Managing Demand – by changing the attribute mix Jennifer Hosking and Jessica Hosking, NMMU A SALGA and WRC Project

Reassessing Policy vs Managing Demand? Ryan Norden has shared with us his concerns that policy as practiced with respect to choosing WSPs may too hastily dismiss the advantages of market processes, protections and forces of competition, and potential for government failures The second part of this presentation challenges the demand management approach to water service supply challenges

Do municipalities know enough about Demand to manage it? Demand describes what people are able and willing to pay for a good or service To manage it through tariffs, you need to know: - about the tariff (price) elasticity of demand in all markets defined/created - about preferences of the consumers who pay for service

Our research aim was limited to Generating advice to municipalities on water service attribute demand – in the form of the trade-offs between attributes residents and businesses are willing to make and their willingness to pay for improvement in particular attributes of the service We so far have undertaken research to generate such advice at five municipalities

Research Methodology Choice experiment analysis Focus groups and experiment design Sample design Choice modelling estimation Calculating the trade-offs/ willingness to pay

Sample design Sample Size – just over 200 from each municipality, each making four choices (800 observations) Stratified geographic sample selection from demand population – random sample selection of streets from population of streets, and intercept selection at the street, per classification group

Two Examples from our first choice experiment analysis Residential demand preference in the Kouga Local Municipality Business demand in the Nelson Mandela Bay Municipality

WTP (Rand per month) per marginal improvement Estimated WTP for Kouga residents and NMBM business owners - 2010 Variable WTP (Rand per month) per marginal improvement Kouga residents NMBM business owners Sewage disposal R57.29 R35.93 Quality of water R65.05 R62.26 Security R21.90 R35.68 Interruptions R9.83 R5.51 Rate of flow/pressure -R2.77 R8.92

Conclusions Drawn from these two examples As the service currently stands, consumers do not value all of the attributes equally – quality of water potable is something they still attach high margin value to. Also, safe sewage disposal To a lesser extent security (assurance) of supply, and still lesser, absence of interruptions in service Water pressure was only positively valued by businesses – not Kouga residents