Business customer breakfast - 3 July 2012
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Transcript of 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
Cost: $2 million/year
WATER SUPPLY RELIABILITY
17
WATER SUPPLY
RELIABILITY
Current proposal:
Cost: $32 million/year
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
Cost: $35.4 million/year
SEWERAGE SYSTEM
CAPACITY
Cost: $19 million/year
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
Cost: $1.3 million/year
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
Cost: $16.8 million/year
• 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
HOW THE ESSENTIAL SERVICES COMMISSION SETS PRICES
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
HOW THE ESSENTIAL SERVICES COMMISSION SETS PRICES
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]