WAMC AND WATER NSW RURAL BULK WATER REVIEW OF PRICES FROM 1 JULY - - PowerPoint PPT Presentation

ONLINE PUBLIC HEARING REVIEW OF PRICES FROM 1 JULY 2021

WAMC AND WATER NSW RURAL BULK WATER

17 November 2020

 Please mute your microphone  Please turn on your camera

(webcam)

 We will start at 10:02 am

2

Agenda

10:00 –12:15 pm

Session A – WAMC price review

1

12:15 –1:00 pm

Lunch break

2

1:00 – 3:15 pm

Session B – Water NSW rural review

3

Closing remarks

4

Welcome – Ms Deborah Cope, Acting Tribunal Chair MC – Liz Livingstone, IPART CEO

Where our reviews are up to

3

Issues Papers Draft Reports and Draft Determinations Final Reports and Determinations New prices begin 15 Sep 2020 Mid Jun 2021 01 Jul 2021 Mar 2021 17 Nov 2020 Online Public Hearing WAMC and Water NSW rural bulk water reviews commence 30 Jun 2020

4

Session A Review of WAMC’s prices

WAMC presentation

Initial Q&A session

1

IPART Secretariat presentation

Q&A session

2

WAMC presentation

5

17 November 2020

Review of water management prices to apply from 1 July 2021 – Public Hearing

Jim Bentley, Deputy Secretary, Water Andrew George, A/CEO WaterNSW Grant Barnes, Chief Regulatory Officer NRAR

Expectations for water management have shifted since 2016

Water users and communities told us they were not satisfied with water management in NSW. They asked for greater transparency and accountability from water managers and better access to information. Several independent reviews recommended improvements to water resource management We responded with a program of reforms to lift performance and better meet expectations. NRAR was established in 2018 to put in place more effective and efficient compliance and enforcement arrangements and restore community confidence We have invested more in strategic planning for water security, floodplain management and improved management of environmental water. We have continued to invest in delivering on our obligations These changes have led to a significant step change in the efficient costs of managing our state’s water resources, but we have proposed a 5% cap on price increases to manage customer impacts

• 1. Since 2016 costs increased to address gap between

performance and expectations. Costs need to continue to maintain current service levels.

• 2. Capped price increases to help manage bill impacts
• n water users who have suffered extreme drought

and the effects of COVID-19

• 3. No change to the regulatory framework

that underpins prices – retain IPART cost shares based on impactor pays, and price structures

Our pricing proposal

$- $50 $100 $150 $200 $250 $300 Minimum Annual Charge (MAC)

2020-21 2021-22 2022-23 2023-24 2024-25

Under our proposal, 64% of users will pay the minimum annual charge, which will increase from $214 - $260 per year over the regulatory period

Capped prices mean government pays more and a bigger share

Allowed user share 2016 ~$47m 73%

• f total
• Our proposal balances best

practice pricing principles against protecting users from bill shocks

• While WAMC expenditures will

increase from $65 million to $87 million a year, Government will pay more towards WAMC

• We have committed to efficiencies
• We propose to limit price

increases to 5% a year (plus inflation)

Allowed user share 2016 ~$47m 73% of total Proposed user share 2021 ~$53m 62% of total Proposed efficiency $9m

$- $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 $100,000

IPART determined WAMC expenditure (average annual) Proposed WAMC expenditure (average annual) 2016-17 to 2019-20 2021-22 to 2024-25

WAMC NRR ($2020-21, $000) $6m

Amount Government will pay

WAMC – three agencies under a single banner

• We propose a single determination and

a single set of water management prices

• We work collaboratively to deliver

efficient water management services

• NRAR established to restore

community confidence

• We know that there is a risk of

duplication between agencies

• reviewing licensing and approvals

framework

• efficiencies by each agencies

Pre-NRAR

Matthews and Ombudsman Reports 2017 NSW water compliance and enforcement “ineffectual” “needs urgent improvement” “loss of public confidence” “inadequate resourcing to protect NSW water resources”

“All parties therefore agree … they want a demonstrably effective compliance and enforcement scheme”

Matthews Interim Report 2017

Regulatory Assessment Tool 2017

• Best practice compliance elements “absent” or “emerging”

NRAR Established: Turnaround

200 400 600 800 1000 1200 1400 1600

Suspicious Activities Investigations Closed Property Inspections Formal Warning Letters Sent Statutory Notices Issued Penalty Infringement Notices issued

NRAR Activity - The First Two Years

18/19 19/20

Annual Increase Suspicious Activity Reports 73% Investigations Closed 69% Property Inspections 88% Formal Warning Letters 94% Statutory Notices Issued 28% PINs issued 206% 25 Prosecutions Commenced

NRAR will do more with the same

Closing this gap by finding efficiencies

• Analytics and intelligence
• Increased use of technology
• Investing in staff capability
• Continuously improving procedure

via quality management approach

• Drive voluntary compliance

*Compliance workload is an index based on forecast suspicious activity and audits as per NRAR submission **Compliance FTEs index incl. comms and education involved in compliance

92 94 96 98 100 102 104 106 108 110 112 114 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25

Forecast NRAR Compliance Workload vs Compliance Resources

Compliance Workload (Index) Compliance FTEs (Index)

Summary of WaterNSW key achievements 2016-2020

Doing more with less: significant efficiencies in performing water monitoring activities Complete integration of WAMC operational, in-field and customer facing functions of DPI Water into WaterNSW Improved collaboration with NRAR and DPIE to ensure water management policies are implemented effectively and enforced in line with stakeholder expectations Supported the Whole of Government response to managing water regulation Responding over 25,000 licence enquiries and applications, including during drought: 7,291 applications, including 283 WALs and 3,437 works approvals processed > 95% of WALS were approved within 40 days. 84% of BLR bores processed within 10 days

What WaterNSW is looking to achieve for our customers over the next four years

Significant investment in IT will continue. Our WAVE program will improve our efficiency enhance our ability to serve our customers (e.g. digitisation, self service, data management, automation, and water analytics) Technology landscape is complex and life expired. We will modernise and consolidate over 40 legacy systems (e.g. WLS, WAS) to better serve our customers and address business risk We will capitalise on digital investments and redesign work processes to transform the licensing function to be more customer focussed and improve overall customer experience Customers will reap significant benefits from self-service portals and more efficient processes designed to meet the current and emerging needs We will continue to support our customers through high levels of service delivery Increased transparency of water delivery and operations through Water Insights (improvement continues from customer feedback)

Jim Bentley (DPIE Water), Grant Barnes (NRAR) , Andrew George (WaterNSW)

QUESTIONS?

17

IPART Secretariat presentation



Services delivered and cost drivers



How costs and risks are shared



How proposed prices will impact customers

18

Services delivered and cost drivers

Record operating expenditure Historically high operating costs were driven by new and expanded water management, compliance and licence processing activities

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Services delivered and cost drivers

Significant increase in capital investment for shared corporate costs and water monitoring program Record capital expenditure

20

Services delivered and cost drivers Stakeholders are concerned with WAMC’s proposed cost increases

Stakeholders are concerned that higher costs will not achieve better outcomes Stakeholders do not want to pay for services to address historical underperformance or interagency inefficiencies Stakeholders raised issues with the lack of consultation about the levels and cost of service

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How costs are shared WAMC’s costs are currently shared according to the ‘impactor pays’ principle

Efficient cost of WAMC activities Who is the impactor? NSW Government WAMC customers

Stakeholders had concerns with this framework

How should WAMC’s costs be shared when:

 Other users benefit from an activity?  WAMC has historically underperformed for an activity?  An activity’s scope is expanding?

22

 Capping water management prices at 5% pa in real terms

(or 22% over 4 years)

How proposed prices will impact customers

 Capping water management prices at 5% p.a. in real

terms (or 22% over 4 years)

 Maintain the price structures set in the 2016 price review ▼ Concerned about affordability ▼ Ensure future cost increases and cost shares set

efficiently

▼ Mixed support for setting separate MDBA/BRC

charges

 Three stages for setting prices

– setting efficient costs – sharing costs between different groups – setting a glide path

23

Session A Closing Remarks

WAMC and Water NSW rural bulk water price reviews Online Public Hearing

Lunch break 12:15 – 1:00 pm Please mute your microphone Please turn on your camera (webcam) We will start at 1:02 pm

25

Agenda

Session B Review of Water NSW Rural prices

Water NSW presentation

Initial Q&A session

1

IPART Secretariat presentation

Q&A session

2

Extra session

3

Water NSW rural bulk water presentation

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Wa te rNSW Pric ing Proposa l to IPART for Rura l a nd Coa sta l Bulk Wa te r Se rvic e s from 1 July 2021

IPART Public F

• r

um – 17 Nove mbe r 2020

Wa te r NSW

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Ove rvie w

• Who we a re
• T

he ke y e le me nts o f Wa te rNSW’ s pric ing pro po sa l

• T

he de ta ils o f o ur pro po sa l

• Wha t we ’ ve he a rd fro m sta ke ho lde rs in re spo nse to I

PART ’ s I ssue s Pa pe r

Wa te r NSW

Wa te rNSW is a Sta te -Owne d Co rpo ra tio n a nd

• pe ra te s unde r a n Ope ra ting L

ic e nc e issue d a nd mo nito re d b y I PART .

• We o pe ra te the sta te ’ s rive rs a nd wa te r

supply syste ms unde r rule s se t o ut b y re g ula to rs.

• With mo re tha n 40 da ms a c ro ss the sta te ,

we supply 2/ 3 o f wa te r use d in NSW to re g io na l to wns, irrig a to rs, Sydne y Wa te r Co rpo ra tio n a nd lo c a l wa te r utilitie s.

• We a lso o wn a nd o pe ra te the la rg e st

surfa c e a nd g ro undwa te r mo nito ring ne two rk in the so uthe rn he misphe re a nd b uild, ma inta in a nd o pe ra te e sse ntia l infra struc ture .

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Who we a re

Wa te r NSW

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Our ope ra ting c onte xt a s ba c kg round to our proposa l

• Pric e s fo r rura l c usto me rs we re la rg e ly he ld sta tic o ve r the pre vio us 3 ye a rs.
• Wa te rNSW’ s c o sts ha ve b e e n influe nc e d b y a numb e r o f e xte rna l fa c to rs

inc luding :

• Dro ug ht
• E

me rg e nc y infra struc ture in so me va lle ys a nd a surg e in g ro und wa te r a pplic a tio ns

• Urg e nt lic e nsing a sse ssme nts
• Re spo nding to NSW Go ve rnme nt Wa te r Re fo rms sinc e 2016.

Wa te r NSW

Our challenges and achievements in this current determination period

31

Ha rmo nising o ur I CT syste ms to re pla c e e nd

• f life syste ms a nd mo de rnise le g a c y syste ms

Do ing mo re with le ss: sig nific a nt e ffic ie nc ie s in pe rfo rming wa te r mo nito ring a c tivitie s Suppo rting c usto me rs thro ug h o ne o f the wo rst dro ug hts o n re c o rd I mpro ve d inve stme nt g o ve rna nc e a nd a sse t ma na g e me nt pra c tic e s Asse ts ha ve b e e n b e tte r ma inta ine d I mpro ve d a nd re fine d o ur la b o ur so urc ing mo de ls Cur r e nt De te r mination Pe r iod I mpro ve d o ur pro c ure me nt func tio ns to drive e ffic ie nc ie s Suppo rte d a nd fa c ilita te d fina nc ia l a ssista nc e to c usto me rs

Wa te r NSW

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Ke y dime nsions of our proposa l

• Our o ne -ye a r pric ing sub missio n wa s o ur pre fe rre d a ppro a c h, to e nsure we c o uld limit impa c t o n o ur c usto me rs

who ha ve fa c e d impa c ts o f d ro ug ht a fte r pa st 3 ye a rs, a nd to e ng a g e with the m a t a time tha t re spe c te d the ir prio ritie s.

• E

stima te s fo r the fo llo wing 2 – 4 ye a r pe rio d we re d e ve lo pe d a t IPART s re q ue st a nd we no te tha t we ha ve no t b e e n a b le to e ng a g e with o ur c usto me rs (a s we ha ve with o ur o ne -ye a r sub missio n) to se e k the ir vie ws a nd fe e d b a c k. IPART ha ve no w c o nfirme d a fo ur-ye a r pric ing pe rio d .

• We must c o ntinue to prio ritise inve stme nt in d a m sa fe ty upg ra d e s, a nd te c hno lo g y tha t suppo rts g re a te r

mo d e rnisa tio n a nd tra nspa re nc y in wa te r d a ta a nd info rma tio n.

• Our fo re c a st o pe ra ting c o sts re ma in b ro a d ly c o nsiste nt with the lo ng e r-te rm histo ric a l tre nd o f o pe ra ting

e xpe nd iture s fo r the Rura l Va lle ys.

• Se ve ra l e xte rna l fa c to rs a re a lso putting sig nific a nt upwa rd pre ssure o n c usto me r c ha rg e s, inc lud ing lo we r

histo ric a l wa te r vo lume s a nd c ha ng e s to the NSW Go ve rnme nt c o st sha re s a rising fro m the IPART 2019 Co st Sha re Re vie w.

• We a lso pro po se to pa ss thro ug h MDBA/ BRC c o sts a s pe r the a ppro a c h in the 2017 d e te rmina tio n.
• We a re c o mmitte d to e ng a g ing with o ur c usto me rs o n o ur 4-ye a r c o sts, with d e ta ile d va lle y spe c ific info rma tio n

to b e pro vid e d to o ur c usto me rs via the Custo me r Ad viso ry Gro ups, with se ssio ns c o mme nc ing la te r this mo nth.

Appe ndix

Wa te r NSW

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Ke y e le me nts of our pric ing proposa l

Ke e ping our 2021- 22 r e ve nue r e quir e me nt c onstant in r e al te r ms:

• We re c o g nise the impa c ts o f dro ug ht a nd COVI

D-19 a re a pplie d to o pe ra ting e xpe nditure s

• T
• a c hie ve this we a re ta rg e ting o pe ra ting c o st e ffic ie nc ie s to ta lling $8.1 millio n o ve r the fo ur-ye a r pe rio d.

T he se ta rg e te d e ffic ie nc ie s ha d b e e n inc lude d in the 2021-22 pric e s.

We ne e d to howe ve r:

Pa ss thro ug h e ve nts o utside o f o ur c o ntro l

• I

mpa c ts o f c ha ng e s in the 20-ye a r ro lling a ve ra g e fo r wa te r vo lume s – no ting the se ha ve no t b e e n a me nde d fo r 3 ye a rs – impa c t 4%

• Applic a tio n o f the c ha ng e s in I

PART ’ s c o st sha ring a rra ng e me nts – impa c t 1%

• Pa ssing thro ug h MDBA / BRC c o sts a s pe r the 2017 de te rmina tio n.

Wa te r NSW

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Ke y e le me nts of our 1 ye a r pric ing proposa l [2]

Capital pr

• gr

am

We pro po se to inve st $143 millio n in c a pita l wo rks in 2021-22:

• $48 millio n will b e fo c usse d o n a sse t re ne wa l a nd re pla c e me nt to e nsure re lia b ility a nd c a pa b ility o f o ur

e xisting a sse ts to me e t the ne e ds o f o ur c usto me rs a nd c o mmunitie s.

• $95 millio n o n da ms a nd dro ug ht-re la te d pro je c ts (to b e funde d b y Go ve rnme nt)

Pr ic e str uc tur e

We pro po se to ma inta in the e xisting fixe d:va ria b le ta riff struc ture s fro m the 2017 De te rmina tio n. T

• ma na g e

the re ve nue vo la tility we a re lo o king to c o ntinue to so urc e a risk tra nsfe r pro duc t (RT P) fro m the ma rke t fo r 2021-22.

Wa te r NSW

What our Customers have said

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59% o f c usto me rs e xpe c ta tio ns me t o r e xc e e de d # Custo me rs inte ra c t via pho ne , e ma il a nd po st, with a de sire fo r inc re a se d dig ita l # Ac ting e thic a lly a nd with inte g rity

Me e ting c ustome r e xpe c ta tions

T he e xpe rtise a nd c a pa b ility o f its pe o ple 47% re c e ive d a dro ug ht re b a te in the la st 12 mo nths # 71% ra te o ur o nline wa te r syste m iWAS po rta l a s e a sy to use # Custo me r se rvic e

Are a s of strong pe rforma nc e

# 2020 I nde pe nde nt Vo ic e o f Custo me r Re se a rc h Re sults * Ave ra g e sc o re 2018-2020

Ne t Pro mo te r Sc o re (NPS) typic a lly o ve r +50 in CAGS* a nd e nd o f c a ll surve ys

Wa te r NSW

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L

• we r wa te r sa le s
• T

he 20-ye a r a ve ra g e wa te r ta ke , use d to se t va ria b le usa g e pric e s, ha s de c re a se d b y 7.4% c o mpa re d with I PART ’ s 2017 fo re c a st due to the impa c t o f the dro ug ht.

• Custo me r pric ing wa s no t a djuste d o ve r the la st thre e ye a rs due to dro ug ht.
• T

his will c a use the va ria b le usa g e c ha rg e to inc re a se b y a n a ve ra g e o f a b o ut 4% in 2021- 22 to e na b le the re c o ve ry o f I PART ’ s de te rmine d re ve nue s.

Wa te r NSW

I n re spo nse to I PART ’ s re q ue st fo r upda te d c a pe x a nd o pe x in Ye a rs 2-4, we ha ve c a lc ula te d indic a tive re ve nue re q uire me nts o ve r the ne xt fo ur ye a rs. T his Re ve nue Re q uire me nt is b ro a dly c o nsiste nt with wha t wa s de te rmine d prio r to 2015 (i.e . prio r to the 2016 re fo rms).

Appro xima te ly $10 millio n pe r ye a r fo r da ms a nd dro ug ht pro je c ts (Go ve rnme nt sha re o f c o sts) in no t inc lude d in the a b o ve fig ure s.

Re sponse to IPART ’s r e que st for 2 – 4 ye ar indic ative r e ve nue r e quir e me nts

Wa te r NSW

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Why have Ope rating c osts inc re ase d?

• Ope x ha s b e e n 33% (o r $51 millio n) a b o ve the I

PART a llo wa nc e o f $157 millio n fo r fo ur ye a rs se t in 2017.

• Curre nt a nd fo re c a st o pe x is no t dissimila r to tho se we we re inc urring 10 ye a rs e a rlie r.
• T

he 2017 o pe x a llo wa nc e wa s b a se d o n de live ring e ffic ie nc ie s tha t in pra c tic e we re o ffse t b y the c o sts o f imple me nting the 2016 wa te r re fo rm a g e nda (inc l. inc re a se d c o rpo ra te g o ve rna nc e o b lig a tio ns a nd ne w te c hno lo g y so lutio ns), unde r fo re c a sting o f flo o d

• pe ra tio n c o sts, la nd ta x, F

a ir Wo rk Austra lia E A o utc o me s, o ve rtime , a nd I T re pla c e me nt c o sts due to a g ing syste ms.

• Ove r the ne xt fo ur ye a rs, Wa te rNSW pro po se s a ve ra g e o pe x o f a ppro x. $57 millio n p.a .,

whic h is 3% b e lo w o ur a c tua l o pe ra ting e xpe nditure in 2019-20.

Que stions?

Visit us a t Ca ll us o n

wa te rnsw.c om.a u 1300 662 077

41

IPART Secretariat presentation



Services delivered and cost drivers



How costs and risks are shared



How proposed prices will impact customers

42

Services delivered and cost drivers

Higher operating expenditure Historically high operating costs were driven by insurance, ongoing maintenance (including dam safety), overhead increases

10 20 30 40 50 60 70 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 $ millions 2021 period - forecast opex 2017 period - actual opex IPART allowance

43

Services delivered and cost drivers

Higher capital expenditure

 Significant increase in capital investment for government drought

projects, dam safety, and environmental management

 MDBA/BRC river management costs have increased significantly,

especially in the Murray Valley

50 100 150 200 250 300 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 $ millions Drought projects capex 2021 period - forecast capex 2017 period - actual capex IPART allowance

44

How costs are shared

Efficient costs

• f Water NSW

rural bulk water services Who is the impactor? NSW Government

Water NSW’s costs are currently shared according to the ‘impactor pays’ principle

Water NSW customers

Stakeholders had concerns with this framework

In particular, in terms of how to share Water NSW’s costs when:



Other users benefit from an activity?



An activity’s scope is expanding?

45

How to manage revenue risk

Water NSW proposes insuring against downside sales risk whilst benefiting from upside sales risk

Water sales revenue

Water NSW revenue windfall Water NSW insurance payout Insurance excess IPART forecast water sales revenue Actual water sales revenue

• 1. Water sales revenue > forecast

= Water NSW keeps extra revenue

• 2. Water sales revenue < forecast

= Water NSW receives payout from insurer minus "excess" 

Most stakeholders do not support the asymmetric insurance mechanism Water NSW proposed



Some stakeholders suggest alternative approaches such as:

–

Setting higher fixed charges to better reflect cost structures

–

An ‘unders and overs’ mechanism

46

How proposed prices will impact customers

Water NSW is proposing higher prices Stakeholders concerned about price increases and affordability Potential options to address affordability

Stakeholders are concerned with Water NSW’s proposed price increases

47

Bills by valley

High security medium user – 500ML usage, 100% allocation General security medium user – 500ML usage, 60% allocation

10,000 20,000 30,000 40,000 50,000 60,000 Bills ($2020-21) Current 2020-21 Proposed 2024-25 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Bills ($2020-21) Current 2020-21 Proposed 2024-25

Note: Lowbidgee does not have high security entitlements.

48

Agenda

Session B Closing Remarks

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Next steps

Provide feedback

Our Draft Reports will be released around March 2021 Submissions on our Draft Reports will be due around April 2021

Complete survey

Complete our online survey to provide feedback on this

• nline public hearing

Contact us

Matthew Mansell p: 02 9290 8473 e: Matthew_Mansell@ipart.nsw.gov.au