A funding alternative for monopoly infrastructure replacement

Water rewards are given to those who consume less than their allocation. The money associated with these rewards comes from higher prices of water for those who consume more than their allocation and it comes from the money in the price currently allocated to the water authority for replacement and extension of the water system. Water rewards vouchers are transferable and can be sold.

The system reduces water consumption through price signals to high users of water, by transferable rewards to low consumers to reduce their consumption even more and by giving consumers the funds to choose the most capital efficient water-saving approach available in the market.

The system is revenue neutral and fits on top of existing pricing and allocation systems, with no change to existing regulations, billing and metering systems. Water reduction is established by adjusting the amount of money transferred through increasing the price for excess consumption and by adjusting the “reasonable consumption” level. In drought the reasonable consumption level is low.

Any water saving scheme can qualify under the scheme. The particular ones selected by individuals are determined by the market. Low consumers of water can “cash” their vouchers with companies or systems that can use the capital - such as desalination plants or pumping schemes from other sources or purchasing water from other downstream users. Community-based recycling systems could be financed from these systems with the ongoing costs and profits coming from the sale of water from the recycling efforts.

The system and approach can be introduced incrementally within a few areas. There can be many organisations that compete for the right to run water rewards systems and there can be many water reward systems in operation.

The principles

The following principles are used in the water rewards example and the same principles can be applied for any situation where, for one reason or other, price competition is not appropriate or does not operate.

The principles are:

1. Set up competitive structures where there is competition for the capital that is used to provide the service or resource;
2. Give the decision on allocating this capital to the consumers of the service or resource. That is the capital is given to consumers not to the monopoly suppliers;
3. Make the allocation of the capital to the consumers on the basis of some desirable behavioural change, such as conservation of the resource; and
4. The system sets up competition for capital to provide services rather than competition on price of the provision of services.

Using these principles, we set up positive feedback systems where the outcomes are ones that go beyond the simple creation of profits.

It is not too hard to see how systems could be created that will bring competition to areas such as water, energy, transport and communications.

However, the principles can also be used in other not so obvious areas, such as bank interchange fees, education, health, welfare, drug consumption and gambling. The idea is to bring competition to situations where price competition does not work or is not allowed to work for a variety of legitimate social reasons.

If such systems are introduced, the losers are those who now control monopolies or who take commercial advantage of regulations and restrictive legislation. By allowing such systems to operate we remove the need for many regulations and we break the heavy hand of monopolies on innovation.

The winner is the community because competition allows innovation to flourish and gives capital to a wide section of the community and is a socially equitable way of distributing wealth throughout the community.