DESALINATION CONTRACT AND COST RECOVERY Finances, builds and runs Desal Plant Contract with Costs State of Victoria recovered Via water pricesAnnual fixedpayment ofaround $610MAdditional payment if water Agreement with MW increased Bulkordered -up to $110M if full 150 GL State Govt Supply charges toordered in any year recover Desal Costs
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.
OUR CONSULTATION PROGRAM• 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
TODAY WE‟RE SEEKING YOUR FEEDBACK ON ...1. Whether you are prepared to pay for improvements in service levels2. Whether we should continue to invest in water efficiency programs3. 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 based5. 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 WATER SECURITY PROVIDING INFRASTRUCTURE TO NEW SUBURBS Cost: $59 million / year Doncaster Kalkallo Coburg Kinglake West RENEWING 331KM WATER MAINS & 410 KM SEWERS10
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 priceadjustment for the desalinated waterorder based on annual actual waterorder, or prices set at the start of the 5year 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 WATER QUALITY ALTERNATIVE SERVICE LEVEL • Providing safe drinking water • Reduce water quality complaints by further • Minimising water 30% at a cost of quality complaints 62 cents per average quarterly bill • Cleaning 1,000 kms of water pipes per year Current proposal: Alternative proposal: maintain standards @ improve standards @ an additional Cost: $1 million/year Cost: $2 million/year16
WATER SUPPLY RELIABILITY WATER SUPPLY ALTERNATIVE SERVICE RELIABILITY LEVEL Current proposal: • Increase investment to Cost: $32 million/year 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/year17
SEWERAGE SYSTEM RELIABILITY SEWER SYSTEM ALTERNATIVE SERVICE LEVEL RELIABILITY SEWER SYSTEM RELIABILITY Cost: $35.4 million/year • Increase investment to reduce sewer service SEWERAGE SYSTEM interruptions by an additional 10% at an additional cost CAPACITY of 14 cents per average quarterly bill. Cost: $19 million/year 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/year18
IMPROVING SERVICE LEVELS • 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?
DEMAND RESPONSE – WATER EFFICIENCY WORKS NON RESIDENTIAL WATER USE OVER TIME 50,000 45,000 43,057 40,000 39,233 39,188 37,165 36,459 35,000 34,940 33,161 32,437 32,122 30,000 30,472 27,033ML 26,489 25,000 24,777 24,093 20,000 15,000 10,000 5,000 - 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 10/11Note: 2009/10 billed usage artificially low due to billing cycle reduction for intro of new billing system Water use reduced from 236 Litres/day to 146 Litres/day
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
WATER EFFICIENCY 2013/14 – 2017/18 • 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
HOW THE ESSENTIAL SERVICES COMMISSION SETS PRICES1. ESC reviews costs –are they prudent and efficient?Once ESC is satisfied,it calculates: 2. ESC reviews forecast demands– how much water does Yarra Valley Water expect to sell? Amount of revenue 3. ESC sets price required to X per kilolitre (1,000L) cover costs Billion $ per litres $XM kl
HOW THE ESSENTIAL SERVICES COMMISSION SETS PRICES We make more revenue than we need…. If we sell more water than expected Amount of Amount of revenue X revenue required to required to cover costs Billion $ per cover costs litres kl $XM $XM
HOW THE ESSENTIAL SERVICES COMMISSION SETS PRICES We make less revenue than we need If we sell less water than expected Amount of Amount of revenue revenue required to required to cover costs X cover costs $ per Billion $XM kl $XM litres
HOW A REVENUE CAP WORKS Revenue is equal to regulatory costsAmount of Price adjusts Amount ofrevenue X to cater for revenue under or overrequired to Billion demand required tocover costs cover costs litres $ per $XM kl $XM
CAPPING THE PRICE INCREASE AT 2%If demand Price increase Actual price increase falls… needed to we would charge (i.e. recover costs capped increase) -10% +3% +2% +10% -3% -3% Actual price Price could decrease byIf demand decrease (i.e. this much to return rises… uncapped decreases) additional revenue
REVENUE CAP VERSUS A PRICE CAP • Which approach to setting prices do you prefer? 1. Revenue cap 2. Price cap
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 PRICEINCREASES FOR SERVICES?Do you support or oppose the principle of applying differential priceincreases 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 servicecharges 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-RANKINGThe risk-ranking for each customer is determinedas 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 CHANGINGImpact 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