SA Water regulatory determination 2020
The Commission released the final Regulatory Determination to apply to SA Water for the period 1 July 2020 to 30 June 2024 (SAW RD20) in June 2020.
The Determination establishes reductions to the total revenue that SA Water may recover during the four-year period commencing 1 July 2020, of 16 percent ($494 million) and 4 percent ($54 million) for drinking water and sewerage retail services respectively, as compared to the amounts determined for the current four-year period (2016-2020).
On the Commission’s analysis, the revenue outcomes will provide SA Water with sufficient revenue to fund efficient operations, finance prudent investments on a long-term basis and meet the health, safety, environmental and customer service standards that will apply to SA Water over the coming four years.
The Final Determination is consistent with the expectation that SA Water should deliver drinking water and sewerage retail services at the quality and reliability levels that customers value for the lowest sustainable long-term cost to them. It passes through to customers the benefits of the lower financing costs that SA Water currently faces, while allowing for a 28 percent increase in capital expenditure and two percent increase in operating expenditure, compared to those incorporated into the current regulatory determination.
While acknowledging the business and operational transformations achieved by SA Water for its customers over the past four years, the reductions are consistent with stakeholders‘ submissions that some of the expenditure proposed by SA Water was neither justified nor consistent with customers’ priority that prices should be kept as low as possible while at least maintaining current levels of service.
The Determination also takes account of the State Government’s reduction in the value of SA Water’s regulated asset base for drinking water assets from $7.77 to $7.25 billion (at July 1, 2013, in December 2012 dollars).
The Commission is aware that the determination has been made at a time when there is uncertainty about the extent to which the COVID-19 pandemic may impact SA Water’s costs. The determination has taken potential COVID-19 impacts into consideration in determining SA Water’s regulatory rate of return (by assuming a longer-term return to the Reserve Bank of Australia’s two to three percent inflation target band) and includes a mechanism to accommodate any material new COVID-19 costs in the 2024-2028 regulatory period.
The Final Determination builds on the positive outcomes achieved in previous regulatory periods and is expected to deliver and enable further consumer benefits, encouraging SA Water to find and deliver strong customer service, asset management, planning and public accountability outcomes, resulting in additional efficiencies for customers over the coming four years and beyond.
The Commission acknowledges the strong stakeholder engagement and inputs received through the SAW RD20 process, which have added tremendous value to the outcomes of the regulatory determination. The Commission thanks those who made public and stakeholder submissions during the review process, all of which were carefully considered and have provided valuable information and insights.
Framework and approach
The Commission has developed, through a public consultation process, the framework and approach for the next economic regulatory determination to apply to SA Water from 1 July 2020 to 30 June 2024 (SAWRD20).
The Guidance Papers provided guidance to all stakeholders of the Commission’s initial positions on principles, requirements and methodology on matters relevant to the determination, and should be read in conjunction with the Framework and Approach paper, released in July 2018.
Public consultation on SA Water’s Regulatory Business Proposal
SA Water released its proposed plan for delivering water and sewerage services to customers from 1 July 2020 to 30 June 2024. SA Water’s proposed plan, titled “Our Plan 2020-2024” sets out its proposed customer service standards, revenues and indicative prices for drinking water and sewerage services for the next four years.
The proposed plan was developed by SA Water following the establishment of a series of Guidance Papers prepared by the Commission and a process of customer and stakeholder engagement. That engagement included a process involving SA Water testing its initial proposals with a Customer Negotiation Committee, established by the Commission to challenge SA Water’ s plans prior to them being submitted to the Commission. The Chair of the Customer Negotiation Committee, Mr John Hill, prepared a report on SA Water’s proposals and the challenge process that was undertaken. That process was subject to oversight by an Independent Probity Advisor, Mr Gaby Jaksa, who also prepared a report on the fairness of the challenge process.
Background briefing: Review of the Water Retail Code - major retailers
The Commission reviewed the Water Retail Code – Major Retailers (Code) as part of the SAW RD20 process.
A background briefing was prepared to assist stakeholders to provide early views on any issues that they wanted the Commission to consider as it reviewed the Code. The paper focused on issues that arose through our initial analysis of market data and consultation with SA Water and the Consumer Experts Panel. This included communication requirements, customer billing and accounts, assistance for customers experiencing hardship (including family violence provisions) and minimum service standards (discussed further in Guidance Paper 3: Service standards).
The South Australian Council for Social Service provided a submission in response to the background briefing.
Audit of SA Water's performance data
The Commission has completed an independent audit of SA Water’s data relating to specific key performance indicators. The objective of the audit was to provide assurance over the quality of the data reported by SA Water, which will form an input into SA Water Regulatory Determination 2020.
The following performance indicators were audited by Cardno on behalf of the Commission, in respect of the period 2015/16 to 2017/18:
•Number of customers with three or more unplanned water supply interruptions per year - annual. (Metro and Regional )
•Number of unplanned water supply interruptions (Metro and Regional)
•Number of unplanned interruptions sewerage (Metro and Regional)
Based on the audit procedures and detailed testing carried out by Cardno, the Commission is satisfied that the six operational performance indicators that were included in the audit have been reported accurately by SA Water over the three year period and the processes to record and report the data are generally robust.
The Commission will rely on these data to inform SAW RD20.
SA consumer experts panel
The Consumer Experts Panel drew on the collective knowledge, skills, expertise and experience of the Commission’s Consumer Advisory Committee and SA Water’s customer advisory groups, sitting jointly as a Consumer Experts Panel.
The Commission acknowledged and recognised the value that members of those committees could bring to the regulatory system in this State, developed through some 20 years of utility regulatory experience.
The Commission established the Negotiation Forum as one of the ways for stakeholders to thoroughly scrutinise and test SA Water’s draft regulatory business proposal before it is submitted to the Commission in October 2019. The Negotiation Forum was comprised of the Customer Negotiation Committee, SA Water Negotiation Team, and an Independent Probity Advisor.
Regulators working group
The Commission has convened a Regulators Working Group to provide a forum for the various regulators to coordinate in achieving positive outcomes for the South Australian community through their combined regulation of SA Water.
Public consultation on SA Water Draft Regulatory Determination
The Commission has released the SA Water Draft Regulatory Determination 2020 for public consultation. The Draft Determination proposes reductions to the total revenue that SA Water may recover during the four-year period commencing 1 July 2020, of 18 percent ($547 million) and 13 percent ($164 million) for drinking water and sewerage retail services respectively, as compared to the amounts determined for the current four-year period (2016-2020).
On the Commission’s analysis, the revenue outcomes proposed would, if implemented, provide SA Water with sufficient revenue to fund efficient operations, finance prudent investments on a long term basis and meet the health, safety, environmental and customer service standards that will apply to SA Water over the coming four years.
The Draft Determination is consistent with the expectation that SA Water should deliver drinking water and sewerage retail services at the quality and reliability levels that customers value for the lowest sustainable long-term cost to them. It passes through to customers the benefits of the lower financing costs that SA Water currently faces, while keeping capital and operating expenditure broadly in line with the amounts incurred in the current regulatory period.
Both stakeholder submissions and the Commission’s own review have highlighted that some of SA Water’s expenditure proposals – noting that in total SA Water is seeking an additional $456 million in capital expenditure and $121 million in operating expenditure over current levels – have not been justified by SA Water and are not consistent with customers’ main priority that SA Water’s prices are kept as low as possible while at least maintaining current levels of service.
Importantly, the revenue reduction proposed in the Draft Determination is indicative, based on evidence and information available at this time, and may change for the Final Determination in light of submissions, new evidence and updated market information.
The Commission notes that the South Australian Government is considering the recommendations of an independent Inquiry into SA Water’s drinking water regulated asset base and prices: the Draft Determination does not take into account any outcomes that might arise from that Inquiry.
Submissions on this Draft Determination were due by 15 April 2020. All public submissions are now available and will be considered before a Final Determination is released in early June 2020.
Background information on SAWRD20 and its process is set out in the SAWRD20 Framework and Approach.
SAWRD20 final determination
The Commission has made a regulatory determination to apply to SA Water for the period 1 July 2020 to 30 June 2024 (SAWRD20). SAWRD20 includes a price determination that sets four year revenue caps for drinking water retail services and sewerage retail services and specifies pricing principles for excluded retail services. It also establishes service standards and other customer service obligations set out in the Water Retail Code - Major Retailers that SA Water must meet during the four year regulatory period.
Monitoring and evaluating performance
SA Water Regulatory Determination 2020 Monitoring and Evaluating Performance Framework has been developed to introduce an appropriate level of independent oversight into SA Water’s ongoing investment planning and evaluation processes.
It will provide information to stakeholders on how SA Water’s operational and longer-term investment decisions are delivering benefits to its customers, stakeholders and its owner.
SAWRD20 ex post review
The Commission engaged Dr Patrick Walsh, a former Chairperson of the Commission, to conduct a post-project review to gather stakeholders views on the process used to undertake SA Water Regulatory Determination 2020 (SAWRD20).
Dr Walsh’s report presents a comprehensive account of the views expressed by stakeholders through interviews undertaken with stakeholders between August and October 2020. Those stakeholders included SA Water, consumer representatives, other bodies regulating aspects of SA Water’s operations, and the State Government.