SOUTH Gippsland Water has proposed a price increase of 20%-25%, according to the Essential Services Commission (ESC), over the next five years.
But it’s a price hike, characterised by the ESC in its Draft Decision of April 3, 2018, as the “largest increase by far proposed by any water corporation”, that is unsupported by the water authority’s submission.
“Given the insufficient and inadequate information provided by South Gippsland Water, we do not think it is in the interests of South Gippsland Water’s customers for us to approve a regulatory period of more than two years.”
The ESC has invited interested people to comment on its preliminary views before it males a final decision and issues a price determination in June 2018 (see full draft decision below where you will find details about how to make a submission in Chapter 4 of the report).
Here is a summary of the ESC’s draft response to South Gippsland Water.
“In September 2017, South Gippsland Water provided a submission to us on the prices it proposes to charge from July 1, 2018. This draft decision sets out our preliminary views on South Gippsland Water’s price submission.
“South Gippsland Water proposed prices for a five year period. Instead, we propose to approve prices for a two-year period. We found South Gippsland Water had made a large number of errors in its price submission, including in its accompanying financial model.
“During our review, South Gippsland Water made multiple resubmissions of its financial model to correct for previous errors. Each round of corrections produced further errors.
“We consider the information provided by South Gippsland Water in its price submission, and its follow up responses to our queries, was insufficient and inadequate, and did not meet the information standards required by our guidance.
“It is unclear if we have identified all errors made by South Gippsland Water and we lack confidence in the accuracy of the data used by the water corporation to establish its forecast revenue requirement and proposed prices.
“We expect price submissions to be underpinned by sound data. This is particularly the case when a water corporation is proposing a large price increase. South Gippsland Water proposed a price increase of around 20 to 25 per cent over the five years from 1 July 2018.
“This was the largest increase by far proposed by any water corporation. Given the insufficient and inadequate information provided by South Gippsland Water, we do not think it is in the interests of South Gippsland Water’s customers for us to approve a regulatory period of more than two years.
“A two-year period would also allow sufficient time for South Gippsland Water to prepare a new price submission that meets the requirements of the guidance we will issue for its three regulatory year regulatory period from 2020-21 to 2022-23.
“Our draft decision proposes not to accept the revenue requirement in South Gippsland Water’s submission and instead approve a revenue requirement for South Gippsland Water of $59.8 million over the two year period starting July 1 2018. This is $4.0 million or 6.3 per cent lower than proposed by South Gippsland Water for those same two years. As well as identifying expenditure savings (see page 10 of the draft decision for operating expenditure, and page 24 for capital expenditure), we have formed an initial view that South Gippsland Water’s demand forecasts are too low (page 31).
“Our draft decision on expenditure and demand means prices will be lower than proposed by South Gippsland Water for the two years from July 1. 2018. We propose not to accept the tariffs proposed by South Gippsland Water South Gippsland Water proposed to retain most existing tariff structures, including a two-part fixed service and variable water usage component for residential water. However, it proposed to significantly increase the residential variable usage charge relative to the fixed service charge. We propose not to accept South Gippsland Water’s proposed tariffs, because:
- They are not based on efficient costs. As noted above, we have proposed lower expenditure than forecast by South Gippsland Water (see the operating and capital expenditure sections – from page 10 and page 24, respectively).
- The proposed tariffs would have resulted in a significant price shock for some customers – noting in particular, South Gippsland Water’s proposal would have seen the residential variable water usage charge increase by 18.8 per cent in 2018-19.
From South Gippsland Water
Response from South Gippsland Water:
In September 2017, South Gippsland Water submitted a five year plan (2018/19 – 2022/23) to the Essential Services Commission which outlines service standards, the required capital and operating expenditure and the required revenue to achieve customer outcomes. The 5 year plan has been developed based on extensive customer consultation conducted over the last 18 months.
The Essential Services Commission has recently released its Draft Determination. There are a wide range of analyses within the report and the Corporation is in the process of reviewing the content and developing its next steps.
In developing the Pricing Submission, South Gippsland Water undertook extensive customer consultation to identify what really matters to customers. This resulted in a Price Submission with key investment to deliver water security, reliability and quality to our customers across the South Gippsland region. The Corporation are committed to making our region more secure and prosperous in the long term.
The Draft Determination recently released by the Essential Services Commission, is broadly in line with South Gippsland Water’s first two years of its Price Submission with a proposed resubmission in 2020. South Gippsland Water are committed to delivering on the customer needs and expectations that were canvased during an extensive consultation process over this period.
Based on the determination, the real increase in tariffs will vary depending on individual circumstances. The increase will be less than the $26.00 per account, $78.00 per annum (average household bill) proposed by South Gippsland Water.
Managing Director, Philippe du Plessis noted today: “We recognise the issue of affordability for customers. Over and above our existing hardship programs, we will be implementing processes to identify and support customers who may be experiencing difficulty in paying their water bill”.
Within its submission, the Corporation proposed tariff realignments, and sought various further funds to proactively renew ageing infrastructure. These areas were not approved and will now remain unchanged for the next two years. However, to achieve water security and reliability South Gippsland Water are investing in projects such as the Lance Creek Water Connection for a secure supply for Korumburra/Poowong/Loch/Nyora, and will also be completing extensive planned infrastructure renewals.
Mr du Plessis continued, “Water security, increased renewals and maintenance expenditure provides a stronger, more sustainable community and supports business and industry growth. This requires investment by South Gippsland Water. The Corporation has a balancing act in order to maintain affordability to customers and deliver services in a safe, reliable and sustainable way”.
South Gippsland Water will now formulate its response to the Essential Services Commission in coming weeks and will incorporate key learnings from its review.