ICRC’s tariff review
26 October 2016
Background
Icon Water presentation
26 October 2016
Key dates – ICRC tariff review
NOVEMBER 2015
Release of issue paper
FEBRUARY 2016
Release of technical paper 1:
Water demand elasticity
JUNE 2016
Release of technical paper 2:
Marginal cost pricing
SEPTMEBER 2016
Release of draft report
We are here
NOVEMBER 2016
JANUARY 2017
Public forum
Submission on draft report close
ICRC Tariff Review Final report
JUNE 2017
Icon Water regulatory submission
APRIL 2018
Release of final ICRC pricing path
JULY 2018
New Icon Water prices commence
2
Background
Icon Water presentation
26 October 2016
Purpose
To provide you with sufficient information on water and
sewerage pricing options to enable you to:
•
consult with your members/constituents
•
provide feedback to Icon Water at the next CCF
meeting on 8 December 2016.
Please note: this slide pack should be considered in conjunction with information provided verbally by Icon Water at the
Community Consultative Forum meeting on 26 October 2016.
3
Agenda
Icon Water presentation
26 October 2016
1.
Summary of ICRC draft report
2.
Key considerations raised by the Community
Consultative Forum
• Affordability
• Water security
• Environmental sustainability
• Economic efficiency
3.
Tariff options
• Options for sharing supply costs
• Bill impacts
4
Icon Water presentation
26 October 2016
1. Summary of ICRC draft report
5
Key conclusions
Icon Water presentation
26 October 2016
“The current tariff structure no longer provides the most efficient
outcome given our current water security circumstances.”
“A mismatch between the Tier prices and marginal cost leads to
inefficient use of the water infrastructure and water resource.”
Simply:
• We have water security
• We have reduced per capita consumption patterns
• Large customers are finding off-network solutions
• No longer need to use price to discourage consumption
• Under utilisation of water and the network
Summary of ICRC draft report
6
Other key content
Icon Water presentation
26 October 2016
1. Drought pricing likely (>5 years)
2. Icon Water’s possible role in setting prices
3. Two transitional tariff path options proposed
ICRC Options
Supply charge ($ pa)
Usage charge ($/kL)
Option A
$610
$1.74
Option B
$390
$2.61
Summary of ICRC draft report
7
ICRC proposed transitional tariff paths
Icon Water presentation
26 October 2016
3,000
Current tariff structure
Annual water and sewerage bill ($)
2,500
ICRC option B
($2.61/kL)
2,000
ICRC option A
($1.74/kL)
1,500
1,000
Average residential
consumption for all water users
is 200 kL a year – also step
change from tier 1 to tier 2 in
the current tariff structure.
500
0
0
25
50
75
100
125
150
175
200
225
250
275
300
325
350
375
400
425
450
475
500
Annual water usage (kL)
Average household usage
Current tariffs
Summary of ICRC draft report
ICRC option A
ICRC option B
8
Icon Water presentation
26 October 2016
2. Key considerations raised by
Community Consultative Forum
• Affordability
• Water security
• Environmental sustainability
• Economic efficiency
9
Affordability
Icon Water presentation
26 October 2016
Icon Water examined:
• Consumption patterns of concession customers
•
Water and sewerage bill as a percentage of gross
household income
•
Water affordability in other jurisdictions
•
−
residential customers
−
large non-residential customers
Water bill comparison in other jurisdictions and the
ICRC options
Key considerations raised by Community Consultative Forum
10
Affordability
Icon Water presentation
26 October 2016
Water consumption by concession card holders
Average residential
consumption for all water
users -200 kL a year
14%
Proportion of customers
12%
10%
8%
6%
4%
2%
0%
Water usage kL per annum
Proportion of concession card holders
Proportion of residential customers
Source: Icon Water billing system, 2013-14
Number of concession holders with 1 year of water consumption: 8320
Consumption by concession card holders is broadly consistent with all
residential users.
Key considerations raised by Community Consultative Forum
11
Affordability
Icon Water presentation
26 October 2016
Water bills as a percentage of income
Table 1. Water and sewerage bill as percentage of lowest quintile of gross household income ($29,588 pa, ABS Statistics, 6523.0)
Percentage of income
8.00%
7.00%
6.00%
5.00%
Current tariff
4.00%
ICRC Option A
3.00%
ICRC Option B
2.00%
1.00%
0.00%
100kL
150kL
200kL
250kL
300kL
350kL
400kL
Annual water usage
Low income, low usage households will pay approximately $300 more
per annum under the ICRC’s preferred option (option A).
Key considerations raised by Community Consultative Forum
12
Affordability
Icon Water presentation
26 October 2016
Water bills as a percentage of income
Table 2. Water and sewerage bill as percentage of second quintile of gross household income ($70,928 pa, ABS Statistics, 6523.0)
3.50%
3.00%
2.50%
2.00%
Current tariff
ICRC Option A
1.50%
ICRC Option B
1.00%
0.50%
0.00%
100kL
150kL
200kL
250kL
300kL
350kL
400kL
Annual water usage
The increase (approx. $300 per annum) is much more affordable for
medium income, low usage households under the ICRC’s preferred
option (option A).
Key considerations raised by Community Consultative Forum
13
Affordability
Icon Water presentation
26 October 2016
Water bills comparisons between capital cities and ICRC Option A
Large non-residential customer
(10,000kL pa, 150mm meter)
Average residential customer (200kL pa)
Sydney
Sydney
Perth
Perth
Melbourne*
Melbourne*
Hobart
Hobart
Canberra
Canberra
Brisbane
Brisbane
Adelaide
Adelaide
0
200
400
600
800
1,000
1,200
0
10000 20000 30000 40000 50000 60000
If we follow the ICRC’s preferred option the shift is outside industry norm.
Key considerations raised by Community Consultative Forum
14
Affordability
Icon Water presentation
26 October 2016
Movement of supply charge and usage charges
7
6
Index 2003-04 = 1
5
4
Min Usage price ($/kL)
Max Usage price ($/kL)
3
Fixed charge ($/a)
2
1
0
2003–04
2007–08
2011–12
2015–16
Large usage customers have borne the cost of our water security
initiatives.
Key considerations raised by Community Consultative Forum
15
Water security in the ACT
Icon Water presentation
26 October 2016
ACT Government’s water objective
“For any year over the modelled period, there should be
less than a 5% probability of any level of temporary water
restrictions”
Simply:
We should not have water restrictions more than one year in
every 20 years.
Key considerations raised by Community Consultative Forum
16
Water security in the ACT
Icon Water presentation
26 October 2016
The ACT community
• Changed water usage habits to achieve a permanent reduction in
per capita consumption of 40% on 2007 levels (the target was 25%)
Icon Water
• Upgraded Mt Stromlo treatment plant
• Upgraded Googong treatment plant
• Reinstated Cotter Pump Station
• Murrumbidgee River to Cotter pump station
• Ability to transfer water from Stromlo to Googong
• Enlarged Cotter Dam
• Murrumbidgee to Googong pipeline
• Ability to transfer water from Murrumbidgee River to Tantangara Dam
In response to the Millennium drought, Icon Water and the community
worked together to improve water security in the ACT
Key considerations raised by Community Consultative Forum
17
Water security in the ACT
Icon Water presentation
26 October 2016
Inflows and water demand
500
Annual Inflow & Demand (GL)
450
400
350
300
250
200
2000/01 to 2009/10
Average Inflow 85
GL/year
Average
Consumption 54
2010/11 to 2015/16
Average Inflow 238
GL/year
Average
Consumption 46
GL/year
150
100
50
0
Total Inflow (GL)
Total Water Consumption (including losses) (GL)
Substantial increase in inflows while consumption has remained steady
Key considerations raised by Community Consultative Forum
18
Water security in the ACT
Icon Water presentation
26 October 2016
ACT dam storage levels 2000-2016
100%
275
Max storage
250
80%
225
70%
200
175
60%
150
50%
125
40%
100
30%
Capacity (GL)
Enlarged Cotter Dam
75
Jul-16
Jul-15
Jul-14
Jul-13
Jul-12
Jul-11
Jul-10
Jul-09
Jul-08
Jul-07
Jul-06
0
Jul-05
0%
Jul-04
25
Jul-03
10%
Jul-02
50
Jul-01
20%
Jul-00
Percent Full
90%
Combined Storage
Strong water security
19
Water security in the ACT
Icon Water presentation
26 October 2016
Scenarios to determine the timing for the next water storage projects are:
Project
completion
Scenario
Details
No demand
growth
Baseline – zero growth in water demand and declining per
capita consumption
Post 2062
Minor demand
growth
Medium series population growth with 50% contribution to
aggregate demand (Most likely scenario)
2060
Medium
demand growth
Incremental adjustment above scenario 1 – medium
series population growth with proportionate growth in
water demand
2043
High demand
growth
ABS’ series A population growth projection for ACT with
100% contribution to aggregate demand
2035
Key considerations raised by Community Consultative Forum
20
Water security in the ACT
Icon Water presentation
26 October 2016
What if we went through another Millennium Drought?
•
The worst drought on record
•
Lowest actual storage - 63 GL (30%) in June 2007
Q. What would be the hypothetical storage level if we experience the
same climate but with the current infrastructure and demand levels?
A. Modelled minimum storage level would be 150 GL or 54% of current
total storage.
Stage 1 temporary water restriction would not have been triggered.
Key considerations raised by Community Consultative Forum
21
Water security in the ACT
Icon Water presentation
26 October 2016
Volume of Water in Storage (GL)
100%
90%
250
80%
200
70%
60%
150
50%
40%
100
30%
20%
50
10%
0
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
0%
2017
Observed Historical Storage
Modelled Storage with Current System
Indicative Trigger for Stage 1
Indicative Trigger for Stage 2
Indicative Trigger for Stage 3
Indicative Trigger for Stage 4
Percentage of Current Icon Water Total
Storage
ACT water restriction triggers
If we went through another Millennium Drought we wouldn’t need to
trigger water restrictions.
Key considerations raised by Community Consultative Forum
22
Water security in the ACT
Icon Water presentation
26 October 2016
Key messages
 Water security projects undertaken in the past 5 years mean
there is no need for major water supply projects for at least
20 years and possibly longer.
 Increased inflows and rainfall mean that water storage levels
are currently at a record high compared to the last 15 years.
Key considerations raised by Community Consultative Forum
23
Environmental sustainability


Icon Water presentation
26 October 2016
Environmental compliance obligations
Avoid or mitigate damage to the environment
 Demonstrate Ecological Sustainable Development (ESD)
 Success through partnerships and engagement
Key considerations raised by Community Consultative Forum
24
Environmental sustainability
Icon Water presentation
26 October 2016
Our obligations
45 pieces of environmental legislation across ACT, NSW and Commonwealth
jurisdictions, such as:
•
Environment Protection Act 199x (ACT)
•
Water Resources Act 199x (ACT)
•
Protection of the Environment (Operations ) Act 199x (NSW)
•
Nature Conservation Act 199x (Commonwealth)
•
Tree Protection Act 199x (ACT)
•
Heritage Act 199x (ACT)
•
Environment Protection and Biodiversity Conservation Act 199x (Commonwealth)
•
National Greenhouse Energy Reporting Scheme Act 199x (Commonwealth)
Key considerations raised by Community Consultative Forum
25
Environmental considerations
Icon Water presentation
26 October 2016
Key messages
 Mandatory environmental flow releases contribute to the ACT
Government’s Sustainable Diversion Limit (‘water for the
environment’) requirements
 Effluent quality must be high in the ACT as an ‘environmental
return’ to the Murray Darling Basin
Trade-off - high water users may seek alternative, non-potable
water sources at risk to environmental flows
 Climate change and carbon policies can impact on water use
and water prices
Key considerations raised by Community Consultative Forum
26
Economic efficiency
Icon Water presentation
26 October 2016
Weighing up the costs and benefits of water use
Costs
Benefits
Pumping, energy and
treatment
User benefits
Bringing forward next
dam build / demand
management
Stormwater improvement
Environmental / scarcity
of water use
Visual
(suburban gardens)
Tourism
Ideally, we should use water when benefits are greater than costs.
Therefore, tariff should reflect costs.
Key considerations raised by Community Consultative Forum
27
Economic efficiency
Icon Water presentation
26 October 2016
How is the long-run marginal cost of water estimated?
$1.74/kL
Key considerations raised by Community Consultative Forum
28
Economic efficiency
Icon Water presentation
26 October 2016
Current state for large users
•
Large users are predominantly paying for
water charged at the Tier 2 usage price.
•
Highest top tier usage charge among all
Australian major utilities.
•
Non-residential customers are considering
investments in alternative (off-network) supply
arrangements that are considerably more
expensive than Icon Water’s long-run marginal
cost of supply.
LRMC
Key considerations raised by Community Consultative Forum
Price
29
Economic efficiency
Icon Water presentation
26 October 2016
Impact of off-network supply arrangements
(aka uneconomic bypass)
What if the ACT’s top 10 consumers no longer sourced water
from Icon Water?
• Total costs would need to be spread across the remaining customer
base.
• Increase in prices of 10.6% for remaining customers would be
required.
Key considerations raised by Community Consultative Forum
30
Icon Water presentation
26 October 2016
3. Tariff options
A usage price of
$1.74/kL would cover
around 40% of Icon
Water’s total costs.
The following slides
present six options for
recovering the residual
60% of Icon Water’s
costs.
31
Tariff options
Icon Water presentation
26 October 2016
#
Title
Usage charge
Supply charge
1
ICRC’s preferred tariff
structure
Single usage charge at long-run
marginal cost across all customer
types
Divided equally across all customer
types
2
Differentiation by
customer type
Single usage charge at long-run
marginal cost across all customer
types
Different supply charge for
residential and non-residential
customers
3
Differentiation by
connection size
Single usage charge at long-run
marginal cost across all customer
types
Residential: single supply charge
Non-residential: supply charges
based on connection size
4
Single usage charge,
no change to supply
charge
Single usage charge based on
recovery of residual costs across all
customer types
No change to the supply charge
5
Two tier usage
charge, higher supply
charge
Tier 1: based on average of current tier
1 price and long-run marginal cost
Divided equally across all customer
types to recover residual costs
Tier 2: based on set price to avoid
uneconomic bypass
6
Status quo
Tariff options
No change to two tier usage charge
No change to the supply charge
32
Tariff options
Options
Icon Water presentation
26 October 2016
Residential Customers
Non-residential Customers
Usage
#
Title
Tier 1
Tier 2
Usage
Supply
Tier 1
Tier 2
Supply
1
ICRC’s preferred
tariff structure
$1.74
n/a
$593.13
$1.74
n/a
$593.13
2
Differentiation by
customer type
$1.74
n/a
$562.76
$1.74
n/a
$1,125.50
3
Differentiation by
connection size
$1.74
n/a
$558.00
$1.74
n/a
4
Single usage, no
change to supply
charge
$3.69
n/a
$101.48
$3.69
n/a
$101.48
5
Two tier usage,
higher supply
charge
$2.18
$4.00
$294.50
$2.18
$4.00
$294.50
6
Status quo
$2.61
$5.24
$101.48
$2.61
$5.24
$101.48
Tariff options
Esample
Size
20mm
50mm
150mm
Charge
$558.00
$3,485.00
$31,369.00
33
Tariff options
Options
Icon Water presentation
26 October 2016
Affordability
Water
security
Environmental
sustainability
Economic
efficiency
ICRC’s preferred tariff
structure



Differentiation by customer
type



Differentiation by
connection size



Single usage charge, no
change to supply charge


Two tier usage charge,
higher supply charge


Status quo



The following slides inform judgements on affordability.
Tariff options
34
Tariff options
Icon Water presentation
26 October 2016
Residential bill estimates by option
3,000
Option 1
ICRC preferred option
Annual water and sewerage bill ($)
2,500
Option 2
Differentiation by
customer type
2,000
Option 3
Differentiation by
connection size
Option 4
Single usage charge,
no change to supply
charge
1,500
1,000
Average residential
consumption for all water users
is 200 kL a year
500
0
25
50
75
Option 5
Two tier usage charge,
higher supply charge
Option 6
Status quo
100 125 150 175 200 225 250 275 300 325 350 375 400 425 450 475 500
Annual water usage (kL)
Which option is best for the ACT?
Tariff options
35
Tariff options
Icon Water presentation
26 October 2016
Impact for houses
Proportion of houses
100%
10%
80%
60%
8%
40%
6%
20%
0%
4%
-20%
2%
-40%
% Change in total bill
120%
12%
-60%
0%
Proportion of
Proportion
of houses
housesby
bywater
wateruse
use(LHS)
(LHS)
2Differentiation
by
customer
type
2 - Customer type
4--Single
charge, no change to
4
Usageusage
charge
supply charge
11-- Equal
ICRC preferred option
33-- Connection
size
Differentiation
by connection type
55-- Remove
uneconomic
Two tier usage
charge,bypass
higher supply
charge
Options with higher usage charge have lower impact for houses.
Tariff options
36
Tariff options
Icon Water presentation
26 October 2016
Impact for residential units
25%
100%
80%
60%
40%
15%
20%
10%
0%
% Change in total bill
Proportion of customers
20%
-20%
5%
~10% sample
-40%
0%
-60%
1
10
30
50
Proportion of
units and flats
by water use
70
Equal
90
110 130 150 170 190 220 260 300 340 380 440 520 600 680 760 1000
Customer type
Connection size
Usage charge
Uneconomic bypass
Options with higher usage charges have lower impact for units.
Tariff options
37
Tariff options
Icon Water presentation
26 October 2016
Impact for non-residential with 20mm and 50mm connections
The largest users will have the biggest decrease under all options.
Tariff options
38
Next steps for forum members
Icon Water presentation
26 October 2016
Today Icon Water has provided you with sufficient information on water
and sewerage pricing options to enable you to:
•
consult with your members/constituents
•
provide feedback to Icon Water at the next Community Consultative
Forum meeting on 8 December 2016.
Icon Water will provide you with:
• An information pack containing a copy of this presentation and a
feedback template (to be sent to you electronically following this
meeting)
• Assistance in talking to your members/constituents, if required
39
Key dates for forum meetings
Icon Water presentation
26 October 2016
08 December 2016
16 February 2016
27 April 2017
40
Glossary
Icon Water presentation
26 October 2016
Long-run marginal cost
The cost added by producing one extra item of a product. In our case, the cost of
producing one extra kilolitre of water taking into account the impact on the timing of
future capital works.
Uneconomic bypass
When a user establishes an off-network source of supply that is more costly to the
community (though cheaper for the user) than supply by the primary network.
Economic efficiency
Maximising total wellbeing without regard to equity amongst individuals.
Environmental flows
The quantity, timing, and quality of water flows required to sustain freshwater and
estuarine ecosystems and the human livelihoods that depend on these
ecosystems.
Sustainable diversion limits
The maximum amount of water that can be taken from a river system for
consumption before it has a detrimental impact on the ecosystem.
41
How do we use water in the ACT?
Icon Water presentation
26 October 2016
100%
90%
80%
Non-residential
Commercial
70%
60%
50%
Residential
Residential
40%
30%
20%
10%
0%
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
Source: ABS 2015, ABS Cat. No. 4610.0 Water Account Australia
42