attempted driving innovation by individual authorities. Knowledge is a crucial resource in the management of the water. It is only through advances in our knowledge • Facilitate private sector base that we will be able to continue to improve the involvement to drive innovation quality, efficiency and effectiveness of our provision of and efficient service delivery. water services and management of water resources and the environment. • Government to work in Managing water requires knowledge from an incredible partnership with the water range of disciplines – hydrology and catchment processes, hydrogeology, freshwater and estuarine industry to develop a long-term ecology, geomorphology, water chemistry, engineering. research program to provide Importantly, it not only requires knowledge from each knowledge and innovation in the of these disciplines, it also requires integration of knowledge across disciplines. management of water in Victoria. Ensuring that we have an innovative water sector, seeking continuous improvement in the way it undertakes all its responsibilities will require an ongoing, long-term investment in research, both basic and applied.

5 Government Response to Recommendations – National Competition Policy Review of Water Legislation June 2002. Response to the independent review carried out by consultants Marsden Jacob into restrictions on competition in the water industry. 116 Chapter Seven – An Innovative and Accountable Water Sector

Improving legislative framework – A Sustainable Water Act The Government will identify In addition to the options discussed above, the 7. 9 opportunities to improve the Government recognises that the current legislative current legislation governing the arrangements are complex and do not present a water sector to ensure it is coherent view of how the functions of authorities are best organised. In implementing the final proposals comprehensive, clear and stemming from this Green Paper, the Government will sufficiently robust to accommodate identify opportunities to improve the existing legislative arrangements to meet the objectives of future changes and challenges. sustainable water management. Securing Our Water Future 117

The Way Forward

The Government is not interested in change for the sake of change with respect to institutional reform. Institutional reform should be driven by the need to best meet the objectives and policies of Government, including those proposed in this Green Paper, which will be confirmed in the White Paper.

Comments are invited on the potential options considered above and other suggestions. The Government will carefully consider these responses between now and White Paper. The Expert Advisory Task Force will provide particular advice on institutional issues, taking account the responses received during consultation on the Green Paper. Implementation of the various proposals raised in the Green Paper will require legislative change and may have resource implications that will need to be considered in light of the Government’s overall priorities and budget constraints. The White Paper will identify the extent to which legislative change is required and will outline the proposed arrangements for providing the necessary financial resources to implement the Government’s final proposals. 118 Glossary of Terms

Glossary of Terms

Aquifer Ecosystem services Groundwater A layer of underground sediments The conditions and processes All subsurface water, generally which holds water and allows water through which natural ecosystems, occupying the pores and crevices of to flow through it. and the species that make them up, rock and soil. sustain and fulfil human life. Biodiversity Hydrology Effluent Biological Diversity is the variety The science dealing with surface of all life forms – the different As applied to sewage treatment, and groundwaters of the earth; plants, animals and micro- wastewater which flows from their occurrence, circulation and organisms, the genes they contain, treatment works. distribution; their chemical and and the ecosystems of which they physical properties and their form a part. Environment reaction with the environment. Surroundings in which an Bulk Entitlement (BE) Irrigation district organisation operates, including air, The right to water held by water water, land, natural resources, An area with definite geographic and other authorities defined in the flora, fauna, humans, and their boundaries within which water is Water Act. The BE defines the interdependence. allocated for irrigation under the amount of water that an authority control of a local or State authority is entitled to from a river or Environmental flow provisions or other body. storage, and may include the rate at Flow regimes provided to maintain which it may be taken and the Outfall reliability of the entitlement. the agreed environmental condition of water systems. The site of discharge of a liquid from a pipe. Applied particularly to Cap Environmental reserve the point at which a sewer An upper limit for the diversion of discharges to a treatment works or water from a waterway, catchment The share of water resources set receiving water. or basin. aside to maintain the environmental values of a water system and other Nutrient water services which are dependent Catchment on the environmental condition of Plant food, generally refers to An area of land where run-off from the system. nitrogen and phosphorous in water. rainfall goes into one river system. Greenhouse effect Permissible Annual Volume (PAV) Catchment Management The warming of the earth’s surface The volume of water that can be Authorities (CMAs) caused by greenhouse gases in the extracted via licences as authorised Catchment Management lower atmosphere. These gases by the Minister for Water. Authorities are the caretakers of regulate the earth’s temperature – river health, responsible for making it capable of sustaining life Potable regional and catchment planning – by retaining some of the heat and coordination, and waterway, that otherwise would radiate back Suitable for drinking. floodplain, salinity and nutrient into space. management. Recharge Greywater Restore with new supply. Ecosystem Household water which has not A dynamic complex of plant, been contaminated by toilet Reclaimed Water animal, fungal and micro-organism discharge and includes water from Water recovered from sources that communities and the associated bathtubs, dish washing machines, are considered to be waste or non-living environment interacting clothes washing machines and unwanted supplies. as an ecological unit. kitchen sinks. Securing Our Water Future 119

Recycled Water Stream Watertable Water derived from sewerage Body of water flowing in bed, river The upper surface of the saturation systems or industry processes that or brook. zone of an aquifer. is treated to a standard that is appropriate for its intended use. Stream Flow Management Plan Waterway A plan developed with community The Water Act 1989 defines what a Regulated systems input to ensure that the water waterway is and it includes a river, creek, stream, watercourse and a Those where the flow of the river is resources of the area are managed natural channel where water regulated through the operation of sustainably. regularly flows, whether or not the large dams or weirs. Sunk cost flow is continuous. Reticulation Capital costs that are not expected Yield to be recovered at a certain point The network of pipelines used to in time. The quantity of water that a storage take water into areas of or aquifer produces. consumption. Includes residential Sustainable Diversion Limit (SDL) districts and individual households. The maximum volume that can be River diverted from a sub-catchment during winter while protecting the Large stream of water flowing to environment. sea or lake or marsh or another river. Triple-bottom-line Integrated approach to the River basin achievement of environmental, The land which a river and its social and economic outcomes. tributaries drain. Unregulated system Sales water A river system where no major Lower-reliability water offered to dams or weir structures have been irrigators on a seasonal basis, in built to assist in the supply or proportion to their base rights, extraction of water. after provision has been made to meet the base rights in the Water cycle following year. The circuit of water movement from the oceans to the atmosphere Salinity and to the earth and return to the atmosphere through various stages The total amount of water- and processes such as soluble salts present in the soil precipitation, interception, run-off, or in a stream. infiltration, percolation, storage, evaporation and transportation. Sewage The waterborne wastes of Water entitlement a community. The volume of water authorised to be used under a licence to take and Sewerage use water or a water right. A physical arrangement of pipes Water right and plant for the collection, removal, treatment and disposal of Rights to water held by irrigators in liquid waste. an irrigation district. 120 Appendices

Appendix A

Government response to the water resources strategy for the Melbourne area The Government’s initial response to the Strategy was to adopt a more ambitious target for reduction of water use – 15%, rather than 12%. The Government then set out ten actions for Government and water authorities to implement, while the full response to the Strategy was developed. These ten actions set by Government are: 1. Lead the development of national standards for efficiency labelling of water appliances. 2. Develop incentive packages for Victorians to use AAA rated shower roses and AAAA rated washing machines. 3. Determine an appropriate way to enforce minimum national standards. 4. Ensure that Retail Water Companies and the Sustainable Energy Authority work closely to ensure consumers know the cost savings from energy and water efficient appliances. 5. Require that Retail Water Companies conduct community education campaigns providing information on water conservation and smart gardening practices. 6. Require that Retail Water Companies develop water management plans for the 200 biggest industrial water users in Melbourne. 7. Conduct targeted research into how to change water consumption behaviour in the community. 8. From the research results, implement appropriate incentives to drive water efficient practices. 9. Ban the watering of gardens, except for that using hand held hoses, on days of total fire ban. Use of sprinklers as part of a bushfire management strategy is exempt. 10. Take appropriate measures to prevent excessive wastage of water (i.e. to prevent hosing of paths). The Government’s response to the 23 recommendations of the Strategy is detailed: Securing Our Water Future 121

No. Recommendation

1 & 2 The Committee recommends that the Government: • Support and take a leadership role in pursuing a national approach to compulsory water efficiency labelling. • Pursue a national approach to the introduction of minimum performance standards for shower roses and other water products (including washing machines, toilet suites, dishwashers, urinals, taps and flow regulators). • Investigate the establishment of a state regulatory function to enforce minimum standards and labelling. • Investigate the regulation of shower roses through Victorian Plumbing Regulations or other Victorian regulations. • Work with Sustainable Energy Authority, Victoria to promote the synergies between water and energy efficiency practices in the community. • Target 2005 as the introductory date for AAA shower roses when pursuing a national and/or State approach. • Investigate a national approach through the Australian Greenhouse Office and National Appliances and Equipment Energy Efficiency Committee to introduce minimum standards for washing machines under existing legislation. • Target 2010 as the introductory date for AAAA for washing when pursuing a national approach.

Government Response Victoria is leading a national approach to develop compulsory water efficiency labelling for household appliances, fittings and fixtures including washing machines and dishwashers. The national labelling scheme is to be considered by the Environment and Heritage Ministerial Council in early 2004, (See Proposal 3.10 in Chapter 3). The Government proposes to introduce mandatory AAA shower roses, taps and pressure reduction valves by 1 July 2005 for new houses, and AAAA washing machines by a target year of 2010. (See Proposal 3.11 in Chapter 3). The Government’s initial response to the Strategy stated that it will ensure that Retail Water Companies and the Sustainable Energy Authority work closely to ensure customers know the cost savings from energy and water efficient appliances. A partnership has been formed and this work is underway.

3 The Committee recommends that the retail water companies, in conjunction with the gardening and nursery industries, develop and implement a coordinated program over the next year to achieve consistent community education across Melbourne on water smart gardening practices.

Government Response The Government’s initial response to the Strategy was to require water retailers to conduct community education campaigns providing information on water conservation and smart gardening practices. The retailers have responded to this by developing a co-ordinated program to educate professional and amateur gardeners on waterwise gardening – including garden design, irrigation, plant selection, and use of reused and recycled waters. This includes targeting schools and the general community. 122 Appendices

4 & 5 The Committee recommends the retail water companies call for voluntary restraint on automatic and manual sprinkler use on days of Total Fire Ban. The use of hand held hoses would be allowed. The Committee recommends that the retail water companies include information calling for voluntary restraint on hosing of paths in ongoing community education programs.

Government Response The Government has developed proposed changes to the water legislation which boost the penalties for flouting water restrictions and for theft of water, and allow permanent mandatory water saving measures. (See Proposals 3.8 and 3.39 in Chapter 3).

6 & 7 To support the Recommended Strategy the Committee recommends that the following pricing principles should be built into the framework used by the economic regulator when setting water prices: • The structure of water prices should encourage water conservation and be used to influence consumer behaviour; water pricing structures should reflect periods when there is greater discretionary use of water. • Water should be affordable to maintain public health and ensure reasonable access for all. Water pricing structures, such as block tariffs, and community support schemes should complement each other to achieve these goals. • Water revenue should provide for funding of targeted water conservation measures included in the water conservation obligations established for Melbourne Water and the retail water companies. • To assist in effectively targeting any concessions before price changes are implemented, customer impact assessments should be undertaken to ensure that impacts on consumers, such as high usage/ low income families and other disadvantaged groups are adequately considered. • Water pricing should be used to influence demand to achieve a saving of 5,000 to 10,000 ML per year by 2050. The Committee recommends the Department of Human Services reform the State Government water concession scheme to ensure an adequate safety net is available to those in need.

Government Response The Government proposes to introduce an increase in water prices to better reflect the scarcity of the resource and costs related to the environmental impacts associated with the provision of water- based services. The Government proposes that the structure of prices should encourage water conservation. For example charging extra for very high usage or in summer months or in periods of water restrictions. The Government will develop a set of principles to guide the way in which water authorities structure and design their prices. These principles are proposed to be incorporated into the detailed arrangements for the Essential Services Commission’s (ESC) regulation of the water industry. Securing Our Water Future 123

From 1 January 2004, the ESC will be responsible for administering the Government’s pricing framework. In fulfilling its responsibilities, the ESC will protect the long-term interests of customers and ensure prices are fair and reasonable by making sure: • Prices are not too high, reflecting misuse of monopoly power, nor too low, undermining the long- term sustainability of the water industry, and the health of water resources. • Processes to set prices are transparent and consultative, and engage customers and the community on their preferences with respect to prices and the level of service. • Prices are easy to understand and are accompanied by separate arrangements that provide appropriate support for low income or vulnerable customers. (See Chapter 6)

8 The Committee recommends that the retail water companies prepare a timetable and, in association with industry, complete Water Management Plans for the top 200 industrial water users across Melbourne, in the first instance, over three years.

Government Response In the Government’s initial response to the Strategy, it required the retail water companies to implement this recommendation. The Government and metropolitan retail water companies have therefore been working with industrial water customers to develop water management plans for the 200 biggest industrial water users in Melbourne. Case studies will be promoted by the water retailers as part of an education campaign to help other industrial water users to also benefit from this work. The Government proposes to extend this program to other major commercial and industrial water users. The Government proposes that Regional Urban Water Authorities develop water management plans for large industrial and commercial users in their region. (See Proposal 3.18 and 3.19 in Chapter 3).

9 The Committee recommends that: • Melbourne Water and the retail water companies jointly prepare integrated Water Management Plans with Local Government in accordance with an agreed two-year timetable. • Melbourne Water and the retail water companies pursue the development of integrated Water Management Plans with other major open space managers.

Government Response The Government proposes that retail water authorities and Melbourne Water prepare integrated Water Management Plans with local government and sports clubs to conserve water and to maximise the use of reused and recycled water for parks, sporting grounds and golf courses. (See Proposal 3.24 in Chapter 3) 124 Appendices

10 & 11 The Committee recommends that Melbourne Water and the retail water companies commission a review to: • Develop a framework for assessing all infrastructure benefits and costs such that all alternatives for the provision of water services within new development can be fairly compared, taking account of the total costs to society and ensure that developer charges and other charges are not structured so as to provided a disincentive to innovative design. • Develop an incentive framework to encourage water sensitive urban design based on the degree to which drinking water is substituted taking into consideration the infrastructure benefits and costs associated with the provision of water supply, sewerage and stormwater. The Committee recommends the evaluation of demonstration projects in association with environmental and health agencies, and the sponsorship by the retail water companies and Melbourne Water of demonstration water sensitive design and drinking water substitution projects to further improve understanding.

Government Response The Government proposes: • The introduction of a WaterSmart rating system for all buildings. • The development of water-sensitive urban design guidelines to promote sustainable water use in houses and buildings, particularly in growth suburbs. • The amendment of legislation to inform property buyers of the water efficiency of houses and buildings. The Government has announced that all new homes must have either a water tank or solar hot water system from 1 July 2005. The Government in partnership with the metropolitan water authorities has undertaken a preliminary investigation to understand the breadth of scenarios for future use of recycled water. A technical paper will be released with the Green Paper detailing some scenarios for recycled water. The Government, through innovations such as its Smart Water Fund, will support pilot projects utilising third pipe systems and supporting pilot water mining projects, such as the Albert Park Lake Project. It also proposes that a number of emerging technologies continue to be monitored. More information about the Victorian Government’s Smart Water Fund can be found at www.smartwater.com.au (See Chapter 3)

12 The Committee recommends that further work be undertaken by the retail water companies to determine incentives or subsidies for individual water substitution initiatives such as rainwater tanks.

Government Response The Government has gone further than this recommendation. It launched its Water Smart Gardens and Homes rebate program in 2003, and will extend the rebate system from 1 October 2003 until 30 June 2004 as follows: • Rainwater tanks with connection to toilet – $300, $150 for tank & $150 for toilet connections. • Retrofitting of dual flush toilets – $50. Securing Our Water Future 125

• AAA shower roses – $10. • High pressure cleaning devices – $30. • Water conservation home audits – $30. • A broadened range of garden products – $30. • The rebate program will provide free shower flow control valves to the first 50,000 people who request them. • A special two month rebate will be provided for household whitegoods starting 1 September 2003 as follows: - AAAA clothes washing machines – $150. - AAA dishwashers – $100. The Government is also due shortly to launch a pilot rebate program in six rural and metropolitan municipalities aimed at people on low incomes. The Government will consider the outcomes of the 2003-04 Water Smart Rebate Scheme in determining the future rebate scheme. (See Proposal 3.13 in Chapter 3).

13 The Committee recommends the continuation of ongoing community education programs on the state of Melbourne’s water resource management by Melbourne Water and water conservation by the retail water companies.

Government Response The Government will launch a new education campaign, Our Water Our Future, aimed to change the behaviour of metropolitan water consumers to support the Government's 2010 water conservation targets. (See Proposal 3.7 in Chapter 3).

14 The Committee recommends that, within five years, Melbourne Water establish criteria, in consultation with the community and stakeholders, for the timing of any supply increases and evaluate options to increase supply at the appropriate times.

Government Response The Government proposes to investigate the costs, social and environmental impact and possible timing of the options to harness supplies already allocated to Melbourne. (See Proposal 3.37 in Chapter 3).

15 The Committee recommends that: • Melbourne Water, within two years, undertakes hydrological studies and releases a report, on the impact of logging on water yield in the Yarra tributaries and Tarago Reservoir catchments. • The Government, within two years, undertakes a detailed investigation and releases a report, of the economic, social and environmental costs and benefits of establishing plantations to allow the phasing out of logging in the Thomson Reservoir catchment. 126 Appendices

• The existing agreements between the Department of Natural Resources and Environment and Melbourne Water concerning logging rates in the catchments are not renegotiated until the above investigations are completed.

Government Response A response to this recommendation is to be provided within the Government’s White Paper report, expected to be released in early 2004.

16 The Committee recommends the retail water companies carry out further studies in Melbourne to identify and quantify use and water consumption influences in both the domestic and industrial/commercial sectors.

Government Response In the Government’s initial response to the Strategy it confirmed the importance of relevant research to drive ongoing demand management activities. The retail water companies have responded by integrating ongoing research programs into their demand management programs. The Government proposes to require water authorities to develop Sustainable Water Plans designed to achieve regional sustainability objectives, including the identification of projects and initiatives to meet urban growth in outer Melbourne. The plans would identify all the demands on the authority and examine options for how these could be met. (See Proposal 7.7 in Chapter 7).

17 The Committee recommends that Melbourne Water and the retail water companies continue ongoing, active evaluation of climate change impacts on the supply and demand measures respectively.

Government Response Melbourne Water has engaged CSIRO to evaluate likely climate change in Melbourne area catchments. As a broader process, the Government proposes to require water authorities to develop Sustainable Water Plans designed to achieve regional sustainability objectives, including the identification of projects and initiatives to meet urban growth in outer Melbourne. The plans would identify all the demands on the authority and examine options for how these could be met. (See Proposal 7.7 in Chapter 7).

18 The Committee recommends that the Government continue periodic reviews of environmental flows and further studies, such as the appropriate flow regimes required to protect and maintain river health, in collaboration with appropriate research bodies.

Government Response The Government will continue its commitment to the improvement of the health of Victoria’s rivers. The Green Paper outlines various options for the improvement of environmental flows and sets out a proposal to improve the statutory protection of these flows via an environmental reserve.

19 The Committee recommends that Melbourne Water continue to review the current system volume of Melbourne’s water supply with regard to infrastructure, population growth, climate change and other variables every 5 years. Securing Our Water Future 127

Government Response The Government proposes to require water authorities to develop Sustainable Water Plans designed to achieve regional sustainability objectives, including the identification of projects and initiatives to meet urban growth in outer Melbourne. The plans would identify all the demands on the authority and examine options for how these could be met. The plans could be developed with a 50 year outlook, a 20 year planning horizon and a five year program. (See Proposal 7.7 in Chapter 7).

20 The Committee recommends that the retail water companies and Melbourne Water continue programs to reduce non-revenue water consumption and investigate the potential savings from reduced pressures in the water distribution pipe system.

Government Response The Government proposes that the development and application of cost-effective technology, such Water Pressure Reduction measures, to reduce leakage and assist with asset maintenance, be encouraged. The Government recognises the current work of retailers in this area. (See Proposal 3.38 in Chapter 3).

21 The Committee recommends that Melbourne Water and the retail water companies undertake a review of the Water Resources Strategy for the Melbourne area every five years and report on any changes in context or circumstance and recommend, if appropriate, adjustments to the strategic direction.

Government Response The Government proposes to require water authorities to develop Sustainable Water Plans designed to achieve regional sustainability objectives, including the identification of projects and initiatives to meet urban growth in outer Melbourne. The plans would identify all the demands on the authority and examine options for how these could be met. The plans could be developed with a 50 year outlook, a 20 year planning horizon and a five year program. (See Proposal 7.7 in Chapter 7).

22 The Committee recommends that the Government set water conservation targets for Melbourne and suggests the following climate adjusted, average annual consumption rates be considered as a minimum: Year 2005 505,000 ML Year 2010 515,000 ML Year 2015 527,000 ML Year 2020 536,000 ML Year 2025 542,000 ML Year 2030 546,000 ML Year 2040 549,000 ML Year 2050 550,000 ML These targets exclude the additional demand from adjacent water authorities. 128 Appendices

Government Response The Government has set a target to conserve 15% and recycle 20% of Melbourne’s water by 2010. These targets will equate to 500,000 ML per annum total potable consumption by 2010. Any future modelling of these targets will need to include the impact of climate change.

23 The Committee recommends that the Government, in consultation with the retail water companies and Melbourne Water considers implementing processes to allow people to share their water saving ideas with others.

Government Response The Government and retail water authorities are conducting community consultations to allow people to share their water savings ideas. Government, together with the four metropolitan Government-owned water authorities, will undertake a Community Engagement Program to deliver the message of water conservation and ultimately achieve behavioural change that contributes to the on-going sustainability of this precious resource. The Program will also seek ideas from the community about how we can work together to use water more wisely. Furthermore, several of the directions of the Government’s initial response to the Strategy included working with water users, and the plans by the water authorities to implement these directions all include plans to disseminate information and learnings to the wider community. Securing Our Water Future 129

Appendix B: Scenario analysis summary- Future for Recycled Water

No. Scenario Scenario description

1 Retrofit third Replacing potable water for toilet flushing and garden watering with pipe systems Class A recycled water for all existing and new residential development in Melbourne including the CBD. (Noting that retrofitting third pipes for existing buildings is not favoured by Government).

2 Third pipe systems Mandating the use of third pipe systems for toilet flushing, garden in new growth regions watering and public open space in all new residential developments within the urban growth boundaries specified by Melbourne 2030.

3 Target existing high Targeting existing high water volume users to use recycled water in place volume users of their existing potable source.

4 Mandated recycled Exploring opportunities to mandate the use of recycled water in areas water use surrounding recycled water sources and trunk infrastructure works for non-potable use, provided public health, safety and environmental risks are managed.

5 Placing treated sewage Pumping all the discharge from the (WTP) into into potable water Greenvale and Winneke Reservoirs and pumping all the discharge from supply system the Eastern Treatment Plant (ETP) into . The water would be mixed with the existing potable water and the mix of recycled water and fresh water would form the potable supply to much of the western and south eastern suburbs of Melbourne.

6 Placing treated sewage Pumping all discharge from the WTP and ETP into reservoirs as in into the water supply scenario 5, however, the discharge from both treatment plants would be system and increase use treated to an enhanced standard suitable for human contact but not to of bottled water WHO drinking water standard (i.e. same bacterial quality as drinking water but higher nutrients, TDS, colour etc.). Recycled water would be mixed with fresh potable water in the reservoirs and the water would be used for all purposes except drinking. The public would be supplied with bottled water through supermarket retail distribution outlets for drinking and cooking purposes.

7 Water (sewer) mining Water (sewer) mining, which is the local treatment of raw sewage to provide recycled water for nearby beneficial uses such as open space watering, industrial uses, etc. In an urban environment the expectation is that it is treated to a Class A standard (unrestricted use).

8 Use of greywater Improving and increasing the use of greywater. 130 Appendices

9 (a) Economic development The area north-west of the Western Treatment Plant has the potential to projects: Balliang use recycled water for agriculture, intensive irrigation, new urban development and to improve Werribee River flows for environmental and recreational use. This scenario considers the Balliang project which investigates the provision of recycled water to the Balliang District, which is bounded by the Brisbane Ranges, the You Yangs and the Werribee River.

9 (b) Economic development To develop the Eastern Irrigation Scheme, which is based on providing projects: EIS recycled water from the Eastern Treatment Plant to horticultural, agricultural, manufacturing and recreational industries in the Cranbourne to Koo Wee Rup corridor.

10 (a) Environmental projects: The Thomson River has been classified as an environmentally 'Stressed Thomson River River' downstream of the Cowwarr Weir. This scenario considers treated water from the Eastern Treatment Plant being further improved by polishing through a duel membrane treatment plant and discharged to a location just below the Thomson Dam.

10 (b) Environmental The Werribee River downstream of Melton Reservoir is degraded projects: Werribee requiring significant riparian works and environmental flows to improve irrigation district the ecological health of the river. Farmers in the Werribee South Irrigation District use around 11,000 megalitres to 13,000 megalitres annually from the Werribee River, primarily for agriculture and horticulture. This water is sourced from the Melton Reservoir and pumped from the river. This scenario considers substituting this irrigation water with recycled water from the Western Treatment Plant.

11 (a) Pumping recycled water Recycling 100 per cent of the suitably treated sewage from the ETP and north of divide option 1 WTP by pumping it across the Bay from ETP to combine the flow with the WTP. This combined flow would then be pumped north to the Great Dividing Range and discharged into existing irrigation channels.

11 (b) Pumping recycled water Diverting sewage from the northern parts of Melbourne, treating the north of divide option 2 sewage to produce high quality recycled water and transferring this water into the Goulburn Valley. The recycled water would be used to supplement current irrigation schemes in the region to the North and west of the State.

12 (a) Stormwater harvesting Increasing the use of retarding basins as a source of storage of stormwater and ’harvesting’ the stormwater for use. Stormwater would be treated through combinations of pollution traps, settling ponds and environmental wetlands, and where appropriate more sophisticated processes would be utilised. Securing Our Water Future 131

12 (b) Rainwater tanks Rainwater tanks are a traditional source of domestic water supply for isolated properties and small communities, but they are not commonly used in urban areas. This scenario considers rainwater tanks in the Melbourne region which have the potential to provide substitutes for potable water where water is used for garden watering and/or toilet flushing.

12 (c) Reduced salinity High salt levels exist in the sewage that flows into the Western Treatment at Werribee Plant at Werribee. This scenario considers diluting the sewage flow with stormwater flows.

12 (d) Desalination Potential for desalination in Melbourne, which involves converting seawater into potable water.

12 (e) Aquifer recharge The use of treated recycled water for temporary storage in aquifers for later use when there is demand. Recycled water can be stored in a bubble within an aquifer with little intrusion from groundwater, effectively acting as a stand-alone storage due to the different characteristics (such as salinity) of the recycled water and the groundwater. 132 Appendices

Appendix C: Pricing to Recover Service Delivery Costs

Background Information In the rural water sector, prices currently recover operational, maintenance and administrative costs, and Chapter 6 notes that Victoria has made significant a renewals annuity based on the forecast capital progress towards ensuring water prices recover all expenditure required to replace and renew existing service delivery costs. This progress has stemmed from assets in order to maintain their service capability. the implementation of a number of reforms including – Rural water authorities have no debt and therefore no the recommendations of Public Bodies Review interest costs. This lack of debt is largely a product of Committee in the early 1980s, the 1992 McDonald history, whereby most of the existing infrastructure Report1 and the 1994 COAG Water Reform Framework. was funded by Government (either directly or through Implementation of these reforms, particularly the 1994 debt forgiveness) many years ago and recently there COAG Water Reform Framework,2 has recognised that have been no significantly large investments to in recovering service delivery costs, prices can be set commission new irrigation infrastructure. As a result, within two bounds: the focus in the rural sector has been on maintaining the service capability of the existing irrigation • A lower bound. Reflecting incremental costs, infrastructure. whereby prices should recover, at least, operational, maintenance and administrative costs, In contrast, the urban sector has invested in the order capital expenditure to replace and renew existing of $200 million per year in non-rehabilitation capital assets in order to maintain their service capability, expenditure to cater for more stringent EPA discharge interest on existing debt and financing costs standards, achieving drinking water quality standards associated with augmenting existing assets or and urban growth. Given the scale of these commissioning new assets. investments, urban authorities, particularly the metropolitan sector, have been more inclined to • An upper bound. Reflecting stand-alone costs, finance those works over time by borrowing. whereby prices should not recover more than operational, maintenance and administrative costs, In the metropolitan sector, where prices are close to the capital expenditure to replace and renew existing upper bound and include a rate of return on existing assets in order to maintain their service capability and new assets, water authorities have generated a and a return on assets, calculated using the reasonable return on their investments consistent with weighted average cost of capital which assumes that operating on commercial principles with a view to cover assets are in part financed through debt and in part the cost of funding future investments. financed through equity provided by shareholders. In summary, the table above suggests that in broad The major difference between the lower and upper terms the metropolitan water authorities are close to bounds is the extent to which returns are made on the upper bound, the regional urban authorities are on existing assets. Pricing at the lower bound level average slightly above the lower bound and that the recovers the explicit interest costs associated with the rural water authorities are on average around the existing assets but does not require a return to the lower bound. Implementation of the Government’s owner attributable to those assets. In contrast, pricing proposed pricing framework discussed in Chapter 6 at the upper bound level provides a return on both will ensure that all water prices lie between the lower existing and new assets. and upper bound. The table below provides some facts and figures on the financial performance of the Victorian water industry. This table shows that the extent to which water authorities are pricing at the lower or upper bound varies across the metropolitan, regional urban and rural water sectors.

1 Future Management Review – Rural Water Commission, Final Report, 15 January 1992. 2 See the 1998 Standing Committee on Agriculture and Resource Management Guidelines for Water Pricing in accordance with the application of sections 34(a)(i)(ii)(iii)(iv)(v)(vi) of the COAG Strategic Framework, COAG (1998, p.112). Securing Our Water Future 133

Table 1. Water industry financial profile – 2001/2002 ($ Million)

Authority Revenue O,M&A3 Capital Capital Capital Debt Dividend exp. exp exp on rehab/ on new renew4 assets Metropolitan Sector Melbourne Water 480.2 129.0 84.5 18.0 66.5 1,172.7 98.9 City West Water 243.3 37.0 11.3 6.6 4.7 151.0 54.8 South East Water 344.7 63.4 36.3 11.3 25.0 316.6 62.3 Yarra Valley Water 336.0 71.3 50.2 18.8 31.4 507.0 52.7 Melbourne Total 1,087.3 300.7 182.3 54.7 127.6 2,147.3 268.7 Regional Urban Water Authorities Barwon 82.3 45.8 24.0 7.2 16.8 59.9 0.0 Central Highlands 39.6 20.4 9.3 3.2 6.1 9.0 0.0 Coliban 44.5 25.7 27.7 3.0 24.7 0.0 0.0 East Gippsland 13.2 6.9 4.6 0.0 4.6 0.0 0.2 Gippsland 46.5 30.8 27.7 19.6 8.1 0.0 0.0 Glenelg 5.1 3.3 4.0 0.8 3.2 0.5 0.0 Goulburn Valley 41.4 20.8 13.7 1.1 12.6 11.2 0.0 Grampians 24.0 15.7 14.3 11.3 3.0 0.2 0.0 Lower Murray 20.4 13.4 8.9 5.0 3.9 0.5 0.0 North East Water 28.2 15.1 9.8 3.6 6.2 5.5 0.0 Portland 6.2 3.2 3.0 0.3 2.7 4.1 0.0 South Gippsland 11.4 6.9 2.2 1.5 0.7 0.3 0.0 South West Water 16.8 11.4 7.2 2.3 4.9 17.0 0.0 Western Water 34.6 15.8 11.6 3.3 8.3 3.3 0.4 Westernport 10.6 4.4 4.1 0.0 4.1 5.2 0.7 RUWAs Total 424.8 239.6 172.1 62.2 109.9 116.7 1.3 Rural Water Authorities (RWAs) FMIT 5.0 3.8 0.4 0.4 0.0 0.0 0.0 Goulburn-Murray 105.0 78.2 24.4 24.4 0.0 0.0 0.4 Southern RWA 15.0 15.3 3.9 3.9 0.0 0.0 0.2 Sunraysia RWA 13.5 9.2 4.6 4.6 0.0 0.0 0.1 Wimmera-Mallee 14.4 9.1 8.7 8.7 0.0 0.0 0.2 RWAs Total 152.9 115.6 42.0 42.0 0.0 0.0 0.9 Grand Total 1,665.0 655.9 396.4 158.9 237.5 2,264.0 270.9

Source: Water Authorities 2001-2002 Annual Reports and Department of Sustainability and Environment.

3 Operational, maintenance and administrative costs. 4 For urban authorities, the split between capital expenditure on rehabilitation and renewals compared to capital expenditure on new assets is only an estimate based on information gathered as part of Government’s previous price setting processes. 134 Appendices

Appendix D

Victoria’s Water and Catchment Management Authorities (October 1999)

Mildura

Sunraysia Lower Murray Melbourne Area

Mallee Approximate Boundar ies of Non-Metropolitan Urban Water Authorities

020406080100 Rural W ater Authorities Kilometres

n Swan Hill G/6442 Catchment Management Author

North Central

M urra y Goulburn - Brpken R iver Goulburn - North East er r Murray Riv ive Wimmera - R Wodonga n n Echuca Ov Mallee G en n o s r ulb

ddo u M

rn K itta

Lo Rive Wangaratta ie

oca Shepparton n w n a Av B Grampians roken R iv Coliban er Mitta K R iv in er

W n g

im North East e Benalla

m sp

a R er p iv

Wimmera a R m er iv n Horsham n er Bendigo Ca R iv er R iv Goulburn er B Riv u Valley ch n e a Se ymour r n

r Central e i v R R

Ri ver iv Highlands er

r e Ma

Dargo mEastTa Gippsland Riv B ca Nicholso em

liste n b

m o ve r Gisborne nowy r Ri Ballarat n Avo n S Glenelg r R W n e . M rrib Rive Riv n o ee R. Y n arro o Riv a er ra Orbost

C

lg e Hamilton n b r R n e w o MELBOURNE iv R n ee ol er iv le n Hopkins er G R Central iv Bairnsdal e R e r iv Thomson e R iver r Gippsland East Gippsland South Western

Sale n Geelong n Warragul n West n Gippsland & Southern Portland Coast Traralgon n n Portland Warrnambool Colac n Port Phillip Glenelg - Hopkins Barwon Gippsland & Southern Westernport West Gippsland Corangamite South Gippsland Securing Our Water Future 135

Abbreviations

ABS Australian Bureau of Statistics ASR Aquifer Storage and Recovery BEs Bulk (water) Entitlements BOOT Build Own Operate and/or Transfer CBD Central Business District CMAs Catchment Management Authorities COAG Council of Australian Governments CSIRO Commonwealth Scientific and Industrial Research Organisation CUAC Consumer Utilities Advocacy Centre DHS Department of Human Services DPI Department of Primary Industries DSE Department of Sustainability and Environment DWQR Drinking Water Quality Regulator EC Electrical Conductivity EPA Environment Protection Authority ESC Essential Services Commission ETP Eastern Treatment Plant EWOV Energy and Water Ombudsman of Victoria GL Gigalitre = 1,000,000,000 litres or (1 million cubic metres) kL Kilolitre = 1,000 litres (or 1 cubic metre) MDBC Murray-Darling Basin Commission ML Megalitre = 1,000,000 litres (or 1,000 cubic metres) The approximate amount of water contained in one 50 metre Olympic sized swimming pool O, M & A Operational, Maintenance and Administrative (cost) PAV Permissible Annual Volume NSW New South Wales R&D Research and Development RUWA Regional Urban Water Authorities RWA Rural Water Authorities SA South Australia TDS Total Dissolved Solids VRHS Victorian River Health Strategy WHO World Health Organisation WSUD Water Sensitive Urban Design WTP Western Treatment Plant 136 Appendices

Figures and Tables

Figures 1.1 Rainfall and temperature 12 1.2 Sustainable water resource management 15 2.1 Consumptive uses of water in Victoria, 1996/1997 20 2.2 Proportion of the length of major streams in excellent or good condition 22 3.1 Melbourne’s water supply system 37 3.2 Average residential water use in Melbourne 38 3.3 Melbourne’s water and sewerage system – average annual flows 38 3.4 Percentage of treated effluent recycled across Victoria 39 3.5 Substituting Recycled and Reclaimed Water for Drinking (Potable) Water 46 4.1 Total water used and output value by irrigated industry in Victoria 59 4.2 Components of a water entitlement 64 4.3 Permanent trade into, within and out of areas and river groups, 1991/1992 to 2000/2001 68 6.1 Urban water pricing evolution 89 6.2 Structure and design of prices in Melbourne 91 7.1 Regional urban water authorities – total revenue 2001/2002 102 7.2 Rural water authorities – revenue and total water supplied 103 7.3 Institutional Arrangements 104 7.4 Victorian water industry revenue 2001/2002 106 Tables 2.1 Current flows compared with natural flows in Victorian rivers (at the mouth) 21 2.2 Southern river basins where caps are proposed 30 3.1 Projected water savings 40 5.1 Potential savings in Murray and Goulburn authority distribution systems 79 7.1 Different types of obligations 112 Securing Our Water Future 137

Summary of Proposals

Chapter One: The Challenge We Face

1.1. Water authorities will be retained in public ownership. 1.2 The Government will maintain the power to make decisions on the allocation of available resources, including surface water, groundwater, stormwater, water in supply systems, water reclaimed from sewerage and from other water sources, and maintain the overall stewardship of all water resources irrespective of source on behalf of all Victorians. 1.3 The management of water will be based on an understanding that the provision of water services that are valuable to the State’s economy and to our society, is dependent on a healthy environment. 1.4 Users of the services our water systems provide, should wherever practical, pay for the full cost, including infrastructure and delivery costs, and environmental costs associated with that service. 1.5 The water sector charged with managing our water systems will be capable, innovative and accountable to the Victorian community.

Chapter Two: Water Resources and Their Allocation

2.1 Principles that are proposed for sustainable water allocation are: • Water will be allocated to consumptive or other uses that provide private benefits where Victoria’s communities regard this as in the public interest. • Water will be set aside in an environmental reserve with legal status. • The environmental reserve will: - Aim to maintain the environmental values of the water system, and the other water services which are dependent on environmental condition. - Aim to provide a base level of environmental condition that maintains biodiversity and ecological functioning and protects water quality. - Recognise that not all rivers and aquifers can be pristine, some having been fundamentally changed through infrastructure and floodplain development. • In establishing the environmental reserve, the rights of existing entitlement holders will be recognised. • All water users will have entitlements that are effectively a share of the available resource. Entitlements will: - Have secure tenure. - Clearly specify the share or base volume and expected reliability, together with the obligations associated with holding the entitlement. • Consumptive entitlement generally will be allocated by market mechanisms and be allowed to trade between entitlement holders. • Where over-allocation has occurred (i.e. the environmental reserve is insufficient), communities and the Government need to work together to rebuild reserves to provide for agreed environmental needs and other water services dependent on environmental condition. • Environmental reserves will be monitored to determine whether they are achieving their objectives and whether any further action is required. • Water systems will be managed responsibly and with clear accountabilities to protect the environmental reserve and water users’ entitlements. 138 Summary of Proposals

2.2 The Government proposes to amend the Water Act to establish an environmental reserve. 2.3 The Government proposes to establish an environmental reserve: • in catchments that are not over-allocated, by establishing how much the environment needs and then setting ‘sustainable diversion limits’. • In establishing the reserve the rights of existing entitlements holders will be recognised. 2.4 The Government proposes in catchments that are fully or over-allocated to establish the environmental reserves by initially setting caps that recognise the rights of existing water entitlement holders and then determining whether further action is required. This means that, in addition to the existing Murray Darling Basin cap in the north of the State, the Government proposes that caps be imposed on seven river basins (set out in Table 2) in the south of the State that are fully allocated, and in some cases over-allocated. In these catchments caps would be set initially on current entitlement, with steps taken to avoid increase in usage beyond the long-term average usage assumed in developing the entitlements. 2.5 Pending the White Paper and a decision on the proposal to establish caps, the Government will apply a moratorium on the issuing of new water entitlements in the seven basins set out in Table 2. 2.6 The Government will use a range of market mechanisms to allocate any new entitlement, maximising both its productive use and the return to the community. 2.7 The Government has adopted these key principles regarding metering: • All significant water use will be metered. • Water users will be responsible for the costs of metering their diversions. 2.8 Where there is overuse of licences, the Government will support rural water authorities in developing transitional arrangements that allow diverters time to suitably adjust their businesses or their entitlements to comply with the law. 2.9 The Government will: • Ensure that registers are kept of licences, and that all registers of water entitlements are publicly available. • Investigate options for preparing, auditing and publishing annual water accounts for the whole of Victoria. 2.10 To deal with the repercussions on water resources of timber plantations or other land-use changes, the Government will investigate a range of management options, including: • Amending planning processes to minimise the impacts of new developments. • In catchments which are not capped setting aside allocations to allow for the effects of plantations. • Requiring water entitlements to be purchased to offset the effects of new plantations. 2.11 Where resources are going through a long-term alteration associated with climate change, the Government will adjust bulk entitlements to ensure that the effect of this is shared across consumptive users and the environment. Securing Our Water Future 139

Chapter Three: Smarter Water Use in Our Cities and Towns

3.1 The Government proposes that the structure of prices should encourage water conservation. For example charging extra for very high usage or in summer months or in periods of water restrictions. 3.2 The Government proposes to develop a set of principles to guide the way in which water authorities structure and design their prices. These principles are proposed to be incorporated into the detailed arrangements for the Essential Services Commission’s (ESC) regulation of the water industry. (Chapter 6 outlines in further detail the Government’s proposal in regard to pricing). 3.3 The Government proposes that Melbourne water authorities set water conservation and consumption targets to meet the overall Government targets. 3.4 The Government proposes to put in place water consumption targets for other major regional cities and towns. The targets will be developed in consultation with water authorities, with particular emphasis on the towns with growing populations within proposed capped catchments (for example, Geelong, Ballarat and Bendigo). 3.5 The Government proposes to work with water authorities to make water bills smarter by increasing the information provided to consumers about their water consumption. 3.6 In order to reduce current community confusion regarding the varying levels and types of water restrictions across the State, the Government will work with water authorities to implement a more uniform water restriction policy for urban supplies across the State. 3.7 The Government and Melbourne’s water authorities will launch a new education campaign, Our Water Our Future, aimed to change the behaviour of metropolitan water consumers to support the Government's 2010 water conservation targets. 3.8 The Government will introduce permanent water savings measures (e.g. ban hosing footpaths and ban on using sprinklers between 10 am and 5 pm) for the Melbourne metropolitan area. 3.9 The Government will require Regional Urban Water Authorities to develop permanent water saving measures for their regions. 3.10 The Government, in partnership with the Commonwealth and State Governments, is developing a National Mandatory Water Efficiency Labelling Scheme for appliances, fixtures and fittings. Victoria seeks to achieve a nationally agreed scheme by early 2004, for its implementation by late 2004. 3.11 The Government proposes the introduction of mandatory AAA shower roses, taps and pressure reduction valves by 1 July 2005 for new houses. 3.12 The Government proposes the introduction of mandatory AAAA washing machines by a target year of 2010. 3.13 The Government will extend the Water Smart rebate system from 1 October 2003 until 30 June 2004 as follows: • Rainwater tanks with connection to toilet – $300 to $150 for tank and $150 for toilet connections. • Retrofitting of dual flush toilets – $50. • AAA shower roses – $10. • High pressure cleaning devices – $30. • Water conservation home audits – $30. • A broadened range of garden products – $30. • The rebate program will provide free shower flow control valves to the first 50,000 people who request them. • A special two month rebate will be provided for household whitegoods starting 1 October 2003 as follows: - AAAA clothes washing machines – $150. - AAA dishwashers – $100. 140 Summary of Proposals

3.14 The Government will consider the outcomes of the 2003/2004 Water Smart Rebate Scheme in determining the future rebate scheme. 3.15 The Government proposes the introduction of a WaterSmart rating system for all buildings. 3.16 The Government proposes the development of water-sensitive urban design guidelines to promote sustainable water use in urban development (including houses and buildings) particularly in growth suburbs. 3.17 The Government proposes to consider amendment of legislation to enable property buyers to be informed of the water efficiency of houses and buildings. 3.18 Metropolitan retail water authorities will be developing water management plans initially for the 200 biggest industrial water users in Melbourne. The Government proposes to extend this program to other major commercial and industrial water users and incorporate use of recycled water where possible. 3.19 The Government proposes that Regional Urban Water Authorities develop water management plans for large industrial and commercial users in their regions. 3.20 The Government has announced that all new homes must have either a water tank or solar hot water system from 1 July 2005. 3.21 Stormwater harvesting should have an increased role in the water cycle management of Melbourne and other urban areas. The Government proposes that the potential for integrating increased stormwater harvesting into the future planning processes be investigated. 3.22 The Government proposes that future planning for the treatment of sewage include a focus on high technology local treatment plants to enable recycling locally. 3.23 It is also proposed that further investigation occur into the use of recycled water in areas near recycled water sources, including investigation of promoting the use of recycled water in these areas. 3.24 The Government proposes that retail water companies and Melbourne Water prepare integrated Water Management Plans with local government and sports clubs to maximise the use of recycled water for parks, sporting grounds and golf courses. (These plans could be integrated with proposed Sustainable Water Plans outlined in Chapter 7). 3.25 The Government will continue to support pilot projects utilising third pipe systems. 3.26 The Government proposes that the costs and benefits associated with compulsory third pipe systems in new developments be investigated. 3.27 The Government proposes not to support compulsory retrofit of third pipe systems in existing suburbs. 3.28 The Government proposes that new housing developments be required to achieve water savings of at least 25%. These savings may be achieved through recycled water via third pipe systems, and/or rainwater tanks or the reuse of stormwater. 3.29 The Government will establish a Taskforce, to advise on the best mix of measures and regulatory framework to increase the substitution of recycled and reclaimed water for potable water for new urban developments. 3.30 The Government does not propose that recycled water be placed in the potable water supply system but technical development and implementation elsewhere should be monitored. 3.31 The Government proposes to: • Develop Guidelines for Environmental and Health Management for all alternative water products (including greywater, stormwater and rainwater). These would build on the existing guideline for reclaimed water by the Environment Protection Authority (EPA) and the Department of Human Services (DHS). • Review the EPA regulations governing storing of stormwater and recycled water in aquifers. • Develop detailed guidelines for recycled water to be returned to our streams for environmental flows or for use downstream as part of stream flow management. • Ongoing review of the Victorian Planning Provisions to reflect Government policy on sustainable water management. Securing Our Water Future 141

3.32 The Government proposes, in partnership with industry to investigate the benefits and costs pertaining to the range of scenarios for the future use of recycled water (see Appendix B). 3.33 The Government proposes to carry out a cost benefit study of major environmental uses of recycled water including using recycled water in the Werribee Irrigation district, the Thomson River and pumping recycled water north of the Great Dividing Range. 3.34 The Government proposes a reduction in discharge from ocean outfalls and a long-term aspiration to remove them by reusing treated sewage as far as possible. 3.35 In early 2004, the Government will release a full business case study to explore all water recycling options in the Balliang (Werribee region) as part of the Vision for Werribee Plains. 3.36 The Government proposes that other potential economic uses of recycled water are investigated on a triple bottom line basis. 3.37 The Government proposes to investigate with water authorities the costs, environmental impact and possible timing of the options to harness supplies already allocated to Melbourne. 3.38 The Government proposes to investigate the development and application of cost-effective technology, such as Water Pressure Reduction measures, to reduce leakage and assist with asset maintenance. 3.39 The Government will introduce legislation to increase penalties for water theft or unauthorised water use. The legislation will: • Double the maximum jail terms for water theft or unauthorised water use from three to six months for a first offence and six to 12 months for a second offence. • Triple the current maximum fines for water theft or unauthorised water use from $2,000 to $6,000 for a first offence and $4,000 to $12,000 for a second offence. • Double the current maximum fines for breaching water restrictions from $2,000 to $4,000 for a first offence (the maximum of three months jail remain the same) and $4,000 to $8,000 for a second offence (the maximum six months jail term remains the same). 3.40 In 2003, the Government considers that a new dam for Melbourne is not sustainable. The reason for this is not primarily driven by the high cost of building a dam ($1 billion) but due to the sourcing of the water and its impact on regional communities and the environment. 3.41 The Government proposes that the economic, social and environmental benefits and costs associated with desalinisation be monitored. 3.42 The Government proposes that the potential for aquifer storage and recovery for Melbourne and other urban areas be investigated. 3.43 The Government proposes that pilot water mining projects, such as Albert Park Lake Project be promoted. 142 Summary of Proposals

Chapter Four: Smarter Use of Irrigation Water

4.1 The Government will continue industry partnerships to carry out research and development, aimed at facilitating increasingly productive and adaptable irrigated agriculture that performs well environmentally. 4.2 The core business of rural water authorities is to distribute water efficiently and effectively to their customers. They are, and should be in the driver’s seat. But the Government is the owner of the authorities, and is funding a lot of efficiencies. It will encourage authorities to develop creative, best-value ways of distributing water with fewer losses. 4.3 The Government supports an open discussion about areas that might need to change to some other use – as well as new areas to be developed for irrigation. 4.4 To facilitate system rationalisation by authorities, the Government proposes: • To make domestic-and-stock rights in irrigation districts tradeable. • To provide a power to acquire rights compulsorily, or some other way of authorities being relieved of the duty of supply, in defined circumstances. 4.5 With Government support, rural water authorities need to be proactive about streamlining their distribution systems. The Government will discuss with authorities an effective sharing of responsibilities, and will be involved with water authorities and local government in developing broad adjustment plans that cover all aspects – including social aspects (as is happening at Kerang). 4.6 The Government proposes to investigate the impact of enabling water entitlements to be unbundled into their three main components: a water share, a share of delivery capacity, and a site-use licence. The Government recognises that this proposal would result in water being able to be held without land. Some protections are appropriate if this was to occur. If water shares could be held without land (full unbundling), a five per cent limit on the shares held by any non-irrigator is proposed. 4.7 The Government seeks feedback on the merits of two options: full unbundling, and a halfway solution of retaining some requirement to hold land. 4.8 The Government sees specification of shares of delivery capacity as a sensible first step, and supports its legislative basis being clarified. The Government will work with authorities to investigate whether subsequent steps could be: • The authority holding some capacity in reserve and introducing a premium service (e.g. delivery at one day’s notice) with higher annual charges. • Having exclusive, tradeable entitlements to distribution capacity. 4.9 The Government supports Victoria’s relatively open trading regime. But together with rural water authorities it will consider if any modifications are required, to take better account of financial and social impacts. In particular, it will consider whether charges for distribution should be tied to land. 4.10 In offering incentives to farmers to adopt less harmful practices, the Government recognises that the farmers’ ability to keep any water saved in the process is part of what motivates them. 4.11 If the Government were to invest to generate onfarm savings then those savings should be directed according to the outcomes sought – environmental, regional development and or social outcomes. 4.12 At this stage the Government would like all options to be discussed, though it sees merit in the third option – light-handed regulation through site-use licences – and recognises that a package made up of different options might be needed. Securing Our Water Future 143

Chapter Five: Dealing with Stressed Rivers

5.1 The Government: • Is committed to achieving significant improvements in the health of Victoria’s rivers by 2010 by increasing environmental flows and undertaking riverbank and catchment management works. • Restates its commitment to the Victorian River Health Strategy as the policy framework for managing Victoria’s rivers, floodplains, wetlands and estuaries. • Recognises regional river health strategies as the mechanism for establishing regional priorities and programs. 5.2 The Government proposes that the agreed environmental flows, which take into account scientific advice and community values, be achieved in 80 per cent of streamflow management plans on unregulated rivers within 10 years. 5.3 Where the Government invests in distribution system savings for environmental purposes, all the resulting savings will be returned to the environment. Where other outcomes are sought from these projects, such as regional development or social outcomes, water savings will be directed accordingly and transparently. 5.4 The Government proposes to adopt an approach which will include: • Investing in distribution system savings where these are economic. • Changing system management where this is feasible. • Enabling water donations to be made. • Buying water – in which case the Government would prefer to invest in local adjustment projects that provide long-term environmental, social and industry benefits. It is acknowledged that there may be different combinations of options for different regions. The Government seeks comment on the proposed approach and the issues raised. 5.5 To ensure that the community receives the best environmental return on investment in additional river flows, the Government will: • At the state level, establish priorities and the budgetary and governance framework for the acquisition of water. • Establish an operational manager of the environmental reserve at the regional level. 5.6 The Government proposes to give responsibility for operational management of the environmental reserve to Catchment Management Authorities, to enhance their role as the caretaker of river health. 5.7 It is proposed to amend the Water Act 1989: • To broaden the waterway management function beyond addressing bed and bank erosion to include managing the environmental reserve and the other aspects of river health. • To allow, where considered appropriate, the authorities to hold bulk entitlements for the environment. 144 Summary of Proposals

Chapter Six: Pricing for Sustainability

6.1 The Government proposes to develop a set of principles to guide the way in which water authorities structure and design their prices. The Government proposes that these principles will include, but not be limited to, the following: • That prices for water services should be structured and designed to provide: - Appropriate signals to water users about the impact of using water for discretionary purposes. - Appropriate signals about the high costs of coping with peak demands in certain seasons. - Incentives and disincentives to promote the efficient and beneficial use of the most sustainable, fit for purpose, source of supply. 6.2 The Government proposes that, going forward, water authorities, in consultation with their customers, will be required to design pricing structures that are consistent with the Government’s principles. The ESC in undertaking price reviews on the future level of prices will be required to ensure that the structure and design of prices submitted by the water authorities comply with these principles. 6.3 Therefore, the Government proposes to introduce an increase in water prices to better reflect the scarcity of the resource and costs related to the environmental impacts associated with the provision of water-based services. 6.4 In addition to principles regarding pricing structures, the Government’s pricing principles for cost recovery will include but not be limited to the following: • Prices should recover all operational, maintenance and administrative costs. • Prices should ensure water authorities generate sufficient revenue to undertake the renewals and rehabilitation expenditure required to maintain the serviceability of existing assets. • Prices for all water authorities should recover the cost of capital (return on equity and interest on debt) associated with new investments (augmentation or commission new assets). • In terms of the rural sector, an arrangement will be made whereby prices will not include a return on equity associated with past investments. • In terms of the regional urban and metropolitan sectors, the Government will determine in the context of finalising the framework for independent regulation, the extent to which each authority’s prices include returns on past investments. The Government will seek to ensure that these returns will take account of the impact on existing level of prices, subject to viable business outcomes. 6.5 From 1 January 2004, the ESC will be responsible for administering the Government’s pricing framework. In fulfilling its responsibilities, the ESC will protect the long-term interests of customers and ensure prices are fair and reasonable by making sure: • Prices are not too high, reflecting misuse of monopoly power, nor too low, undermining the long-term sustainability of the water industry, and the health of water resources. • Processes to set prices are transparent and consultative, and engage customers and the community on their preferences with respect to prices and the level of service. • Prices are easy to understand and are accompanied by separate arrangements that provide appropriate support for low income or vulnerable customers (hardship policies). Securing Our Water Future 145

Chapter Seven: An Innovative and Accountable Water Sector

7.1 With the objective of improving the capability of authorities within the water sector, the Government will carefully consider: • Options for greater collaboration and potential structural changes to ensure authorities are well resourced, operate on a sound financial basis and have the depth and breadth of skills to drive innovation, implement major projects and respond to the changing needs of customers and the environment in specific regions. • Boundary changes to facilitate closer alignment between agencies and more effective resource management arrangements. 7.2 The Government proposes to consider options in relation to redefining the role of resource managers to assign the role of auditing compliance with bulk entitlements to an appropriate statutory body independent of system operators and bulk entitlement holders. 7.3 The Government proposes to set out the functions and roles of the storage operator in the Water Act 1989. In the first instance, these functions and roles could be assigned to water authorities who are currently operating large storages. The functions and roles could include: • Formal recognition of storages and their functions to supply water and provide for recreational and public use. • The rights and powers to properly manage storages. • Processes to engage with local government to contribute to statutory planning to protect the water quality and environmental values of storages and surrounding land. • Processes for preparing and implementing recreational plans. • Mechanisms to collect revenue from people and agencies who derive benefit from the dams. • Processes for decommissioning dams. 7.4 The Government’s roles and responsibilities for the supply of recycled water are: • Current water and sewerage retailers will be primarily responsible for retailing recycled water and consideration will be given to providing retailers with the responsibilities for surface and groundwater licences. • In Melbourne, Melbourne Water will provide the complementary wholesale role in treatment and trunk delivery of recycled water from its two treatment plants. • The Essential Services Commission will provide the economic oversight of recycled water services. • Private sector participation in infrastructure provision will continue to be supported in line with the Government’s Partnerships Victoria principles. 7.5 The Government proposes to remedy the gaps in the Port Phillip and Westernport catchment management arrangements by establishing consistent arrangements for whole of catchment waterway management and regional drainage across the whole region. 7.6 The Government proposes to examine the allocation of roles and responsibilities in relation to managing stormwater in the longer term to maximise its potential as an alternative resource. 7.7 In terms of introducing processes that drive improved performance through greater coordination and collaboration between the various agencies within the water sector, the Government has identified the following potential option for stakeholder comment: • Require water authorities to develop Sustainable Water Plans designed to achieve regional sustainability objectives, including the identification of projects and initiatives to meet urban growth in outer Melbourne. 146 Summary of Proposals

7.8 In terms of driving innovation and improved performance, the Government has identified the following potential options for stakeholder comment: • Extend and improve the framework for comparative performance across all water authorities while recognising the need to ensure the water sector, as a whole, learns from the successes and failures of innovative approaches attempted by individual authorities. • Facilitate private sector involvement to drive innovation and efficient service delivery. • Government to work in partnership with the water industry to develop a long-term research program to provide knowledge and innovation in the management of water in Victoria. 7.9. The Government will identify opportunities to improve the current legislation governing the water sector to ensure it is comprehensive, clear and sufficiently robust to accommodate future changes and challenges. Securing Our Water Future 147 148 Summary of Proposals