Guidance papers

A key element of the initial stages of the SAW RD20 review is the release of this suite of Guidance Papers.

The Guidance Papers are intended to provide guidance to all stakeholders of the Commission’s initial positions on principles, requirements and methodology on matters relevant to the determination. That initial guidance is intended to inform the review, and the positions put may change during the review based on stakeholder feedback and the outcomes of SA Water’s engagement with its customers.

The Guidance Papers should be read in conjunction with the Framework and Approach paper released in July 2018.

The Guidance Papers are intended to assist those wanting to participate (in whatever way) during the review process, allowing stakeholders to focus their resources on issues that will ultimately matter for consumers, rather than discovering (and responding to) the Commission’s positions only towards the end of the process.

Importantly, SA Water is to take into account the matters set out in these Guidance Papers when preparing its initial business plan, which will form the basis of consultations with its customers, stakeholders and other participants in the lead up to the making of SAW RD20.

Any comments provided by stakeholders on the Guidance Papers will be taken into account by the Commission as it prepares for and undertakes the determination. Submissions on any of the Guidance Papers are welcome at any time.

The Commission may release further Guidance Papers to inform and to assist the review process as required.

Guidance paper Purpose

1. Overview of economic regulation of SA Water

This paper confirms the process for SAW RD20.

It will enable stakeholders to understand future opportunities to provide input into the determination.

2. Revenue regulation and pricing principles

This paper explains how SA Water’s drinking water and sewerage revenues will be determined, using a cost-based (building blocks) approach and informed by a negotiation process.

It also explains how the Commission will regulate the prices of SA Water’s excluded services.

3. Service standards

This paper explains the Commission’s process for reviewing its principal consumer protection industry code: the Water Retail Code–Major Retailers, which includes customer service standards.

4. Prudent and efficient expenditure

This paper explains the Commission’s approach to reviewing SA Water’s proposed expenditure to assess whether it is prudent and efficient, to feed into the calculation of the maximum revenue allowance. It provides context on the ‘negotiable’ and ‘non-negotiable’ elements of SA Water’s costs, and provides an indication of some of the potential future cost drivers.

It also provides guidance to SA Water on the minimum information that it should provide to the Negotiation Forum to allow it to assess whether proposed initiatives, programs and projects are prudent and efficient.

5. The cost of funding and using assets

This paper explains the Commission’s methodology for determining the efficient cost of funding and using assets to provide drinking water and sewerage services, in particular the return on, and of, regulated assets.

6. Treatment of inflation in the regulatory rate of return

This paper provides further technical guidance related to Guidance Paper 5 – the cost of funding and using assets. In particular, it outlines approaches that could be used to estimate inflation, for the purpose of calculating the regulatory rate of return using a real, post-tax weighted average cost of capital.

7. The averaging period of the risk free rate

This paper presents research that examines different averaging periods that may be used for determining the risk-free rate as part of the regulatory rate of return for SAW RD20.

8. Treatment of capital expenditure - addressing uncertainty This paper discusses the Commission’s proposed treatment of uncertain costs or benefits in SA Water’s capital expenditure plan for the 1 July 2020 to 30 June 2024 period. 
9. Annual updates of the rate of return This paper outlines a proposed methodology for updating the regulatory rate of return on an annual basis. In particular, it outlines the advantages and limitations of the proposal, provides guidance on how the proposed methodology intends to operate, and highlights key questions for stakeholder consideration.


Submissions on behalf of SA Water