july 2008
DESCRIPTION
The Australian Water Industry. July 2008. Brett Mathieson Manager Regulation & Planning Yarra Valley Water, Melbourne, Australia. NT - PAWA Power/Water. Western Australia Water Corporation - State Owned Company Covers whole State. South Australia SA Water - State Owned Company - PowerPoint PPT PresentationTRANSCRIPT
July 2008
Brett Mathieson
Manager Regulation & Planning
Yarra Valley Water, Melbourne, Australia
The Australian Water Industry
17 June 2008 2 2Yarra Valley Water Ltd
Australian Urban Water IndustryA Diverse Range of Utility Structures
Western AustraliaWater Corporation -
State Owned CompanyCovers whole State
South AustraliaSA Water -
State Owned CompanyCovers Whole State
VictoriaState Owned Retail Companies:
•Yarra Valley Water•South East Water •City West Water
State Owned Authorities:•Melbourne Water (wholesale)
•Rest: 15 Utilities
QueenslandWholesalers State Owned
Brisbane Water isfully Owned Business Unit of
Brisbane City CouncilRest: Local Government
NT - PAWA
Power/Water
CanberraACTEW
Power/Water
New South WalesState Owned
Sydney Catchment Authority (wholesale)
Sydney Water & Hunter Water -
Rest: Local Government
17 June 2008 3
Common Structural & Institutional Themes
Separation of Service Delivery, Regulation, Policy setting (and usually ownership)
Amalgamation of small rural and regional water authorities (not universal)
Progressive establishment of independent regulatory framework Corporatisation of water utilities Retention in public ownership Pricing Reforms –cost reflective/consumption based Strong role for private sector in the market National 3rd Party Access regime for essential infrastructure
17 June 2008 5
Industry responses
Prolonged and severe restrictions Water conservation Integrated planning Major augmentations – desalination Recycling Water sensitive urban design Interconnected water systems and multiple sources of supply
17 June 2008 7
State Water Grid - Benefits
Will accelerate state wide urban-urban water trading
Accelerate the introduction of third party access
Lower the cost of Wholesale water
Expand the scope of rural to rural trading
Will beak down city-country barriers
Will lead to uniform standards of water security and drought management across the state
Ensure water restrictions are spread more evenly across the State
Need a State based Water Grid Manager to exploit the potential of the Grid
17 June 2008 8
Yarra Valley Water’s
Smart Account
Need to make water bills more informative & effective……
17 June 2008 9
Conclusions
Demand/Supply balance has driven institutional reforms Integrated networks being established with multiple sources of supply
and customers Water grid manager has critical role to optimise the supply demand
balance How far a full market-oriented approach could be pursued requires
more analysis:• A competitive urban water market does not exist anywhere
No ‘off the shelf’ solutions. How is water special?• Monopoly, variable supply, competing environmental uses• Safe drinking water & ‘essential for life’
17 June 2008 10
Make Up of the ESC Building Block
Revenue Requirement for any year is the sum of:-• Operating Expenditure
• Controllable• Bulk Charges
• Return on Assets (RAV times WACC)• Existing Assets (constructed prior to start of regulatory period)• New Assets (constructed during regulatory period)
• Return on Assets (Asset value times depreciation rate)• Existing Assets (constructed prior to start of regulatory period)• New Assets (constructed during regulatory period)
• Benchmark Tax Liability• Adjustments from previous regulatory period
17 June 2008 11
Calculating Price Increase
Quantities for products are forecast for the regulatory period Prices for year 1 are input (or previous years prices increased
by X factor if tariffs not changed) Prices for following years are the previous year increased by
X factor Forecast revenue for each year is the sum of the product of
quantities and prices The X factor is set so that the NPV of the forecast revenue =
NPV of the revenue requirement
17 June 2008 14
Additionally (or consequently) we observe
Increased public awareness and scrutiny Many new private sector participants including strong
international interest (construction of pipelines & plants esp. desalination, interest in new instruments e.g. water trading)
Political interest (be seen to be responding) Desire for ongoing efficiency and service improvements Pressure to innovate Structural reform
17 June 2008 15
New South Wales
Sydney Water vigorously defended a third party access claim by Services Sydney Pty Ltd
Led to the 1995 IPART review into the Industry structure for Water and Wastewater services in the Greater Sydney Metropolitan area
Private sector involvement in water recycling and new developments
Water Industry Competition Act passed in 2006 with draft Regulations to support legislation released in 2008
17 June 2008 16
Western Australia
In July 2007 the Western Australia Treasurer announced an inquiry into competition in the water and wastewater sector focusing on:• Greater efficiency in developing and delivering new water sources and other services
requiring significant capital investment• Opportunities for enhanced competition including the introduction of third party access to
existing water and wastewater related infrastructure• Other reforms to the water and wastewater market which may enhance competition
The Economic Regulation Authority (ERA) was commissioned to undertake the inquiry A Further consultation report on the establishment of an independent procurement
entity was released in April 2008 which examines procurement models.• Noted introduction of competition via bulk supply water market would provide benefits but
problematic to introduce in the short term ERA’s final report is due by Government 31 July 2008
17 June 2008 18
Benefits of Vertical Separation
Increasing geographic diversity through inter-regional transfers Reduced system losses Increasing water efficiency and demand management Planning reforms based on total water cycle Improved accountability Improved Regulatory effectiveness through transparency of costs &
internal cross-subsidies Scope for ‘grid bypass’ below materiality threshold will facilitate small-
scale competitive wholesale sourcing Potential for wholesale trading
17 June 2008 19
Structure has potential for competition
Difficult to make competition ‘in the market’ work in a VI model• Ring-fencing and TPA regimes unlikely to be enough to support new entry• Incumbent has strong incentives to frustrate access
Platform for further competition where feasible• Competition provides improved scope for product innovation, retailer efficiency, promoting
localised solutions• Provision for development of market rules, licensing regime and customer protection
framework• New entrants require certainty of explicit policy / regulation• Separate network providers motivated to provide services to all customers
New entrants known to be interested in SEQ water sector• Wholesale Opportunities in localised sourcing, grid bypass mechanism• Retail opportunities in service bundling and differentiation
But competition has to pay its way• Challenges in pricing, minimising transaction costs
17 June 2008 20
Water Grid Manager
Assess scope for external trading (e.g. Urban/Rural trading) Statement of opportunities (Electricity and Gas Model) Technology and Interconnection require changes to cost
transparency• Financial performance and operational efficiency will require more
activity than “set and forget”• Must be able to explicitly price the trade offs in system cost/security