Information Session

Information Session ACCC regulation of State Water’s Charges 2014-2017

Introduction • Purpose of the information session • Role of the ACCC • Timeframe for approval/determination of State Water’s regulated charges and opportunities for input • Regulatory Framework • Summary of past determinations • Questions / Comments

Role of ACCC • Independent Commonwealth statutory authority • Aims to bring greater competitiveness and fair trading to the Australian economy • Enforces the Competition and Consumer Act and a range of additional legislation • Experience and expertise in regulating monopoly infrastructure services

ACCC’s Role in Water • Policy role in providing advice to the Minister • Monitoring and enforcing compliance with the water market rules and water charge rules • Approving or determining State Water’s regulated charges. The ACCC must set State Water’s charges at a level that reflects the prudent and efficient costs of providing the associated services • ACCC regulates State Water’s charges in the Murray-Darling Basin only

Timeline Nov 2012 to March 2013 - pre application consultation May / June 2013 - State Water application submitted to the ACCC and published - public forums in regional NSW - written submissions sought November / Dec 2013 - ACCC draft decision published - public forums in regional NSW - written submissions sought June 2014 - ACCC final approval/determination of State Water’s regulated charges for 2014-2017 published

Framework – WCIR The ACCC is required to either approve or determine regulated charges for State Water on the basis that State Water’s forecast revenue is reasonably likely to meet the prudent and efficient costs of providing bulk water services • Government contributions are considered in the assessment of State Water’s required revenue • State Water’s regulatory asset base, as calculated in accordance with the WCIR, is considered in the assessment of efficient costs

Framework – Water Act (basin water charging objectives and principles) • Ensure sufficient revenue streams to allow efficient delivery of the required services • Give effect to the principles of user-pays and achieve pricing transparency • Pricing policies for water storage and delivery should facilitate efficient water use and trade in water entitlements • Water charges are to include a consumption-based component • Any Community Service Obligation should be reported publically

ACCC Pricing principles for price approvals and determinations under the WCIR The ACCC has developed pricing principles which set out relevant aspects of the methodology that it will follow in conducting price approvals/determinations. Guidance to State Water on the information it will be required to submit in its pricing application is set out in an ACCC guideline The principles and guideline are available on the ACCC’s website at www.accc.gov.au/water The ACCC will consider each of the valleys within the MDBA separately, as IPART has done The ACCC will apply a building block approach to the assessment of State Water’s costs, as IPART has done

ACCC assessment of State Water’s costs – building block approach • Valley-based assessment • Focus on prudency and efficiency of costs • Operational and maintenance costs • Capital costs – return on assets, depreciation • Major projects • Regulatory obligations and other cost drivers (e.g. service standards) • Cost allocation for shared costs

ACCC assessment of State Water’s costs – opex and capex • Consideration of past expenditure where relevant to future expenditure • Reasons and evidence supporting: • changes to service levels • step changes to operational expenditure in the future • commencement of new major capital expenditure projects • level of capital replacement expenditure in the future • Whether the timeframe for delivery of capital expenditure is reasonable given past performance • Capital governance, risk management and other business processes • Reasonable productivity improvements in providing services in the future • Soundness of cost forecasts (e.g. inflation, labour cost assumptions)

Summary of previous determinations

Price path by valley: 2010-14 determination

IPART-approved notional revenue requirement for State Water • $000s, 2009/10 • Total operating expenditure includes MDBA/BRC costs and Revenue Volatility Allowance Source: IPART, Review of bulk water charges for State Water Corporation from 1 July 2010 to 30 June 2014, June 2010, p. 46-9

Cost shares – users and NSW government IPART-approved revenue requirement components paid by users and NSW Government 2010/11 to 2013/14 Source: IPART, Review of bulk water charges for State Water Corporation from 1 July 2010 to 30 June 2014, June 2010, p. 105

Summary of previous determinations IPART-approved capex by regulated valley Source: IPART, Review of bulk water charges for State Water Corporation from 1 July 2010 to 30 June 2014, June 2010, p. 96

Summary of previous determinations and outcomes State Water capex – proposed, approved and actual $millions, 2013/14 Source: IPART, Review of bulk water charges for State Water Corporation from 1 July 2010 to 30 June 2014, June 2010, p. 85. IPART, Water Utilities Performance 2010/11, April 2011, p. 90

Summary of previous determinations State Water forecast capex - current period ‘000s, 2009/10 Source: IPART, Review of bulk water charges for State Water Corporation from 1 July 2010 to 30 June 2014, June 2010, p. 85

Summary of previous determinations and outcomes State Water opex – proposed, approved and actual $millions, 2013/14 Source: IPART, Review of bulk water charges for State Water Corporation from 1 July 2010 to 30 June 2014, June 2010, p. 67. IPART, NSW Water Utilities Performance 2011/12, February 2013, p.72.

Summary of previous determinations IPART forecast of water sales (and actual sales) State Water actual v approved sales of water (GL) Approved Approved 2006/07 2007/08 2008/09 2009/10 2010/11 Average Source: IPART, NSW Water Utilities Performance 2010-11, April 2012, p. 78

Questions / Comments?

www.accc.gov.au

Information Session