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Savings to flow from SA Water determination

Business

Proposed price caps on water and sewerage services could see South Australian households and businesses save some $160 million on their bills over four years.

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Customer savings for drinking water and sewerage services have all been put up for public discussion by the Essential Services Commission of South Australia, which released its draft paper today.

In the draft Regulatory Determination, ESCOSA has proposed revenue reductions of 1 per cent for drinking water and 9 per cent for sewerage services, with an overall revenue reduction of 3 per cent.

The price cuts flow from a business proposal put forward by SA Water following ongoing scrutiny and claims of overvaluation of the utility.

SA Water's headquarters in Victoria Square.

SA Water’s headquarters in Victoria Square.

“We estimate that under current market conditions these caps would deliver revenue reductions of around $160 million dollars, which would be passed on to consumers through lower prices,” ESCOSA chairman Dr Patrick Walsh said.

Walsh said ESCOSA would set the total revenue limit, not determine individual components.

“Exactly how those price changes take effect will be up to SA Water,” he said.

Last July a parliamentary inquiry heard that SA Water’s $14 billion asset base was overvalued, with a former ESCOSA executive estimating the over-valuation at a conservative $2 billion. A write down could save customers about $150 a year on their bills.

The asset valuation is an important part of the calculation of water bills, with the asset value determined by the Government.

ESCOSA said in its draft determination that proposed savings averaged $40 million a year and would be added to the ongoing $50 million annual savings from the first regulatory determination in 2013.

Walsh said ESCOSA was pleased SA Water was transforming its business operations which had led to customer savings.

“SA Water has generally met all service standards we set, its performance is now more transparent, and there is a much stronger customer focus,” he said.

“Even so, following its review, the Commission has found that SA Water should be able to make further expenditure savings over the next four years, compared to current outcomes.”

South Australian Council of Social Service today greeted the draft decision but said more could be done.

“The regulator’s draft decision is a welcome step in the right direction,” SACOSS executive director Ross Womersley said.

“Under this decision, consumers can look forward to lower water bills which will be a huge relief from the high prices South Australian consumers currently pay.

“The regulator is being positive in its response to SA Water’s improved productivity and efficiency.

“We commend ESCOSA for providing the right incentives for this efficiency.

“However, SACOSS still believes there are more savings to be had, particularly around the calculation of the cost of debt.”

Womersley said SACOSS would closely review the draft decision and provide further scrutiny on the capital and operating revenue being considered.

Further expenditure savings were also to be found with the Adelaide Desalination Plant operations.

ESCOSA stated the financial difference between running the plant in a minimum production mode of no more than eight GL per annum (it has a maximum capacity of 100 GL per annum) versus not running it at all is minimal.

It has estimated the plant costs $4 million per year to run versus approximately $5 million per year in alternative water sourcing costs if it is idle.

The Draft Determination provides for, but does not require, the operation of the plant at minimum production mode over the coming four years.

Submissions to the Draft Determination close Thursday, 24 March 2016 and can be made through the ESCOSA website at www.escosa.sa.gov.au

The final Regulatory Determination will be released in June.

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