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MID2030 Customer Consultation
October 2011
Mike BudahazyMID2030 Project Director
Clinton RoddaManaging Director
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Why are we here?
• SRW will ask the state government to consider a bid for the 2012/13 for 8 years of MID 2030 works● based on government and irrigators funding 50% each; and
● irrigators keeping the water savings
• SRW needs to decide how much to bid for and what modernisation works to include by the beginning of December 2011.
• We need customers input on:● The proposed physical works for that money; and
● The affordability of that work for their (50%) share of the project costs
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Agenda
• Background
• Work done since strategy
• Developments in project funding
• Proposed works● Overall project plan
● Zone plan
● MID2030 Leading Works Program
• Use of water savings
• Pricing and affordability
• Next Steps
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MID2030 Background
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5
MID2030 Strategy background
• The largest strategic review undertaken by SRW
• Significant consultation● MID2030 Atlas
● Discussion Paper
● Draft Strategy
● Strategy
• General customer support
• Strong stakeholder support
• Strategy completed in 2007
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MID2030 Strategy background
SRW
upgrades
supply
Water savings
Improved service
More production
Regional economic growth
Improved environment
Accelerates
on-farm
investment
Improved
irrigation
More production
Less runoff
Less nutrients
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District wide modernisation
Mainly piping with main carriers as open channels
Channel automation
1 Northern-Macalister
2 Northern-Avon3Southern-Tinamba
4Southern-Cowwarr5 Eastern
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MID2030 Strategy outcomes
● Water Savings● 37,000 ML
● Project Cost ● Original (2006) Estimate - $120 million
● Service Levels● Increased flow rates
● Reduced order lead time
● Facilitates high flow flood or spray irrigation
● Opens opportunity for even greater water savings on farm
● Significant regional economic and social benefits
● Environment● Water used on farm stays on farm
● Drainage wetlands reducing impact of key drains
● Reduced nutrients in Gippsland lakes
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Work since 2007
• Detailed planning project ($500,000 Fed’s funding)● Design and cost study for the Southern-Tinamba pipeline
● Southern-Cowwarr balancing storage design
● MID LIDAR survey (high resolution digital imagery and 3D model)
• Detailed cost estimate - verified by an independent cost estimator
• Detailed assessment of water savings - externally reviewed
• Discussions with MCCC and MICI on scoping and affordability
• Government discussions
• Planned MID2030 “Leading Works”
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Current cost estimate
• 2009 estimate - $280m validated by Evans and Peck
• 2011 estimate - $310m
• Changes since 2006● Detailed project scope
● Completed channel automation projects
● Southern-Tinamba Conceptual Pipeline design
● GMW/NVIRP cost structures
• Overall Changes (to 2011)● $60m construction cost changes
● $60m change in cost estimates > escalation
● $60m change in contingency allowance
● $10m to address capacity constraints
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Developments in Project Funding
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Gaining government funding…
• Customer and Stakeholder support
• Minister’s support
• Meet Treasury investment guidelines● Engage with Department of Treasury and Finance (DTF)
● Prepare business case in accordance with DTF guidelines
• Rank well against competing projects across the whole of Government portfolio
● Transport
● Energy
● Hospitals
● Schools
● Housing
● Other water sector
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Feedback from the Minister for Water, Agriculture and Food Security…
• Met with SRW and MCCC reps three times
• Minister strongly supports the principle of projects that create regional economic development
• SRW to submit bid late 2011 to early in 2012●government and irrigators pay 50% of costs each
● irrigators keep 100% of water savings
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SRW’s strategy to gain funding…
• Break MID 2030 into at least two phases
• Maximise early water savings
• Projects ready to go
• Keep price change affordable for customers
• Maximise project benefits• Regional growth
• Irrigator production
• Service improvement
• Resilience to climate change
• Environmental impact
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Revised MID2030 Project
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MID2030 Project Phase 1
• $140.5 million (2011$) investment : 28,300 ML of water savings
• Pipelining of entire Southern-Tinamba supply zone• Elimination of 147 regulators
• Addressing 384 outlets
• Channel automation (regulators) in:• Nambrok-Denison 204 regulators
• Heyfield 32 regulators
• Eastern 122 regulators
• Construction of Southern-Cowwarr Balancing Storage
• Some outlet modernisation and rationalisation
• At least one end of drain wetland
• Preparation for phase 2● Planning study for Newry Pipeline
● Meter market analysis
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MID2030 Project Phase 1
Existing Channel Automation
Proposed Phase 1 Channel Automation
Existing Pipeline
Proposed Phase 1 Pipeline (Preliminary)
Balancing Storage
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MID2030 Project Phase 1
CUSTOMERS RECEIVING SERVICE BENEFITS
0%
20%
40%
60%
80%
100%
Zone 1Northern-Macalister
Zone 2Northern-
Avon
Zone 3Southern-Tinamba
Zone 4Southern-Cowwarr
Zone 5Eastern
MID
Per
cen
tag
e o
f se
rvic
e p
oin
ts
0%
10%
20%
30%
40%
50%
Per
cen
tag
e o
f w
ater
del
iver
ed i
n z
on
e
Service Benefits Pre Phase 1 Implementation
Service Benefits Post Phase 1 Implementation
Percentatage of water delivered in zone
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MID2030 Project Phase 1 (after gov’t investment)
COST PER MEGALITRE OF WATER SAVINGS
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Zone 1Northern-Macalister
Zone 2Northern-
Avon
Zone 3Southern-Tinamba
Zone 4Southern-Cowwarr
Zone 5Eastern
MID
Wat
er S
avin
gs
(201
1$ p
er M
L)
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Cost Breakdown, Timelines and Water Savings
DeliveryDate
Zone 3 - Southern-Tinamba Pipeline $92.5 13,500 end 2020 mid 2022
Zone 3 - Heyfield Regulator Retrofit $2.5 1,200 end 2013 mid 2015
Zone 4 - Southern-Cowwarr Regulator Retrofit $17.6 5,200 end 2017 mid 2019
Zone 4 - Southern-Cowwarr Balancing Storage $9.2 1,800 end 2016 mid 2018
Zone 5 - Eastern Regulator Retrofit $10.7 5,300 end 2018 mid 2020
Rationalisation $5.0 1,300 end 2015 mid 2017
Wetlands $3.0 - end 2020
Total $140.5 28,300
Supply ZoneWater
Savings Available
Water Savings
(ML)
Total Cost (2011$
millions)
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MID2030 Project Phase 1 - Outcomes
Results
Cost of project (2011$) $ 140.5 million
Water savings 28,300 ML
Cost to customers per ML with 50/50 funding $ 2,480 per ML
Construction period 8 years
Deliveries through modern meters 40%
Customers receiving service benefits 86%
Regulators replaced with pipelines or retrofitted 70%
Estimated regional economic benefit $80 million per annum
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MID2030 Project Phase 2
• $169.5 million (2011$) investment generating 8,700 ML of water savings
• Zone 1 - Pipelining of entire Northern-Macalister supply zone
• Newry Pipeline Project
• Based on planning study from Phase 1
• Zone 2 - Balancing storages and various modernisation works
• Valencia Creek balancing storage
• Main Sale balancing storage
• Channel automation and pipelining to address system constraints
• Wide scale meter modernisation program
• Defer decisions on major metering program until meter market more competitive and funding may be available
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MID2030 Project Phase 2
Cost Breakdown and Water Savings
Zone 1 - Newry River Pipeline $52.6 3,500
Zone 1 - Compliant Metering Program $3.5 -
Zone 2 - Balancing Storages $6.8 -
Zone 2 - Various Modernisation Works $44.8 2,000
Zone 4 - Compliant Metering Program $37.2 2,000
Zone 5 - Compliant Metering Program $24.6 1,200
Total $169.5 8,700
Supply ZoneTotal Cost
(2011$ millions)
Water Savings
(ML)
1
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MID2030 Leading Works Program
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MID2030 Leading Works Program
Infrastructure
• Detailed design of Southern-Cowwarr balancing storage
• Smaller scale regulator retrofit program for:• Eastern supply zone
• Nambrok-Denison supply zone
• Heyfield channels
Rationalisation
• Start of a rationalisation program to address demand for customer initiated rationalisation projects – e.g. customer outlets
On-farm Productivity Program
• On-farm productivity program (coordinated program with DPI)
Contribution from SRW – auction funds
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Eastern RegulatorRetrofit (36 No.)
Heyfield RegulatorRetrofit (32 No.)
Balancing Storage Design (min 150 ML)
Nambrok-Denison Regulator Retrofit (27 No.)
MID2030 Leading Works Program
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MID2030 Leading Works Program
Nambrok-Denison Regulator Retrofit $ 2.4 M 820 ML
Eastern Regulator Retrofit $ 3.0 M 980 ML
Heyfield Regulator Retrofit $ 2.3 M 1200 ML
Southern-Cowwarr Balancing Storage Design $ 0.8 M - ML
Rationalisation Program Stage 1 $ 4.6 M 1280 ML
On Farm Productivity Program $ 0.5 M - ML
Total $ 13.6 M 4280 ML
Outlets replaced 80
Regulators retrofitted 95
Project completion 2014
• SRW has contributed $1m for this from auction proceeds – with more planned to reduce project costs
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How do we deal with Water Savings?
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How do we deal with water savings?
• Sale via auction
• Sale via “shelf price”
• Allocate water at zero capital cost
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Auctions…
• Water goes to auction with reserve price
• Advantages● Water goes to people who value it most
● Keeps prices lower
● Develops water market
● Generally supported by Treasury
• Disadvantages● Capital cost of water may hinder other on farm investment
● How big is the auction market?● Demand for water?
● Seasonal conditions
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Shelf Price…
• Water available for purchase at a pre-determined price either by allocation or afterwards
• Advantages● Water goes to people who value it
● Keeps prices lower
• Disadvantages● Capital cost of water may hinder other on farm investment
● Sets water market price
● How big is the market?● Demand for water?
● Seasonal conditions
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Allocate Water…
• Water savings offered to customers proportional to entitlement at no capital cost. A second round offer would be made for remaining water
• Advantages● Water goes to people who want it
● Use it or sell it
● Capital money could be used for on farm investment
● Likely that all water would be allocated
• Disadvantages● Higher water prices
● Permanent water market impacted – could you sell it?
● Some water may not be used
● Would need strong justification to Treasury
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Pricing
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Pricing
• A detailed financial model has been built • A number of factors influence future water prices
● Business As Usual costs● Corporate cost changes
● Business cost changes
● Asset renewal and maintenance costs
● Project costs● Capital works● Changes to operations and maintenance costs● Whether we allocate or auction water savings● Interest rates
● Essential Services Commission rules and “determinations”
• Estimates have been provided to provide a guide• Current “re-bundled” price assumed at $68 per ML
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Estimated MID2030 project cost impact
PRICE INCREASE $/ML FOR EACH 5 YEAR WATER PLAN PERIOD (REAL 2011$)
-
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
2014
- 20
18
2019
- 20
23
2024
- 20
28
2029
- 20
33
2034
- 203
8
2039
- 20
43
2044
- 20
48
2049
- 20
53
2054
- 20
58
2059
- 20
63
2064
- 20
68
2069
- 20
73
2074
- 207
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Water Plan Period
Eff
ecti
ve D
oll
ars
per
ML
(20
11$/
ML
)
$/ML - real
Average
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Net price impact over timeRENEWALS
MID2030 COMPARISON TO BUSINESS AS USUAL (BAU)
60
70
80
90
100
110
120
2008-2013 2013-2018 2018-2023 2023-2028 2028-2033
Water Plan Period
Eff
ecti
ve D
olla
rs p
er M
L (
2011
$/M
L) MID2030
BAU
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Estimated Price as at 2023 (no auction)
Current Price (Estimated) $68 NA
Business As Usual (BAU) Price $84 23%
BAU + MID2030 Price $10840%
(19% BAU + 21% MID2030)
Scenario2011$ per ML
Percentage Change
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Affordability
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Water costs for Dairy
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Case studies
• Understanding impacts of extra water and increased prices
• 6 case-studies: selected to cover● Sectors dairy/grazing/horticultural
● Scale 40ha - 447ha
● Soils Low - Moderate - High Permeability
● Delivery Reliable - Very unreliable
● Water Use Adequate - Undersupplied
• Marginal cost of water worked out● How much extra water is available?
● What will the extra cost be?
● Marginal cost approx $141 and $171 per ML depending on assumptions
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Marginal price example..
• Customer has existing entitlement 100 ML• Current price $68 per ML• Current water cost $6,800
• New allocation as a result of works (5%) 5 ML
• New entitlement (100 ML + 5 ML) 105 ML• New cost of entitlement $ 7,505• New average cost $ 71.50 per ML
• Additional cost = ($7,505 - $6,800) $ 705
• Marginal cost = Additional Cost $705 = $ 141 per MLAdditional Entitlement 5 ML
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Case studies
BusinessNew Water Allocation
Other Benefit / Opportunity
Marginal Net Benefit $/ML Water End use
Large Dairy A RequiredNew High Flow outlet on 41ha 250 offset feed supplement
Grazier RequiredChannel Deliv Serv completed 96* increase stocking rate
Horticulture Sell Nil. 160 offset interest (8%)
SM Dairy A Sell Nil. 120*off farm investment (6%)
SM Dairy B RequiredImp Channel Delivery Serv. 180 offset feed supplement
Large Dairy B Required Nil. 314 increase stocking rate
Additional Water Cost $141/ML to $171 per ML
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Case study outcomes
BusinessMarginal Net Benefit $/ML
Marginal Cost $/ML (M Benefit – M Cost) x ML = Net
Large Dairy A 250 141 $250 - $141 x 227ML = $24,743
Grazier 96* 141 $96 - $141 x 64ML = - $2,880
Horticulture 160 141 $160 - $141 x 22ML = $418
SM Dairy A 120* 141 $120 - $141 x 71ML = - $1,491
SM Dairy B(Imp Delivery) 180 @ 40ML 0 $180 - $0 x 40ML = $7,200
SM Dairy B 180 141 $180 - $141 x 48ML = $1,872 ($9,072)
Large Dairy B 314 141 $314 - $141 x 377ML = $65,221
Additional Water Cost of $141/ML used as basis of comparison.
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Greater benefits apply when…
• Poor levels of service now● Allows improved watering systems
● Promotes greater productivity
• Permeable soils● Gains benefits from improved watering
● Look at sprinkler V’s flood cost:benefits
• Water constrained● Expanding production
● Replacing high cost feeds
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Next Steps?
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Next Steps for Business Case…
• Review questions and feedback from these sessions
• Review and discuss with MCCC (early November)
• Potential further feedback session with customers (Mid November?)
• Business case finalised and reviewed by Board (December)
• Submission to DSE / Treasury (December / January)
• Advice on outcome – mid year
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Processes should we get funding…
• Governance Committee● Government departments
● SRW
● MCCC
• Individual Business Cases● Consultation with SRW staff and affected customers
● Review value for money
● Validate costs estimates and water savings
● Project approval
• Project review● Regular cost, scope, quality, time reviews
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An opportunity to maximise the full potential of the MID
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