A guide to the water charge (infrastructure) rules guide to the water charge (infrastructure... ·...

A guide to the water charge (infrastructure) rules:

Tier 2 requirements

June 2011

Australian Competition and Consumer Commission 23 Marcus Clarke Street, Canberra, Australian Capital Territory, 2601

© Commonwealth of Australia 2011

This work is copyright. Apart from any use permitted by the Copyright Act 1968, no part may be reproduced without prior written permission from the Commonwealth available through the Australian Competition and Consumer Commission. Requests and inquiries concerning reproduction and rights should be addressed to the Director Publishing, Australian Competition and Consumer Commission, GPO Box 3131, Canberra ACT 2601 or by email to [email protected].

ISBN information as required

www.accc.gov.au

Contents

Abbreviations .................................................................................................................. i

Glossary........................................................................................................................... ii

1 Introduction.............................................................................................................. 4

1.1 The three tiers of the WCIR................................................................................. 4 1.2 The purpose of this guide..................................................................................... 6 1.3 Structure of this guide .......................................................................................... 7

2 Summary of Tier 2 requirements ........................................................................... 9

3 Network service plan.............................................................................................. 13

3.1 Key dates............................................................................................................ 13 3.2 Scope.................................................................................................................. 16 3.3 Details and Format of a NSP.............................................................................. 16 3.4 Communicating changes to a NSP..................................................................... 18 3.5 Providing a NSP to customers............................................................................ 19 3.6 Penalties for non-compliance with NSP requirements....................................... 19

4 Review of a NSP ..................................................................................................... 21

4.1 Scope.................................................................................................................. 21 4.2 Process for review.............................................................................................. 22 4.3 Amending a NSP based on review..................................................................... 26

5 Consultation requirements.................................................................................... 27

5.1 Key dates for a NCP........................................................................................... 27 5.2 Scope of a NCP .................................................................................................. 27 5.3 Providing a NCP to customers ........................................................................... 28 5.4 Other consultation requirements ........................................................................ 29

6 Information statement ........................................................................................... 30

6.1 Key dates............................................................................................................ 30 6.2 Scope.................................................................................................................. 30

Appendix A - Some definitions ................................................................................... 32

A.1 Definition of a regulated charge under the WCIR............................................. 32 A.2 Infrastructure services ........................................................................................ 33

Appendix B Network service plan format and details ....................................... 35

Appendix C Network consultation paper format and details............................ 48

Appendix D Information statement format and details..................................... 52

Contacts......................................................................................................................... 55

i

Abbreviations

ACCC Australian Competition and Consumer Commission

the Basin Murray–Darling Basin

IS information statement

NCP network consultation paper

NSP network service plan

operator infrastructure operator

WCIR Water Charge (Infrastructure) Rules 2010

ii

Glossary

This glossary endeavours to provide practical meanings of terms. Readers may need to consider the legal meaning of some terms under the Water Act 2007 (Cth) and obtain legal advice on these definitions, if required.

administration expenditure

All operating expenditure that is not operations expenditure or maintenance expenditure. This may include billing, customer enquiries, corporate support, board management, taxes (or payments under the taxation equivalent regime) and interest payments

capital expenditure Includes expenditure on:

• new works

• renewals or replacements

• other expenditure that would otherwise be referred to as capital

civil penalty A court-ordered pecuniary penalty (sum of money) to be paid where a person has been found to contravene the WCIR.

infrastructure operator

A person who owns or operates water service infrastructure for one or more of the following purposes:

• the storage of water

• the delivery of water

• the drainage of water

• for the purpose of providing a service to another person.

infrastructure service Access, or a service provided in relation to access to water service infrastructure and includes the storage, delivery, drainage and taking of water.

maintenance expenditure

Expenditure associated with asset maintenance and repair

managed water resources

All water resources that are:

• Basin water resources

• water resources (not being Basin water resources) in a referring State, or part of a referring State, if

iii

• a law of the referring State provides that section 100B of the Act applies to the State, or that part of the State; and

• the regulations under the Act provide that section 100B of the Act applies to the State, or that part of the State.

operating expenditure

The sum of operation expenditure, maintenance expenditure and administration expenditure.

operation expenditure

Expenditure associated with rural water service delivery including activities such as water ordering, planning delivery, meter reading, pumping costs, monitoring and operating assets

regulated charge A charge to which the water infrastructure charge rules (section 91(1) (a) (b) and (d) of the Act) apply.

water access entitlement

A perpetual or ongoing entitlement, by or under a law of a state, to exclusive access to a share of the water resources of a water resource plan area.

Water Act The Water Act 2007 (Cth).

water service infrastructure

Infrastructure for the storage, delivery or drainage of water.

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1 Introduction

The Water Act 2007 (Cwlth) (the Water Act) creates new institutional and governance arrangements to address the sustainability and management of water resources in the Murray–Darling Basin (MDB).

Among other things, the Water Act gives the Minister for Sustainability, Environment, Water, Population and Communities (the minister) the role of making water charge rules.

The Water Charge (Infrastructure) Rules 2010 (WCIR) are one subset of the water charge rules. The WCIR relate to water infrastructure fees and charges levied by bulk water and irrigation infrastructure operators—infrastructure operators.

The WCIR follow a three-tiered regulatory structure with more light-handed approaches under tier 1 and direct regulatory oversight of charges under tier 3.

This guide is to help infrastructure operators develop and implement processes and practices necessary to comply with the tier 2 requirements of the WCIR. Tier 2 requirements can be found in Part 5 of the WCIR. Part 5 of the WCIR consists of rules 16 to 22.

1.1 The three tiers of the WCIR

The three tiers of the WCIR apply to different operators depending on the ownership and size of each operator.

Tier 1 rules require all infrastructure operators in the MDB to publish regulated water charges, with wider publication requirements applying to infrastructure operators that provide services in relation to more than 10 GL of water from managed water resources. Tier 1 rules also include non-discriminatory pricing requirements for member owned infrastructure operators.1

Tier 2 rules require infrastructure operators to develop network service plans outlining the processes for determining charges, including approaches to asset management, every five years. Tier 2 rules apply to larger member owned infrastructure operators and medium-sized non-member owned infrastructure operators not captured under tier 3.

Tier 3 rules address the potential misuse of market power and require larger non-member owned infrastructure operators to have their regulated water charges approved or determined by an independent economic regulator.

1 Non-discriminatory charging requirements include a distribution triggered price approval or determination process.

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There are five different guides relevant to the WCIR. These are summarized in table 1 below and will be applicable to the different types of infrastructure operators captured under the tiers of the WCIR. These guides are available on the ACCC’s website.

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Table 1: Guides under the WCIR

Type of operator Relevant Guide

All infrastructure operators A guide to the water charge (infrastructure) rules: publishing and non-discriminatory charging requirements—provides guidance on the publishing and non-discriminatory charging requirements under Tier 1

Member owned operators that pay a distribution to members and provide services in relation to more than 10 GL of water

A guide to the water charge (infrastructure) rules: publishing and non-discriminatory charging requirements

A guide to the water charge (infrastructure) rules: distribution triggered price approvals or determinations (Part 7 rules) — provides guidance on the process and information requirements for approvals or determinations under Part 7 of the WCIR

ACCC pricing principles for price approvals or determinations under the water charge (infrastructure) rule)— provides guidance on technical pricing issues relevant to approvals or determinations under Parts 6 and 7 of the WCIR

Member owned operators that provide services in relation to more than 125 GL of water

and

Non-member owned operators that provide services in relation to between 125 GL and 250 GL of water


A guide to the water charge (infrastructure) rules – Tier 2 requirements — provides guidance on the processes for formulating and communicating network service plans under Part 5 of the WCIR

Non-member owned operators that provide services in relation to more than 250 GL of water


ACCC pricing principles for price approvals or determinations under the water charge (infrastructure) rules

1.2 The purpose of this guide

This document fulfils the ACCC’s commitment in its advice to the minister to provide infrastructure operators with guidelines to assist them with the implementation of and

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compliance with the WCIR.2 Specifically, this document addresses issues that relate to the application of the Tier 2 requirements under the WCIR by providing guidance on the detail that should be provided in network service plans, network consultation papers and information statements.

This guide should be read in conjunction with the WCIR,3 the explanatory statement accompanying these rules and the Australian Competition and Consumer Commission (ACCC)’s final advice to the minister.4

The ACCC encourages all parties affected by part 5 of the WCIR to follow this guide, both in the text and the spirit of the document. The information provided in this document is for guidance purposes only and does not constitute legal advice.

If you remain in doubt about the application of any of the publication and non-discriminatory charging requirements under the WCIR, you are encouraged to seek your own independent legal advice.

This guide does not provide a guarantee against enforcement action. Enforcement issues where an organisation appears to be in breach of these or other relevant rules, will be considered by the ACCC on a case-by-case basis, taking into account all relevant circumstances.

1.3 Structure of this guide

• Chapter 2 briefly describes the Tier 2 requirements.

• Chapter 3 discusses the network service plan requirements.

• Chapter 4 discusses the independent review of the network service plan.

• Chapter 5 discusses the consultation requirements before the network service plan is completed.

• Chapter 6 discusses the information statement.

• Appendix A provides some key definitions.

• Appendix B outlines the recommended format and required details to be included in a network service plan.

• Appendix C outlines the recommended format and required details to be included in a network consultation paper.

2 ACCC, op. cit 3 WCIR are available at:

http://www.comlaw.gov.au/comlaw/Legislation/LegislativeInstrument1.nsf/0/22E3930E60E06494CA257810001305FC?OpenDocument

4 ACCC, Water infrastructure charge rules – Advice to the Minister for Climate Change and Water, 2009. http://www.environment.gov.au/water/australia/water-act/pubs/accc-advice-water-infrastructure-charge-rules.pdf

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• Appendix D outlines the recommended format and required details to be included in a information statement.

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2 Summary of Tier 2 requirements

The overarching aim of the Tier 2 requirements in the WCIR is to ensure that customers of these operators are provided with information about estimated future charges over a forthcoming five year period and the expenditure plans and levels of service on which charges are expected to be based. The requirements also ensure that customers have the opportunity to provide feedback to the operator when infrastructure plans are developed, and are provided with information about actual charges where they are different to charges previously forecast.

The Tier 2 requirements apply to:

• member owned infrastructure operators where the maximum volume of water from managed water resources in respect of which the operator provides infrastructure services relates to more than 125 GL of water access entitlements

• non-member owned infrastructure operators where the total maximum volume of water from managed water resources in respect of which the operator provides infrastructure services relates to more than 125GL but less than 250GL of water access entitlements.5

and include the following requirements:

Development of a network service plan

At least once every five years, an infrastructure operator regulated under the Tier 2 requirements must develop a network service plan (NSP) that provides details of the operator’s plans relating to its water service infrastructure over a forthcoming 5 year period.

The NSP must contain: 6

• details of the operator's plans for the levels of service it intends to provide for customers in each year of the 5 year period

• details of the operator's plans for works, other than minor works, for the maintenance, improvement, enhancement or expansion of the water service infrastructure in each year of the 5 year period

• estimates of capital and recurrent expenditure relating to the water service infrastructure in each year of the 5 year period and estimates of revenue, including revenue from regulated charges, required for that expenditure

• plans for the financing of capital and recurrent works during each year of the 5 year period

5 WCIR, rule 16 6 WCIR, rule 19

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• details of any grants or subsidies that have been or may be received or applied for, together with details of conditions to which grants or subsidies may be subject

• estimates of the regulated charges during each year of the 5 year period stated without an inflation factor but identifying the inflation index published by the Australian Bureau of Statistics that the operator will apply to those estimates during each year of the period.

NSP requirements are discussed further in Chapter 3 and Appendix B.

Review of a NSP

Operators must submit a copy of their NSP to the ACCC who will provide it to a qualified engineer for comment and advice on the prudency and efficiency of the plan.7

The ACCC will then provide any comment or advice from the engineer to the operator. Within 20 business days after receiving the comment or advice, the operator must give a copy to each of its customers.

A NSP must be submitted to the ACCC no later than when the NSP is provided to customers. However, if operators wish to consider any of the engineer’s findings for inclusion in the NSP, it is recommended the NSP is provided to the ACCC at least four months prior to providing a final version to customers.

The review is discussed further in Chapter 4.

Consultation prior to completing a NSP

Prior to completing a NSP, infrastructure operators regulated under the Tier 2 requirements must provide to customers a network consultation paper (NCP).

The NCP must include:

• options and alternatives for works, other than minor works, for the maintenance, improvement, enhancement or expansion of the operator's water service infrastructure

• options and alternatives for levels of service during the 5 year period

• estimates of capital and recurrent expenditure proposed in each year of the 5 year period for each option or alternative and, where appropriate, a suggested ranking in priority for implementation

• details of known or anticipated factors that are or may be relevant to the several options and alternatives, such as risks, compliance with requirements under applicable legislation relating to environmental, safety or construction matters and contractual obligations

• anticipated regulated charges during the 5 year period to which the plan relates

7 WCIR, rule 18

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• any relevant reports of consultant engineers or other experts identifying maintenance or other requirements of the water service infrastructure or options for meeting such requirements.

Operators must also invite written comments on the NCP.

When the NSP is completed, operators must provide to customers a summary of consultation undertaken in developing the NSP and an explanation of the decisions made by the operator in completing the NSP.

Consultation requirements are discussed further in Chapter 5 and Appendix C.

Information statement

When providing customers with a current schedule of charges after the first network service plan has been prepared, Tier 2 operators must provide customers with an information statement that includes:8

• details of, and an explanation of the reasons for any adjustments made to the current regulated charges from charges estimated in the NSP

• updated information on revenue received from regulated charges, and estimated revenue from regulated charges

• an explanation of the reasons for any differences in regulated charges in respect of the same class of infrastructure service where covered by rule 10 of the WCIR.

The information statement requirements are discussed further in Chapter 6 and Appendix D.

8 WCIR, rule 22

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Figure 1 – Tier 2 requirements

Network consultation paper (NCP)

When?: Before NSP is completed. Must allow a two month period for submissions from customers.

Network service plan (NSP)

What?: Presents infrastructure plans and estimated regulated charges for infrastructure over a five year period.

What?: Presents options to customers on infrastructure plans over a forthcoming five year period.

Operator considers customer feedback

When?: At least once every five years. First NSP for existing Part 5 operators to start by 1 July 2012.

Review of NSP

What?: Review of prudency and efficiency of NSP by a qualified engineer.

When?: Operator must provide NSP to ACCC (who will provide the NSP to the engineer) no later than when NSP is provided to customers.

The operator may modify the NSP to address the advice.

Provide copy of NCP to customers. The operator may invite customers to attend a meeting (with at least ten business days notice).

Operator provides a copy to customers at least one month before the NSP is to begin.

Operator provides a copy to customers within twenty business days of receiving comment/advice.

Information statement (IS)

What?: Explains why charges have changed from the NSP and the reasons for changes.

When?: Each time charges change.

Operator provides IS to customers when providing them with a schedule of charges.

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3 Network service plan

A network service plan (NSP) is intended to be the primary document for Tier 2 operators to communicate to customers their forecast regulated charges over a forthcoming five year period and the reasons why charges are expected to change over this period. In doing so, operators will need to provide all relevant details on regulated charges including:

• the major capital expenditure and maintenance items expected to affect charges over the period of the NSP

• the expected levels of service it intends to provide for customers over the period of the NSP

• the expected cost of providing infrastructure services

• how infrastructure services are financed

• the revenue required to provide infrastructure services

• how regulated charges are calculated.

Operators should provide customers with information that enables them to draw the links between each of the above elements. In other words, based on the charges they are likely to pay over the period of the NSP, customers should be able to understand the revenue likely to be collected from these charges, how this revenue funds expenditure on infrastructure services over the period of the NSP and the factors that ultimately contribute to this expenditure. Figure 2 provides a general overview of how these different elements are linked.

When providing the NSP to customers, operators must also provide to customers a summary of the submissions and comments received from customers in consultation, and an explanation of the decisions made by the operator in completing the NSP.

The WCIR does not dictate to Tier 2 operators what investments they should make over the relevant five year period nor what fees and charges should be payable by customers. This is a decision to be made by operators.

It is not intended that the NSP be overly voluminous. Details about future network plans only need to be provided in the NSP where they have the potential to significantly affect the regulated charges payable by customers. Minor changes to the network anticipated over the relevant five year period do not need to be presented in the NSP.

3.1 Key dates

Period for first NSP

Operators classified as a Tier 2 operator on 1 July 2011 must have their first NSP in place no later than 1 July 2012. A NSP refers to a five year period.

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These requirements are likely to apply to five operators: Murrumbidgee Irrigation Ltd, Coleambally Irrigation Ltd, Murray Irrigation Ltd, SunWater and Central Irrigation Trust.

Date for providing NSP to customers

A completed NSP must be provided to customers at least one month before the NSP commences.

Therefore if the NSP is to commence on 1 July 2012, a completed NSP must be provided to all customers by 1 June 2012.

However, an operator may choose to update its NSP before being required to if they no longer intend to invest in some of the plans listed in the current NSP. To ensure that the NSP accurately communicates to customers the operator’s future network maintenance and improvement plans, an operator may decide to issue a new NSP.9

If the operator chooses to issue a new NSP, they would be required to undertake consultation (discussed in Chapter 4).

Relevant dates for a new Tier 2 operator

For operators that are not regulated under the Tier 2 requirements on 1 July 2011 but become so after this date, the operator must have a current NSP in place no later than 24 months after they first become a Tier 2 operator.

Consistent with the provisions above, these operators must provide a NSP to customers at least one month prior to the date the NSP is scheduled to begin.

9 Note that an information statement is required if operators are to change charges from those anticipated in the NSP. As part of the information statement, operators are required to communicate the reasons that charges have changed.

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Figure 2 – The link between infrastructure services and regulated charges

Regulated charge A

+ Regulated charge B

Regulated charge C + +

Other regulated charges (etc.)

Infrastructure services provided by the operator

� What are the main infrastructure services?

� Outline the major infrastructure works and the maintenance program over the life of the NSP

� What are the expected levels of service?

Expenditure on infrastructure services

� What are the main factors driving expenditure (e.g new infrastructure plans, changes in levels of service)?

� What is estimated opex and capex for all infrastructure services? For different types of

infrastructure services?

Required revenue for infrastructure services

� What is the required revenue to meet expenditure on all infrastructure services?

� How is the revenue required different between different infrastructure services

Financing

� How are infrastructure services financed?

� How does the financing of infrastructure services relate to required revenue for infrastructure services?

Revenue from regulated charges

Grants and subsidies

Other funding (customer contributions, sale of assets)

+ +

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3.2 Scope

Coverage of NSP

A NSP must relate to the infrastructure services provided by the regulated operator in relation to managed water resources to which a regulated charge under the WCIR applies. 10 The definition of a regulated charge under the WCIR is provided in Appendix A.1.

Where an infrastructure operator levies different regulated charges specific to a geographic area, it is not necessary for the operator to issue separate plans for separate geographic areas. One NSP may cover the regulated charges for all infrastructure services provided by the operator in relation to the Basin.

For instance, an operator may manage several water supply schemes, or provide services across different valleys within the Basin. One NSP can cover all different schemes and valleys.

Dealing with charges outside the scope of the NSP

Where an operator provides services for which there is no regulated charge, the operator is not required to report this information.

To ensure that customers receive the same information regardless of whether the charges they face are covered by the rules, the operator may wish to prepare an infrastructure plan that relates to these charges and the services on which they are based. The operator may wish to provide this information to customers at the same time and in the same format as the NSP. For instance, the operator may wish to prepare a five year plan that covers charges for infrastructure services it undertakes outside the Basin.

Where an operator prepares plans for this purpose, the operator may include this information within the regulated NSP or prepare a separate document. If the operator includes information on details outside the scope of a regulated NSP, it is recommended the operator provide this information within a separate section of the NSP.

3.3 Details and Format of a NSP

A NSP must include:

• the date on which the 5 year period of the NSP is to begin

10 The concept ‘managed water resources’ accounts for the provision in section 100B of the Act where Basin jurisdictions may elect to make arrangements to apply the water WCIR outside the Basin (opt-in). A Basin jurisdiction may opt-in by passing legislation that extends the application of the water WCIR to its water resources that are not Basin water resources. At the time when this guide was drafted, no state has opted-in and only Basin water resources are managed water resources.

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• details of the operator's plans for the levels of service it intends to provide for customers in each year of the 5 year period

• details of the operator's plans for works, other than minor works, for the maintenance, improvement, enhancement or expansion of the water service infrastructure in each year of the 5 year period

• estimates of capital and recurrent expenditure relating to the water service infrastructure in each year of the 5 year period and estimates of revenue, including revenue from regulated charges, required for that expenditure

• plans for the financing of capital and recurrent works during each year of the 5 year period

• details of any grants or subsidies that have been or may be received or applied for, together with details of conditions to which grants or subsidies may be subject

• estimates of the regulated charges during each year of the 5 year period stated without an inflation factor but identifying the inflation index published by the Australian Bureau of Statistics that the operator will apply to those estimates during each year of the period.

• a summary of consultation undertaken prior to completing the plan, including submissions and comments received from customers, and an explanation of the decisions made by the operator in completing the plan.

Appendix B outlines the ACCC’s recommended format of a NSP and further elaborates on the details that should be included in a NSP.

Addressing uncertainty

An NSP will be based on an operator’s forecast of the operating environment over the relevant five year period, providing customers with best estimates about regulated charges and the expenditure on which charges are based.

There are a number of ways in which an operator can address uncertainty about the projects, expenditure and charges. This can be addressed both in the NSP and after the NSP is completed.

For instance, while the operator is required to estimate a likely value for a regulated charge, in a NSP the operator could also specify the range of possible values which a charge might be. This may be beneficial where there is significant uncertainty around the cost base and/or the number of customers that the operator is likely to provide services in relation to in the future.

Some projects or events may not be considered likely but the operator may still wish to inform customers that there is some possibility of these projects being implemented. For these projects or events the operator should not include the expenditure in the estimates of regulated charges, but can still provide details in the NSP of the projects, when it is possible they would be implemented and the possible impact on charges.

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After the NSP has been completed, when charges change from the charges estimated in the NSP, operators will also have the opportunity to explain these changes via the information statement.11

Suitability of other documents

Some operators may already produce documents that outline details about forthcoming investments. These could be produced to meet other regulatory requirements, or for the benefit of customers.

While these documents may partly provide detail required by NSPs, it is unlikely they would satisfactorily meet all requirements of the Tier 2 requirements of the WCIR. Where material produced for other documents is relevant for the NSP, the material should be modified accordingly for the purpose and audience of the NSP before including it within the NSP.

Addressing confidential information

As noted above, information provided in the NSP is intended to provide customers with sufficient information to understand the charges they are likely to face over a five year period of the NSP, and the costs on which these charges are based. This is intended to improve pricing transparency for customers.

Appendix B details the information an operator should provide in a NSP. The expenditure data to be provided in the NSP is either across the whole of the operator’s network, at a regional level, or forecast expenditure across the life of major projects. Detail is, in general, required at an aggregated level.

It should also be noted that expenditure data provided in the NSP is forecast data and is subject to change during the period to which the NSP relates. Forecasts do not lock the operator into carrying out this expenditure.

For these reasons, it is difficult to foresee that information required by the NSP would be considered confidential.

3.4 Communicating changes to a NSP

An operator may amend a NSP in any way before it has been provided to customers.

If a NSP has already been provided to customers, an operator can amend a NSP after it has been provided to customers (without having to undertake a new consultation process) but only if the amendments are to address the comment or advice from the engineer (the engineer’s review is discussed in Chapter 4).

11 Information statement requirements are explained in Chapter 6 and Appendix D.

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If an operator amends a NSP for this purpose and current charges change the operator would also be required to issue an information statement explaining why those charges have changed (the information statement is discussed in chapter 5).

If the NSP has been provided to customers, amendments made for this purpose would not change the start date of the NSP.

Alternatively, an operator could choose to issue a new NSP. However, if issuing a new NSP the operator will be required to undergo the consultation process explained in Chapter 5.

3.5 Providing a NSP to customers

The WCIR are not prescriptive on how infrastructure operators must give the NSP to customers. Operators have the discretion to use alternative communication methods available to them, including:

• postal mail

• electronic mail sent as:

• a fax or

• an email with the NSP in an attachment or with a hyperlink to a webpage that contains the NSP.

Infrastructure operators must ensure that all customers receive the NSP in accordance with the WCIR. It is the operator’s responsibility to ensure that each and every customer is provided with the NSP. An operator may provide customers with different options for receiving the NSP.

General information provided to customers that the NSP is available on a website, without a hyperlink to a webpage that contains the NSP, will not satisfy the obligation on operators to provide the NSP to each customer.

3.6 Penalties for non-compliance with NSP requirements

On or after the relevant date, a Tier 2 operator must not levy a regulated charge unless the operator has provided to its customers the relevant NSP and information statement.12

A Tier 2 operator must not provide customers with a copy of its regulated charges or publish a schedule of those charges unless the operator has provided its customers with the relevant NSP and information statement in accordance with these rules. 13

Tier 2 operators risk a penalty of up to $110,000 for each breach of the above rules.

12 The relevant date for existing Part 5 operators is 1 July 2011, and for new Part 5 operators is 24 months after they became a Part 5 operator.

13 WCIR, rule 17

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4 Review of a NSP

The WCIR require Tier 2 operators to submit a completed NSP to the ACCC for review by a qualified engineer. The ACCC will choose the engineer and pay for the review. Every customer of a Tier 2 operator must be provided with a copy of the engineer’s comment or advice.

4.1 Scope

The engineer is required to provide advice on the prudency and efficiency of the NSP.

In general, in advising on the prudency and efficiency of the NSP, the reviewer will be asked to consider whether the NSP represents a plan that would be expected of a commercially successful water infrastructure service provider in the same position, and whether the operator is able to cost-effectively deliver these services.

In undertaking this analysis, it is likely the reviewer will be asked to provide comment and advice on the following matters:

• the reasons and evidence supporting the commencement of major projects proposed in the period of the NSP, including whether the projects listed are consistent with efficient long term expenditure on infrastructure services.

• the reasons and evidence supporting the major projects proposed in the NSP compared to other alternative projects

• the suitability of the engineering design of the projects proposed

• the robustness of the risk mitigation measures in the NSP

• whether the time proposed to undertake the projects in the NSP is reasonable, having regard to the operator’s previous ability to deliver projects on time

• the accuracy of cost forecasts used in estimating the cost of projects in the NSP

• whether the operating expenditure forecasts in the NSP are reasonable, having regard to:

• historical expenditure on operating expenditure

• a reasonable expectation of productivity improvements over the period of the NSP

• available and relevant industry benchmarks of expenditure on infrastructure services.

• whether the NSP provides sufficient details and is communicated in a way that would be clear to a customer audience.

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Where the reviewer is not satisfied with any matter in the NSP the reviewer will be asked to make recommendations on how the operator should address these matters.

The reviewer will be contracted to prepare a technical report along with a summary report that contains their main findings and recommendations to assist with communication with customers.

The reviewer will be required to meet with each infrastructure operator. The ACCC will co-ordinate with the operator to arrange suitable dates.

4.2 Process for review

There are several stages in the review. This is outlined below and in Figure 2.

Choosing the reviewer

The ACCC will choose the engineer to undertake the review. This will be done in accordance with the ACCC’s internal selection procedures.

The ACCC will not select an engineer where there is potential for a conflict of interest to impact on the outcomes of the project. For instance the ACCC will not choose a reviewer where they have provided advice on that operator’s NSP.

Providing a NSP to the ACCC

An operator must give a copy of a NSP to the ACCC no later than the date on which the operator provides copies of the plan to its customers.

However, the operator may wish to consider the advice from the engineer first before providing the NSP to customers. To ensure the engineer has sufficient time to complete the review and the operator has sufficient time to consider the engineer’s findings, it is strongly recommended that operators allow at least four months between when the NSP is provided to the ACCC and when the NSP is provided to customers. This assumes that the engineer will need up to three months to complete their review, and the operator will need at least one month to consider the engineer’s findings after they have been provided with a final report.

Therefore, if operators plan to give a NSP to customers on 1 June 2012 that incorporates any relevant findings of the comment or advice from the engineer, the operator should give a NSP to the ACCC by 1 February 2012.

After the ACCC provides the NSP to the ACCC, the ACCC will provide it to the engineer.

Preparing the review

At the commencement of the review, the reviewer will be provided with a copy of the NSP. Soon after, the reviewer will be required to meet with the Tier 2 operator. It is expected that in this meeting the operator will have an opportunity to provide further background about its operating environment, its infrastructure and the detail in its NSP.

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The reviewer will have an opportunity to ask questions about the detail in the NSP and may request further information to help support their review.

It is noted that all consultants working on a NSP review will be required to sign a confidentiality agreement with the ACCC.

Draft review

A draft review will be provided to both the ACCC and the Tier 2 operator for comment. All parties will have at least ten business days to provide comment.

Final review

After considering comment from both the ACCC and the Tier 2 operator, the reviewer will provide a final report to the ACCC.

It is expected that the reviewer’s final report will be completed within three months. However this is dependent on the operator providing timely input to the review where requested. Tardy responses from the operator in providing information could delay the completion of the review.

Providing the review to customers

The ACCC must give the Tier 2 operator a copy of any comment or advice received from the engineer.

The operator must, within 20 business days after receiving a copy of any comment and advice from the engineer, provide the comment and advice to customers. This is to include the full report and the summary version.

Consistent with the form in which the NSP is to be provided to customers, operators may either provide the comment and advice directly to customers via mail, email, fax or post the comment or advice on the operator’s website and notify each customer personally via mail or email of where the comment/advice can be located on the operator’s website. Providing customers with general information that the review is available on the operator’s website will not satisfy the obligation on operators to provide the review to each customer.

When providing the review to customers the operator may wish to outline its response to the engineer’s comment or advice. If the operator is yet to decide on a response, it may wish to outline the areas in which it is giving further consideration to, as well as the process and timeline for further considering the engineer’s recommendations.

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Using a NSP and review for other purposes

Operators should be aware that information obtained by the ACCC may be used for other purposes. A copy of the ACCC’s information policy is available online.14

14 Australian Competition and Consumer Commission, Australian Energy Regulator – Information Policy, the collection use and disclosure of information, http://www.accc.gov.au/content/index.phtml/itemId/846791

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Figure 2 – Process for review

1. ACCC selects engineer

2. Tier 2 operator completes NSP

3. Engineer prepares review

� Tier 2 operator provides completed NSP to ACCC

� ACCC provides NSP to engineer.

� In preparing review, engineer meets with operator to understand business context, NSP, other relevant details

� Operator makes available other relevant documents on request.

4. Engineer completes draft review

� Review provided to ACCC and Tier 2 operator in question

� Minimum of ten business days for the operator provide comment

5. Engineer completes final review

� Review provided to ACCC � ACCC provides review to Tier 2

operators

6. Tier 2 operator provides review to customers

� Provide within twenty business days � May amend NSP to reflect engineer’s

advice

Up to three months to complete.

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4.3 Amending a NSP based on review

Process for amending NSP

As discussed in section 3.4, a Tier 2 operator may amend or vary its NSP to the extent appropriate to give effect to any comment or advice by the engineer.

It is the operator’s choice how it wishes to consider the comment or advice from the engineer. Where the engineer suggests material changes to the NSP, and the operator wishes to consider these changes in further detail, it is recommended that the operator re-consults with relevant customers.

Start date for amended NSP

If customers have already been provided with a copy of a NSP before the operator chooses to amend it, then this would not alter the start date for the NSP. In other words, the start date of the NSP is the date specified in the version of the NSP that was first provided to customers.

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5 Consultation requirements

As the NSP is intended to be the primary document for Tier 2 operators to communicate their regulated charges over a five year period and the infrastructure plans on which these charges are based, it is important that there is an opportunity for customers to provide input before the NSP is finalised.

The network consultation paper (NCP) is the platform for presenting options to customers for investing in the network before the NSP is finalised. Customers will have the opportunity to provide feedback on these options as well as to make suggestions for additional options or alternatives before the NSP is completed.

The NCP should clearly explain each option or alternative, how each option is estimated to impact on expenditure on infrastructure services over the period of the NSP and the estimated impact on charges and levels of services.

5.1 Key dates for a NCP

Operators must provide the NCP to customers, along with an invitation for written comment on the NCP including suggestions for additional options or alternatives and preferred options and alternatives.

The written period must be open for at least two months from when the NCP is provided to customers.

5.2 Scope of a NCP

Details

The NCP requirements include:

• the proposed commencement date of the NSP

• options and alternatives for works, other than minor works, for the maintenance, improvement, enhancement or expansion of the operator's water service infrastructure and levels of service during the 5 year period

• estimates of capital and recurrent expenditure proposed in each year of the 5 year period for each option or alternative and, where appropriate, a suggested ranking in priority for implementation

• details of known or anticipated factors that are or may be relevant to the several options and alternatives, such as risks, compliance with requirements under applicable legislation relating to environmental, safety or construction matters and contractual obligations

• anticipated regulated charges during the 5 year period to which the plan relates; and

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• any relevant reports or advice from consultant engineers or other experts identifying maintenance or other requirements of the water service infrastructure or options for meeting such requirements.

Appendix C outlines the ACCC’s recommended format of a NCP and further elaborates on the details to be included in a NCP to assist Tier 2 operators in meeting the above requirements.

Options and alternatives

An option or alternative might refer to:

• new major maintenance, improvement, enhancement or expansion plans; or

• no major maintenance, improvement, enhancement or expansion plans (i.e. status quo)

• options for service levels or performance against service levels.

The ACCC expects that new maintenance, improvement, enhancement or expansion plans only need to be provided in the NCP where choosing that plan has the potential to significantly affect regulated charges and/or levels of services. Minor proposed changes to the network under consideration do not need to be presented to customers.

The operator should also consider consulting with customers where it is proposing new types of service levels, or where it is proposing a change in the performance target for the service level from a target set in previous years.

5.3 Providing a NCP to customers

Operators have the discretion to use alternative communication methods available to them when providing a NCP to customers. Options include:

• postal mail

• electronic mail sent as:

• a fax or

• an email with the NCP in an attachment or with a hyperlink to a webpage that contains the NCP.

General information provided to customers that the NCP is available on a website, without a hyperlink to a webpage that contains the NCP, will not satisfy the obligation on operators to provide the NCP to each customer.

Customers must have at least two months to prepare a written submission on the NCP.

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5.4 Other consultation requirements

The operator may also invite customers to attend a meeting with the operator at which comments on the paper may be made. The operator must give at least 10 business days notice for such a meeting.

Other consultation is up to the discretion of the operator.

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6 Information statement

When providing customers with a copy of its schedule of charges after the first network service plan has been provided to customers, Tier 2 operators must also provide customers with an information statement explaining where charges have changed from the NSP, the reasons why these changes have occurred and why they needed to be addressed through changes to charges. This will ensure that customers remain informed about developments influencing regulated charges across the period of the NSP.

The information statement also requires actual revenue information for the completed years of the NSP. This will ensure that even after customers have paid their regulated charges, they are provided with relevant information if circumstances change after charges have been levied. For instance, changes in weather conditions during an irrigation season may lead to greater or less revenue collected from a charge than anticipated when the charge was levied.

6.1 Key dates

An information statement must be provided to customers after a NSP has been provided to customers when providing them with a copy of its schedule of charges. In accordance with dates specified in section 3.1, the first NSP must be provided to customers by 1 June 2012.

The first schedule of charges provided to customers after this date will most likely be a schedule specifying fees and charges for the 2012/13 irrigation season. The information statement must be provided with this schedule. The ACCC publication A guide to the water charge (infrastructure) rules: publishing and non-discriminatory charging requirements explains when a schedule of charges must be provided to customers and what it must include.

Subsequent information statements must be provided to customers any time regulated charges change after this date.

6.2 Scope

The information statement must include:

• details of, and an explanation of the reasons for, any adjustments made to the regulated charges in respect of that year as estimated in the network service plan, whether on account of unforeseen circumstances and events or changes in estimated costs, financing, grants or subsidies

• a statement of the anticipated revenue from regulated charges in respect of the current year of the period and each future year of the period

• a statement of the actual revenue received from regulated charges in respect of each completed year of the network service plan

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• an explanation of the reasons for different regulated charges determined in accordance with rule 10 in respect of each completed year of the network service plan.

The ACCC’s preferred format and preferred details to be included when addressing these requirements are provided in Appendix D.

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Appendix A - Some definitions

A.1 Definition of a regulated charge under the WCIR

A regulated charge is a water charge levied by an infrastructure operator for an infrastructure service provided in relation to managed water resources.

Regulated water charges covered by the infrastructure rules include:15

• charges payable to an irrigation infrastructure operator for:

• access to the operator’s irrigation network (or services provided in relation to that access)

• changing access to the operator’s irrigation network (or services in relation to that access)

• bulk water charges being charged for bulk water services including charges imposed on private diverters

• charges payable to water infrastructure operators that have been prescribed by the regulations for: 16

• access to water service infrastructure or services provided in relation to that access

• changing access to water service infrastructure or services provided in relation to that access, including charges payable to a bulk water supplier for changing access to a bulk water service

• terminating access to water service infrastructure or services provided in relation to that access, including charges payable to a bulk water supplier for terminating access to a bulk water service

• surrendering to the operator a right to delivery of water through the operator's water services infrastructure.

Water charges not regulated by the WCIR

Water charges that are not regulated by the WCIR include:

• termination fees levied by irrigation infrastructure operators - these are dealt with in the Water Charge (Termination Fees) Rules 2009

• charges authorised under the Water Market Rules 2009 in relation to transformation of irrigation rights

15 The Act, s91 (1)(a), (b) or (d) 16 See the Water Amendment Regulations 2009 (No.1) for the types of charges that have been

prescribed for the purposes of s 91(1)(d) of the Act.

33

• charges for water planning and management activities - these may be subject to the Water Charge (Planning and Management Information) Rules 2009

• charges that do not have the necessary relationship with the Murray Darling Basin as set out in s 91(2) of the Act

• charges specifically excluded under s.91 (3) of the Act in respect of urban water supply activities beyond the point at which the water has been removed from a Basin water resource. This includes:

• charges that relate to services provided by an urban water authority to their retail customers

• charges that are not regulated at all such as:

• charges for water exchange services

• separate charges related to providing office services (e.g. copies, laminating, faxing, statement of liabilities, transfer of titles)

• charges for other services or products provided by the operator (e.g. MIL Cast).

A.2 Infrastructure services

For the purposes of reporting information consistently throughout the NSP, the operator needs to define the infrastructure services it provides.

Two principles should be applied in defining each category of infrastructure services.

Firstly, infrastructure services reported on in the NSP should align with the National Water Commission’s definition of rural water services. Based on information reported in National Performance Report – rural service providers 2008-09, the ACCC understands that tier 2 operators provide the services outlined in Table 1.17

Table 1 – Services provided by current Tier 2 operators

Tier 2 operator Rural water services

Central Irrigation Trust Pressurised irrigation supply services

Coleambally Irrigation Gravity irrigation supply services

Gravity non-irrigation supply services

Surface drainage services

Murray Irrigation Gravity irrigation supply services

17 Definitions of the different types of rural water services are available in 2009-10 rural water performance reporting indicators and definitions handbook available at http://www.nwc.gov.au/resources/documents/2009-10_Rural_Handbook_August_2010.pdf

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Pumped sub-surface drainage services

Surface drainage services

Murrumbidgee Irrigation Gravity irrigation supply services

SunWater Gravity irrigation supply services

Regulated river supply services

Secondly, information on infrastructure services should also align with the differences in charges for those services. Therefore, if charges for gravity irrigation services imposed by the operator vary between several different regions, the operator should provide information on expenditure on the gravity irrigation services in each of those different regions.

Example A provides an example about how these principles should be applied when determining what infrastructure services an operator provides.

Example A – Rural water services provided by XYZ Irrigation Ltd

XYZ Irrigation Ltd is an infrastructure operator in the Murray Darling Basin that provides two types of rural water services according to the definitions in the National Water Commission’s rural water performance reporting indicators and definitions handbook. The services are:

• gravity irrigation network supply services

• surface drainage services

The charges for gravity irrigation network supply services are the same for customers across the network. The charges for surface drainage services apply depending on what region the customer is located. There are two regions.

For the purposes of completing a Network Service Plan, XYZ Irrigation Ltd is considered to provide the following infrastructure services:


• drainage services in region A

• drainage services in region B

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Appendix B Network service plan format and details

This section outlines the ACCC’s preferences for the details to be included in a NSP.

Page lengths and format are indicative and should be used as a guide only.

Title page [1 page]

• name of the document (i.e Network Service Plan for <Insert Company Name>)

• particulars of the company ( company name, address, ABN)

• the purpose of the document (i.e. is to meet requirements under the Water charge (infrastructure) rules 2010).

• the start date of the NSP

• the end date of the NSP.

Introduction [1-2 pages]

The introduction should briefly include the following details:

• the purpose of the document

• an outline of the document’s contents

• background details about preparation of the document including:

• the process for reaching a decision on the plans within the NSP

• customer consultation process

• advice received from independent parties in preparing the NSP

• the commencement date of the NSP and the period it is valid for

• how the plan will be distributed to all customers

• a statement to customers that plans and charges are subject to change

• process for informing customers about changes to plans and charges

• process for issuing an information statement

• other methods for informing customers.

36

Response to network consultation process [5 pages]

Summarise the options presented in the network consultation paper, the formal submissions and comments received from customers in response to the options presented in the paper. Provide details about the reasons for rejecting alternative options presented in the NCP.

Summarise all other feedback received from customers. As a general rule, the operator should respond to issues deemed to be material or where issues have been raised by several parties. There is no requirement to address every issue raised in submissions.

Expected service levels [1-2 pages per service level]

In defining expected service levels, outline the target performance levels for service over the five year period of the NSP. Service levels may have already been defined as part of a customer charter or agreement. Alternatively, new service levels can be defined through the NSP process.

For each service level in the NSP provide the following information:

• clear definition of service level

• unit of measurement for the service level

• how the service level is calculated

• how performance against the service level will be measured

• how performance against the service level will be reported to customers

• the targeted performance level during the period of the NSP

• historical performance against the service level (where recorded).

Where a targeted performance level defined in the NSP is the same as the historical performance level defined in the National Water Commissions National Performance Report for rural service providers, the operator should ensure that the definition and unit of measurement is consistent between both reports.18

The rules do not require operators to define any particular service levels, but it is expected that service levels will mostly relate to expected performance of the water supply and drainage networks and expected customer service levels. For instance this may include expected service levels related to the following:

• supply network delivery efficiency

• availability of drainage networks

• channel/pipeline bursts and leaks

18 http://www.nwc.gov.au/www/html/2442-2008--09-rural-water-performance-reporting-indicators-and-definitions-handbook.asp

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• timing of delivery in relation to timing of order placement

• water delivery flow rates

• delivery water quality

• expected response times to supply interruptions

• expected failure rates of certain elements of the network

• customer complaints

• response times to customer complaints.

Maintenance, improvement, enhancement and/or expansion plans [5-10 pages per plan plus maps and diagrams]

This section should provide clear details of the major maintenance, improvement, enhancement plans over the period of the NSP. Sufficient detail should be provided for customers to understand what are the works that are likely to occur, where the works are occurring, when they are occurring, why they occurring and how much they are expected to cost.

This section should include the following information:

Background

Provide details so customers can understand the plans in question. This includes

• a description of the works (include diagrams where appropriate)

• the location of the works (include maps where appropriate)

• the infrastructure services affected by the works19

• the type of customers affected

• the expected commencement and completion dates of the plans.

Reason for works

Provide details that will help customers to understand why the expenditure is occurring. Broadly, expenditure will be expected to fall under at least one of the following categories:

• works to meet increased growth in demand (either by increasing the capacity of existing assets or constructing new assets)

• works to address declining demand (either by reconfiguring, decommissioning, or rationalising existing assets)

• works to deliver higher levels of service for customers

• works to meet new or changed regulatory or legislative obligations.

19 See Appendix A for relevant infrastructure services

38

Where the works are planned to address changing demand, provide details about the expected magnitude and location of change in demand.

Where the works refer to levels of service, or regulatory or legislative obligations, provide details about the specific levels of service or obligations in question.

Estimated expenditure

Include details about the estimated expenditure for each works in question.

Estimates should include:

• total expected expenditure over the life of the project

• estimated expenditure in each year of the life of the project

Evidence supporting the works

Provide details of evidence that will help support:

• the stated reasons for undertaking the works

• the estimated expenditure on the works

• the prudency and efficiency of the estimated expenditure

• the timing for the works.

Evidence for undertaking the works may include feedback gathered in consultation on the NCP.

Where the evidence refers to advice gathered from consultants provide details about how customers can access the advice.

Risks

Provide details about the main risks to the plan and an assessment of the likelihood of the risks.

Risks may affect whether the project goes ahead, the timing of the project or the costs of the project.

Expenditure on infrastructure services [5-10 pages + tables]

This section should help the customers to understand all expected expenditure on infrastructure services likely to be incurred over the period of the NSP, and the factors driving this expenditure.

In providing estimates on expected expenditure on infrastructure services outline:

• estimated total expenditure on infrastructure services in each year of the NSP

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• estimated expenditure on each infrastructure service provided by the operator in each year of the NSP20

• relevant historical data on expenditure.

Estimates of operating expenditure should be broken down into capital expenditure and estimates of operations expenditure, maintenance expenditure and administration expenditure and provided in an appropriate format. 21 Example B provides an outline of the required data for a hypothetical infrastructure operator.

At least five years of historical expenditure data should be provided. This will demonstrate to customers how expenditure is estimated to change over the period in the NSP compared to previous periods. For the year immediately prior to the start of the NSP where actual expenditure data is not yet available, provide forecast data.

Cost estimates should also be supported with an explanation of the basis for allocating costs between different infrastructure services. This should include a statement on the following data:

• how costs are allocated as capital expenditure and allocated as operating expenditure

• how costs are allocated between operation, maintenance and administration expenditure

• how administration costs are allocated across different infrastructure services

• how costs are allocated between expenditure that is included in the NSP and expenditure that is not included in the NSP.

For each category of infrastructure services, the operator should outline the main factors influencing any trends in these categories over the life of the NSP. Broadly, trends in expenditure would be expected to be influenced by one of the following categories:

• business-as-usual expenditure

• expenditure to meet increased growth in demand (either by increasing the capacity of existing assets or constructing new assets)

• expenditure to address declining demand (either by reconfiguring, decommissioning, or rationalising existing assets)

• expenditure to deliver higher levels of service for customers

• expenditure to meet new or changed regulatory or legislative obligations.

20 Refer to Appendix A for the infrastructure services 21 Definitions of capital expenditure, operations expenditure, maintenance expenditure and

administration expenditure are provided in the glossary. They are consistent with the NWC definitions outlined in 2009-10 rural water performance reporting indicators and definitions handbook available

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Details should also be provided about the underlying factors driving those trends.

In some instances, expenditure will be driven by the future plans reported in the ‘maintenance, improvement, enhancement and/or expansion plans’ section of the NSP and changes to ‘expected levels of service’ in providing infrastructure services. Where so, this section should clearly cross-reference that section.

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Example B – Expenditure data

As identified in Example A, XYZ Irrigation Ltd is considered to provide the following infrastructure services:



• drainage services in region B.

In providing expenditure data, XYZ Irrigation Ltd should provide expenditure data on the following:

• all infrastructure services




For each category of infrastructure services, XYZ Irrigation Ltd should report capital expenditure, operating expenditure, operations, maintenance and administration expenditure in an appropriate format (see below). Therefore XYZ Irrigation should provide at least 4 separate tables on expenditure. The format below provides and example of the detail required.

<category of infrastructure services>

Yea

r 1

of

NS

P

Yea

r 2

of N

SP

Yea

r 3

of

NS

P

Yea

r 4

of

NS

P

Yea

r 5

of

NS

P

Total capital expenditure $ $ $ $ $ Total operating expenditure $ $ $ $ $ operations expenditure $ $ $ $ $ maintenance expenditure $ $ $ $ $ administration expenditure $ $ $ $ $ Total expenditure $ $ $ $ $

When reporting information on historical expenditure data, XYZ Irrigation Ltd may choose to augment each table or provide a separate table for each category of infrastructure services.

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Required revenue for, and financing of, infrastructure services [5-10 pages + tables]

In this section, the operator should provide details that would help the customer to understand:

• the revenue required to fund infrastructure services over the period of the NSP

• financing of infrastructure services over the period of the NSP.

Sources of revenue

The operator should provide details about the total required revenue to fund infrastructure services across the life of the NSP, in each year of the NSP and details about revenue required from different sources. Sources of revenue may include:

• regulated charges

• revenue from sales of infrastructure assets

• customer contributions

• funds, grants, subsidies, other contributions from government.

For each table the operator has provided in the ‘expenditure on infrastructure services’ section of the NSP, the operator should also provide a table outlining the required revenue for those services. Example C demonstrates the applicable categories of infrastructure service for which revenue data must be provided.

Each table should contain text explaining the source of the revenue. As regulated charges will be explained in more detail in the NSP (see section G), this should mainly refer to revenue that is not regulated charges. In particular for the purpose of meeting rule 19(1)(f), when explaining grants or subsidies, the operator should provide details on the conditions surrounding each source of funding and the specific project the grant or subsidy is for.

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Example C – Revenue data

As identified in Example B, XYZ Irrigation Ltd should provide expenditure data on the following:

• all infrastructure services




For each of these categories, XYZ Irrigation Ltd should also provide revenue data. Therefore XYZ Irrigation should provide at least 4 separate tables on revenue. The format below provides an example of an appropriate format.

<category of infrastructure service>

Yea

r 1

of

NS

P

Yea

r 2

of

NS

P

Yea

r 3

of

NS

P

Yea

r 4

of

NS

P

Yea

r 5

of

NS

P

revenue from regulated water charges $ $ $ $ $ revenue from asset sales $ $ $ $ $ customer contributions $ $ $ $ $ funds, grants or subsidies from government $ $ $ $ $ total required revenue $ $ $ $ $

Financing

Details on the financing of infrastructure services must also be provided. This is so customers can understand how the required revenue for infrastructure services has been calculated. This section is most likely to be relevant in explaining the revenue required from regulated charges.

For instance, revenue may be collected in advance of the expenditure being incurred, or the operator may finance the expenditure through debt, and then only capture revenue from customers after the completion of a project. As it is difficult to understand how the required revenue matches the expenditure on infrastructure services when revenue is not collected in the year expenditure is incurred, it is necessary to provide to customers with an overview of financing methods for infrastructure services to describe how required revenue is determined.

While the financing of infrastructure services is likely to vary from operator to operator, below is a brief outline of the details that should be provided if an operator uses the following methods in financing:

• renewals annuities

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• building block method

• cash balances.

Renewals annuities

Regulated charges collected in a period in advance of the period in which expenditure is incurred may be paid into a renewals annuity. An annuity is a stream of fixed payments over a specified period of time. If using a renewals annuity to fund infrastructure services, an operator would commonly calculate the expenditure needed over some specified period of time. Based on forecast expenditure, the operator would then determine a steady stream of payments over this time that would fund this expenditure. This could be used by an operator to meet ongoing capital and/or operating expenditure commitments.

Where some proportion of the revenue for regulated charges are made as annuity payments, the operator should provide sufficient details that would enable a customer to understand how the operator calculates this proportion in each year of the NSP.

For a customer to understand this information, for each annuity, detail should be provided on:

• the infrastructure services for which the annuity is for

• the asset life assumptions for assets funded through the annuity

• the term of the annuity

• the profile of the expected payments into the annuity and expenditure from the annuity over its term

• the estimated opening and closing balance of the annuity in each year of the NSP

• estimated payments on infrastructure out of the annuity in each year of the NSP

• the purpose of the payments out of the annuity in each year of the NSP

• expected annual interest payments into the annuity

• other annual transactions from the annuity over the period of the NSP.

The formula used by the operator to calculate the annuity payments should also be provided by the operator.

Building block method

An operator could also calculate required revenue for infrastructure services through a building block method. Under this approach, to calculate its charges, in advance, the operator works out the revenue required to fund a number of different elements or

45

building blocks of its services in each year over some specified period of time in the future.

While there are variations on the building block method, building blocks commonly include:

• operating expenditure

• return on capital

• regulatory depreciation

• tax.

Under this approach, operating expenditure is commonly funded in the year it is incurred. Capital expenditure is often not funded through charges until the asset is available for use. The operator gains revenue to recover capital expenditure by:

• recovering the depreciated value of the expenditure over the life of the asset

• earning a return on capital expenditure used for providing infrastructure.

If using this approach, an operator should clearly explain how each different building block has been calculated for each year of the Network Service Plan. This would include how the operator has calculated the asset base on which the operator is able to earn a return in each year of the plan as well as the methodology and parameters used in calculating a cost of capital.

Cash balances

Prior to the start of the NSP, an operator may have collected more revenue that was needed to fund expenditure at the time. This may have occurred for any number of reasons. For instance:

• spending priorities may have changed from when charges were imposed

• actual expenditure was less than forecast when charges were imposed

• water usage was greater than forecast when charges were imposed

• the operator maintains cash reserves for the purpose of dealing with unexpected events.

Where cash reserves have been accumulated an operator may choose to finance infrastructure services in the years of the NSP from accumulated cash reserves.

Alternatively, an operator may expect to collect more revenue in the years of the NSP because there was insufficient revenue from regulated charges to fund infrastructure

46

services prior to the start of the NSP. The operator may need to recover deficits by imposing higher charges in the years of the NSP.

When the operator expects to use existing cash reserves to reduce the revenue collected from regulated charges, or regulated charges are increased to make up for past funding deficits, the operator should clearly explain why this is expected to be the case and how required revenue is expected to be affected.

Details of regulated charges [5-10 pages + tables]

In this section detail should be provided on:

• the estimated regulated charges over the five year period of the NSP; and

• the total estimated revenue from each regulated charge over the five year period.

From the information provided in this section it should be clear to customers how the total required revenue from regulated charges is made up of revenue collected from individual regulated charges.

Estimates of regulated charges

For all regulated charges, the operator should provide information about:

• the current charge payable

• the circumstances in which the charge would be paid

• the infrastructure services for which the charge is for.

For all ongoing regulated charges (i.e payable periodically) the operator must also provide forward estimates. Operators should report this information in a format familiar to customers. Regulated charges that are not ongoing (i.e. not payable periodically) may not be expected to change over the five year period of the NSP. Where this is so, it is not necessary for the operator to provide forward estimates of those charges in the NSP. A note explaining that the relevant charges will remain steady over the five year period of the NSP will be sufficient to meet the operator’s regulatory obligations.

However, if a non ongoing charge is expected to vary substantially over the period of the NSP (for instance a special purpose infrastructure levy only payable in one year of the NSP), the operator should ensure that this is clearly articulated in the NSP.

For all estimates of regulated charges, the operator can choose to provide real or nominal estimates. For any estimates, the operator must identify the inflation index that they will apply to calculating the estimated charge during each year of the NSP.

Breakdown in revenue required from regulated charges

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Operators should also provide information that would clearly explain how the estimated revenue from each regulated charge will equal the total revenue to be collected from regulated charges in each year of the NSP.

Estimated revenues from each ongoing charge should be presented in a table. Where revenue is from charges that are not payable periodically (e.g transaction fees), the operator may provide an estimate of the total revenue to be collected from these charges.

The below table provides an example of an acceptable format for reporting on regulated charges. Names of the charges in the table are indicative only.

Table B.4 – Example format for reporting on revenue from regulated charges for infrastructure services

Y

ear

1

Yea

r 2

Yea

r 3

Yea

r 4

Yea

r 5

Access charges Access charge – licence type A $x $x $x $x $x Access charge – licence type B $x $x $x $x $x Usage charges Usage charge – Area A $x $x $x $x $x Usage charge – Area B $x $x $x $x $x Drainage charges Drainage charge – Area A $x $x $x $x $x Drainage charge – Area B $x $x $x $x $x Drainage charge – Area C $x $x $x $x $x Drainage charge – Area D $x $x $x $x $x Transaction fees $x $x $x $x $x Total estimated revenue from regulated charges

$x $x $x $x $x

Customers should also be provided with information that helps them to understand how the operator calculated the above estimates.

For instance, where charges are based on ML of access or delivery entitlements held, the operator should explain the number of ML of entitlements they have used for this estimate. For usage charges, the operator should provide details of their estimates of water usage and how these estimates have been reached.

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Appendix C Network consultation paper format and details

This section outlines the ACCC’s preferences for the details to be included in a NCP.


Title Page [1 page]

The title page should include the following details:

• name of the document (i.e Network Consultation Paper for <Insert Company Name>)

• particulars of the company ( company name, address, ABN)

• the purpose of the document (i.e. to meet requirements under the Water Charge (Infrastructure) Rules 2010)

• the release date of the NCP.

Introduction [1-2 pages]

The introduction should briefly outline the following details:

• the purpose of the NCP

• an outline of the NCP

• details on how and when the document was prepared including any information regarding:

• input from customers in preparing the NCP

• independent advice received in preparing the NCP

• how a submission to the NCP can be made and the date by which it should be received.

Consultation process [2-3 pages]

This section should clearly outline the process that will be undertaken during consultation with irrigators and other customers in determining options for investing in the network over the five year period of the forthcoming NSP.

This section should include:

• a statement of the operator’s consultation policy

• the objectives of the consultation process

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• the steps involved in the consultation process, the expected duration of each step and the expected deliverables in each step

• key dates

• details on how and when consultation with customers will occur

• an explanation of how consultation will influence the decision-making process

• the steps that follow after the consultation process is completed.

Description of operator and infrastructure (or assets), [2-10 pages + diagrams]

This section should explain to customers the key characteristics of the water delivery and drainage networks under its control to assist them in understanding the physical assets, the current condition and value of these assets, and how these assets are operated and maintained. It should also provide sufficient detail regarding the individual characteristics of the network and the environment in which it operates so that customers can clearly understand the overall context in which the network operates.

This section should include:

• a description of the operator’s responsibilities

• a physical description of the assets owned and/or operated by the operator, including illustrative diagrams where appropriate,

• a description of the services provided by the operator

• types of (and number of) customers for each service

• current standards of service

• current fees and charges

• capital and operating expenditure from the previous financial years

• a brief statement explaining the operator’s current financial position and forecast position over the period of the NSP

• current asset management and planning practices by the operator and why, when and how this occurs (and who is responsible for decision-making)

Description of options and alternatives [5-6 pages excluding diagrams]

This section should outline the potential options to improve, enhance or expand the network that have been developed and are currently being considered by the operator.

Details of each major enhancement, improvement or expansion option should include:

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• a description of each option and alternative, including illustrative diagrams where relevant

• how the option and alternative was identified and why it is being considered

• which customers will be affected and the expected impact on service standards

• estimated cost of the proposed option

• estimated timelines

• how funds will be obtained, including the estimated impact on regulated charges (provide details of the fees and charges affected)

• key risks associated with each option

• additional discussion (as relevant) of issues related to future or longer-term risk and legacy issues which may include; regulatory compliance considerations, water savings, performance improvements and/or environmental impacts or issues.

Ranking of options and alternatives and recommendations (if applicable) [2-4 pages]

In order to prioritise investment in any network the operator may choose to rank the options and alternatives developed.

Where options and alternatives have been ranked, the NCP should:

• describe the methods, weightings and/or criteria used to rank each of the options in order of priority to undertake the investment

• present and discuss the results of the prioritisation process

• provide the operator’s recommendations on the priority areas for investment.

Where the operator has not explicitly ranked the options and alternatives the NCP should provide the operator’s recommendations on the priority areas for investment and explain why the operator recommends the relevant option compared to other options or alternatives.

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Summary of expert or independent reports (if applicable) [1-5 pages]

The operator may have engaged a consultant engineer to assist in identifying network options or alternatives or in choosing a preferred option. Where an independent review has been undertaken the operator should provide a summary of the details of any independent review/s undertaken. If the findings of the review are available to customers the operator should also advise customers on how they can access the findings.

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Appendix D Information statement format and details

This section outlines the ACCC’s preferences for the details to be included in an information statement.


Introduction [1-2 paragraphs]

The introduction should briefly outline the following details:

• the purpose of the document (i.e. to meet requirements under the Water charge (infrastructure) rules)

• the commencement date of the current NSP and the remaining period it is valid for.

Adjustments to regulated charges from NSP estimates [1-5 pages + table]

The operator is required to provide customers with details of any adjustments that have been made to the regulated charges in respect of that year as estimated in the most recent version of their NSP.

It is recommended that operators populate a table showing how the regulated charges compare to those originally proposed in the NSP.

Table D.1 – Example format for reporting on changes in charge

Operators should explain the reasons why each regulated charge has changed from the estimated charges in the NSP so that customers clearly understand the factors that have led to changes in each charge and what has caused these factors. Examples of the factors that may lead to changes in charges include changes to any of the following:

• cost of providing services funded by the charge

• the customer base

Charge Name Estimated charge in NSP dated x/x/xx

Actual charge

<name> $x $x <name> $x $x <name> $x $x <name> $x $x

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• demand for the infrastructure services

• financing costs

• grants and subsidies.

Where a charge differs substantially from the estimated charge in the NSP, it is expected that operators would provide a relatively more detailed explanation of the circumstances leading to the change in the charge.

Revenue from regulated charges [1-2 pages + tables]

The operator is required to provide its customers with details of its annual revenue received from the regulated charges levied in respect of each completed year of the Network Service Plan and projected revenue for the current and future years of the plan.

The operator should provide information on total revenue from regulated charges as well as revenue from each regulated charge. To provide consistency with the NSP, the operator should use the same format as provided to customers in the NSP.

Where revenue information in the information statement is different to the information on revenue provided in the NSP, the operator should clearly explain to customers why this is the case. Where relevant, the operator should also reference any previous information statements.

Explanation of different regulated charges for same class of infrastructure service [1 page if relevant]

After 12 April 201022, a member owned operator must not, for an infrastructure service of the same class, specify different regulated charges payable for:

(a) an infrastructure service provided to a customer in respect of an irrigation right held against the member-owned operator; and

(b) an infrastructure service provided to a customer that does not hold an irrigation right against the member-owned operator

if the difference between the amount of the charge referred to in (b) and the amount of the charge referred to in (a) is more than the difference between the actual costs necessarily incurred in providing each of those infrastructure services.23

The ACCC publication A guide to the water charge (infrastructure) rules: publishing and non-discriminatory charging requirements provides information that assists operators in identifying infrastructure services of the same class, and what is meant by actual costs necessarily incurred.

22 The end of the transition period. 23 WCIR, rule 10

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In the information statement, member owned operators are required to explain the reasons why there are different charges for infrastructure services of the same class. Where this is the case, operators should clearly:

• identify the relevant class of infrastructure services

• identify any regulated charges for that apply for those services and the regulated charges for each completed year of the NSP

• explain with reference to the costs of providing the infrastructure services, why charges for the same class of infrastructure services are not the same for all customers.

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Contacts

Email: [email protected]

Infocentre: 1300 302 502

Website: www.accc.gov.au

Callers who are deaf or have a hearing or speech impairment can contact the ACCC through the National Relay Service www.relayservice.com.au

For other business information go to www.business.gov.au

Addresses

National office

23 Marcus Clarke Street Canberra ACT 2601

GPO Box 3131 Canberra ACT 2601

Tel: (02) 6243 1111 Fax: (02) 6243 1199

New South Wales

Level 7 Angel Place 123 Pitt Street Sydney NSW 2000

GPO Box 3648 Sydney NSW 2001

Tel: (02) 9230 9133 Fax: (02) 9223 1092

Victoria

Level 35 The Tower 360 Elizabeth Street Melbourne Central Melbourne Vic 3000

GPO Box 520 Melbourne Vic 3001

Tel: (03) 9290 1800 Fax: (03) 9663 3699

Western Australia

Third floor East Point Plaza 233 Adelaide Terrace Perth WA 6000

PO Box 6381 East Perth WA 6892

Tel: (08) 9325 0600 Fax: (08) 9325 5976

Queensland

Brisbane

Level 3 500 Queen Street Brisbane Qld 4000

PO Box 10048 Adelaide Street Post Office Brisbane Qld 4000

Tel: (07) 3835 4666 Fax: (07) 3832 0372

Townsville

Level 6 Central Plaza 370 Flinders Mall Townsville Qld 4810

PO Box 2016 Townsville Qld 4810

Tel: (07) 4729 2666 Fax: (07) 4721 1538

South Australia

Level 2 19 Grenfell Street Adelaide SA 5000

GPO Box 922 Adelaide SA 5001

Tel: (08) 8213 3444 Fax: (08) 8410 4155

Northern Territory

Level 8 National Mutual Centre 9–11 Cavenagh St Darwin NT 0800

GPO Box 3056 Darwin NT 0801

Tel: (08) 8946 9666 Tel: (08) 8946 9610 Fax: (08) 8946 9600

Tasmania Third floor AMP Building 86 Collins Street (Cnr Elizabeth and Collins streets) Hobart Tas 7000

GPO Box 1210 Hobart Tas 7001

Tel: (03) 6215 9333 Fax: (03) 6234 7796

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