FACT SHEET Final Report: water prices – Redland Water

The Competition Authority Our overview fact sheet explains the general findings monitors the prices, costs and revenues of of our review. This fact sheet outlines the findings for five water retailers in , Redland Water. There were no changes to the findings for Redland Water as a result of comments received on including Redland Water. the QCA’s Draft Report. The Queensland Competition Authority (QCA) monitors Redland Water provides distribution and retail water and retailers to ensure that these businesses are not using Seqwater sewerage services to the local government their monopoly power to set pricesowns and operateshigher the bulkthan water is system area. These services include distributing treated water to necessary. homes and businesses, treating and disposing of sewage Water retailers The QCA has released its final provides2013–15 water andprice sewerage monitoringservices and other wastewater, and issuing bills. reportUnitywater for the five waterQueensland retailers – Unitywater,Logan Redland Gold Coast Queensland Urban Utilities,Urban Utilities Logan Water,Water Redland WaterWater Water and . Customers residential and non-residential Five water retailers

Noosa

Maroochy

Kilcoy Somerset Somerset Dam Caboolture Esk North Redcliffe Pine Dam

Gatton Cleveland North Stradbroke Lockyer Ipswich Island

Logan City

Beaudesert Surfers Boonah Hinze Paradise Dam Coolangatta REDLAND - RED

1600

1400 214 343 1200 ($) l il

b 1000 REDLAND413 - RED 453 800

sidenal 600 Re 400 730 634 1600200

14000 2012–13 2013–14 with214 rebates 343 1200 ($) l Sewerage Retail Distribuon Water Bulk Water il

b 1000 413 453 800

Retail water prices – Redland Water sidenal 600 Re 400 730 634 Residential Bills Redland200 Water’s costs for 2013–15 – Redland Water The QCA found that residential bills for 2013–14 for and QCA0 calculations 2012–13 2013–14 with rebates a household using 200 kilolitres of water a year will 70 Sewerage Retail Distribuon Water Bulk Water increase by 5.3% in Redland City. This is the net effect 60 of a fall of 4.2% in the retail and distribution component 50 and an increase of 9.5% in the bulk water component 40 (due to an increase in bulk water charges and the expiry 30 60.2

$M 50.4 50.5 of the bulk water rebate to residential customers). 42.7 20 42.3 37.8 31.9 26.1 The increase in residential bills differs from the $8 10 decrease published by Redland Water in June 2013: the 0 -4.8 -15.8 June figures did not include the impact of the expired -1700 rebate. To help customers understand changing prices, -2600 Bulk water Other opexReturn Return Revenue waterREDLAND retailers should explain -the REDreasons for the change 50 on capital of capital offset in each part of the bill as well as the overall change. 40 RW QCA 30 60.2

$M 50.4 50.5 42.7 20 42.3 37.8 Redland Water’s residential bill increases in 2013–14 Revenues –findings 31.9 26.1 Redland10 Water’s revenues are above prudent and 1600 efficient0 costs. Redland Water’s revenues are 12.4% -4.8 1400 -10 -15.8 214 343 above the QCA MAR in 2013–14 and 6.4% above in 1200 -20 ($)

l 2014–15.Bulk water Other opexReturn Return Revenue il on capital of capital offset

b 1000 60 413 453 This resultsRW fromQCA Redland Water’s approach to 800 smoothing50 prices over 10 years, with an initial over- sidenal 600 recovery of costs returned to users by under-recovery Re 40 400 730 634 in later years.

200 $M 30 53 Redland Water’s52 revenues for 2013–1549 – Redland 0 44 2012–13 2013–14 20 36 38 38 39 with rebates Water and QCA calculations

Sewerage Retail Distribuon Water Bulk Water 10 60 0 Costs 50 Water Wastewater WaterWastewater Part of our role is to establish whether Redland Water’s 40 2013–14 2014–15 costs are both required (prudent) and as low as possible Maximum Allowable Revenue (QCA)Forecast Revenue (RW) (efficient). Our estimates of prudent and efficient costs $M 30 53 52 49 determine the maximum allowable revenue (MAR). 44 20 36 38 38 39 The MAR70 is a key test for monopoly pricing. If a 10 business’s60 revenue significantly exceeds the MAR for a 50sustained period, the business may be using its 0 Water Wastewater WaterWastewater monopoly40 power to obtain unjustified returns. 140 30 60.2 2013–14 2014–15 $M 50.4 50.5 2013–15 42.7 42.3 130 20 37.8 MaximumReview Allowable Revenue (QCA)Forecast Revenue (RW) Costs – findings 31.9 26.1 Period The QCA10 found that Redland Water had under-estimated 120 bulk water0 and some capital costs. At the same time,-4.8 the 110 QCA-1 also0 identified savings in Redland Water’s operating-15.8 The QCA supports the principle of price smoothing. 100 costs.-20 However,Heading?? ? the QCA has concerns with the 10–year model Bulk water Other opexReturn Return Revenue applied90 by Redland Water and the approach to pricing. Overall, the QCA has estimatedon capit thatal Redlandof capital Water’soffse t RW QCA 80 costs of supplying water and sewerage could be 6.8% In view140 of these concerns, the QCA cannot establish ($11m) higher for 2013–15. whether70 2013–15there is an exercise of monopoly power by 130 FY14ReviewFY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 Redland Water.Period Setting 2014–15 prices provides an opportunity120 Over-r ecoverforyU Redlandnder-re Watercovery to addressRevenues theseCo concernssts and 110demonstrate that there is no exercise of monopoly power. Redland Water has advised it will take the QCA’s 100 More information concernsHeading?? ? into account in setting 2014–15 prices. 90 For60 more information on water and sewerage prices in your region visit our website: www.qca. 80 50 org.au/water 70 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 40 Over-recoveryUnder-recovery Revenues Costs

$M 30 53 52 49 44 20 36 38 38 39

10

0 Water Wastewater WaterWastewater

2013–14 2014–15

Maximum Allowable Revenue (QCA)Forecast Revenue (RW)

140 2013–15 130 Review Period 120

110

100 Heading?? ?

90

80

70 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23

Over-recoveryUnder-recovery Revenues Costs