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I N D E P E N D E N T P R I C I N G A N D R E G U L A T O R Y T R I B U N A L O F N E W S O U T H W A L E S

GOSFORD CITY COUNCIL WYONG SHIRE COUNCIL

PRICES OF WATER SUPPLY, WASTEWATER AND STORMWATER SERVICES

From 1 July 2005 to 30 June 2006

Determination Nos 1 and 2, 2005 ISBN 1 920987 25 8

May 2005

This is copyright. The Copyright Act 1968 permits fair dealing for study, research, news reporting, criticism and review. Selected passages, tables or diagrams may be reproduced for such purposes provided acknowledgement of the source is included.

The Tribunal members for this review are:

Dr Michael Keating AC, Chairman Mr James Cox, Full Time Member

Ms Cristina Cifuentes, Part Time Member Mr David Brett, Temporary Member

Inquiries regarding this review should be directed to:

Richard Warner (02) 9290 8406 Matthew Shirlaw (02) 9290 8418

Con Read (02) 9290 8436

Independent Pricing and Regulatory Tribunal of New South Wales Level 2, 44 Market Street, Sydney NSW 2000

(02) 9290 8400 Fax (02) 9290 2061 www.ipart.nsw.gov.au

ALL CORRESPONDENCE TO: PO BOX Q290, QVB POST OFFICE NSW 1230

Determination No 1, 2005 Section 11(1) Independent Pricing and Regulatory Tribunal Act 1992 Gosford City Council Independent Pricing and Regulatory Tribunal of New South Wales Reference No 05/126

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1. Background

(a) Section 11 of the Independent Pricing and Regulatory Tribunal Act 1992 permits the Tribunal to conduct investigations and make reports to the Minister on the determination of the pricing for a government monopoly service supplied by a government agency specified in Schedule 1 of the IPART Act.

(b) Gosford City Council (Council) (as a water supply authority under the Water Management Act 2000) is listed as a government agency for the purposes of Schedule 1 of the IPART Act. The services of the Council declared as monopoly services (Monopoly Services) under the Independent Pricing and Regulatory Tribunal (Water, Sewerage and Drainage Services) Order 1997 are:

(1) water supply services;

(2) sewerage services;

(3) stormwater drainage services;

(4) trade waste services;

(5) services supplied in connection with the provision or upgrading of water supply and sewerage facilities for new developments and, if required, drainage facilities for such developments;

(6) ancillary and miscellaneous customer services for which no alternative supply exists and which relate to the supply of services of a kind referred to in paragraphs (1) to (5);

(7) other water supply, sewerage and drainage services for which no alternative supply exists.

Accordingly, the Tribunal may determine the prices for the Council’s Monopoly Services.

(c) In investigating and reporting on the pricing of the Council’s Monopoly Services, the Tribunal has had regard to a broad range of matters, including the criteria set out in section 15(1) of the IPART Act.

(d) In accordance with section 13A of the IPART Act, the Tribunal has fixed the maximum price or set a methodology for fixing the maximum price for the Council’s Monopoly Services.

(e) Under section 18(2) of the IPART Act, the Council may not fix a price below that determined by the Tribunal without the approval of the Treasurer.

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2. Application of this determination

(a) This determination fixes the maximum prices (or sets a methodology for fixing the maximum prices) that the Council may charge for the Monopoly Services.

(b) This determination commences on the later of 1 July 2005 and the date that it is published in the NSW Government Gazette (Commencement Date).

(c) The maximum prices in this determination apply from the Commencement Date to 30 June 2006. The maximum prices in this determination prevailing at 30 June 2006 continue to apply beyond 30 June 2006 until this determination is replaced.

3. Replacement of Determination No. 1 of 2003 Determination No. 1 of 2003 is replaced by this determination from the Commencement Date. The replacement does not affect anything done or omitted to be done, or rights or obligations accrued, under that determination prior to its replacement.

4 Monitoring The Tribunal may monitor the performance of the Council for the purposes of: (a) establishing and reporting on the level of compliance by the Council with this

determination; and

(b) preparing a periodic review of pricing policies in respect of the Monopoly Services supplied by the Council.

5. Schedules Schedules 1-5 (inclusive) and the Tables in those Schedules set out the maximum prices that the Council may charge for the Monopoly Services specified in the Schedules. 6 Definitions and Interpretation Definitions and interpretation provisions used in this determination are set out in Schedule 6.

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Schedule 1

Water Supply Services

1. Application This Schedule sets the maximum prices that the Council may charge for the Monopoly Services under paragraph (a) of the Order (water supply services).

2. Categories for pricing purposes Prices for water supply services have been determined for 3 categories:

(a) a Metered Property;

(b) a Vacant Land; and

(c) an Unmetered Property.

2.1 Charges for water supply services to Metered Properties The maximum price that may be levied by the Council for the provision of water supply services to a Metered Residential Property or a Metered Non Residential Property (each connected to the Water Supply System) is the sum of the following:

(a) the water service charge in Table 1, corresponding to the Meter size; and

(b) the water usage charge in Table 2, per kL of water used.

2.2. Charges for water supply services to Vacant Land The maximum price that may be levied by the Council for the provision of water supply services to Vacant Land (whether there is a Meter on that Vacant Land or not) which is not connected to the Water Supply System but is reasonably available for connection to the Water Supply System is the water service charge in Table 3.

2.3. Charges for water supply services to Unmetered Properties The maximum price that may be levied by the Council for the provision of water supply services to an Unmetered Property which is connected or reasonably available for connection to the Water Supply System is:

(a) the water service charge in Table 1 (with that Unmetered Property taken to have a Meter size of 20mm); and

(b) the water usage charge in Table 2 of that Unmetered Property equals the average water consumption of all the Properties located on the same street as that Unmetered Property.

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3. Levying water supply service charges on Multi Premises

3.1 Multi Premises (other than a Retirement Village) For a Multi Premises (other than a Retirement Village):

(a) which is connected to the Water Supply System; and

(b) which has a Common Water Meter or multiple Common Water Meters,

the maximum price that may be levied by the Council for the provision of water supply services to a Property (other than a Property falling within paragraph (f) of the definition of ‘Property’) within that Multi Premises is the sum of the following:

(c) the water service charge in Table 1 (with that Property taken to have a Meter size of 20mm); and

(d) the water usage charge in Table 2, as if the water used by that Property was equal to:

total quantity of water used by that Multi Premises divided by:

the number of Properties within that Multi Premises.

3.2 Retirement Village For a Retirement Village:



the maximum price for each Common Water Meter that may be levied by the Council on the owner of that Retirement Village for the provision of water supply services to that Retirement Village is the sum of the following:

(c) the water service charge in Table 1, corresponding to the Meter size; and

(d) the water usage charge in Table 2, per kL of water used.

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Tables 1, 2 and 3

Table 1 Water service charges for a Metered Residential Property or a Metered Non Residential Property

Basis of charge Meter size

Maximum charge 2005/06 $

20mm 80.82 25mm 126.28 32mm 206.90 40mm 323.28 50mm 505.13 65mm 853.66 80mm 1293.12 100mm 2020.50 150mm 4546.13 200mm 8082.00

For Meter sizes not specified above, the

following formula applies (Meter size)2 x 80.82/400

Table 2 Water usage charge for a Metered Residential Property or a Metered Non Residential Property

Basis of charge Maximum charge 2005/06 $/kL

Per kilolitre of water used 0.925

Table 3 Water service charge for a Vacant Land

Basis of charge Maximum charge 2005/06 $

Water service supply 80.82

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Schedule 2

Sewerage services

1. Application This Schedule sets the maximum prices that the Council may charge for the Monopoly Services under paragraph (b) of the Order (sewerage services).

2. Categories for pricing purposes Prices for sewerage services have been determined for 4 categories:

(a) Residential Properties;

(b) Non Residential Properties;

(c) Vacant Land; and

(d) Unmetered Properties.

2.1. Charges for sewerage services to Residential Properties connected to the Sewerage System

The maximum price that may be levied by the Council for sewerage services to a Residential Property connected to the Sewerage System is the residential sewerage service charge in Table 4.

2.2. Charges for sewerage services to Non Residential Properties connected to the Sewerage System

The maximum price that may be levied by the Council for sewerage services to a Non Residential Property connected to the Sewerage System is the higher of:

(a) the minimum non residential sewerage service charge in Table 5; and

(b) the sum of:

(i) the non residential sewerage service charge in Table 6; and

(ii) the non residential sewerage usage charge in Table 7.

2.3 Charges for sewerage services to Vacant Land The maximum price that may be levied by the Council for sewerage services to Vacant Land not connected to the Sewerage System but is reasonably available for connection to the Sewerage System is the sewerage service charge in Table 8.

2.4 Charges for sewerage services to Unmetered Property The maximum price that may be levied by the Council for sewerage services to an Unmetered Property which is connected or reasonably available for connection to the Sewerage System is the sewerage service charge in Table 4 (if the Unmetered Property is a Residential Property) and the sewerage service charge in Table 5 (if the Unmetered Property is a Non Residential Property).

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3. Levying sewerage service charges on Multi Premises

3.1 Multi Premises (other than a Retirement Village) (a) For a Multi Premises (other than a Retirement Village):

(i) which is connected to the Sewerage System; and

(ii) which has a Common Water Meter or multiple Common Water Meters; and

(iii) where the majority of the Properties (other than a Property falling within paragraph (f) of the definition of ‘Property’) in that Multi Premises are Residential Properties,

the maximum price that may be levied by the Council for the provision of sewerage services to a Property (other than a Property falling within paragraph (f) of the definition of ‘Property’) within that Multi Premises is the residential sewerage service charge in Table 4 (with that Property taken to have a Meter size of 20mm).

(b) For a Multi Premises (other than a Retirement Village): (i) which is connected to the Sewerage System;

(ii) which has a Common Water Meter or multiple Common Water Meters; and

(iii) where the majority of the Properties (other than a Property falling within paragraph (f) of the definition of ‘Property’) in that Multi Premises are Non Residential Properties,

the maximum price that may be levied by the Council for the provision of sewerage services to a Property (other than a Property falling within paragraph (f) of the definition of ‘Property’) within that Multi Premises is the higher of:

(iv) the minimum non residential sewerage service charge in Table 5; and

(v) the sum of:

(i) the non residential sewerage service charge in Table 6 (with that Property taken to have a Meter size of 20mm); and


3.2 Retirement Village For a Retirement Village:

(a) which is connected to the Sewerage System; and

(b) which has a Common Water Meter or multiple Common Water Meters, the maximum price for each Common Water Meter that may be levied by the Council on the owner of that Retirement Village for the provision of sewerage services to that Retirement Village is the greater of:

(c) the minimum non residential sewerage service charge in Table 5; and

(d) the sum of:



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Tables 4, 5, 6, 7 and 8

Table 4 Residential sewerage service charge

Charge Maximum charge 2005/06 $

Sewerage service 363.99

Table 5 Minimum Non Residential sewerage service charge

Charge Charge 2005/06 $

Minimum sewerage service charge 363.99

Table 6 Non Residential sewerage service charge

Basis of charge Meter size

Maximum charge 2005/06 ($)

20mm 271.92 25mm 424.88 32mm 696.12 40mm 1087.68 50mm 1699.50 65mm 2872.16 80mm 4350.72 100mm 6798.00 150mm 15295.50 200mm 27192.00

For Meter sizes not specified above, the

following formula applies (Meter size)2 x 271.92/400

Table 7 Non Residential sewerage usage charge

Basis of charge Maximum charge 2005/06 ($) x df%

Per kilolitres of water used 0.78 x df% *Note - a Discharge Factor is applied to the charge based on the volume of water discharged into the Sewerage System.

Table 8 Sewerage service charge for Vacant Land

Basis of charge Maximum charge 2005/06 $

Vacant Land 272.99

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Schedule 3

Trade Waste Services

1. Application This Schedule sets the maximum prices that the Council may charge for the Monopoly Services under paragraph (d) of the Order (Trade Waste Services).

2. Categories for pricing purposes Prices for trade waste services have been determined for 3 categories:

(a) Category 1 Trade Waste Discharge;

(b) Category 2 Trade Waste Discharge; and

(c) Category 3 Trade Waste Discharge.

2.1 Category 1 Trade Waste Discharge The maximum price for Category 1 Trade Waste Discharge that may be levied by the Council is represented by the following formula:

TW1 = A + I Where: TW1 = maximum price for Category 1 Trade Waste Discharge A = Trade waste agreement fee ($) I = Liquid trade waste re-inspection fee ($) (if applicable) each as set out in Table 9.

2.2. Category 2 Trade Waste Discharge The maximum price for Category 2 Trade Waste Discharge that may be levied by the Council is represented by the following formula:

TW2 = A + I + [(C x TWDF) x UCtw] Where: TW2 = maximum price for Category 2 Trade Waste Discharge A = Trade waste agreement fee ($) I = Liquid trade waste re-inspection fee ($) (if applicable) UCtw = Trade waste usage charge ($/kL), each as set out in Table 9. C = Customer annual water consumption (kL) TWDF= Trade Waste Discharge Factor (%)

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2.3 Category 3 Trade Waste Discharge The maximum price for Category 3 Trade Waste Discharge that may be levied by the Council is the higher of the price as calculated by applying the formula in clause 2.2 above and the price as represented by the following formula:

TW3 = A + I + EMC Where: TW3 = maximum price for Category 3 Trade Waste Discharge A = Trade waste agreement fee ($) I = Liquid trade waste re - inspection fee ($) (if applicable) each as set out in Table 9. EMC = Total excess mass charge ($) as set out in Table 10.

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Tables 9 & 10

Table 9 Trade waste charges

No. Charge Charges 2005/06

1 Trade waste usage charge $1.30/kL

2 Septic/Portaloo/Mobile Cleaning Charge $11.00/kL

3 Other liquid wastes transported by disposal contractors $1.20/kL

4 Trade waste agreement fee $66.63

5 Liquid trade waste re-inspection fee $112.35

6 Charge for lack of pre-treatment facility $11.00/kL

Table 10 Excess mass charges

1 Pollutant Excess Mass Charges ($/kg)

2005/06 Aluminium (Al) $0.54 Ammonia (as N) $1.60 Arsenic (As) $54.00 Barium (Ba) $27.00 Biological Oxygen Demand (BOD5) $1.30 Boron (B) $0.54 Bromine (Br2) $11.00 Cadmium (Cd) $250.00 Chlorinated Hydrocarbons $27.00 Chlorinated Phenolics $1,100.00 Chloride No Charge Chlorine (Cl2) $1.10 Chromium (Cr) (Total)# $18.00 Cobolt (Co) $11.00 Copper (Cu) $11.00 Cyanide $54.00 Flouride (F) $2.70 Formaldhyde $1.10 Grease $6.68 Herbicides/Weedicides/Fungicides $540.00 Iron (Fe) $1.10 Lead (Pb) $27.00 Lithium (Li) $5.40 Methylene Blue Active Substances (MBAS) $0.54 Manganese (Mn) $5.40 Mercury (Hg) $1,800.00 Molybdenum (Mo) $0.54 Nickel (Ni) $18.00 Nitrogen (N) (Total Kjeldahl Nitrogen) $0.14 Pentachlorophenol $1,100.00 Pesticides – General $540.00 Pesticides – Organochlorine $540.00 Pesticides – Organophosphate $540.00 PCB $540.00 Petroleum Hydrocarbons (non-flammable) $1.80 pH>10, or pH<7 $0.54 Phenolic Compounds (excluding chlorinated) $5.40 Phosphorus (Total) $1.10

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1 Pollutant Excess Mass Charges ($/kg)

2005/06 Polynuclear Aromatic Hydrocarbons (PAH) $11.00 Selenium (Se) $38.00 Silver (Ag) $11.00 Sulphate (SO4) $0.11 Sulphide (S) $1.10 Sulphite (SO3) $1.10 Suspended Solids (SS or NFR) $1.30 Temperature No Charge Tin (Sn) $5.40 Total Dissolved Solids $0.04 Zinc (Zn) $11.00

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Schedule 4

Ancillary and miscellaneous customer services

1. Application 1.1 This Schedule sets the maximum prices that the Council may charge for services under

paragraph (f) of the Order (ancillary and miscellaneous customer services for which no alternative supply exists).

2. Ancillary and miscellaneous charges 2.1 The maximum charges that may be levied by the Council for the ancillary and

miscellaneous services in column 2 of Table 11 are the ancillary and miscellaneous services charges in column 3 of Table 11, corresponding to the relevant ancillary and miscellaneous service.

2.2 A reference in Table 11 to "NA" means that the Council does not provide the relevant

service.

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Table 11 Charges for ancillary and miscellaneous services

No. Ancillary and miscellaneous services 1 July 2005 to 30 June 2006

1 Conveyancing Certificate (Statement of Outstanding Charges) a) Over the Counter $25.00 b) Electronic NA 2 Property Sewerage Diagram-up to and including A4 size- (where

available)

(Diagram showing the location of the house-service line, building and sewer for a property)

a) Certified $25.00 b) Uncertified i. Over the Counter $20.00 ii. Electronic NA 3 Service Location Diagram (Location of sewer and/or Water Mains in relation to a property’s

boundaries)

a) Over the Counter $15.00 b) Electronic NA 4 Special Meter Reading Statement $53.00 5 Billing Record Search Statement – up to and including 5 years. $17.05

6 Building over or Adjacent to Sewer Advice $0.00 (Statement of Approval Status for existing Building Over or Adjacent to a

Sewer)

7 Water Reconnection a) During business hours $50.00 b) Outside business hours $100.00 8 Workshop Test of Water Meter (Removal of the meter by an accredited organisation at the customer’s

request to determine the accuracy of the water meter. (A separate charge relating to transportation costs and the full mechanical test which involves dismantling and inspection of meter components will also be payable)

20mm $134.00 25mm $134.00 32mm $134.00 40mm $134.00 50mm $134.00 80mm $134.00 100mm NA 150mm NA 9 Water main disconnection a) Application for Disconnection-(all sizes) $38.00 b) Physical Disconnection NA

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No. Ancillary and miscellaneous services 1 July 2005 to 30 June 2006

10 Application for Water Service Connection-(up to and including 25mm)

$38.00

(This covers the administration fee only. There will be a separate charge payable to the utility if they also perform the physical connection)

11 Application for Water Service Connection-(32-65mm) $38.00 (This covers administration and system capacity analysis as required.

There will be a separate charge payable to the utility if they also perform the physical connection)

12 Application for Water Service Connection-(80mm or greater) $38.00 (This covers administration and system capacity analysis as required.

There will be a separate charge payable to the utility if they also perform the physical connection)

13 Application to assess a Water main Adjustment (Moving a fitting and/or adjusting a section of water main up to and

including 25 metres in length)

This covers preliminary advice as to the feasibility of the project and will result in either:

1. A rejection of the project in which cases the fee covers the associated investigation costs

$270.00

Or 2. Conditional approval in which case the fee covers the administrative

costs associated with the investigation and record amendment. $270.00

14 Standpipe Hire Security Bond (25mm) $596.00 (deposit) Security Bond (63mm) $596.00 (deposit) 15 Standpipe Hire < 50mm $80.82 >= 50mm $505.13 16 Standpipe Water Usage Fee - ($ per kL) $0.925 17 Backflow Prevention Device Application and Registration Fee $60.00

(This fee is for initial registration of the backflow device) 18 Backflow Prevention Application Device Annual Administration Fee $25.00 (This fee is for the maintenance of records including logging of inspection

reports)

19 Major Works Inspections Fee. (This fee is for the inspection, for the purposes of approval of water and

sewer mains, constructed by others, that are longer than 25 metres and/or greater than 2 metres in depth)

Water Mains ($ per metre) $8.00 Sewer Mains ($per Metre) $9.00 Reinspection $108 20 Statement of Available Pressure and Flow $110.00 (This fee covers all levels whether modelling is required or not)

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No. Description 2005/06 Fixed Hourly

21 Cancellation Fee – Water and Sewerage Applications $50.00 NA

A fee charged to cancel an application for services and process a refund of water and sewer application fees.

22 Sales of Building Over Sewer and Water

Guidelines $10.10 NA A fee for undertaking a technical review of

guidelines to ensure that current standards are applied when a proposal to build over or near council sewer and water mains is lodged.

23 Section 307 Certificate A fee for preparation of a Section 307 Certificate

which states whether a development complies with the Water Management Act 2000.

Dual Occupancies $87.00 NA Commercial Buildings, Factories, Torrens

Subdivision of Dual Occupancy $130.00 NA Boundary Realign with Conditions $212.00 NA Subdivisions, developments involving mains

extensions $631.00 NA Development without Requirement Fee $51.00 NA

24 Inspection of Concrete Encasement and Additional Junction Cut-ins

A fee charged by Council to inspect a developer’s works to determine whether works are in accordance with Council standards.

Inspection of concrete encasement $140.00 NA Additional inspection (due to non compliance) $48.00 NA Inspection of concrete encasement greater than

10m $140 + $14/m for

each m > 10m NA

25 Sale of Specification for Construction of Water and Sewerage Works by Private Contractors $78.00 NA

Contractors carrying out private works are required to purchase Council’s “Specifications for Construction of Water and Sewerage Works by Private Contractors”

26 Private Developers Plan Resubmission NA $58 first hr $30 each

hr after A fee for Council review and approval of a

developer’s request for changes to a previously approved water or sewer plan.

27 Approval of Developers Sewer Pump Station

Rising Main Design $220.00 NA A fee for Council review and approval of a private

developer’s proposal for provision of sewer; pump stations/rising mains. This fee covers assessment of:

i) suitability for integration within the existing

sewerage system. ii) proposed works conform to both industry and

Council standards.

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No. Description 2005/06 Fixed Hourly

28 Approval of Private Internal Residential Sewer Pump Station Rising Main Design $85.00 NA

A fee for Council review of a property owner’s proposal for provision of minor internal sewer; pump stations/rising mains. This fee covers assessment of:

iii) suitability for integration within the existing

sewerage system. iv) proposed works conform to both industry and

Council standards.

29 Approval of Extension of Sewer/Water Mains to Properties Outside Service Areas $120.00 NA

A fee for Council review and approval of a property owner’s application for extension of sewer/water mains to properties outside service areas.

30 Sale of Sewer Plan Books A fee for purchase of Council hardcopy set of

sewer reticulation plans. A3 sheet in cardboard folder NA A3 sheet in plastic pockets (3 folders) NA Annual charge for monthly updating service NA CD $65.00

31 Trade Waste Approvals $160.00 A fee for Council inspection of a commercial or

industrial development prior to approval for discharging into Council’s sewers being granted.

32 Sewer Connection fees A fee for Council inspection of developments

requiring connection to, or alteration to existing connection to Council’s sewer to ensure protection of Council’s sewerage system.

New sewer connection $170.00 Plus each additional WC $65.00 Alterations $122.00 Units/Villas (1 WC each flat or unit) $140.00 Plus for each additional WC $65.00 Caravan Connection Fee $82.00 Sewer Re-Inspection Fee $94.00 33 Location of Water and Sewer Mains Private developers/contractors request the on-

site indication of the alignment, and often depth, of water and sewer mains and services. This service will be charged on the basis of actual costs incurred by Council. Applicants should contact Council for an estimate of actual cost. A minimum charge of $175.00 will apply. No maximum charge set

34 Water Service Connection Fee - (20-25mm meter) $300.00

For meters greater than 25mm charges will be levied on the actual cost of the work involved

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Schedule 5

Stormwater drainage services

1. Application This Schedule sets the maximum prices that the Council may charge for services under paragraph (c) of the Order (stormwater drainage services).

2. Charges for stormwater drainage services to Residential Properties, Non Residential Properties, Vacant Land or Unmetered Properties

The maximum charge that may be levied by the Council for stormwater drainage services to a Residential Property, a Non Residential Property, a Vacant Land or an Unmetered Property is the stormwater drainage levy in Table 12.

Table 12 Stormwater drainage levy for Residential Properties, Non Residential Properties, Vacant Land and Unmetered Properties

Basis of Charge Maximum charge 2005/06 $

Drainage Levy 42.00

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Schedule 6

Definitions and Interpretation 1. Definitions In this determination: Category 1 Trade Waste Discharge means:

(a) an activity deemed by Council as requiring nil or minimal pre-treatment equipment and whose effluent is well defined and/or is a relatively benign nature;

(b) such activity is being conducted on a Non Residential Property; and

(c) the trade waste from such activity is being discharged into the Sewerage System.

Category 2 Trade Waste Discharge means:

(a) an activity deemed by Council as requiring a prescribed type of liquid trade waste pre-treatment equipment and whose effluent is well characterised;


(c) the trade waste from such activity is being discharged into Sewerage System.

Category 3 Trade Waste Discharge means:

(a) an activity deemed by Council as an industrial nature and/or which results in large volumes of liquid trade waste;


(c) the trade waste from such activity is being discharged into Sewerage System. Common Water Meter means a Meter which is connected or available for connection to a Multi Premises, where the Meter measures the water usage to that Multi Premises but not to each relevant Property located on or within that Multi Premises.

Community Development Lot has the meaning given to that term under the Community Land Development Act 1989. Company Title Building means a building owned by a company where the issued shares of the company entitle the legal owner to exclusive occupation of a specified dwelling within that building.

Company Title Dwelling means a dwelling within a Company Title Building.

Council means the Council as defined in clause 1(b) of section 1 (Background) of this determination.

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df% or Discharge Factor means, in relation to a Property, the percentage of water supplied to that Property which the Council assesses or deems to be discharged into the Sewerage System.

GST means the Goods and Services Tax as defined in A New Tax System (Goods and Services Tax) Act 1999.

IPART Act means the Independent Pricing and Regulatory Tribunal Act 1992.

kL means kilolitre or one thousand litres.

Local Government Act means the Local Government Act, 1993 (NSW).

Meter means an apparatus for the measurement of water.

Metered Non Residential Property means a Non Residential Property that is serviced by a Meter.

Metered Property means a Metered Residential Property or a Metered Non-Residential Property.

Metered Residential Property means a Residential Property that is serviced by a Meter.

Monopoly Services means the Monopoly Services as defined in clause 1(b) of section 1 (Background) of this determination.

Multi Premises means land where there are two or more Properties (other than Properties which fall within paragraph (f) of the definition of ‘Property’) located on it, excluding land where there are hotels, motels, guest houses or backpacker hostels, each as defined in the Local Government Act, located on it.

Non Residential Property means a Property that is not a Residential Property or a Vacant Land or an Unmetered Property.

Order means the Independent Pricing and Regulatory Tribunal (Water, Sewerage and Drainage Services) Order 1997 made on 5 February 1997 and published in Government Gazette No. 18 on 14 February 1997.

Property includes: (a) a Strata Title Lot;

(b) a Company Title Dwelling;

(c) a Community Development Lot;

(d) a Retirement Village Unit;

(e) a part of a building lawfully occupied or available for occupation (other than a building to which paragraphs (a) to (d) inclusive apply); or

(f) land. Rateable Land has the meaning given to that term under the Local Government Act.

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Residential Property means a Property where: (a) in the case of that Property being Rateable Land, that Property is categorised as:

(i) residential under section 516 of the Local Government Act; or

(ii) farmland under section 515 of the Local Government Act and such farmland is connected to the Water Supply System and the Sewerage System; or

(b) in the case of that Property not being Rateable Land, the dominant use of that Property is residential applying the classifications in section 516 of the Local Government Act.

Retirement Village has the meaning given to that term under the Retirement Villages Act, 1999. Retirement Village Unit means a unit located within a Retirement Village. Sewerage System means the sewerage system owned and operated by the Council. Strata Title Lot means a lot as defined under the Strata Schemes (Freehold Development) Act 1973. Trade Waste Discharge Factor means the percentage of trade waste which the Council assesses or deems to be discharged into the Sewerage System. Tribunal means the Independent Pricing and Regulatory Tribunal of New South Wales established under the IPART Act. Unmetered Property means land which does not have a Meter located on it. Vacant Land means land which has no capital improvements on it. Water Supply System means the water supply system owned and operated by the Council.

2. Interpretation 2.1 General provisions In this determination: (a) headings are for convenience only and do not affect the interpretation of this

determination; (b) a reference to a schedule, annexure, clause or table is a reference to a schedule,

annexure, clause or table to this determination;

(c) words importing the singular include the plural and vice versa;

(d) a reference to a law or statute includes all amendments or replacements of that law or statute.

2.2 Explanatory Notes Explanatory notes do not form part of this determination, but in the case of uncertainty may be relied on for interpretation purposes.

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2.3 Prices exclusive of GST Prices or charges specified in this determination do not include GST. 2.4 Billing cycle of Council For the avoidance of doubt nothing in this determination affects when the Council may issue a bill to a customer for prices or charges under this determination.

Determination No 2, 2005 Section 11(1) Independent Pricing and Regulatory Tribunal Act 1992 Wyong Shire Council Independent Pricing and Regulatory Tribunal of New South Wales Reference No 05/219

1

1. Background

(a) Section 11 of the Independent Pricing and Regulatory Tribunal Act 1992, permits the Tribunal to conduct investigations and make reports to the Minister on the determination of the pricing for a government monopoly service supplied by a government agency specified in Schedule 1 of the IPART Act.

(b) Wyong Shire Council (Council) (as a water supply authority constituted under the Water Management Act 2000) is listed as a government agency for the purposes of Schedule 1 of the IPART Act. The services of the Council declared as monopoly services (Monopoly Services) under the Independent Pricing and Regulatory Tribunal (Water, Sewerage and Drainage Services) Order 1997 are: (1) water supply services;

(2) sewerage services;

(3) stormwater drainage services;

(4) trade waste services;

(5) services supplied in connection with the provision or upgrading of water supply and sewerage facilities for new developments and, if required, drainage facilities for such developments;

(6) ancillary and miscellaneous customer services for which no alternative supply exists and which relate to the supply of services of a kind referred to in paragraphs (1) to (5);

(7) other water supply, sewerage and drainage services for which no alternative supply exists.

Accordingly, the Tribunal may determine the prices for the Council’s Monopoly Services. (c) In investigating and reporting on the pricing of the Council’s Monopoly Services, the

Tribunal has had regard to a broad range of matters, including the criteria set out in section 15(1) of the IPART Act.

(d) In accordance with section 13A of the IPART Act, the Tribunal has fixed the maximum

price for the Council’s Monopoly Services or has established a methodology for fixing the maximum price.

(e) Under section 18(2) of the IPART Act, the Council may not fix a price below that

determined by the Tribunal without the approval of the Treasurer.

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2. Application of this determination (a) This determination fixes the maximum prices (or sets a methodology for fixing the

maximum prices) that the Council may charge for the Monopoly Services. (b) This determination commences on the later of 1 July 2005 and the date that it is published

in the NSW Government Gazette (Commencement Date). (c) The maximum prices in this determination apply from the Commencement Date to 30

June 2006. The maximum prices in this determination prevailing at 30 June 2006 continue to apply beyond 30 June 2006 until this determination is replaced.

3. Replacement of Determination No. 2 of 2003 Determination No. 2 of 2003 is replaced by this determination from the Commencement Date. The replacement does not affect anything done or omitted to be done, or rights or obligations accrued, under that determination prior to its replacement.

4 Monitoring The Tribunal may monitor the performance of the Council for the purposes of: (a) establishing and reporting on the level of compliance by the Council with this

determination; and

(b) preparing a periodic review of pricing policies in respect of the Monopoly Services supplied by the Council.

5. Schedules Schedules 1-4 (inclusive) and the Tables in those Schedules set out the maximum prices that the Council may charge for the Monopoly Services specified in the Schedules.

6. Definitions and Interpretation Definitions and interpretation provisions used in this determination are set out in Schedule 5.

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Schedule 1

Water Supply Services

1. Application This Schedule sets the maximum prices that the Council may charge for the Monopoly Services under paragraph (a) of the Order (water supply services).

2. Categories for pricing purposes Prices for water supply services have been determined for 2 categories:

(a) a Metered Property; and

(b) a Vacant Land.

2.1 Charges for water supply services to Metered Properties

The maximum price that may be levied by the Council for the provision of water supply services to a Metered Residential Property or a Metered Non Residential Property (each connected to the Water Supply System) is the sum of the following:

(a) the water service charge in Table 1, corresponding to the Meter size; and

(b) the water usage charge in Table 2, per kL of water used.

2.2. Charges for water supply services to Vacant Land The maximum price that may be levied by the Council for the provision of water supply services to Vacant Land which is not connected to the Water Supply System but is reasonably available for connection to the Water Supply System is the water service charge in Table 3.

3. Levying water supply charges on Multi Premises

3.1 Strata Title Lot For a Strata Title Lot within a Multi Premises where that Multi Premises:

(a) is connected to the Water Supply System; and

(b) has a Common Water Meter or multiple Common Water Meters,

the maximum price that may be levied by the Council on that Strata Title Lot for the provision of water supply services to that Strata Title Lot is the sum of the following:

(c) the water service charge in Table 1 (with that Strata Title Lot taken to have a Meter size of 20mm); and

(d) the water usage charge in Table 2, as if the water used by that Strata Title Lot was equal to:

total quantity of water used by that Multi Premises divided by:

the total Unit Entitlement of that Multi Premises

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multiplied by:

the Unit Entitlement of that Strata Title Lot.

3.2 Company Title Dwelling

For a Multi Premises:


(b) which has a Common Water Meter or multiple Common Water Meters, the maximum price that may be levied by the Council for the provision of water supply services to:

(c) a Company Title Dwelling within that Multi Premises is the water service charge in Table 1 (with that Company Title Dwelling taken to have a Meter size of 20mm); and

(d) the owner of the Company Title Building (within which the Company Title Dwelling in clause 3.2(c) is situated) is the water usage charge in Table 2, per kL of water used.

3.3 Community Development Lot For a Community Development Lot within a Multi Premises where that Multi Premises:

(a) is connected to the Water Supply System; and

(b) has a Common Water Meter or multiple Common Water Meters,

the maximum price that may be levied by the Council on that Community Development Lot for the provision of water supply services to that Community Development Lot is the sum of the following:

(c) the water service charge equal to:

the water service charge in Table 1, corresponding to the Meter size

divided by:


multiplied by:

the Unit Entitlement of that Community Development Lot; and

(d) the water usage charge in Table 2, as if the water used by that Community Development Lot was equal to:

total quantity of water used by that Multi Premises

divided by:


multiplied by:

the Unit Entitlement of that Community Development Lot.

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3.4 Retirement Village (which is not an Exempt Property) For a Retirement Village (which is not an Exempt Property) and:



the maximum price for each Common Water Meter that may be levied by the Council on the owner of that Retirement Village for the provision of water supply services to that Retirement Village is the sum of the following:



3.5 Multi Premises (which is not a Strata Title Building, a Company Title Building, a Community Parcel or a Retirement Village)

For a Multi Premises (which is not a Strata Title Building, a Company Title Building, a Community Parcel or a Retirement Village) and:



the maximum price for each Common Water Meter that may be levied by the Council on the owner of that Multi Premises for the provision of water supply services to that Multi Premises is the sum of the following:



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Tables 1, 2 and 3

Table 1 Water service charges for a Metered Residential Property or a Metered Non Residential Property

Basis of charge (Meter size)


20mm 92.25

25mm 144.14

40mm 369.00

50mm 576.56

80mm 1476.00

100mm 2306.25

150mm 5189.06

200mm 9225.00

For Meter sizes not specified above the following formula applies

(Meter size) 2 x 92.25/400

Table 2 Water usage charges for a Metered Residential Property or a Metered Non Residential Property

Basis of charge Maximum charge 2005/06 ($)/kL

Per kilolitre of water used 0.925

Table 3 Water service charge for a Vacant Land

Charge Maximum charge 2005/06 ($)

Water service supply 92.25

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Schedule 2

Sewerage Services

1. Application This Schedule sets the maximum prices that the Council may charge for the Monopoly Services under paragraph (b) of the Order (sewerage services).

2. Categories for pricing purposes Prices for sewerage services have been determined for 4 categories:

(a) a Residential Property(other than Vacant Land and Exempt Land);

(b) a Non Residential Property (other than Vacant Land and Exempt Land);

(c) Vacant Land; and

(d) Exempt Land.

2.1 Charges for sewerage services to a Residential Property connected to the Sewerage System

The maximum price that may be levied by the Council for sewerage services to a Residential Property (other than Vacant Land or Exempt Land) connected to the Sewerage System is the sewerage service charge in Table 4.

2.2 Charges for sewerage services to a Residential Property not connected to the Sewerage System

The maximum price that may be levied by the Council for sewerage services to a Residential Property (other than Vacant Land or Exempt Land) not connected to the Sewerage System is the residential effluent and sludge removal charge in Table 5.

2.3 Charges for sewerage services to a Non Residential Property connected to the Sewerage System

The maximum price that may be levied by the Council for sewerage services to a Non Residential Property (other than Vacant Land or Exempt Land) connected to the Sewerage System is the greater of:

(a) the non residential minimum sewerage service charge in Table 6; and

(b) the sum of:



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2.4 Charges for sewerage services to a Non Residential Property not connected to the Sewerage System

The maximum prices that may be levied by Council for sewerage services to a Non Residential Property (other than Vacant Land or Exempt Land) that is not connected to the Sewerage System are the non residential effluent and sludge removal charge in Table 9.

3. Charges for sewerage services to a Vacant Land The maximum price that may be levied by the Council for sewerage services on Vacant Land which is not connected to the Sewerage System but is reasonably available for connection to the Sewerage System is the sewerage service charge in Table 10. 4. Charges for sewerage services to an Exempt Land The maximum price that may be levied by the Council for sewerage services on Exempt Land is the sewerage service charge in Table 11.

5. Levying charges for sewerage services on Multi Premises

5.1 Strata Title Lot (which is a Residential Property) For a Strata Title Lot (which is a Residential Property) within a Multi Premises where that Multi Premises:

(a) is connected to the Sewerage System; and

(b) has a Common Water Meter or multiple Common Water Meters, the maximum price that may be levied by the Council on that Strata Title Lot for the provision of sewerage services to that Strata Title Lot is the sewerage service charge in Table 4.

5.2 Strata Title Lot (which is a Non Residential Property) For a Strata Title Lot (which is a Non Residential Property) within a Multi Premises where that Multi Premises:


(b) has a Common Water Meter or multiple Common Water Meters, the maximum price that may be levied by the Council on that Strata Title Lot for the provision of sewerage services to that Strata Title Lot is equal to:

the greater of: (i) the non residential minimum sewerage service charge in Table 6; and

(ii) the sum of:

(1) the non residential sewerage service charge in Table 7; and

(2) the non residential sewerage usage charge in Table 8,

divided by:


multiplied by:

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the Unit Entitlement of that Strata Title Lot.

5.3 Company Title Dwelling For a Company Title Dwelling within a Multi Premises where that Multi Premises:


(b) has a Common Water Meter or multiple Common Water Meters, the maximum price that may be levied by the Council on that Company Title Dwelling for the provision of sewerage services to that Company Title Dwelling is the sewerage service charge in Table 4.

5.4 Community Development Lot For a Community Development Lot within a Multi Premises where that Multi Premises:


(b) has a Common Water Meter or multiple Common Water Meters, the maximum price that may be levied by the Council on that Community Development Lot for the provision of sewerage services to that Community Development Lot is equal to:

the non residential sewerage service charge in Table 7, corresponding to the Meter size divided by:


multiplied by:

the Unit Entitlement of that Community Development Lot.

5.5 Retirement Village (which is not an Exempt Property) For a Retirement Village (which is not an Exempt Property) and:


(b) which has a Common Water Meter or multiple Common Water Meters, the maximum price for each Common Water Meter that may be levied by the Council on the owner of that Retirement Village for the provision of sewerage services to that Retirement Village is the greater of:

(c) the non residential minimum sewerage service charge in Table 6; and

(d) the sum of:



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5.6 Multi Premises (which is not a Strata Title Building, a Company Title Building, a Community Parcel or a Retirement Village)

For a Multi Premises (which is not a Strata Title Building, a Company Title Building, a Community Parcel or a Retirement Village) and:


(b) which has a Common Water Meter or multiple Common Water Meters, the maximum price for each Common Water Meter that may be levied by the Council on the owner of that Multi Premises for the provision of sewerage services to that Multi Premises is the greater of:

(c) the non residential minimum sewerage service charge in Table 6; and

(d) the sum of:



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Tables 4, 5, 6, 7, 8, 9, 10 and 11 Table 4 Sewerage service charge for a Residential Property

Type of service Maximum charge 2005/06 ($)

Sewerage service 367.87

Table 5 Residential effluent and sludge removal charges

Type of service Maximum charge 2005/06 ($)

Fortnightly effluent removal and disposal service (per year) 846.85

Additional requested effluent removal and disposal service (per visit) 32.77

Sludge removal and disposal services: Septic tanks with a capacity up to 2750 litres (per service)

237.57

Septic tanks exceeding 2750 litres or AWTS with one tank (per service) 308.22

AWTS with more than one tank (per system) 459.78

Chemical Closet Fortnightly service (per year)

1220.55

Each requested weekly special service 23.78

Table 6 Non Residential minimum sewerage service charge

Charge Charge 2005/06 ($)

Minimum sewerage service charge 367.87

Table 7 Non Residential sewerage service charges

Basis of charge (Meter size)


20mm 132.53 x df% 25mm 207.08 x df% 40mm 530.12 x df% 50mm 828.31 x df% 80mm 2,120.48 x df%

100mm 3,313.25 x df% 150mm 7,454.81 x df% 200mm 13,253.00 x df%

For Meter sizes not specified above the following formula

applies

(Meter size)2 x 132.53/400 x df%

Note: A Discharge Factor is applied to the charge based on the volume of water discharged into Council Sewerage System.

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Table 8 Non Residential sewerage usage charge

Basis of charge Maximum charge 2005/06 ($/kL)

Per kilolitre of water used 0.66 xdf% Note: A Discharge Factor is applied to the charge based on the volume of water discharged into Council Sewerage System.

Table 9 Non Residential effluent and sludge removal charges

Basis of charge Type of service


Commercial effluent removal and disposal service ($/ kL) 10.86

Sludge removal and disposal services: Septic tanks with a capacity up to 2750 litres ($ per service)

237.57

Septic tanks exceeding 2750 litres or AWTS with one tank ($ per service)

308.22

AWTS with more than one tank ($ per system) 459.78

Chemical Closet Fortnightly service ($ per year)

1,220.55

Each requested weekly special service ($ per service) 23.78

Table 10 Sewerage service charge for Vacant Land

Charge Maximum charge 2005/06 ($)

Sewerage service supply 275.90

Table 11 Charges for sewerage services to Exempt Land

Basis of charge Maximum charge 2005/06 ($)

Per water closet 51.90

Per cistern servicing a urinal 18.38

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Schedule 3

Trade waste services 1. Application This Schedule sets the maximum prices that the Council may charge for the Monopoly Services under paragraph (d) of the Order (Trade Waste Services).

2. Categories for pricing purposes Prices for trade waste services have been determined for 2 categories:

(a) a Property by reference to a Category A Trade Waste Discharge; and

(b) a Property by reference to a Category B Trade Waste Discharge.

2.1 Category A Trade Waste Discharge The maximum price that may be levied by the Council against a property by reference to a Category A Trade Waste Discharge is the sum of the following:

(a) the Category A trade waste usage charge in Table 12;

(b) the Category A annual licence fee in Table 13; and

(c) the trade waste re-inspection fee in Table 13.

2.2 Category B Trade Waste Discharge The maximum price that may be levied by the Council against a property by reference to a Category B Trade Waste Discharge is the sum of the following:

(a) the Category B trade waste sewerage usage charge in Table 12;

(b) the Category B annual licence fee in Table 13; and

(c) the trade waste re-inspection fee in Table 13.

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Tables 12 and 13

Table 12 Trade waste usage charges

Basis of charge Parameter Maximum charge 2005/06 ($)

Category A Trade Waste Discharge Volume 0.39/kL Biological Oxygen Demand 0.66/kg Suspended Solids 0.54/kg Oil and grease 1.33/kg Category B Trade Waste Discharge Volume 0.66/kL Excess Biological Oxygen Demand 0.66/kg Excess Suspended Solids 0.54/kg Excess Oil and grease 1.33/kg

Table 13 Trade waste annual licence/ re-inspection fees

Basis of charge Maximum charge 2005/06 ($)

Category A Annual Licence Fee 302.08

Category B Annual Licence Fee 41.98

Trade waste re-inspection fee 41.98

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Schedule 4

Ancillary and miscellaneous customer services 1. Application This Schedule sets the maximum prices that the Council may charge for ancillary and miscellaneous customer services for which no alternative supply exists.

2. Ancillary and miscellaneous charges 2.1 The maximum charges that may be levied by the Council for the ancillary and

miscellaneous services in column 2 of Table 14 are the charges in column 3 of Table 14, corresponding to the relevant ancillary and miscellaneous service.

2.2 A reference in Table 14 to "NA" means that the Council does not provide the relevant

service.

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Table 14 Charges for ancillary and miscellaneous services

No. Ancillary and miscellaneous services Maximum charge 2005/06

1 Conveyancing Certificate

Statement of outstanding Charges

a) Over the Counter $15.00 b) Electronic NA 2 Property Sewerage Diagram-up to and including A4 size- (where

available)

(Diagram showing the location of the house-service line, building and sewer for a property)

a) Certified $15.00 b) Uncertified i. Over the Counter $15.00 ii. Electronic NA 3 Service Location Diagram (Location of sewer and/or Water Mains in relation to a property’s

boundaries)

a) Over the Counter $15.00 b) Electronic NA 4 Special Meter Reading Statement $46.00 5 Billing Record Search Statement – up to and including 5 years. $15.00

6 Building over or Adjacent to Sewer Advice NA (Statement of Approval Status for existing Building Over or Adjacent to a

Sewer)

7 Water Reconnection a) During business hours $31.00 b) Outside business hours $128.00 8 Workshop Test of Water Meter (Removal and full mechanical test of the meter by an accredited

organisation at the customer’s request to determine the accuracy of the water meter. This involves dismantling and inspection of meter components)

20mm $154.00 25mm $154.00 32mm $154.00 40mm $154.00 50mm $154.00 60mm $154.00 80mm $154.00 100mm NA 150mm NA 9 Application for disconnection – all sizes $26.00

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10 Application for Water Service Connection-(up to and including 25mm) $26.00

(This covers the administration fee only. There will be a separate charge payable to the utility if they also perform the physical connection)

11 Application for Water Service Connection-(32-65mm) $26.00 (This covers administration and system capacity analysis as required. There

will be a separate charge payable to the utility if they also perform the physical connection)

12 Application for Water Service Connection-(80mm or greater) (This covers administration and system capacity analysis as required. There

will be a separate charge payable to the utility if they also perform the physical connection)

$26.00

13 Application to assess a Water main Adjustment (Moving a fitting and/or adjusting a section of water main up to and

including 25 metres in length)

This covers preliminary advice as to the feasibility of the project and will result in either:

1. A rejection of the project in which cases the fee covers the associated investigation costs

NA

Or 2. Conditional approval in which case the fee covers the administrative

costs associated with the investigation and record amendment. NA

14 Standpipe Hire Security Bond (25mm) $317.00 Security Bond (63mm) $610.00 15 Standpipe Hire Annual Fee See Note 11 Quarterly Fee See Note 12 Monthly Fee See Note 13 16 Standpipe Water Usage Fee $0.925/kL 17 Backflow Prevention Device Application and Registration Fee $53.00 (This fee is for initial registration of the backflow device) 18 Backflow Prevention Application Device Annual Administration Fee nil (This fee is for the maintenance of records including logging of inspection

reports)

19 Major Works Inspections Fee. (This fee is for the inspection, for the purposes of approval of water and

sewer mains, constructed by others, that are longer than 25 metres and/or greater than 2 metres in depth)

Water Mains ($ per metre) $4.60 Gravity Sewer Mains ($per Metre) $6.15 Rising Sewer Mains ($per Metre) $4.60

1 Note 1: As per water availability charge based on meter size (pro rata for part of year). 2 Note 1: As per water availability charge based on meter size (pro rata for part of year). 3 Note 1: As per water availability charge based on meter size (pro rata for part of year).

18


20 Statement of Available Pressure and Flow $112.00 (This fee covers all levels whether modelling is required or not) 21 Underground Plant Locations Provision of uncertified plan showing location of underground mains: Council assists in on-site physical locations: $61.50/hr for 1st hr or

part thereof then $15 per 15 mins or part thereof thereafter

Council undertakes on-site physical locations

$102.50/hr for 1st hr or part thereof then

$25.50 per 15 mins or part thereof thereafter

22 Plumbing and Drainage Inspection Maximum of 2 inspections Residential single dwelling, villas & units $124.00/unit

Alterations, Caravan & Mobile Homes $62.50/permit

Commercial and industrial $124 + $36/wc

Additional Inspections $46.00/inspection 23 Billings Record Search - Further Back than 5 Years $15 for first 15 min or

part thereof, $10 for 15 min or part thereof,

thereafter 24 Relocate Existing Stop Valve or Hydrant

Price exclusive of plant hire charges, material costs and traffic control where applicable

$102.50 per hr for first hr or part thereof then $25.50 per 15 mins or part thereof, thereafter

25 Provision of Water Services Application for water service connection fee is also applicable. Meter Only (20mm): $88.00 Short service - 20mm: $534.00 Long service - 20mm: $534.00 Short service - 25mm: $648.00 Long service - 25mm: $648.00 Short service - 40mm: $1,218.00 Long service - 40mm: $1,619.00 Short service - 50mm: $1,738.00 Long service - 50mm: $2,143.00 Larger services – provision of live main connection only. Price exclusive of

plant hire charges, material costs and traffic control where applicable $102.50 per hr for first

hr or part thereof, $25.50 per 15 min or

part thereof, thereafter 26 Water Sample Analysis $62.50 For testing of standard water quality parameters

(Private supplies) 27 Raise / Lower / Adjust Existing Service No more than 2 metres from existing location 20mm service only - no materials: $103.00 (Larger services >20mm – based on quote by Council) 28 Relocate Existing Services Short - 20mm: $260.00

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Long - 20mm: $405.00 (Larger services >20mm – based on quote by Council) - 29 Alteration from Dual Service to Single Service 20mm service only: $311.00 30 Sewerage Drainage Arrestor Approval: $84.00 Annual Inspection: $25.50 31 Sewerage Junction Cut-in (150mm) $230.00

No excavation, no concrete encasement removal, no sideline, junction within property. Excavation provided by customer

32 Sewerage Junction Cut-in (150mm) with sideline less than 3m $240.91

No excavation, no concrete encasement removal, junction outside property. Excavation provided by customer

33 Sewerage Junction Cut-in (225mm) $538.18

No excavation, no concrete encasement removal, no sideline, junction within property. Excavation provided by customer

34 Sewerage Junction Cut-in (225mm) with sideline less than 3m $568.18

No excavation, no concrete encasement removal, junction outside property.

Excavation provided by customer

35 Sewerage Junction Cut-in Greater than 225mm or where excavation or

removal of concrete encasement required by Council $102.50 per hr for first hr, $25.50 per 15 mins thereafter

36 Sewer Main Encasement with Concrete

Encasement inspection fee when construction is not by Council

(By quote when construction by Council) $77.73

37 Sewer Advance Scheme - Administration Charge $203.00 38 Raise & Lower Sewer Manholes Raise or lower manhole greater than 300mm

(Price listed is for manhole adjustment inspection fee. Charges for actual physical adjustment is by quote)/

$85.50

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Schedule 5 Definitions and Interpretation

1. Definitions In this determination: AWTS means the Aerated Wastewater Treatment System to treat sewage and liquid waste in a septic tank system. Category A Trade Waste Discharge means high strength or high volume waste (so classified under the Council’s Trade Waste Policy) to be discharged from a Non Residential Property into the Sewerage System which has the potential to have an adverse impact on the Sewerage System. Category B Trade Waste Discharge means waste (so classified under the Council’s Trade Waste Policy) to be discharged from a Non Residential Property into the Sewerage System which has the potential to have an adverse impact on the Sewerage System. Common Water Meter means a Meter which is connected or available for connection to Multi Premises, where the Meter measures the water usage to that Multi Premises but not to each relevant Property located on or within that Multi Premises. Community Development Lot has the meaning given to that term under the Community Land Development Act 1989. Community Parcel has the meaning given to that term under the Community Land Development Act 1989. Company Title Building means a building owned by a company where the issued shares of the company entitle the legal owner to exclusive occupation of a specified dwelling within that building. Company Title Dwelling means a dwelling within a Company Title Building. Council means the Council as defined in clause 1(b) of section 1 (Background) of this determination. df% or Discharge Factor means, in relation to a Property, the percentage of water supplied to that Property which the Council assesses or deems to be discharged into the Sewerage System. Exempt Land means land described in Schedule 4 of the Water Management Act 2000. GST means the Goods and Services Tax as defined in A New Tax System (Goods and Services Tax) Act 1999. IPART Act means the Independent Pricing and Regulatory Tribunal Act 1992.

21

kL means kilolitre or one thousand litres. Local Government Act means the Local Government Act, 1993 (NSW). Meter means an apparatus for the measurement of water. Metered Non Residential Property means a Non Residential Property that is serviced by a Meter. Metered Property means a Metered Residential Property or a Metered Non Residential Property. Metered Residential Property means a Residential Property that is serviced by a Meter. Monopoly Services means the Monopoly Services as defined in clause 1(b) of section 1 (Background) of this determination. Multi Premises means land where there are two or more Properties (other than Properties which fall within paragraph (f) of the definition of ‘Property’) located on it, excluding land where there are hotels, motels, guest houses or backpacker hostels, each as defined in the Local Government Act, located on it. Non Residential Property means a Property that is not a Residential Property or Vacant Land. Order means Independent Pricing and Regulatory Tribunal (Water, Sewerage and Drainage Services) Order 1997 made on 5 February 1997 and published in the Government Gazette No.18 on 14 February 1997. Property includes:

(a) a Strata Title Lot;

(b) a Company Title Dwelling;

(c) a Community Development Lot;

(d) a Retirement Village Unit;

(e) a part of a building lawfully occupied or available for occupation (other than a building to which paragraphs (a) to (d) inclusive apply); or

(f) land. Rateable Land has the meaning given to that term under the Local Government Act. Residential Property means a Property where:

(a) in the case of that Property being Rateable Land, that Property is categorised as:

(i) residential under section 516 of the Local Government Act; or

(ii) farmland under section 515 of the Local Government Act; or (b) in the case of that Property not being Rateable Land, the dominant use of that

Property is residential applying the classifications in section 516 of the Local Government Act.

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Retirement Village has the meaning given to that term under the Retirement Villages Act, 1999. Retirement Village Unit means a unit located within a Retirement Village. Sewerage System means the sewerage system owned and operated by the Council. Strata Title Building means a building that is subject to a strata scheme under the Strata Schemes (Freehold Development) Act 1973. Strata Title Lot means a lot as defined under the Strata Schemes (Freehold Development) Act 1973. Trade Waste Policy means the Council’s Trade Waste Policy as described in Council’s Submission to the Independent Pricing and Regulatory Tribunal: Proposed Price Path from July 2005. Tribunal means the Independent Pricing and Regulatory Tribunal of New South Wales established under the IPART Act. Unit Entitlement when applied to a Strata Title Lot, has the meaning given to that term under the Strata Schemes (Freehold Development) Act 1973 and when used in relation to a Community Development Lot, has the meaning derived under the Community Land Development Act 1989. Vacant Land means land with no capital improvements on it. Water Supply System means the water supply system owned and operated by the Council.

2. Interpretation 2.1 General provisions In this determination: (a) headings are for convenience only and do not affect the interpretation of this

determination; (b) a reference to a schedule, annexure, clause or table is a reference to a schedule, annexure,

clause or table to this determination;

(c) words importing the singular include the plural and vice versa;

(d) a reference to a law or statute includes all amendments or replacements of that law or statute.

2.2 Explanatory Notes Explanatory notes do not form part of this determination, but in the case of uncertainty may be relied on for interpretation purposes. 2.3 Prices exclusive of GST Prices or charges specified in this determination do not include GST. 2.4 Billing cycle of Council For the avoidance of doubt nothing in this determination affects when the Council may issue a bill to a customer for prices or charges under this determination.

I N D E P E N D E N T P R I C I N G A N D R E G U L A T O R Y T R I B U N A L O F N E W S O U T H W A L E S

GOSFORD CITY COUNCIL WYONG SHIRE COUNCIL

PRICES OF WATER SUPPLY, WASTEWATER AND STORMWATER SERVICES

From 1 July 2005 to 30 June 2006

Report Nos 1 and 2, 2005 ISBN 1 920987 25 8

May 2005

This is copyright. The Copyright Act 1968 permits fair dealing for study, research, news reporting, criticism and review. Selected passages, tables or diagrams may be reproduced for such purposes provided acknowledgement of the source is included.

TABLE OF CONTENTS

1 INTRODUCTION 1 1.1 Overview of determination 1 1.2 Regulatory approach adopted by the Tribunal to set maximum prices 6 1.3 Structure of this report 7

2 BACKGROUND AND CONTEXT FOR THE REVIEW 9 2.1 Gosford Council and Wyong Council roles and responsibilities 9 2.2 Projects and infrastructure initiatives currently being considered and undertaken

by Gosford and Wyong Council 10 2.3 Pricing issues 11

3 LENGTH OF THE DETERMINATION PERIOD 15 3.1 Summary of decision on length of determination period 15 3.2 Tribunal’s considerations 15

4 REVENUE REQUIRED BY EACH COUNCIL FOR 2005/06 17 4.1 Summary of Tribunal’s assessment of revenue requirements 17 4.2 Tribunal’s assessment compared with Councils’ proposed revenue requirements 17

5 ASSUMPTIONS ON METERED WATER SALES AND CUSTOMER NUMBERS FOR 2005/06 21 5.1 Summary of Tribunal’s findings on metered water sales 21 5.2 Key factors influencing water consumption 22 5.3 Tribunal’s considerations on metered sales forecasts 22 5.4 Tribunal’s assumptions on growth in customer numbers 24

6 TRIBUNAL’S PRICING DECISIONS FOR INDIVIDUAL SERVICES 27 6.1 Overview of pricing decisions 27 6.2 Pricing decisions for Gosford Council 28 6.3 Pricing decisions for Wyong Council 33

7 EXPECTED OUTCOMES OF 2005/06 PRICING DECISIONS 37 7.1 Implications for customer bills 37 7.2 Service standards 41 7.3 Expected business and shareholder outcomes 42 7.4 Environmental outcomes 45

GLOSSARY OF TERMS 47

APPENDIX 1 MATTERS TO BE CONSIDERED BY THE TRIBUNAL UNDER SECTION 15 OF THE IPART ACT 49

APPENDIX 2 ASSESSMENT OF PAST AND FORECAST CAPITAL EXPENDITURE 51

APPENDIX 3 REVENUE REQUIRED FOR CAPITAL INVESTMENT 59

APPENDIX 4 REVENUE REQUIRED FOR OPERATING EXPENDITURE 63

Independent Pricing and Regulatory Tribunal Reports 1 and 2, 2005

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1 INTRODUCTION

The Independent Pricing and Regulatory Tribunal of NSW (the Tribunal) is responsible for setting the maximum prices that can be charged for monopoly water and wastewater services by Gosford City Council (Gosford Council) and Wyong Shire Council (Wyong Council). The current price determinations for these agencies have no formal expiry date. However, at the time that they were made, the Tribunal intended that new determinations would apply from 1 July 2005. It has therefore conducted a price review and made a determination on the maximum charges to apply from this date. This report explains the Tribunal’s decisions and sets out its determination.

1.1 Overview of determination

1.1.1 Regulatory/legal basis for determination The Tribunal’s decisions have been made in accordance with the requirements set out in the IPART Act, including the factors contained in Section 15 of the Act (see Appendix 1). The Tribunal is satisfied that its determinations achieve a reasonable balance between the matters it is required to consider.

1.1.2 Transitional nature of determination The Tribunal has set prices for Gosford Council and Wyong Council for a one-year period, from 1 July 2005 to 30 June 2006. Within this period, the Councils will make key decisions about which projects they will undertake to secure future water supply and about how these projects will be funded. The Tribunal views this determination as part of a transition from the current pricing arrangements, (which reflect an underlying assumption about a stronger water supply position and associated higher water consumption), and the future pricing and service delivery arrangements, (which will reflect the long term nature of the drought, the scarcity of water and the higher costs associated with sustainable water, wastewater and stormwater drainage services). The Tribunal intends to commence a further review of each Council’s water, wastewater and stormwater drainage service prices in late 2005, with the view to determining prices for the period 1 July 2006 to 30 June 2009.

1.1.3 Key drivers of determination and pricing decisions The Tribunal‘s decisions for the one-year determinations reflect its assessment that the prices for the Councils’ water, wastewater and stormwater drainage services need to increase in 2005/06 to better reflect the costs of delivering these services. While many factors contribute to these increases, the most significant drivers relate to real increases in operating costs, capital expenditure requirements, reduced water consumption, and the Tribunal’s decision to improve slightly the very modest return being earned by the Councils on the capital employed in the businesses.


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The higher operating costs are largely associated with the higher costs of securing water supplies in a drought, although some costs are attributable to costs associated with meeting environmental and regulatory standards in delivering wastewater and stormwater drainage services. The water supply costs reflect the costs of pumping groundwater, purchasing more water from Hunter Water and advertising to promote public awareness of the water restrictions. The Councils need to invest in infrastructure to address immediate supply needs and to contribute to the longer term water, wastewater and stormwater services. For example, new infrastructure is required to allow more water to be transferred to reservoirs and to increase dam storage. Other capital investment is required to meet contemporary health and environmental standards. The forecast water consumption for 2005/06 recognises the long-term nature of the drought and the fact that water sales will remain at lower levels than historically. The lower water consumption over an extended period means that, on average, prices need to increase to cover the largely fixed costs associated with the water, wastewater and stormwater drainage services The Councils currently earn very low returns on capital. Over time, these returns need to move to more modest commercial returns to reflect properly the costs associated with providing the capital associated with the services, including ensuring that funds are available for the significant capital expenditure projects. Together these factors mean that prices need to increase in 2005/06. Further increases will be required in the medium term.

1.1.4 Pricing for 1 July 2005 to 30 June 2006 In relation to Gosford Council, the Tribunal has decided to: • Set prices for the period 1 July 2005 to 30 June 2006 to generate revenue of

$44.2 million1, which it has determined as adequate to meet the Council’s efficient costs of providing water and wastewater services. This means that, on average, prices will increase by 6.5 per cent above inflation. The Tribunal notes that this increase is greater than that proposed by Gosford Council. However, it considers that this increase is required to cover the costs associated with maintaining service standards in 2005/06.

• Increase the water usage price from $0.755 to $0.925/kL and increase the water service charge from $72.47 to $80.82 to better reflect the cost of water.

• Maintain the stormwater drainage levy at its current level of $42, but require Gosford Council to improve the transparency of the stormwater drainage charging arrangements before 1 July 2006.

1 Nominal – dollars of the day.


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In relation to Wyong Council, the Tribunal has decided to: • Set prices for the period 1 July 2005 to 30 June 2006 to generate revenue of

$39.3 million2, which it has determined as adequate to meet the Council’s efficient costs of providing water and wastewater services. This means that, on average, prices will increase by 6.5 per cent above inflation. The Tribunal notes that this increase is greater than that proposed by Wyong Council. However, it considers that this increase is required to cover the costs associated with maintaining service standards in 2005/06.

• Increase the water usage price from $0.755 to $0.925/kL and increase the water service charge from $82.82 to $92.25 to better reflect the cost of water.

• Require Wyong Council to improve the transparency of its stormwater arrangements with the intention of setting a separate stormwater drainage charge to apply from 1 July 2006.

In making these decisions, the Tribunal had regard to the proposals and information submitted by the Councils, and independent analysis of these proposals by consultants that it commissioned. It also considered the submissions made by other stakeholders. (See Box 1.1 for more detail on the review process.)

Box 1.1 Tribunal’s approach to information collection and decision-making The Tribunal’s review included an extensive investigation and public consultation. As part of this review, the Tribunal: • released an issues paper in July 2004

• invited Gosford and Wyong Councils to provide submissions detailing their pricing proposals, and required them to provide extensive financial and performance data on the future capital and operating expenditure they believe will be necessary to maintain their customer service levels and respond to regulatory and customer demands

• invited other interested parties to make submissions after reviewing the Councils’ submissions. A total of 32 written responses were received

• engaged McLennan Magasanik Associates (McLennan Magasanik) to independently review the agencies’ forecasts of water consumption and customer numbers over the period 2004/05 to 2009/10, and to advise the Tribunal on the validity of these forecasts for the purposes of setting prices

• engaged a consortium of WS Atkins International Ltd and Cardno MBK (Atkins/Cardno) to conduct a review of Gosford and Wyong Councils’ capital expenditure, asset management and operating expenditure proposals across their water, wastewater and stormwater businesses

• held a combined public hearing in Sydney on 10 March 2005 for the five metropolitan water agencies regulated by the Tribunal, and invited some of the parties who made written submissions to present their views at this hearing

• engaged RSM Bird Cameron to review Gosford and Wyong Councils’ proposals in relation to miscellaneous charges

• gave Gosford and Wyong Councils the opportunity to respond to all of the consultancies referred to above.

The Tribunal’s pricing decisions also explicitly take account of the impact on the Councils’ water businesses (as operators and managers of the assets), the Councils (as owners), the agencies’ customers and the environment. 2 ibid.


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1.1.5 Implications for customers, the Councils and the environment In finalising its decisions, the Tribunal considered the impacts of the maximum prices it determined on customers, on the agencies (as owners, operators and managers of the assets), and on the environment. In terms of customer impacts, the Tribunal’s analysis shows that in general, its decisions will increase customers’ bills for water and wastewater services. The key implications for the agencies’ customers are as follows: • For all customers, usage charges will make up a larger proportion of their bills in

2005/06 than in previous years. This sends a greater water conservation signal to customers; although the absolute reduction in water demand may be limited.

• For residential customers, the determination will increase a 225kL bill for Gosford customers by 9.2 per cent and for Wyong customers by 9.2 per cent. Of these increases, 2.4 per cent results from the effect of inflation3.

• For commercial and industrial customers, the determination will also increase their bills, particularly those of high water users. Trade waste charges will remain steady for Wyong non-residential customers.

The Tribunal recognises that its decisions mean that prices will increase more than proposed by the Councils and that most customers will face increases in the cost of water, wastewater and stormwater drainage services. In the case of many high water use customers, the increase in bills for water usage could be significant. However, the Tribunal believes these increases are warranted to ensure customers have access to water and wastewater services of appropriate quality. In terms of agency impacts, the Tribunal’s analysis shows that the decisions allow the agencies to recover the costs of providing the water, wastewater and stormwater services, including meeting the relevant regulatory and maintaining current service standards. The decisions allow the Councils to undertake actions and outcomes as follows: • Undertake an extensive groundwater investigation and develop a comprehensive

groundwater abstraction scheme. This scheme is designed to assist in securing the Central Coast water supply for the future.

• Invest in infrastructure improvements to the Wyong/Mardi transfer system to allow additional raw water to be pumped from the Wyong River, to increase storage at the Mardi Dam, modify the draw off structure from the Mardi Dam, and transfer water to Ourimbah Reservoir. This scheme will allow the Councils to better manage the impact of the current drought on residents of the Central Coast.

• Investigate the potential for an additional bulk supply of up to 20ML/day from Hunter Water Corporation (HWC) to augment existing water supplies. This project will provide customers with more certainty in future water supplies,

3 In setting maximum prices. the Tribunal defines inflation as the movement in the consumer price index

between the four quarters ending in March of the year in which the prices will take effect and the immediately preceding four quarters. Therefore, the inflation adjustment lags the actual movement in the consumer price index.


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• Undertake a range of wastewater projects (such as work under the Government Priority Sewerage Program (PSP) for the Hawkesbury Villages, Mooney Mooney, Cheero Point and Little Wobby) to ensure compliance with health and environmental standards.

The Tribunal is concerned that the Council’s deliver the forecast projects and outcomes during the 2005 determination. It will scrutinise the actual 2005 work programs and performance as part of its 2006 determination. However, in the absence of an output measurement and monitoring system, it can be difficult for the Tribunal and its consultants to determine whether customers have benefited from the price increases that it has approved. To address this issue, the Tribunal intends to work closely with the Councils to develop a set of output measures for implementation in the 2006 determination (see Appendix A2.5.3). In addition, the Tribunal’s analysis of the impacts of its draft decisions on the agencies shows that its decisions will ensure the agencies’ financial viability over the 2005 determination period. The maximum prices it has set are expected to enable: • Gosford Council to slightly improve its return on capital and earn a very modest pre

tax real rate of return of 3.2 per cent in 2005/06. By comparison, the Tribunal’s analysis shows that the revenue recovered through prices in 2004/05 results in an equivalent4 return on capital of 1.8 per cent. Gosford Council’s proposed prices imply a return of 1.7 per cent for 2005/06.

• Wyong Council to slightly improve its return on capital and earn a very modest pre tax real rate of return of 3.5 per cent in 2005/06. By comparison, the Tribunal’s analysis shows that the revenue recovered through prices in 2004/05 results in an equivalent5 return on capital of 2.1 per cent. Wyong Council’s proposed prices imply a return of (0.1) per cent for 2005/06.

The Tribunal considers that, on balance, these very modest expected rate of return outcomes are reasonable for this 1-year determination. However, the Tribunal considers that the longer-term sustainability of these services requires prices which better reflect underlying costs and that some improvement in future rates of return will be warranted. In terms of impacts on the environment, the Tribunal considers that the price increase, and particularly the increased water usage charge, will help increase customers’ awareness of the scarcity and cost of water, and encourage them to use this resource carefully. In addition, the decisions in relation to capital and operating expenditure explicitly take account of work associated with meeting environmental licence requirements.

4 After adjusting for stormwater expenditure consistent with the 2005/06 adjustments. Before these

adjustments, the Tribunal’s analysis shows that the current return on capital is less than 1 per cent. 5 After adjusting for stormwater expenditure consistent with the 2005/06 adjustments. Before these

adjustments, the Tribunal’s analysis shows that the current return on capital is negative and around minus one per cent.


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1.2 Regulatory approach adopted by the Tribunal to set maximum prices

The maximum prices for the one-year determination period have been set by: • establishing the revenue required by each Council to efficiently provide water services

for the one-year determination period using the ‘building block method’6

• setting maximum prices that take account of this revenue requirement, the demand for water services, the effect on customers, the longer term challenges facing the agencies and the other matters the Tribunal must consider under section 15 of the IPART Act.

An overview of this approach is shown in Figure 1.1.

Figure 1.1 Tribunal’s approach to setting prices

6 The building block methodology is the main method used by economic regulators in Australia and abroad

for determining prices for monopoly services. The building block methodology was used at each of the previous metropolitan water reviews conducted by the Tribunal. For information on the building block methodology see Sydney Water Corporation – Prices of Water Supply, Wastewater and Stormwater Services – From 1 July 2003 to 30 June 2005, May 2003, Appendix 4, available on www.ipart.nsw.gov.au.

TRIBUNAL’S APPROACH TO SETTING PRICES

Assumptions on metered water sales and customer numbers

Agency’s revenue requirement over determination period

Maximum prices to apply for

determination period

Requirements under IPART Act

plus

Revenue for operating expenditure

Revenue related to capital investment

- Return on assets - Return of capital


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1.3 Structure of this report This report explains the Tribunal’s determination in detail, including how and why it reached its decisions and what those decisions mean for the water agencies, their customers and other stakeholders: • Chapter 2 provides information on matters that provide the background and context

for this one-year price review, and recent government policy and other initiatives aimed at ensuring the long-term sustainability of water supplies

• Chapter 3 explains the Tribunal’s decisions on the length of this determination period

• Chapter 4 provides an overview of the Tribunal’s findings on the revenue required by each Council in 2005/06

• Chapter 5 sets out the Tribunal’s assumptions on metered water sales and customer numbers that affect the agencies’ expenditure requirements and their ability to recover revenue

• Chapter 6 sets out the Tribunal’s decisions on prices for specific water services

• Chapter 7 analyses the impact of the pricing decisions for the agencies, their customers, and the environment

• Appendix 1 sets out the matters to be considered by the Tribunal under Section 15 of the IPART Act when making these determinations

• Appendices 2 to 4 discuss the findings related to the calculation of the revenue required by the Councils for 2005/06 in more detail: - Appendix 2 explains the Tribunal’s assessment of the prudence of the agencies’

past capital expenditure and the efficiency of their forecast capital expenditure, which is a key input into the decision on the revenue required for capital investment

- Appendix 3 explains the Tribunal’s findings on the revenue required for capital investment, including an appropriate return on assets and a return of capital (depreciation)

- Appendix 4 explains the Tribunal’s findings on the revenue required for operating expenditure.


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2 BACKGROUND AND CONTEXT FOR THE REVIEW

This chapter discusses a range of factors that affect the Councils’ water, wastewater and stormwater operations, that have influenced the Tribunal’s decisions in relation to each Council’s forecast water sales, forecast capital and operating expenditures and, ultimately, maximum prices for the one-year determination period: • section 2.1 describes the roles and functions of Gosford Council and Wyong Council,

which are the subject of this report

• section 2.2 outlines the various infrastructure initiatives being developed to address the current imbalance between water supply and demand in this region

• section 2.3 provides an overview of water pricing issues that are relevant to this review, including the current pricing levels.

2.1 Gosford Council and Wyong Council roles and responsibilities

Gosford Council and Wyong Council are each responsible for the supply of water and provision of wastewater services within their respective local government areas on the NSW Central Coast. The Councils have a long standing arrangement to construct, operate, maintain and share the cost of headworks’ system components serving each Council’s distribution system. The Councils’ water supply systems consist of three major dams (Mooney and Mangrove Creek Dams in Gosford Council’s area and Mardi Dam in Wyong Council’s area), plus four weirs, two water treatment plants, 40 reservoirs and almost 2,000 km of pipe networks. Gosford Council provides water and wastewater services to almost 150,000 people (see Table 2.1). It operates one water treatment works, distribution systems and two wastewater treatment works. Its water and wastewater customers also make a contribution towards the provision of stormwater drainage services in its operating area. Wyong Council provides water and wastewater services to a population of approximately 145,000 people (see Table 2.1). It operates one water treatment works and six wastewater treatment works. It also provides stormwater drainage services in its operating area.

Table 2.1 Operating statistics for the Gosford Council and Wyong Council

Gosford Council Wyong Council

Operating area (sq km) 1,028 827

Estimated population with water supply service 147,462 145,000

No. of properties with water supply service (including vacant properties) 64,932 57,187


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2.2 Projects and infrastructure initiatives currently being considered and undertaken by Gosford and Wyong Council

2.2.1 Projects and initiatives in 2005/06 Gosford Council and Wyong Council are currently considering a range of drought management measures, including initiatives related to demand reduction and emergency supplies. Many of these projects are of a longer term nature (see 2.2.2 below) but decisions to pursue some of the large scale water projects to augment the bulk water supply will be taken in the 2005/06 year. Gosford Council’s proposed water capital expenditure over the period 2005 to 2009 is driven mainly by resource related schemes, which are designed to manage the current drought. Key projects for 2005/06 include: • Groundwater investigation and development. Gosford Council initially included

expenditure of $4m in its submission to develop potable groundwater sources between 2006 and 2007. This project has since been “fast tracked” to assist in dealing with the severe drought and Gosford Council has employed a team for the project management of this scheme. To date, this project has proven to be successful with the Gosford Council advising “…6000 to 7000ML per year was a realistic assessment of groundwater availability in the Council areas over the four identified sources”. Atkins have allowed for expenditure on potable groundwater in the order of $5.8m in 2005/06.

• Wyong Mardi transfer scheme. This scheme has four major components; firstly the Lower Wyong transfer scheme to allow additional raw water to be pumped from the Wyong River for bank side storage in the Mardi Dam, secondly raising the height of the Mardi Dam by 2 metres to provide additional storage, thirdly a modification to the draw off structure from the Mardi Dam, and finally construction of the Mardi high lift pumping station to transfer water to Ourimbah Reservoir. Atkins noted that this group of schemes provides an appropriate solution to increase system yield. Atkins/Cardno have allowed for expenditure on the Wyong Mardi Scheme in the order of $4.8m in 2005/06.

• Hunter Connection. Gosford Council (in conjunction with Wyong) is also investigating the potential for a bulk supply of up to 20ML/day from Hunter Water Corporation (HWC) in addition to the existing transfer. This scheme was not included in Gosford Council’s original submission but Atkins/Cardno noted that it supported Gosford and Wyong Councils in pursuing the Hunter Connection and therefore allowed expenditure of $3.8m on this scheme in 2005/06.

In terms of wastewater, the key expenditure in 2005/06 for Gosford Council relate to growth and the Government Priority Sewerage Program (PSP) for the Hawkesbury Villages, Mooney Mooney, Cheero Point and Little Wobby. Atkins/Cardno has allowed expenditure in 2006 of $2.8m for growth and $1.6m for the PSP. Wyong Council’s main capital expenditure on water projects for 2005/06 includes the Wyong Mardi scheme, the Mooney transfer scheme and expenditure on locating sources of groundwater. The Mardi scheme is composed of four major components including lifting the Mardi dam height and construction of a high lift pumping station to transfer water to Gosford by transfers to the Ourimbah Reservoir. The Mooney Transfer scheme is expected


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to deliver 0.3GLs per annum while location of groundwater sources is expected to be one of the major sources of new water in the short term. Wyong Council’s forecast expenditure on wastewater assets is more certain. It generally relates to ensuring that Council is able to continue to comply with the various standards set for health and environmental purposes but there will also be significant expenditure on new developments arising from the high rates of growth in the Wyong Shire. Wyong Council does not levy a stormwater charge but recovers capital expenditure for stormwater assets from water and wastewater charges. While expenditure on maintaining standards is a major driver, there is also expenditure for specific issues including alleviating flooding problems in some parts of the Shire and for dealing with environmental issues (eg maintaining wetlands).

2.2.2 Longer term projects The Councils are currently considering the likely duration and impact of the drought that is affecting the Central Coast region, and are undertaking a feasibility study of the available options for augmenting their water supplies. Some of the options being considered, such as establishing a desalination plant, require significant capital expenditure. The feasibility study is not expected to be completed until September 2005, after which they will need to decide which, if any, of the options they will implement. The options being considered by Gosford and Wyong include: • construction of Mardi Dam High Lift pump station

• Lower Wyong/Mardi Dam transfer system

• Mardi Dam raising

• provision of a powered activated carbon treatment facility

• installation of groundwater extraction facilities

• undertaking leakage investigations and rehabilitation

• use of reclaimed water from Sewerage Treatment plant

• provision of sewer mining plants

• possible dual water systems for new release areas.

2.3 Pricing issues

2.3.1 Comparison of prices for water and wastewater services for metropolitan water retailers

In considering pricing matters the Tribunal has had regard to the prices paid for similar services in adjacent supply areas, namely the Hunter region to the north where services are provided by Hunter Water and metropolitan Sydney to the south where services are provided by Sydney Water. The prices charged for water and wastewater services by each of the four metropolitan water retailers vary. For example, a Wyong Council residential customer using 250kL of water per


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annum pays around $47 less a year in total water and wastewater charges than a Sydney Water customer using the same amount of water (Table 2.2).

Table 2.2 Current residential water and wastewater charges and bills for a customer using 250kL water per annum ($2004/05)

Sydney Water

Hunter Water

Gosford Council

Wyong Council

Water usage price (per kL) 1.013 1.01 0.755 0.755

Water service charge (per annum) 77.62 25.37 72.47 82.82

Wastewater usage price (per kL) Na 0.421 Na Na

Wastewater service charge (per annum) 346.66 239.35 352.02 359.25

Environmental Improvement Na 48.95 Na Na

Total water and wastewater bill 677.53 618.67 613.24 630.82

Stormwater charge2 Na Na 42.00 Na

Total estimated bill 677.53 618.67 655.24 630.82 Notes 1. Only applies to 50 per cent of water consumption. 2. Sydney Water and Hunter Water charge for stormwater drainage services to a limited number of

customers. Therefore, their stormwater charge has been excluded for comparison purposes. Wyong Council has no stormwater charge.

Compared with the bills in other regions of Australia, current average NSW metropolitan water bills are neither particularly high nor low (Figure 2.1).

Figure 2.1 2004/05 National household water and wastewater bills (250kL/a)

$0

$100

$200

$300

$400

$500

$600

$700

$800

Gold C

oast W

ater

SA Water (

Adelaide)

Sydney W

ater C

orpor

ation

Brisba

ne Water

Water C

orporatio

n (Perth

)

ACTEW/A

GL (Canberra

)

Wyong

Shire

Counc

il

Hunter Wate

r Corpo rat

ion

Gosford

City

Coun

cil

Yarra

Valle

y Water (

Melbourn

e)

South

East Wate

r (Melbou

rne)

City W

est W

ater (Me lbourn

e)

Source: Based on published tariffs.


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2.3.2 Customer attitudes to water pricing In late 2004, the Tribunal commissioned Taverner Research to conduct a household survey to provide input to the 2005 metropolitan water price review. The survey was designed to explore customer values and attitudes toward water usage and services, and assess the potential acceptability and effectiveness of various pricing options. It covered households served by Gosford Council, Wyong Council, Sydney Water and Hunter Water. The results of this survey indicated that: • Households support the introduction of a two-tier inclining block pricing structure,

with nearly two-thirds of respondents (63 per cent) believing that two-tier pricing is fairer than the current system.

• One-in-four households believe water is too cheap, and more than 33 per cent say they would be prepared to pay more for water.

• Almost 40 per cent of households expect that they would reduce their water consumption as a result of any price changes.

• Just over half of all respondents are opposed to a flexible system where prices are higher during a drought and lower when supplies are plentiful, while 41 per cent are in favour of such a system.

• There is strong support for the current mandatory water restrictions. More than 60 per cent of respondents believe the restrictions are about right, and 28 per cent want even tougher controls. Almost 70 per cent support some form of permanent water restrictions.

These results indicate that the current water restrictions are an appropriate measure to encourage water conservation.


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3 LENGTH OF THE DETERMINATION PERIOD

In addition to setting maximum prices for monopoly services, the Tribunal needs to decide on the length of the determination period. This chapter sets out its decision for Gosford and Wyong Councils, and explains its considerations in reaching this decision.

3.1 Summary of decision on length of determination period The Tribunal has decided that the determination period will be one year, commencing 1 July 2005 and ending 30 June 2006.

3.2 Tribunal’s considerations In making its decision on the length of a determination period, the Tribunal considered the views of the agencies and shareholders and the adequacy of the information available (such as forecast capital and operating costs and consumption growth).7 In its submission, Wyong Council stated a preference for a four-year determination period, with the Tribunal initially determining a two-year price path, then undertaking a mid-term review to determine prices for the remaining two years. Gosford Council did not specify a preferred length for the determination period, but stated that it intended to “seek the Tribunal’s agreement within the determination to allow interim determinations”.8 At the Public Hearing, both Councils proposed shorter price path periods due to uncertainty created by the current drought. The Tribunal, after carefully considering the matter, decided on balance that a one-year determination period is appropriate for Gosford and Wyong Councils. Its reasons include the uncertainty about the agencies’ future capital expenditure and the inadequacy of the information available on stormwater costs. In addition, a one-year determination period will allow the Tribunal to consider Gosford Council’s Backlog Sewerage Services Determination as part of the 2006 Water Price Determination. Each of these reasons is discussed below.

3.2.1 Uncertainty about future capital expenditure There is considerable uncertainty about both Councils’ future capital expenditure needs. Over a longer determination period, this uncertainty would increase the risk of there being a significant disparity between their revenue and their costs. The Councils are currently considering the likely duration and impact of the drought that is affecting the Central Coast region, and are undertaking a feasibility study of the available options for augmenting their water supply. Some of the options being considered, such as building a desalination plant, would require significant capital expenditure. The feasibility study is not expected to be completed until September 2005, after which the Councils will need to decide which, if any, of the options they will implement.

7 As foreshadowed in the Review of Metropolitan Council Water Prices from 1 July 2005 - Issues Paper, IPART,

p 5. 8 Gosford City Council submission to IPART, Pricing Proposal from 2005/06, September 2004, section 8,

p 40.


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The Tribunal believes that until the feasibility study is completed and more is known on the status of the drought, it is not possible for it to make an informed decision on the Councils’ need for significant capital expenditure over the next four years.

3.2.2 Unsatisfactory basis for stormwater drainage charges In the 2003 determination, the Tribunal asked the Councils to separately identify their stormwater drainage asset base and costs, to enable cost-reflective stormwater drainage charges to be determined. Gosford Council currently charges a stormwater drainage levy, which is unrelated to the costs associated with providing the service. Wyong Council recovers its costs through the general council levy and though a cross-subsidy in water prices. In their submissions to the 2005 review, the Councils did not submit the required information. The Tribunal has decided to continue the current arrangements for this determination, but intends to set cost-reflective stormwater drainage prices as part of the 2006 determination. It therefore requires Gosford Council and Wyong Council to separately identify their stormwater drainage activity asset base, operating expenditure and capital expenditure, and submit separate prices to the Tribunal’s 2006 review (see Appendix A4.4.1).

3.2.3 Backlog sewerage For Gosford Council, the Minister of Energy and Utilities requested on 14 March 2005 that the Tribunal reopen the 1997 Determination of Backlog Sewerage Services (Determination 4.2, 1997). The Tribunal will reopen the Backlog Sewerage Services Determination as part of the 1 July 2006 determination.


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4 REVENUE REQUIRED BY EACH COUNCIL FOR 2005/06

One of the key inputs to the Tribunal’s decisions on maximum prices is its calculation of the amount of revenue required by each Council to efficiently provide its water and wastewater services during the determination period. The Tribunal then determines prices for each service that take account of this revenue requirement, assumptions about metered water sales (see Chapter 5), and the factors listed in section 15 of the IPART Act (see Appendix 1). The section below provides a summary of the Tribunal’s findings on the overall revenue which the Tribunal has assessed as being adequate for this one-year determination, and which the Tribunal expects the Councils to recover from the prices it has set. Detailed discussion of the Tribunal’s findings in relation to the revenue required for capital investment, including decisions on the prudence of past capital expenditure and the efficiency of forecast capital expenditure is provided in Appendix 2. Appendix 3 explains the findings related to the revenue required for operating expenditure.

4.1 Summary of Tribunal’s assessment of revenue requirements The Tribunal has assessed that the revenue requirements to be taken into account in setting prices for each Council for 2005/06 will be those shown in Table 4.1. The Tribunal considers that these revenue projections will enable each Council to recover the efficient costs of providing services while maintaining appropriate standards of quality, reliability and safety and to achieve a small improvement in what is only a modest rate of return on the capital employed.

Table 4.1 Tribunal’s assessment of revenue requirements for Gosford Council and Wyong Council ($million, 2004/05)

Financial year 2005/06

Gosford Council 43.2

Wyong Council 38.3

The Tribunal notes that its finding specifically recognises the significant adjustments required in the longer term to prices to reflect fundamental changes in expenditure requirements and water consumption, and the need for transitional arrangements to balance and manage the impact of these adjustments on customers and other stakeholders.

4.2 Tribunal’s assessment compared with Councils’ proposed revenue requirements

Table 4.2 sets out the forecast revenue requirements included in the Councils’ proposals to the Tribunal, and compares them with the Tribunal’s findings. For Gosford Council, the Tribunal’s assessment on the overall revenue requirement is around $1.2 million (or 2.9 per cent) more than the Council forecast, while for Wyong Council its decision is about $1.6 million (or 4.4 per cent) more than the Council forecast.


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Table 4.2 Councils’ forecast revenue requirements compared to Tribunal’s findings, 2006 ($ million, 2004/05)1

Financial year 2005/06 Council forecast Tribunal decision

Gosford Council

Operating expenditure 33.7 30.6

Return of capital (depreciation) 3.7 3.7

Allowance for return on assets 4.62 8.9

Allowance for costs associated with working capital 0.0 0.03

Revenue requirement 42.04 43.2

Difference between Council forecast and Tribunal finding 1.2

Wyong Council

Operating expenditure 33.5 26.1

Return of capital (depreciation) 3.4 3.4

Allowance for return on assets -0.25 8.9

Allowance for costs associated with working capital 0.0 0.06

Revenue requirement 36.77 38.3

Difference between Council forecast and Tribunal finding 1.6 Notes 1 Figures may not add due to rounding. 2. Gosford Council did not submit a forecast return on assets. The Tribunal has back calculated the return on

assets based on the revenue derived from tariffs less submitted operating expenditure and depreciation determined the Tribunal.

3. The revenue requirement incorporates an allowance of $0.023m. However, this amount is insignificant when rounded to one decimal place.

4. The Tribunal derived Gosford Council’s revenue requirement by application of the Council’s proposed tariffs against the Council’s consumption forecasts.

5. Wyong Council did not submit a forecast return on assets. The Tribunal has back calculated the return on assets based on the revenue from tariffs less submitted operating expenditure and depreciation.

6. The revenue requirement incorporates an allowance of $0.022m. However, this amount is insignificant when rounded to one decimal place.

7. The Tribunal derived Wyong Council’s revenue requirement by application of the Council’s proposed tariffs against the Council’s consumption forecasts.

The differences between the Councils’ forecasts and the Tribunal’s assessment on their overall required revenue levels are primarily due to the Tribunal’s findings to: • apply additional efficiencies to the forecast operating expenditure, which reduced the

required revenue for operating expenditure

• provide for improvements in returns on capital, accepting that the expected returns for 2005/06 still represent a very modest outcome. The Tribunal’s decision is based on a return on capital of 3.2 per cent for Gosford Council. By comparison, the Tribunal’s analysis shows that the revenue recovered through prices in 2004/05 results in an equivalent9 return on capital of 1.8 per cent. Gosford Council’s proposed prices imply a return of 1.7 per cent for 2005/06. The Tribunal’s decision is based on a return on capital of 3.5 per cent for Wyong Council. By comparison, the Tribunal’s analysis


adjustments, the Tribunal’s analysis shows that the current return on capital is less than 1 per cent.


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shows that the revenue recovered through prices in 2004/05 results in an equivalent10 return on capital of 2.1 per cent. Wyong Council’s proposed prices imply a return of (0.1) per cent for 2005/06.

In addition, the Tribunal notes that it has explicitly provided for the cost of maintaining an investment in working capital. This is additional to the allowances for a return on assets and depreciation. In the case of Gosford Council, the working capital allowance is $0.023 million. For Wyong Council, the working capital allowance is $0.022 million


adjustments, the Tribunal’s analysis shows that the current return on capital is negative and around minus one per cent.


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5 ASSUMPTIONS ON METERED WATER SALES AND CUSTOMER NUMBERS FOR 2005/06

The Tribunal needs to consider the Councils’ forecast metered water sales and customer numbers for 2005/06 for two important reasons: • First, the demand for water and wastewater services will affect the agencies’ capital

and operating costs.

• Second, it sets the prices of individual services to take account of the forecast water sales and customer numbers. If these forecasts are not reasonable, there is a risk that the prices it determines will result in each Council significantly over or under recovering its required revenue.

The Tribunal is concerned that forecasts that unduly understate demand will result in customers paying prices that exceed efficient levels. It is also concerned that unduly high forecasts may result in the agencies not earning a sustainable revenue stream over the determination period. Therefore, it has sought to ensure that the forecasts on which the pricing determinations are based have been subject to rigorous, systematic and objective review. It engaged McLennan Magasanik Associates (McLennan Magasanik) to independently review the agencies’ forecasts for the period 2004/05 to 2009/10, and to provide alternative forecasts where necessary. McLennan Magasanik finalised its report and recommendations in December 2004. This chapter explains the Tribunal’s findings on the metered water sales forecasts and customer numbers used to set prices for each Council for 2005/06. Section 5.1 provides a summary of its findings on forecast metered water sales. Section 5.2 discusses the key factors that influence metered sales. Sections 5.3 and 5.4 explain the Tribunal’s considerations in making its findings on each Council’s forecasts for metered sales and customer numbers.

5.1 Summary of Tribunal’s findings on metered water sales The Tribunal has decided to adopt the metered water sales forecasts shown in Table 5.1 when setting prices for 2005/06.

Table 5.1 Metered water sales forecasts adopted in determination (ML)


Gosford Council 13,499

Wyong Council 12,814


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5.2 Key factors influencing water consumption As part of its review, McLennan Magasanik noted a range of factors that will have an important influence on the demand for water, wastewater and stormwater drainage services over the 2005 determination period. These factors include: • Population growth, which is a key driver of growth in residential water demand.

Gosford Council has forecast population growth of 1.1 per cent in 2005/06, compared with approximately 1.4 per cent growth during the 2003 determination period. Wyong Council has forecast population growth of 2.3 per cent for 2005/06, which is unchanged from the 2.3 per cent growth expected during 2004/05.11

• Economic growth rates, which affect water usage in several ways. High economic growth will accelerate other trends such as the purchase of more efficient appliances. Economic growth and increases in process and plant efficiency are significant factors in determining the future trends of non-residential water consumption. Conversely, experience shows that higher real incomes brought about by favourable economic conditions result in increased water use.

• Pricing structure and level. The price structures and levels that the Tribunal determines will have some effect on water consumption.

• Trends in appliance purchases and usage, which affect residential water consumption. There has been a move towards the installation of larger appliances in residences, such as spa baths, which can increase water usage. The installation of automatic sprinkler systems is also likely to increase water usage.12 Countering this has been the trend towards more water efficient appliances, such as dual-flush toilets and low-flow showerheads and, more recently, front-loading washing machines.

• Demand management programs. There has been an increased effort by most agencies to undertake community education, promote installation of water efficient devices and develop other programs that will reduce demand.

• Weather and the impact of current and proposed water restrictions. External water usage is strongly influenced by weather and water restrictions, while internal water usage is affected to a lesser degree. Water restriction policies affect consumption while the restrictions are in place and have a residual effect for a period after the restrictions are lifted.

5.3 Tribunal’s considerations on metered sales forecasts In making its decisions on the metered water sales forecast for each Council, the Tribunal took into account the submissions it received from the agencies and other stakeholders, McLennan Magasanik’s findings and recommendations, and its own analysis.

11 In 2004, Wyong Council conducted a demographic survey that produced population figures not

comparable to those produced by Wyong’s previous method. Therefore, care must be taken in considering growth over the 2003 determination period.

12 WA Water Corporation, Domestic Water Use Study in Perth, Western Australia 1998-2001, Perth, March 2003.


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5.3.1 Analysis of agencies’ historic demand and forecasting performance Gosford Council’s actual and projected metered sales were significantly lower than the forecasts it submitted for the 2003 determination (Table 5.2). Wyong Council’s actual metered sales for 2002/03 and 2003/04 were in line with its forecasts for these years, but its projected metered sales for 2004/05 are significantly lower than it forecast (Table 5.2). In both cases, this is largely due to the impact of water restrictions on metered sales.

Table 5.2 Forecast and actual metered water sales over the current determination period (GL)

Financial year 2002/03 2003/04 2004/05

Gosford Council

Council forecast 2003 14.8 15.0 15.2

Tribunal determination 2003 na 16.8 16.9

Actual and projected metered sales 13.2 12.3 12.3

Wyong Council


Tribunal determination 2003 na 15.0 15.0

Actual and projected metered sales 13.9 13.5 11.8

5.3.2 Council forecasts, McLennan Magasanik findings and Tribunal’s decisions on metered water sales forecasts

Table 5.3 sets out the metered water sales forecasts submitted by the Councils, those recommended by McLennan Magasanik, and the Tribunal’s decisions on the metered water sales to be used to set prices for 2005/06. Although this determination is limited to 2005/06, in the course of its review the Tribunal considered submissions, information and independent advice on water sales forecasts to 2008/09. For this reason, the table includes the Councils’ and McLennan Magasanik’s forecasts for the years to 2008/09.

Table 5.3 Agencies’ forecasts for metered water sales compared with Tribunal’s decisions (ML)

Outside Determination Financial year 2005/06 2006/07 2007/08 2008/09 Gosford Council

Gosford Council submission 11,825 11,955 12,722 13,506 McLennan Magasanik unrestricted forecast 16,070 16,235 16,408 16,485

McLennan Magasanik forecast with level 2 restrictions 13,499 13,637 13,782 13,847 McLennan Magasanik forecast with level 3 restrictions 12,213 12,338 13,123 13,847

Tribunal decision 13,499 na na na Wyong Council

Wyong Council submission 11,420 11,664 12,536 13,434 McLennan Magasanik unrestricted forecast 15,255 15,404 15,628 15,768

McLennan Magasanik forecast with level 2 restrictions 12,814 12,939 13,128 13,245 McLennan Magasanik forecast with level 3 restrictions 11,594 11,707 12,499 13,245

Tribunal decision 12,814 na na na


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As the table shows, McLennan Magasanik developed a range of forecasts based on different assumptions about the level of water restrictions that will apply to the Councils’ customers. The Councils’ forecasts were based on the assumption that level 3 restrictions will be in place until 2008/09. In its final report, McLennan Magasanik concluded that the Council’s forecasts were reasonable, taking account of the expectation that level 3 restrictions would be in place in early 2005, although they proposed minor variations. One of the key issues for the Tribunal in making its decisions on the metered water sales forecasts for Gosford and Wyong was whether the Councils’ assumption about the level and timing of restrictions was reasonable. The Tribunal has previously taken the position that consumers should not face increased prices because of temporary restrictions. It reaffirms its position that temporary restrictions should not be factored into forecasts to be used for price setting. However, in the case of Gosford and Wyong Councils, it notes that level 2 restrictions are expected to remain in place until 2010. Therefore, for the purposes of this determination, these restrictions should be considered a fixed feature. Further, the Tribunal notes that, while level 3 restrictions may apply later this year, they are not currently in place. For these reasons, the Tribunal believes that the 2005/06 forecasts to be used in setting prices should reflect level 2 restrictions only. It therefore decided to adopt McLennan Magasanik’s recommended 2005/06 forecasts incorporating level 2 restrictions for the purpose of establishing the cost building blocks and setting prices for 2005/06.

5.4 Tribunal’s assumptions on growth in customer numbers To set prices for the 1-year determination period, the Tribunal needs to make assumptions about the growth in customer numbers. The Tribunal bases its decisions about what assumptions are reasonable on the forecasts and information about growth in residential and non-residential property numbers provided by the agencies as part of their annual information returns. The Tribunal considers that each Council’s forecast is generally appropriate for the purposes of this determination. Table 5.4 below summarises the agencies’ forecasts of growth in residential and non-residential properties. The Tribunal has used the 2005/06 projections in setting prices for the 2005 determination.


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Table 5.4 Council forecasts in residential and non-residential properties

Outside Determination Financial year 2005/06 2006/07 2007/08 2008/09

Gosford Council Customer base - water supplies

Total residential properties 64,933 65,646 66,369 67,098 Total non-residential properties 2,621 2,650 2,679 2,708

Total properties 67,554 68,296 69,048 69,806 Customer base - wastewater services

Total residential properties 63,232 63,928 64,631 65,343 Total non-residential properties 2,542 2,570 2,598 2,627

Total properties 65,774 66,498 67,229 67,970 Wyong Council

Customer base - water supplies Total residential properties 57,012 58,080 59,148 60,216

Total non-residential properties 3,131 3,163 3,195 3,227 Total properties 60,143 61,243 62,343 63,443

Customer base - wastewater services Total residential properties 55,438 56,506 57,574 58,642

Total non-residential properties 3,394 3,426 3,458 3,490 Total properties 58,832 59,932 61,032 62,132


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6 TRIBUNAL’S PRICING DECISIONS FOR INDIVIDUAL SERVICES

This chapter explains the Tribunal’s decisions on the maximum prices to be charged by Gosford Council and Wyong Council for water, wastewater and stormwater drainage services for the one-year determination period. Section 6.1 provides an overview of the Tribunal’s pricing decisions for each Council, including the average change compared to current prices. Section 6.2 and 6.3 set out the Tribunal’s decisions for Gosford Council and Wyong Council respectively.

6.1 Overview of pricing decisions The Tribunal has decided to increase prices by an average of CPI+6.5% for both Gosford and Wyong Councils. The Tribunal notes that these increases are greater than those proposed by Gosford and Wyong Councils. However, it considers that these increases are required to cover the costs associated with maintaining service standards in 2005/06.

In making its pricing decisions for Gosford Council, the Tribunal has: • increased the water usage charge by CPI+20.1%

• increased the water fixed charge in real terms by 9.1 per cent

• increased wastewater fixed charges and the non-residential wastewater usage charge by CPI+1%

• determined that the sewerage portion of vacant land charges continue to be levied at 75 per cent of the residential sewerage charge

• maintained the stormwater drainage levy at its current level of $42.00 in nominal terms. The Tribunal requires Gosford Council to separately identify its stormwater drainage activity asset base, operating expenditure and capital expenditure, and submit separate prices to the Tribunal’s 2006 price review

• accepted (with some minor adjustments) Gosford Council’s list of proposed miscellaneous charges for 2005/06

• not set exempt property charges and discontinued the fire service charges

• accepted a revised trade waste pricing structure and proposed trade waste prices as per Gosford Council’s submission.

In making its pricing decisions for Wyong Council, the Tribunal has: • increased the water usage charge by CPI+20.1%

• increased the fixed water charges in real terms by 9 per cent

• maintained wastewater fixed charges in real terms, and increased the non-residential wastewater usage charge by CPI+1%

• determined that the sewerage portion of vacant land charges continue to be levied at 75 per cent of the residential sewerage charge


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• in line with the decisions for wastewater charges, maintained trade waste fixed charges in real terms and increased volumetric charges by CPI+1%

• generally accepted Wyong Council’s proposals to maintain miscellaneous charges in real terms

• for effluent and sludge removal charges, maintained fixed charges in real terms and increased volumetric charges by CPI+1%

• for stormwater drainage services, the Tribunal requires Wyong Council to separately identify its stormwater drainage activity asset base, operating expenditure and capital expenditure, and submit separate prices to the Tribunal’s 2006 review.

6.2 Pricing decisions for Gosford Council

6.2.1 Water charges The Tribunal decided to set the maximum water charges for 2005/06 shown in Table 6.1.

Table 6.1 Gosford Council's current and Tribunal determined water charges (Dollars of the day)

Financial year 2004/05 Current

2005/06 Determined

Usage charge ($ per kL) 0.755 0.925

Service charge ($ per annum)* 72.47 80.82 * The water service charge is based on the size of the meter connection to the

property. This charge is calculated for a 20mm connection. These charges reflect the Tribunal’s decision to increase water usage charges by CPI+20.1% and to increase water fixed charges by CPI+9.1%. The increase in the water usage and service charges is higher than the increase proposed by Gosford Council of CPI+18% and maintain in real terms respectively. By increasing the water usage charge from $0.755 to $0.925/kL, the Tribunal has attempted to better reflect the cost of water supply13. It anticipates that its decision will increase the proportion of Gosford Council’s total revenue that it derives from water usage charges, and will send an appropriate demand management signal to water users.

13 Gosford Council is currently purchasing water from Hunter Water for $1/kL.


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6.2.2 Wastewater charges The Tribunal decided to set the maximum wastewater charges for 2005/06 shown in Table 6.2.

Table 6.2 Gosford Council’s current and Tribunal determined wastewater charges (Dollars of the day)


2005/06 Determined

Residential wastewater service charge ($ per annum) 352.02 363.99

Non-residential wastewater service charge ($ per annum) 262.98 271.92*

Non-residential wastewater usage charge ($ per kL) 0.755 0.78 * The above charges are based on 20mm wastewater service connection. The non-residential

wastewater service varies with meter size but a minimum of the residential wastewater service charge will be charged.

These charges reflect the Tribunal’s decision to increase the residential and non-residential wastewater service charge and the non-residential wastewater usage charge by CPI+1%. This is a smaller increase than Gosford Council proposed (CPI+5% for all wastewater charges), but is equivalent to the increase Wyong Council proposed. In setting prices for Gosford and Wyong Councils, the Tribunal decided to increase fixed charges by approximately the same magnitude.

6.2.3 Stormwater drainage charges The Tribunal decided to set the maximum stormwater drainage charge for 2005/06 shown in Table 6.3.

Table 6.3 Gosford Council’s current and Tribunal determined stormwater drainage charges (Dollars of the day)


2005/06 Determined

Stormwater Drainage Levy($) 42.00 42.00

This is less than Gosford Council proposed ($45.00 in 2005/06), which reflects the Tribunal’s concern about Gosford Council’s existing arrangements for funding stormwater drainage services. The Tribunal is not yet able to establish a clear relationship between the revenue raised through the stormwater drainage levy and the associated stormwater drainage expenditure. Council has agreed to work with the Tribunal to simplify and clarify these arrangements by aligning asset ownership, revenues and expenditure, but notes that it is likely to be some time before this process is complete. Given that this issue has been of ongoing concern for the Tribunal since the 2003 determination, the Tribunal has decided to maintain the stormwater drainage levy at its 2004/05 level for 2005/06.


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The Tribunal requires Gosford Council to separately identify its stormwater drainage asset base, operating expenditure and capital expenditure, and submit separate prices to the Tribunal’s 2006 review (see section 3.2.2).

6.2.4 Vacant land charges The Tribunal has decided to set the vacant land charges for 2005/06 shown in Table 6.4.

Table 6.4 Gosford Council’s current and Tribunal determined vacant land charges (Dollars of the day)


2005/06 Determined

Water 72.47 80.82

Wastewater 264.02 272.99

At the 2003 determination, the Tribunal decided that charging vacant land owners a residential wastewater service charge set at 75 per cent of the full residential wastewater service charge appropriately reflects the costs of network availability. It has decided to continue this approach for the 2005 determination, in line with Gosford Council’s submission. It also decided to set the residential water charge for vacant land so it is equal to the residential water service charge, in line with the Council’s submission.

6.2.5 Exempt properties The Tribunal has not set specific water access maximum charges for exempt properties. In its submission, Gosford Council proposed that water service charges be specifically applied to properties exempt from service charges under the Water Management Act 2000. This proposal was made on the assumption that legislation was to be changed to allow such a charge to be levied. However, the Tribunal was advised by the Department of Energy, Utilities and Sustainability (DEUS) that no such change to the legislation has been made. The Tribunal has therefore decided to maintain the status quo by not setting a fixed or service charge for these properties.

6.2.6 Fire service charges The Tribunal has not set separate fire service charges for Gosford Council. In its submission, Gosford Council proposed the retention of separate fire service charges. It proposed that the un-metered fire service charge be set at 50 per cent of the water service charge for an equivalent size meter. Given that Sydney Water Corporation, Hunter Water Corporation and Wyong Shire Council have progressively abandoned fire service charges and that Gosford Council did not provide a strong case for continuing to levy these charges, the Tribunal decided to discontinue setting separate fire service charges for Gosford Council.


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The Tribunal believes that the resulting loss of revenue (approximately $180,000) would be better recovered through general water prices. In practical terms, this means that the current $180,000 fire services revenue recovered from a small number of non-residential customers will now be recovered from the general customer base.

6.2.7 Trade waste charges The Tribunal has accepted Gosford Council’s proposed trade waste price structure and prices for 2005/06. In its submission, Gosford Council proposed a modified price structure for the provision of trade waste services. It suggested that this amended trade waste price structure was in line with the DEUS Model Policy and Best Practice Pricing Guidelines for trade waste pricing. The Council noted that its revised Liquid Trade Waste Policy had been developed in negotiation with DEUS to ensure that Council is eligible for grants under the NSW Government’s Country Towns Water Supply and Sewerage Program, and to allow it to pay a dividend to its General Fund. The Tribunal has determined prices for trade waste services for three categories as follows: • Category 1 (requiring nil or minimal pre-treatment). Dischargers conducting an

activity deemed by Council as requiring nil or minimal pre-treatment equipment and whose effluent is well defined and/or of a relatively benign nature (eg, Hairdresser, food preparation or service business not generating oily/greasy waste, retail pet shop, florist).

• Category 2 (requiring prescribed pre-treatment). Dischargers conducting an activity deemed by Council as requiring a prescribed type of liquid trade waste pre-treatment equipment (eg, Grease arrestor, oil/water separator,) and whose effluent is well characterised (vehicle washing, mechanical repairs, food preparation or service generating oily/greasy waste etc).

• Category 3 (large or industrial waste dischargers). Dischargers conducting an activity which is of an industrial nature and/or which results in large volumes of liquid trade waste being charged to the sewerage system (eg, abattoir, landfill, winery, etc)

Council also refers to the following two additional categories of trade waste dischargers in its submission: • Category 4 (Non-septic liquid waste transported to treatment sites by vehicles).

• Category 5 (Septic liquid waste transported to treatment sites by vehicles). Council notes that special conditions of discharge apply to these categories. It notes that wastes for these categories shall comply with the quality standards determined by Council and that the volume and quality together will have no impact on the treatment process. Given that Council has not proposed a separate charging structure for Category 4 and 5 dischargers, the Tribunal has not determined a maximum charge for these dischargers. For these customers, a price needs to be considered on an individual case-by-case basis.


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A detailed list of Gosford Council’s trade waste charges can be found in Schedule 3 of the determination.

6.2.8 Miscellaneous charges The Tribunal has set miscellaneous service charges shown in Table 11 of the determination for 2005/06. The Tribunal sets miscellaneous charges for a range of ancillary services that Gosford Council provides, including special meter readings, statements of available pressure and flows, and an application for water service connection. Although these charges do not account for a large proportion of the total revenue earned by the Council, they can be significant for those customers who are required to pay them. The Tribunal asked the Councils to adopt the following formula to calculate the level of charges:

Miscellaneous charge = base cost + direct material cost The Tribunal recognises that there may be significant cost justifications for the services being priced differently. For this reason, it hired a consultant (RSM Bird Cameron) to review the reasonableness of each Council’s miscellaneous charges price proposal for the period commencing 1 July 2005. RSM Bird Cameron concluded that both Councils had applied a methodology that is supportable but is conservative in its application. It noted that in most cases, the proposed charges have been reduced by the use of 2004 labour rates and overheads (instead of the 2005 rates) and are therefore likely to be below cost for the 2005 determination period. RSM Bird Cameron also noted that despite this, some very significant price increases are proposed. These large price increases reflect the Councils’ view that at the 2003 determination many charges were set below actual cost. Based on its findings, RSM Bird Cameron largely supported this view. With this in mind, the Tribunal has, for the most part, accepted Gosford Council’s list of proposed miscellaneous charges for 2005/06. However, based on RSM Bird Cameron’s advice, it has made several minor changes to the Council’s proposed list of miscellaneous services: • Quoted cost of works. For a number of miscellaneous services, the agencies did not

propose a maximum charge in their submissions. Rather, they specified charges as ‘quoted cost’ or ‘quoted cost of works’. To maintain consistency with the previous determination, the Tribunal decided to maintain the status quo by not setting charges based on ‘quoted cost’.

• Application for water service connection. In its submission, Gosford Council proposed discontinuing its ‘Water Service Connection Fee’ as a separate charge, and incorporating this charge under Common Service 10 (Application for water service connection). The Tribunal concluded that Common Service 10 should cover administrative costs only, and that a separate charge for physical connection should be retained.


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A detailed list of these charges can be found in schedule 4 of the determination.

6.3 Pricing decisions for Wyong Council

6.3.1 Water charges The Tribunal decided to set the maximum water charges for 2005/06 shown in Table 6.5.

Table 6.5 Wyong Council’s current and Tribunal determined water charges (Dollars of the day)


2005/06 Determined

Usage charge ($ per kL) 0.755 0.925

Service charge ($ per annum)* 82.82 92.25 * The water service charge is based on the size of the meter connection to the

property. This charge is calculated for a 20mm connection. In its submission, Wyong Council proposed that the water usage charge be increased by CPI+18% and that the water service charge be maintained in real terms in 2005/06. The Tribunal decided to increase water usage charges by CPI+20.1% and to increase water fixed charges in real terms by CPI+9%. The Tribunal has increased both charges to provide a strong signal to conserve water and to balance the impact of higher charges across all customer groups. By increasing the water usage charge in Wyong from $0.755 to $0.925/kL, the Tribunal has attempted to better reflect the cost of water supply14. It expects that its decision will increase the proportion of Wyong Council’s total revenue that is attributable to water usage charges, and will send an appropriate demand management signal to customers.

6.3.2 Wastewater charges The Tribunal decided to set the maximum wastewater charges for 2005/06 shown in Table 6.6.

Table 6.6 Wyong Council’s current and Tribunal determined wastewater charges (Dollars of the day)


2005/06 Determined

Residential wastewater service charge ($ per annum) 359.25 367.87

Non-residential wastewater service charge ($ per annum) 359.25 367.87

Non-residential wastewater usage charge ($ per kL) 0.64 0.66 Based on 20mm wastewater service connection.

14 Wyong Council is currently purchasing water from Hunter Water for $1/kL.


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These charges reflect the Tribunal’s decision to increase the wastewater service charges by CPI and the non-residential wastewater usage charge by CPI+1%. The increase in the service charges is less than Wyong Council proposed (CPI+1%), while the increase in the non-residential usage charges is in line with the Council’s proposal.

6.3.3 Vacant land charges The Tribunal has decided to set the vacant land charges for 2005/06 shown in Table 6.7.

Table 6.7 Wyong Council’s current and Tribunal determined vacant land charges


2005/06 Determined

Water (per annum) 82.82 92.25

Wastewater (per annum) 269.44 275.90 At the 2003 determination, the Tribunal decided that charging vacant land owners a residential wastewater service charge set at 75 per cent of the full residential wastewater service charge appropriately reflects the costs of network availability. It has decided to continue this approach for the 2005 determination, in line with Wyong Council’s submission. It also decided to set the residential water charge for vacant land so it is equal to the residential water service charge, in line with the Council’s submission.

6.3.4 Trade waste charges The Tribunal has decided to set the trade waste charges for 2005/06 shown in Table 6.8.

Table 6.8 Wyong Council’s current and Tribunal determined trade waste charges (Dollars of the day)


2005/06 Determined

Unit of measurement/ comments

Category A Volume 0.38 0.39 per kilolitre BOD 0.64 0.66 per kilogram SS 0.52 0.54 per kilogram Oil and Grease 1.29 1.33 per kilogram Annual licence fee 294.00 302.08 Includes inspection fee Re-inspection Fee 41.00 41.98 Category B Annual licence Fee 41.00 41.98 Inspection of oil arresters with water

consumption less than 2,000 kL/year (inspection of premises plus collection of

sample). Excess BOD 0.64 0.66 per kilogram Excess SS 0.52 0.54 per kilogram Excess Oil and Grease 1.29 1.33 per kilogram


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In its submission, Wyong Council requested an increase in trade waste charges that would exceed the movement in the CPI. The Tribunal asked the Council to justify this request. The Council replied that it intended to review its trade waste charges for the 2006 determination as part of the implementation of DEUS’s Best Practice Trade Waste Pricing Guidelines. It also stated that its current proposal would not provide for full cost recovery of Trade Waste costs. In light of the Council’s intended review of the trade waste charges as part of the 2006 determination, the Tribunal decided to maintain fixed trade waste charges in real terms and to increase volumetric trade waste charges by CPI+1%.

6.3.5 Effluent removal and chemical closet charges The Tribunal decided to set the maximum effluent removal charges shown in Table 6.9 and the maximum chemical closet charges shown in Table 6.10.

Table 6.9 Tribunal’s determined effluent and sludge removal charges (Dollars of the day)


2005/06 Determined

Fortnightly effluent removal and disposal service (per year) 827.00 846.85

Additional effluent removal and disposal service (per visit) 32.00 32.77

Commercial effluent removal and disposal service (per kL) 10.50 10.86 Sludge removal and disposal services: Septic tanks with a capacity up to 2750 litres (per service) Septic tanks exceeding 2750 litres or AWTS with one tank (per service) AWTS with more than one tank (per system)

232.00

301.00

449.00

237.57

308.22

459.78

Table 6.10 Tribunal’s determined chemical closet charges (Dollars of the day)


2005/06 Determined

Fortnightly service (annual charge) 1,191.94 1,220.55

Each requested weekly special service 23.22 23.78 Wyong Council proposed that effluent and sludge removal charges and chemical closet charges increase by CPI+1%. In relation to effluent and sludge removal, the Tribunal decided to maintain the fixed charges in real terms and increase volumetric charges by CPI+1%. It also decided to maintain chemical closet charges in real terms.


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6.3.6 Exempt properties The Tribunal decided to set the maximum exempt property charges for 2005/06 shown in Table 6.11.

Table 6.11 Tribunal’s determined charges for exempt properties (Dollars of the day)


2005/06 Determined

Per water closet 50.68 51.90

Per cistern servicing a urinal 17.95 18.38 Wyong Council has requested an increase in charges for exempt properties of CPI+1%. The Tribunal decided to maintain these charges in real terms. The per-water-closet charge is applicable to all properties classified as exempt under the Water Management Act.

6.3.7 Miscellaneous charges The Tribunal decided to set the miscellaneous service charges for 2005/06 shown in Table 14 of the determination. In setting these charges, the Tribunal used the approach described in section 6.2.8 above. It has, for the most part, accepted Wyong Council’s list of proposed miscellaneous charges for 2005/06. However, based on the advice of RSM Bird Cameron, it made several minor changes to Wyong Council’s proposed list of miscellaneous services as follows: • Quoted cost of works. For a number of miscellaneous services, the Council did not

propose a maximum charge in their submissions. Rather, they specified charges as ‘quoted cost’ or ‘quoted cost of works’. To maintain consistency with the previous determination, the Tribunal decided to maintain the status quo by not setting charges based on ‘quoted cost’.

• Physical disconnection from a water main. Wyong Council proposed a new charge of $101.00 for physical disconnection from a water main under Common Service 9 (Application for disconnection – all sizes). The Council did not provide any justification for this charge in its submission. Therefore, the Tribunal has not set a fee for physical disconnection from a water main.

A detailed list of these charges can be found in schedule 4 of the determination.


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7 EXPECTED OUTCOMES OF 2005/06 PRICING DECISIONS

Before finalising its decisions, the Tribunal considered the impact of its proposed maximum prices for 2005/06 on Gosford and Wyong Councils’ water businesses (as operators and managers of the assets), on their customers, on the Councils (as owners) and on the environment. Importantly, it also considered the balance between these impacts, because a favourable outcome in one area is often at the expense of an unfavourable outcome in another area.

This chapter explains the Tribunal’s assessment of the expected implications of its pricing decisions. Section 7.1 discusses how the pricing decisions affect residential, commercial and industrial bills, and comments on how customers may reduce the impact of price increases. Section 7.2 outlines the expected effects of the pricing decisions on service standards. Section 7.3 summarises the Tribunal’s assessment of the impact of the pricing decisions on the financial position of the agencies, including the impact on rate of return and dividends. Section 7.4 discusses the implications of the pricing decisions for the environment.

7.1 Implications for customer bills In reaching its pricing decisions, the Tribunal explicitly considered the likely impact on Gosford and Wyong Councils’ respective residential, commercial, and industrial customers. The Tribunal recognises that its decisions mean that most customers will face increases in the cost of water, wastewater and stormwater drainage services and, in the case of high water use customers, the increase in water usage bills could be significant if they do nothing to reduce their usage. However, it believes these increases are warranted to ensure customers have access to a sustainable water supply of appropriate quality and service. The Tribunal is concerned to ensure that the Councils have appropriate measures in place to assist financially disadvantaged customers who may have difficulty in paying their bills. Such measures may include special payment arrangements and financial assistance for the purchase and installation of water saving devices. The Tribunal requests that the Councils, as part of their 2006 pricing submissions, articulate their policies on: • debt and disconnection (including restricting water supply to households)

• special payment arrangements for customers having difficulty paying their bills

• financial assistance for purchase and installation of water saving devices. Some key implications for customers are as follows: • For all customers, usage charges will make up a larger proportion of their bills in

2005/06 than in previous years. These changes are intended to send a greater water conservation signal to customers, although the reduction in water demand benefits may be limited.


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• For residential customers, the determination will increase a 225kL bill for Gosford customers by 9.2 per cent and for Wyong customers by 9.2 per cent. Of these increases, 2.4 per cent results from the effect of inflation15

• For commercial and industrial customers, the determination will also increase their bills, particularly those of high water users. Trade waste charges will remain steady for Wyong non-residential customers.

• For Gosford Council, the Tribunal has accepted a revised pricing structure for trade waste customers in line with the Department of Energy, Utilities and Sustainability (DEUS) Model Policy and Best Practice Guidelines. The Tribunal has been persuaded that there is a need for such a structure to reflect true costs and assist in managing the liquid trade wastes. The Tribunal requests that Wyong Council also re-consider its trade waste charges from 1 July 2006 in light of the guidelines.

Each of these implications is discussed in more detail below. 7.1.1 Impacts on residential customers The Tribunal’s analysis of the impacts has concentrated on the overall effect on customers’ total bills. It has looked at how the increased bills compare with the past costs of these services. It has also looked at how the size of a bill varies with water usage, and what changes to behaviour are required to mitigate the increase. Gosford Council The Tribunal notes that notwithstanding the increased water charges, most Gosford Council customers will still be paying substantially less for water than in the past (see Figure 7.1).

Figure 7.1 Total water and wastewater bill for 250kL customers - Gosford Council ($ 2004/05)

$500.00

$550.00

$600.00

$650.00

$700.00

$750.00

$800.00

$850.00

$900.00

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Year

real

$20

04/0

5

15 In setting maximum prices, the Tribunal defines inflation as the movement in the consumer price index

between the four quarters ending in March of the year in which the prices will take effect and the immediately preceding four quarters. Therefore, the inflation adjustment lags the actual movement in the consumer price index.


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The Tribunal’s analysis shows that the impact of this one-year determination on annual residential bills for Gosford Council customers will vary according to the customer’s total water usage, and will range from approximately $29 per year (for customers who use less than 100kL per year) to more than $275 (for those who use 1,500kL or more per year). For approximately 97 per cent of customers, the total increase in their annual water bill for 2005/06 will be under $100, or less than $2 per week (Table 7.1).

Table 7.1 Impact of prices on annual residential water, wastewater and stormwater bills by water usage level - Gosford Council (Dollars of the day)

Percentage of residential customers

2004/05 2005/06

kL per year Actual Actual Increase

<100 24 504 533 29 100-150 17 561 602 42 150-200 17 599 649 50 200-250 14 636 695 59 250-300 10 674 741 67 300-400 10 731 811 80 400-500 4 806 903 97 500-1000 2 1,033 1,181 148 1000< 1 1,599 1,874 275 Note: Figures may not add due to rounding.

Figures under increase represent absolute increases or decreases relative to the previous year. Actual bill is calculated to include water, wastewater and drainage charges. The impact was calculated using the mid-point of water usage, 1500kL was used for >1000kL and 50kL was used for <100kL.

While the price increases outlined in Chapter 6 will result in increased bills, particularly for large water users, many customers have the ability to mitigate this increase by reducing their water consumption. Wyong Council The Tribunal notes that notwithstanding the increased water charges, most Wyong Council customers will still be paying substantially less for water than in the past (see Figure 7.2).


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Figure 7.2 Total water and wastewater bill for 250kL customers - Wyong Council ($ 2004/05)

$500.00

$550.00

$600.00

$650.00

$700.00

$750.00

$800.00

$850.00

$900.00

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Year

real

$20

04/0

5

The Tribunal’s analysis shows that the impact of the determination on annual residential bills for Wyong Council customers will vary according to the customer’s total water usage, and will range from approximately $27 per year (for customers who use less than 100kL per year) to more than $273 (for those who use 1,500kL or more per year). For approximately 98 per cent of customers, the total increase in their annual water bill for 2005/06 will be under $100, or less than $2 per week (Table 7.2).

Table 7.2 Impact of prices on annual residential water, wastewater and stormwater bills by water usage level - Wyong Council (Dollars of the day)

Percentage of residential customers

2004/05 2005/06

Actual Increase

<100 25 480 506 27 100-150 18 536 576 39 150-200 17 574 622 48 200-250 14 612 668 56 250-300 10 650 714 65 300-400 11 706 784 78 400-500 4 782 876 95 500-1000 2 1,008 1,154 146 1000< - 1,575 1,848 273 Note: Figures may not add due to rounding.

Figures under increase represent absolute increases or decreases relative to the previous year. Actual bill is calculated to include water and wastewater charges. The impact was calculated using the mid-point of water usage, 1500kL was used for >1000kL and 50kL was used for <100kL.


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7.1.2 Impacts on commercial and industrial customers The impact of the Tribunal’s decisions on commercial and industrial customers will vary depending on their level of water usage. Higher water users are likely to experience larger increases in their annual water bills than lower water users. Because commercial and industrial customers are much more diverse in terms of their water usage patterns than residential customers, it is difficult to draw general conclusions about the impact of this decision on these customers. As for residential customers, the Tribunal believes that increasing water prices will encourage commercial and industrial water customers to review consumption and to encourage efficient water use in this sector. The Tribunal’s decision to accept Gosford Council’s proposed revised trade waste pricing structure for all of its trade waste customers is likely to have some impact on these customers. However, the Tribunal believes the decision is appropriate, given that this pricing structure is in line with the DEUS Model Policy and Best Practice Guidelines for trade waste pricing.

7.2 Service standards When considering the impact of its pricing decisions on service quality, the Tribunal seeks to ensure that these decisions do not adversely affect the standards of service the Councils deliver to their customers. It sets prices in the expectation that service levels will be maintained and that cost reductions and efficiency savings will not be obtained at the expense of service standards. This is particularly important for Gosford and Wyong Councils because, unlike other agencies regulated by the Tribunal, the Councils do not have operating licences that require them to meet minimum service standards. The Councils are required to meet some externally set mandatory standards, but they also establish other standards themselves. For this determination, the Tribunal must therefore rely on the Councils’ own monitoring of their respective customer service performance. The Councils’ current level of externally set service standards, as detailed in the Councils’ Management Plans, are based on the requirements of a number of regulators such as the National Health and Medical Research Council (NHMRC), the NSW Health Department, and the Department of Environment and Conservation. At the 2003 determination, the Tribunal indicated that it would initiate a process to improve the quality and breadth of information on service quality available to it. As a first step in this process, in 2003 it established a working group with members from the Tribunal’s Secretariat and the four retail water agencies to develop a series of performance indicators. Performance Indicator Returns were developed and were completed for the first time by water agencies in 2004. The Tribunal recognises that the agencies will require some time to establish systems to capture the necessary information in a consistent manner but believes that, once in place, the resulting data will better inform it on the quality of services provided to customers and the performance of the agencies’ assets. Additionally, the new Performance Indicator Return information will assist the Tribunal in fulfilling its obligations under section 15(1b) of the IPART Act relating to the protection of consumers from abuses of monopoly power.


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7.3 Expected business and shareholder outcomes Overall, the Tribunal believes that its pricing decisions will not adversely affect the ability of Gosford Council and Wyong Council to operate, maintain, renew and develop the assets required to deliver regulated services. In addition, the Tribunal believes that the Council’s financial positions will remain sufficiently strong for them to meet relevant borrowing, capital and dividend requirements.

7.3.1 Impact on rates of return for 2005/06 The rate of return on Gosford Council’s regulatory asset base (RAB) is expected to be around 3.2 per cent for 2005/06, provided that the assumptions used in the Tribunal’s modelling of the financial impacts of its pricing decisions are correct and that the Council achieves the efficiency targets the Tribunal has set. The rate of return on Wyong Council’s RAB is expected to be around 3.5 per cent for 2005/06, provided that the assumptions used in the Tribunal’s modelling of the financial impacts of its pricing decisions being correct and the Council achieves the efficiency targets the Tribunal has set. These rates of return outcomes are low compared with similar businesses (whether publicly or privately owned) elsewhere in Australia and are lower than the rate of returns targeted by the Tribunal in the past for the Councils and the other metropolitan water agencies. However, the Tribunal considers that, on balance, the expected rate of return outcomes are reasonable for this one-year determination. It notes that they are slightly above the current rates of return being earned. The Tribunal’s analysis shows that the revenue recovered through prices in 2004/05 results in an equivalent16 return on capital of 1.8 per cent for Gosford Council and 2.1 per cent for Wyong Council. They are also above the returns implied by the Councils’ pricing proposals of 1.7 per cent for Gosford and (0.1) per cent for Wyong (for 2005/06). However, the Tribunal considers that the longer term sustainability of these services requires prices which better reflect underlying costs and that some improvement in future rates of return will be warranted.

7.3.2 Overall financial strength as assessed by investment category ratings The Tribunal analysed a range of financial indicators that are commonly used by credit rating agencies to assess an entity’s financial capacity and ability to service and repay debt. This analysis (see Tables 7.3 and 7.4) shows that both Wyong and Gosford Councils should be able to maintain a sound financial position during 2005/06. In completing its analysis, the Tribunal has assumed the payment of dividends based on 75 per cent of profit after tax. The analysis also indicates that the maximum prices set would enable the Councils to attain a minimum investment grade rating of BBB overall.


adjustments, the Tribunal’s analysis shows that the current return on capital is less than 1 per cent.


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Section 16 of the IPART Act requires the Tribunal to report on the likely impact to the Consolidated Fund if the price was not increased to the maximum permitted. As Gosford Council and Wyong Council do not contribute to Consolidated Revenue there will be no impact. Further, the Councils’ extremely low levels of debt suggest that they are well positioned to maintain their strong financial positions into the future.

Table 7.3 Financial indicators and credit ratings for Gosford Council

2005/06 Ability to service debt 1. EBITDA interest cover (5.48) NSW Treasury ratings (2002) AAA 2. Funds from operations interest coverage (5.18) Standard and Poors US ratings (1995) na 3. Pre-tax interest coverage - Standard and Poors US ratings (1995) na1 Ability to repay debt 4. Funds flow net debt payback (1.42) NSW Treasury ratings (2002) AAA 5. Funds from operations/total debt (%) 0% Standard and Poors US ratings (1995) <BB 6. Debt gearing (regulatory value) -7% NSW Treasury ratings (2002) AAA Standard and Poors US ratings (1995) AA Ability to finance investment from internal sources 7. Internal financing ratio 42% NSW Treasury ratings (2002) B+ 8. Net cash flow/capital expenditure (%) 47% Standard and Poors US ratings (1995) BBB NSW Treasury overall score and rating NSW Treasury total score (0 -10) 7.75 Overall rating A+ 9. Net debt ($m of the day) (22)

Notes: 1. Gosford Council receives net interest on deposits. (i) The Tribunal particularly relies on indicators based on cash flows because these are not as subjective as

indicators that use components derived from estimates (eg asset value and depreciation). (ii) An acceptable range of financial ratios for each credit rating will differ from time to time according to the

unique characteristics of the business. There may not be a perfect match between the ratios and the indicator rating; the ratios represent midpoints of ranges, and vary during an investment cycle, particularly the internal financing ratio. In addition, Standard and Poors credit ratings are prospective, with ratings reflective of a company’s expected financial profile. For this reason, the ratings indicated by the ratios for each of the regulated businesses based on one year’s financial results may not be the same as the actual rating given by Standard and Poors.


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Table 7.4 Financial indicators and credit ratings for Wyong Council

2005/06 Ability to service debt 1. EBITDA interest cover 11.47 NSW Treasury ratings (2002) AAA 2. Funds from operations interest coverage 11.41 Standard and Poors US ratings (1995) AA 3. Pre-tax interest coverage 0.04 Standard and Poors US ratings (1995) <BB Ability to repay debt 4. Funds flow net debt payback 1.31 NSW Treasury ratings (2002) AA+ 5. Funds from operations/total debt (%) 20% Standard and Poors US ratings (1995) AA 6. Debt gearing (regulatory value) 15% NSW Treasury ratings (2002) AA+ Standard and Poors US ratings (1995) AA Ability to finance investment from internal sources 7. Internal financing ratio 5% NSW Treasury ratings (2002) B 8. Net cash flow/capital expenditure (%) 4% Standard and Poors US ratings (1995) <BB NSW Treasury overall score and rating NSW Treasury total score (0 -10) 7.00 Overall rating A+ 9. Net debt ($m of the day) 40

Notes: (i) The Tribunal particularly relies on indicators based on cash flows because these are not as subjective as

indicators that use components derived from estimates (eg asset value and depreciation). (ii) See note (ii) above under Table 7.3.

7.3.3 Appropriate payment of dividends The Tribunal notes that changes to the Local Government Act 1993 means that dividends can now be paid by the Councils’ water and sewerage business to their General Funds, subject to satisfying various reporting and approval requirements. Based on the financial indicators and credit ratings shown above, the Tribunal estimates that Gosford and Wyong Councils would have funds available to pay a dividend during 2005/06. Alternatively, these monies could be used to help fund the major new investments foreshadowed for 2005/06 and the following years. However, it should be noted that the ability to pay a dividend would also depend on the Councils achieving the operating and capital expenditure efficiencies set by the Tribunal.


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The Tribunal notes that Gosford Council stated in its submission that it wanted to pay a dividend but did not specify the amount. Wyong Council provided for $166,000 tax equivalents17 for 2005/06, but did not provide for a dividend, although it noted that under the DEUS Best Practice Management Guidelines the dividend payment would be about $1.7 million.

7.4 Environmental outcomes The key environmental issue facing the Central Coast is the pressure on its water supplies due to population growth, and the current drought. There is a need to continue to implement demand management initiatives, and a need to seek a solution to the current demand/supply imbalance. Large infrastructure solutions being considered by Gosford and Wyong Councils to address the demand/supply imbalance have the potential to have significant impacts on the environment. There is also a need to continually improve methods of effluent disposal and reuse, and to implement measures to prevent polluted water runoff into rivers and beaches. The Tribunal believes its pricing decisions will contribute to the resolution of these issues. Their key implications for the environment are as follows: • the Tribunal has placed a heavy emphasis on increasing the usage price of water to

send a better conservation signal to water users

• the Tribunal believes that its determined prices will enable both Councils to fund their demand management initiatives. These include: - increasing community education - initiatives for the fitting of rain water tanks and water efficient devices - more expenditure on effluent re-use systems - undertaking more comprehensive system leakage reduction programs - investigations into possible dual water systems for new release areas - the Councils aim to continue to fund works that achieve compliance with

standards for wastewater disposal, particularly those conditions imposed by the DEC. This expenditure not only relates to maintenance and renewals of existing wastewater assets but also to expenditure on new development areas on the Central Coast

- expenditure will also be directed to better stormwater outcomes. In particular, there will be initiatives in relation to some areas on the central coast subject to flooding and expenditure directed at environmental wetlands improvement.

17 Payable under the DEUS Best Practice Management Guidelines.


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GLOSSARY OF TERMS

Term Meaning/Definition

2000 regulatory period The regulatory period from 1 July 2000 to 30 June 2003

2003 determinations The determinations made by the Tribunal in 2003, including the mid term review for Sydney Catchment Authority

2003 regulatory period The regulatory period from 1 July 2003 to 30 June 2005

2005 regulatory period For Gosford Council and Wyong Council – from 1 July 2005 to 30 June 2006

AIR Annual Information Return

Atkins/Cardno Consultancy firms WS Atkins International Ltd and Cardno MBK

Council When we refer to Wyong Shire Council (Gosford City Council), or the Council, we mean the water and sewerage sections of these councils, the regulated business.

CPI Consumer Price Index

DEC Department of Environment and Conservation

Determination The price limits set by a regulator

DEUS Department of Energy, Utilities and Sustainability

Financial year The financial year commencing on 1 July and ending 30 June

Gosford Council Gosford City Council

Halcrow Halcrow Management Sciences Limited

Hunter Water Hunter Water Corporation

IPART Independent Pricing and Regulatory Tribunal

IPART Act The Independent Pricing and Regulatory Tribunal Act 1992

Issues Paper Independent Pricing and Regulatory Tribunal of NSW, Review of Metropolitan Water Agencies Prices – Issues Paper, July 2004

McLennan Magasanik McLennan Magasanik Associates

NHMRC National Health and Medical Research Council

NSW New South Wales

Price control period The period over which price limits are determined

Price path review The review of price limits for the price control period

Price structure The mix of fixed charges, usage charges and price steps

RAB Regulatory asset base

Regulatory period The period over which price limits are determined

Review 2005 Metropolitan Water Agency’s price path review

SIR Special Information Return


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Term Meaning/Definition

Sydney Water Sydney Water Corporation

T-Corp Treasury Corporation

Tribunal The Independent Pricing and Regulatory Tribunal of NSW

WACC Weighted Average Cost of Capital

Water usage charge Charge applied per kL of water consumed

Wyong Council Wyong Shire Council

Throughout this report, all capital and operating expenditure is reported by financial year ending 30 June for each year. For example, expenditure in year 2005/06 refers to the financial year commencing on 1 July 2005 and ending 30 June 2006.


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APPENDIX 1 MATTERS TO BE CONSIDERED BY THE TRIBUNAL UNDER SECTION 15 OF THE IPART ACT

The Tribunal’s decisions have been made in accordance with the requirements set out in the IPART Act, including the factors contained in Section 15 of the Act. This section, which is reproduced in full in Box A1, specifies the matters the Tribunal must consider when making a determination. The Tribunal is satisfied that its determination achieves a reasonable balance between these matters.

Box A1 Matters to be considered by the Tribunal under Section 15 of the IPART Act

(1) In making determinations and recommendations under this Act, the Tribunal is to have regard to the following matters (in addition to any other matters the Tribunal considers relevant):

(a) the cost of providing the services concerned,

(b) the protection of consumers from abuses of monopoly power in terms of prices, pricing policies and standard of services,

(c) the appropriate rate of return on public sector assets, including appropriate payment of dividends to the Government for the benefit of the people of New South Wales,

(d) the effect on general price inflation over the medium term,

(e) the need for greater efficiency in the supply of services so as to reduce costs for the benefit of consumers and taxpayers,

(f) the need to maintain ecologically sustainable development (within the meaning of section 6 of the Protection of the Environment Administration Act 1991 ) by appropriate pricing policies that take account of all the feasible options available to protect the environment,

(g) the impact on pricing policies of borrowing, capital and dividend requirements of the government Council concerned and, in particular, the impact of any need to renew or increase relevant assets,

(h) the impact on pricing policies of any arrangements that the government agency concerned has entered into for the exercise of its functions by some other person or body,

(i) the need to promote competition in the supply of the services concerned,

(j) considerations of demand management (including levels of demand) and least cost planning,

(k) the social impact of the determinations and recommendations,

(l) standards of quality, reliability and safety of the services concerned (whether those standards are specified by legislation, agreement or otherwise).

(2) In any report of a determination or recommendation made by the Tribunal under this Act, the Tribunal must indicate what regard it has had to the matters set out in subsection (1) in reaching that determination or recommendation.


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Table A1.1 indicates where the matters have been considered throughout the report by the Tribunal in making its determination.

Table A1.1 Consideration of section 15 matters by Tribunal for Gosford Council and Wyong Council determination

Section 15(1) Report reference (a) cost of providing the service

Appendix A2 (Section A2.4.2) and Appendix 4 (Section A4.4 and A4.5)

(b) protection of consumers from abuse of monopoly power

Sections 7.1 and 7.2

(c) appropriate rate of return and dividends

Sections 7.3.1 and 7.3.3

(d) affect on general price inflation


(e) improved efficiency in supply of services

Appendix A2 and A4 generally

(f) ecologically sustainable development

Section 7.4

(g) impact on borrowing, capital and dividend requirements


(h) additional pricing policies

Section 6.2.7

(i) need to promote competition

Chapter 6 generally

(j) considerations of demand management

Sections 6.2.1 and 7.4

(k) the social impact on customers

Section 7.1

(l) standards of quality, reliability and safety of the services

Section 7.2


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APPENDIX 2 ASSESSMENT OF PAST AND FORECAST CAPITAL EXPENDITURE

The Tribunal considered each Council’s actual capital expenditure during the current determination period and forecast expenditure for the 2005 determination period, as an input to its finding on the revenue required by the Council for capital investment. Past capital expenditure that the Tribunal deems to be prudent and forecast capital expenditure that it considers to be efficient are incorporated into the regulatory asset base (RAB) when rolling it forward to establish its value at the start of each year in the determination period.18 These opening values are then used in calculating the allowance for a return of capital (see Chapter 4). This Appendix explains the Tribunal’s findings on the prudent past capital expenditure and efficient forecast capital expenditure to be included when rolling forward the RAB. Section A2.1 summarises the Tribunal’s findings for each Council. Section A2.2 outlines the approach it used to assess past and forecast capital expenditure. Sections A2.3 and A2.4 discuss its findings on prudent past capital expenditure and efficient forecast capital expenditure in detail, including the key issues the Tribunal considered in making these decisions. Section A2.5 discusses a range of other issues the Tribunal considered in relation to the agencies’ capital programs. A2.1 Summary of Tribunal’s finding

The Tribunal’s finding is that all of Gosford Council’s and Wyong Council’s capital expenditure for the period 2002/03 to 2004/05 was prudent (see Table A2.1), and that the forecast capital expenditure for each Council shown in Table A2.2 is efficient.

Table A2.1 Prudent past capital expenditure ($ million, 2004/05)

Financial year 2002/03 2003/04 2004/05 Total

Gosford Council 6.7 11.8 16.5 35.0

Wyong Council 10.9 21.9 31.3 64.1

Table A2.2 Forecast capital expenditure ($ million, 2004/05)



Wyong Council 35.2

18 Capital expenditure included in the regulatory asset base is net of growth capital expenditure funded by

developer charges.


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A2.2 Tribunals’ approach to assessing capital expenditure

As foreshadowed in the Issues Paper for this review, the Tribunal’s approach to assessing capital expenditure for the purpose of rolling forward the RAB includes a backward-looking prudency test of the agencies’ actual capital expenditure in the current determination period, and an assessment of the efficiency of their forecast capital expenditure for the 2005 determination period. As part of this assessment, the Tribunal commissioned a consultant, Atkins/Cardno, to undertake an independent review of the agencies’ proposals on capital expenditure. Specifically, it asked Atkins/Cardno to provide advice on: • the prudence of each Council’s capital expenditure decisions in the period from

2002/2003 to 2004/2005

• the efficiency of each Council’s capital expenditure program for the period from 2005/2006 to 2009/2010.

Atkins/Cardno evaluated the prudence of past expenditure by sampling completed schemes and reviewing the project management and cost outcomes. It specifically considered both the quantum and timing of future capital expenditure, and assessed the efficiency of expenditure by considering the concepts of continuing and catch-up efficiency. Atkins/Cardno defined continuing efficiency as the scope for top performing or frontier water agencies to continue to improve their efficiency, and catch-up efficiency as the scope for all other agencies to reach the performance of a frontier utility. In making its own findings on the amount of past capital expenditure that was prudent and the amount of forecast capital expenditure that is efficient, the Tribunal considered Atkins/Cardno’s findings. It also considered: • the agencies’ submissions on their actual capital expenditure during the current

determination period and proposed capital expenditure for the 2005 determination period

• other stakeholders’ submissions that commented on these expenditures

• its own analysis of issues related to capital expenditure

• important contextual factors, particularly the short and long term balance between demand and supply

• the range of factors set out in Section 15 of the IPART Act. A2.3 Prudence of past capital investment

To decide what portion of each Council’s capital expenditure in the current determination period was prudent, the Tribunal considered the Council’s actual expenditure over this period, and Atkins/Cardno’s advice on whether that expenditure was prudent. It also compared these expenditures with the Council’s forecast expenditure for the 2003 price review and the expenditure that it allowed for in its 2003 determination. Table A2.3 sets out each of these expenditures and the Tribunal’s finding on the amount of actual expenditure that was prudent.


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Table A2.3 Capital expenditure over the current determination period ($ million, 2004/05)

Financial year 2002/03 2003/04 2004/05 Total

Gosford Council

Council forecast 2003 9.3 15.0 14.6 38.9

Tribunal determination 2003 na 12.8 14.8 na

Actual/projected expenditure 6.7 11.8 16.5 35.0

Tribunal’s finding on prudent expenditure 6.7 11.8 16.5 35.0

Wyong Council

Council forecast 2003 16.2 21.9 26.9 65.0

Tribunal determination 2003 na 17.5 24.4 na

Actual/projected expenditure 10.9 21.9 31.3 64.1

Tribunal’s finding on prudent expenditure 10.9 21.9 31.3 64.1 Totals may not add due to rounding. Atkins/Cardno noted that it was difficult to assess whether past projects were prudent as it was not possible to verify actual outputs against those planned. It recommended that the Tribunal specify outputs for each Council to facilitate a more robust review as part of the next determination (See A2.5.3). However, it found that: • For Gosford Council, there was a shortfall in the delivery of water service and

wastewater outputs over the current determination period. However, the capital expenditure in the period 2003 to 2005 was prudent and should be rolled into the RAB.

• For Wyong Council, water service costs have increased significantly since the 2003 determination with timing slippages in many schemes resulting in a shortfall in the water service outputs planned for delivery in 2004 and 2005. The actual wastewater expenditure for mandatory and discretionary standards was similar to that planned. Growth was less than anticipated by the Council. Actual expenditure for the stormwater drainage service was similar to that planned, but with a rebalancing from growth expenditure towards expenditure on discretionary standards. All the capital expenditure expended during the current price control period may properly be rolled into the RAB.

On balance, based on its consideration of Atkins/Cardno’s advice, and its own analysis of the agencies’ proposals, and other factors, the Tribunal decided to treat all actual expenditure in the current determination period as prudent for the purpose of establishing the opening value of the RAB.


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A2.4 Efficient forecast capital expenditure for 2006

The Tribunal considered the forecast capital expenditure programs that each Council included in its submission to the price review, to determine how much of the forecast expenditure for 2005/06 is efficient. Both Gosford and Wyong Councils proposed to make significant investments in demand management and supply augmentation projects over the next four years, in response to the current water shortage and increasing population in the Central Coast region. These investments include three key supply augmentation projects that the Councils proposed to undertake jointly: • an extensive groundwater abstraction program

• a bulk water transfer from Hunter Water

• construction of a desalination plant. While most of the expenditure associated with these projects was forecast to occur outside the one year 2005/06 determination period, the Tribunal has had regard to the longer term plans. A2.4.1 Overview of agencies’ forecast capital expenditure compared with the

Tribunal’s finding Table A2.4 compares the Council’s forecast capital expenditure programs for 2005/06 to 2008/09 with Atkins/Cardno’s recommendations on the level of efficient capital expenditure over this period and the Tribunal’s finding on the level of efficient capital expenditure forecasts for 2005/06.

Table A2.4 Agencies’ forecast capital expenditure compared with Tribunal’s finding on efficient capital expenditure ($ million, 2004/05)

Outside determination

Financial year 2005/06 2006/07 2007/08 2008/09

Gosford Council

Council forecast 25.6 30.9 20.2 13.7

Atkins/Cardno recommendation 25.3 19.5 11.6 10.3

Tribunal’s finding 25.3 na na na

Wyong Council

Council forecast 36.6 43.1 31.1 24.4

Atkins/Cardno recommendation 35.2 28.5 21.3 22.1

Tribunal’s finding 35.2 na na na


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A2.4.2 Tribunal’s findings The Tribunal’s findings in relation to the Councils’ joint proposed projects, and to their individual forecast expenditures are summarised below. Joint proposed capital projects As noted above, Gosford and Wyong Councils jointly proposed three key supply augmentation projects: • an extensive groundwater abstraction program

• a bulk water transfer from Hunter Water (decision in May 2005 to achieve supply in August/September 2006)

• the construction of a 20ML/day desalination plant (a decision is required in September 2005 to achieve supply in September 2007). The Councils’ preliminary estimates of the costs of desalination were of the order of $50 million (shared evenly between the two Councils).

Atkins/Cardno was not convinced of the need for and the timing of the proposed desalination plant. It also concluded that further work was needed to examine the costs and benefits of an increased bulk supply from Hunter Water for use in drought conditions. The Councils have acknowledged that, while the construction of a desalination plant was not the ideal option for securing the future of the Central Coast water supply, it may become essential if the drought conditions continue or worsen. The Tribunal considered the arguments made by each of the Councils about the need for a desalination plant, the points raised in subsequent hearings and Atkins/Cardno’s advice. It decided to accept Atkins/Cardno’s advice to defer 2006 expenditure associated with the desalination plant. Questions around the need for and timing of this plant, particularly in the context of the other options, strongly influenced its decision to limit the determination to one year. Gosford Council’s forecast capital expenditure Based on its review of Gosford Council’s capital expenditure forecasts, Atkins/Cardno recommended that: • the capital costs of additional groundwater development schemes to augment the

water supply be added to these expenditures

• the capital costs of a bulk water connection with Hunter Water be added to these expenditures

• some water and wastewater asset replacement expenditure be re-phased

• the Council’s forecasts for the water and wastewater services functions should be decreased to reflect potential efficiency improvements. It specified capital program efficiency savings of 2.5 per cent in 2005/06, rising to 11 per cent in 2008/09.

On balance, the Tribunal has accepted Atkins/Cardno recommendations on capital expenditure for 2005/06 for the purposes of this determination. It notes that, while Atkins/Cardno’s recommendations involve significant changes to the overall capital program, the net effect of these recommendations in 2005/06 is very small, as shown in Table A2.5 below.


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Table A2.5 Gosford Council’s forecast compared with Tribunal’s finding on capital expenditure, by service ($ million, 2004/05)


Financial year 2005/06 2006/07 2007/08 2008/09

Gosford Council forecast

Water service 18.0 22.8 13.4 6.1

Wastewater service 7.6 8.1 6.8 7.6

Total 25.6 30.9 20.2 13.7

Atkins/Cardno recommendation

Water service 17.8 12.8 5.7 4.7


Total 25.3 19.5 11.6 10.3

Tribunal’s finding for 2006

Water service 17.8 na na na

Wastewater service 7.5 na na na

Total 25.3 na na na

Wyong Council’s forecast capital expenditure Based on its review of Wyong Council’s capital expenditure forecasts, Atkins/Cardno recommended that: • the capital cost of additional groundwater development schemes to augment the water

supply be added to these expenditures

• the capital costs of a bulk water connection with Hunter Water be added to these expenditures

• some water and wastewater service growth expenditure be re-phased

• stormwater drainage capital expenditure be reduced

• the Council’s forecasts for the water and wastewater services functions should be decreased to reflect potential efficiency improvements. It specified capital program efficiency savings of 2.5 per cent in 2005/06, rising to 10 per cent in 2008/09.

The Tribunal decided to accept Atkins/Cardno recommendations on capital expenditure for 2005/06 for the purpose of this determination. It notes that, while Atkins/Cardno’s recommendations involve significant changes to the overall capital program, the net effect of these recommendations in 2005/06 is small, as shown in Table A2.6 below.


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Table A2.6 Wyong Council’s forecast compared with Tribunal’s finding on capital expenditure, by service ($ million, 2004/05)


Financial year 2005/06 2006/07 2007/08 2008/09

Wyong Council forecast

Water service 18.9 24.0 14.6 8.0


Stormwater drainage service 8.8 7.8 7.8 7.7

Total 36.6 43.0 31.0 24.5


Water service 21.1 13.4 6.8 7.3



Total 35.2 28.5 21.3 22.1

Tribunal’s finding



Stormwater drainage service 6.8 na na na

Total 35.2 na na na Totals may not add due to rounding. A2.5 Other factors

The Tribunal also considered several other factors in relation to agencies’ forecast capital programs. These included project delivery, asset management and output measures. A2.5.1 Project delivery One of the key issues the Tribunal considered was whether the Councils have the resources and capability to deliver the projects in a timely fashion. In previous reviews, the Tribunal’s consultant (Halcrow Management Science Limited) raised concerns about the ability of water agencies to deliver on proposed projects within the determination period. In this review, Atkins/Cardno commented that these concerns have been borne out and that the same concerns apply for the 2005 determination period. The Tribunal’s finding has taken account of Atkins/Cardno’s recommendations to re-phase programs and, in some instances, reduce the level of activity. For its part, Gosford Council has recognised the need for effective delivery of the drought-related projects within its proposed capital programs, and has engaged several consultants to implement elements of these projects, supported by temporary staff.


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A2.5.2 Asset management The Tribunal considers that sound asset management practices are critical to meeting system performance standards in the most efficient manner. For this reason, it continues to take a close interest in the practices and performance of regulated businesses in this area. The Tribunal asked Atkins/Cardno, as part of its review, to consider and comment on the Council’s asset management practices. In relation to Gosford Council, it noted that the Council had made some progress toward developing an appropriate asset management framework, but a significant amount of work is still required to achieve good practice. It suggested that it would be at least two years before good quality activity cost data would be available and robust long-term investment plans are in place. Gosford Council did not agree with this assessment. In relation to Wyong Council, Atkins/Cardno noted that the Council had made limited progress in implementing good practice asset management since the last determination. Although it had employed some staff and put a Strategic Business Plan in place, Atkins/Cardno report that it is likely to be several years before good quality activity cost data will be available. As part of its 2006 review, the Tribunal will consider Gosford and Wyong Councils’ progress and commitment to asset management. It will take care to ensure that prices for these agencies take account of efficient asset management practices. A2.5.3 Output measures As noted earlier (see section A2.3), Atkins/Cardno recommended that the Tribunal specify outputs for each Council to facilitate a more robust review as part of the next determination. The Tribunal notes that Halcrow raised similar concerns during the 2002 Metropolitan Water Price Review. The Tribunal believes that output measures should be developed and need to be implemented as part of the 2006 determination, and further refined as part of the expected 2009 determination. It intends to work with the agencies during the 2005 determination period to clarify the key outputs or deliverables associated with the capital expenditure forecasts and asset management plans. The Tribunal considers that these output measures will help ensure that capital expenditure is more accountable. Where the outputs are achieved under budget, the savings made could be considered efficiency gains. Failure to achieve specified outputs would need to be justified on the basis that other outputs were of a higher priority.


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APPENDIX 3 REVENUE REQUIRED FOR CAPITAL INVESTMENT

The revenue required for capital investment relates to an allowance for a return on assets and an allowance for a return of capital (depreciation). Together, these allowances make up around 30 – 35 per cent of each Council’s total revenue requirement and therefore have a significant impact on water prices. This appendix explains the Tribunal’s findings on the agencies’ revenue requirements for capital investment. Section A3.1 summarises the Tribunal’s findings on this revenue requirement for each Council. Sections A3.2 and A3.3 explain the key inputs to those findings – including the Tribunal’s findings on the methodology used in rolling forward the RAB and the depreciation method. A3.1 Summary of Tribunal’s decision on revenue required for

capital investment

The Tribunal’s allowances for a return on assets and for depreciation used to calculate the total revenue requirement for each Council are those shown Table A3.1 below.

Table A3.1 Revenue required for capital investment ($million, 2004/05)


Gosford Council

Allowance for return on assets 8.9

Allowance for depreciation 3.7

Total revenue required for capital investment 12.6

Wyong Council

Allowance for return on assets 8.9

Allowance for depreciation 3.4

Total revenue required for capital investment 12.2 A3.2 Rolling forward the RAB

The Tribunal determined the value of each Council’s RAB by rolling forward the opening value of its RAB at 1 July 2002 to reflect the level of actual capital expenditure over 2002/03 and 2003/04 that was deemed to be prudent (net of any capital contributions), and the level of forecast capital expenditure over 2004/05 and 2005/06 that is considered efficient, less actual depreciation and disposals for 2002/03 and 2003/04 and forecast depreciation and disposals for 2004/05 and 2005/06. The next sections outline the Tribunal’s decisions on: • the methodology used in rolling forward the RAB

• the level of capital contributions to be deducted when rolling forward the RAB

• the resulting values for each Council’s RAB over the 2005 determination period.


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A3.2.1 Tribunal’s finding on methodology used in rolling forward the RAB The Tribunal has determined the value of Gosford Council’s and Wyong Council’s opening RAB at 1 July 2005 by: • rolling forward the 1 July 2002 RAB to 30 June 2004 on the basis of actual prudent

capital expenditure over this period (net of capital contributions)

• rolling forward the 30 June 2004 RAB to 30 June 2005 on the basis of the forecast efficient capital expenditure for this period (net of capital contributions)19

• deducting regulatory depreciation as allowed for in the 2003 determination

• deducting actual/forecast disposals

• indexing the annual closing RAB for actual /forecast inflation. The Tribunal has rolled forward each Council’s RAB for each year from 1 July 2005 to 30 June 2006 by: • adding forecast efficient capital expenditure for that year (net of capital contributions)

to the opening RAB at 1 July 2005. Half the capital expenditure is assumed to occur at the start of the year and is indexed by the movement in the CPI, the remaining half is assumed to occur at the end of the year and is not indexed

• deducting regulatory depreciation for that year as allowed for in the 2005 determination

• deducting forecast disposals for that year

• indexing the annual closing RAB for forecast inflation. This methodology is largely the same as that used in rolling forward the RAB for the 2003 determination, except that regulatory rather than actual depreciation is deducted. For the 2003 determination, ‘actual’ depreciation was calculated using regulatory asset lives and actual capital expenditure. ‘Regulatory’ depreciation refers to the depreciation amounts allowed for in the 2003 determination (adjusted for inflation) and in the 2005 determination. The Tribunal used regulatory depreciation in rolling forward the RAB for its 2004 electricity network determination and 2005 review of AGLGN’s access arrangement. It considered that this approach was more appropriate, because it ensures that any benefit or loss to the Council as a result of under or over expenditure on capital compared with the forecast capital expenditure used to set prices in the previous determination is limited to the return the Council earns on this expenditure. It means that any over expenditure is rolled into the RAB at its undepreciated value, so the Council will be able to recoup the depreciation on the assets associated with this expenditure from future customers. However, if there is under expenditure on capital, the RAB will be depreciated by more than the actual level of depreciation, creating an incentive for Councils not to over estimate their forecast expenditure at price reviews.

19 Given that the actual expenditure for this year is not fully known at the time of the determination, the

Tribunal has used the forecast expenditure for this year. This forecast has been assessed by the Tribunal as part of the review and adjusted where appropriate. At the next review, the RAB will be adjusted to reflect the difference between this forecast and actual expenditure for 2004/05.


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A3.2.2 Tribunal’s finding on level of developer capital contributions to be deducted when rolling forward the RAB

The Tribunal has accepted Gosford and Wyong Councils’ 2005/06 forecasts for developer capital contributions. As noted above, the Tribunal deducts the value of any capital contributions from the prudent actual and forecast capital expenditure it incorporates when rolling forward the RAB. For the Councils, ‘capital contributions’ refers to the charges they receive from developers in accordance with the Tribunal’s Determination No. 9, 2000, Developer Charges from 1 October 2000. In making its finding to accept the agencies’ 2005/06 forecasts for developer contributions, the Tribunal considered these forecasts and Atkins/Cardno’s comments. Atkins/Cardno noted that the Councils’ proposed increase in growth-related capital expenditure over the period to 2008/09 is not matched by a similar increase in their forecasts of the revenue they will receive from developer charges. The Tribunal is concerned about the level of developer contributions and the apparently increasing gap between growth-related capital expenditure and developer charges. It is currently considering a review of the current Developer Contributions Determination and, as part of that review, may reconsider the treatment of developer contributions within the regulatory framework. Any such review is likely to take place in 2006. A3.2.3 Resulting values for each Council’s RAB The Tribunal has applied the methodology set out in section A3.2.1, using the capital expenditure set out in Appendix 2 and the forecasts for developer contributions discussed in section A3.2.2. The resulting opening RAB value for each Council for the 2005 determination period is shown in Table A3.2.

Table A3.2 Opening RAB value at 1 July 2005 ($ million, dollars of the day)

Financial year


Wyong Council 246.5

A3.3 Tribunal’s findings on depreciation method and asset lives

The allowance for a return of capital, or depreciation, represents the revenue each Council requires to maintain the value of its assets. Depreciation represents around 8 to 10 per cent of a Council’s total revenue requirement. To determine this allowance, the Tribunal has made findings on the depreciation method and the asset lives to be applied. The following sections discuss each of these findings.


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A3.3.1 Depreciation method The Tribunal has used the straight-line depreciation method to calculate the return of capital (depreciation) allowance for each Council. The Tribunal believes that this approach is superior to alternatives in terms of simplicity, consistency and transparency. It used a straight-line depreciation profile in the 2003 determination. The water agencies support the continued use of this approach. A3.3.2 Asset lives to be applied For this determination, the Tribunal has calculated depreciation using the asset lives shown in Table A3.3. These asset lives are consistent with those proposed by the water agencies.

Table A3.3 Asset lives used in calculating depreciation allowance

Existing assets New Assets

75 years 100 years

These assets lives are consistent with those used in the 2003 determinations.


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APPENDIX 4 REVENUE REQUIRED FOR OPERATING EXPENDITURE

The revenue required to recover the operating expenditure cost block represents around 60 per cent of the water agencies’ total revenue requirement, and hence has a major influence in the level of water prices. This appendix explains the Tribunal’s findings on the agencies’ required revenue for operating expenditure. Sections A4.1 and A4.2 summarise its findings for each Council, and the approach it used to assess the agencies’ efficient operating costs. Section A4.3 sets out the forecast operating expenditure proposed by each Council, the level of efficient operating costs recommended by the Tribunal’s consultant, and the Tribunal’s findings on the level of efficient operating costs. Sections A4.4 and A4.5 explain the Tribunal’s considerations in making its findings for each Council. A4.1 Summary of Tribunal’s finding on operating expenditure

The Tribunal’s finding on the operating expenditure used to calculate the total revenue requirement for each Council is that shown in Table A4.1. It considers that this operating expenditure represents the level of efficient operating and maintenance costs associated with the Councils providing regulated water and wastewater services in 2005/06.

Table A4.1 Revenue required for operating expenditure ($ million, 2004/05)



Wyong Council 26.1

A4.2 Tribunal’s approach to assessing efficient operating costs

As foreshadowed in the Issues Paper,20 the Tribunal’s approach to assessing each Council’s level of efficient operating costs involved: • obtaining proposals from the Councils on their forecast operating expenditure for the

2005 determination period and their potential to make future efficiency gains

• engaging a consultant to independently review these proposals

• considering the Councils’ proposals, the consultant’s advice and other stakeholder submissions in relation to operating expenditure

• analysing other information, including the Councils’ past operating expenditure.

20 Refer p 12, Discussion paper DP75, Review of Metropolitan Water Agency Prices, July 2004.


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The Tribunal engaged Atkins/Cardno to review the Councils’ proposals and: • provide its opinion on the efficiency of each Council’s proposed level of operating

expenditure for each year between 2005/06 and 2009/10

• make recommendations (with supporting reasons) on the level of operating expenditure each Council requires for each of these years to efficiently undertake its regulated functions

• identify and analyse each Council’s potential for cost reduction for each function, and make recommendations (with supporting reasons) on each Council’s potential for efficiency gains

• where it assesses current expenditure in an area of operations as inadequate, specify and quantify the recommended additional expenditure required.21

Atkins/Cardno assessed the Councils’ forecast operating expenditure by service area, and considered their management structures, the processes they used to manage operating costs, and specific issues affecting their operating costs. It also assessed each Council’s potential for additional operating efficiency gains, using a similar approach to the one it used to assess their potential for additional capital efficiency gains. This approach considered the concepts of continuing efficiency and catch-up efficiency.22 Full details of Atkins/Cardno approach and analysis can be found in its final report, which is available on the IPART website.23 A4.3 Overview of Council forecasts, expert findings and Tribunal’s

findings on operating expenditure Table A4.3 sets out the forecast operating expenditure proposed by Gosford and Wyong Councils, efficient operating costs recommended by Atkins/Cardno (incorporating potential efficiencies), and the Tribunal’s findings on the operating expenditure to be used in calculating each Council’s revenue requirement and setting prices for 2005/06.

Table A4.3 Agencies’ forecast compared with Tribunal’s finding on operating expenditure ($ million, 2004/05)

Outside determination Financial year 2005/06 2006/07 2007/08 2008/09 Total Gosford Council

Council forecast 33.7 32.8 33.5 33.2 133.1 Atkins/Cardno recommendation 30.6 29.6 29.3 28.9 118.4

Tribunal’s finding 30.6 na na na na

Wyong Council Council forecast 33.5 33.8 35.4 36.8 139.5

Atkins/Cardno recommendation 27.1 27.3 28.0 29.3 111.7 Tribunal’s finding 26.1 na na na na

21 Atkins/Cardno, IPART Capex, Asset Management and Opex Reviews, Overview Report, Final February

2005, p 4. 22 Atkins/Cardno defined continuing efficiency is the scope for top performing or frontier companies

(agencies) to continue to improve their efficiency and catch-up efficiency as the scope for all other utilities to reach the performance of a frontier utility.

23 IPART Capex, Asset Management and Opex Review, Overview Report, Final, February 2005, Atkins in association with Cardno. Available on www.ipart.gov.nsw.au


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The Tribunal notes that, while this determination is limited to the year ending 30 June 2006, in the course of its review it has considered submissions, information and reviews of operating expenditure forecasts to the year ending 30 June 2009. The table therefore includes the agencies’ forecasts and Atkins/Cardno’s findings on future years’ expenditure. The Tribunal’s current view is that efficiencies and other adjustments along the lines proposed by Atkins/Cardno will need to be considered at the next price review in 2006. A4.4 Tribunal’s considerations in relation to Gosford Council’s

operating expenditure

Gosford Council proposed forecast operating expenditure for 2005/06 of $33.7 million. This expenditure is higher than the annual forecasts the Council submitted for the 2003 determination, but similar to its projected expenditure for 2004/05 (Table A4.4). (This projected operating expenditure is higher than the Council’s forecast expenditure for 2004/05, mainly due to increases in demand management costs, labour costs and corporate charges.)

Table A4.4 Operating expenditure over the current determination period ($ million, 2004/05)

Financial year 2002/03 2003/04 2004/05

Gosford Council


Tribunal determination 2003* na 25.1 25.0

Actual and projected expenditure 29.0 30.8 34.1** * Gosford Council’s forecast and actual expenditure include stormwater drainage expenditure whereas the

expenditure allowed by the Tribunal in the 2003 determination excludes this expenditure. ** Projection. Based on its review, Atkins/Cardno raised several concerns about Gosford Council’s forecast operating expenditure. These concerns related to expenditure associated with stormwater drainage services, expenditure on corporate services, and the need for additional expenditure on groundwater sources. It also identified the potential for the Council to make additional efficiency gains. The Tribunal’s considerations and findings in relation to each of these matters are discussed below. A4.4.1 Stormwater drainage services Atkins/Cardno noted that Gosford Council had included $3.0 million of capital expenditure in its forecast operating expenditure on corporate services for stormwater. This expenditure is subsequently reflected as an overhead cost of its water and wastewater activities. Atkins/Cardno did not believe that this $3.0 million was an overhead for, or a direct cost of, the Council’s water or wastewater activities. It therefore recommended that it be excluded. The Tribunal notes that this expenditure relates to stormwater drainage services. Gosford Council’s practice is to account for its stormwater drainage assets under its general operations, rather than through its regulated water and wastewater business. Its charges for stormwater drainage services are not related to the costs involved in providing these services. This arrangement is an ongoing issue of concern for the Tribunal.


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In its response to Atkins/Cardno’s recommendation, Gosford Council acknowledged that it needs to formalise the lease/transfer of its stormwater drainage assets from general operations, so that asset ownership is more clearly defined and the basis for stormwater charges is clearer. However, it also commented that dismissing its responsibility for these assets would not be consistent with its operational responsibilities of its water business under the Water Management Act 2000. The Tribunal does not suggest that the Council’s responsibility for stormwater drainage assets be dismissed. It recognises the Council’s obligations under the Water Management Act 2000 to provide stormwater drainage services. However, it believes that those services should be separately accounted for and charged for. Therefore, it has decided to accept Atkins/Cardno’s recommendation not to provide for the stormwater drainage transfer of $3.0 million per annum in the revenue requirement. Further, it requests that Gosford Council resolve the structure for the provision of the stormwater drainage assets before the next price review in 2006. A4.4.2 Corporate services Gosford Council’s forecast operating expenditure included around $12.5 million for corporate services operating expenditure for 2005/06. Atkins/Cardno was not confident that the methodology Gosford Council used to determine and allocate this expenditure was robust. Further, it noted that this expenditure included corporate governance costs, which is contrary to NSW Government Guidelines. In its response to these findings, Gosford Council noted that at the 2002 determination Halcrow Pacific Pty Ltd had determined that, despite the appearance of being arbitrary, the overall level of corporate services operating expenditure was the right order of magnitude. The Council further commented that the Atkins/Cardno review did not appear to be rigorous and relied largely on benchmarking of costs. After considering Gosford Council’s response, Atkins/Cardno was still concerned that the Council had inappropriately transferred some governance costs to its regulated water business, but was uncertain of the actual amount. It therefore recommended that corporate services operating expenditure be reduced by $0.5 million. It also recommended that Gosford Council try to establish an appropriate corporate cost allocation system prior to the next determination. After considering the arguments put forward by Atkins/Cardno and Gosford Council, the Tribunal has accepted Atkins/Cardno recommendation to reduce corporate services operating expenditure by $0.5 million. The Tribunal also considers that Gosford Council must establish an appropriate and acceptable corporate cost allocation system prior to the 2006 determination. A4.4.3 Additional expenditure on groundwater sources As Appendix 2 discussed, Atkins/Cardno recommended that Gosford and Wyong Councils defer their 2005/06 expenditure on the construction of a desalination plant. Consequently, it also recommended that the cost of operating new groundwater sources and, in later years, purchasing additional water from Hunter Water to augment their water supply be added to their operating expenditures. It found that operating new groundwater sources would involve a total cost of $1.1 million in 2005/06, of which Gosford Council would need to fund half.


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The Tribunal decided to accept Atkins/Cardno’s recommendation in relation to the expenditure on a desalination plant. Therefore, it also decided to accept the recommendation to provide for increased costs of $550,000 for 2005/06 for operating new groundwater sources. A4.4.4 Potential for additional operating efficiency gains Atkins/Cardno found that Gosford Council could achieve higher operating efficiencies than those the Council proposed for the period 2005/06 to 2008/09. It initially recommended that the Council could achieve additional continuing efficiencies of 0.8 per cent per annum and additional catch-up efficiencies of 0.5 per cent per annum over this period.24 However, it noted that it may be more feasible for the Council to achieve total catch-up efficiencies of 2 per cent over a longer time period. In its response to this recommendation, the Council expressed concern that its water and sewerage business has been subject to ongoing efficiency gains through stringent pricing paths over the past 10 years. It noted that the suggested efficiency gains appear arbitrary and have not been properly justified or argued. After considering this response, Atkins/Cardno recommended a slightly lower level of additional catch-up efficiencies for 2005/06 (Table A4.5). This reflects its view that Council’s forecasts for the immediate future are likely to be more accurate than those for later years, and therefore offer less potential for additional efficiency gains.

Table A4.5 Atkins/Cardno’s recommended additional operating efficiencies for Gosford Council

Financial year Efficiency (% per annum cumulative)

2005/06 2006/07 2007/08 2008/09

Water 0.8 1.6 2.4 3.2

Wastewater 0.4 0.9 1.4 1.8

Corporate 0 0 0 0

The Tribunal decided to incorporate the additional operating efficiencies recommended by Atkins/Cardno for 2005/06. It will make a decision on the efficiencies for the period 1 July 2006 to 30 June 2009 as part of the 2006 determination. A4.4.5 Overall effect of Tribunal’s findings on forecast operating expenditure The net effect of the Tribunal’s findings is that the level of efficient forecast operating expenditure used in calculating Gosford Council’s revenue requirement for 2005/06 is $30.6 million. This amount is $3.1 million, or 9.2 per cent, less than Gosford Council’s proposed forecast operating expenditure (see Table A4.6).

24 It should be noted that Atkins/Cardno took account of efficiencies proposed by Gosford Council. This

means that the final efficiency figures that were applied represented a “net efficiency” figure.


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Table A4.6 Gosford Council’s forecast compared with Tribunal’s finding on efficient operating expenditure ($ million, 2004/05)


Financial year 2005/06 2006/07 2007/08 2008/09

Gosford Council forecast

Water service 10.6 9.7 10.7 11.0


Corporate services 12.5 12.4 12.0 11.7

Total 33.7 32.8 33.5 33.2


Water service 11.0 10.1 10.2 10.3



Total 30.6 29.6 29.3 28.9

Tribunal’s finding for 2005/06



Corporate services 9.0 na na na

Total 30.6 na na na Totals may not add due to rounding. A4.5 Tribunal’s considerations in relation to Wyong Council

Wyong Council proposed forecast operating expenditure for 2005/06 of $33.5 million. This expenditure is higher than the Council’s actual expenditure in 2002/03 and 2003/04, but similar to its projected expenditure for 2004/05 (Table A4.7).

Table A4.7 Operating expenditure over the current determination period ($ million, 2004/05)

Financial year 2002/03 2003/04 2004/05

Wyong Council


Tribunal determination 2003** na 21.3 21.4

Actual and projected expenditure 30.2 30.4 34.4* * projected. ** The Wyong Council forecast and actual results include stormwater drainage expenditure whereas the

Tribunal forecasts exclude stormwater drainage expenditure.


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Based on its review, Atkins/Cardno raised several concerns about Wyong Council’s forecast operating expenditure. These concerns related to expenditure associated with stormwater drainage services, corporate governance costs, and the need for additional expenditure on groundwater sources. It also identified the potential for the Council to make additional efficiency gains. The Tribunal’s considerations and findings in relation to each of these matters are discussed below. A4.5.1 Stormwater drainage services Corporate services operating expenditure Wyong Council’s forecasts include $6.4 million of stormwater drainage operating and capital expenditure as separate components of corporate services operating expenditure. The total amount of forecast corporate services operating expenditure is eventually allocated to water and wastewater operating expenditure as an overhead. Atkins/Cardno did not consider that this stormwater drainage expenditure was an overhead for, or a direct cost of, the Council’s water or wastewater business activities. It therefore recommended that the $6.4 million contribution for stormwater drainage expenditure be excluded from its water and wastewater operating expenditure. Direct operating expenditure Under the current funding arrangements, Wyong Council does not charge customers directly for stormwater drainage services. The cost of stormwater drainage capital expenditure is currently recovered through water and wastewater prices. Stormwater drainage operating expenditure is recovered through general council rates. Wyong Council has forecast $0.8 million of stormwater drainage operating expenditure in 2005/06. Atkins/Cardno recommended that the Tribunal establish a stormwater drainage price path to include both capital and operating elements. In response to Atkins/Cardno’s recommendations, Wyong Council noted that it would like to investigate a stormwater drainage charge for the next determination, but believes that in the interim all stormwater drainage costs should be recovered through water and wastewater charges because the water business is the owner of the stormwater drainage assets. Tribunal’s finding The funding arrangements for stormwater drainage in Wyong Council’s operating area are an ongoing issue of concern for the Tribunal. It agrees with Atkins/Cardno that the Council should levy a separate stormwater drainage charge, and considers that the Council should propose a stormwater drainage pricing structure and basis in its submission to the 2006 determination. When proposing a separate stormwater drainage charge, the Council will need to explain the offsetting adjustments to be made to its general revenue to ensure that residents are not charged twice. For the 2005 determination, the Tribunal has decided to maintain the current arrangements whereby the costs associated with stormwater drainage capital expenditure only are recovered through water and wastewater charges. Consequently, it has decided to remove $7.4 million from Wyong Council’s forecast corporate services operating expenditure. The $7.4 million comprises $6.4 million corporate expenditure and $0.8 million of direct operating expenditure and $0.2 million associated corporate overhead costs.


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A4.5.2 Corporate governance costs Atkins/Cardno considered that the corporate governance costs Wyong Council included in its forecast corporate services operating expenditure were too high. It recommended that these costs be reduced by $0.5 million per annum, based on benchmarking against other organisations. The Tribunal decided to accept Atkins/Cardno’s recommendation and has reduced Wyong Council’s 2005/06 corporate governance costs by $0.5 million. A4.5.3 Additional expenditure on groundwater sources As Appendix 2 discussed, Atkins/Cardno recommended that Gosford and Wyong Councils defer their 2005/06 expenditure on the construction of a desalination plant. Consequently, it also recommended that the cost of operating new groundwater sources and, in later years, purchasing additional water from Hunter Water to augment their water supply be added to their operating expenditures. It found that operating new groundwater sources would involve a total cost of $1.1 million in 2005/06, of which Wyong Council would need to fund half. The Tribunal decided to accept Atkins/Cardno’s recommendation in relation the expenditure on a desalination plant. Therefore, it also decided to accept the recommendation to provide for increased costs of $550,000 for 2005/06 for operating new groundwater sources. A4.5.4 Potential for additional operating efficiency gains Atkins/Cardno recommended that Wyong Council could achieve additional efficiency gains of 0.3 per cent above the 1 per cent per annum the Council proposed. The Tribunal decided to accept this recommendation, and factored an additional 0.3 per cent efficiency gain into Wyong Council’s operating expenditure for 2005/06. It will make a decision on the efficiencies for the period 1 July 2006 to 30 June 2009 as part of the 2006 determination.

Table A4.8 Atkins/Cardno recommended additional operating efficiencies for Wyong Council

Financial year Efficiency (% per annum cumulative)

2005/06 2006/07 2007/08 2008/09

Water 0.3 0.6 0.9 1.2

Wastewater 0.3 0.6 0.9 1.2

Stormwater drainage 0.3 0.6 0.9 1.2

Corporate 0.3 0.6 0.9 1.2

A4.5.5 Overall effect of Tribunal’s findings on forecast operating expenditure The net effect of the Tribunal’s decisions is that the level of efficient forecast operating expenditure used in calculating Wyong Council’s revenue requirement for 2005/06 is $26.1 million. This amount is $7.4 million, or 22 per cent, less than Wyong Council’s proposed forecast operating expenditure (see Table A4.9).


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Table A4.9 Wyong Council’s forecast compared with Tribunal’s finding on efficient operating expenditure ($ million, 2004/05)


Financial year 2005/06 2006/07 2007/08 2008/09

Wyong Council forecast

Water service 7.5 7.5 8.8 9.9




Total 33.5 33.8 35.4 36.8


Water service 8.0 8.0 8.4 9.5




Total 27.1 27.3 28.0 29.3

Tribunal’s finding for 2005/06



Stormwater drainage service na na na na

Corporate services 8.8 na na na

Total 26.1 na na na Totals may not add due to rounding.


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