WATER EFFICIENCY – A DRY TOPIC

6 July 2012 2Yarra Valley Water Ltd

WATER CONSERVATION PREVENTED MELBOURNE’S STORAGES FROM RUNNING DRY

No water conservation With water conservation

Storages empty!

DEFINITIONS:

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Water conservation: Saving water May impact amenity or lifestyle(eg. to prevent running dry)

Water efficiency:Minimising water use per unit of activity

Water without compromising value eg. current lifestyle

GOVERNANCE AND ECONOMIC ISSUES

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1. Price setting arrangement encourages investment in infrastructure

2. Price cap discourages water efficiency

GOVERNANCE ISSUE NUMBER 1 PRICE SETTING ARRANGEMENT ENCOURAGES INVESTMENT IN INFRASTRUCTURE

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Opex

Wholesaler  charges

Return on  Investments

Cost

5.7% WACC

Revenue requirement

Encouraging capital investment?

GOVERNANCE ISSUE NUMBER 2 PRICE CAP DOES NOT ENCOURAGE WATER EFFICIENCY

Revenue requirement Actual 

Sales

Deficit

Price Cap: Discourages water efficiency due to risk of deficit

Revenue requirement

Forecast 

Sales

COST RECOVERY WITH REVENUE CAP

Revenue requirement

Forecast 

Sales

Revenue Cap: Removes uncertainty Potential benefits for customers Neutral w.r.t. water efficiency

Actual  Sales

Actual  Sales

Pass FULL surplus on to customers price decrease

Up to 2% price increase passed on to customers

Revenue requirement

Revenue requirement

Deficit

WHY INVEST IN WATER EFFICIENCY

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- Environment benefits

- Customers want to save water

- Economic and financial benefits

- Customer benefits

CUSTOMERS WANT TO SAVE WATER

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- Community expects it

- Customer benefits

- Environment benefits

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DRIVERS THAT SUPPORT INVESTMENT IN WATER EFFICIENCY

1. THE COST OF WATER IS RISING

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2. LOWER DEMAND SMALLER SYSTEMS LOWER COSTS

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Last review of design standards**

LOWER DEMAND IS SUSTAINABLE

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Personal Effectiveness (PE)

DEFERRED AUGMENTATION OF SUPPLY

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700

600

500

400

300

Volume (GL/ year)

Demand Scenarios

Supply Scenarios

2012 2020 2030 2040 2050 2060

Year

HOW LONG CAN WE DEFER FOR?

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2012 2022 2032 2042 2052 2062

Wet climate, low demandMedian climate, medium demandDry climate, high demandDry climate, bounce back demand

BENEFITS OF DEFERRING AUGMENTATION

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Net P

rese

nt C

ost B

enef

it ($

milli

on) 4,000

3,000

2,000

1,000

00 5 10 15 20

Years deferred

Return to dry climate, bounce back demandDry climate high demandMedian climate, medium demandWet climate, low demand

BENEFITS FOR CUSTOMERS

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HOW WE IMPLEMENT WATER EFFICIENCY

DRIVERS FOR CHANGES IN WATER EFFICIENCY SPEND

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Use Revenue

WATER EFFICIENCY – A DRY TOPIC!

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