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End-of-term Review of the Operating Licences for Sydney Water Corporation

and the Sydney Catchment Authority

Water Demand and Supply Balance

Issues Paper

I N D E P E N D E N T P R I C I N G A N D R E G U L A T O R Y T R I B U N A L O F N E W S O U T H W A L E S

I N D E P E N D E N T P R I C I N G A N D R E G U L A T O R Y T R I B U N A L O F N E W S O U T H W A L E S

End-of-term Review of the Operating Licences for Sydney Water Corporation

and the Sydney Catchment Authority

Water Demand and Supply Balance

Issues Paper

Discussion Paper DP73 ISBN 1 877049 39 5

January 2004

This work is copyright. The Copyright Act 1968 permits fair dealing for study, research, news reporting, criticism and review. Selected passages, tables or diagrams may be reproduced for such purposes provided acknowledgement of the source is included.

H o w t o m a k e a s u b m i s s i o n Submissions are invited from interested parties. Unless confidentiality is sought, the submissions are generally available for public inspection at the Tribunal's offices. They will be available on-line in PDF format from the time of processing of the submission, until 3-4 weeks after the release of the final report. The Tribunal may exercise its discretion not to exhibit any submissions based on their length or content (containing material that is defamatory, offensive, or in breach of any law).

Submissions should have regard to the specific issues that have been raised. There is no standard format for preparation of submissions. Submissions should be made in writing and, if they exceed 15 pages in length, should also be provided on computer disk in word processor, PDF or spreadsheet format.

Submissions on the Issues Paper from Sydney Water Corporation and Sydney Catchment Authority must be received by 26 March 2004. Public submissions are required by 7 May 2004.

All submissions should be sent to: SWC and SCA Operating Licence Reviews Independent Pricing and Regulatory Tribunal PO Box Q290 QVB Post Office NSW 1230

Submissions can be sent via email to the following address: [email protected] with the subject 'SWC and SCA Operating Licence Reviews'.

Confidentiality If you want your submission, or any part of it, to be treated as confidential, please indicate this clearly. The Tribunal may include in its publications a list of submissions received during the course of the review. It may also refer to submissions in the text of its publications. If you do not want your submission or any part of it to be used in these ways, please indicate this clearly. A request for access to a confidential submission will be determined in accordance with the Freedom of Information Act and section 22A of the Independent Pricing and Regulatory Tribunal Act. Privacy All submissions will be treated in accordance with the Privacy and Personal Information Act 1998. Any personal information you give us will not be reused for another purpose. Public information about the Tribunal’s activities Information about the role and current activities of the Tribunal, including copies of latest reports and submissions can be found on the Tribunal’s web site at www.ipart.nsw.gov.au.

Comments or inquiries about this review should be directed to Felicity Hall on (02) 9290 8432

Liz Livingstone on (02) 9290 8429

Independent Pricing and Regulatory Tribunal of New South Wales Level 2, 44 Market Street, Sydney. Tel: (02) 9290 8400, Fax: (02) 9290 2061

E-mail [email protected]

All correspondence to: PO Box Q290, QVB Post Office, Sydney NSW 1230

TABLE OF CONTENTS

1 INTRODUCTION 1

2 PROCESS AND TIMETABLE FOR END-OF-TERM REVIEW 3

3 DEVELOPMENTS SINCE THE MID-TERM REVIEWS 5 3.1 Recommendations from mid-term reviews 5 3.2 Other developments and new information available 6 3.3 Investigation of pricing structures aimed at reducing demand 7

4 THE REGULATORY FRAMEWORK 9

5 RELIABILITY OF THE WATER SUPPLY FROM THE CATCHMENT AUTHORITY’S STORAGES 11

5.1 Conditions in the Catchment Authority’s licence for managing the reliability of supply11 5.2 Effectiveness of the performance criteria 12 5.3 Increasing the sustainable yield by changing the criteria 13 5.4 Expressing and defining the criteria 14 5.5 Options for the Catchment Authority’s licence 15

5.5.1 Retain existing performance criteria 15 5.5.2 Modify some performance criteria 15 5.5.3 Express the criteria more clearly 16 5.5.4 Include a statement of sustainable yield 16 5.5.5 Adopt option proposed by SKM 17

5.6 Environmental flows 17

6 MANAGING DEMAND FOR WATER 19 6.1 Water conservation targets 20

6.1.1 What form should water conservation targets take? 22 6.1.2 At what level should water conservation targets be set? 23

6.2 Cost-effectiveness of demand management programs 24 6.3 Reducing water losses 24 6.4 Reuse and Recycling 25 6.5 Harvesting stormwater 28 6.6 Educating customers and consumers 29

6.6.1 Billing information 29 6.6.2 Direct billing of tenants 29

6.7 What role should the Catchment Authority have in managing demand? 30

APPENDIX 1 OPERATING LICENCE CLAUSES RELATED TO THE CATCHMENT AUTHORITY’S PERFORMANCE CRITERIA 31

APPENDIX 2 SINCLAIR KNIGHT MERZ’S RECOMMENDED PERFORMANCE CRITERIA AND RELATED CLAUSES 33

APPENDIX 3 OPERATING LICENCE CONDITIONS AND MINISTERIAL INFORMATION REQUIREMENTS RELATING TO DEMAND MANAGEMENT OBLIGATIONS 36

APPENDIX 4 WATER BALANCE DATA REPORTED BY SYDNEY WATER 41

Introduction

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1 INTRODUCTION

As part of its end-of-term reviews of the Operating Licences for the Sydney Water Corporation and the Sydney Catchment Authority, the Independent Pricing and Regulatory Tribunal of New South Wales (the Tribunal) is considering how these Licences could be used to help manage the balance between supply and demand for water in the Sydney area. Water is a limited resource, so maintaining this balance is critical. In recent years, Sydney has experienced a drought. The level of water in its water supply storages has dropped to 55 per cent1, and demand for water has exceeded the estimated sustainable yield available from these storages. In response, the NSW Government introduced mandatory water restrictions for households across Sydney, the Blue Mountains and the Illawarra from 1 October 2003. Over the past 20 years, demand has regularly exceeded the estimated sustainable yield from the water supply storages. Figure 1.1 shows the total amount of water supplied to Sydney Water each year since 1980 compared with the current estimate of sustainable yield from the Catchment Authority’s storages2. Given the NSW Government’s policy of no new dams, the need to provide for environmental flows, and Sydney’s steady population growth of about 50,000 people each year, there is a clear need to better manage the demand for water. Figure 1.1 Total volume of water supplied to Sydney Water (in Gigalitres), 1980-2003

500

520

540

560

580

600

620

640

660

680

700

1980 1983 1986 1989 1992 1995 1998 2001

Current sustainable yield at97% reliability5 year rolling average demand

Source: Sydney Water Corporation, Annual Information Return 2002/03.

1 www.sca.nsw.gov.au at 15 January 2004. 2 The current estimate of sustainable yield is 600GL/year. Independent Pricing and Regulatory Tribunal,

Sydney Catchment Authority Audit 2001/02, January 2003, p 8-1.

Independent Pricing and Regulatory Tribunal

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Currently there is considerable debate about how the balance between water demand and supply should best be managed. The NSW Government has sought advice on this issue through the Hawkesbury Nepean River Management Forum and the Expert Panel on Environmental Flows, the Water Expert Panel, and the Water Chief Executive Officers’ Taskforce. In addition, the Premier has asked the Tribunal to examine how price structures could be used to reduce demand for water in the Sydney basin.3 In the context of this wider debate, the Tribunal will consider what role the Operating Licences for Sydney Water Corporation (Sydney Water) and Sydney Catchment Authority (Catchment Authority) should play, as part of its end-of-term reviews of these Licences. The key issues it will examine include: • How can the regulatory framework be used effectively in the management of Sydney’s

water supply and demand balance?

• What are the appropriate licence conditions to be included in the Catchment Authority’s licence on the frequency, duration and severity of restrictions?

• Should demand management targets continue to be included in Sydney Water’s licence and, if so, what form should these targets take and what level should they be set at?

• Should other targets and conditions, such as for reducing water losses, recycling and reuse and harvesting stormwater, be included in Sydney Water’s licence?

Chapters 2 and 3 of this paper outline the process for the reviews and explain the context in more detail. Chapters 4-6 discuss each of these key issues in detail.

3 IPART, Investigation into Price Structures to Reduce the Demand for Water in the Sydney Basin , December 2003.

Process and timetable for end-of-term review

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2 PROCESS AND TIMETABLE FOR END-OF-TERM REVIEW

The Tribunal is conducting its end-of-term reviews of Sydney Water’s and the Catchment Authority’s Operating Licences under Part 4B of the Independent Pricing and Regulatory Tribunal Act 1992. This paper considers how the demand for and supply of water could be treated in these Licences. A separate issues paper, released on 7 October 2003, discusses the other elements of these Licences, including water quality, system performance, customer service, catchment management and the environment.4 As part of the review process, the Tribunal will consult with key stakeholders, including Sydney Water, the Catchment Authority and environmental and community advocacy organisations. It invites all interested parties, including members of the public, to make submissions on the issues discussed in this paper. Stakeholders should note that there is a separate submission process and public workshop for each of the issues papers, as outlined in the timetable below. Details on how to make a submission can be found at the front of this paper (opposite the table of contents). The public workshops will provide further opportunities for stakeholders to present their views.

Timetable for review

Action Timeframe

Release first issues paper 7 October 2003

Receive submissions from Sydney Water and Catchment Authority 28 November 2003

Receive public submissions 2 February 2004

Hold first public workshop 1 April 2004

Release second issues paper on water supply and demand issues 29 January 2004

Receive submissions from Sydney Water and Catchment Authority 26 March 2004

Receive public submissions 7 May 2004

Hold second public workshop (on water supply and demand issues) June 2004

Present final reports to Ministers August/September 2004

4 IPART, End of term Review of the Operating Licences for Sydney Water Corporation and the Sydney Catchment

Authority: Issues Paper, October 2003.


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Developments since the mid-term reviews

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3 DEVELOPMENTS SINCE T HE MID-TERM REVIEWS

The Tribunal’s mid-term reviews of Sydney Water’s and the Catchment Authority’s Operating Licences found there was a need to better manage Sydney’s water supply and demand balance. Sydney Water’s demand for water had exceeded the sustainable yield from the Catchment Authority’s storages for the previous few years. Also, auditors5 have predicted that Sydney Water would be unlikely to meet the 2004/05 demand management target included in its current Operating Licence.6 As part of the mid-term review, the Tribunal was specifically required to consider recommending a demand management target for 2014/15 for inclusion in Sydney Water’s Operating Licence. It was also required to review the Catchment Authority’s system performance criteria, which relate to the reliability of the water supply including the frequency, duration and severity of restrictions. However, the Tribunal had insufficient information to make decisions on these issues at that time. In addition, the NSW Government had established several panels and forums that were expected to contribute to the debate on water management, and provide advice to government on these issues prior to the end-of-term reviews. The Tribunal’s recommendations at the mid-term reviews, the progress made by the expert panels and forums and the new information now available, and the Tribunal’s current review of pricing to reduce water demand in Sydney are outlined below.

3.1 Recommendations from mid-term reviews At the mid-term review of Sydney Water’s licence, the Tribunal recommended that a 2014/15 demand management target not be set, but should be determined at the end-of-term review (provided that sufficient information was available). It also recommended new reporting requirements for Sydney Water’s demand management program, to provide better and more transparent information to enable an accurate assessment of the effectiveness of this program. The requirements included reporting on forecasts and actual results of Sydney Water’s planned activities, anticipated water savings, and their costs, and water balance data. The water balance data for 2001/02 and 2002/03 is shown in Appendix 4. At the mid-term review of the Catchment Authority’s licence, the Tribunal recommended that no changes be made to the system performance criteria . It recognised there were some deficiencies in the existing criteria, but anticipated that better information would be available at the end-of-term review on which to base any recommendations. However, the Tribunal did recommend that the Catchment Authority be required to develop a demand and supply management strategy by 31 December 2003. The strategy was to address the following key areas: • leakage from the Catchment Authority’s systems

• customer awareness and education about the need to manage demand

5 IPART, Sydney Water Corporation Operational Audit 2002/03, January 2003, p 8-1. 6 However, lower demand from July to December 2003 (resulting from the combined effects of restrictions,

lower temperatures and higher rainfall than previous years) may mean that demand falls significantly below the sustainable yield in 2003/04.


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• support for water efficiency measures for customers other than Sydney Water

• scenario planning to examine the security of existing supply opportunities for improving/protection supply quality, alternative supply options, and impacts of increased environmental demands.

The Catchment Authority has developed this strategy and has delivered a copy to the Minister for the Environment. As yet the strategy has not been publicly released.

3.2 Other developments and new information available At the mid-term review, the Tribunal identified a range of information it required to help it to make recommendations about the Catchment Authority’s performance criteria and Sydney Water’s demand management targets at this end-of-term review. These information requirements and their status are summarised in Table 3.1 below. The Tribunal also commissioned Sinclair Knight Merz (SKM) to review the expression of the Catchment Authority’s performance criteria. A copy of SKM’s report is available on the Tribunal’s website.7

Table 3.1 Information requirements identified at the mid-term review and current status

Information required Current status

System capabilities

An understanding of the capacity of the Catchment Authority’s existing infrastructure, its operating rules including inter-basin transfers, and modelling of how these would be affected by changes to the reliability criteria

Research and modelling by the Catchment Authority and Expert Panel on Environmental Flows incorporates an assessment of the Catchment Authority’s system capabilities

Population projections

Estimates of Sydney’s population and populations in catchment areas to at least 2020

Population projections are available from DIPNR and now incorporate information from the 2001 population census

Urban design

An understanding of how planned urban expansion and consolidation may affect demand for water (in Sydney and catchment areas)

Water and energy use targets for all new homes built in NSW are now in place. DIPNR has developed a Building Sustainability Index (BASIX) which will be applied from 1 July 2004 in the Sydney Metropolitan Area

Environmental flows

Information on the allocations necessary for environmental flows and how they will affect the amount of water available for other uses

The Expert Panel and the Hawkesbury Nepean Forum have not made final recommendations on environmental flows. They are not expected until February 2004 at the earliest. The timing and nature of the government’s response to these recommendations is not known

7 Sinclair Knight Merz, Review of the Performance Criteria in Sydney Catchment Authority’s Operating Licence,

Final Report, 2003.

Developments since the mid-term reviews

7

Water sharing planning

An understanding of how water sharing plans will affect inter-basin transfers from the Shoalhaven and demand for and efficiency of downstream irrigation

The enactment of NSW water sharing plans has been delayed until 30 June 2004. Further, a draft plan for the Hawkesbury Nepean system has not been prepared. Establishing this plan will require extensive consultation and it is not known when it will be finalised

Demand management

An understanding of the potential for demand management savings and how these will affect the supply and demand balance

Additional information about demand management savings is available from Sydney Water under its revised reporting arrangements and from the mid-term review consultancy8 The Water Chief Executive Officers’ Taskforce and the Water Expert Panel are also considering opportunities for demand m anagement

Community preferences

An understanding of the community’s attitudes towards and acceptance of restrictions and water conservation measures

Sydney Water and the Catchment Authority have commissioned research on community preferences for restrictions and demand management measures. The Tribunal expects the results of this research will be publicly available in their submissions to this review

Other jurisdictions

An understanding and evaluation of regulatory frameworks and instruments used to manage reliability in other jurisdictions

In its review of the Catchment Authority’s performance criteria, SKM identified the conditions that apply in other Australian jurisdictions and in South Africa and Los Angeles

3.3 Investigation of pricing structures aimed at reducing demand The Premier of NSW has asked the Tribunal to investigate pricing structures aimed at reducing water demand. The Tribunal has begun this review, and expects to complete it by 31 July 2004. The results will be considered in the next pricing reviews for Sydney Water and the Catchment Authority. The terms of reference for the price structures review include considering: • the use of a step price paid by Sydney Water to the Catchment Authority for

extractions above the estimated sustainable yield of the catchment

• the establishment of pricing principles and a framework that may be adopted in moving from current retail tariff structures to alternatives including inclining-block tariffs and reductions in fixed water charges

• the potential affordability and equity impacts of alternative pricing structures, including step prices, on different customer groups

• the potential for differential pricing for different customer classes and different end uses of water.9

8 Montgomery Watson Harza, Independent Pricing and Regulatory Tribunal Mid-Term Review of Sydney Water’s

Demand Management Strategy Final Report, July 2002. 9 IPART, Investigation into Pricing Structures to Reduce Demand for Water in the Sydney Basin Issues Paper,

December 2003.


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Depending on the outcomes of this review and their application in the pricing review process, pricing structures may be used as an additional mechanism to manage the water supply and demand balance.

The regulatory framework

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4 THE REGULATORY FRAMEWORK

The Operating Licences of Sydney Water and the Catchment Authority include demand management targets and conditions relating to the reliability of the water supply. The Tribunal is responsible for monitoring compliance with these licence conditions and advising the relevant Minister on issues relating to compliance. Their performance is publicly reported each year to Parliament through the annual audit reports. Other bodies, using a variety of regulatory instruments, also have powers and responsibilities that are relevant to managing Sydney’s water supply and demand balance. However, in some cases it is not clear whether, how or when these powers will be used. Public reporting arrangements and participation processes are also unclear. The Tribunal needs more information on the progress and activities of these bodies to help it understand the issues that are relevant to the Operating Licence conditions. Some of these bodies and their responsibilities are outlined below: • The NSW Department of Infrastructure, Planning and Natural Resources (DIPNR)

regulates planning, infrastructure development and natural resource management within NSW. DIPNR incorporates the former DLWC and Planning NSW. Under the Water Management Act 2000, DIPNR is responsible for licensing the Catchment Authority to manage its access to water resources. The aim of this licence is to balance water extractions with the long-term sustainable health of catchments and rivers affected by the Catchment Authority’s operations. The conditions in this licence affect the sustainable yield available from the Catchment Authority’s storages, especially through its requirements for environmental flows and the regulation of inter-basin transfers. DIPNR could also establish a licence for Sydney Water’s water use, although this is currently regulated under the existing Operating Licence. It is not clear how such a water use licence might interact with the Operating Licence if it was established. DIPNR can also impose conditions on developments which can affect the demand for water.

• The Expert Panel on Environmental Flows provides advice to the Hawkesbury Nepean River Management Forum. The forum was originally expected to recommend an environmental flow regime to the government in September 2003. This has not occurred and is now not expected until at least February 2004. It is not clear what the Forum’s reporting arrangements will be, or when or how the government will respond to its recommendations. Decisions by government on environmental flows are expected to be incorporated in the DIPNR water management licence for the Catchment Authority. These decisions could affect the sustainable yield available from the Catchment Authority’s storages, which would have implications for Sydney Water’s demand management strategies and the level of water supply reliability.

• The Department of Environment and Conservation (DEC) was recently created by consolidating the Environment Protection Authority, National Parks and Wildlife Service, Resource NSW and the Royal Botanic Gardens and Domain Trust. The new Department will have strong links to the Catchment Authority. It is not clear what role DEC may have in managing Sydney’s supply and demand balance, or how that role may be reflected in its links with the Catchment Authority. Previously, the EPA had initiated a proposal for a market-based framework known as the Water Efficiency Target Scheme (WETS), which was designed to guide water management investments


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from a range of providers. The scheme is under development and limited information is publicly available.

• The Department of Energy, Utilities and Sustainability (previously the Ministry of Energy and Utilities) assists the NSW Government in choosing and implementing strategies for promoting the efficient, safe, reliable and ecologically sustainable supply of urban water services. This role involves some analysis and policy development in relation to water demand and supply issues.

• The Healthy Rivers Commission (HRC) provides independent advice to Government on catchment management, water quality and river flow objectives for river systems. It recently audited progress against the previously established Statements of Intent for the Hawkesbury-Nepean and Shoalhaven systems. These statements, agreed to by stakeholders, required the inter-linkage and joint management of a number of issues including environmental flows, irrigation requirements and overall demand management. While the HRC noted that some worthwhile progress had been made, it identified continued shortcomings of a coordinated government approach to supply and demand management.10 Recently passed legislation that establishes the new Natural Resources Commission (NRC) will result in the abolition of the HRC when it takes effect.

The regulatory framework for managing water supply and demand management is likely to continue to evolve over the next licence period. The Tribunal may need to incorporate some flexibility in Sydney Water’s and the Catchment Authority’s Operating Licence conditions so that these remain consistent with other regulatory requirements over the full term of the Licences. The Tribunal particularly seeks comment on following issues: • What are the roles, responsibilities and reporting requirements of the various bodies

(described above) in relation to the management of Sydney’s water balance?

• How do these fit together in an overall regulatory framework?

• What conditions or mechanisms could be incorporated in the Operating Licences that will allow them to reflect a changing regulatory environment?

10 Healthy Rivers Commission, Hawkesbury Nepean and Shoalhaven River Systems - Independent Audit of the

Statements of Joint Intent, 2003, pp 15-16.

Reliability of the water supply from the Catchment Authority's storages

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5 RELIABILITY OF THE WATER SUPPLY FROM THE CATCHMENT AUTHORITY’S STORAGES

The Catchment Authority has responsibility for managing the catchments and storages that are used to supply most of the water needs of Sydney’s residents and businesses. Bulk water is supplied by the Catchment Authority to Sydney Water and to some smaller local government water suppliers. Most of this water is then treated to drinking water quality standard before being supplied to residential and business customers. It also releases some water as environmental flows, and water for irrigators downstream of its storages or directly to other customers. The Catchment Authority’s Operating Licence includes conditions that affect the reliability of water supplied from its storages. These conditions are largely related to the frequency, duration and severity of water restrictions and are referred to as ‘performance criteria’. The Tribunal has identified several issues with these criteria. For example, they may not be effective in meeting their objectives, because they are applied theoretically rather than to an actual situation. In addition, the duration and frequency of water restrictions influences the sustainable yield from the Catchment Authority’s storages. There may be scope to increase the sustainable yield from the Catchment Authority’s storages to meet increases in demand by changing the criteria to allow more frequent and/or longer restrictions. The performance criteria are also expressed in a way that is ambiguous and difficult to understand. The Catchment Authority’s existing Operating Licence also includes conditions in relation to environmental flows, which affect the amount of water available from the storages. However, now that its Water Management Licence is in place, these conditions are largely redundant. The performance criteria, their limitations and some options for addressing their limitations in the Catchment Authority’s new Operating Licence, and the conditions related to environmental flows are discussed in more detail below.

5.1 Conditions in the Catchment Authority’s licence for managing the reliability of supply

A set of performance criteria in the Catchment Authority’s current licence places conditions and constraints on how it manages the water in its storages. These criteria limit the frequency, duration and severity of water restrictions that can be imposed on customers and protect the overall security of the water supply. The criteria, which are reproduced in full in Appendix 1, include that: • mandatory water restrictions should not be required more often than 3 per cent of the

time, on average (duration/frequency)

• mandatory water restrictions should not be required more than once every 10 years, on average (frequency)

• the level of water in storage should not be allowed to fall below 5 per cent of capacity more than 0.001 per cent of the time, on average (security)

• light to moderate restrictions can be applied more often than more severe restrictions (severity).


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These criteria can be interpreted and applied in practice in many different ways. For example, if water restrictions were applied for 12 months on average, to meet the criteria they could not be imposed more than once every 33 years and for most of the 12 months, only low-level restrictions could be imposed. This represents an average scenario, but over the long term, a limitless number of variations within the constraints of the criteria could apply. The Catchment Authority’s performance against these licence conditions is assessed in the annual licence audit. The criteria require that this performance is modelled rather than directly measured.

5.2 Effectiveness of the performance criteria To assess whether the performance criteria are effective in managing the security of Sydney’s water supply, it is important to understand what objectives they should aim to achieve. As part of its review of the criteria for the Tribunal, SKM surveyed stakeholders. This survey found that most stakeholders believe that the primary and secondary objectives of the criteria should be to: 1. ensure that the system does not run out of water

2. ensure that the frequency, duration and severity of water restrictions that may be anticipated in ensuring the primary objective is achieved are acceptable to the community being served.11

If the Catchment Authority meets the existing criteria, it may meet both of these objectives. For example: • The probability that the system will run out of water is very small. The security

criterion means that the storages should not fall below 5 per cent capacity for more than one month every 8,333 years on average. That is not to say that existing storages are designed to meet Sydney’s needs for the next 8,000 years, but it is one way of interpreting the probability of the storages running out of water.

• The imposition of water restrictions at existing levels of frequency and severity may also be acceptable to the community. It is anticipated that Sydney Water and the Catchment Authority will outline the findings of recent community research on these issues in their submissions to this review. These findings should help to clarify what level of restrictions is acceptable.

However, in one sense, the criteria cannot meet the objectives because they require that the Catchment Authority’s performance against them is measured based on a theoretical set of conditions, rather than the actual conditions, and the criteria do not relate to the actual service levels provided to customers. As a result, this performance may not be an accurate indicator of the reliability of Sydney’s water supply, or the frequency of water restrictions imposed on customers. One effect of the current criteria is to limit the amount of water that the Catchment Authority can release year after year from its storages without breaching the Operating Licence conditions. This amount is known as the sustainable yield.


Final Report, 2003.


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The Catchment Authority estimates that, based on the current criteria, the sustainable yield is 600 gigalitres (GL) per annum. While exceeding the sustainable yield in any one year is not necessarily a problem, in the past few years Sydney Water’s demand has consistently exceeded this amount. However, this has not affected the Catchment Authority’s performance against the criteria because its performance is measured against the forecast demand for Sydney Water included in its licence, rather than the actual demand. Forecasts of demand included in the Catchment Authority’s licence show that Sydney Water’s demand was expected to be 595 GL in 2000 and to decline to 583 GL in 2004. All of these forecasts are below the 600 GL sustainable yield. In addition, the Minister for Energy and Utilities, not the Catchment Authority, has the discretion to decide when restrictions are imposed. While the Catchment Authority’s Operating Licence and its internal operating rules for applying restrictions dictate how its performance against the criteria is modelled, it is the Minister’s decisions about when to impose restrictions that ultimately affect the actual performance of the system. The Minister can decide to introduce restrictions earlier than the Catchment Authority’s operating rules dictate. This means restrictions may be imposed more often than the criteria allow. The assessment of the Catchment Authority’s performance against the criteria in the annual audit indicates how it performed given a theoretical forecast of demand and assumes that restrictions are applied according to its own operating conditions rather than on how actual restrictions are applied. While this does not reflect its actual performance, it may be appropriate since the Catchment Authority cannot directly control Sydney Water’s demand and since the Minister ultimately decides on when restrictions should be applied. It appears reasonable that the Catchment Authority’s performance assessment excludes the impact of these factors, which are outside its control. However, it is also important that customers have some idea of the level of reliability they can expect to receive and whether that level of reliability is being met. The existing Operating Licence performance criteria do not provide this. The Tribunal seeks comment on the following issues: • Is it appropriate to assess the Catchment Authority’s performance against the criteria

assuming theoretical conditions (such as using forecast demand rather than actual demand)?

• What mechanisms could be used to provide better indicators of actual water supply reliability to customers?

5.3 Increasing the sustainable yield by changing the criteria As noted above, one effect of the criteria is to imply a level of sustainable yield from the Catchment Authority’s storages. This level is currently estimated to be 600 GL per annum. If the criteria were changed so that more frequent restrictions were allowed, the implied sustainable yield would increase. For example if restrictions could be applied for 5 per cent of the time (95 per cent reliability) rather than 3 per cent, the sustainable yield would increase to 660 GL per annum.12 This would effectively increase the average amount of water that the Catchment Authority could supply each year in the long term.

12 This estimate is based on modelling information provided by the Expert Panel on Environmental Flows at

the time of the mid-term review.


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There are competing demands for water in Sydney. Currently, the demands of Sydney Water and its customers exceed the sustainable yield that can be provided at the levels of reliability required by the criteria. In addition, there is increasing recognition of the importance of increasing environmental flows from the Catchment Authority’s storages to improve river health, which would add to the demands on the system. Changing the level of reliability (by increasing the frequency and/or duration and/or severity of restrictions) increases the sustainable yield from the water supply storages. Water restrictions do have social and economic costs. However, the level at which these costs exceed the overall benefits to the community of an increased water supply needs to be considered. The Tribunal seeks comment on the following issues: • What levels of water restrictions (severity, duration and frequency) are acceptable to

the community? • Should the performance criteria be changed to increase the amount of water available

from the system?

5.4 Expressing and defining the criteria One criticism of the criteria, as they are expressed in the Catchment Authority’s existing licence, is that many ‘non-experts’ find them difficult to understand and interpret. In addition, the way that they are expressed makes some aspects of them ambiguous. Insufficient definition within the criteria means that assumptions need to be made about how performance should be assessed and measured. Currently, performance assessment relies on the Catchment Authority’s own interpretations of the criteria. SKM identified some of the shortcomings in the way the criteria are expressed in its review of the Catchment Authority’s WATHNET model, which is used to assess performance against the criteria. These shortcomings include: • The licence does not specify a time period over which performance is measured. The

Catchment Authority is required to meet the criteria ‘on average’ but the period over which the average is measured is open to speculation. The Catchment Authority currently interprets this to be over the very long term. An alternative may be to measure performance over a ‘planning period’, for example, 20 – 50 years.

• The licence specifies assumptions about the demand reductions in relation to different levels of restrictions imposed, however it does not define what level of demand this is measured against. For example, Level 1 restrictions require a 7 per cent reduction in demand but should this reduction be measured against unrestricted demand, forecast demand or actual demand just prior to imposition of restrictions?

• The starting storage conditions are not defined. The Catchment Authority assumes in its modelling that the system starts at 100 per cent capacity. This can overestimate the performance of the system compared to starting at some other level of capacity.

• The criteria do not allow for any measure of error in the form of confidence limits. There is a high degree of uncertainty in some aspects of the modelling of the Catchment Authority’s performance, however, this is not reflected in the assessment of performance.


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In its review of the performance criteria, SKM recommended that the criteria be reworded and that additional information be included in the licence to help explain them (see section 5.5.5). However, this would not address all of the shortcomings identified above. It is also not clear whether the Operating Licence is the appropriate instrument for including all the details of how the criteria are interpreted and how performance is assessed. However, it is important that these issues are clarified and understood so that information on performance assessment can be properly understood. The Tribunal seeks comment on what mechanisms could be used to ensure a consistent and unambiguous performance assessment against the criteria.

5.5 Options for the Catchment Authority’s licence The Tribunal has identified several options in relation to the performance criteria that could be included in the Catchment Authority’s new Operating Licence. These options, which are not all mutually exclusive, include retaining the existing criteria at their current levels, modifying the level of some of the criteria, changing the way they are expressed so they are clear and unambiguous, including a statement of sustainable yield, and adopting the option proposed by SKM. Each of these options is discussed below.

5.5.1 Retain existing performance criteria

Overall, Sydney currently has a reliable supply of water. In general, restrictions are infrequent and not severe when they are imposed. Although the criteria in the current Operating Licence do not reflect the actual reliability of the system (rather a theoretical ideal), it is highly unlikely that the storages will run out of water if they are managed in a way that meets these criteria. However, making no changes to the criteria means that the sustainable yield from the system will remain at 600 GL and all the shortcomings of the way that the criteria are expressed and performance is assessed will remain.

5.5.2 Modify some performance criteria

Of the existing criteria, the 97 per cent reliability criterion is the key constraint on yield from the system. If this were changed to 95 per cent the yield would be increased by 60 GL per annum. A lower level of reliability would increase it further. However, lower reliability is associated with increased risks to the supply and these risks need to be understood and carefully considered before a change is made. Customers may be willing to accept a lower level of reliability in return for other benefits, such as deferring the need for augmenting the water supply and improved river health from increased environmental flows.


16

5.5.3 Express the criteria more clearly

Whether or not the levels or intent of the criteria are changed, it is possible to express them in ways that are easier to understand. This could be done by either rewording the existing criteria or changing the form of the criteria. For example, the duration of restrictions could be limited by setting a maximum period that they cannot exceed rather than continue to be expressed as a percentage of time. That is, instead of restrictions being limited to 3 per cent of the time, a maximum period (eg 24 months), could be applied. In addition, more information that explains the purpose of the criteria and what they mean could be included in the licence and ambiguities about how performance is assessed could be addressed. There are few reasons not to pursue this option. However, it should be recognised that over simplification could compromise the effectiveness and appropriateness of the criteria. Any changes to wording need to be carefully considered and tested with stakeholders.

5.5.4 Include a statement of sustainable yield

The sustainable yield from the Catchment Authority’s storages is an important constraint on meeting Sydney’s water needs. However, the current Operating Licence makes no reference to this yield. Rather, it includes forecasts of Sydney Water’s demand, which have proved to be inaccurate for the five-year period of the licence. The Catchment Authority operates a ‘supply limited’ system. That is, supply cannot be increased by constructing another dam to meet increasing demand under the government’s current policy. Any future demands have to be met within the sustainable yield. It is therefore important that the storages are operated in a way that allows the Catchment Authority to supply the sustainable yield on an ongoing basis. A statement requiring the Catchment Authority to do this, or at least stating what the sustainable yield is, could be included in the licence. This information could provide a more useful and relevant reference than potentially inaccurate forecasts of Sydney Water’s demand. Nevertheless, it may not be appropriate to include a tight obligation to meet the sustainable yield in the Catchment Authority’s Operating Licence. The extent to which the Catchment Authority can restrict demand is limited. It is not practical or appropriate for it to cut the supply to its customers once the sustainable yield is exceeded. It is also not necessarily a problem if the sustainable yield is occasionally exceeded. The performance criteria are a key factor influencing the sustainable yield but not the only factor. Any statement of the sustainable yield would need to be consistent with the criteria but would also need to reflect any changes to estimates of the safe yield that may occur over the licence period.


17

5.5.5 Adopt option proposed by SKM

The Tribunal commissioned SKM to review the way that the criteria are expressed (rather than the ‘level’ of the criteria) in its review.13 SKM proposed that the general form of the criteria should cover three important areas: 1. introduction and statement of the performance criteria objectives

2. statement of the performance criteria with associated relevant information in a way that is easy to understand

3. statement of sustainable yield. SKM also suggested including additional clauses that required the Catchment Authority to operate its systems consistent with maintaining the sustainable yield and in a way that meets the requirements of its Water Management Licence, specifically for the release of environmental and riparian flows. It recommended that there be a requirement for the Catchment Authority’s modelling of performance be consistent with appropriate and best practice and that the Catchment Authority work with other bodies to ensure appropriate demand management, water recycling and reuse strategies are in place. The full text of SKM’s recommended criteria is contained in Appendix 2. The Tribunal seeks comment on the following issues: • In what ways, if any, should the performance criteria in the Catchment Authority’s

licence be changed? • Should any or all of SKM’s recommendations on the form and expression of the

criteria be adopted?

5.6 Environmental flows The Catchment Authority’s current Operating Licence includes conditions related to environmental flows. These require the Catchment Authority to release environmental flows until it was issued with a Water Management Licence. They also provide for the establishment of an Expert Panel on Environmental Flows. The Catchment Authority has now been issued with a Water Management Licence and the expert panel has been established. This means most of the licence conditions on environmental flows are now redundant. The Hawkesbury Nepean River Management Forum and the Expert Panel on Environmental Flows are expected to make recommendations on environmental flows to the government in 2004. Depending on the government’s response to these recommendations, there may be implications for the amount of water that can be supplied to Sydney Water from the Catchment Authority’s storages.


Final Report, 2003, prepared for IPART. The full report is available at www.ipart.nsw.gov.au.


18

The Catchment Authority is also required to meet the environmental water quality requirements for any discharges or water releases required under Licences issued by DEC or DIPNR. At the workshop for the mid-term review, representatives from the Department of Land and Water Conservation (now DIPNR) commented that:

Currently the [water quality] monitoring seems to be focused very much on the delivery of water to Sydney Water, which is understandable. But the Catchment Authority has the mandate to actually try and look at the whole of the catchment and try to improve it … Downstream the SCA does have a major impact and maybe some of the future requirements, particularly when we get into the environmental flows regime, may need to be incorporated.14

The existing licence conditions imply that environmental water quality standards or guidelines will be set by DEC or DIPNR and requires that the Catchment Authority meets these. The Tribunal seeks comment on the following issues: • What (if any) conditions related to environmental flows should be included in the

Catchment Authority’s licence? • Are existing requirements for environmental water quality adequate? If not, how can

they be improved?

14 IPART, Transcript of mid-term review workshop of the Operating Licences for Sydney Water Corporation and

Sydney Catchment Authority, 23 July 2002, p 72.

Managing demand for water

19

6 MANAGING DEMAND FOR WATER

Both Sydney Water’s and the Catchment Authority’s Operating Licences include requirements to manage demand for water. The Tribunal has previously defined the management of demand for resources as actions taken to alter the level or pattern of consumption of resources in response to environmental preferences or policies, or the costs of supply.15 The current demand management requirements are set out in Appendix 3. In summary they are that: • Sydney Water must reduce demand to meet specific per capita water conservation

targets in 2004/05 and 2010/11.

• Sydney Water must produce an annual Demand Management Strategy Implementation Report (and has been required to report additional information as part of this report since the mid-term review of its licence).

• Sydney Water must take action to reduce discharges and encourage water conservation labelling.

• The Catchment Authority must manage water conservation consistent with the demand management requirements in its Water Management Licence and consistent with the obligations in Sydney Water’s Operating Licence.

The Tribunal has identified several issues with these requirements. These include the best form and appropriate level for Sydney Water’s water conservation targets:

• the need for conditions related to the cost-effectiveness of Sydney Water’s demand management programs

• the need to include conditions and/or targets related to reducing water losses, recycling and reusing water, and harvesting stormwater in Sydney Water’s licence

• the need to include conditions related to educating customers and consumers in Sydney Water’s licence

• the role the Catchment Authority should have in managing demand.

Each of these issues is discussed below.

15 IPART, Inquiry into the Role of Demand Management and Other Options in the Provision of Energy Services Final

Report, October 2002, p 3.


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6.1 Water conservation targets Sydney Water is required to take action to reduce the quantity of water16 it draws from all sources to meet the per capita water conservation targets in its licence. Forecasts indicate that Sydney Water is unlikely to meet the 2004/05 target. The 2002/03 auditors commented that:

It is highly unlikely that Sydney Water will meet the 2004/05 target for reducing potable water use. The 2010/11 target may be achievable with the planned expansion of the conservation programs provided the assumptions and calculation of the End Use Demand model are correct and customers accept the more stringent requirements.17

Some stakeholders have argued that it is inappropriate for Sydney Water to have full responsibility for meeting water conservation targets, since many factors that contribute to levels of water consumption are outside its control. Sydney Water has identified population, weather, changes in the housing mix and economic factors as some of the things that affect its ability to meet the targets.18 There is also debate about whether the Operating Licence is the best mechanism for regulating Sydney Water’s performance in this area and, in particular, whether water conservation targets should be retained in the licence. This is related to the broader issue of the role of the Operating Licence, which is discussed in the first issues paper.19 The setting of specific targets for elements of the demand management program (such as leakage or reuse) assumes that over time meeting these targets will achieve an overall optimum outcome. Such an approach can reduce flexibility as new information and options become available and it could result in higher costs for a given demand management outcome. Alternatively, where little progress has been made on demand management then setting specific targets may focus the organisation and establish a basis for measuring progress. Some stakeholders have also suggested that per capita targets are not appropriate and do not adequately account for the water supply constraints in Sydney. For example, the EPA in its submission to the mid-term review, argued that a water conservation target expressed in terms of the total volume of water used annually would be preferable.20 The options for the form of water conservation targets and how target levels should be determined are discussed below. The key issues to be considered in relation to this issue are summarised in Figure 6.1.

16 This does not cover re-use or recycled water, ie water derived from sewerage treatment plants and other

treated effluent. 17 IPART, Sydney Water Corporation Operational Audit 2001/2002, January 2003, p 8.4. 18 Sydney Water Corporation submission to IPART on the Mid-term review of the Operating Licences for

Sydney Water and the Sydney Catchment Authority, April 2002, p 48. 19 IPART, End of term Review of the Operating Licences for Sydney Water Corporation and the Sydney Catchment

Authority: Issues Paper, October 2003. 20 Environment Protection Authority submission to IPART on the Mid-term review of the Operating

Licences for Sydney Water and the Sydney Catchment Authority, May 2002, p 1.


21

Figure 6.1 Options for tracking water conservation in Sydney Water’s area.

Should water conservation targets be retained in Sydney Water’s Operating Licence?

Should water conservation performance indicators be included in the licence?

What form should they take: • Per capita? • Total volumetric use/cap? • Percentage reduction

against forecast demand? • Cost effectiveness

standard?

NO

How should performance against indicators be monitored, audited and reported?

What should the target levels be?

YES

NO

YES

What indicators should be included?

What other mechanisms should be used to regulate demand?

How should performance against indicators be monitored, audited and reported?


22

6.1.1 What form should water conservation targets take?

Per capita water conservation targets have been criticised because they do not adequately account for the supply constraints in Sydney. These targets are not directly linked to the sustainable yield available from the system and changes in the size of the population affect the total amount of water saved. The Tribunal has identified a range of options in relation to water conservation targets. These include: 1. Retain per capita performance targets - there was some support for retaining per

capita targets during the mid-term licence review process. This form of target allows for increases in consumption that are due to population growth.

2. Cap total volume of water drawn from storages - this form of volumetric target is relatively simple and annual trends towards targets are easy to understand. However, it does not allow for increased consumption due to population growth. It could be supported by, for example, per capita usage performance indicators, and/or indicators of annual total supply to Sydney Water.

3. Require a percentage reduction of forecast demand – this form of target would require Sydney Water to reduce its demand compared to a baseline demand forecast that accounts for expected population trends. A practical difficulty for this option is establishing the baseline forecasts.

4. Set a cost-effectiveness standard – this would require Sydney Water to invest in the most cost-effective demand management programs and continue implementing less cost-effective programs until the cost of saved water reached a specific target level, most likely the cost of alternative new sources. The difficulty in reliably measuring the cost-effectiveness of demand management options would make this type of target very difficult to monitor and enforce.21 In addition, the costs of demand management programs are not always met by Sydney Water. Customers may incur costs directly, for example by paying for water efficient appliances and their installation. Customers also bear the cost of any loss of service. Performance indicators related to the implementation of programs, or water savings by program, could also be included in the licence.

Assessing performance against any of these forms of targets can be complicated. For example, performance can be affected by changes in the composition of housing stock, and atypical weather conditions, and it can be difficult to determine if a utility has drifted temporarily or permanently outside a target range, which makes enforcement difficult.22 There are several ways in which the Tribunal could address these concerns, including: • establishing targets by customer sector

• adopting rolling five-year average targets (as contained in Hunter Water Corporation’s Operating Licence)

• adjusting targets for climatic variations, population change, climate change, the impact of restrictions or other factors.

21 T.W. Chesnutt, Performance Standards for Demonstrating Urban Water Conservation A Briefing Book prepared for

California Urban Water Agencies, June 1997, pp 9-10. 22 T.W. Chesnutt, Performance Standards for Demonstrating Urban Water Conservation A Briefing Book prepared for

California Urban Water Agencies, June 1997, p 7.


23

If water conservation targets are included in Sydney Water’s licence, what form should they take?

6.1.2 At what level should water conservation targets be set?

The level at which targets are set will be affected by the form of the targets. For example, if a volumetric target or cap was included in Sydney Water’s licence, it would be logical to set the target at the same level, or slightly below, the Catchment Authority’s sustainable yield (after allowing for environmental flow allocations and other demands). In a report prepared for the Peak Environment Non-Government Organisations (PENGOs) consortium it was recommended that the benchmark for reductions in demand be set at the lowest per capita demand in recent times. This was 380 litres per day in 1995. The report recommended that this be converted to a volumetric target of 537 GL to avoid the confusion of per capita targets.23 In other jurisdictions, per capita targets are still being imposed. For example, the Victorian Government has set a target to reduce Melbourne’s water use by 15 per cent per capita by 2010.24 In Hunter Water’s Operating Licence, the target is linked to average residential consumption and is set at 215 kilolitres per year, calculated on a five-year rolling average.25 Apart from setting the level of the target, how performance against the target should be measured and audited also needs to be considered. Sydney Water currently uses a climate correction model that allows reporting of ‘average year’ demand.26 In a report commissioned by the Tribunal for the mid-term review, Montgomery Watson Harza (MWH) suggested that since climate correction is an inaccurate science, it should not be used as a target variable unless the changes to the variable are big enough to be noticeable. In Sydney Water’s case, a reduction of four per cent in per capita demand is difficult to identify using a model with an accuracy of plus or minus five per cent.27 Adopting a rolling average target, like that in the Hunter Water licence, could help to smooth the impact of climatic variation. Auditors must currently prepare an annual report on Sydney Water’s compliance with its water conservation targets. As these targets are expressed only for 2004/05 and 2010/11, compliance cannot be determined with any accuracy in the intervening years.28 If water conservation targets are included in Sydney Water’s licence, at what level should they be set? What variables should be taken into account in the measurement of performance? How should performance be audited?

23 Urban Water Cycle Solutions, The 4th Sydney Water Project An evaluation of the costs and benefits of demand

management solutions in the Greater Sydney region Completed for the PENGOS consortium, 15 January 2003, p 4. 24 Natural Resources and Energy: Land and Water Management, Valuing Victoria’s Water – Securing Victoria’s

Future , p 3. 25 Clause 8.4 of Hunter Water Corporation Operating Licence. 26 Sydney Water Corporation, Water Conservation & Recycling Implementation Report 2002-2003, p 71. 27 Montgomery Watson Harza, Independent Pricing and Regulatory Tribunal Mid-Term Review of Sydney Water’s

Demand Management Strategy Final Report, July 2002, p 27. 28 IPART, Sydney Water Corporation Operating Licence Audit 2001/2002, January 2003, p 8.3.


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6.2 Cost-effectiveness of demand management programs Sydney Water’s Operating Licence requires it to prioritise and schedule demand management programs that are found to be cost effective.29 Sydney Water uses end-use demand analyses and customer research to target specific demand management options. It uses a least-cost planning or integrated resource planning approach to provide an economic evaluation of programs,30 and factors in other elements such as the effectiveness in reducing demand. The PENGOs have recommended that Sydney Water “undertake an independent review of the economic evaluation methodology … and develop an appropriate methodology that incorporates full environmental costs and benefits.”31 In its report on demand management for the mid-term review, MWH commented that generally, demand management programs should continue until changes in implementation rates, costs, water savings or other factors cause the costs of savings to rise above a pre-determined threshold. The threshold could be the cost of meeting objectives or targets, or the cost of a new water supply. Should there be cost-effectiveness objectives of Sydney Water’s demand management programs included in the Operating Licence?

6.3 Reducing water losses Under its current licence, Sydney Water must identify strategies for reducing unaccounted for water losses and include these strategies in its annual demand management and water conservation report. In 2002/03, the total amount of unaccounted for water was 13.2 per cent of supply (see Appendix 4). In comparison, losses from Melbourne retailers’ systems range from 10.4 to 14.1 per cent.32 Under its 1995 Operating Licence, Sydney Water was required to reduce unaccounted for water losses to a maximum of 15 per cent by 2000. This target was achieved, through meter recalibration, quantification of unbilled authorised consumption (eg for fire-fighting) and limited leakage reduction works33 (Chart 6.1). There is no target in the current licence for water loss reduction. However, Sydney Water has set its own target of a reduction of 28.8 ML per day (10,500 ML per year), and has forecast water savings from leakage reduction for 2003/04 of 19,373 ML per year.34

29 Clause 8.2.4(g) of Sydney Water Corporation Operating Licence. 30 Sydney Water Corporation, Water Conservation & Recycling Implementation Report 2002-2003, pp 41, 72. 31 Peak Environment Non-Government Organisations, Sydney’s Water – Going to Waste? Draft Final Report of

4th Sydney Water Project, June 2003, Recommendation 23, p iv. 32 Essential Services Commission, Melbourne’s Retail Water & Sewerage Companies—Performance Report July

2001—June 2002, February 2003, pp 30-31. 33 Montgomery Watson Harza, Independent Pricing and Regulatory Tribunal Mid-Term Review of Sydney Water’s

Demand Management Strategy Final Report, July 2002, p 20. 34 Sydney Water Corporation, Water Conservation & Recycling Implementation Report 2002-2003, pp 21, 47.


25

Chart 6.1 Unaccounted for water (per cent), 1993/94 to 2002/03

10

11

12

13

14

15

16

17

18

19

93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03

Source: Sydney Water Corporation, Water Conservation & Recycling Implementation Report 2002-03, 2003, p 69. In Melbourne, water retailers are required to report on all unaccounted for water, and trends in losses are published annually. In the United Kingdom, guidelines on the objectives of leakage management, and appropriate targets and performance indicators have been developed.35 The 2002/03 auditor noted Sydney Water’s high compliance with the licence requirements regarding water losses. However, it reported that the utility does not give high priority to improving its understanding of the status of divide valves, providing additional flow meters, and reducing zone sizes.36 In the UK, water suppliers have been asked to reconcile losses comparing minimum night flows with the residual from the water balance table.37 Should targets and performance indicators for reducing unaccounted for water be included in Sydney Water’s Operating Licence? If targets are incorporated in the licence, at what level should they be set?

6.4 Reuse and Recycling38 Sydney Water’s Operating Licence requires it to reuse wastewater or undertake other activities to reduce discharge to waterways through non-potable reuse. The licence also requires Sydney Water to report on its level of reuse to the Tribunal annually, and to meet reuse targets set by the Minister from time to time.

35 Ofwat, Environment Agency and Department for Environment, Food and Rural Affairs, Leakage Target

Setting for Water Companies in England and Wales Summary Report, March 2002, pp 6 & 11. 36 IPART, Sydney Water Corporation Operational Audit 2002/2003, January 2004, p 8-9. 37 Ofwat, Security of supply, leakage and the efficient use of water 2002-2003 report, p 49. 38 For the purposes of this report, recycling will refer to water used more than once. Reuse refers to water

from sewerage treatment plants, and untreated waste from sewers, which is suitable for re-use after treatment appropriate to its end-use or application.


26

A reuse target of 58 ML per day, to be achieved by 2000, was gazetted on 30 June 1995. Sydney Water did not achieve this target—in 2000/01 it recycled only 28.4 ML per day.39 There is currently no formal target in place, but the volume of water recycled in 2002/03 was still well under the 2000 target (Chart 6.2). Nearly all of this water was used in Sydney Water’s sewage treatment plants or for irrigation.

Chart 6.2 Reuse trends (in ML/day), 1994/95 to 2002/03

0

10

20

30

40

50

60

70

94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03

Actualwater reuse

2000 reusetarget

Source: Sydney Water Corporation, Water Conservation & Recycling Implementation Report 2002-03, 2003, p 24. In 2003 Sydney Water reviewed its water recycling strategy and identified the need for projects to: • inform decisions on the scale of the recycled water market that Sydney Water should

seek to service

• shape the regulatory, customer and competitive environments to improve the sustainable delivery of water

• improve how Sydney Water makes decisions and engages customers in recycled water product development and delivery.

Sydney Water will develop a Recycled Water Program during 2003/04, with the aim of using recycled water on a scale that meets its goals for sustainable water services as described in WaterPlan 21.40 Waterplan 21 aims to increase the amount of water reused, promote new markets for water reuse, and lower the costs of reusing water. Recycling of water to drinking quality poses community and public health concerns, and is not addressed by the current licence.41

39 IPART, Sydney Water Corporation Operational Audit 2000/01, March 2002, p 8-4. 40 Sydney Water Corporation, Water Conservation & Recycling Implementation Report 2002-2003, p 23. 41 NSW Department of Land and Water Conservation (now DIPNR), NSW Water Conservation Strategy,

October 2000.


27

The PENGOs have recommended that: • trial processes be introduced for potable water recycling, in addition to non-potable

• short, medium and long-term targets should be set for water recycling, for example an increase equivalent to three per cent per annum of total consumption (approximately 45 ML per day).42

Such targets have been set in other jurisdictions. For example, the Victorian Government has set a target to recycle 20 per cent of Melbourne’s wastewater by 201043 and Water ACT has set a target for increasing the use of treated effluent to 20 per cent by 2013.44 Hunter Water’s licence does not contain a target but requires Hunter Water to report annually on the quantity of recycled water supplied to industrial and commercial customers, for irrigation and for other uses.45 Setting a recycled water target may not achieve the desired environmental and economic outcomes. It could be effective if the recycled water is used for purposes that previously required water from the Catchment Authority’s storages. In this case, recycling could effectively be a means of augmenting the supply. The higher the level of treatment, the higher the potential for substituting it in place of existing supplies for a range of uses. In deciding whether to set a target for recycled water there needs to be an assessment of whether recycling is the most cost-effective option relative to other demand management options. For example, it may be more cost-effective to reduce water leakage from the distribution system or to impose water restrictions on customers. Recycling water only for the sake of reducing discharges to the environment may not be effective. For example, if recycled water is used mainly for irrigation and the target drives the volume of water recycled beyond what can be sustainably used for irrigation, the environmental problems of discharge are transferred rather than eliminated. A simple target for recycled water may not result in improved overall sustainability. Targets will only be effective if there is sufficient demand for recycled water. To date, the private sector has had limited involvement in the recycling of wastewater. For example, private companies have not accessed the sewer system to extract sewage, despite the maximum price for extraction being set to zero. To encourage private sector involvement in the market for recycled water, a regulatory framework could be established that provides an appropriate level of security for investment. The most appropriate mechanism is likely to be through an amendment to the Sydney Water Act 1994 rather than changes to the Operating Licence. This amendment could include provisions for third party access to Sydney Water's networks (water, wastewater and stormwater) with appropriate provisions for maintaining a reliable supply to third parties.

42 Peak Environment Non-Government Organisations, Sydney’s Water – Going to Waste? Draft Final Report of

4th Sydney Water Project, June 2003, Recommendations 7 & 8, p iii. 43 Natural Resources and Energy: Land and Water Management, Valuing Victoria’s Water – Securing Victoria’s

Future , p 3. 44 Environment ACT, Think water, act water Volume 1: Draft strategy for sustainable water resource management in

the ACT, November 2003, p 16. 45 Clause 8.5.7 of Hunter Water Corporation Operating Licence.


28

Should targets and/or performance indicators for recycling of water to non-potable standards, and/or to potable standards, be included in Sydney Water’s Operating Licence. If so, at what level should targets be set and should they be reported by customer class or end-use? Should arrangements for third party access to Sydney Water’s networks be progressed? If so, how?

6.5 Harvesting stormwater While recognising the fragmented ownership of stormwater assets in Sydney46, there is potential to harvest stormwater for reuse. Options include substituting water supplies through use of on-site rainwater tanks, community collection and storage for irrigation, aquifer storage and recovery.47 Harvesting or recycling stormwater reduces the demands on other water sources, and can also reduce problems associated with water discharge. For example, it can: • reduce pollution loads in waterways – stormwater in the St Georges and Cooks Rivers

can contribute to increases in faecal coliforms by between 8 and 68 per cent, and phosphorus by between 45 and 97 per cent

• reduce infiltration of stormwater into the sewerage system particularly during wet weather

• reduce the occurrence of flash flooding which occurs when stormwater drainage capacity is exceeded by stormwater run-off.

These benefits need to be weighed against the significant costs associated with harvesting and reusing stormwater. One of the Nature Conservation Council’s(NCC’s) recommendations in its submission to the mid-term review was that Sydney Water “devise and implement a major stormwater program involving the provision of appropriate-scale works at the sub-catchment level for the capture, treatment and supply of drinking water.”48 The Commonwealth Department of Environment and Heritage’s view is that when a complete range of issues is factored into costing considerations, stormwater reuse becomes economically attractive. These other factors include: • savings gained through the reduction in non-point source pollutants, especially

sediment loads - this results in reduced requirements to ‘clean up’ waterways of sediment, nutrients and debris that accumulate downstream of urban developments

• reductions in peak stormwater flows which reduce the need for drainage infrastructure

46 For a discussion on ownership and management of stormwater assets see pp 28-29 of IPART, End of Term

Review of the Operating Licences for Sydney Water Corporation and the Sydney Catchment Authority, October 2003.

47 CSIRO, National Conference on Water Sensitive Urban Design – Sustainable Drainage Systems for Urban Areas , August 2003, Melbourne.

48 Nature Conservation Council submission to IPART on the Mid-term review of the Operating Licences for Sydney Water and the Sydney Catchment Authority, May 2002.


29

• the cost of maintaining environmental flows – substituting stormwater for other water sources means that more water is available for other purposes including environmental flows

• the financial benefits, often intangible, gained by the multi-use of waterway corridors for recreation, environmental enhancement and stormwater storage and reclamation purposes.49

Should the Operating Licence include measures aimed at harvesting stormwater for reuse, reducing pollution and/or for reducing flooding?

6.6 Educating customers and consumers The Water Services Association of Australia’s view is that a “carefully planned and professionally implemented communication strategy is crucial to a successful demand management program.”50 While communication strategies are generally aimed at the entire community, it is also important to target particular audiences such as schools and other particular customer groups. Sydney Water has produced and been involved in some very effective education programs. Other options include providing additional information on customer bills and billing tenants directly.

6.6.1 Billing information

Sydney Water’s customer surveys show that customers are very aware of and concerned about the environmental impacts of water and wastewater services, and the need to conserve water.51 As bills are the main source of contact between service providers and customers, they can be an effective way to distribute information on water conservation. As the Energy and Water Ombudsman (Victoria) advises, bills can allow “customers to track consumption to see whether the things they are doing to manage their water usage are working … that may be how well their efforts to conserve water are working.”52 Suggestions for the types of information on bills that may help customers conserve water include: • graphs showing trends in water use over longer periods than the last bill and the same

period in the previous year53

• access to information for customers who don’t read English.

6.6.2 Direct billing of tenants

In previous reviews, stakeholders have suggested that Sydney Water could improve demand management by billing tenants rather than property owners, ensuring that all water users receive appropriate price signals about the need to conserve water. Conversely, billing landlords can provide an incentive for them to invest in reducing leakage and water efficient fittings and appliances. Sydney Water has argued that the costs associated with billing

49 www.deh.gov.au/coasts/publications/stormwater/reuse 50 Water Services Association of Australia, Wise Water Management A Demand Management Manual For Water

Utilities, November 1998, p 111. 51 Sydney Water Corporation, Water use: practices and intentions Customer Research, September 2000, p 22. 52 Energy and Water Ombudsman (Victoria) Improving Pricing and Billing, June 2003, p 6. 53 City of Santa Cruz, Urban Water Management Plan , 2000, p 50.


30

tenants directly would be substantial as approximately 500,000 units (about one-third of properties in Sydney) do not have individual meters. In its 2003 pricing Determination54 the Tribunal recommended that Sydney Water explore the direct billing of tenants as part of its demand management strategies, based on the systems used in Victoria and Western Australia. The Tribunal seeks comment on the following issues: • What, if any, requirements for community and customer education on demand

management should be included in Sydney Water’s Operating Licence? • What kinds of billing information would help customers to conserve water? • Should there be a requirement in the licence to include such information on bills? • Should there be a requirement in the licence to address the direct billing of tenants as

part of Sydney Water’s demand management strategy?

6.7 What role should the Catchment Authority have in managing demand?

The Catchment Authority’s current Operating Licence requires it to manage demand consistent with the requirements in its Water Management Licence and consistent with the demand management requirements in Sydney Water’s licence (to the extent that it is able). At the mid-term review, the Tribunal recommended that the Catchment Authority’s demand management obligations be strengthened by requiring it to prepare a supply and demand management strategy. The strategy was to include consideration of how the Catchment Authority could support its customers’ use of efficiency measures.

The first Issues Paper for this review requested comments on whether the Catchment Authority should be required to develop a customer contract(s) under its Operating Licence for customers other than Sydney Water. One option is to include specific mechanisms for supporting water efficiency for these customers in contracts. What demand management obligations should be included in the Catchment Authority’s Operating Licence? Could customer contracts be used as a mechanism for strengthening the Catchment Authority’s support for its customers’ water efficiency? If so, how?

54 IPART, Sydney Water Corporation Prices of Water Supply, Wastewater and Stormwater Services From 1 July 2003

to 30 June 2005, May 2003, p 39.

Appendices

31

APPENDIX 1 OPERATING LICENCE CLAUSES RELATED TO THE CATCHMENT AUTHORITY’S PERFORMANCE CRITERIA

Clause 8.1.2 Management of Catchment Infrastructure Works

The Authority must ensure that Catchment Infrastructure Works are designed, operated and managed to provide Sydney Water Corporation with a long-term standard of services which accords with the performance criteria set out in Schedule 2. Schedule 2 Catchment Infrastructure Works performance criteria

Catchment Infrastructure Works performance criteria a) Reliability is to be not less than 97%, and is defined as the percentage of months, on

average, that the Authority will meet in full Sydney Water Corporations Forecast Average Annual Demand requirements referred to in paragraph (f) below. This means it is estimated that, on average, restrictions will not need to be applied more often than 30 months in 1,000 months. (“Reliability”)

b) Robustness is to be not less than 90%, and is defined as the percentage of years, on average, that the Authority will not require a reduction in Sydney Water Corporation’s Forecast Average Annual Demand for Bulk Raw Water referred to in paragraph (f) below. This means it is estimated that, on average, not more than 10 years in 100 years will be affected by restrictions. For the purposes of this clause, a “year” is each period of 12 months commencing on 1 July and a year will have been affected by restrictions if in any day of that year a restriction has been applied. (“Robustness”)

c) Security is to be not less than 5%, and is defined as the level of the Authority’s operating storage below which actual storage is not to fall, on average, more often than 0.001% of the time. This means it is estimated that, on average, the level of operating storage will not fall below 5% more often than one month in 100,000 months. (“Security”) (Reliability, Robustness and Security together comprise the “System Criteria”)

d) During drought the System Criteria assume that, contingent upon the Authority giving Sydney Water Corporation reasonable prior written notice of the need to do so, Sydney Water Corporation will reduce its demand for water from the Authority in accordance with the following restriction levels:-

Level I. at least a 7% demand reduction, not more than 3% of time; Level II. at least a 12% demand reduction, not more than 1% of time; Level III. at least a 20% demand reduction, not more than 0.5% of time; Level IV. at least a 30% demand reduction, not more than 0.3% of time; Level V. at least a 50% demand reduction , not more than 0.05% of time. (“Drought Restrictions”)

e) Subject to the Authority giving Sydney Water Corporation the reasonable prior written notice referred to above in paragraph (d) the System Criteria may vary to the extent that the variation is caused or contributed to by Sydney Water Corporation not reducing its demands for water from the Authority, during a period of drought, in accordance with the above Drought Restrictions.


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f) Based on population projections and projected trends in per capita consumption, Sydney Water Corporation’s current Forecast Average Annual Demand is estimated to be:-

Year

2000 2001 2002 2003 2004

Forecast Average Annual Demand (‘000 ML/yr) 595 588 586 584 583

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APPENDIX 2 SINCLAIR KNIGHT MERZ’S RECOMMENDED PERFORMANCE CRITERIA AND RELATED CLAUSES

This is an excerpt from Review of the Performance Criteria in Sydney Catchment Authority’s Operating Licence, prepared for IPART by SKM, 2003. The full text of this report can be found at www.ipart.nsw.gov.au pp 44-45.

Catchment Infrastructure Works Performance Criteria

1) Introduction and Objectives of the Performance Criteria

These performance criteria, together with the SCA’s Drought Response Plan: a) Have the primary objective of ensuring that the water supply system should not run

out of water; that is, that the supply can continue to meet the restricted demand requirements catering for basic water needs, with water of acceptable quality, and sufficient pressure, to all parts of the supply system.

b) Achieve this objective without imposing water restrictions too frequently, too severely, or for excessively long periods, based on the preferences of the customers;

c) Describe the standard of service to be provided to customers in terms of the frequency, severity and duration of water restrictions that may be anticipated; and

d) Are intended to promote the sustainable use of the available water resources. The performance of the supply system against the criteria is assessed using a computer model of the water supply system that can estimate the likelihood of certain events occurring. The model uses the projected average water demands, adjusted to reflect climatic conditions. Because of the uncertainty around future climatic conditions, and other factors, there is a degree of modelling uncertainty which is allowed for in the performance criteria.

2) Performance Criteria

a) Supply Continuity. A minimum operating storage equivalent to x months of total restricted demand (or y % of storage) shall be maintained as a buffer to assure supply continuity. The probability of the system storage levels falling to the buffer storage level shall not exceed 1 occasion in 1,000 years (for example). A Drought Response Plan, drawn up in collaboration with Sydney Water Corporation, shall include a contingency plan, triggered by impingement of the storage buffer, to ensure that basic supplies can continue to be met for an indefinite period.

The size of the buffer storage to be maintained could be expressed either as a number of months ("x") of restricted demand, or more directly as a percentage of total system storage ("y%"). The latter approach is more straightforward and more easily understood, particularly given that the community can easily make direct comparisons with publicised storage levels at any time. The size of the buffer storage could be determined as recommended in Section 6.4.1, with "x" being defined based on the length of time taken to implement the contingency plan responses. The restricted level of demand to be supplied during that period ("x" months) could be defined based on expected demands at the highest level of restrictions, or based on a specified minimum requirement for basic health needs ("z" litres/capita/day for "x" months).


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b) Water restrictions frequency. Restrictions will not need to be applied, on average, more often than once every ten years (for example).

c) Water restrictions duration; Restrictions for continuous periods exceeding 24 months (for example) shall not be required, on average, more than once in 200 years (for example).

d) Water restrictions severity: Level V (for example) water restrictions shall not be required more often, on average, than once in 200 years (for example).

The system shall be operated, based on the above criteria, the current pattern of demands and the restriction rules stated in the Drought Response Plan, to provide an average yield of 600 GL/year (or such other figure as may be determined as required, from time to time, by the system modelling).

Information Recommended for Removal from Schedule 2 of the Operating Licence It is recommended for further consideration as part of the End-of-term Licence Review, that the detailed information regarding the levels of water restrictions illustrated below be removed from the Operating Licence and transferred to the Drought Response Plan. It is considered that this information is too detailed for incorporation within the Operating Licence. It also should be updated regularly as water demand patterns and levels change, and as further information becomes available regarding the realistic demand reductions that can be achieved under restrictions. Removing these from the Operating Licence and including them in the Drought Response Plan (referred to by the Licence) provides greater flexibility for ongoing review of restriction rules to ensure appropriate operational management can be maintained during periods of drought. In addition to specifying the anticipated demand savings for each water restriction level, and the maximum percentage of time for which each level may be applied, consideration should be given to adding a maximum percentage of time that infringement of the safety buffer storage zone may occur. Restriction Expected Demand Reduction Likelihood Level Level I at least a 7% demand reduction, not more than 3% of time; Level II at least a 12% demand reduction, not more than 1% of time; Level III at least a 20% demand reduction, not more than 0.5% of time; Level IV at least a 30% demand reduction, not more than 0.3% of time; Level V at least a 50% demand reduction, not more than 0.05% of time. It is also recommended that information on the projected system demands be removed from Schedule 2 of the Operating Licence. It is considered that the emphasis should be placed more on the sustainable yield the system can supply (as a means of setting meaningful and practical objectives and targets for demand management initiatives), rather than on ensuring the supply can meet the demands into the future. This would explicitly acknowledge the supply side limitations and the importance of appropriate and sustainable management of the overall supply system by clearly setting out the demand management needs.

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It is further emphasised, however, that the projected system demands should be clearly specified in some other relevant, publicly accessible document. This would ensure that transparency is maintained for the public in relation to the current levels of demand the system is subjected to and on the likely future levels of demand, and how these compare to the demand management targets and the system yield stated in the SCA’s Operating Licence.


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APPENDIX 3 OPERATING LICENCE CONDITIONS AND MINISTERIAL INFORMAT ION REQUIREMENTS RELATING TO DEMAND MANAGEMENT OBLIGATIONS

Water conservation targets

Sydney Water has to take action to reduce the quantity of water55 it draws from all sources. The targets set out in the current Operating Licence are shown in Table A3.1.

Table A3.1 Water conservation targets56

Target date Target quantity Litres per capita per day

Percentage reduction relative to baseline

1990/1991 506 Baseline

2004/2005 364 28

2010/2011 329 35

2014/2015 To be determined during the course of this review57

Note: Assessment of performance against targets is to be adjusted for the effects of weather on usage. Targets are for an average year.

Demand management strategy

Sydney Water’s obligations under clause 8 of its Operating Licence include: 8.2.3 By no later than 1 September each year, Sydney Water must provide a report (the “Demand

Management Strategy Implementation Report”) to the Licence Regulator on implementation of Sydney Water’s Demand Management Strategy for the previous 12 months, to enable the Licence Regulator to consider and report on the matter as part of the Annual audit.

8.2.4 The Demand Management Strategy Implementation Report is to:

(a) contain an estimate of past, current and projected water uses and distinguish between residential, industrial, commercial and government uses;

(b) describe the frequency and magnitude of expected supply deficiencies, including those arising as a result of wastage or loss, drought or emergency;

(c) identify conservation measures currently adopted and being practised; (d) describe, cost and evaluate additional conservation measures; (e) describe future plans for water reclamation and strategies to alter water use practices,

including those relating to the installation of more efficient water appliances and devices by users;

(f) evaluate these plans in terms of their cost and contrast with the cost of alternative water supplies;

(g) prioritise and schedule the implementation of courses of action found to be cost effective; and

(h) identify strategies for reducing Unaccounted water losses. 55 This does not cover reuse water, ie water derived from sewerage treatment plants and other treated

effluent. 56 Clause 8.1 of Sydney Water Corporation Operating Licence. 57 This is subject to the availability of adequate information.

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Reducing sewerage discharges

Under subclause 8.3.1 of its licence: Sydney Water must take action to re-use, intercept or otherwise prevent from discharge into the ocean, waterways and other waters, sewage or effluent of Customers and Consumers by way of non-potable re-use. Sydney Water is to meet the targets set by the Minister from time to time. [Note: A re-use target of 58 megalitres per day was gazetted on 30 June 1995 under section 27(2) of the Act. Following the 1998 Operational Audit the Minister has required Sydney Water to develop, by 31 December 1999, a re-use strategy for the next five and ten years.] 8.3.2 By no later than 1 September each year, Sydney Water must report to the Licence Regulator on

its progress in meeting the re-use target required under clause 8.3.1 for the previous 12 months, to enable the Licence Regulator to consider and report on the matter as part of the Annual audit.

Water conservation labelling

8.4.1 Sydney Water, through continuing support for the National Water Conservation Rating and Labelling Scheme, is to encourage manufacturers of water appliances to improve the water use efficiency of these appliances where consistent with Sydney Water’s objectives.

8.4.2 By no later than 1 September each year, Sydney Water must report to the Licence Regulator on

its performance under clause 8.4.1 for the previous 12 months, to enable the Licence Regulator to consider and report on the matter as part of the Annual audit.

What information requirements were placed on Sydney Water under the mid-term review?

As part of its mid-term review, the Tribunal recommended that Sydney Water provide additional information on water consumption.58 The information requested included: • components of the water balance, such as water supplied, metered consumption and

losses

• consumption by sector. This information is now reported by Sydney Water as part of its annual demand management and water conservation report.

What are the Ministerial requirements for Sydney Water?

Following the Tribunal’s mid-term review, the Minister placed additional requirements on Sydney Water: • to describe its approach to quantifying leakage and the means used to validate

reductions in leakage achieved, and to report on these matters to the Minister and the Tribunal by 1 September, 2003

• to work with the Catchment Authority to develop performance measures for the reliability of supply.

58 IPART, Mid term review of Sydney Water Corporation’s Operating Licence Report to the Minister for Energy,

September 2002, p 13.


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What are the Sydney Catchment Authority’s Operating Licence requirements? 8.3.1 The Authority must manage demand management consistent with the requirements in the

Water management licence issued to the Authority under Part 9 of the Water Act 1912. 8.3.2 To the extent which the Authority is able, it must manage water conservation consistent with

the demand management requirements in Sydney Water Corporation’s Operating Licence. 8.3.3 In considering any augmentation of the Catchment Infrastructure Works, the Authority must

consider as a priority, whether there exists any additional scope for cost-effective demand management strategies by Sydney Water Corporation.

9.4.10 The Authority must implement any Environmental flow requirements in the Water

management licence issued to the Authority under Part 9 of the Water Act 1912.

What demand management obligations are included in Hunter Water’s Operating Licence? Hunter Water must develop an Integrated Water Resources Plan, which addresses matters including: • management of supply augmentation, losses and demand for the next 10 years

• evaluation of all practical options to manage demand

• annual reports on progress against the Plan.59 8. WATER DEMAND AND SUPPLY

8.3. Integrated Water Resources Plan

Content and Methodology of the Plan 8.3.9 The Plan must enable Hunter Water to respond to the water needs in the Area of Operations,

having regard to the financial, social and environmental costs of all reasonably available options to manage demand and supply of water.

8.3.10 The Plan must indicate:

(a) how Hunter Water will manage supply augmentation, real losses of water from its Water systems and demand for water within its Area of Operations over the next 10 years, and include Present value calculations for 20 years;

(b) the planning assumptions, including drought management assumptions employed; (c) the operational strategy in relation to water resource management; and (d) all other relevant matters employed.

8.3.11 The Plan must quantify the maximum reliable quantity of water that Hunter Water can derive

from one year to the next, from its existing Water storages, taking into account and quantifying all relevant factors including but not limited to: (a) the capacity of the Water storages, and the rates of depletion and recovery of water in the

Water storages at current rates of consumption; (b) climatic data, trends and projections; and

59 Clause 8.3 of Hunter Water Corporation Operating Licence .

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(c) constraints on extraction of water to the Water storages, including those imposed by the Water Management Licence.

8.3.12 The Plan must make projections of the total demand for water within Hunter Water’s Area of

Operations, having regard to relevant factors influencing demand for water, including but not limited to: (a) total growth in consumption, including specific growth rates across the residential,

commercial and industrial sectors; (b) rates and trends in leakage and real losses, in terms of the components of the Water

balance table in the IWA publication; (c) rates and trends in the demand for Recycled water; and (d) actual and potential reductions in demand resulting from Hunter Water’s initiatives.

8.3.13 In developing the Plan, Hunter Water must utilise Present value calculations, providing

justifications for the Discount rate and other inputs used in the calculations. Identifying the Options and associated costs 8.3.14 The Plan must identify and evaluate all reasonably practicable options to manage demand and

supply of water within its Area of Operations, must define the relevant projected outputs from each option and must list the non-financial advantages and disadvantages of each option.

8.3.15 In evaluating the options identified under clause 8.3.14 Hunter Water must take all necessary

steps to ensure that the Plan; (a) quantifies the estimated costs of each option identified, which must include the financial,

social and environmental costs of each option for each year of the Plan; (b) compares the financial, social and environmental costs of each option, in order to

determine the least cost option. 8.3.16 ̀ If Hunter Water is unable reasonably to quantify the social and environmental costs of the

options developed under clause 8.3.15, it must instead quantify such social and environmental costs as it is able and provide a description of those that it is unable to quantify.

8.3.17 Hunter Water must adopt the least cost option determined under clause 8.3.15 unless there are

reasonable and substantive reasons for adopting a different option and those reasons are described in detail in the Plan.

Results of the Plan 8.3.18 Applying the Plan and the matters in clause 8.3, Hunter Water must outline targets,

standards, indicators or other proposals for consideration as part of the Licence review under clause 2.3.1.

Annual Reporting on the Plan 8.3.19 Hunter Water must report its performance against the Plan. 8.4. Water Conservation Target

8.4.1 Hunter Water must ensure that the five year rolling average for annual residential water consumption calculated at a Reporting date is equal to or less than 215 kilolitres ("Water conservation target").

8.4.2 Hunter Water must report its compliance with the Water conservation target.


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8.4.3 Hunter Water must comply with the Water conservation target until replaced (if at all) by some or all of the proposals in clause 8.3.18 that are approved as part of the review of the Licence Review under clause 2.3.1.

Losses from the Water System 8.5.5 Hunter Water must report against each of the components in the Water balance table consistent

with the definitions and methodology in the IWA publication. 8.5.6 Hunter Water must report on the differences in the outcomes in applying clause 8.5.5 between

one Reporting period and an immediately preceding Reporting period. Recycled Water 8.5.7 Hunter Water must report on the quantity of Recycled water (in megalitres) supplied in a

Reporting period for the following applications: (a) for industrial or commercial use; (b) for direct use in irrigation; or (c) for uses, other than those described in (a) or (b).

Demand Management 8.5.8 Hunter Water must report on the total quantity of water (in megalitres) supplied by it for each

of the following: (a) consumption by persons in Residential Properties; (b) industrial and commercial uses (excluding use by a Large Customer); and (c) consumption by Large Customers.

8.5.9 In its report, Hunter Water must compare each application in 8.5.8, with the corresponding

application in the immediately preceding Reporting period, and indicate whether all or some of the following factors, (or other factors of which Hunter Water is aware), contributed to the difference (if any) in the comparison: (a) growth in the Customer base; (b) climatic impact; (c) the nature or extent of consumption of Recycled water; or (d) demand management initiatives.

8.6. Annual reporting on Water Demand & Supply Indicators

8.6.1 Hunter Water must report its performance against the water demand and supply indicators under clauses 8.5.1 to 8.5.9. The report may be included in the report on the environmental and ESD indicators required under clause 9.2.8.

8.6.2 Hunter Water must also publicly display the report provided under clause 8.6.1 on its website

on the internet for downloading free of any charges imposed by Hunter Water, and make it available at its premises for access or collection by any member of the public free of charge.

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APPENDIX 4 WATER BALANCE DATA REPORTED BY SYDNEY WATER

Table A4.1 Water Balance 2001/02, 2002/03 (ML/a)60

Bill metered consumption 534,885 550,278

Billed authorised consumption 538,548 554,234

Revenue water 538,548 554,234

Bill unmetered consumption 3,663 3,956 Unbilled metered consumption - 0

Authorised consumption 541,372 556,576

Unbilled authorised consumption 2,824 2,342

Unbilled unmetered consumption** 2,824 2,342 Unauthorised consumption - 0

Apparent losses* 16,703 16,244

Customer metering inaccuracies 16,703 16,244

Water supplied 624,767 641,450

Water losses 83,395 84,874 (13.2%)

Real losses 66,692 68,630

Non revenue water 86,219 87,216

Real losses (ie leakage) 66,692 68,630 (10.7%)

Notes: *- includes metering inaccuracies and unauthorised consumption. **- for fire fighting, picnic grounds etc.

Table A4.2 Sectoral consumption 2001/2002, 2002/03 (ML/a)61

2001/02 2002/03 % increase

Single residence 283,121 293,343 4

Multi unit 89,921 91,571 2

Residential Billed metered consumption

Other 2,168 2,704 25

Industrial 60,010 58,019 -3

Commercial 52,367 52,993 1

Government 28,840 31,079 8

Primary producers 3,564 4,084 15

Non-residential Billed metered and unmetered consumption

Other 13,050 16,484 15

Recycled Effluent 10,810 13,242 23

Stormwater - -

60 IPART, Mid term review of Sydney Water Corporation’s Operating Licence Report to the Minister for Energy,

September 2002, p 31, Sydney Water, Water Conservation & Recycling Implementation Report 2002-2003, p 59. 61 IPART, Mid term review of Sydney Water Corporation’s Operating Licence Report to the Minister for Energy,

September 2002, p 31, Sydney Water, Water Conservation & Recycling Implementation Report 2002-2003, p 59.


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