updated january 2009 - ipart · contents ii 6 capital expenditure 59 6.1 background 59 6.2...

Hunter Water Corporation | SubmiSSion to ipart on priCeS | to apply from 1 July 2009

Updated January 2009

Hunter Water Corporation

Submission to IPART on prices to apply from 1 July 2009 January 2009

All enquires regarding this submission should be directed to Hunter Water Corporation’s General Manager, Business Strategy and Communications.

Telephone: (02) 4979 9748

Email: [email protected] Submission to IPART on prices to apply from 1 July 2009 (Second Revision) Hunter Water Corporation 36 Honeysuckle Drive, Newcastle PO Box 5171, Hunter Region Mail Centre, NSW 2310 www.hunterwater.com.au January 2009

Contents i

Contents

Preface i

1 Executive summary 1

2 Hunter Water’s operating context 5

2.1 Overview of role, operations and structure 5 2.2 A history of pricing reform 8 2.3 Current pricing structure 9 2.4 Regulatory arrangements 12 2.5 Operating context to 2013 and beyond 14

3 Operating licence system performance standards 16

3.1 Background 16 3.2 Performance drivers 17 3.3 Drivers of water interruptions 17 3.4 Drivers of water pressure performance 19 3.5 Drivers of sewer overflows impacting on private properties 19 3.6 Historical performance 19 3.7 Stakeholder perceptions of system performance 20 3.8 Proposed targets 23

4 Growth and development 26

4.1 Population and demand projections 26 4.2 Transfer of Dungog Shire water and sewer business 29 4.3 H250 plan 30 4.4 Inter-region demand 31

5 Operating costs 32

5.1 Introduction 33 5.2 Pressures on operating costs 35 5.3 Operating cost performance – 2005/06 to 2008/09 36 5.4 Projected operating costs – 2009/10 to 2012/13 43 5.5 Efficiency enhancing programs / initiatives 48 5.6 Other operating risks and uncertainties 54 5.7 Subsidiary/unregulated activities 55 5.8 Ring-fencing recycled water costs 56 5.9 Impact of the Carbon Pollution Reduction Scheme 57

Contents ii

6 Capital expenditure 59

6.1 Background 59 6.2 Performance between 2005/06 and 2008/09 60 6.3 Projected capital expenditure 2009/10 to 2012/13 64 6.4 Water 66 6.5 Wastewater 67 6.6 Recycled water 68 6.7 Stormwater 69 6.8 Corporate 70 6.9 Proposed physical output measures 70 6.10 Capital program efficiency and delivery 71 6.11 Government directives 73 6.12 Prudency of previous expenditure 73 6.13 Asset lives 74

7 Tillegra dam 75

7.1 Background 75 7.2 Project description 76 7.3 Project costs 77 7.4 Project procurement 78 7.5 Cost sharing 78

8 Forward revenue requirements 80

8.1 The building block approach 80 8.2 Operating and capital costs 81 8.3 Rate of return 81 8.4 Building block components and aggregate pricing 82 8.5 Aggregate pricing proposal and X factors 83 8.6 Adjustments to the RAB for developer charges 84

9 Water pricing 85

9.1 Current structure, prices and issues 85 9.2 Long run marginal cost 86 9.3 Proposed water usage prices and service charges 88 9.4 Location-based usage prices 88 9.5 Water prices for unmetered properties 91 9.6 Prices for unfiltered water – Upper Chichester Dam pipeline 92 9.7 Dungog Shire customers – transitional pricing 92 9.8 Prices for supply to the Central Coast region 93 9.9 Recycled water 94

10 Sewer pricing 98

10.1 Current structure and prices 98 10.2 Issues with sewer usage charges 99 10.3 Issues with sewer discharge factors 100 10.4 Proposed pricing reforms 101 10.5 Proposed sewer usage prices and service charges 101 10.6 Sewer prices for Dungog Shire customers 102 10.7 Environmental Improvement Charge 103

Contents iii

11 Stormwater pricing 106

11.1 Background 106 11.2 Proposal 107

12 Customers’ bills 108

12.1 Effect on residential customers 109 12.2 Effect on non-residential customers 110 12.3 Components of the bill increases 111 12.4 Managing customer impacts 112

13 Trade wastewater charges 117

13.1 Background 117 13.2 Efficiencies and cost pressures 119 13.3 Overview of proposed charges 119 13.4 Tanker received wastewater 127 13.5 Customer Incidence 132

14 Miscellaneous services 136

14.1 Background 136 14.2 Customer services charges 137 14.3 Commercial development charges 143 14.4 Activity levels and incidence 147 14.5 Rounding of charges on indexation 147

15 Glossary 149

16 References 153

Appendices

A Actual and Projected Sales and Revenue 2005/6 to 2008/09 A.1

B Capital Cost Escalation B.1

C Physical Output Measures Report 2005/06 to 2008/09 C.1

D Major Capital Projects With Forecast Expenditure >$1m – By Year D.1

E Major Capital Projects With Forecast Expenditure >$1m – By Purpose E.1

F Proposed Output Measures 2009/10 to 2012/13 F.1

G WACC Parameters G.1

H NSW Treasury – Advice to Hunter Water on WACC Considerations H.1

I Cost base for individual Miscellaneous Service Charges I.1

J Activity and Revenue Summary – Customer Miscellaneous Charges J.1

K Activity and Revenue Summary – Commercial Development Miscellaneous Charges K.1

Contents iv

L IPART information requirements L.1

M Abolition of developer charges. News Release by NSW Premier and letter from Acting Treasurer M.1

List of Tables

Table 2.1 Water, sewer and drainage prices - 2008/09 12 Table 3.1 How customers judge Hunter Water’s performance 21 Table 3.2 Current and proposed system performance standards and targets 23 Table 4.1 Consumption projections 29 Table 5.1 Operating costs - 2005/06 to 2008/09 ($m 08/09) 37 Table 5.2 Projected operating costs - 2009/10 to 2012/13 ($m 08/09) 44 Table 5.3 Expected efficiencies - 2009/10 to 2012/13 ($m 08/09) 49 Table 5.4 Expected efficiencies by program - 2009/10 to 2012/13 ($ 08/09) 50 Table 6.1 Proposed capital expenditure program ($m 08/09) 64 Table 6.2 Capital expenditure program by driver ($m nominal) 65 Table 6.3 Proposed water capital expenditure program ($m 08/09) 67 Table 6.4 Wastewater capital expenditure program ($m 08/09) 68 Table 6.5 Recycled water capital expenditure program ($m 08/09) 69 Table 6.6 Stormwater capital expenditure program ($m 08/09) 70 Table 6.7 Corporate capital expenditure program ($m 08/09) 70 Table 7.1 Tillegra Dam net total project costs 77 Table 8.1 WACC parameters 82 Table 8.2 Building block components – water ($m nominal) 83 Table 8.3 Building block components – sewer ($m nominal) a 83 Table 8.4 Building block components – drainage ($m nominal) 83 Table 8.5 X factors for water, sewer and drainage (per cent) 84 Table 9.1 Proposed X factors and usage prices 88 Table 9.2 Proposed service charges ($08/09 for 20mm meter) 88 Table 9.3 Proposed location based usage prices ($08/09/kL) 91 Table 9.4 Unfiltered water discount – Upper Chichester pipeline ($08/09/kL) 92 Table 9.5 Proposed water prices for Dungog Council Area ($08/09) 93 Table 9.6 Proposed recycled water prices for Gillieston Heights ($08/09) 97 Table 9.7 Proposed recycled water prices for Chisholm ($08/09) 97 Table 10.1 Non-residential sewer discharge factor bands 100 Table 10.2 Proposed sewer usage prices ($08/09) 102 Table 10.3 Proposed sewer service charges ($08/09 for 20mm meter) 102 Table 10.4 Proposed Dungog Shire sewer prices ($08/09) 103 Table 11.1 Proposed stormwater drainage charges ($08/09) 107 Table 12.1 Typical residential bill at 200 kilolitres per year ($08/09) 109 Table 12.2 Non-residential incidence ($08/09) 111 Table 12.3 Components of the typical residential bill increase ($08/09) 112 Table 13.1 Trade wastewater agreement and inspection fees ($08/09) 123 Table 13.2 Trade wastewater high-strength charges for BOD/ NFR 125 Table 13.3 Trade wastewater services variable quality charges ($/kg $08/09) 127 Table 13.4 Tankering services charges ($08/09) 133 Table 13.5 Customer Impacts – trade waste fee changes ($08/09) 133 Table 13.6 Customer Impacts – tankering fee changes ($08/09) 134 Table 14.1 New customer services charges 139 Table 14.2 Reduced customer services charges 141 Table 14.3 Restructured/Amended customer services charges 142

Contents v

Table 14.4 New commercial development charges 145 Table 14.5 Repackaged commercial development charges 146

List of Figures

Figure 2.1 Hunter Water’s area of operations 7 Figure 2.2 Hunter Water’s organisation structure 7 Figure 3.1 Historical water continuity performance 20 Figure 3.2 Domestic customers’ perception 21 Figure 3.3 Domestic customer perceptions of water continuity performance 22 Figure 3.4 Domestic customer perceptions of water pressure performance 22 Figure 3.5 Domestic customer perceptions of sewer performance in 2007 23 Figure 4.1 Hunter Water’s total supply requirement 27 Figure 4.2 Domestic and non-domestic demand 28 Figure 5.1 Water and sewerage operating cost per property ($07/08) 33 Figure 5.2 Operating cost per property – major Australian utilities ($06/07) 34 Figure 5.3 Operating cost comparisons 2005/06 to 2012/13 ($m 08/09) 35 Figure 5.4 Operating cost component increases 05/06 - 08/09 ($m 08/09) 38 Figure 5.5 Operating cost component increases - 09/10 to 12/13 ($m 08/09) 44 Figure 5.6 Major operating cost components - 2008/09 51 Figure 5.7 Controllable and uncontrollable operating costs – 2008/09 54 Figure 6.1 Capital expenditure 2005/06 to 2008/09 ($m nominal) 60 Figure 6.2 Capital expenditure program 2009/10 to 2012/13 ($m nominal) 66 Figure 13.1 Trade wastewater pricing structure 120 Figure 13.2 Current tanker services pricing structure 129 Figure 13.3 Proposed tankering services pricing structure 131

Preface i i

Preface

Until 17 December 2008, IPART’s pricing framework allowed full recovery of the capital and operating costs of efficient service provision through a combination of periodic (fixed and usage) prices and developer charges.

On 17 December 2008, the Premier, the Hon Nathan Rees MP, announced the Government’s plan to boost the NSW housing industry and improve housing affordability for families by reforming infrastructure levies. The reforms included Hunter Water immediately ceasing to levy developer charges for water and wastewater (sewer) services. Hunter Water did not previously apply developer charges for stormwater services.

The Premier noted that the NSW housing sector has been hit especially hard by the economic downturn and infrastructure levy reforms will kick-start housing construction, which is vital to the state’s economy. Ceasing to levy developer charges for water and sewer will save new developments in the Hunter on average around $5,000 per lot.

On 18 December 2008, the Acting Treasurer, Hon. David Campbell MP, wrote to Hunter Water approving zero developer charges for water and wastewater services under Section 18(2) of the Independent Pricing and Regulatory Tribunal Act 1992. The letter also notes that developer charges will continue to be used to recover the costs of providing recycled water services to new developments in line with IPART’s 2006 recycled water developer charge determination and associated pricing guidelines.

The Premier’s news release and the letter from the Acting Treasurer are included in Appendix M.

The Government’s decision affects the pricing and cost recovery framework for Hunter Water and has necessitated a revision of the price submission currently under consideration by IPART. Immediately following the Government’s decision, IPART requested that Hunter Water provide updated price proposals by 5 January 2009.

Hunter Water’s submission to IPART’s review of periodic prices to apply from 1 July 2009 has been updated to reflect the changes to the pricing and cost recovery framework, removing any proposals to recover costs through developer charges for water and wastewater services and removing adjustments to the Regulatory Asset Base for developer charges.

A summary of changes to this edition of Hunter Water’s submission is provided below.

Preface ii ii

Reference Modification Executive Summary Revised customer bills – residential customers. Revised bill

increase components. Section 5.6 Updated discussion of projected DECC load-based licence

fee increases in light of DECC submission of 28 October 2008.

Section 7.5 Revised discussion of Tillegra Dam cost recovery. Section 8.4 Revised building block components - water and sewer only. Section 8.5 Revised X factors – water and sewer. Section 8.6 Revised discussion of adjustments to the RAB for developer

charges and contributions. Section 9.2 Revised discussion of Long Run Marginal Cost. Section 9.3 Revised water service charges and location usage prices. Section 9.8 Revised discount on usage price for Central Coast. Sections 10.5 and 10.6 Revised sewer prices. Section 12.1 Revised customer bills – residential customers. Section 12.2 Revised customer bills – non-residential customers. Section 12.3 Revised bill increase components. Section 12.4 Revision to kidney dialysis rebate as recommended by

EWON. Table 13.1 Typographical error corrected. Table 13.2 Revised to show base charge and incentive charge. Section 14.1 Revenue updated per amendments to Appendices I - K. Section 14.2 Revenue from new charges updated per Appendices. Section 14.4 Revenue from new charges updated per Appendices. Appendix I

Charge 3b Typographical error corrected. Charge 4 Charges updated for new meter reading contract effective

from 1 November 2008. Charge 18b Rounding corrected to nearest whole dollar. Charge 23a Bank-declined cheque. Charge reduced as the fee imposed

by bank is no longer charged. Charge 24 Lower charge as average time for function reduced. Charge 29 Charges updated for new meter installation contract. Charge 63 Lower charge as average time for function reduced. Charge 65 Average time for function updated.

Appendix J Charge 4a Higher predicted income to reflect higher charge. Charge 4b Lower predicted income to reflect lower charge. Charge 9a Rounding of income corrected. Charge 18b Higher predicted income to reflect higher predicted quantity. Charge 23a Lower predicted income to reflect lower charge. Charge 24 Lower predicted income to reflect lower charge. Charge 29 Lower predicted income to reflect lower charge. Charge 31a, b, c Higher predicted income to reflect higher predicted quantities. Charge 63 Lower predicted income to reflect lower charge.

Preface iii iii

Reference Modification Total Income Updated to reflect revised charges and quantities.

Appendix K Charge 19 Predicted income listed by asset type. Charge 37 Rounding corrected. Charge 44 Rounding of income corrected. Total Income Updated to reflect revised charges and quantities.

Chapter 1 Executive summary 1

1 Executive summary

Hunter Water has a long history of containing prices to provide value-for-money services to its customers. Bills for residential customers in 2001 were eight per cent lower than they were a decade earlier and, in 2003/04, customer bills were still at the same level as they were in 1991/92.

Today the circumstances that allowed these price reductions have changed. Drought security, climate change, environmental sustainability and customer service demands are driving record levels of investment by the Australian water industry.

In the lower Hunter region, Hunter Water has embarked on major projects to meet the needs of growth and drought security with Tillegra Dam and the Kooragang Island industrial recycled water project.

Hunter Water is also investing heavily in improvements in its water distribution network, wastewater treatment plants and to provide new residential areas with recycled water. Hunter Water will continue to invest in improving the services it provides to customers in order to meet new performance standards in its operating licence. This will increase expenditure on the water supply network by 20 per cent to reduce supply interruptions and there will be a 30 per cent increase in expenditure on the sewer system to reduce sewer overflows.

Water utilities throughout Australia are also seeing significant upward pressure on their operating costs and Hunter Water is not isolated from these pressures.

Hunter Water’s prices must be sufficient to pay for the increases in capital investment and rising operating costs. This submission proposes price increases over the next four years to cover these investment and operating costs.

After four years, the average residential water and sewer bill will have increased by around $412 ($08/09) in total or 57 per cent. The $412 bill increase is made up of:

Increases in operating costs $79 Increased infrastructure investment (excl Tillegra Dam) $207 Tillegra Dam $60 Maintain credit rating $84 Water efficiency programs $5 Reduction in EIC - $23 Total $412

The table below shows how typical residential bills will move over the next four years.


Typical residential bill at 200 kilolitres per year ($08/09) 2008/09 2009/10 2010/11 2011/12 2012/13 Water service 41.46 57.38 65.13 74.29 82.41 Water usage 254.00 326.00 354.00 388.00 416.00 Sewer service 321.17 516.61 553.45 581.09 600.36 Sewer usage 47.00 0 0 0 0 EIC 54.84 31.98 31.98 31.98 31.98 Total 718.47 931.97 1004.56 1075.36 1130.75

Around one third of Hunter Water’s customers also pay for stormwater services. Only modest increases in stormwater charges are proposed equating to an $8 bill increase (plus CPI) by 2012/13 for residential customers.

Hunter Water has a range of bill management options available to customers in need and these are outlined in detail in the submission.

The average annual increase for non-residential customers ranges from 12 to 17 per cent per year. The impact on non-residential customers is subject to a number of variables including location, meter size and use levels. Examples of potential bill impacts are provided in chapter 12.

Hunter Water’s expenditure The investment program for the next four years will be the largest undertaken in Hunter Water’s history. In total $1,148 million will be spent to meet the needs of projected population growth, increases in regulatory requirements and service standards and to provide drought security to the region.

The main expenditure areas will be in water (22 per cent), wastewater (38 per cent) Tillegra Dam (29 per cent) and recycled water (5 per cent) with the balance of the investment being in smaller projects such as stormwater.

The cost estimates incorporate an escalation factor greater than the projected rise in the consumer price index. This is based on a BIS Shrapnel study that shows construction costs are rising faster than increases in the CPI.

Future operating costs will increase by 5.5 per cent over the next four years or an average 1.4 per cent per year, which is less than the expected rate of growth in properties serviced. Efficiencies of $6.1 million have been identified and deducted to arrive at this cost projection.

Operating cost increases are being driven by:

• National skills shortages in professional and engineering areas, an ageing workforce and a more mobile workforce generally.

• Growth in Hunter Water’s business, including expansion of its area of operations.

• A focus on water efficiency and the pursuit of a range of water efficiency measures that will save water in the Corporation’s operations and reduce customer demand.

• Price increases above inflation for a range of input costs such as electricity, fuel, chemicals and other major contracts.

• Increasing customer expectations regarding acceptable standards of service and environmental commitments.


• Further investment in continuous improvement strategies to identify efficiency offsets.

Tillegra Dam Climatic variation and increasing population have lead to a reassessment of the yield from water supply systems. While the lower Hunter is well placed for water under average year conditions, the community is vulnerable to long droughts.

Tillegra Dam has been identified as the most cost-effective option to address long-term supply and drought security.

When completed in 2014 the dam will provide 450,000 megalitres of storage capacity and increase the annual yield of the total supply system to 120,000 megalitres per year.

The cost of the dam is estimated at $406.3 million (in nominal terms) and, following the NSW Government’s decision of 17 December 2008, will be funded through periodic charges alone. This has been included in the recalculation of prices for this revised submission.

Water pricing To maintain a strong water conservation signal, Hunter Water’s charging structure is based on a pay-for-use philosophy with most of the Corporation’s water revenue derived from usage charges.

Hunter Water has set proposed usage prices to cover the increasing costs of the water supply part of its business.

The proposed price adjustment, before inflation, will see the water usage price increase from $1.27 per kilolitre today to $2.08 in 2012/13.

The continuing focus on cost recovery through the water usage price will encourage recycling.

Sewer and stormwater pricing Hunter Water is one of only few metropolitan water utilities in Australia that has a sewer usage charge for residential customers. Even though this charge is now quite low, it remains a source of customer complaints.

Hunter Water proposes the sewer usage charge for residential customers be abolished. It also proposes that non-residential customers are charged based on the average sewer discharge factor for their business type. These changes would address customer concerns with the current price structure while having minimal negative impact on any particular customer group.

Hunter Water proposes to continue funding the provision of sewer services to backlog areas via the environmental improvement charge (EIC). The good news for customers is that the EIC is being cut by 40 per cent because the initial cost of some of the backlog sewer projects now has been fully recovered.

Only modest increases in stormwater charges are proposed, totalling less than $8 for residential customers by the end of the four-year price period.


Trade wastewater charges and miscellaneous fees The water industry recently developed a new approach to managing trade wastewater. Hunter Water is proposing reform of its trade wastewater charges in line with this new national approach.

The most significant proposal is the introduction of a third ‘moderate’ agreement category between the existing minor and major agreement levels.

Revisions to the calculation method for high-strength (BOD/NFR) charges will result in charge reductions for some customers. Proposed high-strength charges for customers on major agreements will be reduced in 14 of Hunter Water’s 19 wastewater treatment plant catchments.

Further real price reductions are proposed for heavy metal and phosphorus charges.

Trade wastewater and tankering charges represent a total income of around $2.4 million per year. The price reforms and revised charges result in a 35 per cent reduction in revenue from these charges when compared to this year.

Hunter Water offers a range of non-contestable, one-off services to customers and the costs of these services are recovered by specific fees and charges.

Charges for miscellaneous and ancillary services are only incurred by a very small number of the customers and generally only one at a time.

In preparing the fee structure for the next four years, Hunter Water has taken the opportunity to review its business processes to ensure that costs and charges match the services delivered. Price increases are proposed for 27 services, reductions are proposed for 17 services and 10 existing services have components with proposed adjustments in prices. Charges for miscellaneous and ancillary services only generate a very small proportion of Hunter Water’s total revenue.

Chapter 2 Hunter Water’s operating context 5

2 Hunter Water’s operating context

Main Points • Drought security, climate change, environmental sustainability and customer

service levels are driving record levels of investment in the Australian water industry and Hunter Water.

• The NSW Government’s 2006 State Plan includes major investments to meet the needs of growth and drought security including Tillegra Dam, the Kooragang Island recycled water project.

• Hunter Water is also investing heavily in improvements in its water distribution network, wastewater treatment plants and recycled water supply to new residential areas.

• Water utilities throughout Australia are also seeing significant upward pressure on operating costs. Together with the increases in capital investment, these pressures are driving up prices for customers.

• Hunter Water’s operating licence sets enforceable standards for drinking water quality and the number of allowable water supply interruptions, water pressure and sewer overflows. New performance standards for the latter three will apply from 1 July 2009.

• Hunter Water is positioning for a more competitive water industry as allowed under the 2006 Water Industry Competition Act.

2.1 Overview of role, operations and structure

Role Hunter Water is a State Owned Corporation (SOC) providing water and wastewater services for over half a million people in the lower Hunter region. Hunter Water was established in 1992 under the State Owned Corporations Act 1989, arising from the Hunter Water Board, which had its origins in the late 19th century. Hunter Water’s key roles and responsibilities are enshrined in the Hunter Water Act 1991.

Hunter Water Corporation’s primary purpose is to supply dependable and high quality water and wastewater services to the people of the lower Hunter region. Hunter Water collects, treats and delivers drinking water to customers across the lower Hunter. This water consistently meets the highest guidelines for drinking water set by the National Health and Medical Research Council (NHRMC). The Corporation also transports, treats, recycles or disposes of the region’s wastewater. Wastewater is treated to a very high standard and clear effluent is discharged into waterways in


accordance with requirements set by the Department of Environment and Climate Change or reused where it is economically and environmentally beneficial. Hunter Water has also committed to delivery of the region’s first reticulated residential recycling schemes in a number of new development areas.

Operations Hunter Water’s area of operation covers 5,366km2 with a population of 517,273 in the local government areas of Dungog, Cessnock, Lake Macquarie, Maitland, Newcastle and Port Stephens and small parts of Singleton. Bulk water is also supplied to MidCoast Water for supply to North Karuah. There are currently 216,189 properties connected to Hunter Water’s water network and 205,034 to the wastewater network.

Following the completion the first stage of a new pipeline connection in 2008, Hunter Water now has the capacity to supply up to an average of 35 megalitres1 per day to the Central Coast (depending on Hunter Water’s storage levels). In addition, Hunter Water provides some stormwater services to the lower Hunter, with 100km of stormwater channels in Cessnock, Newcastle and Lake Macquarie.

Hunter Water’s network supplies an average 205 megalitres of water per day using assets worth around $2 billion. Water is delivered via an extensive network of some 4,800 km of pipes, 95 reservoirs and 85 pumping stations across six local government areas – Newcastle, Lake Macquarie, Maitland, Port Stephens, Dungog and Cessnock. Hunter Water’s sewer network is equally extensive, collecting wastewater through 4,500 km of sewers and 385 wastewater pumping stations and delivering it for treatment at one of 18 wastewater treatment plants. Hunter Water’s water sources includes Grahamstown Dam (190,000 megalitre capacity), Chichester Dam (21,500 megalitres), Tomago Sandbeds (60,000 megalitres) and Anna Bay Sandbeds (16,000 megalitres). Hunter Water’s area of operations is illustrated below:

1 One megalitre equals one million litres


Figure 2.1 Hunter Water’s area of operations

Structure Hunter Water Corporation has two nominated shareholders, being the NSW State Government Treasurer and the Minister for Finance. It is the parent company in a group which includes a subsidiary – Hunter Water Australia. Each company is governed by an independent Board of Directors.

Internally, the Corporation is structured on a functional basis, as illustrated in Figure 2.2 below.

Figure 2.2 Hunter Water’s organisation structure

HUNTER WATER CORPORATION

BUSINESS STRATEGY &

COMMUNICATION

BUSINESS SERVICES

PEOPLE & CHANGE

SYSTEM STRATEGY &

SUSTAINABILITY

INFRASTRUCTURE DELIVERY

SYSTEM OPERATIONS

CUSTOMERS & COMMERCIAL

DEVELOPMENT

HUNTER WATER AUSTRALIA (Subsidiary)


This structure with seven divisions is progressively being implemented from September 2008 and replaces a five-division structure that has been in place for many years. The new structure is designed to bring together engineering strategic planning areas that were spread over two divisions for greater planning coordination. It also separates strategic engineering planning from asset delivery – an important step in view of the large capital works investment program ahead. In keeping with trends in other businesses, the new structure creates a separate division building on the traditional human resources function to focus on people and change. This expanded role will incorporate continuous improvement and promote the corporate cultural changes needed to operate successfully in an increasingly competitive water industry.

Hunter Water Australia (HWA), established in 1998, pursues commercial sales in the areas of water and wastewater treatment operations and consultancy, engineering consultancy, survey and asset mapping services, laboratory analysis and advice and, corrosion engineering consultancy. As well as successfully marketing its services to external parties, HWA is also a key supplier of services to the Corporation, managing both the wastewater treatment works and water treatment plants.

Future developments In November 2006, the NSW Government announced a plan to secure the water future for the lower Hunter and central coast regions.2 The plan will provide for population growth within the two regions for the next 50 years, and even longer with the Central Coast’s Mardi/Mangrove pipeline link. Importantly, the plan will also provide significant drought security for both areas.

The plan includes:

• A new 450,000 megalitre dam to be constructed on the upper Williams River north of Dungog, to be known as Tillegra Dam. The proposal is subject to obtaining all the necessary planning and environmental approvals.

• New pumps at Hunter Water’s Seaham weir to capture greater flood flows from the Williams River.

• A major recycled water plant to provide 3,000 megalitres of treated effluent each year for industries on Kooragang Island and the Mayfield industrial area.

• Increasing the capacity of the existing pipeline link between the Hunter and the Central Coast.

More details of these proposals are provided throughout this submission and specifically in chapter 6 in relation to the Corporation’s capital expenditure program and chapter 7 in relation to the Tillegra Dam proposal.

2.2 A history of pricing reform Hunter Water Corporation, and its predecessor authorities, has moved progressively from a property-value based rating system for water and sewer to a consumption-based charging system with no relationship to property value. To date, pricing reform in the Hunter has been addressed in four stages:

• 1982 – introduction of a two-part tariff comprising a service charge and a usage charge for all water consumed. A similar two-part tariff was applied to sewer with sewer usage implied from water usage.

2 Premier of NSW, News Release, 13 November 2006


• 1990 to 1994 – progressive elimination of the property-value basis for water and sewer service charges. The valuation basis was completely removed for residential customers in 1990/91 and for the industrial and commercial group in 1994/95.

• 1995 – removal of cross subsidies in pricing and of other discriminatory elements in the application of prices. This included:

- Removal of charges on vacant land;

- Removal of fire service charges; and,

- Uniformity of charges for all customers – residential and non-residential. The residential and non-residential sewer usage charge were equalised in 2002/03.

• 2001 - introduction of location-based pricing for large water users to provide cost-reflective pricing for major customers. This location-based price reflects the economies that are achieved when supplying large volumes of water to individual customers close to Hunter Water’s water treatment facilities, in accordance with National Competition Policy.

2.3 Current pricing structure Today, both Hunter Water’s residential customers, and the majority of the non-residential customers, are billed three times a year. Water and sewer charges for residential customers consist of a fixed service charge and a usage charge.

Water service charge The water service charge is a fixed charge that varies only according to meter size. Most domestic customers have a standard 20mm diameter meter and therefore currently pay a uniform water service charge. Consumers with larger meters, mainly commercial and industrial customers, pay higher service charges determined by the size of their water meter.

Water usage charge Water usage charges are applied to measured consumption at the customer’s meter. Two rates apply:

• A basic rate for all consumption up to 50,000 kilolitres. To put this volume into perspective, it is equivalent to the annual consumption of 250 houses.

• A location-based rate for consumption greater than 50,000 kilolitres per year in specific areas only. The location-based charge only applies to consumption in excess of 50,000 kilolitres by eligible customers – all consumption under 50,000 kilolitres is charged at the rate applying to all other customers. The location-based rate was introduced from 1 July 2001 onwards and passes on to some very large industries the economies of using less of Hunter Water’s substantial water distribution infrastructure.

Sewer service charge Sewer service charges are a fixed charge to meet the capital and fixed operating costs of the sewerage system. This is the dominant charge in a typical residential customer’s sewer bill, making up over 80 per cent of the average household sewer bill. For typical standard house residential connection with, Hunter Water charges a flat rate service charge.


For other customers, service charges vary according to water meter size, as for water-service charges, and are adjusted by a “discharge factor”. Discharge factors are an estimate of the proportion of water supplied that is subsequently discharged to the sewer. Industrial and commercial customers have varying discharge factors depending on the nature of water use and discharge e.g. an office building with no external use may have a 100 per cent discharge factor while a retail plant nursery may have a very small discharge factor because most of its water use is not discharged to the sewer.

In the last few years, some customers have expressed concerns to Hunter Water about the application of the discharge factor to their business. In response, Hunter Water is proposing some changes and these affect the revenue recovery, and hence the size, of the sewer service charge. Chapter 10 of this submission details Hunter Water’s proposed changes to the application of the discharge factor and corresponding pricing adjustments.

Sewer usage charge Sewer usage charges are imputed from the level of measured water consumption and are intended to reflect the small variable cost component in sewage transport and treatment, mainly power and chemicals. The level of sewer usage is imputed by applying a “discharge factor” to measured water use. The discharge factor represents the amount of metered water consumption notionally discharged to the sewer. For example, a residential customer consuming 200 kilolitres of water would have an imputed sewer use of 100 kilolitres (200 kilolitres of water x 50 per cent discharge factor = 100 kilolitres sewer use). Sewer usage charges are then applied to this level of imputed sewer use.

In previous price determinations, IPART has reduced the sewer usage charge in response to the concerns of residential customers with high levels of outdoor water use. Further, in its 2005 determination report, IPART noted “It is the Tribunal’s view that a two-part tariff for wastewater is not the most effective demand management tool. Although it is a de facto water usage charge, it is not clear whether this is well understood by customers.” 3

In response to these ongoing concerns, Hunter Water is proposing to remove the sewer usage charge for residential customers. Chapter 10 of this submission details Hunter Water’s proposals for changes to the application of sewer usage charges.

Stormwater drainage charge Stormwater drainage charges apply only in areas where Hunter Water maintains stormwater drainage networks. These drainage networks are in parts of Newcastle, Lake Macquarie and Cessnock Council areas. Charges currently comprise a service charge for residential customers and, a service and property value charges for non-residential customers.

Major reform of stormwater charging was approved by IPART in 2005 whereby stormwater charges were progressively changed from a property-value based tariff to a land-area based tariff. This progressive change will be completed in 2008/09 and no further changes for stormwater charging are proposed.

Charges for stormwater in the price period from 2009/10 to 2012/13 are outlined in chapter 11.

3 Independent Pricing and Regulatory Tribunal, 2005, page 122


Environmental improvement charge The environmental improvement charge (EIC) is levied on all sewered properties in Hunter Water’s area of operations and on properties where there is a commitment to make sewerage services available. This money is used to fund commitments to provide sewerage service to backlog areas under the Hunter Sewerage Project and the NSW Government’s more recent Priority Sewerage Program.

In 2009/10, the EIC will be scaled back to cover only the funding requirements of the Government’s Priority Sewerage Program and the provision of sewerage to Clarence Town, which became the responsibility of Hunter Water from 1 July 2008 with the transfer of Dungog Council’s water and sewer business to Hunter Water.

Details of the proposals for the EIC for the price period from 1 July 2009 are provided in chapter 10 of this submission.

Current water sewer and drainage charges The current prices charged by Hunter Water are listed in the Table 2.1.

In addition to the charges below, IPART sets a range of charges for miscellaneous services that are not used by all customers. These charges are generally paid up-front and cover a wide range of services such as initial connection to the water or sewer system, disconnection from the system, standpipe hire, meter testing and special meter reads. These charges are only incurred by a very small number of customers each year and only if they require any of the designated miscellaneous services. These charges, therefore, are not an impost the majority of customers.

Chapter 14 of this submission details Hunter Water’s proposals for miscellaneous charges for the price period from 2009/10 to 2012/13.


Table 2.1 Water, sewer and drainage prices - 2008/09 Water Service 20mm meter (base) a 41.46Usage Up to 50,000 kilolitres per year 1.270($/kL) Over 50,000 kilolitres per year: Kooragang/Stockton 1.003 Tomago 1.049 South Wallsend 1.010 Warners Bay/Valentine 1.049 Seaham/Hexham 1.091 Newcastle/Highfields 1.104 Raymond Terrace 1.121 Port Stephens 1.125 Kurri/Cessnock 1.129 Lookout 1.127 Edgeworth/West Wallsend 1.156 All other locations 1.270 Unfiltered water (Chichester trunk main) 0.970Sewer Service Residential house b 321.17 Base – all other customers (100% discharge) c 642.33Usage ($/kL) All 0.470Stormwater Drainage Service Residential 61.52 Non-residential area < 1,000m2 or low impact 61.52 Non-residential area 1,001m2 to 10,000m2 111.19 Non-residential area 10,001m2 to 45,000m2 707.26 Non-residential area > 45,000m2 2,224.11 Non-residential valuation ($/$AAV) d 0.0035

Source: HWC a. This is the base water service price. Prices for larger meter sizes are calculated as base charge X (meter size)2/400. b. Residential houses with a 20mm water meter pay a flat sewer service charge of $321.17. No discharge factor applies to this charge. c. This is the base sewer service charge for all other customers. Charges applying to individual customers are calculated according to water meter size using the relationship in note (a) and applying the customer’s discharge factor. d. This is the last year of valuation based charges. From 2009/10, only area-based service charges will apply to non-residential properties.

2.4 Regulatory arrangements

The operating licence Hunter Water’s operations are regulated by the NSW Government on behalf of the community through a number of regulatory instruments. The main regulatory instrument is the operating licence. The objective of the licence is to enable and require Hunter Water to lawfully provide the services within its area of operations.


The operating licence specifies performance standards, including drinking water quality and environmental requirements. The Licence also recognises the rights given to customers and consumers.

The operating licence is administered by the Minister for Water. The Minister also has powers to direct Hunter Water in certain matters of public interest. The current operating licence came into effect on 1 July 2007, and is valid for a five year period. Performance against key operating licence conditions and the customer contract is regularly reported to the Board, regulating Minister, voting shareholders and the NSW Parliament. In addition, the IPART undertakes an annual audit of the Hunter Water’s performance against the conditions in the operating licence.

IPART reviewed Hunter Water’s operating licence in 2006. As part of this review, new system performance standards were developed. These were based on investigations carried out for IPART by the consultant GHD, who recommended only the definitions for new standards.4 While the definitions for new system performance standards were agreed by IPART and the water utilities at the conclusion of the licence review, the performance targets for these new standards were not set. IPART instead deferred amending the system performance standards and targets in the operating licence until they were considered as part of this price review.

Chapter 3 of this submission details Hunter Water’s proposals for targets for the new system performance standards to apply from 1 July 2009. The proposals in chapter 3 are also based on discussions held with IPART in May and June 2008 on target setting for the proposed licence standards.

Other regulatory arrangements Hunter Water’s overall pricing structure is determined by IPART through its periodic reviews of prices charged by metropolitan water agencies.5 Through this price review process, IPART determines the maximum price that Hunter Water can charge for bulk water, retail water, wastewater, recycled water and stormwater services over the given price path period.

The performance of Hunter Water’s wastewater network falls under the administration of the Department of Environment and Climate Change (DECC).The Department of Environment and Climate Change issues licences under the Protection of the Environment Operations Act 1997 for Hunter Water’s wastewater pipe network and treatment systems. The licences stipulate both quality and quantity conditions for discharge from each wastewater treatment works and are reviewed every three years under the legislation. The licences also specify operational controls and performance reporting for the pipe network and pump stations.

Access to natural surface water and groundwater is regulated by the Department of Water and Energy (DWE). Hunter Water extracts water from the Williams River and groundwater sources under stringent conditions set out in licences issued by DWE under the Water Act 1912 and Water Management Act 2000. DWE can direct Hunter Water to carry out remedial work should water extraction activities be determined to have caused any adverse environmental impacts.

Water quality is managed through a Memorandum of Understanding with NSW Health, which establishes the scope of the Corporation’s drinking water monitoring plan and procedures for communicating results of water quality monitoring programs.

4 GHD, 2006 5 The metropolitan agencies are Sydney Water Corporation, Hunter Water Corporation, Gosford City Council, Wyong Shire Council and Sydney Catchment Authority


This memorandum is strengthened by complementary conditions regarding drinking water quality in the Corporation’s operating licence.

The rights and obligations of customers and Hunter Water are set out in a customer contract. Under the customer contract, rebates are provided to customers for certain circumstances where specified standards are not met at the individual customer level (e.g. service interruptions, sewage overflows and water pressure incidents). Consumer protection and dispute resolution is dealt by both internal dispute handling mechanisms and by the independent Energy and Water Ombudsman of NSW (EWON).

This submission is based on the continuation of these existing regulatory requirements and the standards specified within them, with the exception of the system performance standards specified in the 2007 operating licence.

Hunter Water has also made provision in this submission for planned expenditure to provide for enhanced performance of the wastewater transport and treatment systems in line with DECC requirements. No specific provisions have been made in relation to requirements under water access licensing as no major changes have been foreshadowed in regular liaison meetings with DWE. However, it is anticipated new water access conditions will be developed towards the end of the coming price period as part of DWE’s licensing process for Tillegra Dam.

2.5 Operating context to 2013 and beyond The water industry across Australia is experiencing unprecedented change, largely driven by the need to focus on drought security following drought conditions that have been unprecedented for many decades. This situation is compounded by growing concern about climate change and the impact this change might have on both water demand and the security of water supplies.

The Australian urban water industry is investing in the order of $30 billion in developing new water sources over the next 5 to 10 years.6 This is in addition to substantial outlays in wastewater and stormwater systems. Overall, the magnitude of capital investment in the water industry is unprecedented with capital expenditure in 2007/08 exceeding $2 billion.7 This doubles the previous capital expenditure record of just over $1 billion in 1999/2000. In this context, it is not surprising to see significant increases in prices occurring and predicted over the next few years.

Hunter Water’s operating context over the coming price period will be influenced by many factors and activities, the most significant of which include:

• Construction and delivery of the 450,000 megalitre Tillegra Dam on the Williams River to improve drought security for the lower Hunter region and provide for regional population growth in line with Department of Planning projections. Hunter Water has reviewed yield estimates for its present storages in the light of lead times necessary to respond to declining storage levels and drought situations. This review has highlighted an immediate need for additional source water to provide the community with acceptable drought security, even before the effects of possible climate change are considered. Tillegra Dam is the most significant single capital investment project ever undertaken by Hunter Water. Expenditure on the dam project is already being incurred for land acquisition, planning and environmental approval, community consultation and other pre-construction

6 Water Services Association of Australia, 2007 7 Water Services Association of Australia, 2008(a)


investigations. Subject to approvals, construction is expected to commence in 2009/10 and continue to completion in 2013/14.

• Investment of almost $130m ($08/09) on major projects in the water supply and distribution system during the period 2009/10 to 2012/13, demonstrating the Corporation’s determined commitment to maintaining and improving the reliability of the water supply system.

• Continuing upward pressure on operating costs, particularly driven by labour costs due to professional and other skills shortages, the costs of external contractors (who are also facing upward cost pressures for labour and other inputs) and dramatic real price increases in major inputs (particularly fuels and energy). Chapter 5 of this submission provides details on Hunter Water’s cost pressures and expectations for the coming price period.

• A significant increase in water recycling initiatives with a major industrial recycling project to supply around 8 to 10 megalitres per day of recycled water to the Mayfield and Kooragang Island industrial precinct. This project is expected to cost $36m ($08/09) over the next two years. The coming price period will also see an expansion of reticulated recycled water projects to supply new residential subdivisions at Chisholm (Thornton North), Cooranbong, Gillieston Heights and a possible expansion of the Gillieston Heights scheme to include further subdivision at Cliftleigh. These projects will involve a capital investment of around $15m ($08/09). At full development, these residential schemes could be providing potable water savings of around 1,000 megalitres per year.

• Major expenditure is also planned for the Hunter Water’s wastewater treatment and transport network. Major upgrades of treatment plants involving a capital spend of more than $180m ($08/09) are planned for the coming price period. In addition, a new treatment plant and sewer scheme will be constructed at Clarence Town, following the transfer of Dungog Shire Council’s water and sewer business to Hunter Water. The final backlog sewer projects, under the NSW Government’s Priority Sewerage Program, will be completed serving the townships of Millfield and Ellalong. Major investment in the wastewater transport network will be undertaken with the cornerstone project involving spending of more than $30m ($08/09) to address capacity problems in the Newcastle wastewater catchment.

• Positioning for a more competitive water industry under the Water Industry Competition Act 2006 by ensuring products and services are better tailored to customers’ needs and expectations. Competition is changing the risk profile for water utilities in that utilities will not always have a guaranteed customer base. This change will increase the uncertainty of future revenue streams and, to address this uncertainty, Hunter Water is seeking to position itself as a “provider of choice” and diversify its revenue base with a wider range of product offerings to its traditional customer base.

In addition to these highlights, Hunter Water will maintain its determined focus on meeting the requirements of all the regulatory agencies outlined in section 2.4. This focus is a significant contributor to a number of the activities listed above and a major contributor to the Corporation’s operating expenditure, described in chapter 5.

Together, all these factors and the emerging changes affecting the water industry as a whole mean that the period covered by this price review will continue to be challenging for Hunter Water. In recognition of this challenge, the Corporation has invested significant resources in preparing for this review and this submission puts forward well-researched investment programs, cost estimates and new price proposals to meet the expected developments of the price review period.

Chapter 3 Operating licence system performance standards 16

3 Operating licence system performance standards

Main Points • Hunter Water’s operating licence defines the service levels customers should

expect for their water and sewer bill. These service levels are referred to as system performance standards.

• The NSW government issued Hunter Water with a new operating licence in 2007 and recommended new standards for water pressure, water interruptions and sewer overflows. IPART is yet to set targets for the standards.

• Hunter Water proposes that targets are set at a level that is met under normal operating conditions and only exceeded once in 20 years. Customer expectations were a factor in determining these targets.

• An independent survey of customers shows over 90 per cent are satisfied with Hunter Water’s overall performance and over 70 per cent of households consider the services to be good value for money. Most customers believe service levels have been maintained or improved over the current price path.

• Over the next four years, Hunter Water will continue to invest in improving the services provided to customers. This includes an increase of 20 per cent in expenditure to improve water continuity and 30 per cent increase in expenditure to reduce sewer overflows onto private property.

3.1 Background Hunter Water Corporation operates under a licence, issued by the NSW Government, that enables it to lawfully provide services within its area of operations. The operating licence includes system performance standards (SPS) that define levels of service that customers can expect for the price they pay. SPS cover three major areas – water continuity, water pressure and sewage overflows. Licence compliance is independently audited and penalty provisions may be invoked for licence contravention, including exceeding SPS targets (which are considered to be prescriptive minimum standards).

In 2006, IPART conducted an end-of-term review of Hunter Water’s then prevailing operating licence. As a component of the review, IPART commissioned GHD to review system performance obligations with the intention of setting new SPS and associated targets for Hunter Water’s 2007-2012 Operating Licence.


GHD recommended a suite of improved SPS to drive value for customers and encourage efficient, effective operations and asset management.8 GHD also recommended a staged approach to implementation of the SPS such that:

• Existing SPS and targets are maintained at the commencement of the new licence.

• Targets for the new SPS are set as part of the price review process, so that the costs of any tightening of targets can be balanced against other price pressures and the overall value proposition to customers.

IPART adopted GHD’s recommended SPS and staged implementation approach.

In order to ascertain appropriate service levels to provide over the price period Hunter Water has reviewed performance drivers, historical performance and community perceptions of service levels.

3.2 Performance drivers Key drivers of system performance are:

• Asset profiles (e.g. age, size, condition)

• Operational flexibility (e.g. shut off locations, remote system controls, degree of system interconnection and asset redundancy)

• Asset management strategies (e.g. maintenance practices, capital and operating expenditure profiles)

• Properties served (e.g. growth in new areas and in-fill)

• Operating environment (e.g. climate, ground conditions, topography)

3.3 Drivers of water interruptions Hunter Water has a relatively large area of operations and low population density. This means that Hunter Water is responsible for managing a disproportionately high length of water main for the number of water connections. In total there are almost 4,800 of kilometres of water mains serving 220,000 connections – or 47 connections per kilometre. This compares with Sydney where there are almost twice as many connections per kilometre of main.

Unplanned water interruptions occur due to failure of the trunk water supply system or reticulation network.

The trunk water supply system provides for the bulk transfer of water from the source (water treatment plant) to reservoirs and distribution mains. Failures on trunk mains tend to be low frequency but can be high consequence (many properties affected for a long time) because large communities can be serviced by a single trunk main.

The reticulation network provides water from reservoirs and trunk mains to Hunter Water’s customers. Failures on distribution mains tend to be high frequency but low consequence (few properties affected for a short time) because individual pipes and assets generally service a smaller number of customers.

The new water supply continuity standard now makes an important distinction between the duration (properties that experience a water supply interruption exceeding 5 hours) and the number of events (properties that experience 3 or more

8 GHD, 2006


water supply interruptions). For Hunter Water, trunk main breaks influence duration and reticulation main breaks influence the number of repeat interruptions.

Reticulation main breaks result in a more consistent number of water supply interruptions than trunk main breaks and tend to be quite evenly disbursed throughout the supply network.

The causes of trunk and reticulation water main breaks are corrosion, ground movement, third party damage, absolute and transient water pressures, weather, inconsistent construction methods, material quality and ground conditions. Once a break has occurred, the number of properties the supply to which is interrupted and the duration of the interruption are affected by the size of the isolation area, ease of locating the break (particularly if it is in remote or difficult to access area), alternative water supply routes and incident management.

It is expected that over the long term, the trend in water supply interruptions would be influenced by the number of properties within the area of operations and by asset maintenance/replacement programs. The greater the number of properties supplied with water, the higher the number of potential properties interrupted. In-fill development is of particular significance because higher density housing places a higher water demand on existing mains and the mains are older, with less remaining asset life, than new mains in new growth areas. Asset management programs must balance the costs of repairing or replacing mains when they burst with the likelihood of a burst reoccurring. Repair is less expensive but may have a higher risk of repeat water supply interruptions. Hunter Water has developed a decision support tool to assist with this trade-off.

Hunter Water has managed discontinuities caused by reticulation main failures through a main replacement program targeting problem areas.

In order to manage trunk main failures, Hunter Water has developed trunk main management strategies using a risk-based approach to determine the most economical actions. Some strategies have capital expenditure impacts, such as:

• Installation of remote-operated valves to facilitate prompt shutdown

• Trunk main access improvements

• Main replacement

• Internal lining

Some strategies have operating expenditure impacts, such as:

• Condition assessments

• Performance monitoring

• Critical valve maintenance strategies

• Contingency plans

It will take several years to fully implement the trunk main management strategies so it is unlikely that there will be a significant change in the discontinuity performance over the next licence period. It should also be noted that, while the risk of failure can be mitigated, the number of properties serviced by single trunk mains means that a single event can still have a large impact on compliance with the operating licence targets.


3.4 Drivers of water pressure performance Low pressures can occur due to the operating environment (e.g. topography), water demands or a combination of both. During hot summer days many customers simultaneously use large volumes of water, for example to water gardens. This reduces the available pressure, particularly for customers at the top of a hill or remote from a pump station.

Water pressure is difficult to cost-effectively monitor across a geographically dispersed network, therefore low pressure areas are determined by modelling that simulates system performance under peak-day conditions. The low pressure count for the year comprises the number of known low pressure properties, as predicted by modelling, plus the confirmed low pressure complaints received outside these areas.

Hunter Water has managed low water pressure through ensuring new developments connecting to the existing water system do not reduce pressure to existing areas to unacceptable levels. In addition, developers are required to install assets to address potential pressure problems if the new development is in a known low pressure area. Hunter Water also manages low pressure through some capital projects where low pressures can be cost-effectively addressed through solution design, even when pressure is not the primary driver of the project.

3.5 Drivers of sewer overflows impacting on private properties Hunter Water considers that a range of factors may contribute to sewer overflows including:

• Obstructions due to roots or other solid objects like gravel or debris

• Asset replacement strategies

• Chemical root treatment and changes to the chemicals used

• Climate, rainfall and season

Hunter Water recognises that sewer overflows impact on health and amenity and has undertaken a range of actions to minimise overflows. Proactive actions include a significant increase in the number of sewer branch/shaft replacements since 2000, closed circuit television inspections of main condition and chemical root treatment to address root intrusion (which is the principal cause of dry weather overflows). It should be noted that significant variability in the number of sewer overflows can be caused by uncontrollable factors, mainly climate. There is a strong seasonal influence, with most chokes occurring in winter, and there is a correlation between overflows and periods of El Nino.

3.6 Historical performance Hunter Water proposes setting targets for the new SPS on the probability of an event occurring i.e. a risk or frequency of exceeding the nominated target. This approach is also considered appropriate as it balances risk and cost and recognises that penalties may apply under Hunter Water’s operating licence for exceeding the SPS targets. The probability chosen is considered to reflect customers’ expectations in terms of how often the target is exceeded.

In order to provide stakeholders with an appreciation of whether the proposed targets represent a tightening or lessening of currently required performance, Hunter Water has performed statistical analysis to determine the frequency of exceeding the current SPS.


The current SPS target for water pressure represents a 1 in 25 year frequency of exceedance based on the current system configuration and approach to modelling.

The current SPS target for sewer overflows onto private properties has a 0.001 probability of exceedance i.e. 1 year in 1,000 years.

The current SPS target for water continuity is extremely challenging, particularly given that the target is set in absolute terms with no allowance for a growing customer base. Hunter Water has a 1 in 3 year frequency of exceeding the current SPS target.

A range of management actions have been undertaken, at considerable cost to the community, to try to achieve compliance and reduce the frequency of exceeding the current water continuity standard target. While these measures are improving underlying performance against the current standard, Hunter Water’s system is always very vulnerable to trunk main failures and extreme weather conditions and these have resulted in several exceedences since the targets were introduced.

Figure 3.1 Historical water continuity performance

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

> 5 hr cumulative supply interruption Current licence target

1:3 year probability of reaching this target

Source: HWC

3.7 Stakeholder perceptions of system performance

General perceptions of Hunter Water’s system performance Since 1987, Hunter Water has been independently assessing its performance through surveys of domestic and commercial customers. The results input directly into business improvement strategies. The most recent domestic customer perceptions survey was conducted in 2007 and involved 352 randomly selected owners and tenants in all five Local Government Areas serviced by Hunter Water.9 Dungog Shire Council area was only included in Hunter Water’s area of operations from 1 July 2008 and therefore customers from that area were not included in the 2007 survey.

9 Ipsos, 2007


Domestic customers continue to be very satisfied with Hunter Water’s ability to fulfil core responsibilities. The combined ‘excellent/good/fair’ rating remains at 93 per cent. There was an upward trend in the proportion of domestic customers rating Hunter Water services as good value for money (from 69 per cent in 2005 to 72 per cent in 2007).

Domestic customers mainly judge Hunter Water’s performance in terms of its ability to provide reliable water supply and clean drinking water. There was a much lower response of service levels and resolving problems as performance measures (see Table 3.1). Most customers believe service levels have been maintained or improved since 2001 (see Figure 3.2).

Table 3.1 How customers judge Hunter Water’s performance A subset of unprompted reasons 66% - Continuous/reliable water supply 44% - Supplying clean/drinking water 16% - All infrastructure in working order 15% - Solve/fix problems in timely manner 9% - Maintaining high service levels

Source: Ipsos, 2007

Figure 3.2 Domestic customers’ perception

21

18

21

10

78

78

78

85

2

4

3

4

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2001

2003

2005

2007

Net increased Stayed the same Net decreased Source: Ipsos, 2007 N.B. Percentages do not add due to rounding

Drinking Water Continuity In 2007 only 9 per cent of surveyed customers claimed to have experienced regular disruptions to their water supply. This is an increase from 2005 but still only a very small proportion of customers surveyed. Customers perceive that water continuity performance has been relatively static since 1988 (see Figure 3.3).


Figure 3.3 Domestic customer perceptions of water continuity performance

0

2

4

6

8

10

12

14

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 2001 2003 2005 2007

Perc

ent

% agreeing with statement "There are frequent interruptions to the water supply" Source: Ipsos, 2007

Water Pressure A very high proportion of customers regard the water pressure as acceptable. This has been relatively static over the current price period but has improved significantly since the surveys commenced (see Figure 3.4). Results were high across all local government areas.

Figure 3.4 Domestic customer perceptions of water pressure performance

70

75

80

85

90

95

100

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 2001 2003 2005 2007

Perc

ent

% agreeing with statement "Water pressure is acceptable" Source: Ipsos, 2007

Sewer The vast majority (87 per cent) of customers continue to rate the Hunter Water sewage disposal service as satisfactory. This rating has varied very little since 2000.


Figure 3.5 Domestic customer perceptions of sewer performance in 2007

87 6 7 2

0% 20% 40% 60% 80% 100%

The household sewagedisposal service is

satisfactory

Net Agree Neither Net Disagree Don't know Source: Ipsos, 2007

3.8 Proposed targets Hunter Water’s proposed targets for the new system performance standards are detailed in Table 3.2.

Table 3.2 Current and proposed system performance standards and targets

Area Current Standard and Targeta

New Standard and Proposed Target

1. No more than 10,000 properties shall experience an unplanned interruption of more than 5 hours in a financial year, and

Drinking Water Continuity No more than 14,000 properties shall experience cumulative water interruptions (whether planned or unplanned) of more than 5 hours in a financial year.

2. No more than 5,000 properties shall experience 3 or more unplanned interruptions in a financial year.

Drinking Water Pressure No more than 4,800 properties shall experience one or more pressure incidents (pressure less than 20 metres at the connection the main for more than 30 minutes) in a financial year.

No more than 7,800 properties shall experience a pressure failure in the financial year.

(N.B. Determined using an updated modelling approach compared with the current target)

Sewer Overflows No more than 6,500 uncontrolled dry weather

1. No more than 5,000 private properties shall experience a dry


Area Current Standard and Targeta

New Standard and Proposed Target

sewage overflow events in a financial year (other than on public land).

weather sewage overflow in a year, and

2. No more than 50 private properties shall experience a dry weather overflow three or more times in a year.

a. New South Wales Government, 2007

A target with a 1 year in 20 year frequency of exceedance (1:20 probability) is proposed for each standard on the grounds that licence standards are intended to be met “under normal operating conditions”. While this represents a tightening of performance for some SPS areas and easing of others, Hunter Water believes it would be beneficial to align the frequency of exceeding each target.

The proposed tightening and easing of targets should also be considered in the context that most customers perceive themselves currently unaffected by water interruptions, low water pressure or sewer overflow problems and believe Hunter Water’s services are good value for money (see section 3.7). Community acceptance of the 1:20 probability values for each indicator has also been tested with Hunter Water’s Consultative Forum, with members expressing support for the proposed approach for setting targets. The forum consists of representatives from six local councils as well as representatives of major customer, environmental and community groups.

The targets are proposed on the basis of equivalent technologies and business practices to those currently utilised. An allowance has been included to cater for growth over the price period as outlined in chapter 4.

The proposed targets do not make any allowance for services in the Dungog area. Hunter Water’s area of operations was extended to include Dungog Shire in June 2008. Further information about this transfer is provided in chapter 4.10

In order to gain familiarity with current service levels, asset profiles and operational flexibility it is proposed that reporting against targets for the 2007 – 2012 Operating Licence excludes water and sewer systems in Dungog Shire. Hunter Water will collect data on performance against the SPS in the Dungog area and will pursue cost effective actions to improve service levels during the operating licence period.

Expenditures associated with achieving compliance have been incorporated into the capital expenditure and operating expenditure projections detailed in chapters 5 and 6 of this submission.

It should be noted that Hunter Water invests prudently and efficiently, giving consideration to whole-of-life costs and a range of benefits achieved, including social and environmental benefits. SPS targets are only a subset of the customer and stakeholder outcomes considered during project prioritisation and selection of the optimal project option. While it is difficult to isolate the impact of expenditure trends on system performance standards, key expenditure trends are highlighted below.

10 New South Wales Government Gazette, No 66, 6 June 2008


Capital expenditure to improve water continuity is projected to increase by about 20 per cent in the next price period (2009/10 – 2012/13). Expenditure on water main replacements is forecast to reduce slightly to an expenditure level considered optimal, given likely burst rates for the age profile of water mains and material types. Expenditure on trunk main condition assessment has increased over the past few years due to the recent availability of new cost-effective technology, such as Linear Polarisation Resistance for predictive failure analysis. This expenditure is considered prudent given the large impact of trunk main failures on Hunter Water’s ability to meet water continuity system performance standard targets. The main driver of increased expenditure over the price period is due to trunk main management. This involves implementing the recommendations of trunk main management strategies to reduce the risk of current known high risk mains. The additional expenditure will not necessarily improve the probability of Hunter Water achieving the SPS target as assets are continually aging and deteriorating in condition and trunk main management strategies are still being developed for a number of mains.

Hunter Water is proposing no significant alteration of current expenditure patterns to improve low water pressure. It is difficult to justify expenditure solely to address pressure in existing low pressure areas as cost effective. However, where possible, pressure improvements are made through other capital projects, such as pump station upgrades or main replacements.

Capital expenditure to improve dry weather sewer overflow performance is projected to increase by 30 per cent in the next price path. Sewer main rehabilitations have increased to a level that Hunter Water considers optimal given the asset profile and operating context (e.g. soils and climate). Expenditure on sewer rising main condition assessments will increase slightly but still represents the optimal cost risk management approach.

Deviations from the proposed SPS targets would necessitate a revision of the capital and operating expenditure proposals detailed in this submission. As with most large-scale infrastructure situations, the capital investment to achieve quite modest increases in performance often can be substantial.

Chapter 4 Growth and development 26

4 Growth and development

Main Points • Hunter Water is forecasting growth in residential demand and relatively stable

non-residential demand.

• The area of operations expanded in recently to include Dungog Shire and parts of Singleton Council. Transitional pricing arrangements are proposed for Dungog customers.

• Hunter Water’s new H250 Plan provides an integrated approach to resource management through a balanced combination of supply side upgrades, recycling and water efficiency measures.

Revenue is a function of both the quantities sold and the price. Therefore, projecting future sales is an important element of developing the price requirements for the coming price period. This chapter describes Hunter Water’s demand projections for the future price period.

IPART has also sought information on how the actual demand and revenue projections during the current determination period compare to the projected sales and revenue used for setting prices in 2005. This information is provided in Appendix A.

4.1 Population and demand projections

Population The population of the lower Hunter region has grown steadily over the last 30 years at approximately 1 per cent per annum. According to the NSW Department of Planning’s Lower Hunter Regional Strategy, this steady growth is set to continue, with the population forecast to grow by 160,000 by 2031.11 In addition, the number of dwellings is expected to increase at an even higher growth rate; the result of declining occupancy rates. The Lower Hunter Regional Strategy forecasts that 115,000 new dwellings will be constructed over the next 25 years as a result of the growth in population, requiring an average of 4,600 new water and sewer connections every year. The increase in population and the number of dwellings will result in corresponding growth in residential water demand.

As a consequence of the growth in population, Hunter Water anticipates a return to a growth phase in water consumption, in contrast to the stability experienced over the

11 Department of Planning (NSW), 2006


last 25 years. This is illustrated in Figure 4.1 below that indicates the actual and projected supply requirement for the period 1941 to 2013.

Figure 4.1 Hunter Water’s total supply requirement

0

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1941 1951 1961 1971 1981 1991 2001 2011 2021 2031

GL

Historic Forecast

Source: HWC

Consumption Projection Hunter Water uses a highly disaggregated analysis of consumption trends by various customer groups to project future demand. The total supply requirement is determined from such things as the growth in customer connections, customer usage patterns, demand management programs and the impact of recycling schemes both residential and industrial contexts. The Corporation also projects demand by major non-residential customers on a detailed review of individual customer’s intentions. This individual customer approach for major customers is critical given that three of Hunter Water’s six largest customers have ceased operations since 2000.

Whilst overall consumption has been stable over the last 25 years, residential consumption has consistently trended upwards. These increases have been offset by significant “lumpy” drops in non-residential demand due to the closure of a some large water users (BHP, Pasminco, National Textiles and most recently Delta EDM), as well as the substitution of potable water use at Eraring Power Station by recycled water.

With the increasing population expected in the Hunter Region over the next 25 years, Hunter Water is forecasting a continuation in the growth of residential demand, partially moderated by BASIX, residential reticulated recycling schemes and other efficiency measures. In contrast, non-residential demand is expected to remain relatively stable due to the Kooragang recycled water scheme and additional water efficiency gains. The historic trends and forward projections for the domestic and non-domestic sectors are shown in Figure 4.2.


Figure 4.2 Domestic and non-domestic demand

0

10,000

20,000

30,000

40,000

50,000

60,000

1991 2001 2011 2021 2031

ML

Domestic - Historic Domestic - ForecastNon-Domestic - Historic Non-Domestic - Forecast

Source: HWC

As shown in Table 4.1 below, water demand over the coming price path is expected to average around 62,000 megalitres per year (excluding bulk supplies). It is important to note that the projections shown in the table are for average seasonal conditions and have not been adjusted to take account of expected restrictions or other seasonal influences on demand or supply. This approach taken by Hunter Water is entirely in accordance with the principle adopted by IPART as reported in the 2003 determination that “….the assumed level of consumption it uses for price setting purposes should reflect longer-term consumption patterns. It should not attempt to account for, or predict, the effects of shorter-term weather patterns. This may mean that in periods when water restrictions apply, water businesses will recover less revenue than forecast, while in periods when demand is high and no restrictions apply, they will recover more revenue than forecast.”.12

A recent review of demand forecasting concluded that, while there is a range of factors that impact water demand, the most significant for Hunter Water is climate variability. For example, it is estimated that two consecutive years of wet and cool weather would result in a reduction in revenue by approximately two per cent. In 2005, the Tribunal chose to accept Hunter Water’s demand projections based on average estimated consumption. The Tribunal noted, however, the importance of consistency in the underlying assumptions and approaches employed by water agencies when making such projections.13

12 Independent Pricing and Regulatory Tribunal, 2003, page 10 13 Independent Pricing and Regulatory Tribunal, 2005, page 31


Table 4.1 Consumption projections 2008/09 2009/10 2010/11 2011/12 2012/13

Water - Meter Equivalents

Residential 188,530 191,990 195,520 199,110 202,770

Non-Residential 30,770 31,090 31,520 31,810 32,110

Water – Consumption (ML)

Residential 40,698 40,926 41,512 41,897 42,383

Non-Residential 21,169 21,328 20,072 18,718 18,894

Sewer - Meter Equivalents

Single Residential a 80,700 81,910 83,140 84,385 85,650

Non-Residential b 17,580 17,760 17,935 18,115 18,300

Sewer – Discharge (ML)

Residential 19,330 19,440 19,720 19,900 20,130

Non-Residential 7,990 6,660 6,660 6,660 6,660 Stormwater – Serviced Properties

Residential 56,100 56,400 56,700 57,000 57,300

Non-Residential 3,600 3,600 3,600 3,600 3,600

Source: HWC a. A minimum sewer service charge applies for multi-residential properties such as flats and units. Meter equivalents are therefore not relevant are not included in this figure. b. It should be noted that the meter equivalent number for sewer connections is a function of the number of connections, water meter size and the discharge factors applying to non-residential customers. Chapter 10 of this submission proposes changes to application of the discharge factor and these changes influence the meter equivalent numbers. Therefore, the meter equivalent numbers shown in this table are not a contiguous series with the projections in Hunter Water’s 2004 submission.

4.2 Transfer of Dungog Shire water and sewer business In October 2007, Dungog Shire Council resolved to transfer its water and sewer operations to Hunter Water Corporation. This decision followed several months of discussion between the two organisations and consultation with the Dungog Shire community.

Dungog Shire Council’s water supply and sewer business covers four separate areas of the Shire. These are:

• The town of Dungog – water and sewer services (approximately 1,000 connections)

• The townships of Martins Creek, Vacy and Paterson and Tocal Agricultural College – water services only (approximately 400 connections)

• The township of Gresford – water services only (approximately 150 connections).

• The town of Clarence Town – water service only with commitment to provide sewerage service (approximately 450 connections).

Pricing arrangements differed in each of these areas under the Council’s administration.


With the exception of the township of Gresford, Dungog Council supplied all of these systems with treated water purchased from Hunter Water Corporation’s Chichester supply system.

One of the major drivers for the Council’s decision to transfer its water and sewer businesses to Hunter Water was escalating costs of the Council’s proposal to provide sewer services to the township of Clarence Town.

Incorporating Clarence Town in Hunter Water’s area of operations would enable the proposed sewer scheme to be delivered with funding through Hunter Water’s environmental improvement charge (see chapter 10.6) as well as through the NSW Government’s Country Towns Water Supply and Sewer Program. The additional funding through the environmental improvement charge enables Hunter Water to deliver the Clarence Town scheme at affordable sewer prices to the residents of Clarence Town.

In June 2008, Hunter Water’s area of operations was extended to include Dungog Shire.14 Amendments were also made to Schedule 1 of the Independent Pricing and Regulatory Tribunal Act 1992 to permit Hunter Water to charge different prices to customers in Dungog Shire until the commencement of the next price determination.

The additional billable retail water consumption as a result of this transfer is expected to be around 503,000 kilolitres per year in 2009/10 growing to around 508,000 kilolitres in 2012/13. However, this is offset by the loss of wholesale sale of water to Dungog Shire Council as the former retail supplier to these customers. The only exception is the township of Gresford, which is not supplied with water from Hunter Water’s system. Growth in connections is expected to be quite modest, consisting of mainly infill connections in the townships supplied with water and a small rural residential subdivision at Paterson. A growth of about 30 meter equivalents is expected over the price period from around 2,415 meter equivalents in 2008/09 to around 2,445 in 2012/13.

Pricing proposals for water and sewer services in Dungog Shire are outlined in detail in chapters 9 and 10 of this submission. It is proposed that a different price structure applies to Dungog Shire Council customers during the transition period.

4.3 H250 plan In 2003 Hunter Water published its first Integrated Water Resource Plan (IWRP) outlining how it proposed to meet the region’s water needs over a 10-year timeframe. The IWRP was a requirement of Hunter Water’s then operating licence. Hunter Water’s current operating licence includes a requirement that the IWRP be reviewed. This H250 Plan represents the first revision of the IWRP.

The primary aim of the H250 Plan is to demonstrate how Hunter Water proposes to balance the demand for and supply of water over the next 50 years. This can be done through a combination of supply-side upgrades, for example new storages, and/or demand reduction approaches, including recycling, asset management (leakage management) and water efficiency measures. Over many years Hunter Water has pursued such an integrated water resource management approach, which has resulted in the lower Hunter region having one of the lowest unrestricted residential water consumption rates in Australia.

Tillegra Dam will boost the region’s water supply situation to provide much-needed drought security and meet projected demand for many decades to come. In addition,

14 NSW Government Gazette, No 66, 6 June 2008


all current cost-effective water recycling initiatives are under development. Thus the focus of this H250 Plan is water efficiency.

The plan discusses the above supply developments to provide context to the current water resource planning situation. However, its primary focus is on the demand side of the demand/supply equation.

In setting the water resource planning scene, the plan outlines:

• Discussion of the lower Hunter’s drought security risk,

• Revised population projections based on the Lower Hunter Regional Strategy,

• The implications of the draft water sharing plan for the Hunter River and Alluvial Unregulated Water Sources,

• Hunter Water’s current water efficiency programs and proposed future initiatives,

• Impacts of State and national initiatives such as BASIX and WELS,

• The outcomes of a major recycling study undertaken by Hunter Water in 2006/07, and

• Discussion on the implications of climate change.

The draft plan identifies a preferred strategy which includes:

• Construction of the 450,000 megalitre Tillegra Dam and the additional pumping capacity at Seaham to divert Williams River flows (including releases from Tillegra Dam) into Hunter Water’s treatment and distribution system

• Construction of the Kooragang Recycled Water Project, along with reticulated schemes for residential developments. These are discussed more fully, along with recycled water pricing, in chapter 9 of this submission

• Maintaining Hunter Water’s leakage management programs; and,

• Expansion of Hunter Water’s water efficiency programs.

The draft plan was published in April 2008 to allow for public exhibition and comment. A total of twenty submissions were received, which are currently being considered. The final plan is expected to be published, and available on Hunter Water’s website, by the end of September 2008.

4.4 Inter-region demand Two inter-region demand situations are incorporated into the demand projections, namely Gosford Wyong Councils and Singleton Council. Of these only flows to the Central Coast Councils influences demand within the proposed price path.

The Gosford/ Wyong Councils’ Water Authority storages are currently at around 30 per cent storage levels with the small coastal storages full. The supply agreement with the Gosford/Wyong Councils provides a right to purchase water as required subject to storage levels in Hunter Water’s system. The forecast transfers for the four years of the price path have been estimated at 500 ML/year.

A Hunter Water - Singleton Council working party has been established to develop a Memorandum of Understanding as a basis of developing a long-term strategic link between the two supply systems. This will be a matter for consideration in the next price review.

Chapter 5 Operating expenditure 32

5 Operating costs

Main points • Hunter Water had an increase in operating costs of 10.3 per cent in real terms

over those submitted to IPART in 2005. Similar increases have been experienced across the water industry. Concurrently there has been an increase of 7 per cent in properties serviced by Hunter Water.

• The additional costs are embedded in the current operating base and reflect Hunter Water’s response to a range of challenges not previously identified including:

o The dynamics of the labour market across the industry including skills shortages in professional and engineering areas, an ageing workforce and a more mobile workforce generally.

o Growth in the business including geographical expansion of Hunter Water’s area of operations.

o The impact of climate change, an extended period of drought when Hunter Water implemented a range of water efficiency measures and assisted the central coast with its water supply.

o Price increases above inflation for a range of input costs such as electricity, fuel, chemicals and other major contracts.

o Increasing customer expectations regarding acceptable standards of service and environmental commitments.

o Further investment in continuous improvement strategies to identify efficiency offsets.

• Future operating costs are proposed to increase by 5.5 per cent over the next price path or an average 1.4 per cent per year, which is less than the expected rate of growth in properties serviced.

• Efficiencies of $6.1 million have been identified and netted off this cost base.

• Only 43 per cent of the total operating spend is considered controllable by Hunter Water with limited scope to change this even in the medium term.

• The proposed operating cost base represents Hunter Water’s view of the efficient costs to meet operating licence commitments, increased customer expectations and to address Hunter Water’s business and environmental strategies.


5.1 Introduction As discussed earlier in this submission, the Australian water industry is experiencing unprecedented change largely driven by the need to focus on drought security, the potential impacts of climate change and the emergence of competition.

Hunter Water has achieved significant cost efficiencies since the late 1980s from a range of initiatives. These initiatives include corporate restructuring, streamlining business processes, investment in new technology, competitive tendering and asset management aimed at minimising whole-of-life costs. Savings have also come from relinquishing unnecessary regulatory functions and from substantially greater use of technology in operations, planning and customer service.

The efficiencies are measured by the reduction in net operating costs per property of 40 per cent from the time the Corporation was established in 1992 to the commencement of the current price period on 1 July 2006. These savings were delivered while also improving the level of customer service and implementing environmental protection initiatives. While overall operating costs per property were being reduced during this period, Hunter Water was experiencing significant increases in the costs of actions taken to meet regulatory standards, particularly in wastewater services, water supply continuity and drinking water quality.

Figure 5.1 shows how Hunter Water’s operating costs per property generally declined between 1992 and 2006 as a result of the significant efficiency improvements achieved over that time. The figure also shows the increases in operating costs that have been incurred over the current price period and that increases of similar magnitude have been incurred by other utilities.

Figure 5.1 Water and sewerage operating cost per property ($07/08)

0

100

200

300

400

500

600

700

91/92 96/97 01/02 06/07 11/12

$ pe

r pro

pert

y ($

0708

)

HWC historic HWC projection Sydney Water CorporationBrisbane Water ACTEW Gosford City Council

Source: HWC and WSAA


Figure 5.2, which draws data from the latest National Performance Report15, illustrates that Hunter Water’s operating cost per property of $425 is below the mid point of the range of operating costs for major Australian utilities ($464).

It is important to remember that geographical characteristics and scale of operations are major influences on water utility operating costs. The utilities with lower operating costs than Hunter Water generally benefit from significant geographical, customer density and scale advantages. While, in that context, Hunter Water’s relative position is to be expected, the Corporation continues to strive for further efficiencies in operating costs.

Figure 5.2 Operating cost per property – major Australian utilities ($06/07)

0

100

200

300

400

500

600

700

ACTEW

Barwon

City W

est

Brisba

ne

Sydne

y

Hunter

Yarra V

alley

Gold C

oast

South

East

WC - P

erth

SA - Ade

laide

$ pe

r pro

pert

y ($

06/0

7)

Mid range

Source: WSAA

Figure 5.3 shows that actual operating expenditure for the period 2005/06 to 2008/09 (red line) is higher than originally proposed (blue line) in Hunter Water’s submission to the 2005 IPART price review. It is also higher than the operating costs determined by IPART in 2005 (yellow bars).

This increased level of spending has been driven by unforeseen changes, including increases in labour, input and contract costs for functions necessary to maintain services and meet regulatory requirements and community expectations. These cost drivers are discussed later in this chapter.

This higher level of costs is embedded in the Corporation’s 2008/09 cost base and Hunter Water believes they represent an efficient cost base for the next price period.

15 National Water Commission and Water Services Association of Australia, 2008


Figure 5.3 Operating cost comparisons 2005/06 to 2012/13 ($m 08/09)

97 98 98 100

79 77 77 77

80797979

938887

82

0

20

40

60

80

100

120

05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13

$m 0

8/09

Tribunal 'Efficiency Adjustment' Sept 2005 Proposed Expenditure

HWC 04/05 Proposal HWC Actual Expenditure

Source: HWC

5.2 Pressures on operating costs The increases in operating costs experienced during the current price period reflect Hunter Water’s response to a range of challenges including:

• Changes in labour market dynamics in the industry and the economy generally, including skills shortages in professional, business and engineering areas. Also, Hunter Water and the water industry in general are operating with an increasingly aging workforce. A Water Services Association of Australia (WSAA) report flags 25 per cent to 27 per cent turnover in next 10 years.16 In response, Hunter Water has revised its attraction, retention and staff development strategies to address these problems and, specifically, to become more appealing as a workplace to younger generations.

• Growth in the business, including an expansion of the area of operations to include water and sewer services in Dungog Shire and a larger area of Singleton Shire.17

• Water resource management during an extended period of drought affecting New South Wales. Hunter Water implemented a range of initiatives to demonstrate its commitment to improving the efficiency of water delivery through increased leak detection and control and pressure management in the water distribution system.

• Real cost increases for a range of inputs. For example, higher fuel and energy prices have required strengthening of Hunter Water’s strategic procurement and contract management processes.

16 Water Services Association of Australia, 2008(c) 17 Hunter Water’s area of operations was expanded with the introduction of a new operating licence on 1 July 2007 to include a larger area of Singleton Shire. It was expanded again on 1 July 2008 to include all of Dungog Shire – an immediate increase of over 2,405 water connections


Real increases in the costs of licensing, maintenance and support of existing and new information technology systems have been incurred. This follows significant investment in new information systems including new customer information and billing system, upgrade of the Corporation’s general business and ledger management software, adoption of electronic document management as well as new telemetry software.

• An ongoing drive for improvements in the management of assets, particularly the effectiveness of water and wastewater treatment plants. The cost of this drive for improvement in asset management is compounded by an expanding asset base, especially with the addition of older assets in Dungog Shire.

• Responding to the changing expectations of customers and the community regarding acceptable standards of service delivery and environmental responsibility. For example, new, and often more costly, techniques have been adopted to address water main breaks and so reduce water supply interruptions to customers. Also, greater attention has been focused on the aesthetics of visible facilities to address the expectations of an increasingly-discerning community.

• Strengthening Hunter Water’s continuous improvement focus with a more structured approach, including a dedicated team using six sigma techniques.18

5.3 Operating cost performance – 2005/06 to 2008/09 Hunter Water lodged a supplementary submission in relation to operating costs with IPART in February 2005. This supplementary submission contained the Corporation’s best estimates of operating costs for the four-year price period from 2005/06 to 2008/09.

Hunter Water's group operating costs were projected to be $317 million ($08/09) over the four years of the current price period. IPART’s final determination in June 2005 adjusted this projection downward by $7 million to allow for efficiencies recommended by consultants, Atkins Cardno. This adjustment resulted in a determination of $310 million ($08/09) group operating costs to be recovered through IPART determined prices.

Actual group operating costs are now forecast to be $349.7 million ($08/09) over this same four-year period to 30 June 2009. This forecast includes a budget estimate for 2008/09 of $93.2 million. This represents an additional $39.7 million operating expenditure over the 2005 IPART determination. These results are presented in Table 5.1.

The areas that accounted for the most significant increases during the current price period are:

• Salaries and wages - $10.1 million

• Contracts and materials - $9.3 million

• Energy - $5.6 million

• Plant and vehicles - $4.8 million

• Property expenses - $1.7 million

18 Six sigma is a business improvement strategy developed in the USA in the 1980s to systematically identify and remove barriers to efficient business processes


Table 5.1 Operating costs - 2005/06 to 2008/09 ($m 08/09)

2005/06 2006/07 2007/08 2008/09 Total (4yrs)

Hunter Water estimates (Mar 05) a 79.1 78.6 79.1 80.2 317.0

Hunter Water actual 81.6 86.9 88.0 93.2 c 349.7 Difference 2.5 8.3 8.9 13.0 32.7

(3.2%) (10.6%) (11.3%) (16.2%) (10.3%)

IPART Efficiency Adjustments b 0.3 1.1 2.3 3.3 7.0

Variance 2.8 9.4 11.2 16.3 39.7 (12.5%)

Source: HWC a. Represents group operating cost projections which underpinned the supplementary submission to IPART March 2005. The original submission and determination were on an ‘Adjusted Parent’ basis however Group results are now believed to be the most appropriate basis for submission of projections for the new price period. For comparative purposes, the previous price period has been reported on a consistent group basis. b. This represents the value of ‘efficiency adjustments’ made by IPART to Hunter Water’s supplementary submission, (including a 1.8% efficiency factor plus other amendments explained as ‘rounding and double counting’). These amounts are per IPART’s determination converted to 2008/09 dollar terms. Note: IPART also deducted an amount representing ‘Growth SAS/Developer Applications’ under the former adjusted parent basis. c. 2008/09 is budget.

In total, these areas account for 95 per cent of the $32.7 million increase in actual expenditure over Hunter Water’s 2005 projection. This breakdown and other components of the increase are illustrated in Figure 5.4. This $32.7 million represents an increase of 10.3 per cent over Hunter Water’s projections.

There was a growth in properties serviced over this period of seven per cent including properties from the expansion into the Dungog Shire.

Cost increases in all of these components are driven by market forces and therefore are largely outside the control of Hunter Water in the short term.


Figure 5.4 Operating cost component increases 05/06 - 08/09 ($m 08/09)

300

310

320

330

340

350

360

317.00 10.06 9.36 5.57 4.84 1.75 1.09 349.66

Submission Salaries &Wages

Contracts &Materials

Energy Plant &Vehicles

Property Other Actual

Source: HWC

Salaries and wages Salaries and wages costs have increased by $10.1 million over the costs for these activities forecast by Hunter Water in 2005. This accounts for 30 per cent of the $32.7 million increase in total operating costs over the period.

Much of the increase in Hunter Water’s labour costs has been driven by changes in the business and the need to resource appropriately to deliver strategic initiatives including a significantly increased capital program. In most cases, these initiatives were not known at the time of the last submission.

These initiatives are ongoing and the costs associated with them will continue through the coming price review period. A net total increase of approximately 28 full time equivalent (FTE) employees has been the main driver of the additional $10.1million in salary and wage payments.

Examples of additional positions created include:

• Around half of these were for additional engineering positions to deliver a substantially increased capital investment program over both price periods.

• Resourcing the Tillegra Dam project announced by the NSW Government in November 2006. This project precipitated the appointment of seven full-time employees. However, not all the additional salaries and wages attributable to the Tillegra Dam project and this expanded capital expenditure are reported as operating costs because most is assigned to capital projects and therefore reallocated to capital expenditure.

• Four additional full time equivalent positions transferred to Hunter Water as a result of the acquisition of Dungog Shire Council’s water and wastewater businesses effective from 1 July 2008. These costs are offset by the additional water and sewer revenue from customers in Dungog Shire.

• Commitment of a greater effort and resources to the pursuit of business improvement. This enhanced commitment has culminated in the formation of a


continuous improvement team of four FTEs. While this initiative has resulted in a net cost to the organisation in the current price path, the initiative is expected to assist in generating in excess of $6 million in savings over the next price period through future business improvement (see details in section 5.5).

• Resourcing and staff retention measures in the face of the present national professional and skilled labour shortage. Hunter Water is affected by an increasing turnover of staff. While retention levels are generally better than those experienced in the broader economy, there has been a considerable cost associated with Hunter Water’s response to address the skills shortage and turnover issues. These include proactive attraction and retention strategies. These strategies include investment in additional cadets, trainees and apprentices to build a nucleus of trained employees for succession and to better position Hunter Water for the future.

• A number of other staff positions have been created to support new initiatives such as recycled water and to market new products including reticulated recycled water. While these positions are currently at net cost, it is anticipated these initiatives will generate additional revenues in the future.

Upward pressures on salaries and wages have been restrained by Hunter Water’s enterprise bargaining agreement process. This process delivered a three-year agreement for a four per cent, four per cent and three per cent increase in 2006/07, 2007/08 and 2008/09 respectively. This is considered a good outcome for Hunter Water in a period of high labour demand pressure and increasing inflation.

Contracts and materials Hunter Water has a rigorous asset management approach to define required levels of work. The Corporation’s procurement and contract management practices have also been strengthened. This ensures Hunter Water package works to achieve best value from the external market place for a range of services.

Notwithstanding, contracts and materials costs sourced from the market have increased by $9.3 million over the costs for these activities forecast in 2005. This accounts for 28 per cent of the $32.7 million increase in total operating costs over the period. The composition of the $9.3 million is discussed in further detail below.

Civil and electrical/mechanical maintenance makes up $6.5 million.

• Civil and electrical/mechanical maintenance is provided by a mix of in-house labour and external contract services. Reactive maintenance costs have been considerably higher than anticipated in the 2005 price submission. Expenditure levels over the current period are simply a function of actual levels of reactive maintenance required and prevailing contract prices. There have been $6 million in additional payments to external contractors, indicating that contractors are also experiencing greater than CPI cost pressures from real wage increases, material and fuel costs etc. Hunter Water has had additional costs for maintenance, on its ageing assets across the network, treatment and other facilities as well as to accommodate an increase in infrastructure eg there has been an extra 10 pump stations per annum commissioned compared to the 6 per annum estimated in 2005.

• Hunter Water has significantly increased its focus on workplace safety during the current price period and in 2006/07 achieved an enviable result of no lost time due to injury. The Corporation is building on this achievement with an ongoing target of zero lost time injuries and has implemented various strategies to meet this objective. This has resulted in additional costs for example, specialist traffic


control contractors are now used for jobs on major roads but at a cost of as much as $200,000 per annum higher than the previous submission. Changes to the Australian standards for confined space work now require a ‘standby’ person for work on confined spaces such as sewers, reservoirs and tanks, pump stations and in parts of treatment plants.

• Hunter Water has found some regulatory requirements extremely challenging over the current price period. The most challenging has been the operating licence water supply continuity standard, which requires that no more than 14,000 properties per year experience a cumulative disruption not exceeding five hours. Hunter Water has adopted a range of new approaches to stay within this licence limit, some at significant cost. These approaches have included use of expensive pipe freezing techniques and inflatable “aqua stops” to limit the number of customers affected by water main shutdowns. Around $1 million additional spending has been incurred on measures such as these to meet the licence requirement. These and other outage prevention initiatives, including changes in maintenance strategies, have also had the effect of improving customer satisfaction but ramping up expenditure.

• A review of the condition of water and wastewater treatment facilities identified a backlog of maintenance and safety requirements. Urgent repair of these problems increased expenditure by $500,000 over the current price period.

Security enhancements and information and communications technology investments make up $3 million.

• Hunter Water has increased the focus on physical security at facilities in line with the NSW Government’s business continuity and counter-terrorism requirements. The Corporation also invested in an improved business continuity and disaster recovery structure. This included the installation of a second backup data centre to ensure all electronic services monitoring assets can be maintained. To provide the necessary security, this is an off-site facility co-located with another major Hunter business. These initiatives are in line with contemporary business continuity practice for businesses of Hunter Water’s turnover and customer base. They are designed to support the business in its ongoing pursuit of improvements in efficiency and customer service by ensuring continuation of service to customers and business revenue in times of natural or other major business disruption.

• Hunter Water has made significant investment in information technology to provide enhanced security, business capability, automation and productivity improvement opportunities as well as enhance accessibility for customers.

• The new investment in both systems and infrastructure has increased licensing and servicing costs. The impact of all these changes has been to increase operating costs over those projected in 2005 by more than $3 million for the four years.

Recruitment and training contracts make up $2 million. Hunter Water is subject to a range of labour market dynamics including an ageing workforce, greater turnover rate and skill shortages in a range of areas.

• An external recruitment provider has been necessary to seek and facilitate placements in a competitive labour market. A strong focus on management and leadership development and other training to support newer, less experienced staff has required a greater commitment to training than estimated in 2005. The increased spending on training has assisted with staff retention and in maintaining a skilled workforce. The total additional spend on external contracts


for both training and recruitment is approximately $2 million over the current price period.

Biosolids management makes up $600,000.

• A particular focus has been to improve the quality and consistency of biosolids and effluent to open up more options for disposal or reuse. While innovative uses and arrangements for the disposal/re-use of biosolids and effluent continue to be pursued, service delivery in this area is subject to increasing cost pressures from rising fuel costs, greater transport distances and increasing regulatory standards for users of wastewater and biosolids products. The 2005 submission estimated a real reduction of $300,000 for biosolids management costs. These reductions were proposed to be achieved through various initiatives. In reality the above factors have contributed to a $300,000 real increase, that is a $600,000 additional cost over four years.

Spending to meet customer and community expectations makes up $600,000.

• Customer and community expectations and environmental awareness is increasing. While the community has always expected water utilities to manage issues like wastewater system odours, water supply pressure, leakage and the appearance of visible assets, the community now demands a higher degree of attention to these responsibilities. This expectation is resulting in increasing levels of expenditures such as graffiti removal and repainting of $500,000 over the current price path.

• To further meet customer expectations, a dedicated case investigations team has been established to better manage customer complaints. This has seen a measurable reduction in the number of complaints by approximately 30 per cent. Despite this improvement, the costs of meeting regulatory requirements, such as providing customers with access to external dispute resolution are increasing.19 Hunter Water’s costs as a member of the Energy and Water Industry Ombudsman of NSW have increased from $65,000 per year in 2004/05 to $110,000 in 2008/09 - i.e. by around $100,000 over the four years.

• Significant capital expenditures driven by growth, provision of services to backlog areas under the NSW Government’s Priority Sewerage Program and the need to address the effect of wet weather wastewater flows have all contributed to increases in operating costs. In backlog sewer areas or remote growth areas, the small scale of operations often means that unit operating costs (eg per volume pumped or treated or per property served) are quite high. Where this is the case, Hunter Water evaluates servicing options to ensure that it adopts the most cost-effective technologies in meeting those expectations or regulated requirements.

Drought management spending makes up $300,000.

• In April 2006, Hunter Water’s storage levels fell under 70 per cent. At the same time, the Corporation was providing water to the central coast region, which was affected by unprecedented drought conditions and low storage levels. A new water conservation campaign “Save it together whatever the weather” was developed in response to the declining storage levels and drought pressures. The campaign was run intensively on television, radio and in local print media over the 2006/07 summer at a cost of $300,000.

19 Hunter Water is required by clause 6.2.1 of the operating licence issued by the NSW Government to be a member of an independent industry based dispute resolution scheme. To meet this requirement, Hunter Water is a member of the Energy and Water Industry Ombudsman of NSW


Offsetting the above increases in contract costs, is a reduction in material costs of around $3 million primarily as a result of an increase in the capitalisation of material costs. This was a result of a review of the processes prompted by the implementation of International Financial Reporting Standards.

Energy Electricity and fuel costs have increased by $5.6 million over the total energy requirements forecast by Hunter Water in 2005 and this trend is expected to continue. This accounts for 17 per cent of the $32.7 million increase in total operating costs over the period.

Increasing costs for electricity accounts for 87 per cent of the increase in energy costs with petroleum fuels also contributing $0.7 million (or 13 per cent) due largely to recent rises in world oil prices.

The increase in electricity costs is mainly as a result of increases in electricity use from changes to wastewater treatment processes through operational modifications and treatment plant upgrades. The Corporation’s older low-energy trickling filter processes are being superseded by more energy-intensive processes in the effort to increase capacity, and effluent quality or reduce other costs, such as reducing biosolids transport by more effective dewatering of biosolids. Experience is now showing that the electricity use allowed for by design consultants for a number of recent wastewater treatment plant upgrades, have been far lower than actual usage in operation. Particular energy intensive technologies are ultra-violet disinfection and centrifuge sludge dewatering.

Higher electricity costs have also been driven by significant increases in the market price, as well as higher average prices being paid for time-of-use components of the supply contract.

The recent expansion of the area of operations to include Dungog Shire Council has also increased electricity use. The supply of water to the central coast since 2004 has also increased electricity requirements for water treatment and pumping.

Plant and vehicles Expenditure on plant and vehicles has increased by $4.8 million over the costs forecast by Hunter Water in 2005. This accounts for 15 per cent of the $32.7 million increase in total operating costs over the period.

Hunter Water outsourced fleet management in July 2007. This change results in a different accounting treatment of fleet costs that has increased reported operating costs by almost $3 million over the current price period. This accounts for over 60 per cent of the reported increase in plant and vehicle operating costs.

Prior to outsourcing, fleet depreciation and interest expenses were reported separately from ‘operating costs’ as defined by IPART. These costs are now being incurred by the fleet provider and will be captured within the annual vehicle rental and contract management fees and are therefore reported as operating expenses. For Hunter Water, there is a corresponding offset in depreciation and interest expenditures. In effect, this simply represents a reclassification of some expenditure from depreciation and interest to operating costs, with nil net impact on profit.

There has also been a higher level of expenditure on external plant hire. Mostly, this is a function of an increased level of reactive maintenance work. Hire plant is also used to meet customer and community expectations in various ways. For example, in the case of water supply interruptions, hired water tankers can be used to supply customers, where practical. Community expectations regarding odour control in the


wastewater network have also resulted in an increase in the hire of chemical dosing equipment for odour control in sewers.

Property Property related operating costs have increased by $1.7 million over the costs forecast by Hunter Water in 2005. This accounts for 5 per cent of the $32.7 million increase in total operating costs over the period.

Increased property costs have been largely a result of significant changes to assessed land values flowing through to property-value based local government rates and land tax. Land values have risen from $48.7 million in 2004 to $81.5 million in 2008 (excluding Tillegra property purchases). In part, this is being offset by pursuing opportunities to rationalise surplus properties. This is sometimes a difficult task because the use of the property may be constrained by heritage requirements, local government zoning, and prior use limitations, especially for decommissioned wastewater treatment plant sites. Hunter Water has successfully disposed of several such constrained sites in recent years.

There have been increases in maintenance, cleaning and security costs generally. Other increases in property costs are attributable to the lease and management of additional rural properties recently acquired in preparation for construction of Tillegra Dam.

Other Other operating costs show a net increase of $1.1 million over those projected in 2005.

The net variance over the current price period represents other miscellaneous expenditures, and adjustments for employee resources applied to capital works or external sales.

5.4 Projected operating costs – 2009/10 to 2012/13 Hunter Water’s projected group operating costs are expected to be $393.4 million ($ 08/09) over the four-year price period commencing 1 July 2009.

A year-by-year projection (and a comparison with budget operating costs for the 2008/09 base year) is shown in Table 5.2.

In addition to the embedded cost increases outlined earlier, an additional $20.6 million in operating costs is expected to be incurred over the next price period. This $20.6 million reflects a real cumulative increase compared to the actual level budgeted for 2008/09 of $93.2 million.

The total increase of $20.6 million represents a real increase of 5.5 per cent over the new price period, or an average 1.4 per cent per annum (which is less than the rate of growth in properties). Hence, there is a continuing efficiency gain compared to the 2008/09 budget when measured as operating cost per property.


Table 5.2 Projected operating costs - 2009/10 to 2012/13 ($m 08/09)

2008/09 Budget

2009/10 2010/11 2011/12 2012/13 Total

(4 Yrs) Increase

Water 28.8 30.8 30.2 30.2 31.1 122.3 7.1

Wastewater 32.0 33.4 34.0 34.7 35.7 137.8 9.8

Stormwater 0.9 1.2 1.3 1.5 1.3 5.3 1.7

Recycled water 0.4 0.4 1.2 1.7 1.8 5.1 3.5

Other 31.1 31.1 31.1 30.4 30.3 122.9 (1.5)

Total 93.2 96.9 97.8 98.5 100.2 393.4 20.6 Source: HWC

The areas that account for the most significant increases during the coming price period are:

• Contracts - $12 7 million

• Salaries and wages - $6.4 million

• Materials - $1.9 million

• Property expenses - $0.8 million

• Energy - $0.6 million

In total, these areas more than account for the projected $20.6 million increase. This breakdown is illustrated in Figure 5.5.

Figure 5.5 Operating cost component increases - 09/10 to 12/13 ($m 08/09)

Salary & wages, $6.38

Materials, $1.86

Energy, $0.61

Contracts, $12.74

Property, $0.77

Source: HWC


Contracts Contracts are projected to increase by $12.7 million over the coming price period. This accounts for 62 per cent of the $20.6 million increase in total operating costs projected for the period.

A number of fundamental structural changes to Hunter Water’s business as well as some specific one-off initiatives to be delivered are projected to impact upon operating cost levels over the coming pricing period.

Reticulated recycled water projects to residential areas such as Cooranbong, Gillieston Heights and Chisholm, as well as commissioning of the Kooragang Island recycled water plant in January 2011 are anticipated to add more than $2.5 million in operating expenditure over the next price period. This estimate is in addition to the $1.25 million in estimated electricity costs for the Kooragang Island recycled water plant. Additional labour and marketing costs will also be incurred.

An amount of $4 million has been included for contract expenditure on water efficiency measures. This is an initiative stemming from a major review of the Corporation’s integrated water resources plan.20 The draft of the new plan, titled “H250 Plan: Securing our Water Future” was published in April 2008 for community comment. After a series of community workshops, the draft plan proposed a number of water efficiency measures. Some of these measures will be delivered under contract arrangements, including leakage management, installing water main pressure reduction equipment and installing water efficient household fixtures as part of an enhanced residential refitting program. The plan proposes that the cost of these measures be recovered from an additional charge of $5 per property per annum. This has been factored into the costs to be recovered by the water prices proposed in chapter 9 of this submission.

Over the next price path period additional expenditure of $1.2 million is to be expended on a number of customer related initiatives as follows:

• In addition to the traditional customer satisfaction and perception surveys, strategic customer research is planned to gain better insight into the needs of customers, to support new product development and to better measure the effectiveness of Hunter Water’s service delivery. The knowledge gained will allow better targeting and increased effectiveness of water efficiency initiatives and products, opportunities for recycled water as well as other ways to improve customer service in line with customers’ expectations. All this survey work will be contracted to external providers.

• Hunter Water is also investing more in the communication and education of the community under a significantly revised external communications strategy. This revision is a direct result of customer feedback through Hunter Water’s regular customer perceptions survey. Customer responses to the survey show a strong desire for Hunter Water to provide more information about contemporary water and environmental issues. Responding to this will require additional specialist communication skills - for example, contract journalist input to the preparation of media material.

20 The requirements for Hunter Water to have in place an integrated water resource plan and for review of the plan are set out in section 9.2 of Hunter Water’s operating licence. As outlined in chapter 4 of this submission, a draft revised plan titled “Draft H250 Plan: Securing our Water Future” was published in April 2008 and can be accessed from Hunter Water’s website


• Hunter Water is investing in the development and promotion of a range of recycled water products to suit industry and reticulated recycled water for households. Water efficiency measures are also being promoted. Anticipated contract costs include advertising to encourage uptake of recycled water and water efficiency measures.

Additional expenditure has been included to dredge lower Throsby Creek, which was last dredged in the early 1990s, to reduce the risk of flooding in this area due to increased silt build up. A more intensive water quality monitoring program at Grahamstown Dam is proposed. This is a more cost-effective alternative to proceeding with a previously-planned pre-treatment scheme that involved capital spending in the order of $6 million and avoids around $2.5 million in operating costs over the 4 years.

Other projected contract expenditure include:

• Contract expenditure on biosolids transport and management is projected to increase by $800,000 over the next price period due to increased chemical sludge production at wastewater treatment plants.

• Software licensing and business systems maintenance costs are projected to increase by $600,000 to cover both new licensing costs as well as increases on existing systems over the price period.

• An increase in training allowances to a level per employee more in line with national industry benchmarking. This is to ramp up training from an equivalent of 1.5 days per employee to three days. Additional training will be sourced from external providers at an increased expenditure of $600,000 for the coming price period.

• The amount of $2.8 million, which simply represents an increase in the level of wastewater maintenance proposed to be contracted. This work is currently undertaken by in house resources who are scheduled to retire over this period. There is an offsetting reduction in salary and wage costs.

An amount of $1.8 million in total has also been deducted from contract costs over the new four-year price period. This represents a commitment to achieve efficiencies through the implementation of the six sigma methodology. These efficiencies are in addition to the $370,000 per year electricity optimisation savings assumed from the commencement of the new price period.

Pricing for many of the supply contracts has been locked in for the next price period providing some price certainty. Efforts to contain contract input cost increases are discussed further in section 5.5.

Salaries and wages Labour costs are projected to increase by $6.4 million over the coming price period. This accounts for 31 per cent of the $20.6 million increase in total operating costs projected for the period.

Real increases in salary and wage rates account for the increase in labour-related costs. Hunter Water is required to comply with the NSW Government’s wages policy by identifying productivity gains to support any generalised wage increase over 2.5 per cent.

A small net increase in full time equivalent employees accounts for an additional $2.8 million real increase in labour costs over the price period. Additional resources have been included in line with Hunter Water’s strategic direction for the next four years. These resources include:


• Cadets and apprentices to continue to help address the skills shortage and ageing workforce issues.

• Staff to undertake specific initiatives, such as the investigation of options for ‘smart billing’, which will produce efficiencies at a future stage.

• Staff to address a range of technical and operational issues to ensure continued operating licence compliance.

• Resources required for the operation of Tillegra Dam and Kooragang Island recycled water plant.

The $2.8 million net increase in labour costs is effectively offset by an equivalent value that simply represents a reallocation of expenditure from labour to contracts. As a result, there is a corresponding increase of $2.8 million in contracts, as outlined in the discussion of contracts above, that represents the transfer of this amount out of salary and wage expenses.

Materials The cost of materials is projected to increase by $1.9 million over the coming price period. This accounts for nine per cent of the $20.6 million increase in total operating costs projected for the period.

The main contributor to this increase is increased chemical use for:

• Responding to more frequent, longer and more intense blue-green algae outbreaks in the water supply catchments

• Improving the quality of effluent from wastewater treatment plants, an

• Meeting the chemical requirements of newer wastewater treatment processes.

Property The costs of property administration and management are projected to increase by $800,000 over the coming price period. This accounts for 4 per cent of the $20.6 million increase in total operating costs projected for the period.

Real annual increases in land values of five per cent have been assumed for the duration of the new price path. The increase reflects additional land tax costs that are expected from these land value changes, partly offset by reductions in land rates due to the disposal of surplus properties.

Energy Energy costs are projected to increase by $600,000 over the coming price period. This accounts for 3 per cent of the $20.6 million increase in total operating costs projected for the period.

The current contracted rates for electricity supply are locked in until late 2012. Electricity costs would have been significantly higher had it not have been for strategies Hunter Water has implemented to limit this impact. Nevertheless a small net increase is projected over the coming price period reflecting:

• A 30 per cent price increase in electricity is anticipated upon expiry of current contracts in December 2012.21

21 Advice received from consultants, Energetics, suggests electricity prices could increase by as much as 100 per cent over 5 years. A 30 per cent increase is assumed on the contract expiring in January 2013, with significant risk that the increase may be higher


• Allowance for operating the new Kooragang Island recycled water plant from January 2011. The cost of electricity for the plant is expected to be $1.25 million in the price period, and

• Impact of growth and increased electricity use by upgraded treatment plants generally.

Hunter Water has not currently factored in any further real increases in petroleum fuels over the next price period. However, given the recent movements in world oil prices, this has been noted as a risk.

Other A range of other operating cost items are projected to result in a $1.8 million reduction over the coming price period.

This largely reflects an estimated increase in the level of operating costs able to be effectively removed from ‘regulated’ operating costs as a ‘Cost of External Sale’. Other increases partly offsetting these favourable external sales include various miscellaneous expenditures such as advertising associated with the marketing of new products including recycled water, higher water access and wastewater licensing fees as well as necessary risk mitigation works.

5.5 Efficiency enhancing programs / initiatives

Efficiencies Implemented Significant efficiencies have been achieved during current price period. With a continuous improvement approach to managing costs, Hunter Water has generated efficiencies relating to supply contract costs, asset maintenance and corporate overheads.

Material supply costs have been reduced as part of an initiative to identify preferred suppliers and negotiate defined contact terms with all major suppliers. The objective of this review was to ensure value for money and certainty with regard to future cost levels. Savings in the cost of electricity is the most significant outcome from the supply contract review process. Electricity costs are approximately $10 million per annum or 10 per cent of operating expenses. The review process has resulted in savings in the order of 18 per cent and 12 per cent for the 2011 and 2012 calendar years respectively. These savings are a result of an election to exercise a two-year extension to the current electricity supply contract.

Cost reduction initiatives have been implemented in the civil and mechanical maintenance areas. These include depot rationalisation, revised maintenance schedules and restructuring of plant hire arrangements to minimise overall expenditure. These initiatives are estimated to have saved Hunter Water in excess of $300,000 per annum

Efficiencies have also been generated in the customer service area by initiatives such as the rationalisation of low traffic customer centres from 5 to 3 centres and co-location of others with local government offices.

Benchmarking studies conducted by the Water Services Association of Australia highlight the efficiency of Hunter Water’s operations relative to other water utilities. Benchmarking studies carried out over the past five years cover:

• Civil maintenance


• Electrical maintenance

• Customer services

• Shared services

Hunter Water has made a conscious effort to address any areas for improvement identified from the benchmarking studies. Recent examples of initiatives originating from benchmarking results include the restructuring of the information technology and procurement functions.

Efficiencies proposed for price period 2009/10 to 2012/13 Overall efficiency improvements over the next price period are expected to be in the order of $6.1 million in 2008/09 terms. This represents a real reduction of 6.6 per cent on the base 2008/09 expenditure level, as summarised in Tables 5.3 and 5.4.

Table 5.3 Expected efficiencies - 2009/10 to 2012/13 ($m 08/09) 2008/09 2009/10 2010/11 2011/12 2012/13 Total Base Year (08/09 Opex) 93.2 93.2 93.2 93.2 93.2 372.8

Anticipated efficiency savings (0.8) (1.4) (1.8) (2.1) (6.1)

Other net cost changes & growth 4.5 6.0 7.1 9.1 26.7

Forecast Group Opex ($m 08/09) 93.2 96.9 97.8 98.5 100.2 393.4

Source: HWC

The main programs anticipated to deliver $6.1 million in targeted efficiency savings are:

• Business improvement initiatives $1.8 million

• Electricity optimisation $1.5 million

• Data and voice communications $1.0 million

• Trunk water main replacements $0.6 million

• Telemetry $0.3 million

• Customer information system $0.2 million

The year-by-year savings are summarised in Table 5.4.


Table 5.4 Expected efficiencies by program - 2009/10 to 2012/13 ($ 08/09) Initiative 2009/10 2010/11 2011/12 2012/13 Total

Business improvement benefits (295) (585) (885) (1,765)

Electricity optimisation (370) (370) (370) (370) (1,480)

Data and voice communications (281) (261) (261) (261) (1,064)

Trunk main replacements (200) (200) (200) (600)

Telemetry (60) (80) (80) (80) (300)

Customer information systems (106) (106) (212)

Other savings (127) (202) (202) (202) (733)

Total variance from 2008/09 budget (838) (1,408) (1,804) (2,104) (6,154)

Savings as a proportion of base 08/09 operating costs 0.9% 1.5% 1.9% 2.3% 6.6%

Source: HWC

In brief, the rationales behind these expected efficiencies are:

• Business improvement initiatives with an expected saving of $1.8 million. A continuous improvement team has been established. This team has been set the clear target of delivering the expected operating cost savings over the next price period.

• Electricity optimisation with an expected saving of $1.5 million. Energy efficiency is a focal point for the organisation from both a cost saving and environmental perspective. A number of initiatives aimed at both reducing and changing the pattern of electricity usage have already been identified. These initiatives are forecast to achieve a permanent reduction of $370,000 in 2009/10 and ongoing. As detailed earlier, significant cost savings have been achieved by locking in electricity prices with a supply contract to December 2012.

• Data and voice communications with an expected saving of $1 million. Optimisation of data and voice communications will deliver savings in excess of $260,000 per year. This relates to the convergence to internet protocol based solutions and more active management of telecommunication vendors.

• Trunk main replacements with an expected saving of $600,000. A number of trunk main replacements (for example, between Tarro and Shortland) have been identified as opportunities to save approximately $200,000 per year in ongoing maintenance expenditure. Works are proposed to be completed to allow savings to be realised for the 2010/11 year and beyond.

• Telemetry improvements with an expected saving of $300,000. A strategy to review and adopt technology improvements is expected to reduce ongoing maintenance expenditure in the order of $80,000 per year.

• Expanded use and functionality of the customer information system with an expected saving of $200,000. The implementation of the customer information system is expected to generate efficiencies of approximately $110,000 in 2011/12 and thereafter. Solicitors and property conveyancers will be able to order and receive conveyancing certificates and sewerage diagrams online. This initiative will reduce backhouse manual processing and convert the current manual process into a highly automated process.

• Other initiatives with expected savings of $700,000. Some examples include:


- Expanded use of credit-card type purchasing cards (P-cards) enabling streamlining of small purchases and additional administrative efficiencies to be a gained within the supply procurement area.

- The pursuit of opportunities to dispose of non-essential landholdings to further reduce holding costs (e.g. property maintenance costs).

Controllable operating expenditure The number and scope of future opportunities for efficiency gains is a product of both gains made in the past and the degree to which costs can be controlled in the future. Where Hunter Water has already pursued and implemented cost minimisation opportunities like locking in optimal contract arrangements, then that cost category is considered “uncontrollable”. That is, there is little or no scope to extract further efficiency gains during the coming price period.

In order to understand the ‘controllability’ of Hunter Water’s operating cost base, the degree to which cost categories are subject to external markets and have already been targeted for cost minimisation must be considered. Figure 5.6 provides an overview of the major cost categories within the $93.2 million budgeted expenditure for 2008/09.

Figure 5.6 Major operating cost components - 2008/09

Salaries & Wages, $39.8 , 43%

Contract Labour, $0.9 , 1%Materials, $11.2 ,

12%

Energy, $9.5 , 10%

Plant & Vehicles, $4.3 , 5%

Contracts, $15.3 , 16%

Property, $5 , 5%

Other, $7.0 , 8% FBT, $0.2 , 0%

Source: HWC

Salaries and wages account for $39.8 million or 43 percent of the operating cost budget. The total salary and wage cost is subject to both the number of employees recruited as well as pay rates negotiated as part of the enterprise bargaining process. Both variables are subject to Hunter Water’s decision making and performance. As such, labour is considered a ‘controllable’ cost. However, in reality, this is only the


case over the medium to long term, with the actual levels budgeted over the next price period considered necessary to deliver the Corporation’s business strategies as well as meet customer and regulatory commitments. The focus and investment on continuous improvement is expected to deliver further productivity gains across a range of areas.

The real wage increases included are subject to the NSW Government wages policy requirements and are considered modest given the dynamics of the current labour market.

Energy costs account for $9.5 million or 10 per cent of total costs. As outlined previously, electricity prices have been locked in until December 2012, which covers all but the final six months of the next price period. At that point, Hunter Water will review supply options. The degree to which operating costs are affected at this point largely will be subject to market rates prevailing at the time.

The price of petroleum fuels has risen significantly in recent months and is predicted to continue to do so in the future. The increase in fuel prices affects motor vehicle and plant running costs.

Both fuel and electricity prices are considered to be unpredictable and uncontrollable.

Contractor and consultancy services are hired to supplement Hunter Water labour. These account for $15.3 million or 16 per cent of operating costs in 2008/09.

These hire services may be driven by peak workloads, the need for specialist skills and knowledge, or where opportunities exist to purchase more efficiently from the market. These services are purchased through a competitive tender process ensuring that cost minimisation is achieved.

Approximately 50 per cent of the expenditure on contractors/consultants is for civil and electrical/mechanical maintenance. This includes pump repairs, road and path restoration, traffic control, stormwater channel maintenance, closed circuit television inspection of sewer mains and chemical root treatment of sewer mains. These are almost always ‘reactive’ expenditures to particular problems and, as such, are non-discretionary. Along with price, the degree of work required is subject to external factors outside of Hunter Water’s control.

For these reasons, contract expenditure is considered largely to be uncontrollable.

Chemicals and all other materials are sourced externally and competitively and account for $11.2 million or 12 per cent of the operating budget in 2008/09.

Procurement processes have been subject to a substantial review. This review process has included $8 million of Hunter Water’s major service/purchase contracts issued in the last 12 months. The scale of the review ensures that cost minimisation is being achieved for a significant proportion of material costs for the coming pricing period.

In the light of the procurement process and its recent review, material costs are considered to be largely uncontrollable.

Plant and vehicles costs are $4.3 million or 5 per cent of total operating costs in 2008/09.

Hunter Water out-sources the lease or hire of almost all of plant and machinery used in its civil maintenance operations. The Corporation also recently disposed of its motor vehicle fleet under a sale and lease back arrangement with the objective of achieving a least-cost outcome.


These arrangements essentially mean that these expenditures can be regarded as fixed and hence uncontrollable.

Property–related costs amount to $5.0 million or 5 per cent of operating costs in 2008/09.

Hunter Water out-sources the majority of property activities including cleaning, ground maintenance, repairs and security. Insurance, rates and land tax are set externally and driven by government policy and market factors. It is noted that while local government rate increases are generally restricted to 3.2 per cent this year, the NSW Government is approving significant increases above this figure for some councils. Land values, which determine land tax liability, are set by the NSW Valuer General and the Office of State Revenue. As a result, these expenses are totally outside Hunter Water’s control.

Property costs are considered uncontrollable.

Other expenses account for $7.0 million or 8 per cent of the 2008/09 operating budget.

The single largest item of ‘other’ expenditure is licence fees. Licence fees are considered uncontrollable as they are externally driven and imposed by various regulatory and other agencies including the Department of Environment and Climate Change and the Department of Water and Energy.

Telecommunications and billing collection are also significant components of ‘other’ expenditures. These costs have both been the subject of separate reviews to ensure the expenditure is being optimised and, in reality, are effectively subject to very limited control.

From the this analysis, it can be seen that, in general terms, labour related costs comprising 43 per cent of the 2008/09 budget, are controllable to a small degree in the medium to long term. All other expenditure is considered to be effectively uncontrollable.

The uncontrollable nature of non-labour costs reflects the fact that these costs are largely outsourced. In addition to the market dependent nature of outsourced costs, much of this cost base has been locked in through contractual arrangements for the coming price period.

Figure 5.7 summarises the categorisation of operating costs between controllable and uncontrollable with reference to the 2008/09 operating budget.


Figure 5.7 Controllable and uncontrollable operating costs – 2008/09

Salaries & Wages, $39.8 , 43%

Contract Labour, $0.9 , 1%Materials, $11.2 ,

12%

Energy, $9.5 , 10%

Plant & Vehicles, $4.3 , 5%

Contracts, $15.3 , 16%

Property, $5 , 5%

Other, $7.0 , 8% FBT, $0.2 , 0%

Red shading indicates controllable costs

Blue indicates uncontrollable costs

Source: HWC

5.6 Other operating risks and uncertainties The previous sections outline the most significant factors that are expected to influence operating costs during the coming price period. In addition to those factors, Hunter Water is aware of other, less quantifiable, risks. These include:

• Climate and weather can have significant impacts on operations and sales revenue. All forward estimates used in this submission are based on the concept of a “normal year” in terms of weather conditions. Therefore an extended period of either very wet or very dry conditions can adversely affect Hunter Water’s financial situation as can extreme weather events such as the June 2007 storm.22

• Carbon trading – The Australian Government’s greenhouse gas and energy reporting requirements and the proposed carbon reduction scheme will have an as yet unquantifiable impact on operating costs. Given that the framework for the Australian Government’s proposed Carbon Pollution Reduction Scheme is still evolving, it was decided that an estimation of costs not be included in the cost base, but rather that a cost ‘pass through’ mechanism be sought once there is greater clarity regarding implementation of the scheme. The possible effects of the national greenhouse gas and energy reporting requirements and carbon trading scheme are outlined further at the end of this chapter.

• Fuel – While the increase in fuel prices for Hunter Water’s vehicle and plant fleet has been budgeted, the impact of rising fuel prices on prices charged by contractors, consultants and other suppliers is far less predictable.

22 A major storm affected the Hunter region on the weekend of 8-11 June 2007 with gale force winds and rainfall up to 400mm over the period. This caused massive disruption to public utilities including telecommunications, electricity and water and sewer services.


• Inflation – In line with advice from the NSW Treasury a 2.5 per cent inflation factor has been used in most modelling of operating costs. Inflation is currently running at approximately 4.5 per cent23 hence casting some uncertainty on the assumptions used. As outlined in chapter 6, capital expenditure modelling has attempted take account of the likely inflation in the construction market by using a capital-specific inflator developed for Hunter Water by BIS-Shrapnel.

• Licence fees – Hunter Water noted in its October 2008 submission that it had been advised in officer-level discussions that the Department of Environment and Climate Change (DECC) will increase load-based licence fees during the price period. As a result, no real increase was included in the forward cost projections. DECC advised in its submission to IPART24 that it intended to increase load-based licence fees in line with the consumer price index. This is consistent with Hunter Water’s cost projection assumptions. Bulk water charges imposed by the Department of Water and Energy are subject to an IPART price determination, with the next determination due to take effect from 1 July 2010.

• IT licence fees (Microsoft) - In recent years, Microsoft licensing has been sourced through a NSW government licensing agreement. This particular scheme has ended and it was hoped that a replacement government scheme would be put in place. Hunter Water has been advised recently that there will be no replacement scheme and Microsoft licensing costs will increase significantly from the 2008/09 year. No allowance has been made for such an increase. As the size of the increase is subject for further commercial negotiation, Hunter Water’s position can be made available on a confidential basis to IPART.

• The recent introduction of competition legislation has the potential to result in significant loss of income by the Corporation. Alternatively it could generate additional costs in responding to access requests and to counter competitive threats to the business.

• Chemicals are another category of costs which are at risk of significant increases. Sulphuric acid and alum are two specific examples. The costs of these chemicals has seen significant increases in recent months without any increase having been allowed for in the price path.

5.7 Subsidiary/unregulated activities Hunter Water Australia (HWA) is a fully-owned subsidiary of the Hunter Water Corporation. This subsidiary was established to pursue commercial sales in a range of technical services throughout Australia and overseas. HWA operates independently of Hunter Water and sells services to the Corporation in the areas of water treatment, wastewater treatment, laboratory, engineering, as well as survey and land information. These services are provided at market competitive rates.

Hunter Water is required to consolidate the accounts of HWA in determining the group accounts. As part of this consolidation process, the profit margin generated by HWA is eliminated from the total operating costs. Because these services are provided at market competitive rates, the elimination of the profit margin reduces the regulated cost base to a lower level than would have been the case if these services were provided by an unrelated entity.

All Hunter Water Corporation’s external sales opportunities are serviced through HWA. When Hunter Water Corporation staff work on external projects, HWA is 23 The ABS June quarter 2007 to June quarter 2008 weighted average CPI for eight capital cities is 4.5 per cent 24 The DECC submission was posted on IPART’s website on 28 October 2008.


charged at full cost (but no profit) for the provision of services in the form of labour. The level of these sales is very low and the costs of performing these works are removed from the regulated cost base via the ‘cost of external sales offset’ account in the Corporation’s group profit and loss statement.

All costs associated with external sales made by HWA are shown as ‘cost of external sales’ in the Group accounts, effectively stripping them out of Hunter Water’s regulated cost base.

The accounting consolidation impact of HWA on Hunter Water’s operating costs can vary from year to year depending on the costs incurred by HWA to provide these services, the total quantum of services provided, and the amount of purchases from HWA which are capitalised by Hunter Water and the level of external work undertaken by HWA.

As indicated, total parent operating costs are believed to be the best representation of the true levels of expenditure in performing the core regulated business. However due to concerns previously raised by IPART that purchases by Hunter Water from its subsidiary HWA were not perceived to be being purchased from the ‘market’, Hunter Water prepared its previous submission on an ‘adjusted parent’ basis.

This resulted in adjustments being made to the value of all transactions with the subsidiary to eliminate profit margins. As a consequence no amount represented an actual cost value that could be reconciled back to any financial record or ledger.

Hunter Water believes that the same objective can be achieved more effectively and efficiently by submitting its financial projections on a group basis. This is achieved by completing IPART’s annual information return and providing other financial data on a parent basis so that detailed expense elements can be sourced from, and directly linked to, actual costs in the parent financial ledger. A single adjustment item is then required to bring the total expenditure level back to match group results. This method will significantly improve the transparency, quality and integrity of financial information being provided, while still achieving the elimination of profit on payments by Hunter Water to HWA.

5.8 Ring-fencing recycled water costs Hunter Water moved to separate its accounts for various activities following the release of IPART’s report into pricing arrangements for recycled water in September 2006. The guidelines for pricing of recycled water set out in that report require ‘ring-fencing’ the costs of specific recycled water schemes.25

Hunter Water has undertaken a restructure of its ‘chart of accounts’ as part of a comprehensive review of financial reporting generally. This change facilitated clearer alignment of expenditures with actual operating activities and will significantly improve the ability to capture costs separately for the distinct water, wastewater, stormwater and recycled water activities.

Forward income and operating expenditure estimates have been dissected into these distinct products. This has allowed the separation of revenue requirements for each distinct product, detailed later in chapter 8, and the separate modelling of proposed prices for water, sewer services and stormwater services.

Development of the various ‘mandatory’ residential reticulated recycled water schemes and larger ‘voluntary’ recycling schemes for Kooragang Island and at Branxton are still in early planning or construction phases. Further refinement of the

25 Independent Pricing and Regulatory Tribunal, 2006, pages 4, 53, 63 and 64


financial accounts structure will be undertaken as the nature of the actual costs and transactions becomes clearer.

5.9 Impact of the Carbon Pollution Reduction Scheme The impact of the proposed Carbon Pollution Reduction Scheme (CPRS) on operating expenses is yet to be clearly defined. This section presents the activities being undertaken, the likely direction of the CPRS and the mechanism proposed to handle operating cost impacts should they be incurred.

Hunter Water is currently preparing to fulfil reporting obligations under the National Greenhouse and Energy Reporting (NGER) Act 2007. Under the Act, the timing of mandatory reporting of Scope 1 (direct) and Scope 2 (indirect) emissions is dependant on the nature and threshold of the emissions. The recently completed Hunter Water Carbon Strategy estimated total emissions to be approximately 85,000 t CO2-e/year (16,000 and 69,000 t CO2-e/year for Scope 1 and 2 respectively).

The Corporation is expecting to report at the “facility” level in the first year26 as it will exceed the 25,000 t CO2-e/year threshold for the water network. Depending upon further clarification of the national reporting requirements, it is expected that the Hunter Water will report at “corporation” level in the second or third NGER reporting year.

The timing of reporting indicated above maybe revised given ongoing work related to:

• Refining the estimation of fugitive emissions from wastewater treatment plants;

• Defining emissions from the wastewater transport network associated with each wastewater treatment plant; and,

• The inclusion of contractor related Scope 1 emissions as part of facility emissions.

The financial year 2008/09 is the first reporting year under NGER and, like most Australian businesses, Hunter Water does not yet have a good appreciation of the long-term resource requirements needed to comply with NGER. At present, the costs of meeting the initial reporting requirements are being met from existing resources. However, it is becoming evident as the Corporation develops its reporting processes that additional resources will be required to meet this Australian Government regulatory requirement on an ongoing basis. At this stage, no allowance for these resources has been factored in to future operating budgets.

The quantum of direct emissions identified under the NGER process will determine the Corporation’s responsibilities under the Carbon Pollution Reduction Scheme (CPRS). The CPRS Green Paper, published in July 2008, provides some guidance, in the form of “preferred positions”, on the nature of the scheme. The key preferred positions that would influence the impact on the Corporation are listed in the box below.

26 The first year for reporting covers the 2008/09 and is reported in 2009


It is clear from the above information, that it is not possible to accurately forecast the timing and magnitude of the Hunter Water’s obligation to purchase and acquit ‘carbon pollution permits’. In summary, there is uncertainty on the definition of the Scope 1 emissions as well as the definition of a facility and a facility’s threshold.

Hunter Water’s expectation, based on discussions with IPART is that any costs imposed by the implementation of the CPRS will be handled as a cost pass through. This could be along the lines of the mechanism developed by IPART for Sydney Water Corporation to adjust water prices due to effects of changes in the price of water supplied by the Sydney Catchment Authority.

Key Preferred Positions from the CPRS Green Paper Preferred Position 2.1 - All greenhouse gases included under the Kyoto Protocol—carbon dioxide, methane, nitrous oxide, sulphur hexafluoride, hydrofluorocarbons and perfluorocarbons— would be covered from scheme commencement.

Preferred Position 2.2 - In general, the emissions threshold for direct obligations under the scheme would apply to entities with facilities which have direct emissions of 25,000 tonnes of carbon dioxide equivalent a year or more. Different thresholds may be required for the waste sector and synthetic greenhouse gases.

Preferred Position 2.7 - Emissions from the waste sector would be covered from scheme commencement, with the precise scope of coverage, thresholds and other detailed design issues to be determined. Source: Department of Climate Change (2008), CPRS, Green Paper, chapter 2

Chapter 6 Capital expenditure 59

6 Capital expenditure

Main points • Hunter Water is on course to complete the targeted investments over the current

price period. These include the planning and pre-construction of Tillegra Dam and Kooragang Recycled Water Project - two major investments announced by the Government mid way through the current price path period.

• Some highlights of the investment program since 2005/06 are the completion of the Stage 2 Grahamstown Dam spillway, Gosford-Wyong bulk transfer stages 3 and 4, upgrade of the Belmont WWTP and major water and wastewater network upgrades.

• The investment program for 2009/10 to 2012/13 will be the largest undertaken in Hunter Water’s history totalling $1,148 million and reflects projected growth, increase in regulatory requirements across the area of operations and investments in drought security.

• Key expenditure areas will be in water (22 per cent), wastewater (38 per cent) Tillegra Dam (29 per cent) and recycled water (5 per cent) with the balance of the investment being in corporate and stormwater projects.

• The drivers for investment are identified as growth at 35 per cent, regulatory and statutory requirements at 20 per cent and the 2006 Government directives at 34 per cent. The balance is due to investments in business efficiency and Government programs for backlog sewer.

• The cost estimates incorporate an escalation factor greater than the projected rise in the consumer price index. This is based on a BIS Shrapnel study into trends in the cost of key inputs and construction activity.

6.1 Background At the time of the last price review, water agencies argued that the costs of capital projects were increasing at a rate faster than the annual change in the consumer price index (CPI). The Tribunal’s decision was not to make any special allowance for the increase in construction costs on the basis that such a relationship was not likely to be a long-term trend.

Hunter Water commissioned BIS Shrapnel to investigate the relationship between the CPI and the construction cost escalation over the current and proposed price period. The study indicated that construction costs have consistently been above CPI over the current period and will continue to do so in the coming years. The findings of this study are presented in Appendix B. Hunter Water has adopted BIS Shrapnel’s recommendation to use the engineering construction cost implicit price deflator as


the best measure to index past and future expenditures from real prices (relative to a base year) to nominal prices.27

6.2 Performance between 2005/06 and 2008/09 Hunter Water is on course to deliver its capital investment program as outlined with the Tribunal’s 2005 determination. Hunter Water is also delivering extra capital investment as a result of Government directives during the price period. This has been achieved with a focus on achieving value for money and a drive for continuous improvement in infrastructure delivery. The announcement of two major projects under a Government directive required a reprioritisation of resources and projects in Hunter Water’s capital program. These projects are described in section 6.11. Hunter Water’s actual expenditure for 2005/06 to 2007/08 and proposed expenditure for 2008/09 are compared to the Tribunal’s 2005 Determination finding in Figure 6.1 below.

For comparison, the investment program shown excludes expenditures related to the planning and construction of Tillegra Dam and Kooragang Recycled Water Scheme. Both these expenditures are the subject of the Government directive referred to above. During the current price period, Hunter Water is expected to spend $423m (in nominal terms) or 11% beyond the expenditure target set in the 2005 Determination.

Figure 6.1 Capital expenditure 2005/06 to 2008/09 ($m nominal)

0

20

40

60

80

100

120

140

160

05/06 06/07 07/08 08/09

$ m

illio

ns

IPART Target Hunter Water Expenditure Source: Hunter Water - excludes Government Directives

Capital expenditure 2005/06 In 2005/06, Hunter Water delivered a capital program of $106 million (in nominal terms) or 30 per cent beyond the IPART-approved expenditure of $81 million. Some of the highlights from this year include:

27 BIS Shrapnel, 2008


• Completion of the Stage 2 Grahamstown Dam spillway and embankment in December 2005. The spillway successfully raised the full supply level from the existing RL 10.4 metres to 12.8 metres, an increase in the storage capacity of the Dam of approximately 50 per cent. This upgrade has increased Hunter Water’s total storage volume to approx 280,000 megalitres, an increase of approximately 70 per cent.

• Completion of Hunter Water’s new head office building in December 2005. Hunter Water is leading the way with the first building in Newcastle to achieve a four and a half star environmental rating under the Australian building greenhouse program, due to the building’s innovative and sustainable design.

• Completion of the Warners Bay/Valentine wastewater transport system upgrade in March 2006. This work included the upgrade of three wastewater pumping stations, new electrical substations, a five kilometre carrier main and a 1.2 kilometre rising main in a largely suburban area at a cost of $8.5 million. The works have considerably reduced overflows and significantly reduced customer complaints.

• Completion of the Cessnock tertiary wastewater treatment plant upgrade in June 2006 at a cost of approximately $3 million.

• Design of the Fern Bay and construction of the Kitchener sewerage schemes were completed as part of the Priority Sewerage Program announced by the NSW Government in August 2003. The cost of both schemes was in excess of $9 million and the Kitchener system was substantially completed in 2005/06.

• Replacement of 17 kilometres of water distribution mains within Hunter Water’s area of operations at a cost of $4.3 million. All water main replacements contribute to the delivery of a higher quality of service to customers.

Capital expenditure 2006/07 In 2006/07 Hunter Water delivered an investment program totalling $139 million (in nominal terms) or 97 per cent of the IPART approved expenditure of $99 million. The following projects highlight some of the key assets commissioned or substantially completed in 2006/07.

• Gosford/Wyong bulk transfer water main (Stage 3) reached completion in December 2006. Significant components of Stage 3 included 10.5 kilometres of 600 mm pipeline through developed suburbs, 140 metres of micro tunnelling and multiple connections to the existing water delivery system at a cost of $9.8 million. The connecting pipeline is an important drought security measure for Hunter and central coast regions.

• A major component of the Newcastle sewerage scheme, featuring a horizontal directional drill of 1.34 kilometres for a 900 millimetre pipeline, was completed early 2006. The project was the largest of its kind completed to that time in Australia. The construction work was considered a great success, especially in terms of acceptance of the work within the community. The project was nominated for an award in the Engineering Excellence Awards for the Newcastle Division of Engineers Australia for 2007.

• The Lochinvar Sewerage Scheme was designed and constructed as part of the Priority Sewerage Program. The project was completed in April 2007 at a cost of $3.5 million.

• A $2 million upgrade of Fennell Bay water pump station was completed in 2006 as part of the Gosford/Wyong bulk transfer water main. The station is a key


element in the overall bulk transfer scheme between the Hunter and the central coast.

• Other projects completed included the Millfield water main upgrade ($900,000); the upgrade of the North Rothbury water booster station and water main ($800,000); and the successful recommissioning of Whitebridge water pump station ($600,000). All improvements to the water supply system contribute to an enhanced service to customers.

• Replacement of 14 kilometres of water distribution mains within Hunter Water’s area of operations at a cost of $3.8 million. All water main replacements contribute to deliver a higher quality of service to customers.

A major event was the announcement in November 2006 by the NSW Government of a suite of measures to ensure sustainable water supply. The projects announced by the NSW Premier were:

• A new 450,000 megalitre dam at Tillegra north of Dungog;

• New pumps at Seaham Weir (Balickera pumping station) to extract additional flood flows from the Williams River for transfer to Grahamstown Dam;

• An industrial recycled water plant to service potential customers on Kooragang Island; and,

• Increasing the capacity of the pipeline between the Hunter and the central coast (Gosford/Wyong bulk transfer water main, Stage 4)

The dam and industrial recycling plant were included subsequently in a directive from the Minister for Water Utilities to Hunter Water under Section 20P of the State Owned Corporations Act 1989.

Capital expenditure 2007/08 In 2007/08 Hunter Water delivered a capital expenditure program totalling $100 million (in nominal terms) or 28 per cent below the IPART approved expenditure of $99 million. The following projects were some of the key projects commissioned or substantially completed in 2007/08.

• The major upgrade of Belmont wastewater treatment works was completed in June 2008 at a cost of approximately $23 million. The upgrade will substantially increase the capacity of the treatment works to allow for identified growth in the catchment.

• Morpeth wastewater transportation system Stage 1 upgrade was substantially completed in June 2008 at a cost of $14 million. The upgraded system will service the both existing customers and the new Thornton North and Berry Park residential developments. The area will also be one of the first in the Hunter region to be serviced with reticulated recycled water.

• Gosford/Wyong bulk transfer water main (Stage 4) was completed in March 2008. Significant components of Stage 4 included seven kilometres of 600mm pipeline through developed suburbs at a cost of $9.8 million. The completion of Stage 4 allows Hunter Water to increase the transfer volumes to the central coast, if required. The connecting pipeline is an important drought security measure for Hunter and central coast regions.

• Wastewater pumping station upgrades at Belmont, Barnsley and Edgeworth were completed by June 2008 at a cost of $2 million. These investments were undertaken to cater for existing customers as well as for growth within the catchments.


• Replacement of approximately 13.8 kilometres of water distribution mains within Hunter Water’s area of operations at a cost of $ 3.7 million. All water main replacements contribute to higher quality service for customers.

Forecast capital expenditure 2008/09 In March 2008, the capital budget for 2008/09 year was set at $172 million (in nominal terms). Hunter Water forecast the completion or substantial completion of the following projects in 2008/09:

• Major pump capacity upgrades at Balickera pumping station near Seaham Weir to be completed in early 2009. The $16 million upgrade was announced in November 2006 by the NSW Government as part of the Hunter/Central Coast Water Grid. The project includes the installation of two new pumps and automated screens. The upgraded station will increase the capacity of the pumping station to transfer water from the weir to Grahamstown Dam from 1,350 to 1,640 megalitres per day. This upgrade will help to further secure water supply for the Hunter and central coast regions.

• Edgeworth wastewater treatment works upgrade including inlet works, aeration system and clarifiers at a cost of approximately $7.5 million. This upgrade will increase the capacity of the treatment plant to service identified growth in the catchment.

• The Millfield and Ellalong Sewerage Scheme is forecast to reach substantial completion by mid 2009 at a cost of approximately $15 million. The scheme is part of the Priority Sewerage Program announced by the State Government in August 2003. The Priority Sewerage Program is a Government initiative to provide wastewater transportation systems to townships currently remote from sewer infrastructure.

• Wastewater pump station upgrades at Redhead, Sandgate and Shortland are forecast for completion. These investments cater for backlog deficiencies and allow for future growth at a cost of $5.4 million in total. These upgrades will reduce wet weather overflows and improve services to existing and future customers.

• Hunter Water expects to replace approximately 14 kilometres of water distribution mains. All water main replacements contribute to a higher quality of service for customers.

• Construction of Maitland/North Rothbury Stage 2 water supply upgrade works is expected to be completed by June 2009. These works are required to cater for existing customers and future identified growth in the fastest growing system in Hunter Water’s area of operations.

• Work is progressing on preconstruction and land purchases for the Tillegra Dam. Tillegra Dam was announced by the NSW Government in November 2006 and is the key component of Hunter Water’s planning for water security for the region.

• Construction of the Clarence Town wastewater sewerage scheme will commence in early 2009. Hunter Water’s area of operations was expanded to include the Dungog Shire and the Clarence Town project in July 2008. Hunter Water will complete Dungog Council’s plans to provide sewer network infrastructure and a wastewater treatment plant for Clarence Town.


Performance against IPART 2005 output measures Hunter Water reports annually against all output measures for the capital expenditure program defined by IPART in the 2005 Determination for the period 2004/05 to 2008/09. Hunter Water’s performance against these measures is detailed in Appendix C. Figures for 2008/09 have been forecast as of July 2008. Many targets have been met over the period with categories such as water main and sewer main replacements exceeding the targets set by IPART in 2005.

The key reasons for experienced variances include, revised catchment strategies and growth rates, the timing of developer works and accelerated project delivery. For instance, a revised growth rate and delayed developer works will negatively impact the Cameron Park water pump station, while sewer main replacements over the four year period are forecast to exceed the set target by over 35 per cent.

6.3 Projected capital expenditure 2009/10 to 2012/13 Hunter Water’s capital expenditure program for the next price period in nominal terms is $1,148 million as defined in Table 6.1. The program is the largest in Hunter Water’s history and reflects the projected growth and increase in regulatory requirements in Hunter Water’s area of operations.

The program was developed by applying a thorough project justification and holistic program review process. All capital projects were prioritised using Hunter Water’s revised prioritisation procedures. The timing and staging of all works were finalised using a risk-based approach taking into account safety, business benefit, government program and regulatory requirements and growth projections. A prioritisation score for each project was used to determine which projects provided greatest value within the program of works over the coming price review period.

Table 6.1 Proposed capital expenditure program ($m 08/09) 2009/10 2010/11 2011/12 2012/13 Total

Water 71.7 73.1 43.0 37.2 225.0

Wastewater 137.2 106.2 89.1 56.6 389.1

Recycled Water 9.6 2.2 2.7 - 14.5

Stormwater 0.9 0.3 0.9 0.3 2.4

Corporate 14.6 14.8 14.7 14.3 58.4

Sub-Total 234.0 196.5 150.4 108.5 689.3

Government Directives:

- Tillegra Dam 25.1 101.2 109.6 67.1 303.1

- Kooragang Recycled 17.2 18.6 - - 35.8

Total ($m 08/09) 276.3 316.4 260.0 175.6 1,028.2

Total ($m nominal) a 289.5 347.5 299.3 211.8 1,148.1

Source: HWC (totals may differ due to rounding) a. Indexed using Engineering Construction Cost Implicit Price Deflator forecast (BIS Shrapnel, 2008)

From a planning perspective, Hunter Water maintains a focus on social, regulatory and economic aspects to ensure that infrastructure decisions are made in the best interests of the community. Hunter Water must be able to meet the increasing


demand for water and wastewater services arising from population growth and new developments, and ensure that it complies with environmental and customer standards under the established regulatory framework28. Asset management strategies for Hunter Water’s infrastructure are developed to meet this objective at minimum life cycle cost. The key drivers for expenditure in the capital program are:

Growth – As part of Hunter Water’s planning process, regular strategy studies are undertaken to plan the most efficient upgrade of the water and wastewater systems to service population growth and new development as it occurs. Catering for growth is factored into most water and wastewater system upgrades.

Regulatory and Statutory Requirements – Meeting customer service and environmental standards under the established regulatory framework and other statutory requirements will continue to have a major impact on capital expenditure. Expenditure in this area can occur where there is a high risk of non compliance with existing requirements or as a result of a change in requirements.

Business Decisions – This is defined by IPART as ‘expenditure that is wholly justified on the grounds of expected reductions in operating expenditure’.

Government Programs – This includes expenditure to meet specific Government Programs which may override other objectives such as commercial return e.g. the Priority Sewerage Program

Government Directives – This covers the works contained in the Government’s announcement in November 2006 on “Securing our Water Future” and subsequently under the Directive issued under Section 20P of the State-owned Corporations Act 1989.

Capital expenditure broken down by key expenditure drivers is shown in Table 6.2. These expenditure profiles are illustrated in Figure 6.2.

Table 6.2 Capital expenditure program by driver ($m nominal) Driver 2009/10 2010/11 2011/12 2012/13 Total

Growth 111.7 125.4 99.0 70.0 406.1

Regulatory and Statutory 82.7 67.0 48.3 33.9 231.8

Business Decisions 29.5 20.6 25.8 26.9 102.7

Government Programs 21.4 2.9 - - 24.3

Government Directives a 44.3 131.6 126.2 81.0 383.1

Total ($m nominal) b 289.5 347.5 299.3 211.8 1,148.1 Source: HWC (totals may differ due to rounding) a. Tillegra Dam and Kooragang Recycled Water Project b. Indexed using Engineering Construction Cost Implicit Price Deflator (BIS Shrapnel, 2008)

28 This framework is described in chapter 2 and includes Hunter Water’s operating licence, wastewater system licences issued by the Department of Environment and Climate Change (DECC), water access requirements set by the Department of Water and Energy (DWE) and water quality matters administered by NSW Health.


Figure 6.2 Capital expenditure program 2009/10 to 2012/13 ($m nominal)

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100

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2009/10 2010/11 2011/12 2012/13

$ m

Growth Regulatory & Statutory Business Decisions

Government Programs Government Directives Source: HWC

Major capital expenditure is required to:

• secure the water supply for the future of the Hunter region,

• upgrade wastewater treatment plants to cater for growth and more stringent wastewater system licence requirements,

• extend networks to cater for growth, and

• maintain levels of service to existing customers.

Capital expenditure programs over the coming price period for water, wastewater, recycled water, stormwater, and corporate components are summarised in the following sections.

Appendix D sets out the projects with total expenditure over the proposed price path period that are greater than one million dollars. Appendix E provides a breakdown of these projects by expenditure driver.

6.4 Water Approximately $595 million (in nominal terms) is expected to be spent on water supply over the next four years with $181milion on water distribution, $381 million on water resources and $33 million on water treatment.

A breakdown of the expenditure by the main drivers over the coming price period is provided in Table 6.3. The program includes expenditure on the existing system to improve system performance, secure reliability and appropriately assess and manage known risks and expenditure on new works to cater for projected growth. The major water supply projects proposed are:

• Tillegra Dam - $345 million

• Tomaree/Tilligerry water supply and water treatment plant upgrade - $29 million


• Replacement of the Chichester trunk gravity main from Tarro to Shortland - $19 million

• Beresfield to Stoney Pinch watermain - $11 million

• Trunk main across Ash Island - $9 million

• Grahamstown water treatment plant – including the Tomago water main and pre-treatment investments at the plant - $11 million

• Renewals and replacements of water treatment and distribution assets - $53 million

Table 6.3 Proposed water capital expenditure program ($m 08/09) Driver 2009/10 2010/11 2011/12 2012/13 Total

Growth 30.5 50.1 21.1 20.8 122.5

Regulatory 21.7 13.3 12.1 6.6 53.7


Government Directives 25.0 101.0 110.0 67.0 303.0

Total ($m 08/09) 96.8 174.3 152.6 104.4 528.1

Total ($m nominal) a 101.4 191.5 175.7 125.9 594.5


6.5 Wastewater Approximately $431 million (in nominal terms) is expected to be spent on wastewater assets over the next four years with $209 million on wastewater treatment, $206m on wastewater transport, and $16 million on the Priority Sewerage Program and Clarence Town Sewer. A breakdown of the expenditure by key drivers over the proposed price path period is provided in Table 6.4. The main areas of expenditure are:

• Upgrading of wastewater treatment plants to cater for growth and meet regulatory requirements. Approximately $207 million is expected to be spent over the next four years, including:

- Inland wastewater treatment plants – $146 million

- Coastal wastewater treatment plants, including Burwood Beach, Tanilba Bay and Karuah – $57 million

• Approximately $172 million of the $206 million for wastewater transport over the next four years is expected to be spent on upgrading the system to reduce wet weather customer and environmental impacts. These upgrades will also cater for population growth. In line with the regulatory requirements of the Department of Environment and Climate Change, Hunter Water is preparing upgrade strategies for its major wastewater transport systems to reduce the impact of overflows on customers and the environment. These strategies cover:

- Upgrade of Newcastle wastewater transport system (Stage 1) - $32.4 million

- Upgrade of Morpeth wastewater transport system (Stages 2-4) - $18.2 million


- Upgrade of the Aberglasslyn wastewater transport system (Stages 1-3) - $13.0 million

- Upgrade of the Windale/Gateshead wastewater transport system (Stages 1-2) - $11 million

• Priority Sewerage Program / Country Towns Water and Sewer Program – In 2003, the NSW Government directed Hunter Water to provide sewerage services to the then-unsewered villages of Kitchener, Lochinvar, Millfield and Ellalong under the Priority Sewerage Program. This was in addition the direction to provide sewer services to Fern Bay, which was announced in the previous year. Construction is complete at Fern Bay, Kitchener and Lochinvar, and a scheme for Millfield and Ellalong is scheduled to commence construction in mid 2008. Clarence Town is to receive wastewater services under the Country Towns Water and Sewer Program with works to commence in 2008/09. Approximately $16 million will be spent over the next four years to complete these programs.

• Renewal/Replacement of wastewater transport and treatment assets. Approximately $38 million is expected to be spent over the next four years.

Table 6.4 Wastewater capital expenditure program ($m 08/09) Driver 2009/10 2010/11 2011/12 2012/13 Total

Growth 66.4 61.9 62.3 37.3 227.9

Regulatory 44.4 36.1 21.3 13.9 115.7


Government Programs 20.4 2.6 - - 23.0

Total ($m 08/09) 137.2 106.2 89.1 56.6 389.1

Total ($m nominal) a 143.8 116.7 102.6 68.3 431.4

Source: HWC (totals may not add due to rounding) a. Indexed using Engineering Construction Cost Implicit Price Deflator forecast (BIS Shrapnel, 2008)

6.6 Recycled water Approximately $54 million is expected to be spent on recycled water infrastructure over the next four years. A breakdown of the expenditure by the main drivers over the coming price review period is provided in Table 6.5. In 2006/07 Hunter Water undertook a comprehensive review of the potential for future recycled water opportunities within the Newcastle and Hunter region. The key drivers for the investigation included:

• The need to comprehensively consider recycled water opportunities as an input to the review of the water demand/supply balance for the revision of Hunter Water’s integrated water resources plan (the H250 Plan)

• The growing recognition of the value and potential of recycled water, both in the water industry and the community. This recognition was heightened by recent drought conditions and growing awareness of the potential impacts of climate change

• Assessing recycled water opportunities as input to strategies for sustainable effluent management at Hunter Water’s wastewater treatment plants, and


• The need to position for the competitive environment in which third parties can compete to provide water utility services, including recycled water.

The strategy has helped Hunter Water to identify the following recycled water projects for the coming price review period.

• Kooragang Recycled Water Project - $36 million: Providing up to nine megalitres per day of recycled effluent to industry on Kooragang Island

• Thornton North recycled water scheme - $5.2 million: A dual reticulation scheme providing services to over 5,000 residential lots

• Gillieston Heights recycled water scheme - $4.5 million: A dual reticulation scheme providing services to approximately 2,700 residential lots

• North Cooranbong recycled water scheme - $3.9 million: A dual reticulation scheme providing services to approximately 2,700 residential lots

Table 6.5 Recycled water capital expenditure program ($m 08/09) Driver 2009/10 2010/11 2011/12 2012/13 Total

Growth 9.3 1.9 2.3 - 13.7

Government Directives 15.6 17.9 - - 34.4

Total ($m 08/09) 25.9 19.8 2.3 - 48.1

Total ($m nominal) a 28.1 22.8 3.1 - 54.0


6.7 Stormwater Hunter Water intends to spend approximately $3.6 million (in nominal terms) during the coming price period on the assessment, rehabilitation and maintenance of stormwater channels within the Hunter region29.

A breakdown of the expenditure is provided in Table 6.6. The June 2007 storm (see footnote to section 5.6) has highlighted the criticality of the stormwater assets for transferring stormwater flows and minimising flooding impacts on the community. Consistent with appropriate asset management practices, Hunter Water considers these assets to be critical, thereby creating a rolling condition assessment of the stormwater asset components. Under this program, Hunter Water regularly assesses the stormwater assets to determine the likelihood of failure. This assessment process is used to make informed decisions about replacement or rehabilitation of channel structures.

29 Hunter Water manages major stormwater assets only in the local government areas of Cessnock, Lake Macquarie, and Newcastle.


Table 6.6 Stormwater capital expenditure program ($m 08/09) Driver 2009/10 2010/11 2011/12 2012/13 Total

Regulatory 1.1 0.5 1.1 0.5 3.1

Total ($m 08/09) 1.1 0.5 1.1 0.5 3.1

Total ($m nominal) a 1.2 0.5 1.3 0.6 3.6


6.8 Corporate Approximately $65 million (in nominal terms) is expected to be spent on corporate projects over the next price path period with $26 million on Information and Communication Technology (ICT) projects, $21 million on high voltage electrical upgrade projects, and $5 million on metering and meter replacement projects. Table 6.7 provides of this expenditure breakdown by for the coming price review period. The main areas of expenditure are:

• Upgrading of ICT hardware and business systems to compliment business change and innovations and to provide advanced services to both Hunter Water’s internal and external customers.

- ICT general hardware – $8.3 million

- ICT business systems – $16.4 million

Approximately $21 million will be spent over the coming price period to upgrade Hunter Water’s entire high voltage network under a new handover agreement between Hunter Water and Energy Australia. Operation and maintenance of high voltage networks is core activity for Energy Australia so this transfer will provide the community of the lower Hunter with the most cost-effective stewardship these high voltage assets.

Table 6.7 Corporate capital expenditure program ($m 08/09) Driver 2009/10 2010/11 2011/12 2012/13 Total

Regulatory 10.6 10.1 6.7 6.4 33.8


Total ($m 08/09) 13.1 13.4 13.5 13.2 53.3

Total ($m nominal) a 15.0 16.0 16.6 17.0 64.7


6.9 Proposed physical output measures A proposed physical output measures table has been developed using Hunter Water’s current capital program. Appendix F contains the details of the intended output measures.


6.10 Capital program efficiency and delivery The objective of Hunter Water’s capital program is to deliver the right assets at the right time for the right price such that value is delivered to both the customer and the environment.

Three key areas of any capital works program are:

• Asset management

• Efficient procurement

• Program management

Asset management Asset management encompasses a holistic approach to the effective and efficient management of existing and new assets. A lowest whole-of-life cost approach is the core of Hunter Water’s asset management philosophies.

Hunter Water’s asset management framework includes asset justification, asset acquisition, operating and maintenance phases. Management plans are developed for each category of assets. These plans follow a holistic approach to the planning and construction of assets and to operating and maintaining these assets in order to provide desired outcomes for customers and the environment. Actual operating performance, risk management and economic performance all combine to determine the appropriate level of investment for growth, business benefit and for renewal or rehabilitation.

Approximately half of the capital program is driven by the demands of population growth. The new assets built for this purpose are identified in Development Servicing Plans (DSP) that are updated at least once every five years. This ensures that Hunter Water is proactively planning and investing wisely for the long-term benefit of the community. The Department of Planning’s Lower Hunter Regional Strategy (published in October 2006) and Hunter Water’s own connection forecasts, recognise that the population of the region is expected to increase by approximately 160,000 people over the next 25 years.

Condition assessments of existing assets are undertaken on key assets such as water trunk mains. Condition assessment is an important tool for use on assets with very high replacement or renewal costs, particularly underground assets that are not easily inspected. This information is analysed together with actual maintenance data to determine risk profiles and then recommend the right timing for replacement or renewals. Predicting the optimum time for replacement or renewal of major assets is evolving into a specialised field of expertise and Hunter Water aims to be at the forefront of this expertise. With over $4 billion worth of existing water and sewer assets, being at this forefront is critical to Hunter Water’s long-term asset decision making.

Other decision making models exist to assist in the asset replacement/renewal timing and have application on assets like smaller diameter reticulation mains and submersible wastewater pumps. These models tend to rely more upon actual maintenance history and predictive trend analysis to determine the right timing for asset replacement/renewal.

Remaining projects within the program are justified with rigorous business cases and are designed and delivered on a lowest whole-of-life cost solution.


The asset justification phase is undertaken as part of a gateway process whereby a business case is well documented and justified. As the project develops, it progresses through a series of ‘gated” processes to ensure that it is delivered to meet the original objectives for both customers and the environment.

Timeframes for delivery are set in line with Hunter Water’s corporate commitments and may include a combination of private and public resources.

Efficient procurement Hunter Water intends to build on its good track record of efficient procurement. Hunter Water is taking a productive and adaptive approach to its procurement of the capital works at a program level.

In order to achieve efficiencies, close examination of the capital works program must be done at the total program level. Consideration is given to:

• Strategic relationships (eg period contracts, alliances)

• Bundling of work

• Principal supplied materials

• Panels of suppliers

• Hunter Water and construction industry capacity to deliver the program.

Over the next five years Hunter Water will procure approximately $1.2 billion worth of new infrastructure - mainly through competitive tenders. In this context, an understanding of the construction market and its ability to deliver the proposed capital program is extremely important in optimising procurement strategies. This is the largest ever program for Hunter Water and procurement options are evaluated to achieve the delivery outcomes for each program.

Formal procurement plans are developed and a rolling five-year procurement plan process has been established to ensure continuous improvement is achieved each and every year. Independent external industry expertise has reviewed and facilitated procurement workshops to ensure that Hunter Water’s procurement strategies are equivalent to best practice for the size of the capital program and the capacity of the construction market.

The main elements of Hunter Water’s efficient procurement processes involve:

• Maintaining a good understanding of the capacity of the construction market.

• Analysis of procurement options at a program level and looking ahead for procurement efficiencies.

• Maintaining rolling five-year procurement plans to continually improve the efficiency of procurement.

• Bundling design packages for a program of work with an established panel of designers. Currently bundled design packages are three-year contracts, each with a two-year extension option. Fees are negotiated with an emphasis on quality to strengthen the other gains from bundling.

• Keeping competitive tendering where appropriate for the majority of all construction projects.

• Undertaking adaptive procurement reviews, taking into account the range of procurement options available and the capacity of Hunter Water and the construction market.


• Updating the construction industry about Hunter Water’s construction program to assist in tendering and resource planning.

• Emphasising innovation and continuous improvement in both the design and construction phases.

• Using external project/contract management providers to assist in the delivery of the program.

• Seeking industry input and external reviews to add value to the procurement selection process and achieve greater efficiencies.

• Using an alliance model for the delivery of a significant portion (approximately $235 million) of Hunter Water’s water and wastewater treatment works program for the next five years. The alliance will focus on optimising design and construction while delivering within committed timeframes. The program of work has much complexity in its scope and an alliance has been chosen to be the preferred model to achieve the desired outcomes.

The largest project in the program is the construction of Tillegra Dam. The procurement approach is ‘Design-Bid-Build’ combined with an early contractor involvement tactical approach. Independent expertise has confirmed that this procurement model is best practice for dam delivery.

In this approach, emphasis is placed on keeping control of design and ensuring that the design is optimum. Expressions of interest (EOI) from prospective construction tenderers will be called during the final steps in the design phase. Prior to finalising risk allocations within the project documentation, selected construction tenderers from the EOI process will be invited to contribute their expertise by way of early contractor involvement. This is followed by a competitive tender process for the construction phase. The processes described above will be managed by a dedicated unit in Hunter Water’s Infrastructure Delivery Division.

6.11 Government directives The Minister for Water Utilities issued a directive under the Section 20P of the State Owned Corporations Act 1998 instructing Hunter Water to proceed with the construction of Tillegra Dam and a recycled water plant to service industrial customers in the Mayfield North / Kooragang Island industrial precinct.

The construction of Tillegra Dam will improve the drought security of both the lower Hunter and the central coast. A description of the project can be found in chapter 7. The Kooragang Recycled Water Project will deliver a state of the art water recycling membrane plant and trunk delivery system to industry on Kooragang Island. When completed approximately nine megalitres of recycled water will be available for use by industry each day.

As indicated in Table 6.1 the total planned investment on both these projects over the 2009/10 to 2012/13 period is $339 million ($08/09).

6.12 Prudency of previous expenditure For quite some time Hunter Water has considered Tillegra Dam as a supply augmentation option in its long-term water resources planning. As such, Hunter Water has been a purchaser of land at the site.

Hunter Water’s past purchases of land comprises $840,000 ($02/03) between 2000/01 and 2002/03 and $590,000 ($04/05) in 2003/04.


In the last two price reviews, IPART’s consultants have expressed concerns about the prudency of this capital expenditure and recommended that expenditure associated with the purchase of Tillegra land not be included in the regulatory asset base (RAB).30 31 IPART found in favour of the consultant’s recommendation. However, in its 2003 Determination IPART noted:

“If the dam remains a priority option for supply augmentation, the Tribunal will consider including the capital expenditure related to the purchase of this land into Hunter Water’s RAB at the next price review.”

Hunter Water considers that the government directive to proceed with construction of Tillegra Dam, issued under Section 20P of the State Owned Corporations Act 1989, is sufficient evidence of the priority of this supply augmentation and therefore requests that the expenditure identified above is included in the RAB during this price review.

6.13 Asset lives In past price determinations, IPART has employed average asset lives of 70 and 100 years for existing and new assets respectively in the depreciation modelling. Hunter Water notes that in its recent price review, Sydney Water Corporation expressed concern over this approach because Sydney Water’s analysis revealed that:

using an overall weighted average life, rather than the remaining life of individual assets, the expenses allocated to consumers over the price determination are less than the actual cost of the service provided. This also means that profits are overstated each year and taxes on profits are above what they should be.

As part of its submission, Sydney Water proposed weighted remaining lives for specific depreciating components across existing and new water, wastewater and stormwater assets.

In its 2008 price determination for Sydney Water, IPART decided to use remaining asset lives specific to depreciating components rather than the average asset lives employed previously.

Hunter Water has reviewed its asset register in light of Sydney Water Corporation’s concerns and the IPART finding and concluded that, for the purposes of the coming price period, the use of average asset lives of 70 and 100 years for existing and new assets respectively is satisfactory. This issue will be kept under review as part of the updating of Hunter Water’s fixed asset register.

30 Halcrow Pacific Pty Ltd, 2002, NSW Water Agencies Review - Overview Report - IPART, Sydney, pp 2 & 47. 31 Atkins and Cardno, 2005, IPART Capex, Asset Management and Opex Review – HWC – Final, Sydney, p 97.

Chapter 7 Tillegra dam 75

7 Tillegra dam

Main Points • Climatic variation and increasing population have lead to a reassessment of the

yield from water supply systems.

• Findings are that while the lower Hunter is well placed for average conditions the community is vulnerable to long droughts.

• Tillegra Dam has been identified as the most cost effective option to address long-term supply and drought security.

• When completed in 2014 the dam will provide 450,000 megalitres of storage capacity and increase the annual yield of the total supply system to 120,000 megalitres per year.

• The cost of the dam net of surplus land is estimated at $406.3m (in nominal terms).

• Following the Government’s decision of 17 December 2008, this cost will be recovered through periodic charges and has been included in revised prices in this submission.

7.1 Background Recent severe drought conditions have highlighted the vulnerability of water supplies to climatic variations and increasing populations. This has prompted water agencies across Australia to reassess the impacts of climate change on the potential yield of water supply systems. The yield of a supply system refers to the total amount of water that can be sustainably extracted for supply to customers.

Given these pressures, Hunter Water also reassessed its yield estimates. The starting point for Hunter Water’s re-examination was its drought management plan. This plan set out the Corporation’s strategies in times of worsening drought conditions.

Hunter Water’s review concluded that, while the lower Hunter has very good supplies of water under average conditions, it is very vulnerable to long droughts where storages can plummet from 100 per cent to 40 per cent in only 18 months. In addition, it was clear that water restrictions alone would not curtail demand quickly enough during a severe drought to ensure that the region does not run out of water for basic needs. The review revealed that potential rapid depletion of storages means that the region does not have the necessary time to implement drought contingency measures, such as desalination to meet the community’s needs during a long-term drought.


As a result of the review, of the performance of current storages and their vulnerability to long-term drought, the previous assessment of reliable yield from the lower Hunter water supply system was reduced from 90,000 megalitres to 67,500 megalitres per year, compared with the current average demand of 73,000 megalitres per annum.32 This imbalance highlights the immediate need for the Hunter region to expand and diversify its water sources.

Hunter Water will continue to pursue water conservation and demand management programs into the future, however, the demand for water will continue to grow. By 2031, these demand management programs are expected to reduce consumption by approximately 10,000 megalitres per year. During this time, however, the population of the lower Hunter is projected to increase by 160,000 people with corresponding growth in non-residential water demand.33 As a consequence, Hunter Water anticipates a return to a growth phase in water consumption, in contrast to the stable consumption experienced over the last 25 years. With a lower reliable yield on the supply side, and growth in demand on the other, it is clear that an expansion of the lower Hunter’s water sources is required.

A number of different source options were considered to address the imbalance described above. These included various dam sites as well as indirect potable reuse and desalination options. The Tillegra Dam option was identified as the most cost-effective option to address long-term supply and drought security. 34

7.2 Project description Located in the valley immediately to the southwest of Chichester on the Williams River, the proposed Tillegra dam site was first identified as the preferred augmentation option in the 1950s. Tillegra dam will complement Hunter Water’s existing water supply network and improve both river flow regulation and the reliability of supply to Grahamstown Dam. Historical data indicates that the streamflow at the Tillegra site is favourable, benefiting from a relatively large catchment receiving a reliable rainfall. Tillegra Dam would increase current system yield to around 120,000 megalitres per year, meeting projected demand for at least 50 years. Importantly, a larger storage will significantly improve the drought security of the lower Hunter system.

Tillegra Dam will increase the diversity of Hunter Water’s source system because it offers a new storage in a separate catchment.35 Such diversity provides good protection against future uncertainties, such as the impacts of climate change and water quality problems in surface water storages.

The dam will require the flooding of approximately 2,000 hectares of predominantly cleared farm land, the majority of which Hunter Water now already owns. Hunter Water is working with the Department of Water and Energy, the Department of Environment and Climate Change, Department of Primary Industry and the Hunter Central Coast Catchment Management Authority to address environmental and river management issues arising from the Tillegra Dam project.

32 Note this figure is demand at the source before losses in the distribution system are taken into account. This demand figure is not directly comparable with those quoted in chapter 4 and Appendix A which are demand figures as measured by, or projected for, metered sales at the customer’s meter. 33 Department of Planning (NSW), 2006 34 Further details can be found in the HWC report “Why Tillegra Now?”, Hunter Water Corporation 2007(b). 35 While both Tillegra Dam and Chichester Dam are in the Williams River catchment, Chichester Dam is located on tributary of the Williams River that enters the Williams River downstream of the Tillegra dam site. Hence, the catchments of the two dams are quite independent of each other.


The Tillegra Dam proposal includes:

• Dam wall and spillway construction;

• A multi-level offtake tower,36

• A hydro-power generating plant;

• Relocation/reconstruction of Salisbury Road and Quart Pot Creek Road;

• Relocation/reconstruction of electrical and telecommunication services;

• Relocation of other public infrastructure (for example, the Bendolba rural fire station);

• Heritage conservation works (including, but not limited to, relocation of a cemetery and preservation of an historic house);

• Tree planting as a carbon offset (1.5 million trees); and,

• Ancillary works as may be required (construction depots, recreational facilities, boat ramps etc).

The proposed dam will provide almost three generations of growth potential for the region. Tillegra Dam stands out as the best solution for the lower Hunter, and even under an unfavourable climate change scenario, its large storage will provide significant time to implement other drought contingency measures. Without Tillegra Dam, there is a high risk of needing to trigger expensive contingency measures. With Tillegra Dam in place this risk becomes extremely low, with the dam providing significant water security for the region.

7.3 Project costs The total capital cost for the Tillegra Dam project is presented in Table 7.1 in nominal dollar terms. The total project cost includes preconstruction, land purchase and dam construction costs, the latter including the cost of relocation of roads and other community infrastructure. The value of surplus land which is to be resold once the dam is commissioned has been subtracted from the project cost

The total project cost in the table is the sum of all expenditures incurred, or to be incurred, on the project from 2006/07 to 2013/14. Of the total project cost in the table, approximately two thirds or $312.9 million (in nominal terms) falls within the proposed price review period (2009/10 to 2012/13).

Table 7.1 Tillegra Dam net total project costs

$m nominal

Total project cost estimate a 477.3

Net of surplus land purchases (71.0)

Net project costs 406.3 a. Nominal costs represent the dollars in the period it is anticipated that they will be incurred and therefore include an allowance for cost escalation.

36 A multi level offtake allows water to be drawn from various levels within the dam and so ensure water released downstream is of suitable quality and temperature.


7.4 Project procurement The procurement plan involves four contract packages, comprising:

• Three new road bridges on the new Salisbury Road alignment

• A concrete-faced rockfill dam, together with associated structures, access roads and landscaping

• A new Salisbury Road, including relocation of power and telecommunications services

• Replacement sections of the Quart Pot Creek Road plus unsealed access to remote areas to the south west.

It is expected that the bridges will be the first contract package to be called with expression of interest being called in late in 2009.

7.5 Cost sharing

Periodic and developer charges

The decision by the NSW Government on 17 December 2008 to abolish infrastructure levies (developer charges) payable to Hunter Water Corporation means that the cost sharing arrangements between periodic and developer charges proposed in Hunter Water’s October 2008 submission are no longer appropriate. The full cost of Tillegra Dam will therefore be met through periodic charges. Potentially, the central coast councils may make a future contribution if they seek to benefit from Tillegra Dam.

Cost sharing with the central coast councils With a lower reliable yield on the supply side and growth in demand due to a projected population increase on the other, Tillegra Dam is clearly needed by the Hunter alone.

Tillegra Dam may also contribute to longer-term water security for the central coast community. Hunter Water proposes that a contribution to the costs of Tillegra Dam would be appropriate if the central coast councils wish to benefit from the new water source.

A working party comprising representatives of Hunter Water, Gosford City Council and Wyong Shire Council has been set up to consider an appropriate model for sharing the costs of Tillegra Dam.

Hunter Water has presented the central coast councils with a “Partnership Approach” where they share the benefit and costs of Tillegra Dam and can elect to purchase a percentage share of the yield gain provided by Tillegra Dam.

The cost would be calculated at the time a decision is made by the councils to buy in. In simplest terms, if the councils elect to buy “x per cent” of the benefits of Tillegra (in terms of yield gain), they would jointly pay an equivalent percentage of the costs.

No commercial agreement has been reached to date, so no contributions have been included in this submission. Further population (demand) growth in the Hunter could be supported if the central coast councils do not make a contribution.


If the central coast councils commit to purchasing a share of the yield gain from Tillegra Dam, it is anticipated that the volumetric price for water transfers, up to the annual quantum of yield purchased, would be significantly discounted. This would reflect the fact that, with the central coast councils contributing to storage costs, Hunter Water’s costs are mainly related to the transfer of the water through its system to the point of sale to the councils.

Chapter 8 Forward revenue requirements 80

8 Forward revenue requirements

Main Points • Hunter Water has used IPART’s building block approach to develop price

proposals.

• Specific price adjustments are sought for each of the three main products – water supply, wastewater services and stormwater services – so that prices are more cost reflective and there are no cross-subsidies between products.

• This submission is based on a target real rate of return is 7.5 per cent and achieving this return in each year of the price path.

• The target rate of return reflects funding costs and is consistent with IPART’s June 2008 price determination for Sydney Water. It needs to be updated for prevailing financial market conditions when the final price determination is made.

• Given the global credit and financial situation prevailing in December 2008, Hunter Water believes that it is possible that the WACC may be lower at the time IPART makes its final determination in May 2009. A lower WACC in May 2009 will result in lower prices than those proposed in this submission.

An important consideration in framing revenue requirements is the length of the price determination period. Hunter Water’s preference is for a price period of four years because this period strikes a reasonable balance between providing price certainty to Hunter Water and its customers and the Corporation’s commitment of resources to a price review. Shorter periods impose considerable resourcing costs in terms of preparing for, and servicing, the review process while periods longer than four years can reduce the capacity to adjust prices for unforeseen circumstances. Where a four-year price period is adopted, it is essential that there is capacity for all prices, including miscellaneous service charges, to be adjusted for the effect of inflation.

8.1 The building block approach In framing the prices sought in this submission, Hunter Water follows the building block approach to price setting used by IPART in previous determinations. In summary, the building block approach aims to ensure the following costs are covered by prices.

• Operations, maintenance and administration

• Depreciation, sometimes referred to as return of capital

• A rate of return on the capital invested in the business, and

• An allowance for working capital.


In addition, IPART now allows some “avoided costs” associated with recycled water schemes to be recovered from the broader customer base. The rationale for this allowance is that investment in recycled water is a benefit to all customers in that it has potential to save, or defer, further investment in providing water supply or wastewater treatment infrastructure. It is important to note at this point that such potential investment savings can occur in both water source and in water distribution infrastructure and operations. Investment in water recycling can also offset the need for further investment in wastewater infrastructure such as wastewater treatment and disposal facilities and reduce wastewater operating costs.

Readers seeking more information on IPART’s building block approach are referred to the discussion in the Issues Paper37 and the discussion in IPART’s final report on its review of Sydney Water Corporation’s prices38.

In past price submissions, Hunter Water has generally sought a common price adjustment across the three main businesses of water supply, wastewater services and stormwater services. However, with the large capital investment program foreshadowed in chapter 6, this is no longer considered appropriate. In this submission, revenue requirements specific to each of the three businesses have been used as the basis for the price adjustments sought in chapters 9 (water pricing), 10 (sewer pricing) and 11 (stormwater drainage pricing).

8.2 Operating and capital costs Details of operating, maintenance and administration costs are provided in chapter 5 and information on capital expenditure in the previous price period and that foreshadowed for the coming price period are outlined in chapter 6.

8.3 Rate of return IPART notes in the Issues Paper that there are several approaches to calculating the appropriate rate of return on investment as measured by the RAB.39 IPART also foreshadows that it intends to follow its previous practice of using the real pre-tax weighted average cost of capital (WACC) to determine an appropriate rate of return on Hunter Water’s regulatory asset base. Hunter Water supports this approach.

For the purposes of this submission, Hunter Water has established a target real rate of return of 7.5 per cent.

Hunter Water has used the WACC parameters and resultant mid-point WACC of 7.5 per cent adopted by IPART in its June 2008 final determination for Sydney Water (tabled below). Hunter Water acknowledges that market-based parameters including the risk-free rate, inflation and debt margin will need to be updated at the time of Hunter Water’s final determination to reflect prevailing market conditions. Given the global credit and financial situation prevailing in December 2008, Hunter Water believes it is possible that the WACC may be lower at the time IPART makes its final determination in May 2009. A lower WACC in May 2009 will result in lower prices than those derived in the following chapters of this submission.

Further detail on the derivation of the WACC is contained in Appendix G.

In determining a target rate of return, Hunter Water received advice from NSW Treasury expressing concern about the methodology adopted by IPART to determine 37 Independent Pricing and Regulatory Tribunal, 2008(a), section 3.1 38 Independent Pricing and Regulatory Tribunal, 2008(b), section 5.1 39 Independent Pricing and Regulatory Tribunal, 2008(a), section 3.3


the risk-free rate and inflation. In the Sydney Water final determination, IPART increased the indexed bond rate by 20 basis points to compensate for bias in the indexed bond market due to severe shortages of supply.

Table 8.1 WACC parameters Lower Range Upper Range Nominal Risk-Free Rate 6.13% 6.13% Inflation 3.60% 3.60% Real Risk-Free Rate 2.44% 2.44% Market Risk Premium 5.50% 6.50% Debt Margin 3.12% 3.69% Debt to Total Assets 60.00% 60.00% Gamma 50.00% 30.00% Tax Rate 30.00% 30.00% Equity Beta 0.8 1.0 Cost of Equity 10.50% 12.60% Cost of Debt 9.30% 9.80% WACC (real pre-tax) 6.70% 8.40%

Source: IPART 2008 (b)

In advising Hunter Water, NSW Treasury contends that:

• The methodology adopted by IPART is inconsistent with broader regulatory practice of using the 10-year nominal government bond rate as the nominal risk-free rate and subtracting a forecast of the expected rate of inflation over that period to derive the real risk-free rate of return.

• The 20 basis point scarcity premium adopted by IPART was based on March 2007 analysis and did not reflect subsequent increases in the level of relative bias in indexed bonds (Appendix H contains a supporting analysis prepared by NSW Treasury).

• In the absence of indexed Government bonds with an exact 10-year maturity, it is appropriate to derive the risk-free rate by extrapolating indexed bond yields with maturity dates closest to before and after the 10-year period. IPART based the real risk-free rate solely on 20 August 2020 dated indexed bond yields, representing a 12.3 year rather than 10-year maturity term from the 17 April 2008 reference date.

NSW Treasury’s discussion of the appropriate method for calculating the WACC is contained in Appendix H.

8.4 Building block components and aggregate pricing

Building Block Components Hunter Water’s financial modelling derives the building block components for its water, sewer and drainage operations. The building block components for water, sewer and drainage are detailed in Tables 8.2 to 8.4.


The building block components in Tables 8.2 do not include the costs associated with recycled water operations which are accounted for separately in setting recycled water prices. Some adjustments have been made to capital and operating costs to include “avoided” costs associated with the proposed Kooragang Island recycling scheme. These include benefits associated with the deferment of the stage three upgrade of the Grahamstown water treatment plant, deferment of the need to upgrade the trunk delivery main from Grahamstown water treatment plant and operating cost savings at the Grahamstown water treatment plant.

Table 8.2 Building block components – water ($m nominal) Component 2009/10 2010/11 2011/12 2012/13 Operating costs 47.1 49.0 49.5 51.0 Depreciation 10.6 12.3 14.5 16.5 Return on RAB a 56.8 68.1 83.1 95.9 Working capital requirement 0.5 0 0.3 0.8 Total building block requirement 115.0 129.5 147.4 164.1

Source: HWC (Totals may not add due to rounding) a. RAB = regulatory asset base.

Table 8.3 Building block components – sewer ($m nominal) a

Component 2009/10 2010/11 2011/12 2012/13 Operating costs 50.1 51.5 53.3 55.7 Depreciation 11.1 12.7 14.1 15.3 Return on RAB b 60.0 70.3 79.1 86.3 Working capital requirement 0.2 0.6 0.8 1.1 Total building block requirement 121.5 135.0 147.3 158.4

Source: HWC (Totals may not add due to rounding) a. Includes trade waste. b. RAB = regulatory asset base.

Table 8.4 Building block components – drainage ($m nominal) Component 2009/10 2010/11 2011/12 2012/13 Operating costs 1.5 1.6 1.7 1.8 Depreciation 0.4 0.5 0.5 0.5 Return on RAB a 2.4 2.4 2.5 2.6 Working capital requirement 0.0 0.0 0.0 0.0 Total building block requirement 4.3 4.6 4.7 5.0

Source: HWC (Totals may not add due to rounding) a. RAB = regulatory asset base.

8.5 Aggregate pricing proposal and X factors IPART’s 2005 determination for Hunter Water was framed to deliver a real pre-tax rate of return on Hunter Water’s regulatory asset base of 6.5 per cent in 2008/09. This rate of return was equivalent to the mid point of the commercial range for the WACC as determined by IPART at the time, indicating that IPART expected Hunter Water to be operating at commercial rates of return from 2008/09.


Hunter Water notes that IPART’s final determination for Sydney Water Corporation targets a similar aggregate outcome by setting prices so that Sydney Water’s targeted revenue approximates its notional revenue requirement in net present value (NPV) terms throughout the determination period.

In this context, Hunter Water has framed its pricing proposals to deliver the revenue requirements set out in 8.4 in NPV terms with the return on the regulatory asset base matching the mid point WACC of 7.5 per cent as derived in 8.3 above. Hunter Water has set its revenue requirements separately for its water, sewer and stormwater drainage businesses and the separate X factors to deliver this outcome for each of the businesses are set out in Table 8.5. These X factors are used to derive the prices proposed in chapters 9 to 11 of this submission.

Hunter Water considers that setting prices at the levels proposed will enable it to achieve at least a BBB+ credit rating.

Table 8.5 X factors for water, sewer and drainage (per cent) 2009/10 2010/11 2011/12 2012/13 Water 29.29 8.93 10.22 7.72 Sewer 41.68 7.51 5.52 3.94 Stormwater drainage 6.96 2.61 0.96 0.96

Source: HWC

8.6 Adjustments to the RAB for developer charges In the light of the NSW Government’s decision on 17 December 2008 to abolish developer charges for water, wastewater and stormwater services, Hunter Water has recalculated the roll forward of its regulatory asset base (RAB). Only developer charges collected for reticulated residential recycling schemes have been retained in offsetting the roll forward of the RAB. However, these developer charges only apply to the recycled water asset base, which is ringfenced from the water, wastewater and drainage asset bases and therefore do not influence the calculation of water, sewer and drainage prices.

Chapter 9 Water pricing 85

9 Water pricing

Main Points • To maintain strong water conservation signal, Hunter Water’s charging structure

is based on a pay-for-use philosophy with most of the Corporation’s water revenue derived from usage charges.

• Hunter Water has set proposed usage prices that cover the increasing costs of the water supply part of its business.

• The proposed price adjustment, before inflation, will see the water usage price increase from $1.27 per kilolitre today to $2.08 in 2012/13.

• Hunter Water assumed responsibility for water and sewer services in Dungog Shire from 1 July 2008. A special water service charge will apply in Dungog Shire to cover the costs of operating the water supply systems in the shire. Even so, new charges for Dungog residents will be less than the prices previously charged by the council.

• The current agreed price structure for water supplied to the central coast region is to be maintained.

• Hunter Water has established prices for the supply of recycled water to new residential areas following pricing guidelines published by IPART in 2006.

9.1 Current structure, prices and issues

Background The most fundamental reform of water pricing in Australia has occurred over the last two decades. In the Hunter, this reform began in 1982 with the introduction of “pay-for-use” pricing and was completed in the mid 1990s when property value ceased to be used to calculate service charges. Since then, a simple user-pays philosophy has guided continuing refinement of pricing leading to the current charging structure. The result is that, today, Hunter Water has a largely pay-for-use pricing structure for its water services, providing a strong demand management signal. For a typical household customer, usage charges make up around 90 per cent of the total annual water bill. For industrial customers, usage charges can be more than 99 per cent of the bill.

The 2000 determination saw the introduction of “location-based” water usage charges for industrial customers with very high water consumption. These location-based charges apply only in areas close to water sources and reflect the lower costs of supplying water in these areas because less distribution infrastructure is used.


Hunter Water believes that cost-reflective location-based charges are more in line with direction of recent competition reforms.

In the previous determination, the Tribunal accepted Hunter Water’s proposal to eliminate the declining-block Tier 2 usage price over the course of the price path. The phase out was achieved through annual increases in the Tier 2 price over the course of the price path bringing the Tier 2 price in line with the Tier 1 price in 2008/09. As a result, there will be a single flat tariff applying to all consumption other than the consumption eligible for the location-based usage prices. The removal of the declining block structure impacts mainly non-residential customers as few residential customers use more than 1,000 kilolitres per year.

Hunter Water’s current water prices comprise service charge related to meter size and a single usage charge for most customers. In 2008/09, the service charge for a 20mm meter is $41.46 in most of Hunter Water’s area of operations and $127.53 in the areas formerly served by Dungog Shire Council. The usage charge for consumption under 50,000 kilolitres per year (and hence the only usage charge applicable to most customers) is $1.27 per kilolitre in all areas. A location-specific usage charge applies to usage over 50,000 kilolitres and varies with location as described above. The current service and usage charges are shown in more detail in Table 2.1 earlier in this submission.

9.2 Long run marginal cost Hunter Water notes the application of long-run marginal cost (LRMC) in the setting of the water usage charges in the recent Sydney Water Corporation price determination.

While Hunter Water understands the theoretical basis for using LRMC to set usage prices, there are some practical issues that raise questions about the applicability of the LRMC concept to the setting of Hunter Water’s periodic prices.

First, applying the LRMC to pricing assumes there is a single pricing vehicle used to recover current and future costs. This single pricing vehicle would be essentially equivalent to the periodic charges being considered in this price review.

However, until the Government decision of December 2008 to abolish developer charges, this was not the case. IPART had established two pricing vehicles for water utilities in NSW – periodic charges and developer charges. The existence of two pricing mechanisms complicated the application of LRMC, particularly when the costs of the supply augmentation on which the LRMC is calculated, are partly or fully recovered by developer charges. When future augmentation costs were recovered through developer charges, they could not also be recovered through periodic charges. The periodic charge revenue requirement could not include costs that are recovered through developer charges.

LRMC is simply a derivation of future marginal capital and operating costs – it makes no distinction about recovery vehicles. Thus potentially, if periodic prices are set on the basis of LRMC when not all the augmentation costs need to be recovered by periodic charges (because some are recovered by developer charges), there is potential to over recover the periodic charge revenue requirement. In sensitivity testing of LRMC calculations, Hunter Water has found some LRMC assumptions lead to such over recovery of the periodic charge revenue requirement.

This issue of potential over recovery of the periodic charge revenue requirement did not affect the outcomes in the recent Sydney Water determination because all the costs of the next augmentation (stage 2 of the desalination plant) are entirely recovered through Sydney Water’s periodic charges. There is no contribution from


developer charges to the cost of this augmentation and hence the periodic charge revenue requirement includes all the costs of the next augmentation. In Hunter Water’s situation, the periodic charge revenue requirement does not include all the costs of the source augmentation on which the LRMC is based.

Hunter Water has adopted the average incremental cost (AIC) as most practical means of calculating the LRMC. In this approach, the present value of the costs associated with supplying water from the next source augmentation in a least cost expansion plan is divided by the present value of the incremental demand supplied by that option.

The next augmentation has been taken as the construction and operation of Tillegra Dam. In addition to the construction, operation and maintenance costs of the dam, the calculation includes the incremental costs associated with the treatment to potable quality, as well as the cost of distribution to the water network. The resale of purchased land beyond requirement for the dam and inundation area is subtracted from the costs. The life of the dam is assumed at 100 years and the discount rate used is 7.5 per cent – in line with Hunter Water’s weighted average cost of capital.

The existing (pre-Tillegra) system yield, incremental yield derived from Tillegra Dam, the dam construction and filling times as well as the demand forecast all contribute to the definition of the incremental demand served by the dam.

The derivation of the LRMC follows the average incremental cost formulation which, in generalised form, is shown below:

)()&()&(

SuppliedDemandPVonDistributiTreatmentPVCostMOonConstructiPVAIC ++

=

IPART’s report on the 2008 price determination for Sydney Water Corporation reported that NERA Economic Consulting view that “estimating marginal cost irrespective of the method used, is an inherently uncertain exercise.” The IPART report goes on to note that NERA had estimated the LRMC for Sydney Water’s desalination plant, using the AIC method, to be somewhere in the range $1.84 to $3.36 per kilolitre.40 This range highlights the potential volatility of LRMC calculations.

This degree of uncertainty and variability, as well as the potential to over recover on the periodic revenue requirement for the water business, previously led Hunter Water to conclude that application of LRMC to the setting of Hunter Water’s periodic water prices is of questionable value. Hunter Water instead has chosen to set its prices for each of its separate water, wastewater and stormwater businesses based on the revenue requirements outlined for each business in chapter 8. Under this approach, real water usage prices are increased in line with the X factor adjustments that deliver the notional annual revenue requirement.

Hunter Water has provided IPART with its basic assumptions and inputs for the LRMC calculation. The usage prices adopted by Hunter Water in this chapter fall within the most likely band for a LRMC based on Tillegra Dam as the next augmentation.

40 Independent Pricing and Regulatory Tribunal, 2008 (b)


9.3 Proposed water usage prices and service charges As mentioned in the introduction to this chapter, Hunter Water has a long history of emphasising usage charges as a means of providing a water conservation signal.

Hunter Water proposes that real water usage prices be increased in line with the X factor adjustments that deliver the notional annual revenue requirement throughout the determination period. These annual X factors and the proposed usage charges are shown in Table 9.1.

Table 9.1 Proposed X factors and usage prices 2008/09 2009/10 2010/11 2011/12 2012/13 X factors (%) 29.29 8.93 10.22 7.72 Usage price ($) 1.27 1.63 1.77 1.94 2.08

Source: HWC

Water service charges are a fixed annual charge for water service charged in relation to meter size. These service charges serve, in part, to pass on to customers the cost of providing ongoing access to the system in relation to their water demands.

In keeping with IPART’s approach to setting service charges in previous determinations and for the recent Sydney Water price determination, the service charge is calculated as a “balancing item” to ensure that water revenue covers the expected building block costs of providing the water service. The size of this balancing item is therefore dependent on the level of usage charges proposed. Proposed service charges for the base 20mm meter are shown in Table 9.2. As with Hunter Water’s current service charges, the charges for larger meter sizes are factored up by the meter ratio, calculated as (meter size)2/400 and rounded to 2 decimal places.

Table 9.2 Proposed service charges ($08/09 for 20mm meter) 2008/09 2009/10 2010/11 2011/12 2012/13 Service charge 41.46 57.38 65.13 74.29 82.41

Source: HWC

9.4 Location-based usage prices Hunter Water has recognised for some years that competition is around the corner for the water sector and has a strong record of responding to this emerging competitive pressure.

In the second half of the 1990s, the Corporation observed the new competition regimes developing in other utility sectors, such as electricity and telecommunications, and the potential for similar competition in the water industry.

Competition in these other sectors led to significant price restructuring, especially for large-volume users, with prices under competition more closely reflecting the actual cost of supply to a specific location or business. In many cases, these prices came about as a result of access arrangements or by utilities responding to the threat of access or competition and offering more cost-reflective pricing under contract. In the other sectors, these new price regimes were increasingly replacing the conventional uniform, or postage-stamp, prices. Hunter Water could see that various competition mechanisms, such as access regimes, could easily be applied to water supply in the lower Hunter region with similar results.


In 2000, Hunter Water proposed to IPART that it should develop cost-reflective pricing for water supplied to large-volume customers located close to the Corporation’s water sources to mirror the pricing arrangements emerging in other utility sectors. This location-based tariff was introduced in 2001 and has been well accepted as a competition response and is acknowledged as a leading price initiative in the water sector.

The lineal nature of Hunter Water’s distribution system, and the fact that its sources are grouped at the northern extreme of this lineal system, mean that the application of a location tariff is both logical and practical. With such a lineal system, the amount of infrastructure used to supply water increases with the distance from the sources. It is, therefore, relatively easy to link infrastructure costs to distance from the source and to structure prices to reflect these infrastructure costs.

As competitive pricing instruments, like access pricing, are likely to be used by large-volume users, Hunter Water has designed the location-based water usage charge to apply only to industrial and commercial customers with very high water consumption. The location-based tariff is applied on a water operational zone basis by calculating a charge for each of Hunter Water’s water operational zones. The prices for each zone are derived by adjusting the capital-related costs covered by the usage price (depreciation and return on capital) to reflect the value of the distribution system servicing particular locations. Locations close to the water sources use less of the distribution system and hence should contribute less to these capital-related costs.

2008 review of location-based usage prices The current location tariffs were derived on the basis of asset valuation and the allocation of assets serving individual water operating zones that were developed to calculate developer charges in 1998 and 1999. Since that time, Hunter Water has reviewed and refined the basis of its developer charges calculation with the result that the Corporation now has better knowledge to carry out the asset apportionment to particular zones. Thus, it is now timely to review the asset apportionment used for the location tariffs.

Hunter Water commissioned its subsidiary, Hunter Water Australia, to carry out a complete reassessment of the asset apportionment to each zone. For the purposes of this assignment, the operational zones were aligned with the current DSP areas. Making the DSP areas and pricing zones the same simplifies administration within Hunter Water. It makes only a few changes to the pricing zone definitions because there were only a small number of differences between location price zones and DSP areas. This is because the DSP areas also are based on water operational zones.

However, the current DSPs were introduced in 2001 after the location tariff was first developed so this price review provided a good opportunity to align both the location tariff zones and the DSP areas. In particular, a number of the DSP areas include more than one of the current location price zones and so alignment with DSP areas enables the number of location-price zones to be reduced. This alignment also provides the administrative benefit of avoiding confusion where there are currently slight differences.

The only exception proposed is that the Branxton DSP zone be amalgamated with the Maitland DSP zone for the purpose of location tariff zones because Branxton zone is relatively small and draws heavily on the Maitland zone assets. There are no major customers in the Branxton water operating zone, so this amalgamation does not impact on the prices charged to any customers.

As a result of this review, the area of operations is divided into 16 water zones that align with the water DSP areas. For seven of these zones, the gross margin


calculated using postage stamp prices more than recovers the depreciation and return on capital for the distribution assets servicing these zones. The gross margin is the water usage price less the operating costs and thus is the proportion of the usage price that goes to covering the capital-related costs of depreciation and return on capital.

Using the methodology established in 2000, the water usage gross margin is adjusted to reflect the value of the assets involved in servicing each individual water zone. Where only headworks and minimal distribution assets service the zone, this adjustment means that only a small gross margin is added to operating costs to derive the location tariff.

In keeping with the 2000 price determination, where the location tariff modelling shows that the assets servicing the zone would warrant a higher price than the postage stamp price (such as for the zones at the southern extreme of the lineal network), the usage price for these zones is capped at the postage stamp price.

Location-based prices and demand management Hunter Water believes that offering these lower prices to the large-user customer set does not erode the demand management signal. The location-based usage prices are volumetric charges and the customers that can take advantage of them are very large users, so efficient water use is already an important consideration for these businesses. In a number of cases, the water used is a direct input to the final product and so a reduction in water use by these businesses can only be effected by reducing the output of the businesses’ end products.

Whilst location-based charges do offer reduced usage charges for consumption in excess of 50,000 kilolitres in specific locations, there is a sound basis to continue offering these prices in the context of cost reflectivity and as a competitive pricing structure. Such principles are now generally accepted within the community.

Further, the customers in zones eligible for the location charges will also face the increases in the regular usage price outlined in section 9.3 ensuring that prices remain cost reflective and that relative demand signals are maintained.

Proposed location-based usage prices As a result of the review of the zones and asset apportionment, the number of location-based pricing zones will reduce from 11 to seven. This is through a combination of amalgamating some zones so that they match the DSP zones and by other zones becoming ineligible as a result of the revised asset apportionment by HWA. The existing location pricing zones that will no longer be eligible as a result of the asset reassessment are Cessnock (formerly part of a combined Kurri Kurri-Cessnock zone), Raymond Terrace and Port Stephens. There are no high-volume users in Raymond Terrace or Port Stephens so the removal of these zones will not have any customer impact. There are two regular high-volume users and one occasional high-volume user in Cessnock who will lose the advantage of the location tariff.

There are 21 major industrial and commercial customers that use, or are expected to use, more than 50,000 kilolitres per year over the price period in the location price zones out of a total of 33 customers that use, or are expected to use, above the 50,000 kilolitre threshold in the area of operations as a whole. Thus just over half the major customer set, defined as those using over 50,000 kilolitres per year, are eligible for a location tariff. In 2009/10, major customers eligible for location prices are expected to account for around 83 per cent of major customer water use. By


2012/13, this proportion is expected to fall to around 75 per cent, mainly as a result of an increase in use of recycled water by major industrial customers.

The proposed location prices for the price period are shown in Table 9.3.

Table 9.3 Proposed location based usage prices ($08/09/kL) 2008/09 2009/10 2010/11 2011/12 2012/13 Base usage price 1.27 1.63 1.77 1.94 2.08

Location-based prices Dungog a n/a 1.270 1.367 1.468 1.545 Kurri Kurri 1.129 1.611 1.745 1.914 2.052 Lookout 1.127 1.502 1.625 1.772 1.890 Newcastle 1.104 1.466 1.584 1.724 1.836 Seaham-Hexham 1.091 1.311 1.413 1.521 1.605 South Wallsend b 1.101 to

1.156 1.536 1.662 1.816 1.940

Tomago-Kooragang b

1.003 to 1.049 1.270 1.367 1.468 1.545

All other areas 1.27 1.63 1.77 1.94 2.08 Source: HWC a. Currently, a price does not exist for the Dungog area because it is has not been part of Hunter Water’s area of operations. In the present determination, a price was set by IPART for Hunter Water’s bulk sales to Dungog Shire Council and this price was based on the location-based pricing principles. There are no large customers in the Dungog area at this time. b. These areas quote a range of current prices because they cover two or more existing location price zones.

9.5 Water prices for unmetered properties Hunter Water has a very small number of unmetered properties. Most of these are in long-established city locations where access to customers’ connections for metering is restricted because of the structural configurations of older buildings.

IPART’s 2005 price determination allows Hunter Water to charge only service charges for unmetered properties. However, Hunter Water notes that, in its 2008 price determination for Sydney Water Corporation, the Tribunal has allowed “assumed” levels of usage in the service charges for unmetered properties.

Hunter Water believes that assumed levels of consumption are appropriate for unmetered properties, particularly given that most of Hunter Water’s water revenue is derived from usage charges rather than service charges. In 2008/09, almost 90 per cent of Hunter Water’s water revenue will be derived from usage charges. Thus, not making an allowance for usage in billing unmetered properties considerably skews downwards the bills for these properties. This situation therefore creates an inequity with the charges imposed on metered properties.

Hunter Water believes that it would be appropriate for the Tribunal to determine a service charge for unmetered properties that assumes a modest usage level. Given that the properties involved mostly are a mix of commercial and residential properties – and some have both residential and commercial occupiers – Hunter Water considers that an appropriate level of assumed usage would be 200 kilolitres per year. This is the same level as the assumed residential usage level used by the Tribunal to derive the current unmetered property service charges for Sydney Water.


9.6 Prices for unfiltered water – Upper Chichester Dam pipeline In 2000, IPART introduced a discounted price for the supply of (untreated) raw water for customers serviced by the upper Chichester Dam pipeline who do not receive filtered water from the Dungog treatment plant.

There are around 60 customers served by the pipeline upstream of Dungog water treatment plant. These customers are effectively buying a different product from that supplied to Hunter Water’s other water supply customers. This water can vary in quality (particularly turbidity) after heavy rain and runoff into Chichester Dam. These customers are outside the standard operating licence and customer contract provisions and generally have non-standard water service agreements that contain qualifying clauses regarding water quality.

IPART set this discount at $0.30 per kilolitre in the 2005 determination. Calculation of this discount was based on Hunter Water’s location-based pricing model with a further reduction to take account of the costs of filtration that are not incurred.41 IPART commented that this level of discount reflected in the fact that the water used by customers along the Upper Chichester Dam pipeline is not filtered and does not pass through the water distribution system.

Hunter Water has applied the same modelling for this price review and the proposed discounts for each year of the price period are shown in Table 9.4.

Table 9.4 Unfiltered water discount – Upper Chichester pipeline ($08/09/kL) 2008/09 2009/10 2010/11 2011/12 2012/13 Discount 0.30 0.44 0.48 0.55 0.62

Source: HWC

9.7 Dungog Shire customers – transitional pricing As outlined in section 4.2, Hunter Water assumed responsibility for Dungog Shire Council’s water and sewer businesses from 1 July 2008. This section details Hunter Water’s pricing proposals for water services in Dungog Shire for the price review period from 1 July 2009 to 30 June 2013.

Hunter Water carried out a due diligence review of Dungog Council’s water and sewer business in early 2007. This revealed that Hunter Water would need make additional capital investments in order to offer a standard of service consistent with that provided in its area of operations and consistent with the requirements of Hunter Water’s operating licence.

For water supply, Hunter Water’s price review following the due diligence analysis indicated that:

• The Council’s differential pricing arrangements for each township be replaced with a uniform (postage stamp) pricing system similar to that applying in the rest of Hunter Water’s area of operations.

• The annual water service charge be set at $127.53 ($08/09) for a 20 mm service and this charge be maintained in real terms over the 2009/10 to 2012/13 price period and then progressively adjusted to match the Hunter Water service charge in the subsequent price period. Setting the service charge at $127.53 ($08/09)

41 Location-based prices proposed in this submission are for filtered water. The Upper Chichester Dam pipeline conveys water from Chichester Dam to the water treatment plant at Dungog so water supplied from this pipeline is not filtered.


provides a reduction in prices for customers as the service charges previously applied by the Council ranged from $205 to $483 in $08/09.

• Water usage charges be set at the same rate applying in Hunter Water’s area of operations.

The proposed charges were outlined by Hunter Water at public meetings in each of the four centres within Dungog Shire in September 2007 in order to assist residents in understanding the implications of the proposed transfer of the Council’s operations to Hunter Water. Following these meetings, the Council conducted a survey of residents and 54 per cent favoured transfer of the water and sewer business to Hunter Water. The proposed charges are shown in Table 9.5.

Table 9.5 Proposed water prices for Dungog Council Area ($08/09) 2008/09 2009/10 2010/11 2011/12 2012/13 Service Charge 20 mm base ($/year)

127.53 127.53 127.53 127.53 127.53

Usage Charge ($/kL) 1.27 1.63 1.77 1.94 2.08 Source: HWC

9.8 Prices for supply to the Central Coast region In March 2006, as a result of the Central Coast region experiencing the worst drought on record, Hunter Water entered into a supply agreement with Gosford City Council and Wyong Shire Council to construct a strategic pipeline link joining the two regions’ water supply systems. This pipeline link enables the transfer of water flows in both directions, greatly improving supply certainty for both the Hunter and Central Coast communities.

The supply agreement covers the period up to 2026 and sets out the basis for providing both parties the right to access water from each other using the pipeline. The agreement also includes a provision to reduce the volume of water accessible by the central coast councils as the Hunter region’s storage levels fall.

Until the central coast councils commit to purchasing a share of the yield gain from Tillegra Dam (see section 7.5), water transfers will be made available up to 2026 under the current supply agreement. These transfers will not benefit from the increased drought security provided by Tillegra Dam and will therefore be subject to the same risk of reduced access that existed prior to Tillegra Dam coming on line.

The current agreed pricing structure is a volumetric price calculated at a discount of 28.3 per cent of the IPART determined tier one price in the Hunter.

Hunter Water proposes that the current agreed price structure be maintained as commercial agreement was reached on this approach. However, the usage prices proposed in section 9.3 partly cover depreciation and a rate of return on the investment in Tillegra Dam. As discussed above, Hunter Water has not agreed to provide the councils with access to Tillegra Dam under the current supply agreement unless the councils agree to purchase a share of the yield from Tillegra Dam. In this light, the tier one usage price to which the agreement price is linked needs to be deflated for Tillegra-related depreciation and rate of return. To give effect to this deflation, Hunter Water proposes that the discount on the tier one price be increased from the current 28.3 per cent to 37 per cent from 1 July 2009.

In the 2005 price determination, the IPART did not set a price for transfers of water to the central coast. Hunter Water does not believe there is a strong need for IPART to


determine the transfer price for the coming price period, given that the current arrangement was arrived at by negotiation and because of the likelihood, due to return of favourable storage levels on the central coast, that transfers over the coming price period will be very low and are largely unpredictable at this stage. In this context, the supply of water to the central coast councils could not be considered a monopoly service.

If the central coast councils commit to purchasing a share of the yield gain from Tillegra Dam (as discussed in chapter 7), Hunter Water would consider a further discount to the per unit transfer price. This would reflect the fact that, once the central coast councils are contributing to storage costs, Hunter Water’s costs relating to the arrangement are mainly transport costs.

Tillegra Dam is clearly needed by the Hunter due to a lower reliable yield from existing water sources and growth in demand due to a projected population increase. Further population (demand) growth in the Hunter would be supportable from water supply systems if the central coast councils do not purchase a share of the yield gain from Tillegra Dam.

9.9 Recycled water Hunter Water provides recycled water services under a wide range of conditions and circumstances. At this time, supply of recycled water is a small but growing component of the Corporation’s core services. In the longer term, recycled water services will eventually become its own business stream.

Hunter Water does not consciously set out to provide recycled water as a universal service across the whole, or even parts, of its area of operations but rather seeks to find environmentally sustainable recycling opportunities that can be serviced in a cost-effective way from existing wastewater treatment facilities. Currently, recycled water as a product is very much in a development stage and new opportunities, such as reticulated residential recycling, are rapidly presenting themselves as new residential subdivisions develop around some inland treatment plants and factors such as Building Sustainability Index (BASIX) planning legislation strengthen demand for recycled water.

In 2006, IPART initiated a review of the charging mechanisms for recycled water by Sydney Water Corporation, Hunter Water Corporation, Wyong Shire Council and Gosford City Council. Until that time, IPART had chosen not to regulate recycled water pricing and pricing arrangements had been left to the individual agencies.

IPART’s framework for the recovery of costs associated with recycled water projects is provided in its 2006 Report on Pricing Arrangements for Recycled Water and Sewer Mining.42

The report divides recycled water projects into two categories, distinguishing between mandatory and voluntary schemes on the basis of customer choice and relative market power. This division has implications for allowable pricing structures and the form and extent of regulatory oversight.

• “Mandatory” schemes are those where customers are compelled to connect to recycled water sources. The pricing framework for mandated schemes consists of guidelines for establishing total recoverable costs and the different price structures available for recovering the costs. For Hunter Water, IPART made a

42 IPART (2006) Pricing Arrangements for recycled water and sewer mining, Sydney Water Corporation, Hunter Water Corporation, Gosford City Council and Wyong Shire Council – Water Determinations and Report, September 2006.


formal price determination only for the calculation of developer charges for these schemes. However, it issued guidelines for calculating periodic prices. The Tribunal notes it has some powers in relation to pricing decisions for mandated recycled water schemes.43

• “Voluntary” schemes are those where customers choose to connect to recycled water at their own discretion when they have alternative sources – e.g. industrial users with access to drinking water or rural irrigators who have access to groundwater or other surface supplies – or where the customers have significant bargaining power. The pricing framework for voluntary schemes consists of a set of high level principles for cost recovery to guide negotiations between water agencies and customers. The Tribunal notes it will not have a regulatory role in pricing arrangements for these customers.44

Hunter Water considers that it complies with IPART’s methodology for calculating recycled water developer charges for its residential recycling schemes, such as Thornton North (also known as Chisholm) and Gillieston Heights. Hunter Water is also applying IPART’s guidelines for recovering the costs of recycled water in setting periodic (service and usage) charges for residential recycling schemes and developing prices for industrial schemes such as Kooragang Island. Further details are provided in the following sections.

Mandatory schemes Chapter 7 of IPART’s recycled water pricing report states:

“…mandated schemes are defined as recycled water schemes to which customers are required to connect due to government policy (such as BASIX or the Metropolitan Water Plan). The key criterion for determining whether a scheme fits into this category is whether there is an obligation on someone other than the water agency (such as the customer or the developer) to connect to the scheme…”.

Hunter Water considers its reticulated residential schemes to be “mandated”.

A growing societal environmental conscience has recently led to a number of approaches to Hunter Water from the development community and local councils regarding provision of recycled water services to new residential developments.

Since July 2005 all new homes in the lower Hunter region must meet the NSW Government’s BASIX requirements for water savings. Hunter Water's research suggests that in certain circumstances, such as large greenfield developments near a recycled water source, dual reticulation schemes are the most cost effective way to meet the requirements of BASIX. In addition, the water savings are more robust than rainwater tanks due to the climate independent source.

Hunter Water considered the costs and benefits of residential recycling opportunities as part of its draft H250 (Integrated Water Resources) Plan required under the 2007-2012 Operating Licence.45 The H250 Plan serves a similar role to the Metropolitan Water Plan that applies in the Greater Sydney region. The draft H250 Plan, which is in the stakeholder consultation phase, commits Hunter Water to pursue appropriate

43 Independent Pricing and Regulatory Tribunal, 2006(b), page 3 44 Independent Pricing and Regulatory Tribunal, 2006(b), page 4 45 Hunter Water Corporation, 2007(b), clause 9.2


dual reticulation opportunities as part of its suite of solutions to balance long-term supply and demand.

Local government instruments, such as Development Control Plans (DCPs) and Local Environment Plans (LEPs), compel connection to recycled water schemes in certain areas.

Hunter Water has committed to residential dual reticulation schemes at Gillieston Heights and Chisholm (Thornton North) in the Maitland local government area. The Gillieston Heights DCP requires connection to recycled water.

IPART’s guidelines require the costs of mandated schemes be recovered through a combination of developer charges and periodic charges.46 Hunter Water has complied with IPART’s methodology for calculating recycled water developer charges and recently registered DSPs relating to Gillieston Heights and Thornton North. Prior to registration Hunter Water revised the DSPs based on stakeholder feedback during the public exhibition period.

IPART’s guidelines47 require water agencies to set periodic prices such that:

• There must be a usage charge and may be a service charge.

• Usage prices are set at a level that helps to balance supply and demand and discourages inefficient resource use.

• The recycled water usage price does not exceed the drinking water usage price. Hunter Water’s current (2008/09) drinking water usage charge is $1.27 per kilolitre.

• The usage prices of recycled water and drinking water must be linked if the amount of drinking water top-up needed to balance supply and demand is more than 10 per cent. Recycled water infrastructure design needs to balance the usage expected from customers with the funds required to size assets to meet the demands. It is typical practice for water utilities to meet maximum demands on hot summer days by providing drinking water “top-up” into the recycled water system rather than spending on additional recycled water capacity that is rarely used. Hunter Water’s schemes will be designed to need less than 10 per cent top-up, so this price setting rule will not apply.

In setting periodic prices Hunter Water has also had regard for the approach to, and level of charges, at dual reticulation schemes across Australia and academic research on pricing satisfaction and fairness.48

In addition to complying with IPART’s guidelines Hunter Water has also decided to apply the following principles:

• Each dual reticulation scheme will have its own service and usage prices in order to minimise cross-subsidies (i.e. no postage stamp pricing).

• Service prices will be set at a level that recovers operational and administrative costs that are relatively constant per dwelling such as customer service (e.g. meter reading), call centre contacts, education and ongoing controls to minimise cross-connections.

• Usage prices will be set by using a fairness test such that customers are not disadvantaged by living in a dual reticulation area. The fairness test will set the

46 IPART 2006 47 IPART 2006, page 58 48 Hurlimann et al., 2005


usage charge such that an average customer in a dual reticulation area using both recycled and drinking water with a combined usage of 210 kilolitres per property per year has the same total water bill as customers with the same total usage of drinking water only. This test is based on the 40 per cent of the total use being recycled water and 60 per cent being drinking water, which is consistent with the intended uses of recycled water (e.g. outdoors and toilet flushing).

• During any interim period between construction of properties with dual reticulation and commissioning of the recycled water plant, recycled water usage charges will apply even though drinking water will be supplied through the third pipe system. This is intended to encourage appropriate behaviour and safeguard against inappropriate use from taps that will eventually provide recycled water.

The recycled water developer charges in registered DSPs are based on an operating surplus calculation using indicative periodic prices calculated using the above principles.

Proposed recycled water usage and service charges are shown in Tables 9.6 and 9.7.

Table 9.6 Proposed recycled water prices for Gillieston Heights ($08/09) 2008/09 2009/10 2010/11 2011/12 2012/13 Service Charge 20 mm base $/year

20.56 20.56 20.56 20.56 20.56

Usage Charge $/kL 1.02 1.11 1.20 1.31 1.42 Source: HWC

Table 9.7 Proposed recycled water prices for Chisholm ($08/09) 2008/09 2009/10 2010/11 2011/12 2012/13 Service Charge 20 mm base $/year

20.56 20.56 20.56 20.56 20.56

Usage Charge $/kL 1.02 1.11 1.20 1.31 1.42 Source: HWC

Voluntary schemes Under IPART’s recycled water pricing framework industrial, agricultural and municipal irrigation schemes would be considered “voluntary” as an alternative water source is available giving discretionary customers sufficient negotiating power.

Hunter Water is in the process of negotiating price arrangements for a number of voluntary schemes. The price modeling follows the Tribunal’s high-level principles provided in the report accompanying IPART’s 2006 recycled water determination.

Hunter Water is exploring a range of pricing options with potential customers. Pricing structures may vary with quality and quantity of recycled water as well as contract terms, resulting in negotiated individual agreements on mutually acceptable terms.

Chapter 10 Sewer pricing 98

10 Sewer pricing

Main Points • Residential and non-residential customers currently pay a fixed service charge

and a usage based charge.

• Hunter Water is one of only few metropolitan water utilities in Australia that have a sewer usage charge for residential customers and this is a source of customer complaints.

• Hunter Water proposes the sewer usage charge for residential customers is abolished and non-residential customers are charged based on the average sewer discharge factor for their business type. These changes would address customer concerns with the current price structure while having minimal negative impact on any particular customer group.

• Hunter Water proposes to continue funding the provision of sewer services to backlog areas via the environmental improvement charge. The EIC is reducing because some of the backlog sewer projects have now been fully funded. Hunter Water also proposes to discontinue the Sewer Service Access Charge.

10.1 Current structure and prices Since the introduction of the pay-for-use pricing in 1982, sewer charges have been structured as a two-part periodic price (in a similar way to water) comprising a usage charge and a service charge for all customer types.

Sewer discharge factors (SDFs) are applied to both sewer service and sewer usage charges, so that users with a higher discharge, and therefore larger relative impost on the sewer system, pay a higher contribution towards costs. Discharge factors vary across customer types with all residential properties assigned a set discharge factor of 50 per cent. The current service and usage charges are shown in more detail in Table 2.1 earlier in this submission.

Hunter Water currently charges residential customers in flats and units a minimum wastewater service charge. This charge was introduced in the 2000 determination to ensure greater equity in wastewater charges between customers in single dwelling properties and residents in flats and units. In the 2005 determination, the Tribunal accepted Hunter Water’s proposal to gradually increase the minimum wastewater service charge until it was equivalent to two thirds of the sewer service charge that applies to separate residential dwelling.


10.2 Issues with sewer usage charges Sewer usage charges were introduced as a water conservation signal and to incorporate the user-pays principle. These charges are also intended to signal to customers that volumes influence costs.

Until the 2000 price determination, residential sewer usage charges were significantly higher than now and possibly had some price signal effect. However, the high usage charges also created many customer complaints, particularly from customers with high outdoor usage. For these customers the 50 per cent discharge factor did not fairly represent their discharge to sewer.

The main disadvantages of residential usage charges are:

• The charges provide a small amount of customer discretion on the size of the bill, which has been eroded over time by significant reductions in the sewer usage charge in 2000.

• Little water conservation is achieved due to the low price signal since 2000 and majority of sewage being from non-discretionary water use.

• Inconsistent application pre- and post-BASIX (Building Sustainability Index), whereby some properties also discharge rainwater or recycled water to sewer.

• Lack of alignment with other major urban water utilities across NSW and Australia.

• Hunter Water regularly receives complaints from residential customers that object “on principle” to paying a sewer usage charge.

For typical households the price signal is low as sewer usage charges are a low proportion of the typical household bill (less than 20 per cent). It could be argued that sewer usage charges do not influence domestic customer behaviour as volumes of water discharged to sewer are largely based on health needs (e.g. bathing, cooking, toilets) and are therefore non-discretionary. The main water conservation signal is now provided through the water usage price.

IPART also has previously expressed concern about the efficacy of the sewer usage charge. In its 2005 determination report, IPART noted “It is the Tribunal’s view that a two-part tariff for wastewater is not the most effective demand management tool. Although it is a de facto water usage charge, it is not clear whether this is well understood by customers”.49

In addition, a practical issue has arisen with the introduction of Building Sustainability Index (BASIX) legislation in mid 2006, which has increased the number of properties serviced by rainwater tanks and recycled water. A charging disparity arises with pre-BASIX and post-BASIX dwellings discharging exactly the same volume to sewer. Under the current determination both dwellings must have the same residential discharge factor of 50 per cent applied to their metered water volume to infer the sewer usage volume. However, the BASIX dwelling will use less metered drinking water and therefore pay a lower sewer usage charge even if the total water discharged (drinking water, rainwater and / or recycled water) is identical.

The same problem also arises with non-residential properties however it is more easily addressed as non-residential discharge factors may be varied for different customer types or individual customers. Non-residential properties with large rainwater tanks and small metered water usage could be assigned a larger discharge

49 Independent Pricing and Regulatory Tribunal, 2005, page 122


factor than similar properties without rainwater tanks to ensure the usage charge is a fair contribution towards the cost imposition on the sewer system.

Hunter Water is the only price-regulated NSW water utility that has a sewer usage charge for residential customers. All other price-regulated water utilities in New South Wales do have a non-residential usage charge. From an Australia-wide perspective, non-residential sewer usage charges are common; however residential usage charges are only used by Melbourne retailers, Barwon Water and Maroochy Water Services in Queensland. Utilities in Adelaide, Perth, Darwin and Sydney apply only a fixed sewer service charge for residential customers.

10.3 Issues with sewer discharge factors Sewer discharge factors (SDFs) are used to impute the volume of sewer discharge from actual water consumption and therefore infer the relative impost on the sewer system. SDFs are used to apply the user-pays principle to both sewer service and sewer usage charges, so that larger users pay a higher proportion of Hunter Water’s costs.

The discharge factor for all residential customers has been set at 50 per cent since pay-for-use pricing was introduced, and subsequent reviews of separately metered internal and external residential water consumption indicates that the 50 per cent discharge factor is a conservative assessment of the volume discharged to sewer.

For non-residential properties, discharge factors are grouped into five bands and customers are assigned to a band based on customer class or property type (see Table 10.1). Sewer usage and service charges are currently calculated based on the top value of the band (e.g. charged at 100 per cent for the 76 per cent to 100 per cent band).

Table 10.1 Non-residential sewer discharge factor bands Band Range Current SDF

(top of band) Proposed SDF

Property Type examples

1 0% 0% 0% No connection to the sewerage system

2 1 - 25% 25% 10% Garden centres 3 26 – 50% 50% 35% Clubs with catering and

sports fields 4 51 – 75% 75% 60% Caravan parks 5 76 –

100% 100% 85% Hotels, hospitals, offices

Specified Specified Specified No change Customers may provide evidence of actual discharge and be assigned an SDF outside a band (e.g. 6%). Less than 1% of customers select this option.

Source: HWC

SDFs facilitate cost-reflective pricing in the non-residential sector. The band system allows easy assignment of SDFs to new customers with little administrative intervention.


Equity issues arise when businesses with an actual discharge level near the bottom of the band are charged at the top of the band. These businesses have an incentive to challenge the appropriateness of the discharge factor, with a potential outcome being assignment of a specified SDF. This creates an administrative burden and affects revenue.

Over recent years, a number of businesses have suggested that a “fairer” arrangement would be to charge at the mid-point of the band.

10.4 Proposed pricing reforms Hunter Water proposes discontinuation of the sewer usage charge for residential customers and charging non-residential customers based on sewer discharge factors set at the mid-point of bands rather than the top of bands.

Each of the sewer price structure reform proposals disadvantages a customer group when applied in isolation.

When implemented in isolation, the removal of the residential sewer usage charges shifts the cost burden to non-residential customers who suffer increased service charges and do not benefit from removal of sewer usage charges. Residential customers would have an improved or neutral sewer bill position.

When implemented in isolation, the movement to mid-point SDFs shifts the cost burden to residential customers who suffer increased service charges but do not benefit from a lower SDF. Non-residential customers would have an improved sewer bill position, unless the user has a specified SDF.

However, this situation changes significantly when both proposals are adopted together. When the proposals are combined there is minimal imbalance between customer groups.

For single residential customers, the benefit received by not having to pay usage charges is offset by the increased sewer service charges required to fund both the removal of residential usage charges and the non-residential SDF reductions. Single residential customers would essentially be in a substantially neutral position from the proposed price structure changes.

Non-residential customers benefit from the proposed price structure changes. Even though the sewer service charge increases (to fund removal of residential sewer usage charges), the total sewer bill reduces due to the SDF being reduced to the mid-point of the band.

When implemented as an overall package, the proposed sewer price structure reforms will address customer concerns with the current price structures in both the residential and non-residential sectors, while having minimal negative impact on any particular customer group.

10.5 Proposed sewer usage prices and service charges Hunter Water proposes to retain the sewer usage charge for non-residential customers for the 2009/10 to 2012/13 price period but discontinue the sewer usage charge for residential customers. For non-residential customers the sewer usage charge can be a significant component of the sewer bill and assists with establishing cost-reflective bills. This proposal is consistent with IPART’s price determination for Sydney Water.50

50 See Independent Pricing and Regulatory Tribunal, 2008, page 110.


Hunter Water proposes that the sewer usage price be increased slightly then maintained in real terms for the price period (i.e. only CPI increases), as shown in Table 10.2.

Table 10.2 Proposed sewer usage prices ($08/09) 2009/10 2010/11 2011/12 2012/13

Residential - Single - - - - Residential - Multi - - - -

Non-residential ($/kL) a 0.47 0.60 0.60 0.60 Source: HWC a. Sewer usage charges are subject to a sewer discharge factor

Sewer service charges are a fixed annual charge for sewer service charged in relation to water meter size and sewer discharge factor. These service charges serve, in part, to pass on to customers the cost of providing ongoing access to the system in relation to their sewer demands.

Proposed service charges for the base 20mm meter are shown in Table 10.3. As with Hunter Water’s current service charges, the charges for larger meter sizes are factored up by the meter ratio calculated as (meter size)2/400 and rounded to 2 decimal places.

Table 10.3 Proposed sewer service charges ($08/09 for 20mm meter) 2009/10 2010/11 2011/12 2012/13

X factors (%) 41.68 7.51 5.52 3.94 Residential - Single 516.61 553.45 581.09 600.36 Residential – Multi (minimum charge)

344.40 368.97 387.40 400.24

Non-residential a 1,033.21 1,106.90 1,162.19 1,200.72 Source: HWC a. Non-residential sewer service charges are subject to a sewer discharge factor.

10.6 Sewer prices for Dungog Shire customers Chapter 4 provided general background information about the transfer of Dungog Shire Council’s water and sewer business to Hunter Water Corporation from 1 July 2008.

As discussed chapter 4, Hunter Water carried out a due diligence analysis of the water supply and wastewater infrastructure and costs in the lead up to making an offer to transfer the businesses. Wastewater services currently are only provided in the town of Dungog and Hunter Water is constructing a sewerage scheme to service the township of Clarence Town, as previously proposed by the Council. It should be noted that Council had obtained funding assistance for the Clarence Town scheme under the NSW Government’s Country Towns Water Supply and Sewer Program. This funding was approved in the 2007 NSW Government Budget.

Hunter Water assessed future pricing options for wastewater services in both Dungog and Clarence Town as part of its due diligence analysis in 2007. Hunter Water based it pricing analysis on the assumption that its postage stamp wastewater pricing should apply for wastewater service and usage charges in Dungog Shire. Hunter Water’s analysis found that Hunter Water could operate the Dungog Council’s


wastewater business at the same service and usage prices that currently apply across Hunter Water’s area of operations.

Accordingly, Hunter Water is not seeking different wastewater service and usage charges for Dungog Shire for the price period starting 1 July 2009.

However, as pointed out in chapter 4, one of the main reasons for the transfer of the Council’s water and sewer business to Hunter Water was the increasing cost of providing the proposed sewer scheme to Clarence Town. In order to fund this scheme at the postage stamp prices applying in the rest of its area of operations, Hunter Water proposed:

• That it continues to collect the Council’s preconstruction levy at a reduced rate of $200 (nominal) per property per year until the scheme is commissioned (expected 2010). This levy has been in place and paid to Council since 1998/99 at a rate of $260 (nominal).51 This levy will only apply to properties in Clarence Town and only to those to which the sewer service will be made available.

• That, post commissioning (from 1 July 2010), the special levy continue at a rate equivalent to $100 ($07/08) until 30 June 2019. This levy also will only apply to properties in Clarence Town and only to those to which the sewer service will be made available.

• That there be an addition of $4 ($07/08) to the environmental improvement charge (EIC) paid by all of Hunter Water’s sewer customers to help meet the cost of backlog sewer schemes. This is outlined in further detail in the following section about the Priority Sewerage Program levy.

Table 10.4 Proposed Dungog Shire sewer prices ($08/09)

2008/09 2009/10 2010/11 2011/12 2012/13 Sewer Service charge Single residential

321.17 516.61 553.45 581.09 600.36

Base other 642.33 1,033.21 1,106.90 1,162.19 1,200.72 Usage charge a 0.47 0.60 0.60 0.60 0.60 Special levy Clarence Town only

200 (nominal)

200 (nominal)

100 ($07/08)

100 ($07/08)

100 ($07/08)

EIC b 54.84 31.98 31.98 31.98 31.98 Source: HWC a Non-residential customers only b. The derivation of the EIC figures for 2009/10 to 2012/13 is provided in section 10.7

10.7 Environmental Improvement Charge

Background Backlog sewer programs, established by NSW Government, provide sewer services to currently un-sewered townships in the operation areas of Sydney Water, Hunter Water, Gosford City Council and Wyong Shire Council. Townships eligible for the backlog sewer program are prioritised according to potential environmental and health issues and selected for funding following a comprehensive assessment by government in consultation with water agencies. The programs are funded through a

51 Much of this levy has been spent on design work and land acquisition for the scheme by the Council and unspent levy collections were transferred to Hunter Water as part of the terms of the business transfer.


combination of State Government funds (via community service obligation payments to the utilities), user contributions and levies paid by the broader customer base. This funding structure sends an important message that local communities must bear at least some financial responsibility for service improvement and environmental initiatives.

Winding up the Hunter Sewerage Project levy There have been a number of sewer backlog funding schemes in Hunter Water’s area of operations since the mid 1980s. Two programs are currently in operation – the Hunter Sewerage Project, which will wind up this year and the Priority Sewerage Program (PSP).

Construction work under the Hunter Sewerage Project (HSP) was completed in 2002 when the Karuah sewerage system was commissioned. Hunter Water’s annual environmental improvement charge (EIC) and the sewer service access charge (SSAC), paid on the initial connection of vacant properties to sewer, were integral parts of the HSP financing package since its inception. In 2008/09, these charges are:

• Environmental improvement charge - $54.84 per property

• Sewer service access charge - $3,481 paid on connection to the sewer system 52

Funding of this program via these two charges will wind up in the current financial year. It was intended that a small number properties serviced as extensions to HSP areas would continue to pay the HSP EIC after 30 June 2009. However, as it is now intended to introduce a new levy to fund the PSP from 1 July 2009, Hunter Water has decided not to proceed with this original proposal. These properties will be liable for the new PSP levy only.

New backlog sewer programs will be funded through a revised environmental improvement charge to fund the PSP as outlined in the following section. In addition to revising the EIC, Hunter Water intends to discontinue the sewer service access charge from 1 July 2009 because this charge is not included in the Government’s PSP package.

Proposed Priority Sewerage Program (PSP) levy In 2003, the NSW Government announced that it would extend the PSP project to provide sewer services to the townships of Kitchener, Millfield, Ellalong and Lochinvar. This followed an earlier decision to provide funding for sewer services to Fern Bay. Because Fern Bay was announced early in the PSP program, additional levy funding for Fern Bay was provided through the HSP EIC levy and included in IPART’s determination of the levy in 2003.

In agreeing to the extension of the PSP to cover the additional areas, the NSW Government decided that the program should be funded, in part, by an extension of the EIC for a further 10 years from 1 July 2009 to 30 June 2019 at a rate equivalent to $24 per property per annum in July 2003 terms.

Further, in May 2008, Hunter Water sought Government approval for its proposed pricing and funding arrangements for water and sewer services in Dungog Shire following the transfer of Dungog Shire Council’s water and sewer business to Hunter Water. The package of funding arrangements agreed by the Government included a further addition of $4 per property per annum ($07/08) to the PSP levy to assist in 52 The sewer service access charge is only paid by owners of land that was vacant at the time the backlog scheme was announced and that later connect to the sewer system.


funding the Clarence Town sewerage scheme and enable Hunter Water to provide sewer services to Clarence Town residents at the postage stamp prices applying across the Corporation’s area of operations.

In $08/09 terms53, Hunter Water proposes that the PSP levy comprise:

PSP levy $27.80

Clarence Town addition $ 4.18

Total PSP levy $31.98

Hunter Water proposes that this levy should be maintained in real terms by indexing in line with IPART’s annual CPI adjustment in each year of the coming price period.

53 The PSP levy figure is indexed from September quarter 2003 to June 2008 using the ABS CPI, all groups, weighted average of eight capital cities. The Clarence Town amount is similarly indexed from June 2007 when it was originally calculated to June 2008, the latest CPI figure available at time of writing.

Chapter 11 Stormwater pricing 106

11 Stormwater pricing

Main Points • Stormwater management in Hunter Water’s area of operations is predominantly

the responsibility of local councils with the Corporation owning and operating only some assets in the Newcastle, Lake Macquarie and Cessnock local government areas.

• Hunter Water’s role is to maintain the current capacity of the major concrete channels and culverts in major catchments in these areas.

• The Corporation only levies stormwater drainage charges to customers whose properties are in areas serviced by the Corporation stormwater assets.

• From 2005, Hunter Water progressively replaced property-value charges with land area-based charges for non-residential customers. From 2009/10 property-value charges no longer apply to any customers.

• Only modest increases in stormwater charges are proposed, totalling less than $8 for residential customers over the four year price period.

11.1 Background Stormwater is rainwater that runs off buildings and land. In the natural environment, a large proportion of this water soaks into the ground or flows into waterways. In the cities, the proportion of stormwater run-off is higher due to the presence of hard surfaces such as roads, paved areas and roofs. Stormwater is carried in stormwater channels and discharges directly into creeks, rivers, the harbour and the ocean.

There is no single agency responsible for stormwater management within Hunter Water’s area of operations. While stormwater drainage is predominantly managed by local councils, Hunter Water owns and operates some trunk stormwater assets in the Newcastle, Lake Macquarie and Cessnock local government areas. Hunter Water has responsibility only for the major concrete channels and culverts through many of these catchments and its role is to maintain the current capacity of these stormwater drains. Councils are responsible for the management of street drainage and any “natural” creeks upstream and downstream of the concrete channels and the Roads and Traffic Authority is involved in drainage from major roads and highways.

Hunter Water levies stormwater drainage charges only to customers whose properties are in areas where the Corporation owns and operates stormwater drains. These charges enable Hunter Water to undertake works on main drains and waterways. In the past, residential and non-residential customers were charged a fixed service charge. Non-residential customers were also charged an additional valuation based charge, which was calculated according to property value.

Chapter 11 Stormwater pricing 107

In line with the water pricing principles agreed to by the Council of Australian Governments, IPART adopted Hunter Water’s stormwater pricing reform proposals by phasing out the valuation based charges since 1999/2000. From the 2005 price determination, Hunter Water began to progressively replace the property-value charges with land area-based service charges for non-residential customers.

This program will be completed in 2008/09, then all non-residential customers are currently charged only according to the four-tiered area-based service charge introduced at the beginning of the current price period (2005/06 to 2008/09).

Under this new pricing structure, stormwater drainage charges are linked to property size (as a proxy for stormwater runoff), using a factor that is a multiple of the base charge. The factor was established using the median of actual property sizes in each category.

11.2 Proposal Hunter Water proposes to retain the area-based stormwater tariff structure for the 2009/10 to 2012/13 price review period. Appropriate area-based categories for non-residential service charges were developed for the current price period and are still considered appropriate. Hunter Water is not proposing any further changes to this structure for the coming price period.

A model was developed to recover the target revenue from the current service charge structure and projected customer numbers. The proposed stormwater service charges derived from this modelling for the coming price period are shown in Table 11.1 below.

As outlined in the revenue requirement discussion in chapter 8, only modest real increases in charges are proposed for the coming price period. The total increase in stormwater bills for residential customers by 2012/13 will be less than $8.00 in 2008/09 terms - from $61.52 in the current year to $68.83 in 2012/13. Further information on customer incidence is provided in chapter 12.

Table 11.1 Proposed stormwater drainage charges ($08/09) 2008/09 2009/10 2010/11 2011/12 2012/13 Residential 61.52 65.81 67.52 68.17 68.83 Non-residential: Small (<1,000m²) / low impact 61.52 65.81 67.52 68.17 68.83 Medium (1,001 - 10,000m²) 111.19 118.93 122.03 123.21 124.39 Large (10,001 – 45,000m²) 707.26 756.48 776.23 783.68 791.20 Very Large (>45,000m²) 2,247.11 2,403.51 2,466.24 2,489.92 2,513.82 Source: HWC

Chapter 12 Customers’ bills 108

12 Customers’ bills

Main Points • Hunter Water proposes annual price increases plus CPI in each year of the price

path for water and sewer.

• Modest increases in stormwater charges are proposed for first two years of price path, equating to $8 overall (plus CPI) for residential customers.

• After four years, the average residential water and sewer bill will have increased by around $412 in total or 57 per cent. The first year increase will be most significant at $214 or 30 per cent.

• The average annual increase for non-residential customers ranges from 12 to 17 per cent per year.

• Hunter Water has a range of bill management options available to customers in need.

Hunter Water’s proposals for the structure of its prices build on the pricing structure changes made in 2004. This submission presents pricing proposals for the four years from 1 July 2009 in line with Hunter Water’s preference for a four-year price path.

The main features for Hunter Water’s combined water, sewer and stormwater drainage prices for the period from 2009/10 to 2012/2013 are:

Water Annual price adjustments of CPI+X in each year of the price path. The X factors are determined by the revenue requirements for Hunter Water’s water business as detailed in chapter 8.

Annual increases in water usage prices in line with the increases in the revenue requirements. This approach continues to emphasise usage prices and maintain a water conservation price signal.

Updating of the basis for the location-based water prices and the areas to which they apply. This is the first review of these prices since they were introduced in 2001.

Sewer Annual price adjustment in line with the wastewater revenue requirement as detailed in chapter 8.


Proposed removal of the sewer usage charges for residential customers bringing Hunter Water in line with the practices of other Australian water utilities.

Revision of the application of the default sewer discharge factors for non-residential customers to provider a fairer application of these default values.

Reduction of environmental improvement charge (EIC) and removal of the sewer service access charge (SSAC) with the completion of the funding commitment under the Hunter Sewerage Project. The EIC will continue at the lower rate for a further ten years to help fund the Priority Sewerage Program (PSP) and providing sewer services to Clarence Town.

Stormwater drainage The phased elimination of the property-value based charge is now complete and all non-residential stormwater customers are only currently charged the area-based service charge.

Modest increases in stormwater charges are proposed in the first two years of the coming price period in line with the revenue requirements outlined in chapter 8. Prices will remain constant in real terms for the final two years.

12.1 Effect on residential customers The impact on a typical household customer consuming 200 kilolitres per year is summarised in Table 12.1. There would be an increase of $214 (30 per cent) in the first year of the price period (2009/10) due to the overall price adjustment of CPI+29.3 per cent for water and CPI+41.7 per cent for sewer. This increase is the most significant over the price period and is necessary to match Hunter Water’s revenue requirements in that year. This $214 increase is just over $4 per week. After four years, the average residential bill will have increased by $412 in real terms.

Around 30 per cent of the customers live in areas serviced by Hunter Water’s stormwater assets, and hence they also pay for stormwater services. The total bill for residential customers liable for stormwater charges will increase by $8 more in real terms than bills for other customers by 2012/13.

Table 12.1 Typical residential bill at 200 kilolitres per year ($08/09) 2008/09 2009/10 2010/11 2011/12 2012/13 Water service 41.46 57.38 65.13 74.29 82.41 Water usage 254.00 326.00 354.00 388.00 416.00 Sewer service 321.17 516.61 553.45 581.09 600.36 Sewer usage 47.00 0 0 0 0 EIC 54.84 31.98 31.98 31.98 31.98 Total 718.47 931.97 1,004.56 1,075.36 1,130.75 Source: HWC


12.2 Effect on non-residential customers It is difficult to generalise about the incidence impacts of price changes on non-residential customers. Meter configurations for non-residential customers vary from business to business making it difficult to define a “typical” non-residential service charge. For most non-residential customers with consumption in excess of 1,000 kilolitres, usage charges are the main determinant of their total bill.

In addition, not all non-residential customers are connected to the sewer system there can be a wide range of variations in water use, sewer discharge factors and trade waste composition – all of which are key parameters in determining the final bills of non-residential customers.

However, in order to provide an incidence comparison, this submission includes an analysis of non-residential water bills based on customer profiles used by the Productivity Commission in its 2002 report on trends in Australian infrastructure prices. This report defines reference businesses as:

• Low water use business – 300 kilolitres per year and 20mm water connection

• Medium water use business – 3,000 kilolitres per year and 40mm water connection

• Medium / high water use business – 30,000 kilolitres per year and 40mm water connection, and

• Large industrial use – 300,000 kilolitres per year, 300mm water connection with no sewer connection.

For sewer services, all businesses in the Productivity Commission reference business are assumed to have an 80 per cent discharge factor with the exception of the large industrial use group. Hunter Water’s non-residential customers are assigned default sewer discharge factors that do not include 80 per cent as a variant. Therefore, for the incidence comparison of bills 75 per cent discharge factor has been used for 2008/09, which reduces to a 60 per cent discharge factor in the new price period due to proposed sewer revision of the discharge factors. Few high-use customers are connected to the sewerage system and therefore sewerage charges are not included for this group.

The incidence on this reference group is shown in Table 12.2.


Table 12.2 Non-residential incidence ($08/09)

Water and sewer only a 2008/09 2009/10 2010/11 2011/12 2012/13

Av annual change

Low use 300 kL

1,065 1,306 1,400 1,494 1,567 +11.8%

Medium use 3,000 kL

7,015 8,711 9,339 10,018 10,563 +12.6%

Medium / high use 30,000 kL

50,823 62,441 66,849 72,118 76,443 +12.6%

Large industrial 300,000 kL b

390,329 501,911 545,654 598,715 642,542 +16.2%

Large industrial 300,000 kL c (Newcastle price zone)

348,829 460,911 499,154 544,715 581,542 +16.7%

Source: HWC a. Includes environmental improvement charge for sewer customers. b. Water only – large industrial customers are generally not sewer customers so only water bills are included for this group. This example assumes no location discount. c. Shows incidence for a large industrial customer in the Newcastle price zone. This price zone has the median location prices.

The last column in Table 12.2 shows the average annual increase in non-residential bills over the four-year price period. For non-residential customers, these are in the range of 11.8 per cent to 16.7 per cent per year. This takes account the changes to water and sewer prices and the offsetting beneficial effect of the adjustments to the sewer discharge factor. Customers using large volumes water are impacted by the increases in water usage prices and the fact that they are mostly water-only customers and do not benefit from the sewer discharge factor changes. Hunter Water has only 32 customers with water use exceeding 40,000 kilolitres per year. Of this group, less than 10 exceed 300,000 kilolitres per year.

Stormwater service charges for non-residential customers will be based on land area only. Property value-based charges will cease at the end of 2008/09. Again, the increases are relatively modest with a real increase of only 12 per cent proposed by the end of the four-year price period.

12.3 Components of the bill increases This section explains the components of the projected increases in typical residential bill (based on 200 kilolitres per year water use).

In 2009/10, the typical residential bill will increase by around $214 to $932 per year in real terms – just over $4 per week.

In the final year of the price period, the real increase will be $412 over the current bill. This is an increase of approximately 57 per cent in total or 14.3 per cent per year.

Table 12.3 shows the make up of the increases for the full term of the coming price period.


Table 12.3 Components of the typical residential bill increase ($08/09) Total increase in 2012/13 Increases in operating costs 79 Increased infrastructure investment (excl Tillegra Dam) a 207 Tillegra Dam 60 Maintain credit rating b 84 Water efficiency programs 5 Reduction in EIC -23 Total 412

Source: HWC. a. This includes additional capital expenditure in period 2005/06 to 2008/09 that was not provided for in the prices set by IPART in 2005. b. This is the amount necessary to provide Hunter Water with a rate of return that maintains its credit rating at investment grade

IPART’s developer charges methodology provides for the cost of new developments to be met by direct payments from developers adjusted by the expected operating surplus/deficit from periodic charges paid by new developments for a period of 30 years. Thus the determination of developer charges is a function of a number of variables including the expected growth rates, the cost of the development and the expected operating surplus/deficit on periodic charge revenue for the specific development. Thus removal of developer charge revenue from future revenue expectations impacts differently on various development projects resulting in a different distribution of cost components from that shown in the October submission.

Hunter Water can provide the derivation of this analysis to IPART, if required.

12.4 Managing customer impacts

Bill management options for residential customers Hunter Water recognises it is sometimes difficult for customers to find the money to cover all their household bills. These periods of financial pressure may be short or long term and usually cause considerable stress for both individuals and families.

Hunter Water’s telephone contact centre and customer service staff offer assistance to customers by discussing support options that will assist them manage their ongoing payment commitments during these difficult times. Hunter Water always prefers to help customers by reaching an agreement with them and has developed a credit management process that provides options for customers.

Customers initially have 21 days to pay their account. However if they are concerned about meeting a payment on time, they are encouraged to contact the Corporation to discuss their situation. Hunter Water aims to help customers identify solutions to sort out their current account as well as discuss ongoing options to help keep their account at a manageable level. The options offered to customers are:

• An extension of time to pay their account

• A payment plan of regular instalments over an agreed timeframe

• A budget plan where regular manageable amounts are debited from their bank account

• Access to the Payment Assistance Schemes that operates through local welfare agencies


Hunter Water communicates these options available to customers in a number of ways. A brochure is available on the Corporation’s website or a copy can be posted to customers on request. Information is also regularly included with account statements. This includes information such as financial assistance with their account, resolving customer disputes, explanation of accounts and customer charges.54

Hunter Water is committed to continuous improvement and has identified areas for improvement in both the process and communication regarding available financial support services. The areas identified for improvement are:

• A newly-created dedicated email link on Hunter Water’s website specifically for customers who require assistance due to financial hardship. Until recently, Hunter Water had one email address link on its website for all enquiry types. The new dedicated email link, serviced daily by specialist staff in the customer services division, provides in faster response to customers about their situation. It will also reduce the risk of delays in responding to account matters that may already be in the credit management process and possibly noted for water restriction.

• Update the welfare agency information on both the website and in printed documentation to include their locations, contact numbers and website links and advise that some agencies can visit customers at home to arrange assistance. Providing this information, would allow customers to quickly and easily contact the agencies directly and hopefully fast track the process for them. Customers in serious financial distress often feel embarrassed or concerned about their privacy and may feel more comfortable initiating discussions with the specialist staff at the welfare agency.

54 www.hunterwater.com.au/158.aspx

Payment Assistance Scheme Residential customers experiencing financial difficulties may be eligible for support through a Payment Assistance Scheme (PAS). The scheme operates through registered community welfare agencies with staff trained to assist customers experiencing hardship. The agency will assess the customer’s individual needs and circumstances and may issue payment assistance vouchers to help the customer pay their Hunter Water account. Once an agency provides Hunter Water with the customer details, the Corporation will stop recovery action on their account to allow time for a resolution and payment arrangement to be achieved. The welfare agencies currently participating in the scheme are:

• St Vincent de Paul

• Salvation Army

• Northern Settlement Services

• The Samaritans

• Maitland Neighbourhood Centre

Customers are encouraged to contact the welfare agencies directly. However telephone contact centre and customer centre staff can provide information such as the location and contact numbers of the agencies. Hunter Water provides information to customers about PAS on its website and also publishes brochures and newsletters.


• Restructure and retitle information on the website to not only refer to the pensioner rebate but to other support available to pensioners. This section of the website will be known as Support for Pensioners and will include helpful information about the pension rebate as well other assistance measures such as free washer replacement for kitchen, laundry and garden taps. This service has been offered for many years but could be better promoted to customers. Staff will also receive refresher training about these measures as mentioned below.

• Extend the washer replacement services to non-pension customers who participate in the PAS system. Obviously these customers have been identified as genuine hardship customers and extending this offer provides some additional support that may assist in reducing their consumption and related charges.

• Extend the staff training program to include a greater awareness and understanding of this social issue. As part of this program, Hunter Water will invite representatives from welfare agencies to speak at team meetings to discuss case studies that provide real life examples of the hardship being experienced in the Hunter community.

Other staff training will cover the payment options available with an emphasis on promoting these measures to customers. Specifically, staff are encouraged to:

• Offer and promote the continuous direct debit option of small manageable regular amounts (weekly, fortnightly etc) which should avoid them receiving any further large accounts.

• Enquire if the customer is aware of what services their bank offers in regards to BPAY and encourage them to discuss setting up regular payments with their bank.

• Suggest to pensioners that they consider setting the direct debit or BPAY date to the day after their pension is deposited into their account, which should ensure adequate funds are available and avoid any penalty or dishonour fees.

• Enquire if pensioner customers are aware of any leaking taps in their kitchen or laundry (over stainless basins) or outdoor taps that require fixing.


Pensioner rebates Customers who hold a Pensioner Concession Card or certain types of Department of Veterans’ Affairs Gold Card are entitled to a pensioner rebate. This rebate is designed to provide a relief for the pensioners’ personal water and sewer charges and applies to properties owned and occupied by them. Where applicable, the environmental improvement charge is also waived. Pensioners who are water and sewer customers and are entitled to 100 per cent of the rebate currently receive a reduction in charges of $175.00 per year. The rebate is applied to each account at the rate of $58.33 per bill.

Kidney dialysis customers Hunter Water recognises that certain customers require additional water to maintain their health because they are dialysis patients and are able to dialyse from their own homes. These customers are offered financial support in the form of the dialysis rebate. The Renal Unit of Hunter New England Area Health provides Hunter Water with the details of customers who are required to dialyse at their own home.

The rebate provides a free “water allowance” of 125 kilolitres per year. The rebate is split and applied to each account. Following submissions to the current IPART price review by EWON and the Public Interest Advocacy Centre, Hunter Water investigated the appropriateness of the current rebate and found that 250 kilolitres would better reflect typical dialysis user consumption. Accordingly, Hunter Water proposes to double the current rebate to 250 kilolitres per year.

Nursing homes For eligible nursing homes, a relief in charges is granted in the following ways:

• Reduction of water and sewer service charges

Centrepay Option Hunter Water also has investigated Centrepay as a payment option for customers after this option was suggested as part of Hunter Water’s last price review.

Hunter Water consulted with both Centrelink and Sydney Water to discuss this payment facility in detail. Considering the extremely low take up rate by customers in the Sydney Water area, Hunter Water decided not to proceed with the option. Hunter Water’s decision was also influenced by setup and administration requirements and the relatively high transaction fees charged by Centrelink for this service (compared the cost of similar services from financial institutions). Centrepay transaction fees are charged for each fortnightly payment made by Centrelink and, over 12 months, would amount to over 60 per cent of Hunter Water’s current water service charge.

Financial hardship can be experienced by all groups within our community including working families. With this in mind, Hunter Water decided to enhance the support services available to all customers. The continuous direct debit option outlined in this section provides the same benefits as Centrepay but with greater flexibility and materially lower administration costs. More importantly, it provides the same type and level of assistance to any customer in hardship circumstances, regardless of whether they are a welfare payment recipient or not.


• Reduction of water and sewer usage charges

• Waiving of Environmental Improvement Charge

• Waiving of drainage charges

• Waiving of minimum sewer service charges

Service charge relief For properties owned and occupied by religious, charitable and public benevolent bodies, Hunter Water may grant service charge relief to customers if they are eligible in accordance with NSW Treasury guidelines. Relief from charges may be granted in the following ways:

• Reduction of water and sewer service charges

• Waiving of the Environmental Improvement Charge (EIC)

• Waiving of drainage charges

• Waiving of minimum sewer service charges

• A reduction in water usage charges in certain circumstances

Chapter 13 Trade waste charges 117

13 Trade wastewater charges

Main points:

• The Australian water industry has developed a new approach to managing trade wastewater. Hunter Water aims to adopt this nationally recognised approach and is proposing associated changes in trade wastewater price structures.

• The most significant proposal is the introduction of a third ‘moderate’ agreement category between the existing minor and major agreement levels.

• Revisions to the calculation method for high-strength (BOD/NFR) charges will result charge reductions for some customers. Proposed high-strength charges for customers on major agreements will be reduced in 14 of Hunter Water’s 19 wastewater treatment plant catchments.

• Further real price reductions are proposed for heavy metal and phosphorus charges.

• Hunter Water is planning to install automated tankering facilities at major wastewater treatment plants. This will extend access hours for tankering customers, which should reduce their business costs.

• Trade wastewater and tankering charges represent a total income of around $2.4 million per year. The price reforms and revised charges result in about a 35 per cent reduction in income compared to this year.

13.1 Background

Customer management Hunter Water provides trade wastewater and tankering services to commercial and industrial customers where capacity and capability are available at wastewater treatment works (WWTW). Trade wastewater and tankering discharges are higher than domestic strength and represent a proportionally greater imposition on wastewater treatment facilities than residential discharges. Hunter Water’s acceptance of higher strength discharges increases the costs of treatment. There are also administrative costs to manage customers and monitor their discharges to ensure Hunter Water complies with regulatory obligations in the wastewater collection system and at treatment plants.

In 2007 the water industry, through the WSAA, developed a new preventative risk management framework for managing risks to wastewater systems and published the National Wastewater Source Management Guidelines.55 Hunter Water currently 55 Water Services Association of Australia, 2008(b)


manages discharges from trade wastewater customers on the basis of risk to Hunter Water’s assets and risk of breaching regulatory requirements. In addition, the Corporation aims to adopt a nationally recognised approach to the application of risk assessment to customer management. Hunter Water proposes to determine a customer’s risk categorisation using the risk assessment methodology in the WSAA guidelines, as adapted to Hunter Water’s operating context. The risk assessment methodology involves identification of hazards by reviewing historical data on the quality and quantity of a customer’s trade wastewater discharges then estimating the level of risk posed by the hazard. The assessed level of risk is a combination of the likelihood of an event occurring and the potential impact on the objectives of:

• Safety of water agency personnel and the public

• Protection of assets (pipes, plant and equipment)

• Protection of treatment processes

• Facilitation of regulatory and licence compliance

• Facilitation of recycling

The risk categorisation will govern management and administrative effort as well as sampling frequency. The benefits of moving to this industry-wide approach include more focused customer management, improved risk mitigation and the adoption of a common management framework for these customers regardless of their location in the country.

Pricing of trade wastewater and tankering services Hunter Water has charged additional fees for trade wastewater discharges since 1994. In past price determinations, the fees have been based on a number of factors, which can vary over time and by wastewater treatment works, including:

• Treatment plant operating costs

• Capital costs of the wastewater treatment works

• Load-based licensing (LBL) fees that are imposed by DECC

• Administration costs

The additional costs associated with managing higher than domestic strength discharges from trade wastewater and tankering customers are recovered via fixed and variable fee components, as shown in Figures 13.1 and 13.2. Broadly, the fixed charges ($ per year) have been used to recover fixed costs, like labour that is directly employed to assist in monitoring and management of these customers. The variable charges ($/kilogram) for high-strength wastewater and specific constituents (e.g. heavy metals, phosphorus, sulphate) recover costs that vary on the basis of the discharge quality, such as the energy and chemical costs associated with treating the additional load.

At each price review, Hunter Water reviews and updates its trade wastewater charges to reflect movements in the operating costs of treatment plants and changes to its regulatory operating environment. In particular, the upgrade of wastewater treatment plants to comply with DECC licence conditions and pollution reduction programs has significant impacts on the costs of accepting and treating trade wastewater.

In this price submission, Hunter Water is also proposing a revised the fee structure to align with the new industry-wide approach to trade wastewater customer management and to better align with the actual services provided by the Corporation.


The principles followed in reviewing current structures and developing reform proposals were:

• Cost reflectivity and customer equity through a user pays approach

• Reduced cross subsidies and increased bill control through reduced fixed charges and application of variable charges where appropriate

• Creating incentives for customers to invest in their own treatment where this is more cost-effective than investment by Hunter Water

• Alignment with industry standards, particularly the recently developed WSAA National Wastewater Source Management Guidelines.

• Alignment of the charging methodology with that of other water utilities

The proposed price reforms are discussed in later sections of this submission.

13.2 Efficiencies and cost pressures The costs of transport and treatment of discharges to Hunter Water’s sewer system are expected to increase at a faster rate than inflation in the coming four-year price path. Key drivers of the cost increases are:

• Increasing contractor rates for essential services to treatment facilities (e.g. chemicals, biosolids management and transport).

• Increasing labour costs due to the competitive labour market.

• More stringent environmental regulation driving significant upgrades to treatment processes and higher operating costs for the additional processing stages.

• Climate change driving alternative operating strategies to minimise carbon emissions and increasing energy costs.

Hunter Water adopts a culture of continuous improvement to drive efficiency improvements that reduce operating costs or limit increases in costs. Contractors are also provided with incentives to minimise the cost of services. For example biosolids management contractors are paid incentive bonuses to find end use sites closer to treatment plant sites in order to minimise transport costs.

13.3 Overview of proposed charges The current and proposed pricing structure for trade wastewater customers is shown in Figure 13.1. New charges are highlighted in orange.


Figure 13.1 Trade wastewater pricing structure

Agreements Trade wastewater agreement fees cover administrative costs for over 2,200 customers and for customers on minor agreements the fixed fee also covers treatment costs.

Minor trade wastewater Agreement

(Current and Proposed)

Major trade wastewater Agreement

(Current and Proposed)

Moderate trade wastewater Agreement (Proposed)

Inspection Fee (ad hoc)

BOD/NFR High Strength Charge –

WWTW ($/kg)

Heavy Metals – WWTW ($/kg)

Phosphorus > 11mg/L ($/kg)

Sulphates ($/kg)

Agreement Establishment Fee (one-off)

Annual Agreement Fee

($/annum)

includes 5 year inspection, avg.

high strength charges


plus



($/annum)

Agreement Renewal Fee

(every 5 years)



($/annum)

includes 1 inspection p.a.,

avg. high strength charges,

sampling/analysis


(every 5 years)


(every 5 years)


plus

plus

plus

plus

plus

plus

plus

plus

plus

plus

plus

plus


Trade wastewater customers are currently issued five-year agreements. These agreements are categorised as either minor or major depending on the individual customer’s risk profile (assessed in terms of quality and volume of discharge) when the initial agreement is created (see blue boxes in Figure 13.1). Agreement negotiations with customers on the upper threshold of minor agreements or lower threshold of major agreements are often contentious because of the substantial difference in charges between these two categories.

To address this issue, Hunter Water proposes introducing a new intermediate agreement category to be called the ‘moderate’ category. Customers will be assigned to minor, moderate or major categories on renewal of trade wastewater agreements using a water industry-wide risk assessment methodology as adapted to Hunter Water’s operating context.56

The objectives of creating the moderate category are:

• To impartially reduce disputes about the category assignment by Hunter Water when customers are on the threshold between minor and major agreements.

• To minimise the impact on customers that change from one category to the other due to changes in business size or practices.

• To commence monitoring the quality of customers’ discharges in order to mitigate risks (of compromising treatment process integrity and regulatory breaches).

• To better align the charging methodology with the other major NSW water utility, Sydney Water Corporation, which has seven risk-based agreement categories (but also has a much larger range of trade wastewater customers).

The process of re-assessment of category on agreement renewal provides an incentive for customers to control the quality of their discharge and thereby change agreement category, with an associated reduction in applicable fees and charges.

There are presently 2,219 trade wastewater customers comprising 2,041 minor agreements customers and 178 major agreement customers.

Hunter Water has undertaken an assessment of the customer impacts of the proposed changes to agreement categories by reassigning the existing 2,219 customers to a minor, moderate or major agreement category based on available information. This proposal results in a change of these charges for 178 of the 2,219 existing trade wastewater customers (8 per cent).

• Existing minor agreement customers

- 53 of the 2041 (3 per cent) customers moving to the major category. This accurately reflects an increased risk of discharges. However the cost impact would be significant. For example, charges would increase from $113 per year to up to about $4,000 per year for some fast food restaurants whose discharges have caused incidents of fat blockages in downstream sewer mains.

- 61 of the 2041 (3 per cent) customers moving to the moderate category.

- 94 per cent remaining in the minor agreement category

• Existing major agreement customers

- 27 of the 178 (15 per cent) customers moving to the moderate category

- 37 of the 178 (21 per cent) customers moving to the minor category

56 See Water Services Association of Australia, 2008(b)


- 64 per cent remaining in the major agreement category

In order to reduce the financial impact of these changes on customers, Hunter Water has developed a transition plan for the coming price period. Under this plan, Hunter Water proposes to limit customer re-categorisation to one category step at a time (e.g. minor to moderate but not minor to major). Adopting this approach:

• 114 customers (5 per cent) would potentially move from minor to moderate agreements based on an estimated discharge quality, with charges increasing from $113 per year to $845 per year ($08/09). Hunter Water will collect and analyse three samples at its expense in order to confirm the estimated discharge quality and thereby impartially confirm categorisation. If the measured discharge quality is consistent with the estimated discharge quality, then the customer will be subject to a moderate agreement. The customer will be aware that Hunter Water is inspecting the business site and monitoring discharge quality once per year (as part of the fixed charge).

• 64 customers (3 per cent) would move from major to moderate agreements, with charges decreasing significantly from several thousand dollars to $845 per year. This cost reduction recognises customers’ efforts to optimise discharge quality but enables Hunter Water to continue to monitor discharge quality, which provides confidence that good process control is maintained.

Hunter Water’s trade wastewater agreement charges proposed for the price period commencing 1 July 2009, taking into account the new agreement categories and changes in administrative costs, are detailed in Table 13.1. The derivation of the charges makes no allowance for the effect of inflation and the charges should be increased annually in line with the CPI.

There is a net increase of approximately $80,000 in predicted revenue from trade wastewater agreements and inspection fees. Total income from trade wastewater agreements and inspection fees for 2009/10 is projected to be around $440,000.


Table 13.1 Trade wastewater agreement and inspection fees ($08/09)

2008/09 2009/10 – 2012/13

Minor Agreements

New minor agreement establishment fee 160.21 113.62

Existing minor agreement holders:

Annual agreement fee 113.16 108.16

Inspection fee 101.96 104.81

Existing Renew/Reissue 118.75 94.25

Moderate Agreements

New moderate agreement establishment fee n/a 594.63

Existing moderate agreement holders:

Annual agreement fee n/a 846.40 a

Inspection fee n/a 104.81

Existing Renew/Reissue n/a 429.81

Major Agreements

New major agreement establishment fee 885.06 594.63

Existing major agreement holders:

Annual agreement fee 349.54 435.02 b

Inspection fee 101.96 104.81

Existing Renew/Reissue 655.40 429.81 Source: HWC a. Annual agreement fee includes high-strength charges for the average discharge quality of these customers. b. Separate high-strength and constituent charges for heavy metals, phosphorus and sulphate apply and are not included in the annual agreement fee.

BOD/NFR strength charges Biochemical oxygen demand (BOD)/non-filterable residue (NFR) high-strength charges are designed to recover the additional costs associated with treating the component of load that exceeds the equivalent domestic load strength in trade wastewater customers’ discharges. BOD/NFR load (in kilograms) provides a suitable surrogate for a range of pollutants in wastewater that result in a treatment impost on Hunter Water.

The BOD/NFR charge is applied to whichever of either the BOD or NFR makes up the higher load in the waste from an individual customer. Since 1994, separate BOD/NFR charges have applied for each of Hunter Water’s wastewater treatment plant catchments, reflecting treatment cost differences. This pricing structure creates incentives for new industrial/commercial trade wastewater customers to undertake new business in areas where the existing infrastructure will support their activities.

The only change Hunter Water proposes for the BOD/NFR methodology is the exclusion of return on/of capital. It is proposed that capital cost recovery for treatment assets be recovered only by sewer periodic charges (usage and service charges) and developer charges in future and not from high-strength charges.

Trade wastewater customers tend to be transient, with potential for changes of businesses within WWTW catchments, and their discharge quality is highly variable. Treatment facilities are primarily designed to treat domestic quality wastewater. Designing WWTW for trade wastewater loads is not an efficient balance between the investment required to treat high-strength wastewater and risk of customers ceasing operations or initiating on-site treatment. The transient nature of trade wastewater


customers also means that the high-strength charge revenue is not a very secure source of recovery of the capital costs of long-life assets.

The proposed change would align Hunter Water’s and Sydney Water’s approaches to setting charges. Trade wastewater customers would still contribute to the return on capital and depreciation for wastewater facilities through the sewer periodic charges in the same way as other customers.

Removing the return on/return of capital element from the BOD/NFR methodology, along with updates to reflect movements in treatment costs and load-based licensing (LBL) fees has resulted in a significant decrease in high-strength charge. The total BOD/NFR trade wastewater income assessment shows a 60 per cent, or $1.4 million, reduction on the 2008/09 charges when using the same load projections.

The proposed charges are shown in Table 13.2. The derivation of the charges makes no allowance for the effect of inflation and the charges should be increased annually in line with the change in the CPI.

Large industries seek to minimise costs and the significant decrease in load fees proposed for the coming price period may remove a significant motivator to control the quality of discharges. It is important that the proposed reduction in high-strength fees are not seen as an opportunity for industries to pollute and avoid the expenses they had traditionally encountered through high-strength load fees.

Load limits are applied to trade waste agreements as required. This is usually only when an industry has sufficiently high volume and trade wastewater strength to have potentially serious impacts on the receiving treatment facility if the agreement load limits are exceeded. Exceedance of the specific load limit could have serious consequences including failure of the treatment process, environmental regulatory breaches, environmental damage and subsequent litigation and could compromise safety to the community, reticulation system workers and treatment plant workers. It could impose also potentially significant costs on Hunter Water.

Hunter Water proposes application of an ‘incentive charge’ to encourage customers to maintain compliance with limits specified in trade waste agreements. The incentive charge would only apply when new load limits have been set or existing load limits have been agreed with the customer in full knowledge of the incentive charge.

It is proposed that an incentive charge is applied for loads exceeding an agreed load limit for each pollutant specified on a major trade wastewater agreement. The incentive fees would only apply to the proportion of load above the load limit for each billing cycle.

To make the incentive reasonable and effective, it is proposed that the ‘incentive’ load rate (as shown in Table 13.2) be set at triple the base load rate for loads beyond the load limit for each applicable pollutant set in the agreement. This would seem reasonable given the broad decrease of up to 60 per cent in the load-based rate for BOD. If the incentive charge is set at an appropriate rate to motivate compliance, no additional revenue would be expected.

Heavy metals The current heavy metal charge has been calculated using the original methodology adopted by IPART in all determinations since 1994. The charge is based on the costs associated with environmental monitoring, sludge and effluent/influent heavy metal monitoring, a portion of the LBL fees and the administration costs of treating and accepting heavy metals.

The charge is based on the total mass of heavy metals discharged into the Corporation’s sewerage system from local industries. Due to the low level of metals


discharged to sewer from local industries, and the high level of treatment at Hunter Water’s wastewater treatment plants, the LBL metal fees imposed by the DECC are generally low.

Table 13.2 Trade wastewater high-strength charges for BOD/ NFR

Wastewater Treatment Works 2008/09 2009/10 – 2012/13Base Charge

2009/10 – 2012/13Incentive Chargeb

$/kg ($ 08/09) a

Belmont WWTW 2.34 1.05 3.15

Boulder Bay WWTW 2.95 1.47 4.41

Branxton WWTW 4.26 3.82 11.46

Burwood Beach WWTW 2.03 0.69 2.07

Cessnock WWTW 2.72 1.62 4.86

Clarence Town WWTW - 14.18 42.54

Dora Creek WWTW 2.59 0.98 2.94

Dungog WWTW - 9.29 27.87

Edgeworth WWTW 2.35 0.74 2.22

Farley WWTW 2.11 0.94 2.82

Karuah WWTW 13.88 28.59 85.77

Kearsley WWTW 4.20 13.22 39.66

Kurri Kurri WWTW 3.67 2.29 6.87

Morpeth WWTW 2.57 1.05 3.15

Paxton WWTW 7.62 17.15 51.45

Raymond Terrace WWTW 3.06 1.61 4.83

Shortland WWTW 3.03 2.13 6.39

Tanilba Bay WWTW 3.64 2.93 8.79

Toronto WWTW 2.49 1.34 4.02 Source: HWC a These charges apply where the concentration strength is greater than 350mg/L for BOD or NFR, whichever is the higher b These charges apply for loads beyond the load limit set the trade waste agreement

Hunter Water proposes to retain the structure previously adopted of two metal charges, one for the Burwood Beach catchment and the other for all other WWTW catchments. Burwood Beach WWTW uses a different treatment process, which results in a difference in LBL fees imposed by DECC.

The proposed trade wastewater metal unit rate charges reduce by different amounts in the Burwood Beach catchment and the other catchments. The Burwood Beach charge decreases 20.9 per cent while the other catchment charge decreases by 0.9 per cent. The proposed trade wastewater metal charges represent a net decrease in revenue of $4,000, or 35 per cent, when compared on the same load basis with the current charges. The price variation has resulted from a higher overall heavy metal load being discharged to the treatment facilities giving rise to savings through size economies.

The proposed charges are shown in Table 13.3. The derivation of the heavy metal charges makes no allowance for the effect of inflation and the charges should be increased annually in line with the CPI.


Phosphorous Phosphorus charges have been included in the trade wastewater charges determined for Hunter Water since 2000. The costs associated with phosphorus discharges from industries are made up of the following components:

• The use of chemicals and administrative costs associated with accepting the discharge of phosphorus into the sewerage system.

• Costs associated with DECC LBL fees (where applicable).

• The costs of managing additional biosolids from the precipitation of solid compounds as a result of chemical processing to remove phosphorus.

Continuing growth in inland catchments, coupled with requirements by DECC to reduce phosphorus levels discharged from inland WWTW, has resulted in additional costs in treating and removing phosphorus. The increases in phosphorus-related treatment costs are offset by relatively low LBL fees.

Hunter Water proposes to include the additional costs of managing biosolids in the calculation of phosphorus charges. The dosing of aluminium or ferrous salts to bind and precipitate phosphorus significantly increases biosolids production. Trade wastewater customers’ contributions to this increase can be determined and the corresponding costs recovered though the phosphorus high-strength charge.

The inclusion of biosolids management costs is offset by a further proposal to cease recovering the return on/return of capital costs of chemical dosing facilities through the phosphorus charge. This is based on a similar rationale to ceasing a portion of capital cost recovery in the trade wastewater high-strength charge for BOD/NFR. It is difficult to isolate phosphorus removal capital expenditure as solely benefiting trade wastewater customers because these customers tend to be transient and the strength and quality of their discharges is highly variable. Phosphorus removal investment also is driven often by a pollution reduction requirement set by the DECC. It is therefore more appropriate to recover this expenditure through sewer periodic (usage and service) charges, which are incurred by all customers including trade wastewater customers.

Taking into account the changes to the calculation methodology, forecast increase in phosphorus discharged and LBL fees, the proposed phosphorus charge will be lower than the 2008/09 rate, with an associated income reduction of about $4,600 (37 per cent) per year.

The proposed charge to apply from 1 July 2009 is shown in Table 13.3. This table also compares the proposed charges with that applying in 2008/09. The derivation of the phosphorus charge makes no allowance for the effect of inflation and the charges should be increased annually in line with the CPI.

Sulphate In 2003, a new charge sulphate charge for trade waste customers was determined for all catchments.

Trade wastewater dischargers of sulphate contribute to the production of sewage gases and odours within the wastewater transport system. Most sewer odour problems are due to the presence of hydrogen sulphide. The concentration of the gaseous hydrogen sulphide is related to the sewer conditions and the level of dissolved sulphides present in the sewerage. Sulphates are converted to sulphides under anaerobic conditions.

The presence of odours cause customer complaints and generally indicates that assets are being subjected to corrosion from the acids produced. Sulphides have led


to corrosion of metal fittings in pump stations and treatment works and attack concrete structures within the sewerage system overall. Sulphides not only cause considerable damage and lead to significant maintenance costs but also pose occupational health and safety hazards. Hunter Water spends considerable funds (over $1.5 million per year) on odour control due to gas production.

Since the production of these gases is generated under a range of conditions, which vary with pH, flows and temperatures, it is difficult to develop an accurate cost-reflective charging methodology. It is more appropriate to use an incentive-based charge to encourage dischargers to minimise sulphate levels in their wastewater. The IPART-approved Sydney Water sulphate incentive charge method was adopted as Hunter Water’s charge rate in 2003. Similarly, the proposed charge is as follows ($08/09):

${0.126 x (SO4/2000)}/kg

This sulphate charge applies for trade wastewater customers who discharge higher sulphate concentrations than domestic customers. The cost methodology incorporates the nominal minimum price with the sulphate (SO4) concentration linked to the national acceptance standard of 2,000 milligrams per litre and increases as the concentration increases. The converse is the result when the concentration is lower than the national standard.

The proposed sulphate charge is shown in Table 13.3. The derivation of the phosphorus charge makes no allowance for the effect of inflation and the charges should be increased annually in line with the CPI.

Table 13.3 Trade wastewater services variable quality charges ($/kg $08/09) 2008/09 2009/10 – 2012/13 Heavy Metals: Burwood Beach WWTW catchment 32.31 16.07 All other catchments 26.48 18.54 Phosphorus >11mg/L ($/kg) 3.10 1.77 Sulphate formula ($/kg) 0.126 x (SO4/2000) 0.126 x (SO4/2000)

Source: HWC

13.4 Tanker received wastewater Currently, a number of different types of wastewater are transported to Hunter Water’s wastewater treatment plants for treatment, including septic tank effluent and sludge, portable toilet waste and tankered industrial waste. Fees for tankered waste were introduced in 2000 and are made up of the following components:

• The capital costs of dedicated equipment installed to accept tankered waste.

• Administration costs associated with managing tankered waste.

• Treatment plant operating costs

The current pricing structure for tankered waste is shown in Figures 13.2. Hunter Water currently recovers a component of administrative costs through fixed charges and the rest through volume-based charges.

In a similar manner to trade wastewater, Hunter Water has recently revised its approach to tanker customer management to align with WSAA National Wastewater


Source Control Guidelines.57 A new risk categorisation will be assigned to each tankering activity (i.e. a discrete combination of tankered waste type, treatment facility and tanker operator) and this score will be used to determine the frequency of sampling and analysing discharge quality.

In this price review, Hunter Water has taken the opportunity to review the tankered waste fee structure to align with the revised approach to customer management described earlier in this chapter. It also enables Hunter Water to set fees that better reflect the Corporation’s improved data and knowledge about types of wastewater tankered to Hunter Water’s wastewater treatment plants.



Figure 13.2 Current tanker services pricing structure

Source: HWC

Establish Tankering Agreement (one-off)

Renew Agreement

(as required)

Monthly Invoicing Fee

Delivery Processing Fee ($/per delivery)

Portable Toilet Effluent ($/kL)

Septic Effluent ($/kL)

Septic Sludge ($/kL)

High Strength Tankered

Waste ($/kL)


WWTW ($/kg)

Heavy Metals – WWTW ($/kg)


Sulphates ($/kg)

Sampling & Analysis

plus

plus

plus

plus

Sampling & Analysis

Sampling & Analysis

plus plus plus

plus

plus

plus

plus


The proposed pricing structure for tankered waste is shown in Figures 13.3. New charges are highlighted in orange.

Hunter Water proposes that the existing monthly ‘invoicing fee’ be absorbed into the ‘delivery processing fee’. The proposal is to recover administration costs based on transaction volumes, which would minimise cross-subsidies and improve customer control of bills. By making this change, tanker operators who make many deliveries each month would pay a greater proportion of the administration costs than those who only make a small number.

Hunter Water proposes two changes to the volumetric charges, which are defined by wastewater type or source. A new ship waste volumetric charge is proposed as this customer class has distinctive discharge quality characteristics.

Hunter Water also proposes merging of septic effluent and septic sludge volume charges.

Application of the current septic volumetric charges relies on an honour system whereby tanker drivers indicate the discharge type on paper dockets. There is a financial incentive for tanker operators to claim discharge of septic effluent only because there is a 10-fold difference in volumetric charge for effluent compared to the charge for septic sludge.

Audit checks on tanker discharges indicate that sludge should make up around one per cent of received tankered-waste volumes. However, docket-receipted discharges show only 0.3 per cent and this indicates that the current charge structure is under recovering costs. Furthermore, most septic tankers carry mixed loads of sludge and effluent but operators primarily claim the tankers contain effluent. The cost of treating mixed loads is much higher than treating effluent.

In order to reduce the revenue risk and to ensure cost-reflective pricing, Hunter Water is installing automated tanker receival facilities at Dora Creek and Raymond Terrace WWTW and is intending to install similar facilities at other major WWTW. Automated receival, with includes monitoring of the composition of the tanker load, greatly facilitates the merging of septic effluent and septic sludge volume charges into a new septic discharge type and application of existing high-strength and constituent charges (e.g. heavy metals, phosphorus, sulphate) to these customers. Most deliveries of septic effluent would not attract any high-strength and constituent charges as strength will be similar to domestic wastewater. Mixed loads of effluent and sludge would attract both volumetric and strength-based charges.

The return on/of capital for the automated tankering receival facilities has been incorporated into tankered water volume charges for all types of tankered waste. This is because the automated receival facilities are used only for tanker receival and are not required for any part of the wastewater treatment process.

This proposal was supported by tankering customers at a meeting involving the three largest tankering customers as they explained that their greatest costs are logistics (i.e. people, trucks and time) and the increased access hours that would be available with automated tankering receival facilities would significantly benefit their businesses.

.


Figure 13.3 Proposed tankering services pricing structure

Source: HWC

Establish Tankering Agreement

(one-off)

Renew Agreement

(annual)

Delivery Processing

Fee ($/ delivery)

Portable Toilet Effluent ($/kL)

Septic Waste ($/kL)

High strength tankered

waste ($/kL)


WWTW ($/kg)

Heavy Metals – WWTW

($/kg)


Sulphates ($/kg)

Sampling & Analysis

Ship Waste ($/kL)

Sampling & Analysis

plus

plus

plus

plus plus

plus

Sampling & Analysis

plus

plus

plus

plus


The automated receival facilities will not be available at all sites at 1 July 2009. This presents a logistical issue in applying the preferred price structure. Hunter Water also believes it would be useful to have a proving period, during which tankering customers are informed about the quality of their loads before load-based charges apply.

As an interim step for the coming price period, Hunter Water proposes a merging of septic effluent and septic sludge volume charges into a new ‘septic waste charge’ in order to address the septic waste revenue risk described above and as a step towards Hunter Water’s preferred price structure. The septic waste charge would be based on the weighted average of the current septic effluent and septic sludge charges, whereby 99 per cent is effluent and 1 per cent is sludge based on theoretical sludge production.

Once the automated receival facilities at Raymond Terrace WWTW and Dora Creek WWTW are available, customers delivering septic waste to these facilities would receive a read out of the measured total suspended solids. This would allow customers to determine the amount of load-based charges that would apply, if any, under Hunter Water’s preferred pricing model. Hunter Water proposes that the fee structure for septic waste customers be further refined at the following price review (for prices from 1 July 2013).

The proposed tankering services charges are shown in Table 13.4. The general volume-based charge increases as a result of a strategic initiative by Hunter Water to increase the availability of receival facilities to tankering customers by installing two additional automated facilities in addition to the two already being constructed. This will allow increased access to facilities to enable discharge outside of operating hours. This will address one of the most common complaints from tanker operators that they are restricted to discharging only when Hunter Water’s operators are in attendance at the plant.

The changes to the level of charges are expected to have minimal impact overall on the tanker customers because of the offset of significant decreases in high-strength charges. However, application of the water industry risk framework to categorise customers and determine the frequency of sampling and analysing discharge quality will impact customers. The overall impact of proposed changes to the tankering price structure is discussed further in section 13.5.

The derivation of the tankering services charges makes no allowance for the effect of inflation and the charges should be increased annually in line with the CPI.

13.5 Customer Incidence

Aggregate impact of proposed trade wastewater charges The three most significant proposed changes to trade wastewater fees are:

• Re-categorisation of customers on the basis of a water industry wide risk assessment methodology

• Introduction of a ‘moderate’ agreement category (between major and minor), and

• The significant decrease in high-strength fees.

The impacts of the proposed changes can be summarised by customer type as shown in Table 13.5.


Table 13.4 Tankering services charges ($08/09)

2008/09 2009/10 – 2012/13

Establish tankering agreement $160.21 $190.39

Renew agreement $118.75 $121.51

Monthly invoicing fee $22.41 n/a

Delivery processing fee $2.24 $3.75

Portable toilet effluent ($/kL) $16.14 $12.07

Septic effluent ($/kL) $3.39 n/a

Septic sludge ($/kL) $31.23 n/a

Septic waste($/kL) n/a $3.62

Ship waste ($/kL) n/a $6.73

High-strength waste ($/kL):

Volume charge ($/kL) $2.85 $3.34

Load charge ($/kg) See Table 13.2 See Table 13.2 Source: HWC

Table 13.5 Customer Impacts – trade waste fee changes ($08/09) Current

Category Proposed

New Category

Customer Types Existing Average Fees p.a.

Proposed Average Fees p.a.

No. of customers affected

Minor Minor Small restaurants, mechanical workshops, butchers, bakers, dentists etc.

113 108 1927

Minor Moderate Large restaurants and take-away food outlets, large pubs and clubs, multi-use complexes

113 846 114

Major Moderate Large restaurants and take-away food outlets, large pubs and clubs, multi-use complexes

5,888 846 64

Major Major Industry, hospitals 14,682 5,908 114 Source: HWC

Minor to minor The slight decrease in the annual charge shown in Table 13.5 is primarily due to the increase in the number of customers leading to cost reductions from economies of scale.

Minor to moderate The significant increase in cost is a result of the additional site visit (once per year), sampling analysis charges associated with collecting one sample per year, additional management required due to greater risk mitigation and an average of the load costs (load multiplied by high-strength fees for BOD only) for the potential suite of moderate customers.

The benefit of introducing the moderate category is that it minimises the relative financial impact on customers of moving from a minor to a major agreement as their businesses grow. For example, during 2007, a number of large restaurants and clubs


were re-categorised from minor agreements to major agreement customers as a result of a re-evaluation of their discharge volume and quality. This resulted in an increase of between $600 and $3,000 to those customers’ annual bills.

Trade wastewater charges are only a component of an individual customer’s total water and sewer bill. The increase in their total bills as a result of the change in trade waste charges is an average of 16 per cent but may be as low as 3 per cent.

Major to major The greatest change for customers that remain on major agreements after the proposed customer re-categorisation, is the proposal to significantly reduce BOD/NFR strength charges and phosphorus charges due to the removal of the return on/return of capital recovery costs from these fees. Customers will also see a large reduction in heavy metal charges in all wastewater treatment plant catchments.

Aggregate impact of proposed tankering charges The greatest change for tankered wastewater customers is the proposed significant decrease in tankered waste charges due to the removal of the return on/return of capital recovery from high-strength load fees. There is a proposed increase in volume charges associated with cost recovery of septic and tankered high-strength waste as a result of the additional automated receival facilities being constructed in the coming price period.

Some changes to sampling frequency, and hence sampling and analysis costs, will result from adopting the water industry wide risk assessment methodology as adapted to Hunter Water’s operating context.58 The aggregated cost impact for a suite of companies with varying mixes of septic effluent and tankered waste are summarised in Table 13.6.

Table 13.6 Customer Impacts – tankering fee changes ($08/09) Tanker Company Size 08/09 fee total 09/10 price path fee total Small Company a $21,232 $19,352 Company b $23,455 $25,478

Medium Company c $72,508 $75,390 Company d $38,893 $42,118

Large Company e $198,157 $184,579

Source: HWC

It is worth noting that the sampling frequency, on which the fees shown in Table 13.6 are based, is likely to change over time depending upon the variability in the composition of loads delivered to Hunter Water’s treatment plants. The assumed sampling and analysis costs were based on 2007/08 receival composition (i.e. volumes, strength, and waste type).



As mentioned in section 13.4, Hunter Water consulted a number of tanker operators about the proposed introduction of the automated tankering receival facilities. Customers welcomed the extended access hours that would result from automation of the receival stations at WWTW. They commented that the largest proportion of their business costs were logistical inputs (eg wages, fuel, vehicle leasing and maintenance) and that extended access hours would improve their ability use their resources more effectively. Customers also added that Hunter Water charges represent a relatively small proportion of their costs of operation.

Chapter 14 Miscellaneous services 136

14 Miscellaneous services

Main points

• Hunter Water offers a range of non-contestable, one-off services to customers on a direct cost recovery basis.

• Charges for miscellaneous and ancillary services are only incurred by a very small number of the customers and generally only one at a time.

• In preparing the fee structure for the next four years, Hunter Water has taken the opportunity to review its business processes to ensure costs are align with service delivery. Price increases are proposed for 27 services, reductions are proposed for 17 services and 10 existing services have components with proposed increases and decrease in prices.

• Hunter Water is proposing 21 new charges or components within charges. Some of these reflect the increased opportunities for recycling water. The new charges introduce a new revenue stream of about $570,000 per year.

• Overall total annual income expected from the proposed miscellaneous charges is $4.0 million. About $1.6 million is from customer services charges and $2.4 million is from commercial development charges.

14.1 Background This section of Hunter Water’s submission relates to miscellaneous charges, which constitute around $4.0 million or two per cent of Hunter Water’s total annual revenue. In line with the user-pays philosophy, these charges have been reviewed to reflect the current services provided and the cost structures associated with providing these services.

As part of the last determination, IPART defined a pricing model to ensure a consistent approach across all of the water agencies for miscellaneous charges. The pricing model contains the following components:

• Direct labour hours including oncosts

• Business unit overheads, and

• Materials where material costs are incurred.

Also as part of the 2000 price determination, a common set of core services provided by all four agencies was developed to achieve a higher level of commonality between the miscellaneous services provided by the agencies. As a result, there are now 20 services that are commonly defined across the four agencies. The common numbering system derived by IPART has been used in this submission.


Hunter Water’s miscellaneous charges proposed for the price path commencing on 1 July 2009, including the derivation of each individual charge, are outlined in Appendix I. In accordance with the IPART pricing model, the proposed charges are based on a cost-reflective methodology, with an hourly rate for the level of officer considered necessary to carry out the task. The charges also include salary and business unit overheads and material costs.

The proposed charges in this section are quoted in 2008/09 terms and should be increased annually in line with the CPI.

The miscellaneous charges fall broadly in two areas:

• Customer Service – these are charges for largely administrative services with individual properties such as special meter readings, provisions of sewer location diagrams etc. Customer service charges are summarised in Appendix J, which shows the existing and proposed charges as well as the predicted income for each charge, and

• Commercial Development – these charges cover the administrative and application processing costs associated with managing potential new developments, such as advice on servicing requirements, statements of available pressure etc. These costs are not recovered through developer charges. Commercial development related charges are summarised in Appendix K, which shows the existing and proposed charges as well as the predicted income for each charge.

14.2 Customer services charges There are 43 proposed customer service ancillary and miscellaneous charges, of which 15 are new charges and 15 are within the group of services commonly defined by IPART in consultation with the four agencies. The common numbering system established by IPART has been used.

The proposed customer service charges relate to the services provided in:

• Water supply

• Recycled water supply

• Wastewater services

• Plans and statements

• Ancillary services

• Irregular and dishonoured payments

The introduction of Hunter Water’s new customer information system (CIS) triggered a review and the consequent change of a number of the Corporation’s procedures and overall business processes. Many of these changes have been reflected in the proposed charges in the following ways:

• A number of new charges are being introduced to cover services routinely performed without recouping costs directly from beneficiaries.

• A reduction in some charges as a result of the improved efficiency and functionality of the new CIS.

• A restructure or amendment to some charges where it has been identified the previous methodology did not fully recover costs incurred in providing the service.


When compared to the current list of customer services miscellaneous charges, there are a number of changes proposed for the coming price period, as follows:

• 15 new charges introduce a new revenue stream of around $554,000 per year

• 28 existing charges have been reviewed with the following outcome:

- 20 charges have increased

- two charges have decreased

- five charges have components within that have increased and decreased, and

- one charge has remained the same.

The proposed changes and improvements are detailed in Tables 14.1 to14.3.


Table 14.1 New customer services charges

Service No Function Description

12b). Application for Recycled Water Service Connection – Domestic

With the introduction of this new product, appropriate fees are required to recoup costs. This fee includes 3 separate inspections which are required to ensure the recycled water and potable water systems are not cross-connected at the time of connection to services and property occupation.

65. Recycled Water Meter Affix Fee

The meter affix fee covers the administrative and contractor costs to affix a recycled water meter to a meter frame.

9b). Application for Recycled Water Disconnection

The proposed fee includes both the administration and inspection costs involved in the disconnection process.

64. Affix a Separate Meter to a Unit

Previously the Meter Affix Fee was used for strata development as well as single connections. This separate fee reflects the significant administration and contractor costs of affixing multiple meters to strata developments. This fee will be charged for each meter affixed to the strata development.

26. Building Plan Stamping

The review and certification of basic building and development plans is a service that is currently does not attract a charge. Due to the time and volume of plans involved, Hunter Water proposes introduce a small fee to recoup the administration time spent on each plan.

62. Damaged Meter Replacement

This charge allows Hunter Water to recoup the cost of replacing meters that have been damaged other than by normal wear and tear. Hunter Water will continue to pay for the replacement of meters that are faulty or are due to be replaced as part of Hunter Water’s maintenance program.

60. Inaccessible Meter – Reading Agreement

This charge relates to the preparation and administration of a meter reading agreement. The agreement requires customers to provide meter readings to Hunter Water as their meters are in locations that are inaccessible to meter reading contractors.

61. Inaccessible Meter -Imputed Charge for Breach of Meter Reading Agreement

This charge will be applied when customers breach their agreement with Hunter Water by failing to provide a meter reading within the specified time. This will allow estimated charges to be raised on their current account as well as impose an additional charge for the actual usage when the reading is obtained. The intention of this charge is to encourage customers to provide a meter reading as per the agreement and will allow Hunter Water to receive payment for the services provided.

59a). Inspection of a Water Cart Tanker

Some customers entering into a Standpipe Agreement with Hunter Water use their hired standpipes to fill water cart tankers to conduct their business. To ensure the potable water system is


Service No Function Description protected, an inspection is required to ensure the air gap and backflow prevention fitted to the tanker is compliant. These inspections are currently being conducted however no charge is being applied for this service.

59b). Reinspection of Water Cart Tanker Due to Non-Compliance

When a Water Cart Tanker fails to meet the compliance standards at the initial inspection, Hunter Water is required to conduct a further inspection to ensure the tanker has been modified or repaired to meet compliance. The charge recoups the cost incurred by Hunter Water by conducting a further inspection.

28b). Breach of Standpipe Hire Conditions

This fee will be applied to the customer’s account each time they fail to provide a standpipe reading as per the conditions of the Hire Agreement.

25. Unauthorised Connections

There are circumstances where illegal connections are identified which have not been affixed with a meter and the customer has not lodged a Connection Application with Hunter Water. This charge covers the meter affixture, inspection and administration time spent in ensuring the connection is registered, compliant and will be billed for services in the future.

5b). Billing Record Search Statement for Multiple Properties.

This fee is similar to the Billing Record Search Statement (Charge 5) but would be applied for requests relating to owners of multiple properties (such as Council, Dept Education etc ).

66. Plumbing Non-Compliance Follow Up Inspection Fee

This fee would be imposed on Licensed Plumbers when non-compliant plumbing is found, in order to recoup the costs associated with Hunter Water plumbing inspectors making a follow up visit to the site. Hunter Water feels it is unfair to pass this cost onto the customer but instead it should be charged to the contractor responsible to create an incentive for future due care and compliance.

18b). Backflow Device Test This fee would allow Hunter Water to recoup costs associated with backflow device tests where the customer fails to arrange the testing of the device fitted to their service in accordance with the Customer Contract.

Source: HWC


Table 14.2 Reduced customer services charges Service No Function Description

7b). Water Reconnection – After Restriction (Outside Business Hours)

This charge has two components, a fee for reconnection of water services during business hours and a separate fee for outside of business hours. The fee for reconnections conducted during business hours has only increased marginally, however the fee for outside business hours has reduced by $13.90. This has been achieved by improvements in the administration time involved with the introduction of CIS.

8a). Workshop Flow Rate Test of a Water Meter

Restructuring of this charge (as described in Table 14.3) will result in a lower charge for water meters that require a flow rate test but not a strip test.

Source: HWC


Table 14.3 Restructured/Amended customer services charges Service No Function Description 4. Meter Reading –

Special Reads and By Appointment (previously Special Meter Reading Statement)

This fee was previously known as the Special Meter Reading Statement. The fee has been both reduced and restructured. It covers requests for a special meter reading that is outside the normal reading schedule (during business hours). It also provides an opportunity to recoup costs associated in obtaining a meter reading by appointment outside of ordinary business hours, which may sometimes be required to gain readings for inaccessible meters. CIS has reduced the administration time for this task and significant savings have been achieved through outsourcing the meter reading function. A significant saving to customers has been achieved with a reduction from $64.30 to $20.40 for reads conducted in business hours.

8. Workshop Flow Rate Test of a Water Meter

This charge previously included a component for a strip test of the water meter however that component was not often applied. Hunter Water has created two separate charges, one to cover a Flow Rate Test only of a mechanical water meter and the second includes both the Flow Rate Test and Strip Test. Having two separate charges should avoid any confusion and ensure only the applicable fee components are applied.

9a). Application for Water Disconnection

This charge now includes a plumbing inspection fee as Hunter Water inspects disconnections to ensure they have been correctly capped off and are compliant with Plumbing Guidelines and Standards.

10. Application for Water Service Connection (up to and including 25mm)

This charge has been amended to include a plumbing inspection fee. Hunter Water has always conducted inspections of approximately 75 per cent of all new connections. The connections inspected are randomly selected. The costs associated with these inspections are currently not recouped from beneficiaries. An averaged charge has been included in this Application Charge to reflect the costs for this service.

14. Standpipe Hire Security Bond

The Security Bonds have been reviewed to reflect the actual replacement costs of each specific size/type of standpipe. No administration time is included in this charge.

22. Application to Connect/Disconnect Water & Sewer Services

This charge has also been amended to include a plumbing inspection fee. These inspections are conducted randomly to 75 per cent of all connections and disconnection to ensure compliance with Plumbing Standards. An average charge has been included to reflect the costs for this service.

24. Request Separate Metering of Units

Previously this charge was applied in bands of unit numbers. For example, a charge of $72.85


Service No Function Description was charged for 1 – 4 units, $92.15 for 5 – 10 units. This approach to charging was not reflective of the current process and efficiencies gained in processing each application in CIS. This charge has been restructured into a flat fee per plan.

29. Meter Affixtures/Handling Fee

This fee has been restructured to provide an opportunity to recoup costs for affixture of meters that are larger in size than 50mm light duty. There are two options available to customers requiring the larger size meters, they or their contractor can collect the meter or HWC can arrange for the meter to be delivered to them. The highest level of this charge will affect less than one per cent of Hunter Water customers.

30. Inspection of Non-compliant Meters

This charge covers reinspection of a property where a second inspection is required for separate metering as Meter Frames were either Non-Compliant or were not accessible at initial inspection. Previously this charge related to strata units inspections only. Hunter Water proposes to broaden the scope of this charge to include inspections for stand alone residential dwellings.

31. Standard Plumbing Inspections (previously Special Inspections)

This charge was previously been applied for the inspection of rainwater tanks and temporary toilets. As other types of Special Inspections are required, Hunter Water has developed three charges to be applied depending on the nature of the inspection.

Source: HWC

In summary, taking into account the new charges and the changes in existing charges, there is a net increase of approximately $961,000 in predicted revenue from miscellaneous charges associated with customer service function. Total income from customer services miscellaneous charges for 2009/10 is projected to be around $1.6 million of which approximately $554,000 is from the new charges (see Appendix J for details).

14.3 Commercial development charges There are 34 development-related ancillary and miscellaneous charges, of which four are new charges and five are within the group of common services defined by IPART in consultation with the four agencies. The common numbering system established by IPART has been used.

Development-related miscellaneous charges aim to recover the costs for the administration of development applications and associated services.

Hunter Water has been able to pass on to the development community savings made through internal business efficiency, quality standards and investing in continuous improvement initiatives. All existing service charges have been reviewed for this price submission.

When compared to the current list of commercial development miscellaneous charges, there are a number of changes proposed for the coming price period, as follows:


• There are six new charges, which introduce a new revenue stream of around $61,500 per year

• five charges have been restructured, resulting in:

- one existing charge being deleted (previous service number 56)

- additional options within charges being added for more flexible application of the charge

• seven charges have increased

• 15 charges have decreased

• five charges have components within that have increased and decreased

• six charges have remained the same, and

• five charges now have service descriptions where the ‘technical services hourly rate’ may apply to recover additional review effort expended by Hunter Water.

Core, high-volume charges have been generally reduced in real terms compared to the current charges, while some charges for low volume services have been increased to more accurately reflect the time and effort required to provide these services.

In previous pricing submissions, charges have been based on services provided for an average application. In this submission Hunter Water is proposing improved service descriptions to remove ambiguities, define scope and, where appropriate, seek additional fees from a customer where the extent of work exceeds the scope of the basic service.

For example, the services offered by Hunter Water in reviewing developers’ designs or reports are provided in two stages – preliminary and final report, or, concept and detail design. Poor quality submissions trigger substantial additional review effort by Hunter Water. This results in additional reviews being undertaken and further costs being incurred. There is currently no financial incentive for initial submissions of adequate quality documents. In order to create appropriate incentives and to apply cost reflective charges, the application of an additional fixed re-assessment fee or hourly rates for additional technical assessment is proposed. The application of these charges would be limited to those services that are cost sensitive to the variable quality of consultant reports or designs.

During the coming price period, Hunter Water also intends to investigate new opportunities to meet peak work loads and/or to meet special customer needs that may exceed the Corporation’s in-house service capability at any point in time. This peak capacity would be addressed by partnering with private industry for services such as review of reticulation designs, water and sewer pump station designs, and hydraulic design assessments.

It is envisaged that customers would enter a separate commercial agreement with Hunter Water to access the services of Hunter Water’s specialist consultant panels, at the customer’s discretion.

The proposed changes and improvements are detailed in Tables 14.4 and14.5.

In summary, taking into account the new charges and the changes in existing charges, there is a net decrease of approximately $88,000 in predicted revenue from miscellaneous charges associated with development services. Total income from the commercial development miscellaneous charges for 2009/10 is projected to be around $2.4 million of which approximately $62,000 is from the new charges (see Appendix K for details).


Table 14.4 New commercial development charges


56. Environmental Assessment Report Review

Land development activity often triggers the need for environmental assessment with respect to the provision of water, sewer or recycled water services (dual reticulation), particularly for more substantial infrastructure like major sewer carrier mains, pump stations, reservoirs, or where construction may, by necessity, take place remote from the development site covered by local council development consent. Where environmental assessment is required, Hunter Water has an obligation to ensure that the assessment has been undertaken with due regard to applicable legislative and regulatory framework. In these situations, Hunter Water requires developers to provide an environmental assessment report detailing potential environmental impacts, mitigation measures and any other special features, with sufficient detail to allow Hunter Water to make a determination under the Environmental Protection & Assessment Act. This new fee is proposed to recover the cost of specialist technical assessment in reviewing environmental reports submitted by developers where Hunter Water is the consent authority. The effort involved is the same as a Service No.55 “Servicing Strategy Review” and therefore it is proposed that the same level charge be applied.

44b). Major Works Design Re-Assessment

The ‘Major Works Design Re-assessment’ fee shall apply to each instance that a sub-standard Major Works Design is submitted, necessitating resubmission of the design by the developer’s consultant and Hunter Water applying an additional round of design assessment. The fee includes rechecking the design against design review comments initially offered and checking that the design is sufficiently complete to allow progression to the next round of design preparation and documentation.

58. Reservoir Inspection and WAE fee

Hunter Water’s inspection fees and charges for major assets are limited to relatively more common infrastructure like water and sewer pump stations. Occasionally developers are required to construct reservoirs as part of the necessary infrastructure to service development. Reservoirs require a different inspection regime over a long construction period. As reservoirs are infrequently constructed by developers, rather than establishing a fixed fee it is proposed that a quote is provided to the developer upon application so that the project specific circumstances are reflected in the pricing.

57. Recycled Water Inspection and WAE fee

Hunter Water has introduced Dual Reticulation to select new residential release areas. In these instances, the developer is required to design and construct both the drinking water system and the


Service No Function Description supply of recycled water to each residential household (hence the term ‘Dual Reticulation’). The Dual Reticulation assets are in addition to the water and sewer services provided to traditional residential development and trigger the need for Hunter Water to inspect the construction of this category of pressure pipeline. In addition, the service connections require more rigorous inspection and testing for health reasons, to ensure that no cross connections to the drinking water system are made.

Table 14.5 Repackaged commercial development charges


34 Hydraulic Assessment Application (Less than 80mm service)

56 Hydraulics Assessment Application (80mm service or above)

Existing service charges 34 and 56 have been further refined and repackaged into a single service description “Hydraulic Design Assessment” (charge 34) with three pricing tiers. Rather than relying on the proposed service size (less than 80mm, or, greater than 80mm) as a guide to the complexity of the application it is proposed to have three (3) price tiers relating to the number of design drawings to be assessed, namely:-

Price Tier

Description Proportion of Applications

1 Base fee - up to 10 design drawings

83%

2 Base fee plus $23 per additional drawing over 10 and up to 50 drawings

12%

3 Over 50 drawings by Quotation. I.e. 1-10 $238 + 11-50 $920 + >50 quote

5%

The new price structure more accurately reflects the assessment effort involved and minimises cross subsidy issues present in the current fee structure. For the majority of customers the Hydraulic Design Assessment fee will be reduced.

35 Pump Station Design Assessment

An additional category is proposed for recycled water pump stations. This would be charged at the


Service No Function Description same rate as water pump stations as similar tasks are performed.

45 Connect to Existing Water System – Major Works

This fee has been divided into two charges to reflect the method of shutdown. That is, shutdown by valves that must be opened and closed by Hunter Water or a non-valve method that can be done by the developer (or their contractor). The two charges are more cost reflective and minimize the cost to customers where possible.

50 Major Works Inspection & WAE Fee

An additional category is proposed for recycled water pump stations. This would be charged at the same rate as water pump stations as similar tasks are performed.

Source: HWC

14.4 Activity levels and incidence In summary, Hunter Water is proposing 77 charges for ancillary and miscellaneous services. This represents an increase of 21 charges from the existing 56 charges in the current price determination. The additional charges reflect the expansion of services to include recycled water, as well as new charges that will reduce cross subsidies and recoup service costs directly from the limited number of beneficiaries.

The revenue impact due to the increase in the number of miscellaneous charges is about $616,000 ($08/09) or 15 per cent of total revenue from miscellaneous charges. The proposed and restructured charges are relatively low and affect only a limited number of customers.

Commercial development related charges have been restructured to minimise the cross-subsidies between the average applicant and those that require additional services. As a result, charges for the average applicant will reduce in many cases and this is demonstrated by the fact that just under half of the proposed charges are lower than current charges.

Since the previous price submission, development activity levels have remained relatively static. The charges estimated in the proposal are based on activity levels decreasing slightly over the price path period by four per cent. This basis is supported by a comparison of the number of development applications received prior to, and since, the last submission - 1,809 development applications being received per year since the last price review and 1,886 per year prior to the last submission.

14.5 Rounding of charges on indexation Hunter Water still has a number of customers who prefer to pay Hunter Water directly and often use cash. For this reason, Hunter Water has adopted policies related to rounding bill totals and charges.

In 2008, IPART questioned Hunter Water’s rounding of charges and its relationship with pricing compliance. Hunter Water is committed to complying with IPART’s requirements and therefore considers that rounding of charges should be addressed as part of this price review. Hunter Water’s policy related to rounding of ancillary and miscellaneous charges is detailed below.


Miscellaneous charges are usually one-off charges and particular customers only incur one of these at any point in time. Therefore, if paid in cash, the charge would need to be rounded at the time of payment.

In order to avoid rounding payments at the time that a cash payment is made, Hunter Water has adopted the policy of rounding charges at each annual indexation. This simplifies the handling of cash transactions and means all customers are charged the same charge for the same service regardless of payment method – cash, eftpos, cheque, credit card etc. If this was not done, customers paying by cheque or electronic means would have to be charged the exact amount while persons paying in cash would have their payment rounded in accordance with the 1991 Prices Surveillance Authority guidelines on rounding issued when copper coins were withdrawn from circulation.

Hunter Water believes a sensible and pragmatic approach to the annual indexation of miscellaneous charges and the need to cater for rounding of cash transactions is as follows:

• If charges are submitted by the water agency and set by IPART rounded to the nearest whole dollar, charges are indexed each year to the nearest whole dollar.

• In this submission Hunter Water has rounded all charges greater than or equal to $100 ($08/09) to the nearest whole dollar (see Appendices I, J and K).

• There is anecdotal evidence that developers, in particular, found the past practice of indexing high-value charges to the cent amusing and annoying. Counter staff were questioned as to the basis for setting, for example, a design assessment charge at $2521.14. Contact centre and counter staff were often asked what exactly the fourteen cents covered. Whole dollar charges have eliminated this type of frivolous interchange at the counter and with contact centre operators. Anecdotal evidence suggests that there is a customer expectation that charges, especially the high-value ones, should be rounded to the dollar.

• If charges are submitted by the water agency and set by IPART rounded to the nearest five cents, charges are indexed each year to the nearest five cents.

• In this submission, Hunter Water has rounded all charges less than $100 ($08/09) to the nearest five cents (see Appendices I, J and K).

These rules mean all customers are charged the same charge for the same service regardless of payment method.

Rounding of indexed charges using the above rules means that, in some years, the actual charge may be slightly above or below the charge indexed to the nearest cent but over a four-year price period, the effect averages out. IPART’s indexation method now references a single base year for each determination so there is no year-to-year compounding effect of rounding in this way.59

59 Refer to indexation process in section 2 of Schedule 6 of IPART, 2005.

Chapter 15 Glossary 149

15 Glossary

AIR Annual Information Return required by IPART to assist in monitoring the performance of water agencies and their compliance with IPART’s determinations

Area of Operations As specified in Section 16 of the Hunter Water Act 1991, a description of which is included in Schedule 1 of Hunter Water’s 2007 – 2012 Operating Licence

BASIX Building Sustainability Index. BASIX is a NSW Government initiative to ensure new and renovated (from 1 July 2006) homes are designed and built to use less potable water and produce fewer greenhouse gas emissions. The water use requirements are determined by the climate of the dwelling's location, not the type of dwelling. The target ranges from 40% to 0% across NSW

BOD Biochemical oxygen demand is an indirect measure of the organic matter present in an effluent.

The Corporation Hunter Water Corporation CPI Consumer Price Index, as defined in section 13 of the 2000 Developer

Charges Determination, means the All Groups index number for the weighted average of eight capital cities as published by the Australian Bureau of Statistics

DECC NSW Department of Environment and Climate Change Demand management

Strategies to reduce water consumption by residential, commercial and industrial sectors

Developer charges Developer charges are paid by developers/new entrants at or before the time of development/connection and are levied for the provision, or upgrading, of water supply and sewerage infrastructure required to service new developments

DSP Development servicing plan as defined by IPART Determination No 9 of 2000 is a document that contains information used to calculate developer charges for developments in a defined DSP area.

Discounted cash flow

An investment analysis tool that takes account of the time in the future when specific expenditures and/or receipts occur and uses discount rates to calculate a single present value for total expenditures and/or receipts over a designated investment period.

Dual reticulation Term used interchangeably with reticulated recycled water scheme DWE NSW Department of Water and Energy Environmental Impact

Any change to the environment, whether adverse or beneficial, wholly or partially resulting from an organization’s activities, products and services

Environmental Management Plan (EMP)

The EMP sets out Hunter Water’s environmental improvement strategies and objectives and details targets and timeframes for environmental activities to be undertaken over the term of the plan. Preparation of the plan is a requirement of the Corporation’s operating licence


FAR Fixed Asset Register Filtration A process for removing particles from a solution by passing it through a

porous structure or medium, such as a screen, membrane, sand or gravel FTE Full-time equivalent. A measure that takes account of an organisation’s

composition of full- and part-time employees by treating part-time employees as a proportion of a full-time employee.

GL Gigalitre, measure of volume equal to a billion litres Gosford/Wyong Councils’ Water Authority

(GWCWA). A joint water authority that manages the water supply system that supplies water to the Gosford City and Wyong Shire local government areas

Greenfield site/development

Development on a previously undeveloped site, for example an urban subdivision or industrial development on rezoned rural land

Greenhouse gas emissions

Gases, such as carbon dioxide and methane and other forms of air pollutants, resulting from burning of fossil fuels such as coal, natural gas or oil, which contribute to the warming of the earth’s atmosphere

H250 Also named the Integrated Water Resource Plan (IWRP), the H250 is Hunter Water’s blueprint for managing demand and supply over the next decade by balancing available resources in a sustainable manner. It treats both demand management and supply development options equally so that optimal sequencing of demand and supply options is identified. Preparation of the H250 is a requirement of the Corporation’s operating licence and the current H250 will be reviewed in 2007

Inland wastewater treatment plants

Hunter Water’s wastewater treatment plants that do not discharge to the ocean but rather to rivers and creeks

IPART Independent Pricing and Regulatory Tribunal of NSW, the independent body that oversees regulation in the water, gas, electricity and public transport industries in NSW

IPART Act or IPART Act,1992

Independent Pricing and Regulatory Tribunal Act, 1992 (NSW)

kL Kilolitre, measure of volume equal to one thousand litres ML Megalitre, measure of volume equal to one million litres NFR Non-filterable residue is a measure of suspended particles in an effluent. It

is sometimes also referred to as “suspended solids”. NPV Net present value – the difference between the present value of cash

inflows and the present value of cash outflows. OH&S Occupational health and safety, protection of the health, safety and welfare

of employees, contractors and visitors who are at, or may be affected by, a worksite

Operating Licence A licence issued under the Hunter Water Act 1991 defining many of Hunter Water’s performance standards

PAS Payment Assistance Scheme operated by Hunter Water. This scheme provides financial assistance for paying water and sewer bills. Eligibility for assistance is determined by local welfare agencies

Potable Fit or suitable for drinking PSP Priority Sewerage Program. This is a NSW Government program that

funds the provision of sewer services to existing areas that do not have sewer services. Priority for funding is based on environmental and health criteria

Rainwater tank On-site storages to collect rainwater for beneficial use Receiving water A stream, river, pond, lake or ocean that receives stormwater or

wastewater discharges


Recycled water Highly treated wastewater that can be used in industrial processes, to irrigate agriculture, urban parks and landscapes, and in the home for flushing toilets, car washing and watering gardens. It is not used for drinking or personal use

RAB or Regulatory Asset Base

The value of Hunter Water’s assets used to provide regulated services, determined by IPART and used in estimating the rate of return on investment as an input to assessing Hunter Water’s annual revenue requirement

Reticulated recycled water scheme

Refers to schemes where the water agency provides recycled water to a large number of customers using a distribution system similar to that used for reticulating potable water. These schemes are sometimes called “dual reticulation” schemes because customers can access both reticulated potable water and recycled water from separate pipe networks. They are also called “third pipe” schemes referring to the three pipe networks servicing customers – potable water, recycled water and wastewater service networks

Sewage Term used interchangeably with wastewater. The wastewater from homes, offices, shops, factories and other premises discharged to the sewer. About 99% of sewage is water

Sewerage overflow

Any liquid that escapes from the sewerage system, as well as partially treated sewerage that is discharged from a sewerage (wastewater) treatment plant

Sewerage system The network of pipes, pumping stations and treatment plants used to collect, transport, treat sewage (wastewater) for disposal or recycling

SIR Special Information Return required by IPART in a price review year to assist in determining prices

Source(s) Sources are raw water sources such as dams, river extraction points, groundwater bores, desalination plants or other sources such as stormwater harvesting arrangements, recycling etc.

SPS Sewer pumping station Stormwater Rainwater that runs off the land, frequently carrying various forms of

pollution, such as litter and detritus, animal droppings and dissolved chemicals. This untreated water is dissolved in stormwater channels and discharged directly into creeks, rivers, the harbour and the ocean

Sustainable water supply

Achieving a long-term balance between the ability of the system to capture and store supplies of water and the demand of current and future users, including the environment

The Tribunal Independent Pricing and Regulatory Tribunal of NSW (IPART) Trade waste Industrial or commercial wastewater that contains significant quantities of

potential contaminants, commonly controlled by trade waste agreements limiting trade waste inputs to the sewerage system at the source

WACC Weighted average cost of capital Wastewater Term used interchangeably with sewage Wastewater system

Term used interchangeably with sewerage system

Water efficiency Preventing and reducing wasteful, uneconomical, impractical or unreasonable use of water resources

Water demand Total water use requirements for drinking, agriculture, industry, recreation and gardening, seasonal and highly influenced by the weather

Water supply network

System of water sources, including dams, bores, treatment plants, pump stations and distribution pipes, used to supply drinking water on demand to customers


WELS Water Efficiency Labelling Scheme – a star rating scheme for the efficiency of water using appliances and fixtures

WICA Water Industry Competition Act, 2006 (NSW) WWTW Wastewater treatment works. Term used interchangeably with wastewater

treatment plant

Chapter 16 References 153

16 References

BIS Shrapnel, 2008, Construction Cost Outlook Report, Report for Hunter Water Corporation, June 2008, Sydney

Department of Climate Change (Australia), 2008, Green Paper on Carbon Pollution Reduction Scheme, July, Canberra

Department of Environment and Climate Change (NSW), 2008, Submission to IPART S08/11763, Letter from L Corbyn to J Cox, on www.ipart.nsw.gov.au 28 October 2008

Department of Lands (NSW), 2008, Representative Land Values, Tables 2, 5 and 6, available at http://www.lands.nsw.gov.au/valuation/nsw_land_values, last updated 7 July 2008

Department of Planning (NSW), 2006, Lower Hunter Regional Strategy, October, Sydney

Department of Water and Energy (NSW), 2008, Draft Water Sharing Plan: Hunter unregulated and alluvial water sources, Background Document, March, Sydney

GHD, 2006, Review of System Performance Standards for Hunter Water and Sydney Water, November, Melbourne

Hunter Water Act, 1991 (NSW)

Hunter Water Corporation, 2007(a), 2006-07 Annual Report, Newcastle

Hunter Water Corporation, 2007(b), Why Tillegra Now?, August, Newcastle

Hunter Water Corporation, 2008(a), Draft H250 Plan: Securing our Water Future,

April, Newcastle

Hunter Water Corporation, 2008(b), Follow Up Submission: Response to IPART’s Draft Developer Charges Determination, August, Newcastle

Hurlimann, A., McKay, J. and Geursen, G., 2005, Pricing of drinking water vs recycled water: fairness and satisfaction, Water, Journal of the Australian Water Association, March, p50-66

Independent Pricing and Regulatory Tribunal of NSW (IPART), 2000, Determination under the Independent Pricing and Regulatory Tribunal Act, 1992: Developer Charges, Determination No. 9, Sydney

Independent Pricing and Regulatory Tribunal of NSW (IPART), 2003, Hunter Water Corporation: Prices of Water Supply, Wastewater and Stormwater Services, Determination No. 3, Sydney

Independent Pricing and Regulatory Tribunal of NSW (IPART), 2005, Sydney Water Corporation, Hunter Water Corporation, Sydney Catchment Authority: Prices of

Chapter 16 References 154

Water Supply, Wastewater and Stormwater Services: Final Report, Report Nos 5, 6 and 7, Sydney

Independent Pricing and Regulatory Tribunal (NSW), 2006, Pricing Arrangements for recycled water and sewer mining, Sydney Water Corporation, Hunter Water Corporation, Gosford City Council and Wyong Shire Council, Water Determinations and Report, September, Sydney

Independent Pricing and Regulatory Tribunal (NSW), 2008 (a), Review of prices for water, sewerage, stormwater and recycled water services for Hunter Water Corporation from 1 July 2009, Water – Issues Paper, July, Sydney

Independent Pricing and Regulatory Tribunal (NSW), 2008 (b), Review of prices for Sydney Water Corporation’s water, sewerage, stormwater and other services from 1 July 2008, Water - Final Report No 1, June, Sydney

Independent Pricing and Regulatory Tribunal (NSW), 2008 (c), Developer Charges: Draft Determination No.3, July, Sydney

Ipsos, 2007, 2007 Domestic Customer Perceptions Survey: Final Report, Melbourne

Maitland Mercury, 5 September 2008, Domain insert, p17

National Greenhouse and Energy Reporting Act, 2007 (Commonwealth)

National Water Commission and Water Services Association of Australia, 2008, National Performance Report, 2006-2007, urban water utilities, Water Services Association of Australia, Melbourne

NERA Economic Consulting, 2008, Assessment of IPART’s estimate of Long Run Marginal Cost for Sydney Water: A report for Alinta LGA Ltd, April, Sydney. Included with Alinta LGA’s submission to IPART on the Draft 20008 Determination of Sydney Water’s prices

New South Wales Government Gazette, No. 66, 6 June 2008

New South Wales Government, 2007, Hunter Water Corporation Operating Licence 2007-2012, Hunter Water Corporation, Newcastle

Premier of New South Wales, News Release, $342 Million for New Dam and Hunter/ Central Coast Water Grid, 13 November 2006

Productivity Commission, 2002, Trends in Australian Infrastructure Prices: 1990-91 to 2000-01, May, Melbourne

State-owned Corporations Act, 1989 (NSW) Water Industry Competition Act, 2006 (NSW)

Water Services Association of Australia, 2007, The WSAA Report Card for 2006/2007. Performance of the Australian Water Industry and projections for the future, Melbourne

Water Services Association of Australia, 2008(a), The WSAA Report Card for 2007/2008. Performance of the Australian Water Industry and projections for the future, Melbourne

Water Services Association of Australia, 2008(b), National Wastewater Source Management Guideline, Melbourne

Water Services Association of Australia, 2008(c), An Assessment of the Skills Shortage in the Urban Water Industry, WSAA Occasional Paper No.21, March

Appendix A Capital Cost Escalation A.1

APPENDIX A SALES AND REVENUE

IPART has sought information on how the actual demand and revenue projections during the current determination period compare to the projected sales and revenue used for setting prices in 2005. This information is provided in Table A.1 below

Table A.1 Sales and Revenue

2005/06 2006/07 2007/08 2008/09 a

Sales Forecast ML

HWC Actual/Projected b 60,587 60,855 57,092 60,766

IPART Determination c 62,697 62,752 63,128 63,646

Difference (2,110) (1,897) (6,036) (2,880)

Revenue Forecast $m

HWC Actual/Projected ($ nominal) a 145 f 158 163 g 181

IPART Determination ($nominal) d e 160 166 176 187

Difference (15) (8) (13) (6)

Source: HWCa. Actual figures for 05/06, 06/07 and 07/08. Budgeted figure for 08/09b. HWC (2004) Price Submission September 2004, p15, Table 3.1

Excludes transfers to Gosford and Wyongc. IPART (2005) Prices for Water Supply, Wastewater and Stormwater, Final Report, p. 30, Table 4.3d. IPART (2005) Prices for Water Supply, Wastewater and Stormwater, Final Report, p. 37, Table 5.2e. Determination notional revenue requirement adjusted from $04/05 terms to nominal based on CPI All Groups,

Weighted Average of Eight Capital Citiesf. Price increases occurred from Cycle 2 onwards resulting in less revenue than the IPART expected notional

revenuef. Water sales depressed due to above average wet year

Appendix B Capital Cost Escalation B.1

APPENDIX B CAPITAL COST ESCALATION

At the time of the last price review water agencies argued that the costs of capital projects were increasing at a rate faster than the CPI. The Tribunal’s decision was not to make any special allowance for the increase in construction costs on the basis that such a relationship was not likely to be a long term trend.

To investigate the relationship between the CPI and the construction cost escalation over the current and proposed price period path HWC commissioned BIS Shrapnel.

Outcomes to Date

The measure used to evaluate construction cost escalation is the engineering construction cost implicit price deflator which is derived by calculating the differential between current price (nominal) and constant price (real) engineering construction data sourced from the Australian Bureau of Statistics (ABS).The rate of change of this deflator has continued to rise faster that the CPI over the current price path period1. The increase in the deflator in 05/06 was 5.7% compared to 3.2% for the CPI (see Table B.1 and Figure B.1)

Table B.1 CPI and Engineering Construction Cost IDP 2003/04 to 2007/08 (%annual change)

Annual % Change 2003/04 2004/05 2005/06 2006/07 2007/08

Consumer Price Index 2.4 2.4 3.2 2.9 3.2

Engineering Const’n Cost IDP 3.1 5.3 5.7 10.8 4.5

Sources: ABS and BIS Shrapnel

This relationship has continued over subsequent years with a substantial differential in 2006/07 between the two indicators. The compound annual growth rate of the ECC deflator over the 2002/03 to 2007/08 is 5.8%. The outcomes of the engineering construction cost index are consistent with the costs experienced by Hunter Water.

Given the substantial margin by which engineering construction cost indexes have exceeded CPI since 2001/02 Hunter water believes it is an inappropriate index to adjust the capital expenditure projection to nominal terms. We maintain that expenditure on construction activity should only be escalated to reflect changes in construction costs.

Construction cost pressures to remain acute

Hunter Water believes that the construction sector remains in a high cost growth environment, and expect that this situation to persist over the next five years to June 2013. Our reasons for this view are:

Construction activity is forecast to continue to grow robustly through the next five years, placing strong demand pressures on constrained resources including skilled labour and locally-sourced materials. Our view is based on further increases in mining and infrastructure construction, as well as another strong upswing in residential construction following weak or negative growth over the past three years.

1 BIS Shrapnel (2008), Construction Cost Outlook Report – Report for Hunter Water Corporation, June 2008


Figure B.1 CPI and Engineering Construction Cost IDP 2003/04 to 2007/08 (% change)

2.4% 2.4%

3.2%2.9%

3.2%3.1%

5.3%5.7%

10.8%

4.5%

0%

2%

4%

6%

8%

10%

12%

03/04 04/05 05/06 06/07 07/08

% C

han

ge

fro

m P

rev

iou

s Y

ear

Change in CPI Change in ECC IPD

Sources: ABS and BIS Shrapnel

Advice received indicates that construction activity is set to rise a further 19 per cent over the next five years at the national level, while the possibility of higher than expected interest rate rises may defer the upswing in residential construction in the short term. Meanwhile, the mining and infrastructure construction forecasts are relatively insensitive to interest rates, being more driven by the global resources boom and the desire of governments to reverse many years of underinvestment in infrastructure.

Global prices for key inputs are also rising strongly. Most materials used forconstruction have prices that are driven by the strength of the domestic demand and supply cycles. However, key exceptions to this rule include prices for steel products, fuel and other oil-related products such as bitumen. Steel prices have risen strongly over the past year given very large increases in the prices of coking coal and iron ore which are used in its manufacture. In turn, coking coal and iron ore price increases are being driven by accelerating global demand for steel, particularly from China.

Meanwhile the combination of rising demand and tight supply is also driving oil prices to record levels, in turn affecting the prices for fuel and other oil products such as bitumen. In turn, higher fuel prices are also impacting on concrete prices, given the importance of fuel for its manufacture. Unlike steel prices (where we see a likely price correction in 2-3 years), we are not forecasting oil prices to retreat through the next five years in Australian dollar terms. This has implications for the outlook for fuel, bitumen and concrete prices.

Outlook for Hunter Water construction costs 2009/10 to 2012/13

Based on the analysis, Hunter Water proposes to use a capital cost escalation of 4.8% per year. This escalation would be applied to capital expenditure estimates defined in real price terms and compares to the current NSW Treasury’s annual CPI rate of change forecast of 2.5% per year


Hunter Water believes that this is the minimum acceptable rate of increase.

In concluding the argument for CPI indexation in 2005 the Tribunal recommended that is was appropriate,

“for water agencies in the face of rising costs to reassess the costs and benefits of all the capital projects they had planned. Where expected benefits no longer outweigh costs it would be appropriate for agencies to defer projects rather than participate in

the market and potentially contribute to further bidding up construction costs.”

As noted elsewhere in this chapter a substantial proportion of the capital expenditure over the proposed price path period is required to:

secure the water supply for the future of the Hunter region,

upgrade wastewater treatment plants to cater for growth and more stringent regulatory requirements,

extending networks to cater for growth, and

maintain levels of service to existing customers.

Hunter Water believes that faced with the drought security and environmental imperatives the works proposed are considered necessary and have been through a prioritisation process. As IPART is aware, the majority of investments are undertaken to achieve a service objectives as defined in the Operating Licence. This is done in a least cost manner rather than defining benefits and comparing them to costs. HWC does however, constantly re-evaluates the capital works program through re-prioritisation exercises.

Appendix C Output Measures C.1

APPENDIX C OUTPUT MEASURES PERFORMANCE

Hunter Water OutputsIPARTClassification

IPARTDetermination

(a) 2005/06Actual

2006/07Actual

2007/08Actual

2008/09Forecast

Total(b)

Variance(b) - (a)

Comments

Output Measures for Water Services

Length of critical trunk mains undergoing risk assessment

65km 55.4km 62km 52.4km 52.9km 222.7km 157.7km Achieved above target

Length of trunk mains for renewal/upgrade

13km Nil Nil 9.7km 4km 13.7km 0.7km On track to be achieved above target

Length of distribution mains for renewal/upgrade

55km 16.9km 14km 13.8km 14km 58.7km 3.7km On track to be achieved above target

Pump Stations constructed /upgraded to increase capacity for growth

Tallean Road Completed - - - Complete - Achieved

Cameron Park Design complete

Design complete

Design complete

Commence construction

Deferred Deferred Construction deferred -subject to developer timing requirements

Belmont HLS and Whitebridge

Tenders called Construction completed

- - Complete - Achieved

Cessnock - Strategy study completed

- - Strategy study completed

Not required

Strategy revised -upgrade not required

Wallsend Concept design commenced

Concept design

continuing

Detail design commenced

Design finalised and construction commenced

Construction commenced

On track On track with original program. Construction to commence 2008/09 and scheduled completion 2009/10



IPARTDetermination

(a) 2005/06Actual

2006/07Actual

2007/08Actual

2008/09Forecast

Total(b)

Variance(b) - (a)

Comments

Aberdare - Strategy study completed


Not required


Mt View Road - Strategy study completed


Deferred Strategy revised -Existing pump station to be utilised in short term. New station now expected beyond 2011/12

John St Telarah - Strategy study completed


Deferred Prioritisation of capital program - design anticipated to commence 2009/10 and construction 2011/12

Irrawang St Raymond Terrace

- Strategy study completed


Deferred Outcome from servicing strategy - upgrade expected beyond 2012/13

Minmi Strategy study completed

- - - Strategy study completed

Not required


New Reservoirs constructed for Growth

Commence Lookout Strategy study completed

- - - Strategy study completed

Not required

Outcome from Strategy -upgrade not required

Harpers Hill Finalising strategy study

Strategy study completed


Deferred Prioritisation of capital program – design scheduled to commence 2010/11

Substantially complete

Wyee - - - - Deferred Deferred HWC to contribute to upsizing of developer funded reservoir. Timing subject to developer’s program.



IPARTDetermination

(a) 2005/06Actual

2006/07Actual

2007/08Actual

2008/09Forecast

Total(b)

Variance(b) - (a)

Comments

Complete Cameron Park Concept design commenced

Finalising concept design

Detail design completed

- Detail design completed

Deferred Construction subject to developer timing requirements

Boat Harbour - Concept design

commenced




Deferred Construction scheduled completion for 2009/10.

North Wallarah Developer designs reviewed

- - - Developer continuing to keep HWC informed re

timing

Deferred Construction subject to developer timing. HWC to contribute to upsizing of developer funded Reservoir. Current scheduled construction 2009/10

Water Treatment Upgrades

Commence Grahamstown WTP upgrade



Revised strategy study commenced

Complete revised

strategy and commence

Concept design

Concept design commenced

Delayed Design and construction delayed - strategy study revised to include Tillegra Dam (announced Nov 06).

Anna Bay WTP Upgrade


Strategy study completed;

concept design

commenced

Concept design

commenced

Finalise concept and commence

detail design

On track - On track - design and scheduled construction on track with original specified timing

Lemon Tree Passage WTP upgrade


Strategy Study Completed

Concept design

commenced

Finalise concept and commence

detail design

On track - On track - design and scheduled construction on track with original specified timing



IPARTDetermination

(a) 2005/06Actual

2006/07Actual

2007/08Actual

2008/09Forecast

Total(b)

Variance(b) - (a)

Comments

Dungog PAC/KMnO4 Dosing Facility

Finalising strategy study

Concept design commenced

Concept /detail design continuing

Designs and construction substantially complete

On track to be completed

- On track

Output Measures for Wastewater Services

Length of critical sewers renewed / refurbished

32km 7.4km 1.7km 1.4km 1km 11.5km -20.5km Rehabilitation of approx 20 km of Cast Iron sewer mains delayed while trials are undertaken to evaluate appropriate technology for de-scaling and re-lining of the mains.

Length of non-critical sewers renewed / refurbished

23km 3.7km 11.7km 8.3km 8km 31.7km 8.7km On track to be achieved above target

Priority Sewer Program for Fern Bay, Kitchener and Lochinvar

550 ET Construction in progress

Kitchener and Lochinvar complete

Fern Baycomplete

- Kitchener, Lochinvar and

Fern Baycomplete

- Achieved

Priority Sewer Program for Millfield and Ellalong (substantial completion)

840 ET - Concept design

complete

Detail design complete


Substantial completion

- On track



IPARTDetermination

(a) 2005/06Actual

2006/07Actual

2007/08Actual

2008/09Forecast

Total(b)

Variance(b) - (a)

Comments

Lake Macquarie Construction in progress

Construction complete

- - Complete - AchievedMajor wastewater transport system upgrades (substantial completion)

Newcastle Design in progress - tenders for

HDD

Construction complete -

HDD

Tenders called for

remainder of scheme



- On Track - Construction scheduled completion for 2009/10.

Dudley -Charlestown

Stages 1/2 concept design

commenced

Detail design substantially

complete

Detail design finalised and

tenders called



- On Track - Construction Stage 1 and 2 scheduled completion for 2009/10; Commence Stage 3 design 2011/12

Cessnock Cessnock 1 WWPS

construction complete;

design commenced re

Nulkaba WWPS and Cessnock

sewer mains


complete

Tenders called and

construction commenced

Complete construction

Complete - Achieved

Cardiff - Commence design re

Cardiff WWPS upgrade

Concept and detail design

finalised

Tenders called and

construction commenced


- On track

Dora Creek Strategy Study Commenced

Stages 1/2 Design

commenced

Concept and Detail Design

finalised

Commence Construction


- On track

Beresfield -Morpeth

Detail Design in progress

Construction Commenced

Construction completed

- Complete - Achieved



IPARTDetermination

(a) 2005/06Actual

2006/07Actual

2007/08Actual

2008/09Forecast

Total(b)

Variance(b) - (a)

Comments

Upgrades to wastewater treatment plants

Commence Farley Commence upgrade strategy

Upgrade strategy

substantially complete

Concept design

commenced

Finalise concept design

Concept design complete

- On track - detail design scheduled to commence 2009/10

Substantially Complete

Dora Creek Concept design complete


complete

Detail designcomplete

Call tenders and

commence construction


- On track

Raymond Terrace



complete


Call tenders and



- On track

Boulder Bay Concept design commenced

Concept design

completed


Call tenders and



- On track

Edgeworth (inlet works)



complete

Call tenders and


Construction complete

Complete - Achieved

Branxton Upgrade strategy

completed

Concept design

commenced

Concept design

continuing

Finalise concept

design and commence

detail design


Delayed Significant delays within concept design phase to due to scope changes resulting from Lower Hunter Regional Strategy outcomes



IPARTDetermination

(a) 2005/06Actual

2006/07Actual

2007/08Actual

2008/09Forecast

Total(b)

Variance(b) - (a)

Comments

Cessnock Tertiary treatment plant commissioned;

construction commenced re

main plant

Construction of main plant

upgrade complete

- - Complete - Achieved

Complete Belmont Detail design complete


Construction progressing

Complete construction

Complete - Achieved

Output (or activity) Measure - Stormwater Services

Stormwater Drainage channel rehabilitations

Newcastle System

$18,200 $156,000 $210,000 $380,000 $764,200 - On track to achieve original estimates

Cessnock System

Nil Nil $154,000 $20,000 $174,000 - On track to achieve original estimates

Lake Macquarie Nil Nil $40,000 $180,000 $220,000 - On track to achieve original estimates

Output (or activity) Measure – Corporate

Replace customer meters (20mm)

34,000 19,152 6,058 11,197 13,500 49,907 15,907 On track to be achieved above target

Replace customer meters (> 20mm)

2,000 576 318 442 500 1,836 -164 Decrease in forecast demand for > 20 mm customer meter replacements required.

Information Communication Technology (ICT)

Complete MIMS platform change

FY06 Complete - - - Complete - Achieved

Complete SCADA upgrade

FY06 Complete - - - Complete - Achieved



IPARTDetermination

(a) 2005/06Actual

2006/07Actual

2007/08Actual

2008/09Forecast

Total(b)

Variance(b) - (a)

Comments

Establish remote disaster facility

FY06 Installation complete and

running as designed

- - - Complete Achieved

Appendix F Proposed Physical Output Measures F.1

APPENDIX F PROPOSED OUTPUT MEASURES

Output (or Activity) Measure HWC Proposed Deliverables a

Water Services

Length of critical trunkmains to undergo condition assessments b 160 km

Length of trunkmains for renewal/upgrade c 3.5 km

Length of distribution mains for renewal/upgrade d 46 km

Water pumping station upgrades 3 upgrades

West Cessnock, Heddon Greta, Telarah

New reservoirs constructed for growth 5 completed reservoirs

Windella, Wyee, Boat Harbour, Cameron Park, West Cessnock

Replace customer meters (20mm) 40,000

Replace customer meters (> 20mm) 2,000

Wastewater Services

Length of critical sewermains to undergo condition assessments e 120 km

Length of critical sewers renewed/refurbished f 4 km

Length of non-critical sewers renewed/refurbished g 32 km

Major wastewater treatment works upgrades 9 upgrades

Burwood Beach, Morpeth, Branxton, Boulder Bay, Raymond Terrace, Toronto, Shortland, Paxton, Dora Creek

Wastewater pumping station upgrades 30 upgrades

Reduce wet weather overflows 8 catchments

Newcastle, Windale/Gateshead, Dora Creek, Kurri Kurri, Raymond Terrace/Medowie, Dudley/Charlestown, Sandgate/Shortland, Maryland/Minmi

Priority sewerage program schemes 1 scheme - Millfield/Ellalong

Country towns sewer schemes 1 scheme – Clarence Town

Recycled Water

Recycled water schemes 4 schemes

Thornton North, Gillieston Heights, North Cooranbong, Kooragang Island

Stormwater Services

Renewal and rehabilitation of stormwater systems 3 systems

Newcastle, Cessnock, Lake Macquarie

Notes:a. Subject to outcomes of business case evaluations where appropriate.b. Length of critical watermain condition assessed using LPR.c. Length based on the replacements/rehabilitations or incident management initiatives selected and approved through the critical trunkmain risk assessment.d. Length based on the replacements selected and approved through the watermain replacement model

Appendix F Proposed Physical Output Measures F.2

e. Length of critical sewermain condition assessed using CCTV.f. Length based on the rehabilitations selected and approved through the critical sewermain risk assessment.g. Length based on the rehabilitations selected and approved through the sewermain rehabilitation model and the Sewer Overflow Strategy.

Appendix G WACC Parameters G.1

APPENDIX G WEIGHTED AVERAGE COST OF CAPITAL PARAMETERS

For the purposes of this submission, Hunter Water has used the WACC parameters and resultant mid-point WACC of 7.5% recently adopted by IPART in its June 2008 Final Determination for Sydney Water (tabled below). Hunter Water acknowledges that market based parameters including the risk free rate, inflation and debt margin will need to be updated at the time of Hunter Water’s Final Determination to reflect prevailing market conditions and potential changes in methodology to reflect current regulatory practice.

Lower Range Upper Range

Nominal Risk Free Rate 6.13% 6.13%

Inflation 3.60% 3.60%

Real Risk Free Rate 2.44% 2.44%

Market Risk Premium 5.5% 6.5%

Debt Margin 3.12% 3.69%

Debt to Total Assets 60% 60%

Gamma 50% 30%

Tax Rate 30% 30%

Equity Beta 0.8 1.0

Cost of Equity 10.5% 12.6%

Cost of Debt 9.3% 9.8%

WACC (real pre-tax) 6.7% 8.4%

Hunter Water has received advice from NSW Treasury expressing concern regarding the methodology adopted by IPART to determine the risk free rate and inflation. In the Sydney Water Final Determination, IPART increased the indexed bond rate by 20 basis points to compensate for bias in the indexed bond market due to severe shortages of supply.

NSW Treasury contends that:

The methodology adopted by IPART is inconsistent with current regulatory practice of using the 10 year nominal government bond rate as the nominal risk free rate and subtracting a forecast of the expected rate of inflation over that period to derive the real risk free rate of return.

The 20 basis point scarcity premium adopted by IPART was based on March 2007 analysis and did not reflect subsequent increases in the level of relative bias in indexed bonds (Appendix H outlines supporting Treasury analysis).

In the absence of indexed Government bonds with an exact 10 year maturity, it is appropriate to derive the risk free rate by extrapolating indexed bond yields with maturity dates closest to before and after the 10 year period. IPART based the real risk free rate solely on 20 August 2020 dated indexed bond yields, representing a 12.3 year rather than 10 year maturity term from the 17 April 2008 reference date.

Hunter Water proposes that IPART address these concerns as part of this review.

Appendix H NSW Treasury Advice to HWC on WACC Considerations H.1

APPENDIX H NSW TREASURY ANALYSIS

In its June 2008 Final Determination for Sydney Water, IPART justified the use of a 20 basis point scarcity premium based on evidence from NERA. NERA found that the margin for real corporate bonds became larger than the margin for nominal corporate bonds from the last quarter of 2004 and increased until it reached a value of approximately 20 basis points by March 2007.1

However, IPART’s Determination fails to acknowledge that the relative bias in indexed bonds may have continued to increase between March 2007 and the April 2008 reference date. There is strong evidence to suggest that this is the case

The following graph shows the relative movement in 2015 and 2019 dated nominal bonds between January 2006 and April 2008. It shows a strong correlation between 2015 and 2019 dated nominal bond yields, indicating minimal variation between medium term (2015) and longer term (2019) nominal interest rate expectations:

Nominal Government Bonds - %

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2015 Nominal Bonds 2019 Nominal Bonds

In comparison, the following graph shows an increasing spread between 2015 and 2020 dated indexed bond yields over the same period, particularly in the 12 month period preceding the Sydney Water Determination:

1 IPART, Review of prices for Sydney Water Corporation’s water, sewerage, stormwater and other services, June 2008, pg 161


Indexed Government Bonds - %

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2015 Indexed Bonds 2020 Indexed Bonds

Given the strong correlation between 2015 and 2020 nominal bonds, the increasing spread between 2015 and 2020 indexed bonds is indicative of either:

An increase in 2020 versus 2015 inflation expectations (derived by subtracting indexed bond yields from equivalent dated nominal bond yields); or

An increase in the relative bias of 2020 versus 2015 indexed bonds.

Given that both 2015 and 2020 dated bonds have a common projection period to 2015, the higher implied inflation forecast based on 2020 bonds would indicate that inflation expectations over the 2015 to 2020 period are significantly higher than for the period to 2015:

Period Nominal Bond Yield

Indexed Bond Yield

Implied Inflation

17 April 2008 to August 2015 (7 year) 6.17% 2.70% 3.38%

17 April 2008 to August 2020 (12 year) 6.20% 2.20% 3.91%

August 2015 to August 2020 (derived) 6.24% 1.50% 4.67%

Source: NSW TreasuryBased on TI405, TI406, TB119, TB122 and TB124 government bonds as at 17 April 2020

An inflation forecast of 4.67% for the period August 2015 to August 2020 is implausible given:

It is highly unusual for long term inflation forecasts (i.e. over a 7 year period versus 12 year period) to significantly vary. Given the RBA’s expectation for inflation to moderate over the next three years2, it is counter-intuitive that the 12 year inflation forecast be higher than the 7 year inflation forecast, given the higher relative impact of the current inflation ‘spike’ on the shorter 7 year forecast period.

2 RBA, Statement of Monetary Policy, 9 May 2008, p 68.


The resultant inflation forecasts are well outside the RBA’s inflation target band of 2.0% to 3.0% (implying a relative bias in both the 2015 and 2020 indexed bonds, albeit a significantly higher relative bias in 2020 indexed bonds).

0.0%

0.5%

1.0%

1.5%

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08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20

Implied Inflation - Based on 2015 nominal and indexed bonds

Reserve Bank Target Inflation Band

Implied Inflation - Based on 2020 nominal (extrapolated) and indexed bonds

A more plausible explanation for the increasing spread between 2015 and 2020 indexed bonds is that the level of relative bias of 2020 indexed bonds increased significantly in the period leading up to the Sydney Water Determination. The spread between 2015 and 2020 indexed bonds increased from 12 basis points on 1 March 2007 to 52 basis points on 17 April 2008, indicating that IPART’S 20 basis point adjustment to the real risk free rate (based on evidence to March 2007) may be significantly understated.

Note that the above analysis does not attempt to measure the overall level of bias in 2020 indexed bonds, but rather highlight the relative increase in the bias of 2020 versus 2015 indexed bonds over the 12 months preceding the Sydney Water Determination. Given that 2015 indexed bonds are also likely to contain an element of relative bias (as evidenced by implied 2015 inflation estimates of almost 3.4%), the overall level of bias in 2020 indexed bonds is likely to be significantly higher than the 52 basis point spread between 2015 and 2020 indexed bonds as at 17 April 2008.

Appendix I Cost base for individual miscellaneous charges I.1

Appendix I: Cost Base for Individual Miscellaneous Service Charges 1. Conveyancing Certificate

2. Property Sewerage Diagram

3. Service Location Diagram

4. Meter Reading - Special Reads and by Appointment

5a). Billing Record Search Statement

5b). Billing Record Search Statement for Multiple Properties

6. Building Over or Adjacent to Sewer Advice

7. Water Reconnection – after restriction

8a). Workshop Flow Rate Test of a Mechanical Water Meter

8b). Workshop Flow Rate and Strip Test of a Mechanical Water Meter


9b). Application for Recycled Water Disconnection

10. Application for Water Service Connection (up to and including 25mm)

11. Application for Water Service Connection (32 to 65mm)

12. Application for Water Service Connection (80mm or greater)

13. Application to Assess a Water Main Adjustment

14. Standpipe Hire Security Bond

15. Standpipe Hire – tri-annual and monthly fees

16. Standpipe Water Usage Fee

17. Backflow Prevention Device Application and Registration Fee

18a). Backflow Prevention Device Annual Administration Fee

18b). Backflow Device Test

19. Major Works Inspection Fee

20. Statement of Available Pressure and Flow

21. Application to Connect / Disconnect Sewer or for a Special Internal Inspection Permit

22. Application to Connect / Disconnect Water and Sewer Services (combined

application)

23. Irregular and Dishonoured Payments

24. Request for Separate Metering of Units


25. Unauthorised Connections

26. Building Plan Stamping

27. Determining Requirements for Building Over / Adjacent to Hunter Water Sewer or

Easement

28a). Application to Hire a Metered Standpipe

28b). Breach of Standpipe Hire Conditions

29. Meter Affixtures / Handling Fee

30. Inspection of Non-Compliant Meters

31. Standard Plumbing Inspections

32. Connecting to or Building Over / Adjacent to a Stormwater Channel for a Single

Residence

33. Stormwater Channel Connection

34. Hydraulic Design Assessment

35. Pump Station Design Assessment

36. Application to Assess Sewer Main Adjustment

37. Indicative Developer Charge Application

38. Revision of Development Assessment Requirements

39. Bond Application

40. Bond Variation

41. Development Assessment Application (Section 50)

42. Application for Water / Sewer Main Extensions

43. Assessment of Minor Works

44a). Major Works Design Review and Contract Preparation

44b). Major Works Design Re-Assessment

45a). Connect to Existing Water System - Major Works (valve shutdown)

45b). Connect to Existing Water System - Major Works (non-valve shutdown)

46a). Insertion or Removal of Tee and Valve (valve shutdown and charge up)

46b). Insertion or Removal of Tee and Valve (non-valve shutdown and charge up)

47. Application for Additional Sewer Connection Point

48. Tee and Valve Connection

49. Minor Works Inspection Fee

50. Major Works Inspection and WAE Fee


51. Application to Assess Encroachment on Hunter Water Land, Easement Right or

Assets

52. Technical Services Hourly Rate

53. Remote Application Fee

54. Preliminary Servicing Advice

55. Servicing Strategy Review

56. Environmental Assessment Report Review 57. Recycled Water Inspection and WAE Fee

58. Reservoir Construction and WAE Fee

59a). Inspection of a Water Cart Tanker

59b). Reinspection of a Water Cart Tanker due to Non-Compliance

60. Inaccessible Meter – Reading Agreement

61. Inaccessible Meter – Imputed Charge for Breach of Meter Reading Agreement

62. Damaged Meter Replacement

63. Affix a Separate Meter to a Unit

64. Recycled Water Meter Affix Fee

65. Plumbing Non-Compliance Follow Up Inspections

66. Application for Recycled Water Service Connection - Domestic


1a). Conveyancing Certificate – Over the counter CURRENT CHARGE = $20.90 Function Overview: Over the counter statement of outstanding rates and charges at a specific date which is issued to solicitors, conveyancing companies and individuals as a requirement for buying and selling property.

Process

Open mail and stamp cheques includes records processing, remittances etc

Identify property

Computer entry (applicant details, queue procedure)

Banking procedures

Post printing procedures (collection, checking)

Mailing procedures (address envelopes, insert certificate)

Follow up telephone call to check balance on date of settlement

Average time for function 25 minutes Calculations and Proposed Charge = Hunter Water costs $29.10

Australia Post costs - A4 envelope $1.00

PROPOSED CHARGE = $30.10


1b). Conveyancing Certificate – Electronic CURRENT CHARGE = $8.20 Function Overview: Outstanding rates and charges at a specific date. Issued to solicitors, conveyancing companies and individuals as a requirement for buying and selling property. This fee covers the LPI Brokers fee plus the transaction charge.

Process

Property and vendor details are supplied electronically by solicitors, conveyancing companies or individuals to a Broker nominated by Hunter Water

Details are electronically forwarded to Hunter Water

The appropriate Hunter Water customer account for the details provided is automatically identified, and the statement of rates and charges is electronically complied and sent to the broker

Investigation of exceptions where electronic advice cannot be provided and is handled manually

Free electronic update of charges on the date of settlement

Property and vendor details are supplied electronically by solicitors, conveyancing companies or individuals to a Broker nominated by Hunter Water

Details are electronically forwarded to Hunter Water

The appropriate Hunter Water customer account for the details provided is automatically identified, and the statement of rates and charges is electronically complied and sent to the broker



2. Property Sewerage Diagram (up to A4) CURRENT CHARGE = $15.10 Function Overview: Where available, issue a copy of a diagram showing the location of the house-service line, building and sewer for a property. Process

Identify property on HWC mapping system

Print plan

Raise relevant fee against customer account and receipt payment

Fax/mail copy of plan when required


Australia Post costs- A4 document $1.00



3a). Service Location Diagram – Over the counter CURRENT CHARGE = $15.10 Function Overview: Over the counter plan of Hunter Water’s services and connection points in relation to a property’s boundaries or a statement that no sewer main is available. Process

Identify property on mapping system Print out plan

Raise adjustment and manage payment in CIS

Provide receipt to customer

Mailing procedures (address envelopes, insert certificate)


Australia Post costs - A4 size envelope $1.00



3b). Service Location Diagram - Electronic CURRENT CHARGE = $8.75 Function Overview: Broker or agent lodges an application via the Land Title Office interface and extracts property details, produces an electronic plan of Hunter Water’s services and connection points in relation to a property’s boundaries or a statement that no sewer main is available. This fee covers the Land and Property Information (LPI) Brokers fee plus the transaction charge. Process

Land parcel details are supplied electronically by solicitors, conveyancing companies or individuals to a broker nominated by Hunter Water.

The details are electronically forwarded to Hunter Water.

The appropriate land parcel for the details provided is automatically identified, compiled and sent electronically to the broker.

Investigation of exceptions where electronic advice cannot be provided and is handled manually.

Provide large diagrams – locate, print, package and post. Calculations and Proposed Charge = Hunter Water costs $5.50

LPI Broker’s Charge $8.75



4. Meter Reading - Special Reads and by Appointment (previously Special Meter Reading Statement)

CURRENT CHARGE = MODIFIED Function Overview: Meter Reader required to attend customers property for the purpose of obtaining a special reading outside of the existing meter read schedule (inside business hours) or alternatively by appointment with the customer after business hours. This requirement could be for the purpose of dispute investigation, finalisation of account under property sale, inaccessible meter etc. If the meter is inaccessible, the customer’s obligations and Hunter Water’s rights regarding access to the water meter are outlined in Section 10.4 of the Customer Contract. . Process

Arrange appointment with Customer / occupant

Log Field Activity requesting Contractor site visit

Action Field Activity to do and enter meter reading

Average time for function 10 minutes Calculation and Proposed Charge

During business hours: Hunter Water costs Contractor Costs to read meter during contract business hours PROPOSED CHARGE

$12.90 $10.47 $23.35

Outside business hours:

Hunter Water costs Contractor Costs to read meter outside contract business hours PROPOSED CHARGE

$12.90 $30.00 $42.90


5a). Billing Record Search Statement – up to and including 5 years

CURRENT CHARGE = $53.40 Function Overview: This charge is applied when customers request a search of Hunter Water’s archived financial reports which provide account details for up to 5 years. Account details for the current and previous financial year are free of charge. This charge is applied for each property that the historical information has been requested. Process

Receipt application

Identify property

Find historical records and photocopy appropriate records

Type summarised reply

Mail

Average time for function 50 minutes

Calculations and Proposed Charge = Hunter Water costs $60.72

Australia Post costs - A4 size document $1.00



5b). Billing Record Search Statement for Multiple Properties NEW CHARGE Function Overview: This fee is similar to the Billing Record Search Statement (Charge 5) but will be applied for requests relating to owners of multiple properties (such as Council, Dept Education etc). At s owners of multiple properties undertake reviews relating to water consumption to determine areas of potential water efficiency gains. Often property owners do not keep their own billing records and request Hunter Water to prepare extensive information regarding the consumption and expenditure at each property. This charge is designed to recoup the staff costs in servicing this type of customer request. It is proposed the fee be an hourly charge and that the customer be informed of the charge prior to us proceeding with their request. It is considered this is a fair and reasonable approach to charging for these requests rather than imposing the Billing Record Search Statement (Charge 5) for each property. PROPOSED CHARGE = $77.50/hour


6. Building Over or Adjacent to Sewer Advice CURRENT CHARGE = $25.50 Function Overview: Attaching conditional requirements, Statement of Approval Status for Existing Building Over or Adjacent to Sewer.

Process

Receive application, identify property on customer services database and provide receipt for payment to customer/or agent

Search for any relevant information on TRIM

Prepare a letter and attach a copy of existing conditions or a letter advising there was no such previous application.

Mail letter to customer


Calculations and Proposed Charge Hunter Water costs $76.20 Australia Post costs - A4 size postage $1.00 PROPOSED CHARGE =

$77.20


7. Water Reconnection – after restriction CURRENT CHARGE = $57.85 Function Overview: a) During Business Hours Restoration of the water supply during business hours to a property restricted for non-payment of accounts when payment has been received, during normal business hours (8am to 3pm). Process

Customer advises Customer Service staff of payment or pay plan is emailed to Credit Management – Fulfilment Team.

Email noted and a Field Activity issued and phoned through to contractor

Field Activity is finalised

Average time for function 30 minutes Calculations and Proposed Charge Hunter Water costs $38.75 Contractor Costs to restore water service (includes travel to/from site, removing the inhibiting device and notifying Hunter Water)

$20.82 * See footnote *

PROPOSED CHARGE

$59.55

CURRENT CHARGE = $173.90 Function Overview: b) Outside Business Hours Restoration of the water supply outside business hours to a property restricted for non-payment of accounts during the hours of 3.00pm to 8.00am the following business day.

Process Customer advises Fulfilment Team of payment of account and agrees to pay after hours fee

Field Activity issued and phoned through to contractor Field Activity is reviewed and finalised

Average time for function 15 minutes Calculations and Proposed Charge = Hunter Water costs $16.80 Contractor Costs to restore water service (includes travel to/from site, removing inhibiting device and notifying Hunter Water)

$143.00 (GST inclusive)

PROPOSED CHARGE =

$160.00


8a). Workshop Flow Rate Test of a Mechanical Water Meter CURRENT CHARGE =

20-25mm $187.45 32mm $233.15 40mm $250.60 50mm light $277.10 50mm heavy $508.25 65mm $508.25 80mm $521.60 100 & 150 mm $596.25

Function Overview: Removal, transportation and flow rate test of a mechanical water meter by an accredited organisation at the customer’s request to determine the accuracy of the water meter. Process

Identify property and receipt fees

Log a Case

Create a TRIM file and scan application

Log a Field Activity for removal and replacement of meter

Prepare fax to meter testing facility

Prepare meter for transportation

Assessment of results and preparation of reply to customer

Scan results sheet and letter into TRIM


Calculations and Proposed Charges:

Meter Size Hunter Water Costs

Freight (weight based)

Contractor (Remove and

Replace Meter)

Test Facility Flow Rate Test Costs

Total Costs

20 & 25mm $34.90 $11.00 $15.47 $94.60 $156.00 32mm $34.90 $11.00 $15.47 $151.80 $213.00 40mm $34.90 $15.00 $21.67 $151.80 $223.00 50mm light $34.90 $18.00 $21.67 $181.50 $256.00 50mm heavy $34.90 $20.00 $222.84 $181.50 $459.00 65mm $34.90 $22.00 $222.84 $181.50 $461.00 80mm $34.90 $30.00 $222.84 $181.50 $469.00 100mm $34.90 $50.00 $247.60 $236.50 $569.00 150mm $34.90 $65.00 $369.21 $236.50 $706.00


8b). Workshop Flow Rate and Strip Test of a Mechanical Water Meter CURRENT CHARGE = MODIFIED Function Overview: Removal, transportation, flow rate and strip test of a mechanical water meter by an accredited organisation at the customer’s request to determine the accuracy of the water meter. This charge includes an additional component to the Flow Rate Test (Charge 8). The strip test component is only charged to the customer if the test is requested by them. If Hunter Water requests a meter strip test to investigate meter issues the cost will be paid by Hunter Water. Process

Identify property and receipt fees

Log a Case

Create a TRIM file and scan application

Log a Field Activity for removal and replacement of meter

Prepare fax to Meter Testing facility

Prepare meter for transportation

Assessment of results and preparation of reply to customer

Scan results sheet and letter into TRIM


Calculations and Proposed Charges:

Meter Size Hunter Water Admin

Freight (weight based)

Contractor (Remove and

Replace Meter)

Test Facility Flow Rate Test Costs

Test Facility Strip Test

Report Cost

Proposed Charge

20 & 25mm $34.90 $11.00 $15.47 $94.60 $60.00 $216.0032mm $34.90 $11.00 $15.47 $151.80 $60.00 $273.0040mm $34.90 $15.00 $21.67 $151.80 $60.00 $283.0050mm light $34.90 $18.00 $21.67 $181.50 $60.00 $316.0050mm heavy $34.90 $20.00 $222.84 $181.50 $60.00 $519.0065mm $34.90 $22.00 $222.84 $181.50 $60.00 $521.0080mm $34.90 $30.00 $222.84 $181.50 $60.00 $529.00100mm $34.90 $50.00 $247.60 $236.50 $60.00 $629.00150mm $34.90 $65.00 $369.21 $236.50 $60.00 $766.00



CURRENT CHARGE = $30.15 Function Overview: Process applications to disconnect an existing water service – all sizes. Process

Identify property on HWC customer services database

Raise Disconnection CASE against property account on customer services database including administration fees & inspection scheduling

Receipt payment

Update property information on customer service database


Calculations and Proposed Charge = Hunter Water costs $43.90 Contractor Costs for inspection of property connection $51.05 PROPOSED CHARGE =

$94.95


9b). Application for Recycled Water Disconnection NEW CHARGE Function Overview: Process applications to disconnect an existing recycled water service. A plumbing inspection is required to ensure the service has been correctly capped off and complies with Plumbing Standards. Process

Identify property on HWC customer services database

Raise Disconnection CASE against property account on customer services database including administration fees & inspection scheduling

Receipt payment



Calculation and Proposed Charge Hunter Water costs $43.90Recycled Water Plumbing Inspection $78.90 PROPOSED CHARGE $123.00


10. Application for Water Service Connection

(up to and including 25mm) CURRENT CHARGE = $34.80 Function Overview: Process applications to connect a new water service. This covers the administration and contractor/inspection fees.

Process

Identify property on Hunter Water’s customer services database

Identify property on plan to determine the size and type of main

Raise Connection CASE against property account on customer services database including administration fees & inspection scheduling

Receipt payment



Calculations and Proposed Charge = Hunter Water costs $50.40Plumbing Inspection costs for property connection. $51.05 PROPOSED CHARGE $101.00


11. Application for Water Service Connection (32 to 65mm)

CURRENT CHARGE = $303.00 Function Overview: This covers administration and system capacity analysis as required including hydraulic assessment. Assessment and in-principle approval of water meter sizes and services is provided. This charge also includes a fee for connection to service. Explanation: The costs for this service are primarily related to technical assessment. This proposed fee also includes the connection fee for a service provided by Hunter Water’s Customer Services section. Process

Determine hydraulic design assessment

Complete residential hydraulic assessment (if required)

Complete non-residential hydraulic assessment (if required)

Prepare hydraulic design assessment letter

Approve hydraulic design assessment letter


Forward hydraulic assessment letter to consultant

Complete connection application

Average time for function 180 minutes PROPOSED CHARGE = $294.00


12. Application for Water Service Connection (80mm or greater)

CURRENT CHARGE = $554.00 Function Overview: This service covers administration and system capacity analysis, as required. This includes hydraulic assessment and processing, and assessment of tee and valve requirements. Assessment and in-principle approval of water meter sizes and services is provided. This charge also includes a fee for connection to service. Explanation: This fee applies where an applicant requires a new meter and connection, and includes the connection fee for a service provided by Hunter Water’s Customer Services section. Considerable extra effort is taken to carry-out technical assessment for large watermain connections. Process

Determine hydraulic design assessment

Complete residential hydraulic assessment

Complete non-residential hydraulic assessment

Prepare hydraulic design assessment letter


Forward hydraulic assessment letter to consultant

Complete connection application

Prepare tee and valve techncial report and letter




13. Application to Assess Water Main Adjustment CURRENT CHARGE = $365.00 Function Overview: This covers preliminary advice as to the feasibility of the project and will cover either:

1. A rejection of the project - in which case the fee covers the associated investigation costs, or 2. Conditional approval - in which case the fee covers the administration costs associated with

the investigation and record amendment. Explanation: This application process is similar to the processing of development applications and therefore, it is appropriate to apply the same charge. The same fee will also apply to applications to assess sewermain adjustments. Process

Register Application

Determine requirement for additional capacity

Complete technical report

Prepare advice

Review advice

Approve advice

Issue advice



14. Standpipe Hire Security Bond CURRENT CHARGES: 20 mm = 32 and 50 mm =

$327.90 $765.10

Function Overview: Moneys paid by standpipe hirers and held in a public moneys account, refundable upon return of the standpipe in an undamaged state and upon payment of all outstanding hire and usage charges. The Bond is the actual purchase price of the Standpipe. *Note – processing fees for refund of security bond have been waived* PROPOSED CHARGES

20mm Standpipe $280.00

32mm High Flow $750.00

32mm Low Flow $340.00

50mm $750.00


15. Standpipe Hire – quarterly & monthly fees CURRENT CHARGES: Tri-annual Fee (4 monthly) - 20mm $24.50 - 32mm $61.20 - 50mm $65.60 Monthly Fee (or part thereof) - 20mm $11.60 - 32mm $20.75 - 50mm $21.85 Function Overview: Hire fees payable for the use of a portable metered standpipe owned by Hunter Water which is used to extract water from a water main. Process: Monthly Reading Fees

Update monthly reading on CIS

Update documentation in TRIM

Average time for function 5 minutes Process: Tri-annual Reading Fees

Update reading on CIS

Book inspection of standpipe with contractor

Update TRIM with details of inspection

Average time for function 10 minutes Calculation and Proposed Charges: Monthly

20mm Standpipe Hunter Water costs Asset Cost Recovery* PROPOSED CHARGE

$3.85 $4.60 $8.45

32mm High Flow Standpipe Hunter Water costs Asset Cost Recovery* PROPOSED CHARGE

$3.85 $12.50 $16.35

32mm Low Flow Standpipe Hunter Water costs Asset Cost Recovery* PROPOSED CHARGE

$3.85 $5.60 $9.45

50mm Standpipe Hunter Water costs Asset Cost Recovery* PROPOSED CHARGE

$3.85 $12.50 $16.35


Calculation and Proposed Charges: Tri-annual

20mm Standpipe Hunter Water costs Contractor Cost for Inspection Asset Cost Recovery* PROPOSED CHARGE

$12.90 $20.82

$4.60 $38.30

32mm High Flow Standpipe Hunter Water costs Contractor Cost for Inspection Asset Cost Recovery* PROPOSED CHARGE

$12.90 $20.82 $12.50 $46.20

32mm Low Flow Standpipe Hunter Water costs Contractor Cost for Inspection Asset Cost Recovery* PROPOSED CHARGE

$12.90 $20.82

$5.60 $39.30

50mm Standpipe Hunter Water costs Contractor Cost for Inspection Asset Cost Recovery* PROPOSED CHARGE

$12.90 $20.82 $12.50 $46.20

* Monthly asset cost recovery based on current costs and asset life of 5 years: 20mm @ $280 for 60 months = $ 4.60 32mm High Flow @ $750 for 60 months = $12.50 32mm Low Flow @ $340 for 60 months = $ 5.60 50mm @ $750 for 60 months = $12.50


16. Standpipe Water Usage Fee CURRENT CHARGE = As per water usage tariff per kilolitre Function Overview: Charge per kilolitre of measured consumption on a standpipe. PROPOSED CHARGE = As per approved water usage price per kilolitre


17. Backflow Prevention Device Application and Registration Fee CURRENT CHARGE = $20.90 Function Overview: Charge for the initial registration of a backflow prevention device. Process

Initial purchase and order of Backflow Prevention books

Review of test report by retail operations

Consultation with hydraulic design inspector

Consultation with tester/plumber

Identify customer on CIS

Create new field in Backflow Database

Backflow Data Entry (failed notice - assume 5% failure rate)

Issue of letters for initial reports not received (assume 10% discovered by HWC proactively)

Follow up on initial letters not received

Enter initial reports received

Calculation and Proposed Charge Hunter Water costs $22.75Australia Post - standard envelope $0.50 PROPOSED CHARGE = $23.25


18a). Backflow Prevention Device Annual Administration Fee CURRENT CHARGE: $13.95 Function Overview: This charge is for the administration costs associated with the maintenance of backflow prevention device records and includes the logging of inspection reports.

Process

Ongoing purchase and order of Backflow Prevention books

Review of test report received at Retail Operations

Consultation with plumbing inspectors

Consultation with tester/plumber


Backflow Data Entry (failed notice - assume 5% failure rate)

Enter passed reports received

Send Backflow reminder letters - assume 20%

Follow up on reminder letters not received

Enter passed reports received

Calculation and Proposed Charge

Hunter Water Costs $14.75

Australia Post - standard envelope $0.50

PROPOSED CHARGE $15.25


18b). Backflow Device Test NEW CHARGE Function Overview: In some cases, Hunter Water has had to arrange a test of a customer’s backflow device (as stated in the Customer Contract) due to the inherent risk faced by the Corporation. Hunter Water has two potential courses of action. One is to disconnect the customer from mains supply, the other is to arrange for a test on behalf of the customer and pass on the costs to the customer. In the past, the costs of administering the arrangement of a backflow test through an external provider and then passing on the costs has not been recovered. This charge adds these costs to the external providers charges to recover costs and provide an incentive for customers to arrange their own backflow tests. A customer is sent a reminder notice 2 weeks after the due date for a test to be conducted annually has passed. If they fail to send a test result in within 6 weeks, a second reminder notice is sent. If within 2 weeks they do not comply with the notice, Hunter Water takes action by either sending a disconnection notice or arranging for a test to be conducted on behalf of the customer. The administration group will contact the customer and seek a preferred path to take at that time. If the customer requests that Hunter Water arrange a backflow test, then the reimbursement of costs for the test and this administration fee will apply.

Process

Create and send Final reminder notice

Update backflow database

Create customer contact in CIS

Contact customer to determine course of action

Notify and engage Civil Services to arrange testing

Civil Services engage and manage contractors to perform testing


Backflow Data Entry Calculation and Proposed Charge

Hunter Water Costs $126.35

Test Fee * $115.83

PROPOSED CHARGE = $242.00 * Backflow test charge (at Hunter Water rates) = $115.83 per test (average cost of three external providers, performing a test only)


19. Major Works Inspection Fee

CURRENT CHARGE =

Watermains = $6.89 per metre Gravity Sewermains = $10.38 per metre Rising Sewermains / LPSS = $6.89 per metre

Function Overview: This fee is for the inspection for the purpose of approval of water and sewermains constructed by others that are longer than 25 metres and / or greater than 2 metres in depth. This fee also includes Work-as-Executed (WAE drawings). Common Effluent Pumping (CEP) systems have become a redundant technology and have been replaced by Low Pressure Sewer Systems (LPSS). Inspections are the same for both CEP and LPSS. PROPOSED CHARGE =

Watermains = $6.89 per metre Gravity Sewermains = $10.38 per metre Rising Sewermains / LPSS = $6.89 per metre


20. Statement of Available Pressure and Flow

CURRENT CHARGE = $306.00 Function Overview: Water pressure report detailing relative water pressures in Hunter Water's watermains. This fee covers assessment of available pressures at three specific flow rates from a single connection point to Hunter Water's main. Additional points of connection and flow values can be assessed at additional cost at the Techncial Services Hourly Rate (Service Charge No.52). Explanation: This charge reflects an average assessment for three (3) flows including associated computer modelling. It also includes an estimate of the taken to process and assess these applications, particularly the input for modelling pressure levels within the water network.

Process

Determine flow requirement

Complete pressure analysis

Receive SAP response from Network Planning Group

Prepare SAP letter

Approve SAP letter

Forward SAP to consultant / applicant

Technical Services Hourly Rate (No.52) if required $99/hour

Average time for function 195 Minutes PROPOSED CHARGE = PROPOSED CHARGE = $288.00

plus Technical Services Hourly Rate(if required)


21. Application to Connect/ Disconnect Sewer Services (or for a Special Internal Inspection Permit)

CURRENT CHARGE = $38.30 Function Overview: Process applications to connect a new sewer service or to disconnect an existing sewer service.

Process

Identify property in CIS database

Identify property on mapping system

Raise Connection/Disconnection Case against property account in CIS (including fees)

Receipt payment in CIS

Provide receipt to customer/agent

Update property information in CIS

Prepare sewer junction details


Calculations and Proposed Charge = Hunter Water costs $49.10Plumbing Inspection Cost $76.07 PROPOSED CHARGE $125.00


22. Application to Connect/ Disconnect Water & Sewer Services (combined application)

CURRENT CHARGE = $40.65 Function Overview: Process combined application to connect a new water and sewer service or to disconnect an existing water and sewer service. Process

Identify property in CIS database

Identify property on mapping system and determine size and type of main on SWIMS

Raise Connection/Disconnection Case against property account in CIS

Receipt payment in CIS

Update property information in CIS and prepare sewer junction details


Calculations and Proposed Charge Hunter Water costs $50.40Plumbing Inspection costs for property connection

$51.05



23. Irregular & Dishonoured Payments CURRENT CHARGES: Banking Authority: Irregular / Dishonoured cheques Direct Debit Decline

$22.50 $14.30

Australia Post: Irregular / Dishonoured cheques

$28.00 Function Overview: Functions relating to cheques returned by banking authorities as irregular or dishonoured, credit card payment declines and direct debit payment declines.

Process Identify property, raise fees against property account and process in CIS to reverse payment

Prepare letter to customer Update details on computer


Calculation and Proposed Charges: Banking Authority Irregular / Dishonoured cheques Fees imposed by bank Hunter Water costs PROPOSED CHARGE =

$0 $21.95 $21.95

Direct Debit Decline Fees imposed by bank Hunter Water costs PROPOSED CHARGE =

$ 2.50 $21.95 $24.45

Calculation and Proposed Charges: Australia Post: Irregular / Dishonoured cheques Fees imposed on Hunter Water Hunter Water costs PROPOSED CHARGE =

$15.00 $21.95 $36.95


24. Request for Separate Metering of Units CURRENT CHARGES:

1 – 4 units = $72.85 5 – 10 units = $92.15 + 10 units = $119.05

Function Overview: Initial assessment of a request for separate sub-metering of individual units. This fee is applied per plan regardless of the number of units. Process

Receipt fee

Identify property/ update CIS

Review application details

Set up TRIM folder and scan application

Log a Field Activity to contractor for a site inspection, copy and fax plan showing property location and proposed locations of meter frames

Prepare and scan letter of approval or non-compliance



Hunter Water costs $33.60

Australia Post costs $0.50

PROPOSED CHARGE = $34.10/plan


25. Unauthorised Connections NEW CHARGE Function Overview: Apply a charge to a Customer Account to recover costs and appropriate application fees where a connected service is located but no application to connect has been lodged with Hunter Water. Note. Where an un-metered water connection is located, a meter is immediately affixed to the service by the Contractor. Process

Preparation of non compliance letter or phone call to Plumber and/or owner

Receipt fee

Add Customer Contact details to CIS

Create Field Activity for inspection of internal house drains and connection point to sewermain

Account Management – allocate meter to meter read route and sequence meter, create Service Agreements and adjust Bill Cycle in CIS




Application Fee (refer Charge 10) $101.45

Contractor Cost to Affix Meter $24.75



26. Building Plan Stamping NEW CHARGE Function Overview: All new building and development plans require revision and stamping by Hunter Water staff to certify the proposed construction does not adversely impact on Hunter Water's assets. This function has always been performed by Hunter Water however there has not previously been a charge to customers for this service. Process

Identify property on mapping system

Confirm asset location in relation to proposed building/ development

Confirm any further development requirement

Lay HWC stamp upon customers building plan (4 copies)

Log customer contact against relevant property account on CIS



27. Determining Requirements for Building Over / Adjacent to Hunter Water Sewer or Easement

CURRENT CHARGE = $60.95 Function Overview: Attaching conditional requirements to Council approved building plans to safeguard Hunter Water assets. Process

Assess requirement for BOS assessment complete application and relevant fees in CIS against property account including providing receipt to customer

Register application on TRIM and scan documents

Assess implications of encroachment

Check precedents

Type letter and mail to customer

Record details on computer

Finalise TRIM file


Calculations and Proposed Charge =


Australia Post costs - A4 envelope $1.00



28a). Application to Hire a Metered Standpipe CURRENT CHARGE = $121.85 Function Overview: Process applications for the hire of a portable metered standpipe.

Process

Process fee for application and issue receipt

Initial assessment of application and confirm completed checklist

Register file and attach documentation

Undertake company checks of applicant

Log details on standpipe register

Prepare and send notification of approval

Create new customer record on CIS (create person, premise and account records)

Create service agreements and charges

Affix new meter to customer account on CIS

Finalise paperwork and issue standpipe

Receipt security bond

Establish account record and input initial meter reading

Account management, update documentation in TRIM



Australia Post costs: A4 size envelope $1.00

Contractor Costs: Fee charged by contractor to issue standpipes (as per contract, currently under review)

$20.80

PROPOSED CHARGE

$164.00


28b). Breach of Standpipe Hire Conditions NEW CHARGE Function Overview: These fees will be applied to a customer’s account each time a breach of the Terms and Conditions of their Hire Agreement is made. Some examples of a breach in conditions are: failure to provide a standpipe meter reading, failure to pay an account or using a standpipe at a hydrant that is not approved due to low pressure. The Standpipe Agreement advises the customer three breaches of the Standpipe Hire Conditions can result in termination of the Agreement. There is a significant difference in the processing time for each stage of the breaches process, therefore each stage attracts its own charge. Note Hunter Water has based the charges on the most common but the lower cost breach process which relates to the failure to provide a standpipe meter reading. Other breach types involve both more time and cost to Hunter Water. Breach 1 Process

Review billing error and confirm last reading on CIS Enter estimate read on CIS Complete the pending bill on CIS Prepare breach letter and enter document in TRIM Add notations to CIS

Average time for function 15 minutes Breach 2 Process

Review billing error and confirm last reading on CIS Review notations on current breach on CIS/TRIM Enter estimate read on CIS Complete the pending bill on CIS Prepare breach letter and enter document in TRIM Add notations on CIS and update internal tracking spreadsheet

Average time for function 20 minutes Breach 3 Process*

Review billing error and confirm last reading on CIS Review notations on current breach on CIS/TRIM Enter estimate read on CIS Complete the pending bill on CIS Prepare more comprehensive breach letter and enter document in TRIM Add notations on CIS and update internal tracking spreadsheet

Monitor due date for return of standpipe Average time for function 25 minutes

* Note: If customers return the standpipe as requested, this process ends at this point. If however they fail to return the standpipe, Step 2 of the process is required as detailed below and charged accordingly.


Breach 3 – Step 2 Process**

Customer or HW initiated contact to discuss options for return of standpipe- phone call

Preparation of declaration letter or customer file for debit recovery agent and enter into TRIM

Add notations on CIS and update internal tracking spreadsheet

Average time for function 25 minutes **Note: further charges only applied to customers who do not return standpipe Calculation and Proposed Charge: Breach 1

Hunter Water Costs $19.40Australia Post - standard postage

$0.50


Breach 2

Hunter Water Costs $24.55Australia Post - standard postage $0.50


Breach 3 – Step 1

Hunter Water Costs $28.40Australia Post - standard postage $0.50


Breach 3 – Step 2

Hunter Water Costs $31.00Australia Post - standard postage

$0.50



29. Meter Affixtures/ Handling Fee CURRENT CHARGE = $21.85 (up to 50mm light duty only) Function Overview: Installation of a water meter to the water connection framework. a) For meters up to 50mm Hunter Water arranges its contractor to attend customer’s property and

affix the meter. b) For meters 50mm or larger, Hunter Water can arrange for delivery of the meter with the

customer being required to pay the delivery fee. The customer then pays their plumber for the installation.

Process Time

Raise a field activity against relevant property account to advise contractors of meter affix, meter delivery or meter pickup required.

5 mins

Account management (enter meter details, bill cycle route, sequencing) 5 mins

Average admin time (applied to approx 45% of applications)- (55% is captured through the connection application fee)

10 minutes

Calculation and Proposed Charge Up to 50mm light duty Contractor to affix meter $77.52 p/h x 10 minutes = $12.90 45% of $12.90 = $5.80 Contractor costs = $17.15 (excluding GST) PROPOSED CHARGE

$22.95

Meters delivered- 50 mm and above- affixed by private plumber $77.52 p/h x 10 minutes = $12.90 45% of $12.90 = $5.80 Contractor costs = $11.75 (ex GST) PROPOSED CHARGE $17.55


30. Inspection of Non-compliant Meters CURRENT CHARGES:

Stand alone dwelling (1 meter) = NOT CHARGED

1 – 4 units = $34.55 5 -10 units = $42.20 + 10 units = $57.50

Function Overview: Reinspect a Strata Development or stand alone property where a second inspection is required for separate metering as Meter Frames were either Non-Compliant or were not accessible at the initial inspection. This fee is to be applied per development. Process

Review Field Activity to determine reason for non compliance

Preparation of non compliance letter or phone call to Plumber and/or owner

Receipt fee when paid by customer to have meter frame re-inspected.

Log request to contractor to conduct plumbing inspection (1 x Field Activity per development)


Calculation and Proposed Charge Hunter Water costs Plumbing Inspection Contractor costs* PROPOSED CHARGE

$16.80 $31.75

$48.55Plus contractor hourly rate

(if required) * Contractor costs include contractor travel to site, inspect the meter frame and complete field activity advising whether installation is compliant. Where more than one unit or inspection is required at a property, the Contractor Meter Inspection component is only applied once. Note if there are a large number of units and the inspection requires longer than 15 minutes, an hourly rate of $46.20 will be applied in place of the fee (currently $22.80 however subject to increase with next contract with expected charge being $31.75). In the case of a Strata Plan, contractor costs for additional could be applied to this charge.


31. Standard Plumbing Inspections (Previously Special Inspections)

CURRENT CHARGE = $66.20 Function Overview: There are three different types of plumbing inspections with each type attracting its own fee. a) General Plumbing Inspection fee for all general inspections and technical support on various

plumbing issues such as; rainwater tanks or alternative water supply, installation of backflow prevention devices, adjustment of water meter size, annual and/or follow up inspections of water cartage tanker vehicles, temporary toilet connections to the sewer on large building sites for public health reasons, non-standard water and sewer inspections, installation or alteration of a trade waste facility, installation or alteration to a private sewer management facility (pump station).

b) Additional Recycled Water Connection inspections. Three mandatory inspections are included in the Application to Connect to Recycled Water – Domestic, however there are circumstances where additional inspections are required due to non compliance or the type of development. This fee covers the average, travel and staff costs for this type of inspection.

c) Hourly rate for commercial and industrial plumbing inspections. There is considerable more involved in inspection of all connection points at commercial and industrial properties and as such the residential inspection fee is often not adequate to recoup Hunter Water’s costs. It is proposed an hourly rate be charged after the inspection has been completed.

Process

Identify property on Customer Information Services database

Raise adjustment for fee and receipt fees

Book inspection

Update Hunter Water’s database with inspection results



a) General Plumbing Inspection Hunter Water costs

Plumbing Inspector costs PROPOSED CHARGE =

$18.10 $76.07$94.15

b) Additional Recycled Water Inspections

Hunter Water costs Recycled Water Inspection PROPOSED CHARGE =

$18.10$78.90$97.00

c) Hourly rate for Commercial Inspections Plumbing Inspector hourly costs

$68.86

PROPOSED CHARGE = $68.85 per hour


32. Connecting to or Building Over / Adjacent to a Stormwater Channel for a Single Residence

Current Charge: $71.15 Function Overview: Process applications from customers connecting a single residence to a stormwater channel or erecting a single residence over / adjacent to a stormwater channel held by Hunter Water. Process

Take application at counter

Prepare file

Prepare letter of reply

Record details on database

Finalise file




33. Stormwater Channel Connection

CURRENT CHARGE = $ 282.00 Function Overview: New developments unable to drain to the street drainage system may be serviced by a Hunter Water stormwater channel if available. The fee covers the cost of assessment by Hunter Water technical officers. Explanation: This fee applies where developments are required to drain to Hunter Water stormwater channels rather than normal street drainage system. This charge reflects the taken to conduct a technical assessment, which is similar to the work required to provide a basic Development Assessment response.

Process

Determine impact on stormwater system

Await response from Strategic Operations

Complete stormwater technical assessment and letter

Prepare stormwater channel connection letter

Approve stormwater channel connection letter




34. Hydraulic Design Assessment (Previously ‘Hydraulic Design Assessment – less than 80mm water service’)

CURRENT CHARGE = <80mm connection = $268 >80mm connection = $357

The two previous charges (No. 34 & 56) have been further refined and repackaged into a single service description “Hydraulic Design Assessment” with three pricing tiers. Rather than relying on the proposed service size (less than 80mm, or, greater than 80mm) as a guide to the complexity of the application it is proposed to have three (3) price tiers relating to the number of design drawings to be assessed. The majority of customers (83%) are covered by the Tier 1 base fee. A further 12% are covered by the Tier 2 cost per additional drawing. Only 5% of customers would need to seek quotation by Hunter Water where the drawing set submitted exceeds 50 drawings. For the majority of customers the Hydraulic Design Assessment fee will be reduced.

Function Overview: The NSW Code of Practice: Plumbing and Drainage requires developments with large domestic or fire water demands and / or trade waste discharges, to lodge internal building service designs with Hunter Water for our review and approval. This service is required to confirm compliance with Hunter Water service connection requirements, correct application of the Code and applicable Australian Standards, ensuring that Hunter Water’s infrastructure is not adversely impacted by the customer upon connection.

Explanation: This is the stand alone fee for assessment of internal water and sewer services for a single building proposing to connect to Hunter Water’s existing infrastructure network. The base fee includes assessment of a single point of connection to a standard water main frontage and gravity sewer connection point within the lot. Drawings must be formatted to comply with our Hydraulic Design Policy and the Code.

PROPOSED CHARGES =

Price Tier Description Cost

1 Base fee - up to 10 design drawings $258

2 Base fee plus $23/additional drawing up to 50 drawings: - • Minimum Fee for 11 drawing set • Maximum Fee for 50 drawing set

$281 $1,178

3 Over 50 drawings by Quotation $1,178 plus Quote


35. Pump Station Design Assessment

CURENT CHARGE: Water Pump Station = $2,789.00 Sewer Pump Station = $3,069.00 Recycled Water Pump Station = n/a Function Overview: Pump station designs prepared by consultants engaged by the development community are reviewed and approved to ensure compliance with Hunter Water design and operating standards. Pump stations are complex and business critical to Hunter Water and therefore attract a high degree of scrutiny across the organisation. This effort is reflected in the fee. Explanation: Hunter Water relies on the design consultants engaged by the development community to provide high quality and error free designs. The assessment fee includes review at two hold points in the design process – ‘Concept’ and ‘Detail’ design Review of final contract documentation is also undertaken. The charge for a sewer pump station assessment includes the cost of assessing the associated rising main design. Water and sewer reticulation designs are incorporated in separate service fees. Poor quality designs requiring further review will attract additional based fee at the Technical Services hourly rate. Environmental Assessment is covered by a separate new application fee.

Process Water Sewer Recycled Water

Receipt charges Complete preliminary assessment Preliminary technical assessment Planning review Compile and review comments Detailed design review Planning review Compile and review comments Prepare works contract Prepare rising main design review Sign off contract release

Technical Services Hourly Rate if required

$99 per hour $99 per hour $99 per hour

Average time for function 26 hours 31 hours 26 hours

PROPOSED CHARGE = Water Pump Station $3,380.00

Sewer Pump Station $3,722.00

Recycled Water Pump Station $3,380.00


36. Application to Assess Sewer Main Adjustment

CURRENT CHARGE = $375.00 Function Overview: This covers preliminary advice as to the feasibility of the project and will cover either:

1. A rejection of the project in which case the fee covers the associated investigation costs, or 2. Conditional approval in which case the fee covers the administration costs associated with

the investigation and record amendment. Explanation: From time to time developers seek formal guidance from Hunter Water with respect to adjusting services. This may be triggered by road works or other works proposed to be undertaken by the developer that is not normally covered by a Development Assessment Application.

Process

Register application



Prepare advice

Review advice

Approve advice

Issue advice



37. Indicative Developer Charge Application

CURRENT CHARGE = $248.00 Function Overview: Applicants lodge preliminary details of their developments to enable a developer charge to be calculated. This fee covers determination of developer charges. The developer charge is indicative only and a formal application is required if the developer wishes to proceed to purchase capacity. Explanation: This fee provides a short cut to the full development application process. It provides advice on developer charges only. The PROPOSED CHARGE is more reflective of the to process a preliminary application.

Process


Calculate developer charges

Prepare letter

Review letter

Approve letter

Issue developer charge advice



38. Revision of Development Assessment Requirements (Previously Revision of Notice of Requirements)

CURRENT CHARGE = $316.00 Function Overview: As a result of lodging an application to determine requirements under Section 50 of the Hunter Water Act, Hunter Water issues a ‘Notice of Requirements’ letter containing these requirements. Requirements are valid for 12 months from the date of issue of the Notice. Should the Notice lapse and the developer then wish to proceed, it is a requirement that the developer make a subsequent application to Hunter Water to permit review of all aspects of the development proposal and advise the developer accordingly of any changes. Explanation: Due to the dynamic nature of our systems, capacity limitations, changing design standards, and/or operating environment, it becomes necessary to review requirements after 12 months form the date of initial determination. This fee excludes the administrative cost to set up the customer expended on the first application. Process

Assign application


Determine requirements of additional capacity

Determine reimbursement


Prepare revised requirements letter

Review revised requirements letter

Approve revised requirements letter

Issue revised requirements letter



39. Bond Application (previously ‘Bond Assessment and Lodgement Fee’)

CURRENT CHARGE = $1,226.00 Function Overview: This fee covers the lodging and release of a bond, and an estimation of the cost of outstanding works, where a developer wishes to provide security in lieu of constructing works to facilitate early release of Hunter Water Section 50 Compliance Certificate. Explanation: On occasions, Hunter Water is requested to accept a bond to cover the costs of outstanding works and in return allow early release of the Compliance Certificate for a development application. The fee covers preparing an estimate of the value of the works for a single asset eg a sewer pump station and rising main. Additional assets that are incomplete will attract additional assessment fees due to the additional estimating involved. Hunter Water’s legal fees in preparing special Deeds of Agreement and associated Collateral Agreements are to be paid by the developer at cost. Process

Approve scope of bond requirements

Determine design / construction phase of bond

Approve bond amount

Draft bond letter

Approve bond letter

Sign-off bond letter

Forward bond letter

Bond lodgement

Bond release

Additional assessment/estimating at the Technical Services Hourly Rate for each additional asset

$99 per hour

HWC Legal Fees AT COST

Average time for function 995 minutes PROPOSED CHARGE = $1,304.00

Plus Technical Services Hourly Rate for each

additional asset


40. Bond Variation (previously ‘Application to Vary a Bond’)

CURRENT CHARGE = $178.00 Function Overview: This charge covers Hunter Water's administration cost for the adjustment of securities. Explanation: Occassionally Hunter Water is asked to reduce the bond securities held based on partial completion of works – in such cases the value must be estimated and a new bond offered and the old one returned. It is estimated that less than 4 bond applications will be received each year.

Process

Bond Variation



41. Development Assessment Application (previously ‘Application Processing Fee’)

CURRENT CHARGE = $375 Function Overview: As a result of lodging an application to determine requirements under Section 50 of the Hunter Water Act, Hunter Water issues a ‘Notice of Requirements’ letter containing these requirements. Requirements are valid for 12 months from the date of issue of the Notice. Applications for both properties which are being proposed to be developed and unserviced properties proposing to connect for the first , are subject to the same assessment procedure. Applications cover a wide variety of proposals ranging from minor developments, such as boundary adjustments for which there may be no requirements, up to major developments, such as large subdivisions. Should the Notice lapse and the developer then wish to proceed, it is a requirement that the developer make a subsequent application to Hunter Water to permit review of all aspects of the development proposal and advise the developer accordingly of any changes. Explanation: The application fee covers the basic processing of each application to determine if there are any requirements such as developer charges or the design and construction of works. Once requirements are met, a Certificate under Section 50 of the Hunter Water Act 1991 is issued and properties are permitted to connect to water and / or sewer systems. If there are works requirements additional fee(s) are payable dependent on the specific nature of the requirements. Process




Obtain capacity response from Hunter Water’s Planning Group (if required)

Approve reimbursement


Prepare notice letter

Review notice letter

Approve notice letter

Issue notice letter

Follow up request for consent conditions



42. Application for Water or Sewer Main Extension

CURRENT CHARGE = $375 Function Overview: A property owner can apply for approval to extend the existing water and / or sewermains of Hunter Water to an existing development. Hunter Water calculates appropriate developer charges and a possible extension option based on system capacity and topographical constraints. Explanation: This is essentially the same as processing a Development Assessment Application (S.50) Notice of Requirements application and therefore the same charge is adopted.

Process




Prepare advice

Review advice

Approve advice

Issue advice

Follow up request for consent conditions




43. Assessment of Minor Works

CURRENT CHARGE = $592.00 Function Overview: Some developments are in close proximity to the existing water and sewer services of Hunter Water and therefore require only relatively simple design and construction activities to provide the development with a standard point of connection to water and sewer services. Where the necessary works are less than 25m in length and less than 2.5m in depth they are considered to be ‘Minor Works’. Works exceeding these requirements are classified as ‘Major Works’. The resources required to assess Minor Works designs are considerably less than those required for Major Works. Hunter Water relies on the design consultant engaged by the developer to provide high quality and error free designs. A single review of a Minor Works design is completed by Hunter Water. Poor quality designs, requiring further assessment by Hunter Water, will attract additional based fees at the Technical Services hourly rate.

Process

Assess minor works design

Advise minor works design amendments

Await minor works amendment response

Approve minor works design / execute contract

Attach executed minor works contract and plan

Forward executed contract

Send minor works information to Hunter Water’s Contracts Group

Technical Services Hourly Rate $99 per hour



44a). Major Works Design Review & Contract Preparation

(Previously Assessment of Major Works) CURRENT CHARGE = $2,129.00 Function Overview: This category consists principally of works required to service larger subdivisions or 'greenfield' sites. As a result of the works being large scale, including not only reticulation systems but also lead-in works, applicants are required to engage accredited design consultants to prepare the designs. The Major Works Assessment fee excludes the work-as-executed survey and connections costs to water mains - these fees are charged separately. Environmental assessment, if required, is also covered by a separate service fee. Hunter Water will also need to inspect the quality of the works ensuring compliance with Hunter Water Standards – these fees are charged separately. Hunter Water relies on the design consultant engaged by the developer to provide high quality and error free designs. A two phase review of the Major Works design is completed by Hunter Water – ‘Preliminary’ and ‘Final’. Poor quality designs, requiring further assessment by Hunter Water, will attract the fixed “Major Works Design Re-assessment Fee”.

Process

Receive and review design assessment plans

Send water design plans to Hunter Water’s Strategic Operations for review

Receive water design response from Strategic Operations

Complete major works design assessment

Approve design assessment and marked-up plans

Forward amended design assessment to consultant (customer)

Check final plans

Create instrument of agreement

Sign contract and stamp final plans

Design Re-assessment (if required)/ event $278

Average time for function 555 minutes PROPOSED CHARGE = $2,109.00


44b). Major Works Design Re-Assessment NEW CHARGE Function Overview: When the quality of a Major Works Design is poor, resubmission of the design by the developer’s consultant is required, this necessitates Hunter Water applying an additional round of design assessment. In such circumstances the ‘Major Works Design Re-assessment’ fee shall apply to each instance. Explanation: The fee includes rechecking the design against design review comments initially offered and checking that the design is sufficiently complete to allow to go through to the next round of design preparation and documentation. PROPOSED CHARGE = $278.00


45a). Connect to Existing Water System - Major Works (Valve Shutdown)

CURRENT CHARGE = $671.00 Function Overview: In order to connect major developments to the water supply system a tee and valve must be inserted. This fee applies when the developer elects to insert the tee and valve. Hunter Water determines the most appropriate shut down method to allow connections to existing fittings. This fee covers shutdown using valves and recharging the main. Process

Identify the shutdown area

Advise customers of the service interruption

Shutdown of the watermain using valves

Audit of the contractors work

Restore water supply

Average time for function 340minutes



45b). Connect to Existing Water System – Major Works (Non-Valve Shutdown)

CURRENT CHARGE = MODIFIED Function Overview: In order to connect major developments to the water supply system a tee and valve must be inserted. This fee applies when the developer elects to insert the tee and valve. Hunter Water determines the most appropriate shut down method to allow connections to existing fittings. This fee covers shutdown using a non-valve method (e.g. AquaStop inflatable in-line plug in the main) and recharging the main. The developer engages approved contractor to perform the shutdown. Process





46a). Insertion or Removal of Tee and Valve (Valve Shutdown and Charge Up)

CURRENT CHARGE = $841.00

Function Overview: In order to connect major developments to the water supply system a tee and valve must be inserted. This fee applies when the developer elects for Hunter Water to insert the tee and valve. Hunter Water determines the most appropriate shut down method to allow connections to existing fittings. This fee covers shutdown using valves, insertion of the tee and valve and recharging the main. This fee has been calculated on the basis that developer provides all materials and performs any digging required to insert the tee and valve. A quotation will be supplied to developers requesting Hunter Water performs the whole job (i.e. excavation, shutdown, supply and install fittings, recharging main).

Process



Shutdown of the watermain using valves

Insert tee and valve





46b). Insertion or Removal of Tee & Valve (Non-valve Shutdown and Charge Up)

CURRENT CHARGE = $671.00

Function Overview: In order to connect major developments to the water supply system a tee and valve must be inserted. This fee applies when the developer elects for Hunter Water to insert the tee and valve. Hunter Water determines the most appropriate shut down method to allow connections to existing fittings. This fee covers shutdown using a non-valve method (e.g. AquaStop inflatable in-line plug in the main), insertion of the tee and valve and recharging the main. The developer engages approved contractor to perform the shutdown. This fee has been calculated on the basis that developer provides all materials and performs any digging required to insert the tee and valve. A quotation will be supplied to developers requesting Hunter Water performs the whole job (i.e. excavation, shutdown, supply and install fittings, recharging main).

Process



Insert tee and valve





47. Application for Additional Sewer Connection Point CURRENT CHARGE = $282.00 Function Overview: Existing development requiring an alternative sewer connection point within the development lot must make an application to Hunter Water to allow investigation and notification of requirements. Explanation: The fee covers processing of application and connection advice to the applicant. It may become necessary for the applicant to then engage the services of an accredited design consultant to complete investigation of design options and make a recommendation to Hunter Water. Assessment of any resulting designs or construction works are covered by other service fees.

Process




Prepare advice

Review advice

Approve advice

Issue advice




48. Tee and Valve Connection (previously ‘Application for Large Water main Connection - Tee and Valve’)

CURRENT CHARGE = $163 Function Overview: Water services greater than 80mm diameter require special connection arrangements to Hunter Water's mains and are covered by an agreement and technical specification prepared on application. Explanation: This fee applies to the processing of an application for Tee and Valve connection in a large water main. It is included in the application for water service connection (80mm or greater), where required, as part of new meter and connection.

Process Forward tee and valve application to Hunter Water’s Strategic Operations Group for review

Prepare tee and valve technical report and letter Approve tee and valve letter Forward tee and valve letter




49. Minor Works Inspection Fee CURRENT CHARGE = $161.00 Function Overview: Auditing of works constructed under minor works contracts to ensure that specified quality is being achieved Process

Administration of the contract On-site auditing to ensure materials and construction methods meet Hunter Water standards including follow-up checks during the 12 month maintenance period

Work-as-executed information detailed for inclusion Hunter Water plans and GIS.




50. Major Works Inspection & WAE Fee CURRENT CHARGE = Water Pump Stations = $4,317.00

Sewer Pump Stations = $5,848.00 Recycled Water Pump Stations = n/a

Function Overview: Comprises inspection / audit of works constructed under major works contracts to ensure that specified quality is achieved. Work-as-executed comprises survey of the constructed work and modifying plans to detail the precise location of the work for inclusion in Hunter Water’s GIS (SWIMS) database. Explanation: Both minor and major works inspection fees are applied by Hunter Water's Contracts Group for the management of major and minor works undertaken by developers. For the most part contract management includes:

1) Review of the contractor's safety management plans, and 2) Regular inspection / audit of works to ensure that only approved materials are used and that

the works comply with Hunter Water's standards.

Inspection fees for major and minor works also include components for collection of work-as-executed (WAE) data and subsequent survey information to ensure that the works are accurately updated on Hunter Water's GIS. The fees are approximately 4% of the estimated value of the assets constructed. This percentage compares favourably with contract management costs for capital works, which may range from 4% to 10%.

Process

Management of the contract

On-site auditing to ensure materials and construction meet Hunter Water standards including follow-up checks during the 12 month defects period

Pre-commissioning and commissioning inspections

Work-as-executed information detailed for inclusion in Hunter Water GIS

PROPOSED CHARGE = Water Pump Station $4,317.00

Sewer Pump Station $5,848.00

Recycled Water Pump Station $4,317.00


51. Application to Assess Encroachment on Hunter Water Land, Easement Rights or Assets

CURRENT CHARGE = $274.00 Function Overview: This fee is for a first pass review of an application to allow Hunter Water to advise requirements to be met and a quote for additional, more detailed assessment.

Process

Process application

Refer to Hunter Water’s Property Management Group for comment

Review by Hunter Water’s Strategic Operations Group (plan inspection etc.)

Preliminary assessment of proposal

Additional assessment at the Technical Services Hourly Rate $99 per hour



Plus Technical Services Hourly Rate (if required)


52. Technical Services Hourly Rate (Previously “Fee Per Hour”)

CURRENT CHARGE = $99.00 per hour Function Overview: This hourly time based fee provides for additional technical work to be undertaken where base services are exceeded.

Process

Agreed work as required.

Average time for function 60 minutes or part there of

PROPOSED CHARGE = $99 per hour


53. Remote Application Fee

CURRENT CHARGE = $226 Function Overview: This application fee covers applications made for a compliance certificate in an area remote from Hunter Water services. The application fee covers the basic processing of each application to issue a certificate. Explanation: This service provides a more equitable charge for remote applications that only require a compliance certificate to be issued and avoids any technical assessment or assessment of developer charges.

Process

Register applications

Property management response

Prepare section 50 certificate

Review section 50 certificate

Issue certificate (Certificate sent)



54. Preliminary Servicing Advice (Previously ‘Indicative Requirements Fee’)

CURRENT CHARGE = $375.00 Function Overview: Some developers require advance advice of Hunter Water’s likely water, sewer or recycled water requirements for a particular development. Usually the development would involve rezoning of land and/or would not have consent conditions issued by Local Council or the Department of Planning at the time the application is lodged with Hunter Water. Any advice offered therefore is to be considered indicative only and can only be used as a guide. Explanation: This charge covers technical assessment of a proposed development and general advice on the level of developer charges. To determine preliminary advice is in essence the same as making an application under Section 50 for a formal Notice of Requirements. Process


Identify DSP areas and charges

Determine requirements of additional capacity

Obtain capacity response from the Planning Group


Prepare preliminary servicing advice

Review preliminary servicing advice

Approve preliminary servicing advice

Issue preliminary servicing advice




55. Servicing Strategy Review

CURRENT CHARGE = $564.00 Function Overview: Major developments often require the preparation of a water and sewer servicing strategies for the whole development. In select circumstances recycled water servicing strategy may also be required. An Accredited Design consult is engaged by the developer to complete the necessary servicing strategies. Hunter Water reviews and approves these strategies to ensure that they are consistent with broader regional strategies of Hunter Water (if they exist) and the requirements set out in the Water & Sewer Design Manual. Explanation: These reviews require considerable technical and engineering time/effort to review and typically are very complex to assess. The fee includes a preliminary and final review of a strategy. Each strategy (water, sewer and recycled water if required) attracts a separate Strategy Review fee. Hunter Water relies on the design consultant submitting high quality reports. Reports requiring additional revisions will attract additional fees at the Technical Services hourly rate. Process

Receive comment from the Planning Group

Review Planning Group’s comments and strategy

Prepare consultant response

Await consultant comments

Negotiate aspects of strategy

Review final comments from consultant

Approve strategy

Technical Services Hourly Rate if required $99 per hour



56. Environmental Assessment Report Review

NEW CHARGE Function Overview: Major developments often require the preparation of an Environmental Assessment Report for the water, sewer or recycled water infrastructure servicing the development. An Accredited Design consult is engaged by the developer to complete the report. Hunter Water reviews and approves the report to ensure that it is consistent with legislation and the design requirements of Hunter Water. Explanation: The fee includes a preliminary and final review of the report. The review undertaken by Hunter Water requires the same effort as that expended for a Servicing Strategy Review (Service Fee No. 55). Hunter Water relies on the consultant submitting high quality reports. Poor quality reports requiring additional revisions will attract additional fees at the Technical Services hourly rate.

Process

Receive comment from the Planning Group Review Planning Group’s comments and report

Prepare consultant response Await consultant comments

Negotiate aspects of report Review final comments from consultant

Approve Report and Issue letter Technical Services Hourly Rate $99 per hour



Plus Technical Services Hourly Rate (if required)


57. Recycled Water Inspection and WAE Fee

NEW CHARGE

Function Overview: This fee is for the inspection for the purpose of approval of recycled watermains constructed by developers that are longer than 25 metres and / or greater than 2 metres in depth. Explanation: The Charge Rate for Recycled Water is estimated to be 1.5 * $rate/metre for "Major Works Water mains". The rate adopted for "Major Works Water mains" includes both main and consumer service. The cost rate for inspection and Work-as-Executed (WAE) for water mains and recycled water mains are the same. However, the level of inspection required from main to meter (consumer service) is significantly higher for recycled water than for potable water. To satisfy OHS compliance a 100% inspection of each recycled water consumer service is required. Process

Approved material and colour for the drilling saddle/main tap Drilling completed in accordance with standard Approved work practices Approved plumbing material/colour Hydrostatic water test Cross Connection Control at mains Identification tape affixed Locking device and tag installed on each water meter tap Sand barrier and backfilling to standard Stakes marking both services

PROPOSED CHARGE = $9.45 per metre


58. Reservoir Construction Inspection & WAE Fee

NEW CHARGE Function Overview: Comprises inspection / audit of reservoir construction works to ensure that specified quality is achieved. Work-as-executed comprises survey of the constructed work and modifying plans to detail the precise location of the reservoir and associated work for inclusion in Hunter Water’s GIS (SWIMS) database Explanation: Reservoir construction inspection fees are applied by Hunter Water's Contracts Group for the management of such works undertaken by developers. For the most part contract management includes:

3) Review of the contractor's safety management plans, and 4) Regular inspection / audit of works to ensure that only approved materials are used and that

the works comply with Hunter Water's standards.

Inspection fees for reservoir construction also include components for collection of work-as-executed (WAE) data and subsequent survey information to ensure that the works are accurately updated on Hunter Water's GIS. The fees are calculated on a job by job cost recovery basis.

Process

Management of the contract 1hr/wk

On-site auditing to ensure materials and construction meet Hunter Water standards including follow-up checks during the 12 month defects period

7hrs/wk

Pre-commissioning and commissioning inspections

Work-as-executed information detailed for inclusion in Hunter Water GIS

Additional inspection and or management at the Technical Services Hourly Rate

$120/hour

Average time for function 8hrs/wk

PROPOSED CHARGE = Quote


59a). Inspection of a Water Cart Tanker NEW CHARGE Function Overview: Initial inspection of a new Water Cart tanker or annual inspection of a Water Cart tanker to ensure the air gap and backflow prevention is sufficient to protect HWC potable water supply. The location of the inspection will be negotiated with the customer to take place at either a location in the field nominated by the Customer or a Hunter Water depot.

Process

Process tanker inspection fee

Arrange and date for inspection with customer

Log inspection with Plumbing Inspector

Water Operations administrative functions (arrange for Inspector to attend site, record results and provide outcome to Customer Service Staff)

Update Water Cart register with results

Prepare and post letter of results

Scan documentation to TRIM




Australia Post $0.50

Plumbing Inspector costs (includes travel ) $76.07



59b). Reinspection of Water Cart Tanker Due to Non Compliance NEW CHARGE Function Overview: Reinspect a Water Cart tanker if it was non compliant at the initial inspection. The purpose of the inspection is to ensure the air gap and backflow prevention is sufficient to protect HWC potable water supply. Arrangements need to be negotiated with the customer to determine whether the tanker will be inspected in the field or at a depot. This fee will be charged each the tanker requires a follow up inspection due to non compliance.

Process

Contact customer to arrange a suitable and date to reinspect tanker.

Process Reinspection Fee in CIS

Log inspection with Plumbing Inspector

Update water cart register with results

Prepare and post letter of results

Scan documentation into TRIM




Australia Post $0.50

Plumbing Inspector Cost (includes travel ) $76.05



60. Inaccessible Meter - Reading Agreement NEW CHARGE Function Overview: Preparation of an agreement with a Customer, whereby the Customer provides Hunter Water with water meter reading. This arrangement is necessary where the meter is not accessible to Hunter Water as part of our normal meter reading processes. Both the customers obligations and Hunter Water’s rights regarding access to the water meter are outlined in Section 10.4 of the Customer Contract. Process

Contact customer, initiate discussions and provide details regarding establishing a Meter Reading Agreement with Hunter Water. Time covers negotiations with customer to advance matter through to establishment of an agreement.

Prepare agreement/letter and mail to customer for signing

Follow up phone calls or letter to customer is usually always required to obtain signed agreement.

Verify details of returned, signed agreement

Prepare letter and mail copy of signed agreement to Customer

Update property notations on CIS

Scan related documents into TRIM file

Average time for function 35 minutes Calculation and Proposed Charge: Hunter Water costs Australia Post postage cost PROPOSED CHARGE =

$45.20$0.50

$45.70


61. Inaccessible Meter - Imputed Charge for Breach of Meter Reading Agreement

NEW CHARGE Function Overview: Apply a charge for water and sewer usage when a customer breaches their Meter Reading Agreement with Hunter Water by failing to provide a meter reading within the specified time requested. The purpose of this charge is to recover the costs incurred vin managing accounts when Meter Reading Agreements have been breached and to encourage the Customer to provide a meter reading as per the agreement. Both the Customer’s obligations and Hunter Water’s rights regarding access to the water meter are outlined in Section 10.4 of the Customer Contract. This charge allows for the additional cost associated with the inaccessible meter read compliance to be cost recovered. There is substantial time and effort invested in achieving full compliance with the Customer Contract. Process

Calculate estimated consumption and charges

Raise charges in CIS on customer account

Generate bill

Enter actual reading in CIS when received

Raise charges in CIS on customer account

Average time for function 15 minutes Calculation Components: A = Annual Average residential water consumption of 210 kls B = Water Usage Rate per Kilolitre for the Financial Year C = Sewer Usage Rate per kilolitre for the Financial Year D = Residential Sewer Discharge Factor of 50% Calculation: (A x B) + (A x D x C) / 3 Calculation and Proposed Charge Hunter Water costs $16.80 PROPOSED CHARGE $16.80

plus imputed usage charge


62. Damaged Meter Replacement NEW CHARGE Function Overview: The replacement of meters that have been wilfully or accidentally damaged by a third party as noted in 10.2 of the Customer Contract. In this situation the customer is responsible for the replacement cost of the asset. This does not include normal wear and tear. Process

Accept returned damaged meter at counter and process Damaged Meter Replacement Fee

Raise Field Activity on CIS and receipt payment

Average time for function 10 minutes Calculation and Proposed Charges

20mm Meter

Hunter Water costs Contractor Cost to affix replacement meter (new contract price quoted) Cost of meter PROPOSED CHARGE =

25mm Meter


32mm Meter


40mm Meter


50mm Light Meter


50mm Heavy Meter


$9.05 $25.30 $36.00 $70.35

$9.05 $25.30 $76.00

$110.00

$9.05 $25.30

$149.00

$9.05 $25.30

$115.00 $173.00

$9.05 $25.30

$250.00 $284.00

$9.05 $25.30

$300.00 $334.00


65mm Meter


80mm Meter Hunter Water costs Contractor Cost to affix replacement meter (new contract price quoted) Cost of meter PROPOSED CHARGE =





$9.05 $25.30

$390.00 $424.00

$9.05 $25.30

$400.00 $434.00

$9.05 $25.30

$420.00 $454.00

$9.05 $25.30

$775.00 $809.00

$9.05 $25.30

$2772.00 $2,806.00

$9.05 $25.30

$3530.00 $3,564.00


63. Affix a Separate Meter to a Unit NEW CHARGE Function Overview: Affix a meter to a unit within a registered Strata Plan where the meter frame is compliant with requirements. This fee will be applied for each meter that is affixed. Process

Receipt Fee

Identify property

Arrange contractor to affix meter

Amend Meter and Service Agreement on CIS

Average time for function 15 Minutes Calculation and Proposed Charge Hunter Water costs $20.67Contractor Costs $9.40 PROPOSED CHARGE $30.05


64. Recycled Water Meter Affix Fee NEW CHARGE Function Overview: Installation of a water meter to the Recycled water connection framework for the recycled water supply. This fee covers the administration cost as well as the contractor cost to affix the meter to the meter frame.

Process

Field Activity raised in CIS for contractor to affix a water meter to the recycled water service

Field Activity raised to contractor audit that recycled water service is locked

If audit passes, update Field Activity

Account management (enter meter details, bill cycle route, sequencing)



Contractor Cost to Affix Meter $24.75



65. Plumbing Non-Compliance Follow Up Inspection Fee NEW CHARGE Function Overview: Upon initial inspection, plumbing works occasionally fail to comply with the NSW State Code of Practice: Plumbing and Drainage. In this situation, Hunter Water provides the plumber with a notice to rectify the defective works. Once informed by the plumber that the works have been rectified, we undertake a second inspection (currently at our own expense). Charging a fee to the Licensed Plumber will recover the costs associated with the additional inspection and provide a much better deterrent for plumbers to ensure future compliance. The Victorian Plumbers Association and Sydney Water both charge plumbers this fee and have seen a decrease in non-compliant works from 30 % to 11.5 %. The Victorian Plumbing Association (that have a 5% audit regime on plumbing works) largely attribute this improvement to the existence of penalties. Hunter Water have sought (based on legal advice) to amend their regulation to allow plumbers to be charged this non-compliance fee. This fee is built up from the general inspection fee plus the administrative processes involved in handling the non-compliance. Process

Consultation with admin staff regarding failure Consultation with plumbing inspectors regarding failure Create Field Activity & receipt fees Inspection by plumbing inspector Update of Field Activity spreadsheet Monitor initial notice to repair in CIS Creation of final notice to repair in CIS, consultation with plumbing inspector Creation of sanction notice to repair in CIS




66). Application for Recycled Water Service Connection – Domestic

NEW CHARGE Function Overview: This function covers two separate connections types.

a) Pre-Laid Service: The processing of applications to connect a new recycled water service. The inspection fee component of this charge involves 3 separate inspections for pre-laid recycled water services, these inspections are noted below as Inspections 1 to 3. Inspection is carried out at different stages of the connection process to ensure the connection is compliant with Plumbing Guidelines and to ensure Hunter Water’s assets are protected.

b) Redevelopment: The processing of properties being redeveloped and connecting to an

existing recycled water service that has NOT been pre-laid. These connections required an additional inspection than the pre-laid connections. The additional inspection is detailed below as Inspection 4.

Both charges recoup Hunter Water’s administration as well as the mandatory inspections to ensure each connection is compliant with the Plumbing Guidelines:

Inspection 1 – inspection of service between the meter and the house Inspection 2 – inspection of the completion of the internal house plumbing Inspection 3 – final inspection of service Inspection 4 – inspection of the new drilling into the recycled water main and the recycled water connection (property service)

Process

Identify property on Hunter Water’s customer services database

Identify property on plan to confirm that recycled water is available.

Raise a Recycled Water Connection Case against property account on customer services database including administration fees & inspection scheduling

Receipt payment



a) Pre-laid service: Administration costs Recycled water plumping inspection fee PROPOSED CHARGE

$50.40 $236.70 $287.00

b) Redevelopment:

Administration costs Contractor Costs to read meter outside contract business hours PROPOSED CHARGE

$50.40 $315.60 $366.00

APPENDIX J ACTIVITY AND REVENUE SUMMARY - CUSTOMER SERVICE MISCELLANEOUS CHARGES

Service No.

Function Description Existing Charge Proposed Charge ($08/09)

Predicted Quantity

Predicted Income

Water supply miscellaneous charges

7 Water Reconnection After Restriction

a) During Business Hours Restoration of the water supply during business hours to a property restricted for non-payment of accounts when payment has been received, during normal business hours (8am to 3pm). b) Outside Business Hours Restoration of the water supply outside business hours to a property restricted for non-payment of accounts during the hours of 3.00pm to 8.00am the following business day.

a) $57.85

b) $173.90

a) $59.55

b) $160.00

1,200

62

$71,460

$9,920

9a) Application for Water Disconnection – all sizes

Process applications to disconnect an existing water service – all sizes

$30.15 $94.95 150 $14,243

9b) Application for Recycled Water Disconnection

Process applications to disconnect an existing recycled water service. A plumbing inspection is required to ensure the service has been correctly capped off and complies with Plumbing Standards.

NEW $123.00 30 $3,690

10 Application for Water Service Connection - up to and including 25mm

Process applications to connect a new water service.

$34.80 $101.00 250 $25,250

Appendix J Activity and revenue summary – customer miscellaneous charges J.1

Service No.

Function Description Existing Charge P ge Predicted Quantity

Predicted Income

roposed Char($08/09)

66 Application for Recycled Water Connection - Domestic

This charge recoups the costs associated processing of applications and mandatory inspections for recycled water service connections.

NEW a) $287.00 (pre-laid connections)

b) $366.00 (redevelopment)

400

50

$114,800

$18,300

22 Application to Connect/ Disconnect Water and Sewer Services (combined application)

Process combined application to connect a new water and/or sewer service or to disconnect an existing water and/or sewer service.

$40.65 $101.00 1,500 $151,500

24 Request Separate Metering of Units

Process a request for separate sub-metering of individual units within a registered Strata Plan or Community Title. This fee is applied per plan regardless of the number of units.

$72.85 1 – 4 units $92.15 5 – 10 units $119.05 +10 units

$34.10 per plan

150 $5,115

25 Unauthorised Connections Apply a charge to a Customer Account to recover costs and appropriate application fees where a connected service is located but no application to connect has been lodged with Hunter Water.

NEW $148.00 65 $9,620

29

Meter Affixtures/Handling Fee Installation of a water meter to the water connection framework. Customers have three options as follows, depending on the size of the water meter that is to be affixed:

a) Up to 50mm light duty. b) For meters 50mm or larger, Hunter

Water can deliver the meter.

$21.85 (up to 50mm light duty)

a) $22.95 (up to 50mm light duty)

b) $17.55

1,630

11

$37,409

$193


Service No.


Predicted Quantity

Predicted Income

30 Inspection of Non-Compliant Meters

Reinspect a proposed multi-metered development or stand alone property where a second inspection is required for separate metering as Meter Frames were either Non-Compliant or were not accessible at initial inspection.

House: Not charged

Units: 1 – 4 units $34.55 5 – 10 units $42.20 + 10 units $57.50

$48.55

25 $1,213

32 Connect to or Building Over / Adjacent to Stormwater Channel for a Single Residence

Process applications from customers connecting a single residence to a stormwater channel or erecting a single residence over / adjacent to a stormwater channel held by Hunter Water.

$71.15 $71.15 20 $1,423

60 Inaccessible Meter – Reading Agreement

Preparation of an agreement with a Customer, whereby the Customer provides Hunter Water with water meter reading. This arrangement is necessary where the meter is not accessible to Hunter Water as part of our normal meter reading processes.

NEW $45.70 300 $13,710

61 Inaccessible Meter – Imputed Charge for Breach of Meter Reading Agreement

Apply a charge for water and sewer usage when a customer breaches their Meter Reading Agreement with Hunter Water by failing to provide a meter reading within the specified time requested. This charge is in additional to water and sewer usage charges that will be raised when an actual meter reading is obtained.

NEW $16.80 + imputed usage as per calculation

300 $5,040


Service No.


Predicted Quantity

Predicted Income

62 Damaged Meter Replacement The replacement of meters that have been wilfully or accidentally damaged by a third party as noted in 10.2 of the Customer Contract. In this situation the customer is responsible for the replacement cost of the asset. This does not include normal wear and tear.

NEW 20mm $70.35 25mm $110.00 32mm $149.00 40mm $173.00 50mm L $284.00 50mm H $334.00 65mm $424.00 80mm $434.00 100mm $454.00 150mm $809.00 250mm $2806.00 300mm $3564.00

100 $7,000

63 Affix a Separate Meter to a Unit

Affix a meter to a unit where the meter frame is compliant with requirements. This fee will be applied for each meter that is affixed.

NEW $30.05 1,200 $36,060

64 Recycled Water Meter Affix Fee

Costs associated with affixing a meter to a recycled water service at a customer’s property.

NEW $48.00 400 $19,200

Wastewater services miscellaneous charges

21 Application to Connect/Disconnect Sewer Service (or for Special Internal Inspection Permit)

Process applications to connect a new sewer service or to disconnect an existing sewer service.

$38.30 $125.00 145 $18,125

27 Determining Requirements for Build Over/ Adjacent to Sewer or Easement

Attaching conditional requirements to Council approved building plans to safeguard Hunter Water assets.

$60.95 $83.70 620 $51,894


Service No.

Function Description Existing Charge Proposed Charge Predicted Quantity

Predicted Income ($08/09)

Plans and statements

1 Conveyancing Certificate a) Over the Counter Over the counter statement of outstanding rates and charges at a specific date which is issued to solicitors, conveyancing companies and individuals as a requirement for buying and selling property. b) Electronic Electronic statement of outstanding rates and charges at a specific date. Issued to solicitors, conveyancing companies and individuals as a requirement for buying and selling property

a) $20.90

b) $8.20

a) $30.10

b) $8.40

1,010

9,070

$30,401

$76,188

2 Property Sewerage Diagram (up to A4)

Where available, issue a copy of a diagram showing the location of the house-service line, building and sewer for a property.

$15.10 $16.20 723 $11,712

3 Service Location Diagram a) Over the Counter Over the counter plan of Hunter Water’s services and connection points in relation to a property’s boundaries or a statement that no sewer main is available. b) Electronic Broker or agent lodges an application via the Land Title Office interface and extracts property details, produces an electronic plan of Hunter Water’s services and connection points in relation to a property’s boundaries or a statement that no sewer main is available.

a) $15.10

b) $8.75

a) $22.65

b) $14.25

887

7,985

$20,091

$113,786


Service No.

Function Description Existing Charge Pro e Predicted Quantity

Predicted Income

posed Charg($08/09)

4 Meter Reading - Special Reads and by Appointment (previously Special Meter Reading Statement)

Provide a statement of account where customers request a special meter reading. Meter Reader obtains a special reading outside of the existing read schedule: a) During business hours, or b) Outside of business hours, by appointment

MODIFIED a) $23.35

b) $42.90

85 5

$1,985

$215

5a) Billing Record Search Statement (up to 5 years)

Customer requested search of Hunter Water’s archived financial reports providing account details for up to 5 years. Account details for the current and previous financial year are free of charge. This charge is applied for each property requiring a billing record search.

$53.40 $61.70 50 $3,085

5b) Billing Record Search for Multiple Properties.

An hourly charge to prepare and provide billing and consumption data to owners of multiple properties.

NEW $77.50/hour 70 $10,850 (estimate 2

hours each search)

6 Build Over/Adjacent to Sewer Advice

Attaching conditional requirements, Statement of Approval Status for Existing Building Over or Adjacent to Sewer.

$25.50

$77.20 70 $5,404

26 Building Plan Stamping Approval of basic building/development plans certifying that the proposed construction does not adversely impact on Hunter Water’s assets.

NEW $11.60 12,500 $145,000


Service No.

Function Description Existing Charge P rge Predicted Quantity

Predicted Income

roposed Cha($08/09)

31 Standard Plumbing Inspections (previously Special Inspections)

There are three different types of Special Inspections with each inspection type attracting its own fee.

a) Inspection of rainwater tanks and water cartage storage tanks and the inspection of temporary toilet connections to the sewer on large building sites.

b) Additional Recycled Water Connection inspections.

c) Hourly rate for commercial plumbing inspections.

$66.20 a) $94.15

b) $97.00

c) $68.85 per hour

1,980

80

330

$186,417

$7,760

$22,721

Ancillary services

8a) Workshop Flow Rate Test of a Mechanical Water Meter

Removal, transportation and flow rate test of mechanical water meter by an accredited organisation at the customer’s request to determine the accuracy of the water meter.

20mm-25mm $187.45 32mm $233.15 40mm $250.60 50mm light $277.10 50mm heavy $508.25 65mm $508.25 80mm $512.60 100mm $596.25 150mm $596.25

20mm-25mm $156.00 32mm $213.00 40mm $223.00 50mm light $256.00 50mm heavy $459.00 65mm $461.00 80mm $469.00 100mm $569.00 150mm $706.00

46 0 2 0 2 0 2 0 0

$7,176 $0

$446 $0

$918 $0

$938 $0 $0


Service No.


Predicted Quantity

Predicted Income

8b) Workshop Flow Rate and Strip Test of a Mechanical Water Meter

Removal, transportation, flow rate and strip test of a mechanical meter at the customer’s request to determine the accuracy of the water meter. Two options were built into the previous charge where only a flow rate could be applied or the higher fee was charged when a strip test was also required. This charge has been restructured into two separate charges.

MODIFIED 20mm-25mm $216.00 32mm $273.00 40mm $283.00 50mm light $316.00 50mm heavy $519.00 65mm $521.00 80mm $529.00 100mm $629.00 150mm $766.60

5 $1300 (approx)

14 Standpipe Hire Security Bond Moneys paid by standpipe hirers and held in a public moneys account, refundable upon return of the standpipe in an undamaged state and upon payment of all outstanding hire and usage charges. The Bond is the actual purchase price of the Standpipe.

20mm $327.90 32 and 50mm $765.10

20mm $280.00 32mm H $750.00 32mm L $340.00

50mm $750.00

1 20 20 10

$280 $15,000 $6,800 $7,500

15 Standpipe Hire Hire fees payable for the use of a portable metered standpipe owned by Hunter Water that is used to extract water from a water main.

Quarterly - Not available Tri-annual 20mm $24.50 32mm $61.20

50mm $65.60

Monthly 20mm $11.60 32mm $20.75

50mm $21.85

Quarterly - Not available Tri-annual 20mm $38.30 32mm H $46.20 32mm L $39.30 50mm $46.20 Monthly 20mm $8.45 32mm H $16.35 32mm L $9.45 50mm $16.35

320 $55,000 (approx)


Service No.


Predicted Quantity

Predicted Income

16 Standpipe Water Usage Fees Charge per kilolitre of measured consumption on a standpipe

As per water usage tariff per kilolitre

As per water usage tariff per kilolitre

300 -

17 Backflow Prevention Device Application and Registration Fee

Charge for the initial application and registration of a backflow prevention device.

$20.90 $23.25 720 $16,740

18a) Backflow Prevention Device Annual Administration Fee

Charge for the maintenance of backflow prevention device records including logging of inspection reports.

$13.95 $15.25 4,000 $61,000

18b) Backflow Device Test Arrange to test a customer’s backflow device as a result of them failing to arrange their own test as per the Customer Contract.

NEW $242.00 350 $84,700

23 Irregular and dishonoured payments

a) Banking Authority – Cheque Declined Fees relating to cheques returned by banking authorities as irregular or dishonoured. b) Banking Authority – Direct Debit Declined Fees relating to Direct Debit payment declines. c) Australia Post – Cheque Declined Fees relating to cheques dishonoured when paid at Australia Post agencies.

a) $22.50

b) $14.30

c) $28.00

a) $21.95

b) $24.45

c) $36.95

37

560

50

$812

$13,692

$1,847

28a) Application to Hire a Metered Standpipe

Process applications for the hire of a portable metered standpipe

$121.85 $164.00 50 $8,200



Service No.


Predicted Quantity

Predicted Income

28b) Breach of Standpipe Hire Conditions

These fees are applied to a customer’s account each time they fail to provide a standpipe meter reading as per the conditions of the Hire Agreement. The Agreement advises if three breaches occur the Agreement will be terminated. Due to processing times each breach attracts its own charge.

NEW

Breach 1 $19.90 Breach 2 $25.05 Breach 3:

Step 1 $28.90 Breach 3

Step 2 $31.50

1,050

$21,000 (approx)

59a) Inspection of a Water Cart Tanker

Initial inspection of a Water Cart tanker or annual inspection to ensure the air gap and backflow prevention is sufficient to protect HWC potable water supply. The location of the inspection will be negotiated with the customer to take place at either a location in the field nominated by the Customer or a Hunter Water depot.

NEW $114.00 25 $2,850

59b) Reinspection of water tanker due to Non-Compliance

Reinspect a Water Cart tanker if it was non compliant at the initial inspection. The purpose of the inspection is to ensure the air gap and backflow prevention is sufficient to protect HWC potable water supply. This fee will be charged each time the tanker requires a follow up inspection due to non compliance.

NEW $98.50 10 $9,950

65 Plumbing Non-Compliance Follow Up Inspections

A fee to imposed on licensed plumbers to recoup our costs in follow up inspections due to non compliant plumbing work.

NEW $81.40 640 $52,096

TOTAL INCOME $1,619,025

APPENDIX K ACTIVITY AND REVENUE SUMMARY - COMMERCIAL DEVELOPMENT MISCELLANEOUS CHARGES

Service No Function Description Existing

Charge Proposed

Charge ($08/09)

Predicted Quantity

Predicted Income

11 Application for Water Service Connection - 32 to 65mm

This covers administration and system capacity analysis as required including hydraulic assessment. Applicable where a new meter connection is required. Also includes fee for connection to service.

$294 $294

Included with Statement of

Pressure & Flow (no. 31)

Included with Statement of

Pressure & Flow (no. 31)

12a) Application for Water Service Connection - 80mm or greater

This covers administration and system capacity analysis as required including hydraulic assessment and processing and assessment of tee and valve requirements. Applicable where a new meter connection is required. Also includes fee for connection to service.

$539 $539

Included with Hydraulic

Assessment Application –

80mm and above (no. 58)

Included with Hydraulic

Assessment Application –

80mm and above (no. 58)

13

Application to Assess a Water main Adjustment - Moving and fitting and / or adjusting a section of water main up to and including 25 metres in length

This covers preliminary advice as to the feasibility of the project and will cover either: 1) A rejection of the project in which case the fee

covers the associated investigation costs, or 2) Conditional approval in which case the fee covers

the administration costs associated with the investigation and record amendment.

$375 $265 Included with

Application Fee (no. 43)

Included with Application Fee

(no. 43)

Appendix K Activity and revenue summary – commercial development miscellaneous charges K.1

Service No Function Description Proposed

Charge ($08/09)

Predicted Quantity

Predicted Income

ExistingCharge

19 Major Works Inspection Fee

This fee is for the inspection for the purpose of approval of water and sewer mains constructed by others that are longer than 25 metres and / or greater than 2 metres in depth.

a) Water mains - $6.89/m

b) Gravity sewer mains -$10.38/m

c) Rising sewer mains or LPSS - $6.89/m

a) $6.89/m b) $10.38/m c) $6.89/m

30,000m 33,000m 2,000m

$206,700 $342,540 $13,780

20 Statement of Available Pressure and Flow

Water pressure report detailing relative water pressures in Hunter Water’s water mains. This fee covers all levels whether modelling is required or not to investigate available pressure and flows at specific flow rates from Hunter Water's main.

$306 $288 230 $66,209

33 Stormwater Channel Connection

New developments unable to drain to the street drainage system may be serviced by a Hunter Water stormwater channel if available. The fee covers the cost of assessment.

$282 $250 5 $1,250

34

Hydraulic Design Assessment (previously Hydraulic Assessment Application – less than 80mm)

The NSW Code of Practice: Plumbing and Drainage requires developments with large domestic or fire water demands and / or trade waste discharges to lodge hydraulic designs for Hunter Water's approval. This service is normally provided to redevelopments using an existing meter.

$268

a) Up to 10 drawings $258

b) 11 to 50 drawings $258 + $23/drawing

c) >50 drawings – $1,178 + quote

329

1,678 -

$84,882

$38,592

Quote



Charge Proposed

Charge ($08/09)

Predicted Quantity

Predicted Income

35 Pump Station Design Assessment

Water, recycled water and sewer pump station designs prepared by consultants are audited to ensure compliance with Hunter Water standards.

WPS - $2,789 SPS - $3,069 RWPS – n/a

$3,380/ WPS $3,722/ SPS

$3,380/ RWPS

2 9 1

$6,760 $33,495 $3,380

36 Application to Assess Sewer Main Adjustment

This covers preliminary advice as to the feasibility of the project and will cover either: 1) A rejection of the project in which case the fee

covers the associated investigation costs, or 2) Conditional approval in which case the fee covers

the administration costs associated with the investigation and record amendment.




(no. 43)

37 Indicative Developer Charge Application

This fee covers assessment of the proposed development and determination of indicative developer charges.

$248 $200 3 $600

38

Revision of Development Assessment (previously Revision of Notice of Requirements)

The revision fee covers the cost of recalculating the developer charge and reviewing the design and construction requirements.

$316 $286 72 $20,618

39 Bond Application

This fee covers the lodging and release of a bond, and an estimation of the cost of outstanding works, where a developer wishes to provide security in lieu of constructing works to facilitate early release of Hunter Water compliance certificates.

$1,226 $1,304 10 $13,040

40 Bond Variation This charge covers Hunter Water's administration cost for adjustment of securities. $178 $188 2 $375

41

Development Assessment Application (S.50) (previously Application Processing Fee)

The application fee covers the basic processing of each application to determine if there are any requirements such as developer charges, design and/or the construction of works.

$375.00 $345 1,679 $579,484



Charge Proposed

Charge ($08/09)

Predicted Quantity

Predicted Income

42 Application for Water / Sewer Main Extensions

Unserviced property owners can apply for approval to extend water and / or sewer mains. Hunter Water calculates appropriate developer charges and extension options based on system capacity and topographical constraints.




(no. 43)

43 Assessment of Minor Works

Some applications required relatively minor works – typically 1 into 2 lot subdivisions in urban areas where water and sewer facilities are connected to the lot being subdivided. The resources required to assess minor works designs are considerably less than those required for large developments.

$592 $618 296 $183,042

44a)

Major Works Design Review and Contract Preparation (previously Assessment of Major Works)

This category consists principally of large subdivisions or 'greenfield' sites. As a result of the works being large scale applicants are required to engage consultants to prepare the designs. Following approval of the designs, construction is supervised by Hunter Water, which also carries out the work-as-executed survey and connections to live water mains. These fees are separately charged.

$2,129.00 $2,109 181 $381,729

44b) Major Works Design Re-Assessment

Associated with Fee No.44 – when a design consultant submits poor quality designs it may become necessary for Hunter Water to complete and additional phase of design review. In such circumstances the Major Works design Re-Assessment fee shall apply.

NEW $278 13 $3,614

45a) Connection to Existing Water System - major works (valve shutdown)

This fee covers shutdown of water supply by Hunter Water using valves to allow connections to existing mains and recharging the main.

$671 $601 70 $42,070

45b)

Connection to Existing Water System - major works (non-valve shutdown)

This fee applies for shutdown of water supply by the developer (or their contractor) using a non-valve method to allow connections to existing mains and recharging the main.

MODIFIED CHARGE $249 10 $2,490



Charge Proposed

Charge ($08/09)

Predicted Quantity

Predicted Income

46a)

Insertion or Removal of Tee & Valve (valve shutdown and charge up)

This fee applies when the developer elects for Hunter Water to insert the connection to existing mains and where the shutdown is performed using valves.

$841 $912 70 $63,840

46b)

Insertion or Removal of Tee & Valve (non-valve shutdown and charge up)

This fee applies when the developer elects for Hunter Water to insert the connection to existing mains and where the shutdown is performed by the developer (or their contractor) using a non-valve method.

$671 $559 20 $11,180

47 Application for Additional Sewer Connection

Development requiring alternative sewer connection points must make an application to Hunter Water. Review of options and assessment of drawings or designs.

$282 $250 5 $1,250

48 Tee & Valve Connection

Water services greater than 80mm diameter require special connection arrangements to Hunter Water's mains and are covered by an agreement and technical specification prepared on application.

$163 $183 90 $16,466

49 Minor Works Inspection Fee

Auditing of works constructed under minor works contracts to ensure that specified quality is being achieved.

$161 $161 120 $19,320

50 Major Works Inspection & WAE Fee

Comprises inspection / audit of works constructed under major works contracts to ensure that specified quality is achieved. Work-as-executed comprises survey of the constructed work and modifying plans to detail the precise location of the work for inclusion in Hunter Water GIS database.

a) WPS - $4,317

b) SPS - $5,848

c) RWPS – n/a

a) $4,317 b) $5,848 c) $4,317

2 9 1

$8,634 $52,632 $4,317

51

Application to Assess Encroachment on Hunter Water Land, Easement Rights or Assets

This fee is for a first pass review of an application to allow Hunter Water to advise requirements to be met and a quote for additional, more detailed assessment.

$274 $345 3 $1,035



Charge Proposed

Charge ($08/09)

Predicted Quantity

Predicted Income

52

Technical Services Hourly Rate (previously Fee per Hour)

This fee provides an hourly rate for the time taken for additional technical work to be undertaken. $99/ hour $99/ hour Quote Quote

53 Remote Application Fee

This fee covers applications made for a compliance certificate in an area remote from Hunter Water services and includes the basic processing of each application to issue a certificate.

$226.00 $214 130 $27,795

54

Preliminary Servicing Advice (previously Indicative Requirements Fee)

This charge covers technical assessment of a proposed development and general advice on the level of developer servicing plan charges.

$375 $326 60 $19,548

55 Servicing Strategy Review

Major developments often require the preparation of a servicing strategy for the whole development. Consulting engineers are engaged to prepare this strategy on behalf of a developer and Hunter Water reviews these strategies to ensure they are provide optimal connection options and are consistent with current guidelines.

$564 $572 80 $45,730

56 Environmental Assessment Report Review

Developments often require the preparation of Environmental Assessment Reports in association with water and sewer design and construction activities. Consultants are engaged by the developer to prepare this report and Hunter Water reviews the report to ensure outcomes comply with relevant legislative and regulatory requirements.

NEW $572 20 $11,433

57 Recycled Water Inspection & WAE Fee

Some developments require inspection and WAE services for dual reticulation (recycled water). This is in addition to the water and sewer inspection fees (listed as Fee No.19).

NEW $9.45/m 4,100 $38,745




Charge Proposed

Charge ($08/09)

Predicted Quantity

Predicted Income

58 Reservoir Construction Inspection & WAE Fee

Specific to reservoir construction: - Comprises inspection / audit of works constructed under major works contracts to ensure that specified quality is achieved. Work-as-executed comprises survey of the constructed work and modifying plans to detail the precise location of the work for inclusion in Hunter Water GIS database.

NEW Quote Quote Quote

TOTAL INCOME $2,346,575

Appendix L IPART information requirements L.1

APPENDIX L IPART information requirements

Information Chapter or AppendixReference

1 The uncertainties/ risks in Hunter Water’s operating environment over the upcoming determination period and beyond, including the nature of these uncertainties/risks and the likelihood of these impacting on specific costs.

2, 5, 8

2 How Hunter Water has ascertained the appropriate service levels that it plans to provide over the upcoming determination period and how these service levels relate to forecast costs.

3

3 Hunter Water’s capital expenditure over the current determination period, drivers of this expenditure and service outcomes achieved.

6

4 Hunter Water’s capital expenditure over the current determination period compared to expenditure allowed by IPART in the 2005Determination, and an explanation of variances.

6

5 Hunter Water’s projected capital expenditure program over the upcoming determination period, drivers of this expenditure and expected service outcomes to be achieved.

6

6 Separate identification of the capital costs covered under the Section 16A direction issued by the Minister.

6, 7

7 Hunter Water’s asset management framework, and the relationship between its asset management framework and capital expenditure program.

6

8 Any changes proposed by Hunter Water for the calculation of depreciation, including asset classes and asset lives for each asset class and the methodology or assumptions used to determine these.

6

9 The value and timing of contributions (including contributed assets) to Hunter Water from developers, government and/or other sources.

8

10 Any changes to the expected revenue from developer charges due to the draft developer charges determination.

8

11 Hunter Water’s operating expenditure over the current determination period, drivers of this operating expenditure and service outcomes achieved.

5

12 Hunter Water’s operating expenditure over the current determination period compared to expenditure allowed by IPART when it set prices in the 2005 Determination, and an explanation of any variances.

5

13 Hunter Water’s projected operating expenditure over the upcoming determination period, drivers of this expenditure, service outcomes achieved, specific efficiency programs and the potential for efficiency gains.

5

14 The drivers (including any ‘mandates’) behind Hunter Water’s recycled water schemes, and the forecast timing/uptake of each of its recycled water schemes.

9

See also AIR, SIR, DSPs

15 The costs and revenues of Hunter Water’s recycled water schemes over the current determination period, and forecast costs and revenues of its recycled water schemes over the upcoming determination period.

5, 6

See also AIR, SIR

16 Hunter Water’s actual and/or proposed means of cost recovery for each of its recycled water schemes over the current and upcoming determination periods, including its proposed approach to pricing its ‘mandatory’ recycled water schemes, with examples and explanations of calculated prices where possible.

9

Appendix L IPART information requirements L.2

Information Chapter or AppendixReference

17 Actual (over the current determination period) and forecast (over the upcoming determination period) avoided costs (capital and operating expenditure) attributable to Hunter Water’s recycled water projects, taking into account future demands to be placed on these schemes.

8

Information will be provided to IPART and its consultants on request.

18 Hunter Water’s performance against its output measures (as specified in the 2005 Determination).

C

19 Projects or activities that Hunter Water plans to undertake over theupcoming determination period and expected outputs or outcomes of these projects.

6, D, E, F

20 Hunter Water’s forecast water sales, by customer type or class, over the upcoming determination period and the methodology and assumptions used in developing these forecasts.

4

Additional information willbe made available to

IPART and its consultants on request.

21 Hunter Water’s forecast sales for its other regulated services, by customer type or class, over the upcoming determination period andthe methodology and assumptions used in developing these forecasts.

13, Appendices J & K

Additional information willbe provided to IPARTand its consultants on

request.

22 Hunter Water’s proposed prices (including level and structure) for its water and sewerage services over the upcoming determination period, and the reasoning or justification behind those proposals.

9, 10

23 If Hunter Water is proposing changes to its price structures, any perceived transitional issues that may arise.

9, 10

24 Hunter Water’s Long Run Marginal Cost (LRMC) of water supply, and the methodology and assumptions behind this estimate.

9

25 Hunter Water’s water supply/ demand balance over the short to medium term, including the relative scarcity of water.

4, 7

26 Hunter Water’s proposed prices (including level and structure) for its transfers of water to the Central Coast over the upcoming determination period, and the reasoning or justification behind this proposal (taking any account any arrangements for sharing costs of Tillegra Dam).

7, 9

27 Hunter Water’s proposed prices (including level and structure) for its other services, including stormwater drainage services, trade waste services, sewer service access and environmental improvement, and ancillary and miscellaneous customer services.

10, 11, 13, 14, I, J, K

28 Hunter Water’s reasoning or justification behind these proposals, including supporting cost information.

10, 11, 13, 14, I

29 The impact of Hunter Water’s proposed prices for its water, sewerage and other services on customer groups and on Hunter Water’s financial performance and standing.

8, 12, 13, 14

30 Any planned or proposed mitigation measures of Hunter Water to help customers adjust to price increases.

12, 14

31 Actual sales and revenue over the current determination periodcompared to forecast sales and revenue used for setting prices in the 2005 Determination.

A

Premier announces plan to kick-start housing construction

17 December 2008 Premier Nathan Rees today announced the Government’s plan to boost the NSW housing industry and improve housing affordability for families. Mr Rees said that the Government will deliver much needed reforms to infrastructure levies. “The Government will reduce levies that are charged on new developments by up to $64,000 per lot,” Mr Rees said. “Water levies, state government levies and local government levies charged to new developments will all be reduced as part of the plan, including:

• Cutting state infrastructure charges in the south west and north west growth

centres from $23,000 to around $11,000 per lot until June 2011. • Abolishing infrastructure levies payable to Sydney Water Corporation and

Hunter Water, saving up to $15,000 per lot. • Capping infrastructure contributions payable to local councils at $20,000 per

lot – with all contributions exceeding $20,000 requiring approval from the Planning Minister.

“We have listened to industry and local government and it is clear in some areas levies have been too high and have been slowing the construction of new homes,” Mr Rees said. ““We have also changed the timing of the payment of the reduced levies – they will no longer be charged up front and will now be charged when the lot is sold. “The NSW housing sector has been hit especially hard by the economic downturn. “Last financial year there was a 4.6% drop in development applications across NSW and only 16,000 new houses were constructed – compared to 31,000 in Victoria and 30,000 in Queensland,” Mr Rees said. “There is a clear need to stimulate the housing industry, which is vital to the state’s economy. “That’s why we are delivering the necessary changes to create the right conditions for a recovery in the housing sector.” Mr Rees said today’s plan to improve housing affordability builds on recent measures to help families including:

• An additional $3,000 grant for families building their first home or buying a newly-constructed home – taking the total grant to $10,000;

• Delivering cheaper public transport for families - every Sunday from December 21 families will be able travel anywhere in Sydney by bus, ferry or train for just $2.50 per ticket; and

1Appendix M Abolition of developer charges. News Releases by NSW Premier and letter from Acting Treasurer M.1

APPENDIX M ABOLITION OF DEVELOPER CHARGES

2

• Offering $1 fares for children over summer travelling to any of the of the 360 destinations on the CountryLink network.

The reforms follow a review of infrastructure levies announced as part of the Mini Budget in November. The review has included consultation with industry groups and local government. “These changes simplify the structure of levies, reduce unnecessary holding costs and reduce the overall contribution required from new developments,” Mr Rees said. ‘“They will reduce the cost of developing land, particularly in north west and south west Sydney, and I want to see those savings passed on to home buyers. “As interest rates continue to fall, and land is able to be developed more cost effectively, the conditions will be right to support a recovery. “Housing construction is one the great multipliers in our local economy and these measures are designed to stimulate construction and create jobs. Planning Minister Kristina Keneally said that the NSW Government has made significant reductions to state infrastructure levies, and we hope to see councils follow our example. “In particular, we do not want to see Voluntary Planning Agreements impact on the Government’s efforts to make housing and development more affordable,” Ms Keneally said. “We’ll continue to work with the housing industry and with councils to see what can be done to make houses more affordable, make land available more quickly, and ensure a fair level of contribution.”

Appendix M Abolition of developer charges. News Releases by NSW Premier and letter from Acting Treasurer M.2

Appendix M Abolition of developer charges. News Releases by NSW Premier and letter from Acting Treasurer M.3

updated january 2009 - ipart · contents ii 6 capital expenditure 59 6.1 background 59 6.2...

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