The Australian Competition and Consumer Commission has released its final decision on charges that Water NSW is able to levy for infrastructure services in the Murray-Darling Basin during 2016–17. This decision is an annual process which adjusts future charges to account for changes in usage from the levels forecast according to the methodology that the ACCC developed in consultation with WaterNSW and water users in 2014.
Most charges will increase for 2016–17. Ongoing drier conditions throughout 2015–16 resulted in lower than forecast water usage in all valleys. This in turn led to a shortfall in revenue from usage charges for WaterNSW, adding to the existing shortfall in revenue, carried over from 2014–15. The ACCC’s pricing model allows charges to increase to recover a portion of the cumulative shortfall.
The ACCC considered the impact of higher individual entitlement and usage charges by estimating changes in customers’ expected bills. Expected bills include the relevant entitlement charge as well as the usage charge. In the Border, Gwydir, Namoi, Murray and Murrumbidgee valleys, the increases in bills over 2015–16 levels are expected to be less than 3 per cent in nominal terms. There are larger increases of between 8 and 9 per cent for Lachlan Valley and Macquarie Valley high security entitlement holders (due to lower water availability in recent years) and for users in the Peel Valley.
Peel Valley charges will increase by 11.4 per cent (10 per cent in real terms) and are forecast to reach approximately full cost recovery levels for the first time.
“The decision sets the charges in accordance with the method set out in our 2014 Determination, with some adjustments to take account of updated forecasts provided to the ACCC,” ACCC Commissioner Cristina Cifuentes said.
“After carefully considering how charge increases arising from updated usage figures and forecasts will likely affect customers, the ACCC has concluded that no further adjustments are necessary for price stability reasons.”
The ACCC released a draft decision for this review on 13 April 2016. The ACCC’s final decision maintains the approach taken in the draft decision. Final charges are around 0.5 per cent lower than those in the draft decision, due to updated (lower) inflation figures.
This is the ACCC’s second and final annual review of WaterNSW charges. From 1 June 2016, the NSW Independent Pricing and Regulatory Tribunal (IPART) will become the accredited regulator of WaterNSW’s charges under Part 6 of the Water Charge (Infrastructure) Rules 2010.
The ACCC’s final decision and stakeholders’ submissions are available on the ACCC website at WaterNSW: annual review of regulated charges 2016–17.
Background
WaterNSW is the result of the merger between State Water and the Sydney Catchment Authority in January 2015.
WaterNSW recovers approximately 60 per cent of the user share of its costs through variable charges (levied on the volume of water allocation delivered or, in some cases, traded) and around 40 per cent through fixed charges (levied on the volume of water access entitlement held). User charges also fund rebates to certain irrigation corporations and districts.
This tariff structure means that in drier years, when there is less usage of WaterNSW’s infrastructure services, revenue from user charges does not meet WaterNSW’s revenue requirement. Conversely, when usage exceeds forecast levels, WaterNSW over-recovers from users.
Charges for 2015–16 and 2016–17 have been determined according to the methodology set out by the ACCC in its determination of June 2014 on charges for the 2014–17 regulatory period. This methodology adjusts charges for changes in demand according to an ‘unders and overs mechanism’. This allows WaterNSW to recover a portion of any cumulative under-recovery of revenue resulting from below-forecast demand. Similarly, WaterNSW has to pay back a portion of any cumulative over-recovery.