business customer breakfast - 3 july 2012

TODAY‟S AGENDA

7:30 am

Update on funding the Victorian Desalination

Plant

7:40 am

Our draft Water Plan and round table

discussions

8:45 am Quick table discussion, feedback and

questions

THE FACTS ABOUT THE DESALINATION PLANT

DESALINATION CONTRACT AND COST RECOVERY

Finances, builds and

runs Desal Plant

Contract with

State of Victoria

Annual fixed

payment of

around $610M

Additional payment if water

ordered -

up to $110M if full 150 GL

ordered in any year

Agreement with

State Govt MW increased Bulk

Supply charges to

recover Desal Costs

Costs

recovered

Via water

prices

RETURNING DESAL PAYMENTS

• Funds for desal plant included in current prices

• Desal plant is delayed and will be more expensive

• Government has decided to return funds collected

for the desal plant in 2011-12 through a price

freeze in 2012-13 • Prices in 2012-13 were due to increase by 9.7%

• Prices in our Draft Water Plan will need to be

amended to account for the return of funds

• Our amended Draft Water Plan prices for 2013-18

will be announced before End August 2012.

DRAFT WATER PLAN 2013/14 TO 2017/18 TONY KELLY

• The price setting Process is overseen by the Essential Services Commission

• Research to inform Yarra Valley Water‟s third Water Plan

• Our Plan covers 5 years, 2013/14 – 2017/18

• Community forum held for residential customers 16 June

• Today‟s forum – focusing on key elements

• Random survey of 800 customers

• Online community engagement forum

• Broad timeline

• Draft released for consultation – late May

• YVW submits Water Plan to Essential Services Commission mid September 2012

• ESC releases draft decision Feb 2013

• Water Plan commences – 1 July 2013

OUR CONSULTATION PROGRAM

TODAY WE‟RE SEEKING YOUR FEEDBACK ON ...

1. Whether you are prepared to pay for improvements in service levels

2. Whether we should continue to invest in water efficiency programs

3. Your views on whether you would prefer that prices are locked in for 5

years (the current approach) or adjusted annually based on demand

(referred to as the “Revenue Cap” approach)

4. Whether prices for Water and Sewerage services

are averaged or cost based

5. Your views on our proposal to change the basis for

setting fixed (or service based) charges

OUR DRAFT 2013-18 WATER PLAN – AT A GLANCE

• Severe drought … prolonged water restrictions … desalination plant

• Desalination cost confirmed, water prices will increase in 2013/14 to cover

additional costs

• Proposed price increases:

• In 2013/14 approx 30% (plus inflation)

• 2014/15 to 2017/18 approx. 1-2% pa (plus inflation)

• To keep further pressure off prices, our proposal is to generally maintain

service levels rather than making additional investments to improve

service levels

• We‟re committed to maintaining our position as one of Australia‟s lowest cost

water utilities

• More recycled wastewater and stormwater for new suburbs and

redevelopments

OUR DRAFT 2013-18 WATER PLAN – AT A GLANCE

PROVIDING

INFRASTRUCTURE TO

NEW SUBURBS

Cost: $59 million / year

10

WATER SECURITY

Doncaster Kalkallo

Coburg Kinglake West

RENEWING 331KM

WATER MAINS

&

410 KM SEWERS

WHERE DOES YOUR DOLLAR GO?

Melbourne

Water, the …

Renewing 331

km …

Providing

water servi…

Providing

sewer servi…

Renewing 410

km …

Environment

al cont…

NON-RESIDENTIAL GROWTH AND WATER USE

• Non-residential customer numbers and

demand are forecast to grow at an average

annual rate of growth of 1.3% per year • Compared to 1.5% per year with residential

customers.

• Non-residential water use is forecast to grow at

the low rate of 0.4% per year (residential is

0.9% per year) • We are not expecting large industrial water users

and Councils to significantly increase their water

use.

KEY SERVICE AREAS • DESAL PRICING

• DRINKING WATER QUALITY

• WATER SUPPLY RELIABILITY

• SEWERAGE SYSTEM RELIABILITY AND CAPACITY

• SEWAGE TREATMENT PLANTS

• WATER EFFICIENCY

• SEWAGE TREATMENT

• WATER EFFICIENCY ????????

PAYING FOR DESAL WATER

• Fixed annual security payment (~ $610 million)

regardless of the water order

• Annual production = Up to 150 gigalitres

• 1/3 of total Melbourne consumption

• Annual water order placed in April each year

• Based on a range of factors: rainfall, water

storages, consumption levels, etc.

• Can be ordered in increments: 50 GL, 75 GL,

100 GL, 125 GL NB: 1 gigalitre = 1 billion litres

• Two options for the annual water order regarding customer prices: in the initial 2013/14 price 1. A forward 5 year estimate of orders in the initial 2013/14 price - Prices would get readjusted in the next

regulatory period 2018/19 to reflect any „over or under‟ ordering

2. Prices adjusted each year based on the actual water ordered for that year

YOUR PREFERENCE?

Would you prefer an annual price

adjustment for the desalinated water

order based on annual actual water

order, or prices set at the start of the 5

year period based on forecast orders?

1. Annual price adjustment to reflect the

annual water order

2. Set prices at the start of the five-year

period based on forecast orders

DRINKING WATER QUALITY

16

WATER QUALITY

• Providing safe

drinking water

• Minimising water

quality complaints

• Cleaning 1,000 kms

of water pipes

per year

Current proposal:

maintain standards @

Cost: $1 million/year

ALTERNATIVE SERVICE

LEVEL

• Reduce water quality

complaints by further

30% at a cost of

62 cents per average

quarterly bill

Alternative proposal:

improve standards @ an additional


WATER SUPPLY RELIABILITY

17

WATER SUPPLY

RELIABILITY

Current proposal:


ALTERNATIVE SERVICE

LEVEL

• Increase investment to

decrease water supply

interruptions by a further

7% and in risk critical

pipes by 90% at an

additional cost of 78 cents

per average quarterly bill

Alternative proposal:

improve standards @ an additional

Cost: $17.4 million/year

SEWERAGE SYSTEM RELIABILITY

SEWER SYSTEM

RELIABILITY


SEWERAGE SYSTEM

CAPACITY


18

ALTERNATIVE SERVICE LEVEL

SEWER SYSTEM RELIABILITY

• Increase investment to reduce sewer service

interruptions by an additional 10% at an additional cost

of 14 cents per average quarterly bill.

Alternative proposal: improve standards @ an additional


SEWERAGE SYSTEM CAPACITY

• Increase investment to upgrade 25 more emergency

relief structures to eliminate known points that result in

uncontrolled spills to waterways at an additional cost of

76 cents per average quarterly bill.

Alternative proposal: improve standards @ an additional


• Thinking about your experiences and understanding of Yarra

Valley Water‟s recent service levels, what would you prefer the

company to do:

1. Maintain the overall service standards achieved over

the last five years?

2. Improve service standards, even though this would

cost more and result in higher water bills?

IMPROVING SERVICE LEVELS

Water use reduced from 236 Litres/day to 146 Litres/day

DEMAND RESPONSE – WATER EFFICIENCY WORKS 43,0

57

37,1

65

39,1

88

39,2

33

34,9

40

36,4

59

32,4

37

32,1

22

33,1

61

30,4

72

27,0

33

26,4

89

24

,09

3

24,7

77

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11

ML

NON RESIDENTIAL WATER USE OVER TIME

Note: 2009/10 billed usage artificially low due to billing cycle reduction for intro of new billing system

THE ROLE OF WATER EFFICIENCY IN THE FUTURE

• The metropolitan water industry has a long term, 50-year plan to secure Melbourne‟s water

supplies*

• Proposes a continued effort on water efficiency

• Low-cost, ongoing investment will help delay the need to

increase Melbourne‟s water supplies e.g. build new dams

or desalination plants

• Our Water Plan assumes no restrictions and storages

remaining high

• The plan:

• Continue to invest in programs to promote the efficient use of water

• Less than during the drought

• $2.5 million per year, 80 cents per quarterly bill

• Unless conditions arise that require an increase focus on water efficiency

• Essential Services Commission is questioning water efficiency spending

• Do you support or oppose Yarra Valley Water continuing to invest

in water efficiency programs, at an average cost of 80 cents per

bill?

1. Support

2. Oppose

WATER EFFICIENCY 2013/14 – 2017/18

REVENUE CAP

PAT McCAFFERTY

Amount of revenue required to cover costs

$XM

1. ESC reviews costs –

are they prudent and efficient?

2. ESC reviews forecast

demands– how much water

does Yarra Valley Water

expect to sell?

X Billion litres

Once ESC is satisfied,

it calculates:

HOW THE ESSENTIAL SERVICES COMMISSION SETS PRICES

3. ESC sets price

per kilolitre (1,000L)

$ per kl

If we sell more water

than expected

$ per

kl

Amount of

revenue

required to

cover costs

$XM

We make more revenue than

we need….

Amount of

revenue

required to

cover costs

$XM

X

Billion

litres


If we sell less water than expected

X

Billion

litres

$ per

kl

Amount of

revenue

required to

cover costs

$XM

We make less

revenue than we

need


Amount of

revenue

required to

cover costs

$XM

Amount of

revenue

required to

cover costs

$XM

X

Billion

litres

Price adjusts

to cater for

under or over

demand

$ per

kl

Revenue is equal to

regulatory costs

HOW A REVENUE CAP WORKS

Amount of

revenue

required to

cover costs

$XM

CAPPING THE PRICE INCREASE AT 2%

+3% +2%

If demand

falls…

Price increase

needed to

recover costs

Actual price increase

we would charge (i.e.

capped increase)

-10%

+10% -3%

If demand

rises…

Price could decrease by

this much to return

additional revenue

-3%

Actual price

decrease (i.e.

uncapped decreases)

• Which approach to setting prices do you prefer?

1. Revenue cap

2. Price cap

REVENUE CAP VERSUS A PRICE CAP

TARIFF STRATEGY

BRETT MATHIESON

DIFFERENTIAL PRICE INCREASES FOR SERVICES

• Average bill increases across all services:

• In 2013/14: approx. 30% (plus inflation)

• 2014/15 to 2017/18: adjusted annually by inflation and a small increase of approx. 1-2%

• We have traditionally smoothed our price increases over both water and sewerage

services

• So sewerage and trade waste charges have increased although major water supply

augmentation projects like desal plant have been driving costs

• An option is to apply differential price increases across services based on the

cost drivers. For 2013/14, the price increases could be:

• Water: 55% (plus inflation)

• Volumetric recycled water (third pipe): 50% (plus inflation)

• Sewerage:12% (plus inflation)

• Trade waste: 12% (plus inflation)

Then around 1% per annum (plus inflation) for 2014/15 to 2017/18 for all services

SUPPORT OR OPPOSE CHANGING DIFFERENTIAL PRICE INCREASES FOR SERVICES?

Do you support or oppose the principle of applying differential price

increases across our services?

1. Support

2. Oppose

CONNECTION-BASED CHARGES

• Similar to residential customers, we currently apply fixed charges for

water and sewerage on connected properties with an individual title.

• As for domestic customers, we propose to introduce fixed charges

for any business that is directly connected and receives a water and

sewerage service from us. • This will remove the unfairness where two similar properties receive the same

services but one does not pay the full cost because of an administrative

distinction.

• We recognise that introducing fixed charges to customers who have

not previously paid those charges will be a significant bill increase.

We propose, therefore, to phase them in over four years.

SUPPORT OR OPPOSE CHANGING CHARGES?

Do you support or oppose the principle of introducing fixed service

charges for all properties, and not just those with a separate title?

This will affect property owners and not tenants.

1. Support

2. Oppose

RISK RANKED CONTRACT FEES

• We do not propose any major changes to trade waste volume

and load charges.

• The one key change will be the introduction of fees based on a

risk ranking to replace the current volume based annual fees.

This will bring us into line with the charging structures of the

other metropolitan retailers

MOVE TO STEPPED FEE BASED ON RISK-RANKING

The risk-ranking for each customer is determined

as a weighted sum of six factors:

• the treatment plant to which the customer discharges;

• the maximum discharge volume as stated in their discharge consent;

• the compliance history of the customer;

• the activity of the customer;

• the substance the customer is likely to discharge; and

• the class of the customer which gives an additional factor for higher risk

activities such as chemical manufacturing, etc.

CUSTOMER IMPACTS OF CHANGING

Impact depends on each customer‟s characteristics

• Most customers will see no change in bill terms • Risk rank fee is the same as contract fee

• 2% of customers (~130) will pay a higher charge • We will work with these customers to minimise the impact

• 5% will pay a lower charge

FINAL REFLECTIONS AND RECOMMENDATIONS

Thank you!

Provide additional feedback or comments at www.yoursayyvw.com.au/waterplan

or email us at [email protected]

business customer breakfast - 3 july 2012

Business