ESCOSA's report on SA Water bills
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SA Water – Water Retail Service Performance Outcomes – Outcomes – 2012/ 2012/13 13
Key Messages: • Financial performance: SA Water’s annual revenue from the provision of water retail services increased by 15% in 2012/13, due to a 25% increase in water tariffs, an 8% increase in water demand, and partially offset by a 53% fall in community service obligation receipts. SA Water has the highest drinking water prices and revenue/property connection of comparable Australian water utilities, but amongst the lowest operating costs/ property connection. Even taking account of relatively high capital expenditure in recent years, the high value of SA Water’s asset base appears to be the main driver of high revenues and customer water prices. • Operational performance: SA Water has only been subject to the new economic regulatory framework since 1 January 2013, nevertheless the Commission has made indicative assessments of SA Water’s operational performance in relation to applicable performance standards. Service interruptions: The duration and incidence of unplanned water supply interruptions were slightly higher than comparable interstate utilities. Service restoration: SA Water is not meeting the targets for the Adelaide Metropolitan area, but is performing well against its Regional restoration targets.
Since 1 January 2013, SA Water has been licensed by the Commission under the Water Industry Act 2012 2012 (WI (WI Act) to provide water retail services to approximately 740,000 customers in this State, servicing around 95% of the State’s population. From 1 January 2013, SA Water has been required to comply, as a condition of licence, with operational service standards set by the Commission in respect of the provision of water retail services. From 1 July 2013, SA Water has also been required to comply with a revenue determination set by the Commission. The Commission’s specific powers and functions under the WI Act, in relation to licensing, consumer protection and performance monitoring commenced on 1 January 2013. From 2013/14, the Commission will report on key metrics of SA Water’s financial and operational performance for water retail services for each financial year (based on data collected
Report 3
according to the Commission’ Commission’ss Water Industry Guideline No. 2). To set a baseline for those future reports, the Commission has prepared this initial performance report. Recognising that the Commission’ss regulatory regime commenced during the 2012/13 Commission’ fiscal year, this report sets out information relating to SA Water’s performance prior to that time (where the Commission has confidence in the integrity of the data used) as well as its performance during the first six months under the new regime. This report uses data directly reported to the Commission by SA Water and also data reported by SA Water to the National Water Commission for its annual National Performance Reports on Urban Water Utilities. This report draws comparisons between SA Water and other comparable Australian urban water utilities (those with 100,000+ connected properties) that are reported in the National Performance Reports. Those comparable utilities are the ACTEW Corporation, Hunter Water Corporation, Sydney Water Corporation, Gold Coast City Council, Logan C ity Council, Barwon Water, City West Water, South East Water Ltd, Yarra Valley Water, Water Corporation (Perth), Unitywater and Queensland Urban Utilities. SA Water’s performance for sewerage retail services is covered in Report 4 and the performance of SA Water against its customer service standards is covered in Report 2.
FINANCIAL PERFORMANCE For 2012/13 (and prior years), SA Water (in consultation with the SA Government) was responsible for setting SA Water’s retail water and sewerage prices. The Commission made its first independent Revenue Determination for SA Water in May 2013, setting maximum allowed revenues for drinking water and sewerage retail services for the three year period from 1 July 2013 to 30 June 2016. SA Water (in consultation with the SA Government) maintains responsibility for setting specific prices; however however,, those prices must comply with the Commission’s allowed revenues. This Water Annual Performance Report (APR) (APR) therefore therefore discusses the period prior to independent economic regulation in relation to financial matters. In subsequent Water APRs the Commission will analyse SA Water’ Water’ss financial performance having regard to the assumptions and forecasts forming the basis of the 2013-16 SA Water Revenue Determination. As a means of setting a baseline, this report outlines how SA Water prices, revenue and costs moved in 2012/13 and identifies the key drivers.
WATER WATER WATER RETAIL SERVI CE PERFO RMANC E OUTCOMES 2012/13 ANNUAL PERFORMANCE REPORT - SA WATER
Summary of SA Water Financial Performance for Water Services
Figure 2 – SA Water Typical Residential Water Bill ($) 1,000 * ) $ ( 900 l l i 800 B r e 700 t a W 600 l a 500 n e 400 d i s 300 e R l 200 a c i p 100 y T 0
Table 1: Financial performance overview – water services
2 011 / 12
2 012 / 13
% ch an ge
Revenue1
$799 . 0m
$919 . 6m
1 5%
Typical Residential Water Bill1
$ 668 .6 0
$872 .9 0
3 1%
Water Demand 2
177. 3 GL
1 91. 9G L
8%
$291 . 8m
$347 . 1m
1 9%
$461 . 9m
$277 . 2m
(4 0%)
Operating costs 1 Capital expenditure
1
2006 20 06-0 -07 7 20 2007 07-0 -08 8 20 2008 08-0 -09 9 20 2009 09-1 -10 0 20 2010 10-1 -11 1 20 2011 11-1 -12 2 20 2012 12-1 -13 3 1
Source: 2012/13 National Performance Report, National Water Commission (figures are in nominal dollars)
2
Source: SA Water
In 2012/13 SA Water’s revenue from water services increased by 15% to $919.6m. Figure 1 below details how SA Water’s revenue for water services has moved over the last 7 years. Note that this data was collected by the National Water Commission (NWC) for its National Performance Reports. The NWC’s annual reports and data sets are available at www.nwc.gov.au Figure 1 – SA Water Revenue – water services
*
Amounts are in real 2012/13 dollars; that is, the impact of inflation has been removed to ensure that years can be compared on a like-for-like basis.
** Water utilities included in Figure 2 are ACTEW Corporation, Hunter Water Corporation, Sydney Water Corporation, Gold Coast City Council (2007/08 to 2009/10 and 2012/13), Logan City Council (2007/08 to 2009/10 and 2012/13), Barwon Water, City West Water Water,, South East Water Ltd, Yarra Valley Water, Water Corporation (Perth), Unitywater (2010/11 to 2012/13), Queensland Urban Utilities (2010/11 to 2012/13).
Figure 2 highlights that SA Water’s typical residential water bill was the highest of all comparable Australian water utilities (those with 100,000+ connected properties) in both 2011/12 and 2012/13.
1,000 900 800 * ) m $ ( e u n e v e R
SA Water - Adelaide Maximum of large ulies** Minimum of large ulies** Average Averag e of large ulies**
700
SA Water’s typical residenal water bill of $873 in 2012/13 was 30.6% higher than in 2011/12. The rise was due to a 25% increase in the water taris set by SA Water (in consultaon with the South Australian Government) and higher average usage by customers, of which a greater proporon of usage was at the higher er taris.
600 500 400 300 200 100 0 2006 20 06-0 -07 7 20 2007 07-0 -08 8 20 2008 08-0 -09 9 20 2009 09-1 -10 0 20 2010 10-1 -11 1 20 2011 11-1 -12 2 20 2012 12-1 -13 3
Total Revenue ($m) *Amounts are in nominal dollars
The revenue increase in 2012/13 largely reflects SA Water’s tariff increase of 25% from 2011/12 tariffs, which was based on forecast costs and water demand for the 2012/13 year. Total water demand is also a driver of revenue. In 2012/13 water demand was 191.9 ML (an 8% increase from 2011/12), and therefore had an upward impact on 2012/13 revenue. However, the water services revenue was negatively affected by a 53% reduction in community service obligation (CSO) (CSO) receipts receipts by SA Water which were $61.1m lower in 2012/13. The fall in CSO receipts was due to the narrowing of the gap between costs and revenue for water supplies in country areas, necessitating a smaller government subsidy. SA Water’s revenue/ property connection, as reported in the 2012/13 National Performance Report, was $1,095, the highest of comparable Australian urban water utilities. Figure 2 details how SA Water’s typical residential water bill (for Adelaide customers) has changed against comparable water utilities over the last 7 years. This data was also collected by the NWC for its National Performance Reports.
The NWC has noted that the typical residential bill remains the best indicator of the impact of pricing on a utility’s customers, as it is based on the typical bill paid by those customers. The typical residential bill reflects average annual residential consumption for a full-paying customer.
Drivers of pricing increase in 2012/13 SA Water (in consultation with the SA Government) set 2012/13 water prices for SA Water based on forecasts of operational costs, capital expenditure and water demand. The main cost factors impacting on revenue and prices in 2012/13 are detailed below. Adela ide Desa lina tion Plan t
The Adelaide Desalinat Desalination ion Plant (ADP) (ADP) was was commissioned to provide a non-climate dependent source of drinking water for Adelaide and the surrounding region following the drought in South Australia during the mid-2000s. It cost $1.824bn to build and reached operational handover in December 2012. The ADP was the major component of SA Water’s capital investment in water infrastructure between 2008/09 and 2011/12, accounting for approximately 70% of water services capital expenditure in that period, however, it only accounted for $79m of capital expenditure in 2012/13 as the plant was nearing completion. Figure 3 below details how SA Water’s capital expenditure on water infrastructure has moved over the last 7 years.
2012/13 ANNUAL PERFORMANCE REPORT - SA WATER WATER – WATER WATER RETAIL SE RVICE PER FORMANCE
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Figure 3 – SA Water Capital Expenditure ($m) – water services 1,000 * ) m $ ( e r u t i d n e p x E l a t i p a C
900 800 700 600 500 400
which provides SA Water with increased flexibility to move water around the Adelaide water supply system, improving water reliability for the region. Other major water projects that were completed, or were being implemented during 2012/13, were upgrades to the Happy Valley Water Treatment Treatment Plant, the Adelaide Airport Stormwater Scheme (stormwater harvesting, treatment and reuse), commencement of the Marion Road Trunk Water Main Upgrade, and an upgrade to the Port Wakefield township water supply (via a new 48km supply pipeline).
300
Other impacts on Operating Costs
200 100 0 2006 20 06-0 -07 7 20 2007 07-0 -08 8 20 2008 08-0 -09 9 20 2009 09-1 -10 0 20 2010 10-1 -11 1 20 2011 11-1 -12 2 20 2012 12-1 -13 3
Total capital expenditure ($m) ADP capital expenditure ($m) *Amounts are in nominal dollars
The NWC’s National Performance Reports detail that, despite recent increases in operating costs, SA Water has amongst the lowest operating costs (per property) when compared to other capital city water utilities. In August 2012, as part of the SA Water Revenue Determinaon, the Commission engaged a consultant (the Centre for Internaonal
Total water services operating costs increased by 18.9% to $347m in 2012/13. One of the major drivers of increased operating costs in 2012/13 has been from running the ADP during its proving period. Whilst the ADP provides a climate independent source of drinking water, the cost of producing water is considerably higher than water sourced from the Mount Lofty Ranges or the Murray River due to the energy required to desalinate water. Figure 4 below details how SA Water’s operating costs for water services have moved over the last 7 years. Note that this data was collected by the NWC for its National Performance Reports. The ADP running costs accounted for nearly half ($24m) of the increase in operating costs in 2012/13. Figure 4 – SA Water Operational Costs ($m) – water services
Economics (CIE) (CIE))) to provide an assessment of how ecient SA Water currently is, relave to its peer companies across
Australia. On a simple unit cost basis, SA Water was in the top quarle of all Australian urban water ulies, i.e. had one of the lowest operang costs per property. CIE also reported that, historically, SA Water had had relavely low capital expenditure, unl recent major water security investments in the Adelaide Desalinaon Plant and the related North-South Interconnecon
System Project. Other drivers of increased operating costs in 2012/13 included $12m for the increased cost of resourcing associated with SA Water’s Metro Alliance operations and maintenance contract and $16m of additional water planning and licence fees associated with South Australian water industry reform.
400
Overall Assessment of Financial Performance
350 * ) m $ ( s t s o C g n a r e p O
300 250 200 150 100 50 0 2006 20 06-0 -07 7 20 2007 07-0 -08 8 20 2008 08-0 -09 9 20 2009 09-1 -10 0 20 2010 10-1 -11 1 20 2011 11-1 -12 2 20 2012 12-1 -13 3
Compared to similar interstate water utilities, SA Water’s operating costs for water retail services are relatively low; however, SA Water’s revenue/connection and customer water prices are amongst the highest. Although SA Water has been one of the heaviest investors in water infrastructure in recent years, it appears that the high value of the regulated asset base is the main driver of high revenues and customer water prices.
Total operang costs ($m) *Amounts are in nominal dollars
Aligned with this view is that, at 18.4% in 2012/13, SA Water’s net profit after tax ratio (at the whole of corporation level) is one of the highest of the capital city water utilities.
Other impacts on Capital Expenditure Figure 5 – SA Water revenue and costs (whole of SA Water Corporaon)
The NWC’s National Performance Report details that, in 2012/13, SA Water (Adelaide region only) invested $421 per property in water infrastructure, which was one of the highest of comparable Australian water utilities despite ADP capital costs falling off in the year. SA Water’s investment during 2012/13 in water infrastructure assets at least partially reflects investment in asset renewal which was curtailed in recent years to facilitate major investment in drought-response projects, including the ADP. The Revenue Determination sets out that capital expenditure (at the whole corporation level) will remain at relatively high levels (an average of $327.6m per year) over the next three years. The largest capital spend in 2012/13 was $76.2m on the NorthSouth Interconnection Project (total project cost of $403m), which is a network of pipes, pumping stations and related infrastructure
1,600 1,400 1,200 * ) 1,000 m $ 800 ( e 600 u n e 400 v e R 200 0 2006 20 06-0 -07 7 20 2007 07-0 -08 8 20 2008 08-0 -09 9 20 2009 09-1 -10 0 20 2010 10-1 -11 1 20 2011 11-1 -12 2 20 2012 12-1 -13 3
Total income ($m) Total costs and tax ($m) *
Amounts are in nominal dollars, and are for for the whole of SA Water Corporation (including water services, sewerage services and non-regulated services)
2012/13 ANNUAL PERFORMANCE REPORT - SA WATER WATER – WATER WATER RETAIL SE RVICE PER FORMANCE
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The 2013/14 SA Water Price Determination
New Connections
SA Water’s drinking water tariffs applying for the 2012/13 and 2013/14 years are detailed in the table below.
Under the Commission’s regulatory framework, SA Water is required to use its best endeavours to meet two annual connections targets:
Table 2: SA Water drinking water prices
SA Water tariffs for 2012/13
SA Water tariffs for 2013/14
% Change
• for standard standard connections, 95% of connections are to be provided within 25 business days of application having been processed and the relevant fees received by SA Water;
Supply Charge
$29 3. 00
$ 274. 8 0
-6 . 2%
0-30 kL
$2. 42 / kL
$2 .2 6/ k L
-6 . 6%
• for non-standard connections, 95% of connections are to be provided within 35 business days of application having been processed and the relevant fees received by SA Water.
30-130 kL
$3. 45 / kL
$3 .2 3/ k L
-6 . 4%
>130 kL
$3. 73 / kL
$3 .4 9/ k L
-6 . 4%
Note that the SA Government applied a one-off Water Security Rebate in 2012/13 which is not reflected in the 2012/13 tariffs above. The rebate was $45 for households using up to 120 kL per year and $75 for households using more than 120kL per year. The tariffs to apply from 1 July 2013 were set by SA Water (in consultation with the SA Government) so as to be within the revenue cap determined by the Commission. The Commission’s SA Water Revenue Determination resulted in a nominal decrease in drinking water revenues of 5.5% from 1 July 2013 (a 7.8% reduction, when adjusted for inflation), with revenues then set to move in line with inflation across the 2014/15 and 2015/16 years.
INFRASTRUCTURE RELIABILITY
Note that a standard water connection is where there is an existing water network adjacent to the property being connected. A non-standard water connection requires an extension of water mains/network or other specific construction work. For the period 1 January to 30 June 2013, SA Water met the standard connection target but did not meet the non-standard connection target of 95%, delivering only 88%. The Commission will closely monitor SA Water’s performance against this target and the actions SA Water is taking to ensure non-standard connections are completed within the target timeframe.
Unplanned Interruptions Unplanned water supply interruptions caused by factors such as water main bursts or leaks can cause significant disruption and inconvenience to customers.
SA Water is required to comply with the provisions of the Water Retail Code – Major Retailers (Water Retail Code) made Code) made by the Commission. That code sets out minimum requirements to be complied with by SA Water when dealing with its customers and includes obligations relating to customer connections and the quality, safety and reliability of the water supply (including the requirement for SA Water to minimise supply interruptions and provide information to customers on interruptions).
Duration and incidence
The Commission has also developed a set of operational service standards that require SA Water to deliver and report on key reliability areas. The key operational service standards for water retail services relate to:
In the 6 months to 30 June 2013, there were 1,295 unplanned interruptions in the Adelaide Metropolitan area affecting 54,790 SA Water customers. SA Water commented that historically, there have been more unplanned water interruptions in the first 6 months of the calendar year than the second half of the year. It is therefore more appropriate this year to report on the NWC’s 2012/13 National Performance Report data which is for the full 12 month period to 30 June 2013.
• New Connections: timeframes for provision of new connections;; and connections • Unplanned interruptions: timeframes for attendance at, and restoration of, unplanned interruptions (water breaks, bursts and leaks). The Commission monitors the performance of SA Water against these service reliability standards and collects data on other key infrastructure reliability metrics. SA Water has only been obliged to report to the Commission against these standards and metrics since 1 January 2013, so the analysis against service reliability standards relates only to the 6 months to 30 June 2013. The Commission has utilised National Performance Reporting data from the NWC in analysing other performance metrics, however, relevant SA Water data is only available for the Adelaide Region. The performance of SA Water against its customer service standards is covered in Report 2, and Sewerage Services performance is covered in Report 4. The Water Retail Code and the full set of SA Water’s Service Standards are available on the Commission’s website.
At this time, SA Water is not bound by standards relating to the average duration duration and and incidence incidence of of unplanned supply interruptions. Nevertheless, the Commission does collect data on that metric and those data provide useful background and contextual information which may assist in understanding SA Water’s operational performance over time.
The average duration duration of of unplanned supply interruptions was 158 minutes for the Adelaide Region. By way of comparison, the NWC, in its 2012/13 National Performance Report, reported average unplanned interruption duration of 131 minutes for large Australian water utilities (100,000+ connected properties) – slightly better than SA Water’s performance. The incidence incidence of of unplanned interruptions is a measure of the number of customers who experience a loss of water supply during the year – for the Adelaide Region, SA Water’s 2012/13 result was 156 customers affected by an incident/1000 customers. SA Water’s performance is again slightly worse than comparable Australian water utilities, which averaged 144 customers affected by an incident /1000 customers in the 2012/13 National Performance Report.
2012/13 ANNUAL PERFORMANCE REPORT - SA WATER WATER – WATER WATER RETAIL SE RVICE PER FORMANCE
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Water main breaks
As is the case for interruption duration and incidence, at this time SA Water is not bound by standards relating to the incidence of water mains break. Again, however, the Commission does collect data and will publicly report on that metric as it provides useful background and context. It is more appropriate this year to use data from the NWC’s 2012/13 National Performance Report as this is for the full 12 month period to 30 June 2013.
Figure 7a: Timeliness of attendance at Priority 1 water breaks, bursts and leaks performance for the 6 months to 30 June 2013.
100%
90%
80%
The annual number of breaks per 100km of water main was 17.5 for the Adelaide Region. The Commission notes that, based on National Performance Report data, the incidence of breaks per 100km of SA Water mains has generally been falling since 2006/07 (see Figure 6) and that SA Water has been one of the better performing larger water utilities in this area.
70%
60%
50% Adelaide Metro <1 hr
Figure 6: Water main breaks (number per 100km of water main)
Regional <1hr nTarget
Regional <2hr
nAendance
30 ) m k 0 0 1 / o n ( s k a e r b n i a m r e t a W
25
Figure 7b: Timeliness of attendance at Priority 2 water breaks, bursts and leaks performance for the 6 months to 30 June 2013.
20 15
100% 10 90% 5 80% 0 2006 20 06-0 -07 7 20 2007 07-0 -08 8 20 2008 08-0 -09 9 20 2009 09-1 -10 0 20 2010 10-1 -11 1 20 2011 11-1 -12 2 20 2012 12-1 -13 3
70%
Attend ance at s uppl y in terr upti ons
An important factor in minimising the duration of supply outages is the timeliness of SA Water’s attendance at breaks, bursts and leaks. The Commission has therefore established standards relating to that metric, which require SA Water to use its best endeavours to attend the location of breaks, bursts and leaks within specified timeframes. Recognising that not all breaks, bursts and leaks are of the same scale and impact, and that not all bursts lead to a loss of supply, the standards distinguish between different priority classes: • Priority 1: high priority events where a leak or bust may result in total loss of supply to a customer, major loss of water, damage to property or pose immediate danger to people or the environment; and • Priority 2: all other bursts or system failures. The targets for the standards, and SA Water’s performance during the period 1 January to 30 June 2013, are set out in Figures 7a and 7b. SA Water met all 4 regional targets and 2 out of 3 Adelaide Metropolitan targets in the 6 months to 30 June 2013. While it did not meet the 99% target for attendance at Priority 1 events with 1 hour for the Adelaide Metropolitan area, it came very close with a performance level at 98%.
60%
50% Adelaide Metro <5 hr
Adelaide Metro <12 hr nTarget
Regional <5 hr
Regional <12 hr
nAendance
Restoration of supply interruptions
An important factor in minimising the impact of of supply outages is SA Water’s timeliness in restoring services following an interruption. The Commission has set service standards for restoration times according to the priority given to restorations: • Category 1: the interruption could be life threatening or otherwise have serious consequences (e.g. impacting critical needs customers, hospitals, nursing homes, schools, child care centres etc.); • Category 2: the interruption causes a disruption to a customer’s business activities; and • Category 3: all other cases. The targets for the standards, and SA Water’s performance during the period 1 January to 30 June 2013, are set out in Figures 8a, 8b and 8c.
2012/13 ANNUAL PERFORMANCE REPORT - SA WATER WATER – WATER WATER RETAIL SE RVICE PER FORMANCE
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Figure 8a: Water service restoration performance for the 6 months to 30 June 2013 - Category 1 Events
Figure 8c: Water service restoration performance for the 6 months to 30 June 2013 - Category 3 Events
100%
100%
90%
90%
80%
80%
70%
70%
60%
60%
50%
50% Adelaide Metro <5 hr
Regional <5hr nTarget
Regional <12hr
nRestored
Adelaide Metro <12 hr nTarget
Figure 8b: Water service restoration performance for the 6 months to 30 June 2013 - Category 2 Events
100%
90%
Regional <12hr nRestored
For the 6 months to 30 June 2013, SA Water did not meet any of the targets for the Adelaide Metropolitan area but met 4 out of 5 of the Regional targets. The missed Regional target (Category 2 events restored within 5 hours) was caused by one property not having water restored within the target timeframe. There was only one Category 1 event for which SA Water failed to restore water within 5 hours. It should be noted that these service standards have been revised from 1 July 2013. All SA Water service standards are available at www.escosa.sa.gov.au/water-overview/codes-guidelines/servicestandards.aspx
80%
70%
The SA Water data return for the 6 months ending 30 June 2013 is available on the Commission’s website.
60%
50% Adelaide Metro <5 hr
Regional <5hr nTarget
Regional <18hr
nRestored
The Essential Services Commission of South Australia is the independent economic regulator of the electricity, gas, ports, rail and water industries in South Australia. The Commission’s primary objective is the protection of the longterm interests of South Australian consumers with respect to the price, quality and reliability of essential services. THE ESSENTIAL SERVICES COMMISSION OF SOUTH AUSTRALIA Level 1, 151 Pirie Street Adelaide SA 5000 | GPO Box 2605 Adelaide SA 5001 T 08 8463 4444 | E [email protected] | W www.escosa.sa.gov.au
2012/13 ANNUAL PERFORMANCE REPORT - SA WATER WATER – WATER WATER RETAIL SE RVICE PER FORMANCE
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Key Messages: • Financial performance: SA Water’s annual revenue from the provision of water retail services increased by 15% in 2012/13, due to a 25% increase in water tariffs, an 8% increase in water demand, and partially offset by a 53% fall in community service obligation receipts. SA Water has the highest drinking water prices and revenue/property connection of comparable Australian water utilities, but amongst the lowest operating costs/ property connection. Even taking account of relatively high capital expenditure in recent years, the high value of SA Water’s asset base appears to be the main driver of high revenues and customer water prices. • Operational performance: SA Water has only been subject to the new economic regulatory framework since 1 January 2013, nevertheless the Commission has made indicative assessments of SA Water’s operational performance in relation to applicable performance standards. Service interruptions: The duration and incidence of unplanned water supply interruptions were slightly higher than comparable interstate utilities. Service restoration: SA Water is not meeting the targets for the Adelaide Metropolitan area, but is performing well against its Regional restoration targets.
Since 1 January 2013, SA Water has been licensed by the Commission under the Water Industry Act 2012 2012 (WI (WI Act) to provide water retail services to approximately 740,000 customers in this State, servicing around 95% of the State’s population. From 1 January 2013, SA Water has been required to comply, as a condition of licence, with operational service standards set by the Commission in respect of the provision of water retail services. From 1 July 2013, SA Water has also been required to comply with a revenue determination set by the Commission. The Commission’s specific powers and functions under the WI Act, in relation to licensing, consumer protection and performance monitoring commenced on 1 January 2013. From 2013/14, the Commission will report on key metrics of SA Water’s financial and operational performance for water retail services for each financial year (based on data collected
Report 3
according to the Commission’ Commission’ss Water Industry Guideline No. 2). To set a baseline for those future reports, the Commission has prepared this initial performance report. Recognising that the Commission’ss regulatory regime commenced during the 2012/13 Commission’ fiscal year, this report sets out information relating to SA Water’s performance prior to that time (where the Commission has confidence in the integrity of the data used) as well as its performance during the first six months under the new regime. This report uses data directly reported to the Commission by SA Water and also data reported by SA Water to the National Water Commission for its annual National Performance Reports on Urban Water Utilities. This report draws comparisons between SA Water and other comparable Australian urban water utilities (those with 100,000+ connected properties) that are reported in the National Performance Reports. Those comparable utilities are the ACTEW Corporation, Hunter Water Corporation, Sydney Water Corporation, Gold Coast City Council, Logan C ity Council, Barwon Water, City West Water, South East Water Ltd, Yarra Valley Water, Water Corporation (Perth), Unitywater and Queensland Urban Utilities. SA Water’s performance for sewerage retail services is covered in Report 4 and the performance of SA Water against its customer service standards is covered in Report 2.
FINANCIAL PERFORMANCE For 2012/13 (and prior years), SA Water (in consultation with the SA Government) was responsible for setting SA Water’s retail water and sewerage prices. The Commission made its first independent Revenue Determination for SA Water in May 2013, setting maximum allowed revenues for drinking water and sewerage retail services for the three year period from 1 July 2013 to 30 June 2016. SA Water (in consultation with the SA Government) maintains responsibility for setting specific prices; however however,, those prices must comply with the Commission’s allowed revenues. This Water Annual Performance Report (APR) (APR) therefore therefore discusses the period prior to independent economic regulation in relation to financial matters. In subsequent Water APRs the Commission will analyse SA Water’ Water’ss financial performance having regard to the assumptions and forecasts forming the basis of the 2013-16 SA Water Revenue Determination. As a means of setting a baseline, this report outlines how SA Water prices, revenue and costs moved in 2012/13 and identifies the key drivers.
WATER WATER WATER RETAIL SERVI CE PERFO RMANC E OUTCOMES 2012/13 ANNUAL PERFORMANCE REPORT - SA WATER
Summary of SA Water Financial Performance for Water Services
Figure 2 – SA Water Typical Residential Water Bill ($) 1,000 * ) $ ( 900 l l i 800 B r e 700 t a W 600 l a 500 n e 400 d i s 300 e R l 200 a c i p 100 y T 0
Table 1: Financial performance overview – water services
2 011 / 12
2 012 / 13
% ch an ge
Revenue1
$799 . 0m
$919 . 6m
1 5%
Typical Residential Water Bill1
$ 668 .6 0
$872 .9 0
3 1%
Water Demand 2
177. 3 GL
1 91. 9G L
8%
$291 . 8m
$347 . 1m
1 9%
$461 . 9m
$277 . 2m
(4 0%)
Operating costs 1 Capital expenditure
1
2006 20 06-0 -07 7 20 2007 07-0 -08 8 20 2008 08-0 -09 9 20 2009 09-1 -10 0 20 2010 10-1 -11 1 20 2011 11-1 -12 2 20 2012 12-1 -13 3 1
Source: 2012/13 National Performance Report, National Water Commission (figures are in nominal dollars)
2
Source: SA Water
In 2012/13 SA Water’s revenue from water services increased by 15% to $919.6m. Figure 1 below details how SA Water’s revenue for water services has moved over the last 7 years. Note that this data was collected by the National Water Commission (NWC) for its National Performance Reports. The NWC’s annual reports and data sets are available at www.nwc.gov.au Figure 1 – SA Water Revenue – water services
*
Amounts are in real 2012/13 dollars; that is, the impact of inflation has been removed to ensure that years can be compared on a like-for-like basis.
** Water utilities included in Figure 2 are ACTEW Corporation, Hunter Water Corporation, Sydney Water Corporation, Gold Coast City Council (2007/08 to 2009/10 and 2012/13), Logan City Council (2007/08 to 2009/10 and 2012/13), Barwon Water, City West Water Water,, South East Water Ltd, Yarra Valley Water, Water Corporation (Perth), Unitywater (2010/11 to 2012/13), Queensland Urban Utilities (2010/11 to 2012/13).
Figure 2 highlights that SA Water’s typical residential water bill was the highest of all comparable Australian water utilities (those with 100,000+ connected properties) in both 2011/12 and 2012/13.
1,000 900 800 * ) m $ ( e u n e v e R
SA Water - Adelaide Maximum of large ulies** Minimum of large ulies** Average Averag e of large ulies**
700
SA Water’s typical residenal water bill of $873 in 2012/13 was 30.6% higher than in 2011/12. The rise was due to a 25% increase in the water taris set by SA Water (in consultaon with the South Australian Government) and higher average usage by customers, of which a greater proporon of usage was at the higher er taris.
600 500 400 300 200 100 0 2006 20 06-0 -07 7 20 2007 07-0 -08 8 20 2008 08-0 -09 9 20 2009 09-1 -10 0 20 2010 10-1 -11 1 20 2011 11-1 -12 2 20 2012 12-1 -13 3
Total Revenue ($m) *Amounts are in nominal dollars
The revenue increase in 2012/13 largely reflects SA Water’s tariff increase of 25% from 2011/12 tariffs, which was based on forecast costs and water demand for the 2012/13 year. Total water demand is also a driver of revenue. In 2012/13 water demand was 191.9 ML (an 8% increase from 2011/12), and therefore had an upward impact on 2012/13 revenue. However, the water services revenue was negatively affected by a 53% reduction in community service obligation (CSO) (CSO) receipts receipts by SA Water which were $61.1m lower in 2012/13. The fall in CSO receipts was due to the narrowing of the gap between costs and revenue for water supplies in country areas, necessitating a smaller government subsidy. SA Water’s revenue/ property connection, as reported in the 2012/13 National Performance Report, was $1,095, the highest of comparable Australian urban water utilities. Figure 2 details how SA Water’s typical residential water bill (for Adelaide customers) has changed against comparable water utilities over the last 7 years. This data was also collected by the NWC for its National Performance Reports.
The NWC has noted that the typical residential bill remains the best indicator of the impact of pricing on a utility’s customers, as it is based on the typical bill paid by those customers. The typical residential bill reflects average annual residential consumption for a full-paying customer.
Drivers of pricing increase in 2012/13 SA Water (in consultation with the SA Government) set 2012/13 water prices for SA Water based on forecasts of operational costs, capital expenditure and water demand. The main cost factors impacting on revenue and prices in 2012/13 are detailed below. Adela ide Desa lina tion Plan t
The Adelaide Desalinat Desalination ion Plant (ADP) (ADP) was was commissioned to provide a non-climate dependent source of drinking water for Adelaide and the surrounding region following the drought in South Australia during the mid-2000s. It cost $1.824bn to build and reached operational handover in December 2012. The ADP was the major component of SA Water’s capital investment in water infrastructure between 2008/09 and 2011/12, accounting for approximately 70% of water services capital expenditure in that period, however, it only accounted for $79m of capital expenditure in 2012/13 as the plant was nearing completion. Figure 3 below details how SA Water’s capital expenditure on water infrastructure has moved over the last 7 years.
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Figure 3 – SA Water Capital Expenditure ($m) – water services 1,000 * ) m $ ( e r u t i d n e p x E l a t i p a C
900 800 700 600 500 400
which provides SA Water with increased flexibility to move water around the Adelaide water supply system, improving water reliability for the region. Other major water projects that were completed, or were being implemented during 2012/13, were upgrades to the Happy Valley Water Treatment Treatment Plant, the Adelaide Airport Stormwater Scheme (stormwater harvesting, treatment and reuse), commencement of the Marion Road Trunk Water Main Upgrade, and an upgrade to the Port Wakefield township water supply (via a new 48km supply pipeline).
300
Other impacts on Operating Costs
200 100 0 2006 20 06-0 -07 7 20 2007 07-0 -08 8 20 2008 08-0 -09 9 20 2009 09-1 -10 0 20 2010 10-1 -11 1 20 2011 11-1 -12 2 20 2012 12-1 -13 3
Total capital expenditure ($m) ADP capital expenditure ($m) *Amounts are in nominal dollars
The NWC’s National Performance Reports detail that, despite recent increases in operating costs, SA Water has amongst the lowest operating costs (per property) when compared to other capital city water utilities. In August 2012, as part of the SA Water Revenue Determinaon, the Commission engaged a consultant (the Centre for Internaonal
Total water services operating costs increased by 18.9% to $347m in 2012/13. One of the major drivers of increased operating costs in 2012/13 has been from running the ADP during its proving period. Whilst the ADP provides a climate independent source of drinking water, the cost of producing water is considerably higher than water sourced from the Mount Lofty Ranges or the Murray River due to the energy required to desalinate water. Figure 4 below details how SA Water’s operating costs for water services have moved over the last 7 years. Note that this data was collected by the NWC for its National Performance Reports. The ADP running costs accounted for nearly half ($24m) of the increase in operating costs in 2012/13. Figure 4 – SA Water Operational Costs ($m) – water services
Economics (CIE) (CIE))) to provide an assessment of how ecient SA Water currently is, relave to its peer companies across
Australia. On a simple unit cost basis, SA Water was in the top quarle of all Australian urban water ulies, i.e. had one of the lowest operang costs per property. CIE also reported that, historically, SA Water had had relavely low capital expenditure, unl recent major water security investments in the Adelaide Desalinaon Plant and the related North-South Interconnecon
System Project. Other drivers of increased operating costs in 2012/13 included $12m for the increased cost of resourcing associated with SA Water’s Metro Alliance operations and maintenance contract and $16m of additional water planning and licence fees associated with South Australian water industry reform.
400
Overall Assessment of Financial Performance
350 * ) m $ ( s t s o C g n a r e p O
300 250 200 150 100 50 0 2006 20 06-0 -07 7 20 2007 07-0 -08 8 20 2008 08-0 -09 9 20 2009 09-1 -10 0 20 2010 10-1 -11 1 20 2011 11-1 -12 2 20 2012 12-1 -13 3
Compared to similar interstate water utilities, SA Water’s operating costs for water retail services are relatively low; however, SA Water’s revenue/connection and customer water prices are amongst the highest. Although SA Water has been one of the heaviest investors in water infrastructure in recent years, it appears that the high value of the regulated asset base is the main driver of high revenues and customer water prices.
Total operang costs ($m) *Amounts are in nominal dollars
Aligned with this view is that, at 18.4% in 2012/13, SA Water’s net profit after tax ratio (at the whole of corporation level) is one of the highest of the capital city water utilities.
Other impacts on Capital Expenditure Figure 5 – SA Water revenue and costs (whole of SA Water Corporaon)
The NWC’s National Performance Report details that, in 2012/13, SA Water (Adelaide region only) invested $421 per property in water infrastructure, which was one of the highest of comparable Australian water utilities despite ADP capital costs falling off in the year. SA Water’s investment during 2012/13 in water infrastructure assets at least partially reflects investment in asset renewal which was curtailed in recent years to facilitate major investment in drought-response projects, including the ADP. The Revenue Determination sets out that capital expenditure (at the whole corporation level) will remain at relatively high levels (an average of $327.6m per year) over the next three years. The largest capital spend in 2012/13 was $76.2m on the NorthSouth Interconnection Project (total project cost of $403m), which is a network of pipes, pumping stations and related infrastructure
1,600 1,400 1,200 * ) 1,000 m $ 800 ( e 600 u n e 400 v e R 200 0 2006 20 06-0 -07 7 20 2007 07-0 -08 8 20 2008 08-0 -09 9 20 2009 09-1 -10 0 20 2010 10-1 -11 1 20 2011 11-1 -12 2 20 2012 12-1 -13 3
Total income ($m) Total costs and tax ($m) *
Amounts are in nominal dollars, and are for for the whole of SA Water Corporation (including water services, sewerage services and non-regulated services)
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The 2013/14 SA Water Price Determination
New Connections
SA Water’s drinking water tariffs applying for the 2012/13 and 2013/14 years are detailed in the table below.
Under the Commission’s regulatory framework, SA Water is required to use its best endeavours to meet two annual connections targets:
Table 2: SA Water drinking water prices
SA Water tariffs for 2012/13
SA Water tariffs for 2013/14
% Change
• for standard standard connections, 95% of connections are to be provided within 25 business days of application having been processed and the relevant fees received by SA Water;
Supply Charge
$29 3. 00
$ 274. 8 0
-6 . 2%
0-30 kL
$2. 42 / kL
$2 .2 6/ k L
-6 . 6%
• for non-standard connections, 95% of connections are to be provided within 35 business days of application having been processed and the relevant fees received by SA Water.
30-130 kL
$3. 45 / kL
$3 .2 3/ k L
-6 . 4%
>130 kL
$3. 73 / kL
$3 .4 9/ k L
-6 . 4%
Note that the SA Government applied a one-off Water Security Rebate in 2012/13 which is not reflected in the 2012/13 tariffs above. The rebate was $45 for households using up to 120 kL per year and $75 for households using more than 120kL per year. The tariffs to apply from 1 July 2013 were set by SA Water (in consultation with the SA Government) so as to be within the revenue cap determined by the Commission. The Commission’s SA Water Revenue Determination resulted in a nominal decrease in drinking water revenues of 5.5% from 1 July 2013 (a 7.8% reduction, when adjusted for inflation), with revenues then set to move in line with inflation across the 2014/15 and 2015/16 years.
INFRASTRUCTURE RELIABILITY
Note that a standard water connection is where there is an existing water network adjacent to the property being connected. A non-standard water connection requires an extension of water mains/network or other specific construction work. For the period 1 January to 30 June 2013, SA Water met the standard connection target but did not meet the non-standard connection target of 95%, delivering only 88%. The Commission will closely monitor SA Water’s performance against this target and the actions SA Water is taking to ensure non-standard connections are completed within the target timeframe.
Unplanned Interruptions Unplanned water supply interruptions caused by factors such as water main bursts or leaks can cause significant disruption and inconvenience to customers.
SA Water is required to comply with the provisions of the Water Retail Code – Major Retailers (Water Retail Code) made Code) made by the Commission. That code sets out minimum requirements to be complied with by SA Water when dealing with its customers and includes obligations relating to customer connections and the quality, safety and reliability of the water supply (including the requirement for SA Water to minimise supply interruptions and provide information to customers on interruptions).
Duration and incidence
The Commission has also developed a set of operational service standards that require SA Water to deliver and report on key reliability areas. The key operational service standards for water retail services relate to:
In the 6 months to 30 June 2013, there were 1,295 unplanned interruptions in the Adelaide Metropolitan area affecting 54,790 SA Water customers. SA Water commented that historically, there have been more unplanned water interruptions in the first 6 months of the calendar year than the second half of the year. It is therefore more appropriate this year to report on the NWC’s 2012/13 National Performance Report data which is for the full 12 month period to 30 June 2013.
• New Connections: timeframes for provision of new connections;; and connections • Unplanned interruptions: timeframes for attendance at, and restoration of, unplanned interruptions (water breaks, bursts and leaks). The Commission monitors the performance of SA Water against these service reliability standards and collects data on other key infrastructure reliability metrics. SA Water has only been obliged to report to the Commission against these standards and metrics since 1 January 2013, so the analysis against service reliability standards relates only to the 6 months to 30 June 2013. The Commission has utilised National Performance Reporting data from the NWC in analysing other performance metrics, however, relevant SA Water data is only available for the Adelaide Region. The performance of SA Water against its customer service standards is covered in Report 2, and Sewerage Services performance is covered in Report 4. The Water Retail Code and the full set of SA Water’s Service Standards are available on the Commission’s website.
At this time, SA Water is not bound by standards relating to the average duration duration and and incidence incidence of of unplanned supply interruptions. Nevertheless, the Commission does collect data on that metric and those data provide useful background and contextual information which may assist in understanding SA Water’s operational performance over time.
The average duration duration of of unplanned supply interruptions was 158 minutes for the Adelaide Region. By way of comparison, the NWC, in its 2012/13 National Performance Report, reported average unplanned interruption duration of 131 minutes for large Australian water utilities (100,000+ connected properties) – slightly better than SA Water’s performance. The incidence incidence of of unplanned interruptions is a measure of the number of customers who experience a loss of water supply during the year – for the Adelaide Region, SA Water’s 2012/13 result was 156 customers affected by an incident/1000 customers. SA Water’s performance is again slightly worse than comparable Australian water utilities, which averaged 144 customers affected by an incident /1000 customers in the 2012/13 National Performance Report.
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Water main breaks
As is the case for interruption duration and incidence, at this time SA Water is not bound by standards relating to the incidence of water mains break. Again, however, the Commission does collect data and will publicly report on that metric as it provides useful background and context. It is more appropriate this year to use data from the NWC’s 2012/13 National Performance Report as this is for the full 12 month period to 30 June 2013.
Figure 7a: Timeliness of attendance at Priority 1 water breaks, bursts and leaks performance for the 6 months to 30 June 2013.
100%
90%
80%
The annual number of breaks per 100km of water main was 17.5 for the Adelaide Region. The Commission notes that, based on National Performance Report data, the incidence of breaks per 100km of SA Water mains has generally been falling since 2006/07 (see Figure 6) and that SA Water has been one of the better performing larger water utilities in this area.
70%
60%
50% Adelaide Metro <1 hr
Figure 6: Water main breaks (number per 100km of water main)
Regional <1hr nTarget
Regional <2hr
nAendance
30 ) m k 0 0 1 / o n ( s k a e r b n i a m r e t a W
25
Figure 7b: Timeliness of attendance at Priority 2 water breaks, bursts and leaks performance for the 6 months to 30 June 2013.
20 15
100% 10 90% 5 80% 0 2006 20 06-0 -07 7 20 2007 07-0 -08 8 20 2008 08-0 -09 9 20 2009 09-1 -10 0 20 2010 10-1 -11 1 20 2011 11-1 -12 2 20 2012 12-1 -13 3
70%
Attend ance at s uppl y in terr upti ons
An important factor in minimising the duration of supply outages is the timeliness of SA Water’s attendance at breaks, bursts and leaks. The Commission has therefore established standards relating to that metric, which require SA Water to use its best endeavours to attend the location of breaks, bursts and leaks within specified timeframes. Recognising that not all breaks, bursts and leaks are of the same scale and impact, and that not all bursts lead to a loss of supply, the standards distinguish between different priority classes: • Priority 1: high priority events where a leak or bust may result in total loss of supply to a customer, major loss of water, damage to property or pose immediate danger to people or the environment; and • Priority 2: all other bursts or system failures. The targets for the standards, and SA Water’s performance during the period 1 January to 30 June 2013, are set out in Figures 7a and 7b. SA Water met all 4 regional targets and 2 out of 3 Adelaide Metropolitan targets in the 6 months to 30 June 2013. While it did not meet the 99% target for attendance at Priority 1 events with 1 hour for the Adelaide Metropolitan area, it came very close with a performance level at 98%.
60%
50% Adelaide Metro <5 hr
Adelaide Metro <12 hr nTarget
Regional <5 hr
Regional <12 hr
nAendance
Restoration of supply interruptions
An important factor in minimising the impact of of supply outages is SA Water’s timeliness in restoring services following an interruption. The Commission has set service standards for restoration times according to the priority given to restorations: • Category 1: the interruption could be life threatening or otherwise have serious consequences (e.g. impacting critical needs customers, hospitals, nursing homes, schools, child care centres etc.); • Category 2: the interruption causes a disruption to a customer’s business activities; and • Category 3: all other cases. The targets for the standards, and SA Water’s performance during the period 1 January to 30 June 2013, are set out in Figures 8a, 8b and 8c.
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Figure 8a: Water service restoration performance for the 6 months to 30 June 2013 - Category 1 Events
Figure 8c: Water service restoration performance for the 6 months to 30 June 2013 - Category 3 Events
100%
100%
90%
90%
80%
80%
70%
70%
60%
60%
50%
50% Adelaide Metro <5 hr
Regional <5hr nTarget
Regional <12hr
nRestored
Adelaide Metro <12 hr nTarget
Figure 8b: Water service restoration performance for the 6 months to 30 June 2013 - Category 2 Events
100%
90%
Regional <12hr nRestored
For the 6 months to 30 June 2013, SA Water did not meet any of the targets for the Adelaide Metropolitan area but met 4 out of 5 of the Regional targets. The missed Regional target (Category 2 events restored within 5 hours) was caused by one property not having water restored within the target timeframe. There was only one Category 1 event for which SA Water failed to restore water within 5 hours. It should be noted that these service standards have been revised from 1 July 2013. All SA Water service standards are available at www.escosa.sa.gov.au/water-overview/codes-guidelines/servicestandards.aspx
80%
70%
The SA Water data return for the 6 months ending 30 June 2013 is available on the Commission’s website.
60%
50% Adelaide Metro <5 hr
Regional <5hr nTarget
Regional <18hr
nRestored
The Essential Services Commission of South Australia is the independent economic regulator of the electricity, gas, ports, rail and water industries in South Australia. The Commission’s primary objective is the protection of the longterm interests of South Australian consumers with respect to the price, quality and reliability of essential services. THE ESSENTIAL SERVICES COMMISSION OF SOUTH AUSTRALIA Level 1, 151 Pirie Street Adelaide SA 5000 | GPO Box 2605 Adelaide SA 5001 T 08 8463 4444 | E [email protected] | W www.escosa.sa.gov.au
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