Essential Services Commission of South Australia’s (ESCOSA) Draft Determination, released 4 March 2020, has proposed reduced drinking water and sewerage revenues for SA Water while maintaining its existing service and safety levels for households and businesses, lowering bills for South Australians.
The Draft Determination, proposes an 18 per cent ($547 million) reduction in drinking water revenue and a 13 per cent ($164 million) cut in its sewerage revenue during the period 1 July 2020 to 30 June 2024 – largely due to significantly lower financing costs for the utility.
According to ESCOSA, at these levels, SA Water would still have enough revenue to fund efficient operations, finance prudent long-term investments, and meet health, safety, environmental and customer service standards.
South Australia Treasurer, Rob Lucas, welcomed the Draft Determination as a ‘first step’ in a longer and more detailed process that will ultimately deliver lower water bills for South Australians.
“For far too long now, hardworking South Australian families and businesses have been paying through the nose every time they turn on the tap,” Mr Lucas said.
“An independent inquiry into Water Pricing in South Australia last year, found the former Labor government deliberately inflated the value of SA Water’s opening regulated asset base (RAB) by at least $520 million (in 2012 dollars) to maximise profits and protect government revenues, driving up water bills.”
Before the government finalises decisions on SA Water prices for 2020-24, the following decisions have to be taken:
- Government direction to SA Water detailing activities it requires the utility to perform within its allowable revenue base, community service obligations such as state-wide pricing, as well as costs SA Water is required to pay, such as water planning and management fees
- Government sets water industry licence fees
- Government sets the value of the Regulated Asset Base (RAB) for SA Water
- ESCOSA releases Final Determination for the regulatory period 2020-24
After reviewing the Commission’s draft, SA Water said additional work is required over coming weeks to bridge identified information gaps and achieve better balance in the final determination.
SA Water will seek to better understand the Commission’s preferred methodology for estimating the costs of servicing debt, explore the reasoning behind the exclusion of some service improvement initiatives, and test the assumptions behind operating expenditure allowances.
SA Water General Manager Customer Delivery, Kerry Rowlands, said both SA Water and the Commission had put forward proposals that would see reductions to customer bills and agreed this as a shared priority.
“We’ve heard loud and clear that our customers want low and stable prices, with a real price reduction, and we need to make sure that outcome is achieved without impacting service levels or resulting in under investment that creates operational problems and a cost burden in a few years’ time,” Ms Rowlands said.
Over coming weeks SA Water will conduct a thorough review of the draft determination and submit a formal response to ESCOSA before 15 April 2020, when public submissions are still open. The Final Determination will be released in late May 2020.
Ms Rowlands acknowledged SA Water would take learnings from this process around the preparation of some business cases.
“Business cases for recycled water initiatives are never commercially strong because of the type of technology involved, although our customers overwhelmingly tell us they want to see more of it, and perhaps this sentiment was not adequately conveyed in our proposal,” Ms Rowlands said.
“We also need to understand if we could have better communicated the proposed regional and remote water quality improvement programs that were not included in the draft determination – while a metropolitan one was – despite our customers confirming a clear sense of equity and fairness, and specific support for these initiatives.”
