2016–21 - south east watersoutheastwater.com.au/.../corporate_plan-2016_2021.pdf · south east...

South East WaterCorporate plan

2016–21

Aboriginal acknowledgement

South East Water proudly acknowledges our region’s Aboriginal community and their rich culture and pays respect to their Elders past and present.

We acknowledge Aboriginal people as Australia’s first peoples and as the Traditional Owners and custodians of the land and water on which we rely.

We recognise and value the ongoing contribution of Aboriginal people and communities to Victorian life and how this enriches us. We embrace the spirit of reconciliation, working towards the equality of outcomes and ensuring an equal voice.

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South East Water Corporate Plan 2016–21

Executive summary 03

Message from the Chair and Managing Director

01: Statement of corporate intent

Legislation and governance 07Main business undertakings 08

02: Business plan 10

Our operating environment 11Our key strengths 11Governance and management 11

Stakeholders 11Risk management 12Safety and wellbeing 12

Strategic planning framework 13Our vision: healthy water for life 14Our goal: positive customer experience 14Our strategic objectives 14Our core activities 15Our values and behaviours 15

Meeting government objectives 16

Strategic objective 1: Customer value 18

Strategic objective 2: Environmental sustainability 20

Strategic objective 3:Efficiency through innovation 22

Strategic objective 4: Proactive leadership 24

Measuring our performance 26

03: Financials 28

04: Appendices 50

Appendix A - Potential changes to our operating environment 51

Appendix B - Asset management 54Appendix C - Progress against Water Plan 3 58Appendix D - Ministerial reporting directive 59

Contents

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We are committed to responding to the needs of our customers, which includes enhancing online information and payment options.


Executive summary

At South East Water, we are driven by a vision to provide healthy water for life.

We are committed to providing our customers with safe, affordable and sustainable integrated water solutions that are both resilient and adaptable to change.

We take pride in our industry reputation as leaders and innovators of new technology, developing in-house solutions for the design, construction, operation and maintenance of our assets.

Our 2016–21 Corporate Plan outlines the key strategic objectives and detailed financial plan that will enable us to achieve our five year goal to continue delivering a positive customer experience and to thrive as a progressive, financially self-sufficient and agile water utility.

Understanding customer needs and expectations is core to delivering this positive customer experience. Over the coming year, we will continue to focus on adding value to our customers by implementing initiatives such as revising our customer engagement framework and addressing major asset related risks.

Our ongoing commitment to innovation will ensure our services are continuously enhanced and our focus on building strong relationships with customers and shareholders will help us meet our commitment to deliver customer value.

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Lucia Cade Chair, South East Water

Kevin Hutchings Managing Director, South East Water

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Message from the Chair and Managing Director

South East Water’s Board of Directors and Executive Team are proud to present our business’ 2016–21 Corporate Plan. It remains the cornerstone for guiding our business – and it is through this document that we will deliver safe, reliable and affordable water services that will contribute to building a more healthy and resilient Victoria.

We have worked hard to ensure that all areas of the business have been engaged in the development of this plan and would like to acknowledge the many people who have contributed either directly or in a supporting capacity.

Activities and people from across the business have helped to define our four strategic objectives of customer value, environmental sustainability, efficiency through innovation and proactive leadership – all reflective of our goal to create a positive customer experience. This underpins our vision that everything we do contributes to providing healthy water for life.

For our people, this planning period will see us strengthen our capabilities to respond to population growth and climate change. We will evolve with

changing customer and stakeholder expectations, values and preferences. We plan to increase our focus on digital capabilities, diversity and inclusion and steps to address climate change. We will also continue to prioritise the safety and wellbeing of our employees, as reflected in our internal liv it campaign that focuses on safety and wellbeing. This initiative reinforces the message that safety and wellbeing are not just important at South East Water – they’re absolutely essential to our culture.

We look forward to delivering this plan. We are enthusiastic about working closely with our customers, local communities and stakeholders, and of course our staff, to deliver customer value and support innovation, whilst protecting our natural resources.

Lucia Cade Chair April 2016

Kevin Hutchings Managing Director April 2016

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Section 01Statement of corporate intent

We aim to protect and improve liveability for all of our customers. 6


Legislation and governance

South East Water is a water corporation under the Water Act 1989.

The activities of our corporation are governed by a number of acts including the Statement of Obligations in Section 93 of the Water Act 1989, the Catchment and Land Protection Act 1994, the Safe Drinking Water Act 2003, the Food Act 1984 and the Environment Protection Act 1970.

South East Water’s service area

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Main business undertakings

South East WaterSouth East Water supplies residential, commercial and industrial customers across Melbourne’s south east with water, sewerage and recycled water retail services. We also own, operate and maintain water, recycled water and sewerage networks in this region. The total value of our assets is $3.9 billion. Our region borders more than 270 kilometres of Victorian coastline and covers a land area of 3,640 square kilometres from Port Melbourne to Portsea and some 30 kilometres east of Pakenham. As at 30 June 2015, South East Water’s total effective fulltime equivalent workforce was 525.2 employees. Our corporate headquarters ‘Waters Edge’ is based at 101 Wells Street, Frankston (in the heart of our service area).

iota Services Pty Ltdiota Services is a subsidiary company wholly-owned by South East Water. Its primary role is to advance the innovation and technologies identified by South East Water and to commercialise viable opportunities in selected markets. Innovative and technological solutions marketed through iota include the OneBox® pressure sewerage system used in the Peninsula ECO project. OneBox® is an intelligent sewer device that provides the ability to control and monitor pressure sewer units, pumps and other remote assets from the office or smartphone. As well as being used in Australia, OneBox® technology has been marketed to companies in New Zealand and the United States.

For more information on iota Services, visit our website at iota.net.au

We are responsible for:• more than 13,500 kilometres of water mains

• more than 10,400 kilometres of sewer mains

• more than 652 kilometres of recycled water mains

• 82 water pump stations

• 261 sewage pump stations

• 9 recycled water pump stations

• 8 water recycling plants

• 1 stormwater treatment plant

Melbourne Water is the wholesale supplier of water and sewage treatment in Melbourne.

Key facts:• provision of water and sewerage services to more

than 708,000 customers

• manage more than 24,000 kilometres of pipeline

• delivered 127.48 billion litres of drinking water in 2015

• collected 101 billion litres of sewage in 2015

• supplied 4.7 billion litres of recycled water in 2015.

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South East Water Corporate Plan 2016–21 South East Water supports more than 708,000 customers across Melbourne’s south east. 9

Section 02Business plan

AquaTrip® technology is helping vulnerable customers track and reduce their water use - to help reduce their bills.10


In developing our Business Plan, we undertook an environmental analysis to identify potential changes to our operating environment. The opportunities and challenges with the greatest potential to impact our corporation are:

• changing customer expectations

• climate change

• population growth

• emerging technologies and innovation

• leadership, people and safety.

For more information on our environmental analysis, please see page 12 and page 51.

Our key strengthsWe will continue to be successful in generating long-term value for our customers by assessing our strategic direction against our key strengths of:

• performing predictably and dependably

• planning, designing, building, operating and maintaining long-life assets

• a strong financial position

• capacity for innovation

• agility in meeting the changing needs of our customers and stakeholders.

Governance and managementWe have robust governance and management frameworks to ensure we excel in meeting our statutory requirements, regulatory obligations and delivery of government policy. Our Board of Directors preside over all significant commercial, regulatory, financial and risk-focused decisions of the business.

Quality management systems underpin our performance against our plan. We have a number of management systems and standards in place that are subject to independent auditing and certification, and we regularly audit our operations to ensure compliance and to identify opportunities for improvement.

StakeholdersSouth East Water’s stakeholders include individuals, groups of individuals and organisations that affect or could be affected by our activities, products or services. Our key stakeholders include customers, developers, the community, staff, the Victorian Government and regulatory authorities, suppliers, local councils and our business partners.

Our operating environment

Risk managementEffective risk management is fundamental to our success. We strive to make the right decisions for our customers and our shareholder.

At South East Water, risk management is part of our culture and is integrated across all of our management systems and processes. Our risk framework is predicated on implementing a consistent, forward-looking approach to identifying and assessing uncertainty that may positively or negatively impact our ability to achieve our objectives. In driving acceptable risk levels, we can then develop actions to mitigate the negative consequences or enable positive benefits. The risk management function is also supported by a comprehensive Insurance Program and Emergency Management Plan.

All of our material risks form part of the organisation’s corporate risk register, which is reported monthly to the board, and quarterly to the Finance, Assurance and Risk Management Committee and Service Delivery Committee. We also maintain detailed sub-risk registers for many corporate, operational and project risks. In addition to reviewing and challenging the risk profile of the business, our risk function also supplements its periodic risk commentary by escalating material risk events and producing bespoke risk in focus reports.

This framework is subject to constant evaluation to ensure that it continues to strategically evolve to meet the challenges and requirements of South East Water and the environment in which we operate.

In developing the Corporate Plan and setting our high level strategic objectives, key risk areas were considered as part of an environmental scan. Going forward, our risk framework and reporting will be calibrated against our new strategic objectives and will monitor both the risks inherent in the achievement of those objectives as well as the successful implementation of significant projects.

The following diagram represents the five areas considered of highest impact to South East Water.

For more information about the key challenges of our operating environment, see page 51.

Safety and wellbeingSafety and wellbeing is everyone’s responsibility at South East Water. We have a strong safety and wellbeing culture. Our open and rigorous reporting culture, opportunities to improve employee wellbeing through the liv it staff wellbeing program, and reinforcing best practice contractor management, have ensured South East Water continues to see increasing organisation-wide engagement in safety and wellbeing.

Changing customer expectations

Emerging security threats

Population growth

Brand and reputation

Regulatory variability

Service affordibility

Financial sustainability

Asset management

Climate change

Leadership, people and safety

Emerging technologies and innovation

Likelihood

Co

nse

qu

ence

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Strategic planning framework

At South East Water, our mission is to deliver safe, reliable and affordable water and sewerage services. While doing this, our aim is to ensure we provide the best possible service and help progress the whole sector.

Our strategic planning framework provides structure for the management of our strategic plan, underpinned by our core business, values and behaviours. Each layer of the framework aligns to our vision of healthy water for life, enabling us to deliver on our mission of safe, reliable and affordable water and sewerage services. Visually, our strategic planning framework is represented as follows:

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Our vision: healthy water for lifeWater is the essence of our life and our lifestyle - we all depend on it for health and wellbeing. It’s the lifeblood of our homes, our community, our parks and gardens, our schools and industry. From bringing you the clean water you want, to managing the sewage you don’t, we provide a continuous flow of healthy water for life.

This is why we are in the business of providing valued water, sewerage and integrated water management services, while providing strong financial returns to the government and our community.

We will continue to be successful in generating long-term value by planning, designing, building, safely operating and maintaining long-life, water-related assets.

Our goal: positive customer experienceAt South East Water, we strive to deliver a positive customer experience. This goal is central to our strategy. We aim to achieve this by delivering customer benefits through innovation, efficiency and leveraging our diversity and leadership capacity.

Our strategic objectivesOur Strategic Plan sets out four objectives that will provide South East Water with direction for the next five years. Each year, in line with our strategic objectives, we identify key actions that will enable us to operate more efficiently and improve the services that we provide to our customers.

1) Customer valueWe will continue to provide greater customer value by responding to the changing expectations and preferences of our customers and stakeholders.

2) Environmental sustainability We will support a more sustainable environment by ensuring our services are more resilient to climate change and that we reduce our impact on the environment. We will also play an active role in building more sustainable communities.

3) Efficiency through innovation We aim to operate more efficiently by enhancing our services and developing leading edge, innovative water solutions.

4) Proactive leadership We will continue to develop our capabilities to respond to changing customer expectations. We will continue to build trust and cooperation within our business and with our shareholder, customers and community through effective communication and engagement.

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Our core activities Underpinning our strategic objectives are our core activities which include planning, designing, building, safely operating and maintaining our assets.

Our core activities are categorised within the Assets, Customer, Employees and Sustainability (ACES) framework. When integrated across our strategic planning framework, this creates a balanced view of our whole of business activities.

Along with a number of strategic projects, core activities contribute to the delivery of our four key strategic objectives. Activities identified within our plan as ‘key initiatives’ have measurable targets which will be used on an ongoing basis for reporting against the achievement of our plan.

Our values and behavioursOur values are the guiding principles by which we deliver our vision. They drive our decision making, our day-to-day actions and are underpinned at all times by honesty and integrity.

Naturally, some values are implicit in everything we do. We will always ensure the safety of our people and our community. In our relationships, we will always build trust, be accountable and act with integrity. And no matter what, we will always show the utmost care and respect towards everyone we deal with.

Values Behaviours

Clarity We know what we’re doing and why. We have a clear sense of purpose and a roadmap for success.

Unity We collaborate and build partnerships to deliver real value. Working together underpins our success.

Agility We are fast, flexible and courageous. We embrace change and the opportunity to improve.

DeliveryWe strive for outcomes and celebrate achievement. We are decisive and committed. We work hard to deliver outstanding value and results.

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To deliver on our responsibility of providing safe and reliable water and wastewater services in the most efficient and affordable way, we have developed a detailed plan for our business.In summary, our goal is to deliver a positive customer experience – and we aim to achieve this with a focus on four strategic objectives:

• Customer value

• Environmental sustainability

• Efficiency through innovation

• Proactive leadership.

In addition, we will strive to be a progressive and vibrant utility, financially self-sufficient and agile in meeting the changing needs and demands of our markets.

Our Corporate Plan has been developed to align with the key focus areas of the draft Victorian Water Plan (scheduled to be finalised mid 2016) which sets the strategic direction for total water management in Victoria.

The following diagram represents the alignment between the draft Victorian Water Plan and our four strategic objectives.

Meeting government objectives

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Water and its recreational use is fundamental to communities. 17

Strategic objective 1:customer value

We will continue to provide greater customer value by responding to the changing expectations and preferences of our customers and stakeholders.

What this means for our customers:

• Customer expectations will be consistently met

• Our customers will have access to alternative service options

• Our customers will be able to contact us more easily.

Key initiative Measure

1.1 Continue to evolve and innovate our digital customer experience to deliver greater customer and business value.

Complete and launch redesigned customer website by June 2017.

1.2 Evolve our understanding of customer needs and expectations to innovate our service offerings, particularly around vulnerability and managing water use.

Complete customer behaviour research survey with Melbourne University.

Implement multiple interventions and initiatives by February 2017.

1.3 Enhance our existing capability to provide proactive alerts and notifications for key products and services.

Proactive alerts and notifications implemented for planned works, billing and usage by December 2016.

1.4 Increase the number of digital offerings available for land and property development customers.

Achieve a 25 per cent increase in the number of automated processes.

1.5 Develop and implement a holistic Customer Engagement Framework to shape the way South East Water engages its customers.

Development of the operational and project stages of the framework by June 2017.

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Effective customer and community engagement is critical to ensuring our business decisions meet the expectations of our stakeholders. Our Customer Engagement Framework is designed to ensure conversations with our customers are collaborative and effective. This year we will be refreshing our framework to provide assurance to our stakeholders, including government and the broader community, that our services continue to meet expectations and provide long-term value.

Customer Engagement Framework

Engaging with customers is key to meeting service expectations.

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Strategic objective 2:environmental sustainability

We will support a more sustainable environment by ensuring our services are more resilient to climate change and that we reduce our impact on the environment. We will also play an active role in building more sustainable communities.


• Our customers will have greater access to be able to access environmentally preferable integrated water management solutions

• Our customers will receive a safe and sustainable water service

• Our services will have less environmental impact.


2.1 Further develop our approach to integrated water management as a long-term sustainable solution to water demand and supply through the delivery of the Aquarevo development.

Complete stage 1 and stage 2 of integrated water management solutions at the Aquarevo development by June 2017.

2.2 Explore alternative service options to support a more sustainable environment.

Finalise business case for Fishermans Bend development by December 2016.

2.3 Implement the climate change mitigation strategy, incorporating an energy efficiency strategy, to minimise our long-term impact on the environment.

Achieve first year priorities including the development of climate changes targets by June 2017.

2.4 Develop solutions to replace or rehabilitate asbestos cement pipes.

Complete the testing of two technological solutions by June 2017.

2.5 Develop a new model for inspection management of septic tanks.

Complete the first year of a three year trial in partnership with Mornington Peninsula Shire Council.

2.6 Develop an Urban Water Strategy to provide direction in managing long-term water security issues.

Complete the Urban Water Strategy by March 2017.

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Fishermans Bend is the largest high-density, inner-city redevelopment in Australia (455 ha). Together with key partners, South East Water will develop a water sensitive integrated water servicing strategy for the area. This is a unique opportunity to provide our customers with sustainable, leading-edge solutions and transition the area into a water sensitive city, supporting Melbourne’s status as the ‘World’s Most Liveable City’. This year we will finalise the business case for the development, in preparation for the project to commence.

Fishermans Bend

Employment precinct Lorimer precinct

Wirraway precinct

Sandridge precinct Montague precinct

Fishermans Bend is two-and-a-half times the size of Melbourne’s existing CBD and comprises five precincts.

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Strategic objective 3:efficiency through innovation

We aim to operate more efficiently by enhancing our services and developing leading-edge, innovative water solutions.


• Service costs are kept as low as possible

• Reliable and high quality service

• Providing better solutions.


3.1 Establish criteria for the installation of low pressure sewers in greenfield sites.

Develop and implement clear guidelines by December 2016.

3.2 Align our systems with ISO 55001 to improve the effectiveness and efficiency of the management of our assets.

Align our asset management system to ISO 55001 by December 2016.

3.3 Trial internet of things (IoT) capability into South East Water sewer and water networks.

Deliver a pilot program that will create the capacity to deliver an IoT solution.

3.4 Complete high level future state enterprise architecture incorporating the drivers around digital utility and ISO 55001.

Deliver future state architecture covering key functions, systems, gaps and roadmap by June 2017.

3.5 Review our capital procurement models to ensure efficient delivery of our capital program.

Identify a new capital procurement strategy by June 2017 (for implementation in 2017–18).

3.6 Develop and deploy a new Information Security Framework aligned to ISO 27001 and the new Victorian Protective Data Security Standards.

Develop and deploy a new Information Security framework by March 2017.

3.7 Deliver advanced and predictive analytic capabilities around the management of asset and customers.

Implement a platform that provides the ability to predict patterns and behaviours and manage big and fast data by June 2017.

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In an Australian first, South East Water will be trialling a new low-powered communications technology that aims to extend the use of real-time monitoring, and help to improve the reliability, efficiency and safety of water and sewer assets. Initially, existing 3G technology will be replaced with the new technology to transmit real-time data on network performance and fault management across the Peninsula ECO sewer network, including the individual property level. Trials will also be undertaken in the Melbourne CBD and Dandenong Ranges to simulate different conditions and applications, with a total test area of approximately 1,000 square kilometres. The new devices will collect and exchange data that can be used to create actionable information. Through this trial, we are building a platform for a more reliable and sustainable water supply, a safer place for our people to work, and more cost-effective services for our customers.

Trial of digital technologies

South East Water LIVE, which allows customers to report and track leaks and bursts in real time, is an example of our digital innovation.

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Strategic objective 4:proactive leadership

We will continue to develop our capabilities to respond to changing customer expectations. We will continue to build trust and cooperation within our business and with our shareholder, customers and community through effective communication and engagement.


• Customers will recognise South East Water as a respected service provider

• Our stakeholders will recognise South East Water as a reliable and progressive water utility.

What this means for our staff:

• Our people will expand their skills and competencies

• A strengthened safety and wellbeing culture.


4.1 Review the South East Water recruitment selection criteria to strengthen our focus on innovation.

Complete a review of the recruitment selection criteria by June 2017.

4.2 Review the performance management system to emphasise continuous learning and growth.

Achieve a positive shift in staff engagement score responses regarding learning and development.

4.3 Develop and implement initiatives in response to findings from the annual Stakeholder Engagement Survey.

Achieve improvements in the overall stakeholder reputation score as measured through the subsequent Stakeholder Engagement Survey.

4.4 Promote employment opportunities and skill development within local communities.

Increase our level of engagement with local communities.

4.5 Develop our approach to diversity and inclusion to ensure South East Water’s workforce reflects the community we serve.

Meet action plan success measures from the Diversity and Inclusion Strategy.

4.6 In collaboration with Gippsland Water, establish the most efficient solution for the treatment of wastewater for customers within and around the Drouin and Longwarry area.

Solution developed by December 2016.

4.7 Incorporate liv it behaviours into the employee performance management framework.

All employees are evaluated against the liv it behaviours, with gaps addressed through development plans.

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We understand that a diverse workforce helps us be more innovative, creative and sustainable - delivering value for our business, our customers and the community. Diversity and inclusion also makes South East Water a vibrant place to work, offering our employees the chance to learn from each other and thrive. We have made various commitments and progress in this area over recent years – and this year we will formalise our Diversity and Inclusion Strategy. It’s a three year action plan detailing our key areas of focus, what we are going to achieve and how we will measure our success in this area.

Diversity and Inclusion Strategy

Knowledge sharing and collaboration is an important part of our culture.

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Measuring our performance

Our 2016 Business Plan includes measures aligned to our strategic objectives and a set of focussed key performance indicators (KPIs). Our KPIs specifically measure South East Water’s progress against our long term strategic direction and drive the organisation to perform at its peak.

Performance against measures and KPIs will be regularly communicated throughout the business to enhance clarity of purpose and push for continuous improvement. Annual results will inform the annual evaluation of our Corporate Plan and the development of our Business Plan for the following year.

The following KPIs are the translation of our strategic objectives and core activities into clear, focussed and measurable performance results. Linked to our Strategic Objectives, we will record and report our progress against these KPIs throughout the year to our employees, executive team, Board of Directors and external regulators.

Customer value

1) Customer satisfactionMeasured across a number of channels including customer service, property development surveys and network operations. Customer ratings of 6+ over an 11-point scale (0–10) are reported as satisfied.

2) Asset operations and maintenance cost per propertyMeasures the total nominal cost of operation and maintenance, including water recycling plant budget. The targets are nominalised using the Corporate Plan consumer price index (CPI) assumptions.

3) Operating cost per propertyA measure of our controllable costs and reflects our operational efficiencies. A lower operating cost per property reduces the likelihood of costs being passed on to customers.

Environmental sustainability4) Total net CO2 equivalent emissions

Measures net tonnes of CO2 equivalent emissions (scope 1 – direct emissions and scope 2 – indirect emissions only ) for the whole business and its activities.

Efficiency through innovation5) Asset performance

Represents average performance as a percentage over four key management level measures:

1. volume of sewage spilled to waters due to failure2. drinking water quality complaints

(per 1,000 customers)

3. unplanned water supply interruptions (per 100 kilometres of main)

4. sewerage blockages (per 100 kilometres of sewer).

The target is set at 50 per cent based on the results from the customers’ Willingness to Pay Survey conducted as a part of the 2013–18 Water Plan.

6) Gearing ratioA direct measure of South East Water’s equity to our borrowed funds. The ratio is calculated as: net debt/(net debt + equity). We have a board-approved objective to remain under 45 per cent to ensure our debt remains low.

Proactive leadership7) Increase in hazards and close calls reported

A measure of the year-on-year percentage increase of hazards and close calls reported, based on the full year result from the preceding year. The targets ensure we deliver a positive shift in safety culture, practices and awareness by maintaining our focus on reporting and actioning close calls and hazards.

8) Positive shift in Employee Engagement SurveyThis annual survey measures three key areas:

1. our organisational climate

2. our employee engagement levels

3. how we are tracking against our desired culture.

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Key performance indicators (KPI) Measure 2014–15

actual2015–16

target2016–17

target2017–18

target2018–19

target2019–20

target2020–21

target

Customer value

Customer satisfaction per cent 90 90 92 92 92 92 92

Asset operations and maintenance cost per property * $ per property 70.0 75.90 75.29 76.01 78.06 78.74 79.50

Operating cost per property * $ per property 144.43 144.45 143.81 144.85 145.87 146.96 148.15

Environmental sustainability

Total net CO2 equivalent emissions tonnes 44,954 45,900 46,800 46,800 45,000 43,000 38,200

Efficiency through innovation

Asset performance ** (rolling 12-month, integrated measure) per cent 54 50 50 50 50 50 50

Gearing ratio net debt/ (net debt+equity) per cent 42.4 40–45 40–45 40–45 40–45 40–45 40–45

Proactive leadership

Increase in hazards and close calls reported

number of hazards 917 963 1011 1062 1115 1170 1228

number of close calls 73 77 81 85 89 93 98

Positive shift in Employee Engagement Survey per cent 70 72 73 73 74 74 75

* Operating cost per property is in nominal dollars.

** This measure will represent the average performance on a 0–100 per cent scale over four key management level measures: volume of sewage spilled to waters due to failure; drinking water quality complaints (per 1,000 customers); unplanned water supply interruptions (per 100km of main); and sewerage blockages (per 100km of sewer).

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Section 04Appendices

50 Ensuring that our services are affordable, efficient and reliable has helped inform the thinking behind our strategic objectives.


In developing the 2016–21 Corporate Plan, an environmental scan was undertaken to allow the board to make informed decisions regarding our high level goal and strategic objectives. The environmental scan is a key input into our strategic planning process. When completing the scan, it is important to consider the regulatory framework in which we operate, such as the Water Act 1989 and the Statement of Obligations (General and Systems Management) which sets out the roles and responsibilities of managing the Melbourne water supply system. We also consider global, national and local trends that represent an opportunity or threat to South East Water.

The current and future potential high level policy issues of most interest to South East Water are:

Appendix A: Potential changes to our operating environment and impact on South East Water

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GlobalClimate changeWith a reduction in rainfall, more intense storm events and sea level rising, the impact of climate change will see the water sector face increasing challenges in maintaining security of water supply and operational viability of water infrastructure. The uncertain operating environment created by climate change also exposes South East Water to financial and infrastructure risks and a failure to make inspired changes now will result in the need to make desperate and costly changes in the future.

We are committed to reducing our impact and adapting to these changes. We are clear that having a more proactive approach goes hand in hand with a growing, efficient and productive business.

In addressing climate change, we need to look at both reducing our emissions and how we as a business can adapt to the changes that have been predicted for Victoria. Mitigation reduces greenhouse gas emissions from our own operations; adaptation manages the risks arising from the impacts of a changing climate.

TechnologyTechnology is ever changing and the advances that we will see in the next two decades are incomprehensible to us today.

For the water industry, technology changes will impact almost every aspect of our business. South East Water is positioning itself to be a technology leader by developing better ways to engage with customers, intelligently manage data, predict maintenance of assets, optimise system augmentation and improve safety for employees.

NationalState enquiry into stormwater resourcesStormwater is rainwater that runs off surfaces in an urban environment, such as roofs, roads and pavements, and green spaces. Urban development replaces large areas of land with these hard surfaces, increasing the volume of stormwater in our water system. Stormwater is considered to be an under-utilised resource in Australia and pollutants in urban stormwater runoff are a significant contributor to the degradation of urban waterways. To address these issues, the federal government has completed an inquiry into stormwater resources. The scope of the inquiry included the quantum of stormwater resource in Australia and the impact and potential of optimal management practices in areas of flooding, environmental impacts, waterway management and water resource planning. The final report was delivered in December 2015 and provided five recommendations to enhance stormwater management.

Implementation of the Basin Plan in the Murray Darling BasinThe Murray Darling Basin covers 13.8 per cent of the total area of mainland Australia. It contains more than 40 per cent of all Australian farms, making it one of the most important agricultural regions in Australia. The Basin’s most valuable resource is water, coming from the Murray-Darling river system.

Water management must be adaptive to the uncertain effects of climate change. As our changing climate is affecting water quality in the Murray Darling Basin, a Basin Plan was developed as a key framework for

adapting to climate change. The Basin Plan aims to restore the basin to health including ensuring positive outcomes for the environment, for the economy and for basin communities.

LocalThe Victorian State Government was elected in November 2014. The government has differentiated itself from the previous government by strengthening its support for:

• dealing with and responding to climate change

• liveable communities

• environmental sustainability

• diversity and inclusion.

To help deliver on its objectives, the state government is undertaking a number of policy refresh and regulatory change initiatives during 2016 including those described in the following table.

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Initiative Climate change Liveable communities Environmental sustainability

State Water Plan

Plan Melbourne refresh

Climate Change Act review and Victorian Climate Change Framework

Biodiversity Strategy – Protecting Victoria’s Environment – Biodiversity 2036

Victoria’s Renewable Energy Roadmap

State Environment Protection Policy – Waters Review

Inquiry into the Environment Protection Authority

Port Phillip Bay Environmental Management Plan

State Water PlanThis high-level plan will set out the government’s vision and policy directions for water with the priority of ensuring water security by managing all aspects of the water cycle. Key themes include preparedness for drought and climate change, improved environment outcomes and healthy waterways.

Plan Melbourne (refresh)The refresh of Plan Melbourne focuses on climate change, housing affordability and updating the plan to reflect current government transport commitments and priorities.

Climate Change Act review and Victorian Climate Change FrameworkA review of the Climate Change Act is being undertaken to ensure it is flexible and provides a sound foundation for action on both climate change mitigation and adaptation. The role of the Victorian Climate Change Framework will be to outline:

• a shared vision for a Climate Ready Victoria in 2030

• principles of state government focus and action

• the role for all Victorians to support the shared vision

• key actions of government in mitigation and adaptation to support the vision.

Biodiversity Strategy – Protecting Victoria’s Environment – Biodiversity 2036 Protecting Victoria’s Environment – Biodiversity 2036 provides a new direction for the management of Victoria’s native plants and animals.

Victoria’s Renewable Energy RoadmapThis roadmap sets out the government’s plan to attract Victoria’s share of renewable energy investment and jobs in Australia by 2020.

State Environment Protection Policy – Waters ReviewThe aim of this review is to ensure Victoria has clear and relevant standards, legal rules and statutory obligations to protect and improve the health of our water environments. The review incorporates both the Waters of Victoria and Ground waters of Victoria protection policies.

Inquiry into the Environment Protection Authority (EPA)An inquiry aimed at determining what the fundamental purpose and functions of the EPA should be.

Port Phillip Bay Environmental Management Plan The new plan will outline a vision, objectives and targets to guide the government’s work with partners and the community and help manage the ongoing health of the Bay.

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Effective asset management is critical for our business because it determines our long-term investment profile and sets a large proportion of our controllable operating costs in the short term. We have a goal to align our asset systems with ISO 55001 to deliver customer value and provide confidence to our stakeholders that we have robust systems in place to support our expenditures.

We critically review our expenditures and seek input from all affected parties to ensure optimal investment decisions. We also use new technology to meet our functional requirements for example the use of high definition cameras either for security purposes or condition assessment with the monitoring of sewerage wet wells for the build-up of grease and fat. We will also continue to investigate opportunities in greenfield areas to install pressure sewer systems to reduce overall costs and to reduce risks associated with occupational health and safety (a key consideration for our business).

These new, innovative solutions can often generate extensive data. How we leverage this data to provide new insights on our assets is seen as an emerging opportunity. Our capital delivery program remains leading-edge with the majority of key programs delivered on time and within budget. We continue to perform well against benchmarks for drinking water quality and service reliability.

Five and 25 year asset management plansOur asset management framework defines how we plan and manage our infrastructure assets. Several factors are considered:

• current or desired levels of service for our customers and stakeholders

• associated costs of providing those service levels

• practices and systems that help us manage our assets in the most efficient and effective way.

Water, sewerage and recycled water plans assist implementation of the framework. Each plan is based on defined service objectives and actions to achieve them, with strategic performance measures to determine how well the objectives are delivered.

The optimum mix of current and future capital and operating and maintenance costs are considered across the full lifecycle of the assets. Robust risk assessment is used to determine the preferred timing for projects, programs and activities. This assessment is based on the likelihood of failure of the asset (condition) and the consequence of the asset failing (criticality). Asset failure is defined as not achieving the desired service level for our customers.

Based on these considerations, we have developed the following five and 25 year capital investment programs.

Five year capital program (2015–16 to 2020–21)Water capacity planThe objective of the water capacity program is to ensure South East Water has sufficient capacity to deliver water to satisfy the needs of existing customers and extend the service for new customers. The focus remains on growth investment rather than deficiencies in the existing system.

Major expenditure areas in our region in the future are predicted to be Clyde, Cranbourne, Officer and Pakenham. The water capacity (system extension) plan predicts expenditure of $66 million over the period, with an average annual expenditure of $13 million. These works will enable new customers to connect to the water supply and maintain adequate pressure and flow standards to existing customers.

Water reliability plan

The objective of our water reliability plan is to avoid excessive service interruptions for customers. We will achieve this through rigorous assessment balanced with emergency maintenance, preventative maintenance and asset renewals. We intend to maintain water main renewals at historic levels. Our plan proposes an investment of $56 million to renew an average of 30 kilometres of water main each year to maintain current service levels. An emerging issue is the management of water mains constructed from asbestos cement. Our current preferred approach to managing this challenge is to lay a replacement pipe on a new alignment. We are also actively exploring emerging technologies including lining techniques

Appendix B: Asset management

54


that leverage off the existing assets. We will continue to provide capital expenditure to renew critical distribution mains. This process will consider both condition assessments and the risk consequence of a water failure caused by potential bursts in these congested areas. We are working with Monash University and other partners on a research project – Advanced Condition Assessment and Pipe Failure Prediction – to improve our understanding of large diameter distribution mains. We are also researching the impact of transients on the life of pipeline assets.

The water reliability maintenance budget includes all the recurrent costs of running and maintaining the water supply system. Significant costs include the repair of water mains and replacement of service pipes between the main and meter. Preventative maintenance costs have decreased through improved monitoring and evaluation of planned mechanical activities and civil inspection programs. The plan also targets valves, hydrants, and mechanical and electrical assets.

A new initiative for this period is the implementation of pressure management within our inner Melbourne zones which are large and subject to high pressure. During the next 12 months we will develop a business case to divide these larger zones to much smaller zones so we can better manage leakage and pressure issues throughout the system.

Water quality planThe quality of water provided to customers is measured by laboratories using around-the-clock monitoring systems. Expenditure of about $1 million is planned for the five-year period. Funds are allocated for the installation of continuous online monitoring equipment,

mobile chlorine dosing units and system alterations to address water quality issues with specific assets.

Sewer capacity planThe sewer capacity program ensures we can safely collect and transfer sewage to treatment and disposal systems without risk to community health or the environment. The majority of our sewer capacity programs are driven by growth (as is the case for water) and compliance with the current containment standard. We also work with the environmental regulator to consider revising discharge standards in appropriate situations to ensure any investment maximises environmental outcomes. By providing recycled water, our sewer treatment systems are also increasingly contributing to the liveability and sustainability of our suburbs.

Development and population growth means that new customers need to connect to the sewerage system without overloading it – meaning our water recycling plants need to accommodate the additional load. To ensure this occurs, it is expected that $174 million will be required over the planning period, primarily to service the south eastern growth corridor. Due to population growth our major plants are at or nearing capacity. Consequently, upgrades costing $240 million will be required at our Boneo, Lang Lang, Longwarry and Mt Martha water recycling plants over the next five years. The largest project will be at the Boneo plant where an additional 35 per cent of hydraulic capacity will be delivered at a cost of around $100 million. Provision has also been made for upgraded assets in the inner city areas to provide for planned urban redevelopment, particularly where it enhances

liveability. The Peninsula ECO project, delivering backlog sewer services for the southern Mornington Peninsula was substantially completed in 2015–16. We are now in the connection phase of the project which allows customers to connect early ahead of our scheduled program. We have remaining backlog areas in Belgrave and Officer which will be serviced within the period.

Sewer reliability planThis plan is designed to ensure the reliable collection of sewage without service disruption or significant environmental or social impacts. The structural condition of the sewer system remains sound and the number of collapses is small because of our targeted sewer pipe inspection and renewal program.

We plan to spend $95 million over the period to renew sewerage assets and maintain the current reliability of the sewerage system. Major programs include the branch and reticulation renewal program, with expenditure of $30 million to generally reduce the risk of failure of vulnerable concrete sewers.

Investment of $13 million in sewer rising mains is also planned. These are our highest risk assets because of the failure consequences to the environment in respect to receiving waters - particularly as South East Water borders more than 270 kilometres of Victorian coastline. This expenditure will be confined mostly to the Mornington Peninsula; which due to the geography has the largest number of sewer rising mains. Other areas of investment include mechanical and electrical renewals at pump stations and at facilities associated with water recycling plants.

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Sewerage quality planSouth East Water has documented and implemented the Integrated Sewage Quality Management System (ISQMS), developed in conjunction with Melbourne Water. The ISQMS framework is detailed in South East Water’s ISQMS Reference Manual and Hazards Analysis and Critical Control Point Plan. . The main objective of this framework is to underpin the reliability and sustainability of our recycled water system. South East Water has implemented and had certified an ISO22000 system for management of sewage quality. This covers discharges from trade waste customers to collection at the water recycling plants. The ISO22000 system will be routinely audited – both internally and externally – for continued compliance, and regularly reviewed for ongoing relevance.

Recycled water planFrom 2016 to 2021 we will continue recycling in the south eastern growth corridor with a proposed investment of $54 million. These works include land acquisitions and building recycled water distribution infrastructure comprising tanks, pump stations and pipelines.

Corporate A key initiative in this plan is the Aquarevo development (Evans Road, Cranbourne) where we are developing a former treatment plant site into a state of the art residential development, exhibiting a range of sustainability attributes in conjunction with our partner, Villawood Properties.

Corporate capital expenditure of $89 million relates primarily to information technology expenditure

comprising equipment replacements and upgrades. The business is also rapidly developing a range of communication channels for customers to access systems as part of our digital transformation.

25 year capital program (2015–16 to 2040–41)The capital program by service (water, sewerage, recycled water) and by driver (growth, renewal, backlog, quality and other) for the next 25 years is outlined in the following chart.

Important trends and assumptions in the 25 year expenditure program are outlined below.

• Our proof of concept projects - Aquarevo (Evans Road, Cranbourne) and Fishermans Bend (Australia’s largest re-development project) - will be iconic. They will provide a guide for the feasible future direction of the industry in meeting liveability and sustainability objectives for our suburbs.

• Water reliability expenditure will need to significantly increase in the period from 2025 to 2030, as asbestos cement water mains constructed in the 1950s reach the end of their useful life. Our current preferred approach to managing this challenge is to lay a replacement pipe on a new alignment. We are also actively exploring emerging technologies including lining techniques that leverage off the existing assets.

• Sewer reliability programs are expected to decrease after 2020 when the majority of high-risk concrete sewers have been replaced. From that time, full sewer renewal will become less likely in favour of targeted

patching which is the predominant technique for vitrified clay sewers.

• Growth is expected to remain steady within the south eastern growth corridor then, in the long term, decline by 2030 (based on the assumption the urban growth boundary remains unchanged). Infill growth will increase particularly around the areas of Southbank and Fishermans Bend (+120,000 new residents) together with other areas identified through planning processes for densification. New recycling plants are proposed to service the Casey-Clyde precinct (+150,000 residents) and Fishermans Bend from around 2020–2030. This will require a significant investment for the business.

• Backlog sewerage expenditure profile assumes completing all connections within a 20-year timeframe.

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2019

–20

2030

–31

2025

–26

2020

–21

2031

–32

2036

–37

2015

–16

2026

–27

2021

–22

2032

–33

2037

–38

2016

–17

2027

–28

2022

–23

2033

–34

2038

–39

2017

–18

2028

–29

2023

–24

2034

–35

2039

–40

2018

–19

2029

–30

2024

–25

2035

–36

204

0–4

1

Long term capital program by service ($ million)

Water

Sewerage

Recycling

Corporate

250

150

200

100

50

0

mill

ion

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Appendix C Progress against Water Plan 3South East Water’s capital expenditure programs are driven by network growth, the need to maintain reliable water and sewerage services, and providing sewerage connection to unsewered properties. The following table provides a summary of South East Water’s 10 major capital projects and programs as documented within the 2013–18 Water Plan.

Project Project output to be achieved within regulatory period Status 2013–18 Water Plan 3 Value ($ million)

Rye – Portsea backlog scheme (Peninsula ECO)

This agreed program with the Government and EPA will continue to replace septic tanks with sewerage connections to achieve environmental benefits. The scheme replaces aging and failing septic tanks, resulting in significant improvements to public health and the environment. This also includes the proposed customer-led backlog scheme.

All reticulation and transfer mains completed in 2015, connections are underway across the whole project area. To the end of March 2016, 1262 properties have been connected to the network.

$178 Board approved project approval

for WP3

Boneo Water recycling capacity upgrade

An expansion of the sludge drying capacity is required by 2014–15 with duplication of the activated sludge plant and tertiary treatment plant required by 2016–17 to meet discharge standards.

Interim works and operational changes have allowed the next major upgrade, including both activated sludge and sludge drying works, to be delayed until 2018–19 without adverse impacts.

$48

Mt Martha water recycling plant – long-term sludge upgrade

Capacity upgrade works required for the sludge drying system Completed. $28

Lang Lang Water recycling plant upgrade

The existing plant, comprising two lagoons, will no longer be able to produce effluent suitable for recycling because of the hydraulic and organic load.

On schedule to be completed by February 2017. $13

Sewer mains renewal program Reduce the risk of sewage spills to the environment and reduce the risk of adversely impacting customer service levels.

63.1 kilometres of reticulation and 3.5 kilometres of branch sewers have been renovated for $13.9 million, on target with the 2013–18 Water Plan.

$34

Water mains renewal program Reduce the risk of unplanned water interruptions adversely impacting customers. Project on track and under budget. To date 97.6 kilometres of reticulation mains have been renewed for a spend of $37.6 million. This includes the St Kilda Road single project, at a cost of $5 million for 1.4 kilometres of 355mm reticulation main renewal.

$61

New office and fit out Gain efficiencies through centralising operations, as our business currently operates out of three locations.

Completed. $78

Sewer rising mains renewal program

Reduce the risk of sewage spills to the environment. This program is on track for delivery by 2017–18. $26

Pound Road sewerage pump station

To cater for residential growth in this catchment provision of sewerage services is required. The works need to have flexibility to accommodate the expected growth while maintaining environmental compliance with the one in five-year containment standard.

Completed. $7

Cranbourne recycled water tank To provide the Cranbourne recycled water customers with water security in periods of high demand.

Completed. Project was delivered for $7.3 million against an approved $11.1 million.

$12

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Appendix D Ministerial reporting directive: financial performance

Performance indicator2014–15

result2015–16

target2016–17

target2017–18

target2018–19

target2019–20

target2020–21

target

Internal financial ratio (per cent)Net operating cash flow - dividends / capital expenditure

32.6 53.0 49.2 62.2 58.8 68.1 61.0

Gearing ratio (per cent)Total debt (including finance leases) / total asset

32.8 33.6 34.6 35.1 36.0 36.4 37.1

Interest cover (cash) (times)Cash flow from operations before net interest and tax payments / net interest payments

3.4 3.0 3.1 3.4 3.3 3.3 3.3

Current ratio (times)Current assets / current liabilities (excluding long term employee provisions and revenue in advance)

0.9 0.9 0.9 0.9 0.8 0.8 0.8

Return on assets (per cent)Earnings before net interest and tax / average total assets

5.2 5.4 4.9 5.0 4.5 4.7 4.7

Return on equity (per cent)Net profit after tax / average total equity 4.6

5.0 4.3 4.5 3.8 4.1 4.2

EBITDA margin (per cent)Earnings before interest, tax, depreciation and amortisation / total revenue

30.1

31.7 31.9 32.0 30.5 31.4 31.6

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Ministerial reporting directive: non-financial performance

KPI number Performance indicator measure 2014–15

result2015–16

target2016–17

target2017–18

target2018–19

target2019–20

target2020–21

target

WS1 Customers receiving unplanned water supply interruptions in the year(Number of customers receiving more than five unplanned interruptions in the year per 1000 customers)

per cent 0.067 0.047 0.047 0.047 0.047 0.047 0.047

WS2 Customer minutes to restore water supply

(Average duration of unplanned water supply interruptions)

minutes 89.2 89.7 89.7 89.7 89.7 89.7 89.7

WS3 Unplanned water supply interruptions restored within five hours(Unplanned water supply interruptions restored within five hours/total unplanned water supply interruptions) * 100

per cent 99.4 99.0 99.0 99.0 99.0 99.0 99.0

SS1 Sewer spills from reticulation and branch sewer spills contained within five hours(Sewer spills from reticulation and branch sewers contained within five hours/total sewer spills from reticulation and branch sewers) * 100

per cent 100 100 100 100 100 100 100

SS2 Sewer supply customer interruptions restored within four hours(Number of residential sewerage customers affected by sewerage interruptions restored within four hours/total number of residential sewerage customers affected by sewerage interruptions) * 100

per cent 99.6 99.0 99.0 99.0 99.0 99.0 99.0

CR1 Water quality complaints – colour, taste, odour, blue water, other

(Number of complaints per 1000 customers)

number 0.18 0.27 0.27 0.27 0.27 0.27 0.27

CR2 Sewerage service quality and reliability complaints


number 0.000 0.001 0.001 0.001 0.001 0.001 0.001

CR3 Sewage odour complaints


number 0.003 0.005 0.005 0.005 0.005 0.005 0.005

CR4 Billing/payment issues complaints


number 0.049 0.50 0.50 0.50 0.50 0.50 0.50

E1 Effluent reuse volume (end use)

(Percentage recycled)

per cent 29 22 22 22 22 22 22

E2 Total net CO2 equivalent emissions

(Net tonnes CO2 equivalent)

tonnes 44,954 45,900 46,800 46,800 45,000 43,000 38,200

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