Enhancing Life and Liveability

Melbourne Water Annual Report 2012–13 Contents

Overview Page 1 Chairman’s Report Page 2 Managing Director’s Report Page 3 Service delivery Page 4 Water Page 6 Alternative water sources and integrated water cycle management Page 14 Page 22 Waterways Page 28 Corporate Page 36 Environmental stewardship Page 38 Relationships Page 46 Financial sustainability Page 52 Organisational capability Page 62 Financial Report Page 68 Performance reporting Page 127 Statutory information Page 140 Overview

About us Water is owned by the Victorian Government. We manage catchments, treat and supply drinking and recycled water, remove and treat most of Melbourne’s , and manage waterways and major drainage systems in the and Westernport region. In all our business decisions we consider social, environmental and financial effects, and short-term and long-term implications. Our customers include metropolitan water retailers, other water authorities, land developers and businesses that divert river water, and the 1.8 million households that receive waterways and drainage services in the greater Melbourne region. We deliver our services in partnership with others including government agencies, local councils, catchment authorities, contractors and suppliers.

About this report Accessibility ’s Annual Report An accessible text format of this report 2012–13 describes our annual progress is available on our website at towards achieving our vision of Enhancing melbournewater.com.au Life and Liveability in the greater Melbourne If you want to obtain a copy of this report, region, and how we met our regulatory or sections of it, in a different accessible obligations from 1 July 2012 to 30 June format, please contact Melbourne Water 2013. The Honourable Peter Walsh MLA, on 131 722 (in ), (03) 9679 7100 Minister for Water, was the Minister if calling from interstate or email responsible for Melbourne Water from [email protected] 1 July 2012 to 30 June 2013. The report reviews our performance Our strategic guide against key performance indicators (KPIs) detailed in our Corporate Plan Melbourne Water’s vision of Enhancing Life and KPIs that meet Ministerial Reporting and Liveability outlines a commitment to Directions. We also report against do our part to improve the quality of life sustainability or water industry-based within the greater Melbourne region. indicators including The Global Reporting The document guides and informs our Initiative (GRI): Sustainability Reporting decisions towards achieving this vision. Guidelines. The GRI Content Index and Melbourne Water’s Strategic Direction our Independent Assurance Statement is available on our website are available on our website melbournewater.com.au melbournewater.com.au

Online document As part of Melbourne Water’s commitment to sustainability, we will print a limited number of copies of this report, including 50 for the Victorian Parliament. An online version will be available on the Melbourne Water website melbournewater.com.au

1 Chairman’s Report

When our new direction and vision were established in March 2012 the Board was under no illusion about the hard work and commitment required to achieve our goals, and great strides have been made over the past year.

Since joining the Melbourne Water The draft strategy, Melbourne’s Water with others to increase reuse of this Board in September I have been Future, outlines greater use of rainwater, resource, particularly South East Water, thrilled with the progress the stormwater and wastewater to conserve which has started construction of a organisation has made in the first drinking water for human use, reduce recycled water pipeline to commercial full year of working to our Strategic pollution flowing into our waterways and residential development north Direction and vision, Enhancing Life and help maintain green open spaces. of the . and Liveability. What we do is consistent with these We also drew closer to completing goals and I look forward to the final When our new direction and vision the $75 million Frankston Drainage strategy at the end of 2013 following were established in March 2012 the Improvement Project – the single wide consultation on the draft with Board was under no illusion about the biggest project we have undertaken the community. hard work and commitment required to improve flood protection. The to achieve our goals, and great strides A Cleaner Yarra River and Port Phillip project is scheduled for completion have been made over the past year. action plan helps align our river health by the end of 2013 and will better and stormwater programs with the great protect businesses and homes from In particular, two organisation-wide work being done by other agencies, local flooding in severe wet weather. initiatives emerged in the last year: councils and the community to help Commercial Transformation and We are now entering a new regulatory protect our most iconic natural assets. Service Delivery, aimed at changing period with a lower capital spend, the way we do business, building the With regard to our financial representing a shift from large-scale capacity of our people and improving performance in 2012–13, total cash infrastructure investment to asset the level of service and products for returns to our shareholder were maintenance and renewal, and an our customers. Our customers are $94.7 million ($289.3 million in 2011–12). unwavering commitment to delivering demanding greater choice and value Net loss after tax was $30.1 million high quality services on behalf for money in the delivery of our products (compared with a $274.9 million profit of the community. and services in an environment under in 2011–12). The loss for 2012–13 is In accordance with the Financial pressure from population growth, primarily a result of the return to Management Act 1994, I am pleased urbanisation, ageing infrastructure customers of revenue that was collected to attest that Melbourne Water and climate variability. in 2011–12 to make forecast obligatory Corporation’s Annual Report is payments relating to the Victorian This environment has driven the compliant with all statutory Desalination Plant. These payments emergence of integrated water cycle reporting requirements. were not required due to delays management, with growing demand in the plant’s commissioning. for greater diversity of products and services. Being more commercially In December 2012 we completed focused and re-thinking our existing a $418 million upgrade of the Eastern service offerings is critical to meeting Treatment Plant in Melbourne’s outer Paul Clark these challenges. Of course, we are south-east to treat wastewater to Chairman one part of a broader industry and a much higher standard. The upgrade two major Victorian Government has dramatically strengthened the announcements in 2012–13 have protection of the marine environment provided the ideal regulatory at Boags Rocks in Gunnamatta, where framework for us to continue the majority of the water is currently working toward our vision. discharged. A significant additional benefit is the higher quality of recycled water produced. We have been working

2 Melbourne Water Annual Report 2012–13 Managing Director’s Report

It was a year of transition, not only in the scale of what we do, but how we do it. Working closely with the Office of Living Victoria, we are transforming the way our water cycle is managed and how services are provided across the whole water cycle.

Transition was a key theme of The capability of our people in these It’s always a pleasure to see the hard 2012–13, the culmination of an areas can only be achieved in a workplace work of our people recognised by era of significant infrastructure where safety and wellbeing are their peers and the public, and several investment and the beginning paramount. On that note, one of the Melbourne Water projects received of a consolidation phase. year’s achievements I’m most proud awards over the past year. of was receiving certification of our The past year was the last of the 2008 The Eastern Treatment Plant Tertiary newly-adopted Australian and New to 2013 regulatory pricing and investment Upgrade received the Water/Wastewater Zealand Safety Standard (AS/NZS period – in which time we delivered Project of the Year at the 2013 Global 4801), which focuses on continuous $3.7 billion of water, sewerage and Water Summit; the Melbourne Main improvement and commitment, not drainage infrastructure. We now shift Sewer Replacement received a Victorian simply compliance. For an organisation investment to a focus on asset Civil Contractors Federation Earth as diverse and complex as Melbourne maintenance and renewal. Award and was awarded the 2012 Water, AS/NZS 4801 was an ambitious Trenchless Society for Technology It was a year of transition, not only target, so I’m highly appreciative of Project of the Year – New Installation. in the scale of what we do, but how the efforts of many people across The Northern Sewerage Project won we do it. Working closely with the the business who worked hard to an Australian Institute of Project Office of Living Victoria, we are achieve certification. Management Award and our Info transforming the way our water It was a particularly busy and successful Program picked up a 2013 Sir Rupert cycle is managed and how services year in our Waterways area, and we Hamer Award and a Gold Knowledge are provided across the whole water were all pleased when a survey of 1,420 Management Excellence Award. cycle. This transformation involves Melburnians found 77% of respondents a shift from predominately centralised I look forward to working with the were satisfied with waterways in the catchment-to-building water and Board and our people as we continue region. This is the highest community wastewater systems to an approach to drive improvement across the business satisfaction rating we have ever that integrates management of to enhance Melbourne’s liveability. recorded since the biennial Community water supply, sewerage, drainage Perceptions of Waterways survey and natural water systems such was first undertaken in 1993. as waterways and bays. The Waterways group was also busy The recently established Commercial finalising the Healthy Waterways and Transformation and Service Delivery Stormwater strategies, which guide Shaun Cox programs will provide our people how the region’s rivers, creeks and Managing Director with the tools and processes to ensure stormwater systems will be managed we are continually improving our over the next five years. I’d like to understanding of our customers’ needs thank many people in local and state and our ability to meet their needs. government and the community who helped inform these strategies.

3 Service delivery

4 Water Page 6 Alternative water sources and integrated water cycle management Page 14 Sewerage Page 22 Waterways Page 28

5 Service delivery Water

6 “Our water storages continued to rise during the first half of 2012–13, exceeding 80% full for the first time since June 1997.”

Our aim Key achievements Disappointments • Met all water quality targets for • Failed to meet our target of less than Provide services that are valued E. coli, turbidity, aluminium and 1% for measurable transfer losses by our customers. disinfection by-products of total water delivered, partly due to water quality issues at the Tarago We will do this by: • Worked closely with water retailers to develop an annual Water Outlook, Treatment Plant and leakage from • Providing high-quality, safe and reliable which gives the community better the Tyabb Service drinking water and fit-for-purpose access to water use and supply • Two water main bursts caused water from alternative sources information minor damage and disruption in • Providing safe sewage transfer, • Achieved a $12 million capital saving Glen Waverley and Viewbank. treatment and disposal on a new water pipeline servicing • Protecting and enhancing the health Melbourne’s growing area of Wyndham Challenges and amenity of waterways and bays • Worked with fire fighting agencies • Working with water retailers, local • Managing flood risk to successfully protect water councils and the development industry catchments from bushfires. to maximise use of stormwater and • Adapting our assets to address recycled water while balancing use climate change and variability from traditional catchments and • Planning, operating and maintaining • Continuing to research and assess our built and natural assets efficiently the impact of seasonal and long- by incorporating innovative and term climate change on hydrology whole-of-life system approaches projections. • Providing for continuity of service by improving the way we plan for, respond to, and recover from extreme events.

7 Service delivery Water

Our water supply system Managing demand and supply Reflecting below average rainfall, 2012–13 stream flow of 478 billion Melbourne Water’s supply system Our water storages continued to litres into the major harvesting comprises: rise during the first half of 2012–13, was 3.1% below the long-term exceeding 80% full for the first time • 157,000 hectares of protected average. The year started well with since June 1997. However, even though catchments in the Yarra Ranges above average stream flow for the first total reservoir storage was 70.1% three months, although the last nine • 10 reservoirs with a total capacity or 1,271 billion litres at 1 July 2012, months of 2012–13 were below average. of 1,812 billion litres it had only increased to 70.8% or • 34 water treatment plants 1,282.9 billion litres by 30 June 2013. The total system storage volume of 70.8% at 30 June 2013 is the highest Rainfall across Melbourne’s catchments • 1,057 kilometres of water mains for this time of year in 16 years. for 2012–13 was below the long-term • 214 kilometres of aqueducts It represents a significant recovery average following two wetter years from June 2009 when storage levels • 64 service reservoirs. with back-to-back La Niña events in fell to their minimum of 25.6% during 2010–11 and 2011–12. Rainfall over the 1997 to 2009 Millennium Drought. the major catchments in 2012–13 was between 8.6% and 14.7% below average, with the catchment weighted average being 3.1% below. Thomson catchment highlighted the variability in monthly rainfall, receiving only 8 millimetres in January, yet 220 millimetres in June.

Figure 1 Goulburn River Melbourne Water Yea N water supply system

Toorourrong Reservoir Yea-Sugarloaf Pipeline Yan Yean O'shannassy Reservoir Reservoir Water supply pipeline, aqueduct Western Water Greenvale Reservoir Maroondah (Sunbury) Reservoir Water supply storage reservoir Water supply catchment area Western City West Thomson Water Water Reservoir Retail Water area boundary (Melton) Southern Rural Water Melbourne (Macalister District)

Cardinia Reservoir Gippsland Water (Neerim South) Gippsland Water (Warragul) Port Phillip Bay South East Water

WesternWestern Port Port

French Island

Phillip Bass Strait Island

8 Figure 2 200 Monthly average rainfall at Melbourne’s major harvesting reservoirs 150

Rainfall 2012-13 (mm/month) 100 Rainfall 30-year long-term average (mm/month) 50

0

Jul-2012 Jan-2013 Feb-2013 Apr-2013 Jun-2013 Aug-2012 Sep-2012 Oct-2012 Nov-2012 Dec-2012 Mar-2013 May-2013

Figure 3 120000 Monthly average streamflow at Melbourne’s major 100000 harvesting reservoirs 80000

Steamflow 2012–13 (ML/month) 60000 Steamflow 30-year long-term 40000 average (ML/month)

20000

0

Jul–2012 Jan–2013 Apr–2013 Jun–2013 Aug–2012 Sep–2012 Oct–2012 Nov–2012 Dec–2012 Feb–2013 Mar–2013 May–2013

Figure 4 100% Melbourne’s water storage 80%

60% Storage volume (%) 40%

20%

0%

1998 1999 2001 2010 2011 2012 2013 2000 2002 2003 2004 2005 2006 2007 2008 2009 – – – – – – – – – – – – – – – – Jan Jan–1997Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan

Figure 5 1200 Annual stream flow at Melbourne’s major harvesting reservoirs (Upper Yarra, Thomson, 960 Maroondah, O’Shannassy Reservoirs)

720 Financial year reservoir inflow (GL) 2006–07 infows – 480 lowest on record (180.0 GL) Long-term average (613.0 GL/a) 240 1997/98–2011/12 average (420.5 GL pa) 0

1912/13 1921/22 1976/77 1903/04 1930/31 1949/50 1958/59 1967/68 1985/86 1994/95 2003/04 2012/13

9 Service delivery Water

Desalination plant on standby New pipeline to service growth • Ensuring all connections of in Wyndham alternative supply mains were The Victorian Desalination Plant open and operational was commissioned in 2012. Construction of a water pipeline to service Wyndham, one of the fastest • Daily surveillance along pipelines The AquaSure consortium undertook growing municipal areas in , supplying the CBD to ensure no performance testing from September will cost $12 million less than originally impact from third party works to December 2012, with desalinated forecast due to savings identified as such as unknown excavation water meeting all required drinking water part of a joint integrated water cycle standards. The final commissioning test • Cancelling programmed works management approach with City involved running the plant at maximum associated with supply to the CBD West Water. capacity for 30 consecutive days. • Melbourne Water’s Water Control Water demand from the City West During commissioning, a total of Centre undertaking daily checks Water zones of Cowies Hill and West 24.9 gigalitres of desalinated water of the controlling pressures at key Werribee is forecast to increase was transferred to . locations to ensure adequate supply significantly over the next 25 years, However, as the Victorian Government • Reconfiguring water supply zones requiring construction of a new main placed a zero gigalitre order for 2012–13, to meet increasing summer demands. to service growth. the plant ceased production on completion of testing. A further zero Stage 2 of the St Albans to Werribee Water main bursts gigalitre order was placed for 2013–14. Pipeline project will now cost $12 million On 29 October 2012, a water main less following an analysis of the benefits In the lead up to the first supply of burst in Knights Drive, Glen Waverley, of integrated water cycle management desalinated water, Melbourne Water due to a faulty valve. The damaged and the impacts of changing growth worked closely with AquaSure, the section was shut down within an rates and peak demands. Department of Environment and hour and isolated to ensure no impact Primary Industries1 and impacted The diameter of the new pipeline will to water supply in the local area. water retailers to develop protocols be reduced by installing a ‘third-pipe’ Melbourne Water worked to assist for coordinated operation of systems carrying recycled water to households the owners of the one property that and infrastructure. This included for non-drinking purposes, resulting was damaged. innovative hydrodynamic modelling in significant reductions in peak potable It is estimated that about two million of Cardinia Reservoir to predict the water demand. mix of the desalinated water in the litres of water, equating to 0.2% of reservoir and the potential impacts Melbourne’s daily water use, flowed Working collaboratively into the stormwater system. on water quality. to maintain supply On 20 December 2012, a water main While the desalination system will Following ground movement in burst in Martins Lane, Viewbank. operate on an as-needs basis, further October 2012 from the construction To avoid leaving Melbourne’s CBD and work will be undertaken with the of a new hospital, northern and western suburbs without operator to refine and integrate had to isolate its Elizabeth Street water, crews first redirected water from operating arrangements. transfer mains, which provide water other parts of the system before the to Melbourne’s CBD. damaged section could be shut down. To ensure a continued water supply The burst main, caused by a faulty to the CBD, Melbourne Water worked valve on the Silvan-Preston main, with City West Water on contingency resulted in some land erosion damage measures including: to several properties and Melbourne Water worked with emergency services to assist residents.

1 Formerly two separate departments known as the Department of Sustainability and Environment and the Department of Primary Industries.

10 Melbourne Water Annual Report 2012–13 Water consumption and quality 1 December 2012. Melbourne recorded Retail water consumption nine consecutive days of above 32°C in Stage 1 water restrictions were lifted Melbourne Water supplied 404,260 March 2013. This was the city’s longest and Permanent Water Use Rules were million litres of drinking water to water spell of 30°C or above days in any implemented in Melbourne from retailers in 2012–13. This compares month since records began in 1855. 1 December 2012. with 365,559 million litres in 2011–12, Residential daily per capita water and 351,761 million litres in 2010–11. Even though water restrictions consumption for Melbourne in 2012–13 were lifted, Melburnians continued This year’s consumption of 404,260 was 161 litres compared to 149 litres to conserve water in 2012–13, with million litres is similar to levels last in 2011–12. an average daily consumption of seen without water restrictions in 1,106 million litres per day. This is Melbourne Water met water quality the 1980s (refer to Figure 7 Financial above the 1,004 million litres average targets for E. coli, turbidity, aluminium Year Consumption graph), even daily consumption in the last five and disinfection by-products in though Melbourne’s population years, but significantly lower than 2012–13. We work closely with water has grown by 60%. the 1,320 million litres per day in retailers to consistently meet stringent the 1990s. requirements in the distribution of safe, high quality water. While consumption increased compared to 998 million litres per day in 2011–12, Melbourne’s water supply system is this may be attributable to higher managed according to Hazard Analysis temperatures and drier conditions and Critical Control Point principles. in the 2012–13 summer compared Audits and accreditation are used to cooler and wetter conditions in to ensure quality management from 2011–12. It could also be due to the collection, treatment and distribution replacement of Stage 1 water restrictions to customers. with Permanent Water Use Rules from

Figure 6 1990s Average* 1,320 ML/day Average daily water use for Melbourne Average** 5 years (2006–07 to 2011–12) 1,004 ML/day

Water use (ML/day) Average for 2011-12 998 ML/day

* Based on 8 year average (1 Jul to 30 Jun 1992–1999) Average for 2012-13 1,106 ML/day ** Based on 5 year average (1 Jul 2007 to 30 Jun 2012) 0 300 600 900 1200 1500

Figure 7 600,000 Financial year consumption 480,000

360,000 Consumption (ML/year) 240,000

120,000

0

1951/52 1958/59 1965/66 2072/73 1979/80 1986/87 1993/94 2000/01 2007/08 2012/13

11 Service delivery Water

Figure 8 2012–13 Retail water consumption

37.0% Yarra Valley Water 149,635 ML 34.8% South East Water 140,616 ML 0.1% Gippsland Water 345 ML 25.5% City West Water 103,231 ML 2.6% Western Water 10,433ML

100% Total Consumption 404,260 ML

Water Security Committee Environmental sustainability Water Supply Demand Strategy and Water Outlook Melbourne Water continues to work During 2012–13, Melbourne Water Melbourne Water and the water with water retailers, local councils and supported the development of retailers prepared an annual Water the development industry to maximise Melbourne’s Water Future. Outlook for Melbourne which was use of water sources such as stormwater This strategy adopts a whole-of-water- published on 1 December 2012. and recycled water while balancing use cycle approach to the linked challenges from traditional catchments and dams. The Water Outlook indicates the of securing a safe and plentiful water overall level of water supply system supply, managing stormwater runoff security based on the storage volume Sustainable water use and wastewater discharge, reducing at 30 November each year in relation During 2012–13, Melbourne Water urban flooding, keeping parks and to three zones: high, medium and low. worked with the Victorian Government green, and improving the These zones are used to determine on developing strategies that plan for health of waterways. The previous appropriate water management Melbourne’s water cycle. Water Supply Demand Strategy was measures. Melbourne’s storage reviewed as a key input to Melbourne’s volume was in the high zone as We took the opportunity to make Water Future. at 30 November 2012. a submission to the Victorian Government’s new Metropolitan Sustainable water strategies The Water Outlook outlines a range Planning Strategy, which provides of demand management and supply an ideal opportunity to promote a Sustainable water strategies are augmentation actions for the period, new way of managing and planning intended to secure water supplies including alternative supply projects for the water cycle. for consumption and environmental and water efficiency programs. purposes over a 50-year period. We also worked with the Office of Living Victoria to develop a new approach to The Central Region Sustainable Water urban water planning. This approach Strategy 2006 sets out a series of will be incorporated into the Victorian actions to 2055 to deliver sustainable Government’s Melbourne’s Water water use and management objectives. Future strategy and is founded on an The objectives of this strategy are understanding of the entire water cycle addressed through Melbourne’s Water and its drivers: geography, topography, Future. For more information on location of community assets, hydrology, Melbourne Water’s role in balancing economics, climate and demography. consumption and environmental needs, It is expected both the Metropolitan refer to the Alternative water sources Planning Strategy and Melbourne’s Water and integrated water cycle management Future will be finalised in 2013–14. chapter and the Waterways chapter.

12 Limiting system losses and implications of a variable climate The Thomson catchment came under and repairing leaks on our business, and to provide serious threat on its western flank climate resilience. with the Aberfeldy fire, and this was Melbourne Water annually reviews followed by a series of lightning strikes the rate of leakage and water loss During 2012–13 we supported the across the Upper Yarra and Thomson from its water supply system in line completion of two Australian Research catchments resulting in a fire within the with Bulk Water Supply Agreements Council Linkage Projects led by the Thomson catchment itself. Melbourne with water retailers, water conservation University of Melbourne which will Water fire fighters were heavily involved targets, our corporate strategic inform water resources planning in defending the catchment. goals and the Essential Service decisions. One project put recent Commission’s requirements. climate variations into a longer-term During the year, strong relationships The scope of this review includes context by providing reconstructions were forged with the Country Fire leaks from pipelines, valves and of historical annual rainfall, stream flow, Authority (CFA), Department of fittings, aqueducts, tank cleaning, temperature and pressure variations Environment and Primary Industries and operational water usage for data for south-eastern Australia. The (DEPI), Parks Victoria (PV), the State cleaning and other purposes. A number second project analysed recent climate Control Centre and the Fire Services of other losses are not included, such patterns and assessed the range of Commissioner. This enabled Melbourne as reservoir evaporation, seepage uncertainty in projected annual rainfall Water to quickly alert all parties to the and environmental flows. and river flows under climate change. serious threat posed to the water supply catchments by the Thomson fires. The Melbourne Water also supported Melbourne Water did not meet its Fire Services Commissioner realised the the Water Services Association KPI target of less than 1% of transfer serious risk and responded proactively. losses in total water delivered during of Australia’s ‘AdaptWater’ project. 2012–13 (recording 1.14%). This was Through this project a tool was In the autumn post-fire season, a planned due to water quality issues at the developed that assists in the burning program was undertaken to Tarago Treatment Plant, requiring quantification of climate risks minimise the bushfire risk in the water large volumes of water to fix, and to assets and enables comparison supply catchments, with Melbourne leakage from the Tyabb Service of potential adaptation options. Water assisting DEPI and PV to achieve annual targets. Two successful planned Reservoir, among other factors. Working groups have been established burns were conducted on Melbourne within Melbourne Water and with A renewal project is already programmed Water land at Silvan and Sugarloaf water retailers to set direction and for Tyabb in Water Plan 3 (2013–14 to reservoirs with the CFA. 2017–18) so it is not economically feasible review climate change adaptation to repair the leak beforehand. However, activities. In 2012–13, we reviewed Office water use Melbourne Water has made significant our climate information needs and water savings through operational adaptation activities, and we commenced Melbourne Water did not meet changes to the Winneke to Preston Water an external review of the Climate its office water use target in Main to reduce cleaning requirements. Change Risk Register. 2012–13. Consumption was 3,594 litres per full-time employee (FTE) Melbourne Water continues to reduce Protecting our catchments per year compared to a target of and better account for water loss in the from bushfire 3,177 litres per FTE. trunk water network through a variety of means such as: aqueduct lining and Although Melbourne Water is not This was mainly due to commissioning improved flow measuring technologies; a statutory fire fighting authority, issues with our new head office, resulting a dedicated in-house pipe repair crew; we have a legislated responsibility to limit in more potable water use instead of cathodic protection of tanks and the occurrence and spread of fire from rainwater and stormwater. This included pipelines; flow meter validation/salt our land to neighbouring properties. commissioning issues with water tanks trials; and other best practice asset Melbourne Water is also involved in fire and excessive use of water for cooling management activities. prevention and suppression to protect the building’s sewage pumps. These issues vulnerable built and natural assets have now been resolved and we have Adapting to a variable climate as well as water supply catchments. a new building management system (software application) that alerts us when Climate variability has the potential In the lead-up to the 2012–13 summer, more water is being used than expected. to impact on water, sewerage, drainage preparations were made for what was and waterway systems managed by forecast to be an average bushfire season. In terms of office space, corporate water Melbourne Water. Climate variability Preparations included maintaining more use equates to 183.3 litres per square can have a significant impact on than 2,400 kilometres of roads and fire metre. This data is collected for the 990 hydrology projections, so Melbourne trails, ensuring Melbourne Water’s 100 La Trobe Street, Docklands, head office. Water continues to work with climate fire fighters were physically fit and well researchers, industry partners trained, and ensuring all equipment was and customers to understand the risks checked and ready for use.

13 Service delivery Alternative water sources and integrated water cycle management

14 “Melbourne Water continues to work with its customers to help deliver the Victorian Government’s vision of a smart, integrated and resilient water system for a liveable, sustainable and productive Melbourne.”

Our aim Key achievements Disappointments • Collaborated with the Office of Living • Recycled water usage remains lower Contribute to a more sustainable, Victoria, water retailers and local in wet years and higher in dry years. prosperous, liveable and healthy councils on regional integrated water Although Melbourne Water’s capacity community by planning and strategies to guide investment in to supply recycled water is unaffected delivering water supply, waterways water projects across Melbourne by weather and seasons, greater and sewage services holistically. • Provided input into the new expansion into industrial and residential supply would create We will do this by: Metropolitan Planning Strategy and identified integrated water servicing more reliable demand. • Collaborating with customers and options for Melbourne’s growth areas stakeholders to promote new and Challenges diverse water resources • Developed a strategy with local councils, water retailers and • Integrating all sources of water • Integrating water planning and community groups to maximise to diversify supply, improve climate urban development planning liveability through land management resilience and promote fit-for-purpose • Finding ways to obtain multiple use to preserve drinking water supplies, • Achieved an Australian-first planning particularly in times of higher rainfall benefits from our natural and amendment for Little Stringybark built assets Creek, which requires developers • Developing a framework to share • Managing the water supply system that expand impervious surface the costs and benefits of integrated to meet urban, environmental and areas by more than 10 square metres water cycle management projects agricultural needs to treat runoff before it enters the across organisations • Undertaking long-term planning stormwater system. • Keeping pace with the speed of urban with stakeholders to meet the needs growth and supporting development of a growing population and address of integrated water cycle management the forecast impacts of climate plans in growth areas change and variability. • Encouraging expanded use of recycled water beyond irrigation during dry periods.

15 Service delivery Alternative water sources and integrated water cycle management

Using alternative water sources Melbourne Water is working with local South East to benefit Melbourne councils and water retailers to deliver After the development of an Integrated stormwater harvesting projects for Melbourne Water continues to work Water Cycle Management Strategy residential and open space uses. with its customers to help deliver in 2012 with South East Water and the Victorian Government’s vision We are also working with City West Southern Rural Water, attention of a smart, integrated and resilient Water, Southern Rural Water, South has shifted to on-ground delivery water system for a liveable, sustainable East Water and the Water Infrastructure of integrated water cycle management and productive Melbourne. Group to provide customers with approaches in urban growth recycled water from our wastewater area planning. We are collaborating with customers treatment plants and encourage and stakeholders to deliver the best In 2012–13, Melbourne Water worked expanded use of recycled water value we can from the whole water with South East Water, the Growth beyond irrigation during dry periods cycle. This means we are driven by Areas Authority and local councils (e.g. for residential dual-pipe schemes). the perspectives of our customers to develop integrated water servicing and stakeholders and have been strategies for the Botanic Ridge and making tangible progress through Regional strategies to guide Casey-Clyde growth areas. These on-ground projects. investment in water projects strategies consider the role of recycled water and stormwater harvesting to A key lesson we have learned is the During 2012–13 Melbourne Water reduce potable water use and sewage need to be flexible and outcome- collaborated with the Office of Living discharges, and reuse urban stormwater. focused. This has seen us use different Victoria and our customers to develop service approaches for different regional integrated water cycle strategies Investigations at the Botanic Ridge localities to match local drivers to guide investment in water projects site deemed stormwater harvesting and ensure affordable water cycle across Melbourne to 2050. unfeasible for domestic use when the management. The strategies are being developed to full range of costs and benefits were considered. Options analysis of the Drinking water makes up less than outline a program of staged works that Casey area identified opportunities one-third of Melbourne’s total water contribute to the vision of a ‘productive, for extensive use of alternative water demand. The Department of Health liveable and sustainable’ region by 2050. sources, which will be progressed requires drinking water to be used in 2013–14. for indoor taps and showers. North The preliminary Integrated Water Cycle Treated alternative water sources can West be used for toilet flushing, laundry use, Management Plan, completed by Yarra domestic gardens, parks and gardens, Valley Water and Melbourne Water An investigation by Melbourne Water, some environmental purposes, industry with the Office of Living Victoria, City West Water, Southern Rural Water, and peri-urban agriculture. Taking this has been released for consultation. Western Water and the Office of Living approach enables Melbourne to preserve The plan investigates sustainable ways Victoria found a regional Integrated drinking water for specific uses. to provide water supply and Water Cycle Management Plan in services to new homes and businesses Melbourne’s west could deliver There are multiple benefits to managing in Melbourne’s northern growth corridor substantial value. the water cycle in a more integrated through integrated water cycle way, such as: The five organisations took the first management. steps towards developing a regional • Community – healthy open spaces Melbourne Water is also working plan, which included work on integrated and sports fields, a reduced urban with Yarra Valley Water on promoting water cycle management with the heat island effect and improving the integrated water cycle management Growth Areas Authority and investigation resilience of the water supply system in infill development through the of the contribution water authority to climate change and variability Coburg stormwater harvesting owned or influenced land makes to • Economic – opportunities for growth, project. The Coburg Principal Activity recreational opportunities in the region. especially in industry and agriculture Centre Harvesting and Reuse project Work in 2012–13 also included will examine how to select a large investigating ways to share recycled • Environment – increasing the amount redevelopment site for viable water treatment capacity at the of water available for environmental stormwater harvesting and reuse . flows and reducing the impact of in inner Melbourne. discharges such as stormwater and This work will form the basis of the treated wastewater. Integrated Water Cycle Management Plan, which will require work with local councils and other key stakeholders in 2014 to progress priority opportunities.

16 Melbourne Water Annual Report 2012–13 Melbourne Water and City West Water The inner Melbourne submission for Defining liveability are also working collaboratively to deliver the Metropolitan Planning Strategy To support regional planning, integrated water cycle management advocates for an integrated water Melbourne Water initiated a project in Melbourne’s western growth areas. cycle management approach across in 2012–13 to better understand the the urban planning process to limit A Melbourne Water employee has concept of ‘liveability’ and what it increased demand for drinking water, been seconded to work with City West means within our business and the reduce wastewater flows and retain Water to facilitate integration of water water industry. a higher proportion of stormwater management services to benefit flows either onsite or in the landscape. Consultation included discussions with the community and the environment. Such an approach is expected to: water industry stakeholders and other The secondment is recognised by both agencies, focus groups and interviews organisations as an excellent example • Substantially reduce expenditure on with local councils, community and of Melbourne Water’s commitment augmentation of transfer/distribution social planners. to strong working relationships with mains and balancing storages its customers. • Reduce expenditure on augmentation Several key themes emerged including of trunk and reticulation sewers affordability, open space, diversity, Inner Melbourne growth areas, built and natural • Reduce both total and peak environments and business activities. To inform the Metropolitan Planning stormwater flows into local drainage By understanding how our activities Strategy, Melbourne Water has worked networks with an associated reduction and actions contribute to liveability, with the Office of Living Victoria, in flooding (where flooding is not we can develop ways to demonstrate the Department of Transport, Planning caused by external catchments this contribution and help drive 2 and Local Infrastructure and the water or tidal influences) improvements. retail businesses to undertake a water • Help preserve and enhance the cycle study of inner Melbourne. Melbourne Water has also developed amenity of inner Melbourne by a strategy to maximise liveability The Victorian Government has providing local councils with an through land management. previously identified a number of expected lower cost water supply precincts for urban renewal within for irrigating parks and street trees There is a significant opportunity to improve liveability for the community inner Melbourne. The broad-scale • Improve inner Melbourne waterways through land management, as research development of these precincts will by reducing peak stormwater flows shows that land is at the heart of our be accompanied by redevelopment and associated pollutants of existing activity centres, with growth customers’ perceptions of liveability. anticipated to reshape an area far • Facilitate the improvement and Access to open space, recreational beyond the Hoddle Grid traditionally creation of green corridors alongside opportunities and providing a connection recognised as the Melbourne CBD. healthy waterways to provide key to the natural environment are very linkages for the community. important. Evidence suggests people Water companies have undertaken The next step is to expand the current are more likely to participate in exercise hydraulic modelling of the water and if they have greater access to open sewerage networks to estimate the cost working group to include local councils and deliver an Integrated Water Cycle space, thereby reducing the strain of managing the water cycle constraints on health services. associated with further development Management Plan for inner Melbourne of inner Melbourne. These investigations by September 2014. Melbourne Water is well-positioned have identified the types and locations to provide more public open space of works needed to ensure water cycle opportunities by re-examining our services are provided. The investigations land management practices. have been used in conjunction with economic modelling undertaken by the Office of Living Victoria. The same work has also been used to show the total community cost of managing the water cycle through business-as- usual approaches.

2 Formerly two separate departments known as the Department of Transport and the Department of Planning and Community Development.

17 Service delivery Alternative water sources and integrated water cycle management

Stormwater harvesting Review of stormwater Managed aquifer recharge planning clause Melbourne Water is responsible for Managed aquifer recharge involves the licensing of surface water from Clause 56.07-4 of the Victorian refilling aquifers for later recovery some catchments and from its own Planning Provisions is an important and use, or environmental benefit. works, which includes the requirement clause for managing stormwater Water deposits are made in times to licence stormwater. as part of urban development. of surplus – commonly during winter – and extraction occurs during peak There are currently 32 active stormwater In response to growing concern among demand in summer when traditional licences issued by Melbourne Water, our internal and external customers supplies struggle to meet demand. mainly to councils and sports clubs, about the application of this clause, totalling 1,455 million litres. Melbourne Melbourne Water led a review in Multi-year balancing is also possible Water is actively working with local partnership with the Office of Living for long-term storage. Typically, managed councils and water retailers to Victoria, the Department of Environment aquifer recharge involves the capture identify and implement stormwater and Primary Industries, and the and use of treated stormwater or harvesting projects. Department of Transport, Planning recycled water to recharge an aquifer. and Local Infrastructure. Melbourne Water is continuing Best Practice Environmental The objective of the review was to to support City West Water’s West Management Review determine the barriers and enablers Werribee Aquifer Storage and Recovery A review of the Best Practice to the clause, with input from project. This project aims to use Environmental Management (BPEM) Melbourne Water, local councils, managed aquifer recharge to store Guidelines for Urban Stormwater is developers and industry organisations. excess salt-reduced recycled water progressing following the release of the Recommendations were provided to from a salt reduction plant at the Ministerial Advisory Council’s roadmap partner agencies on steps that could Western Treatment Plant. The project for water reform, the Living Melbourne, be taken to achieve better stormwater could balance short-term seasonal Living Victoria Implementation Plan management outcomes in the demands as well as secure supply for and the Victorian Government’s Yarra planning provisions. coming decades. Detailed design of and Bay Action Plan. the site is underway, with construction expected to start in early 2014. A joint project between Melbourne Little Stringybark Creek trials new Water, EPA Victoria, the Office of Environmental Significance Overlay Trials are also being planned for three Living Victoria and the Department The Little Stringybark Creek additional aquifer storage and recovery of Environment and Primary Industries3, Environmental Significance Overlay sites on Melbourne Water land at the review is required to meet is an Australian-first planning Ravenhall, Greek Hill and Ballan Road. aspirations for integrated water cycle amendment that requires developers management. The project provides in the catchment to treat water runoff an opportunity to review the scope, before it enters the stormwater system. form and specifics of the objectives of the guidelines, based on the latest The overlay requires developers who research and industry experience. increase impervious surface area by more than 10 square metres to treat Changing the BPEM standards involves runoff onsite through rainwater tanks, a two-phased approach. The first is a raingardens or passive drainage, rather technical review of the BPEM standards. than flows entering the stormwater Melbourne Water has commissioned system. The overlay is designed as a large portion of the research that a two-year pilot to determine if this underpins the review. The second phase type of planning control is effective is to determine recommended changes in reducing stormwater flows and to the existing BPEM. improving urban waterway health.

3 Formerly two separate departments known as the Department of Sustainability and Environment and the Department of Primary Industries.

18 Melbourne Water Annual Report 2012–13 Figure 9 Melbourne Water’s N recycling schemes

Werribee irrigation district Werribee tourist precinct Yarra Valley Water Eastern irrigation scheme City West South Eastern Outfall Water Sewer treatment plant onsite use Retail Water business boundary

South East Water

Port Phillip Bay

Western Port

French Island

Bass Strait Phillip Island

Managing water quality In 2012–13 we continued to work Water recycling west of Melbourne and reliability of supply with water retailers and other key Western Treatment Plant supplied stakeholders to reduce salt discharges Work is now complete on the Eastern 11,080 million litres of recycled water to sewerage, and we are reviewing our Treatment Plant Tertiary Upgrade to customers in 2012–13 (23,168 million Salinity Reduction Strategy to provide project, which has increased the quality litres last year). This comprised more fit-for-purpose recycled water of recycled water to Class A standard. 8,438 of recycled water used onsite for customers. Consultation with key (23,007 million litres last year) by This higher quality water can now be stakeholders indicated that a risk the agricultural business MPH Agriculture, used for a broader range of non-drinking assessment for the Eastern Treatment mostly Class C water for pasture irrigation applications such as toilet flushing, Plant and Western Treatment Plant and salinity management, and 2,642 watering sports grounds and irrigating catchments was needed. The results million litres of Class A recycled water vegetables. Operational handover to highlighted specific risk factors for the supplied to Southern Rural Water and Melbourne Water occurred in April Western Treatment Plant catchment, City West Water for offsite customers 2013 and Class A supply contracts which are now the subject of further (161 million litres last year). with recycled water customers will investigation. start from July 2013. Melbourne Water This year saw an encouraging increase The process will determine the is continuing to work closely with South in demand for Class A recycled water effectiveness of previous salt reduction East Water to progress further recycled from both City West Water and mechanisms such as cleaner production, water opportunities from Eastern Southern Rural Water. pricing and trade waste variations as Treatment Plant. well as other options such as treatment and on-site management. Once the investigation is complete, a triple bottom line analysis will determine the most cost-effective method for salinity management and a draft management plan for Western Treatment Plant will be released in late 2013.

19 Service delivery Alternative water sources and integrated water cycle management

Supply to Southern Rural Water City West Water was supplied with Supply to Water 30 million litres of recycled water Infrastructure Group Melbourne Water supplied 2,376 for MacKillop College (22 million litres million litres of Class A recycled water Melbourne Water supplied 5,767 last year). Water carters were supplied to Southern Rural Water (9 million million litres of Class C recycled water with 80 million litres of recycled water litres last year). A total of 67 million (3,089 million litres last year) to from City West Water standpipes litres was supplied to customers the Water Infrastructure Group. at the Western Treatment Plant in the Werribee Tourist Precinct. This was supplied for treatment (32 million litres last year) for to Class A recycled water for use This year 2,309 million litres of Class A a range of applications. in the Eastern Irrigation Scheme. recycled water was supplied to the This year saw a perceived decrease Werribee Irrigation District (0 million The Eastern Irrigation Scheme operates in the use of Class C recycled water litres last year). This was due to a drier under the brand TopAq, a wholly owned for onsite agricultural use (8,438 million 2012–13 irrigation period and Southern subsidiary of the Water Infrastructure litres) when compared to last year’s Rural Water’s new contracts with Group. TopAq distributes recycled water usage (23,007 million litres). Werribee Irrigation District farmers, to more than 80 customers for The perceived variance is due to a which will see river water diluted with horticulture, open space irrigation difference in how the recycled water recycled water. This new arrangement and industrial processes. volumes are calculated. In 2011–12, ensures farmers have access to volume determination depended TopAq also supplies South East Water irrigation water even during harsh heavily on mass balance calculations. with recycled water for dual pipe droughts and reduces dependency This year, upgrade works have seen the schemes in residential developments on river water. installation of flow meters throughout where the water is used for toilet the recycled water delivery channels flushing, watering, streetscape Supply to City West Water and volumes can be more accurately and open space irrigation. Melbourne Water supplied 267 million assessed. It is estimated that Class C litres of Class A recycled water to City recycled water flows to MPH Agriculture Supply to South East Water West Water (152 million litres last year) are actually within 10% of previous Melbourne Water supplied 1,206 million for the West Werribee Dual Supply, year volumes. litres of Class C recycled water to South Werribee Employment Precinct, In addition, 16,416 million litres were East Water via the South Eastern Outfall MacKillop College and standpipes provided for conservation purposes pipeline (719 million litres last year). for water carters. in the Ramsar-listed wetlands The pipeline transports recycled This year, City West Water’s West (16,500 million litres last year). water from the Eastern Treatment Werribee Dual Supply scheme came Including the conservation flow, Plant and smaller South East Water online. This scheme supplies housing 16% of Melbourne Water’s treated treatment plants to Boags Rocks developments in Werribee’s west wastewater from both the Western on the Mornington Peninsula. with recycled water for toilet flushing, Treatment Plant and the Eastern garden watering, streetscape and Treatment Plant was recycled. South East Water customers along open space irrigation. During this year the pipeline use this recycled water 2 million litres was supplied to City Water recycling east of Melbourne for agricultural and horticultural West Water for this scheme. activities, root crop irrigation, flower Historically, the Eastern Treatment growing, drip irrigation of vineyards, In the Werribee Employment Precinct, Plant at Bangholme has produced and for watering golf courses and recycled water is used by City West Class C recycled water. With the sports grounds. There are 50 customers Water’s commercial customers for completion of the Tertiary Treatment using recycled water from the South wash-down, industrial processes at Upgrade, the plant now produces Class Eastern Outfall, the same number Melbourne Water’s Hoppers Crossing A quality water. Melbourne Water is as last year. Pump Station and open space irrigation. working closely with water retailers During the year, 154 million litres was to transition into the supply of Class A supplied to City West Water for this water commercially. precinct (98 million litres last year). This year 21,352 million litres of recycled water (18,139 million litres in 2011–12) was supplied from the Eastern Treatment Plant, including 14,379 million litres onsite (14,331 million litres last year).

20 Melbourne Water Annual Report 2012–13 Recycled Water Volumes Actual 2011–2012 Actual 2012–2013 Forecast 2012–13 ML %* ML %* ML %* Western Treatment Plant Onsite recycling (Supply to MPH) 23,007 7.2% 8,438 2.8% 30,000 9.9% Supply to Southern Rural Water Werribee Irrigation District 0 0.0% 2,309 1.0% 10,650 3.4% Werribee Tourism Precinct 9 0.0% 67 0.0% 200 0.1% Supply to City West Water West Werribee Dual Pipe Project 0 0.0% 2 0.0% 80 0.0% Werribee Employment Precinct 98 0.0% 154 0.1% 360 0.1% MacKillop College 22 0.0% 30 0.0% 50 0.0% Water tankers/standpipes 32 0.0% 80 0.0% 200 0.1% Western Treatment Plant Total 23,168 7.2% 11,080 3.9% 41,540 13.6%

Eastern Treatment Plant Onsite recycling 14,331 4.5% 14,379 4.7% 13,800 4.5% Supply to Water Infrastructure Group Eastern Irrigation Scheme 3,089 1.0% 5,767 1.9% 5,000 1.6% Supply to South East Water South Eastern Outfall 719 0.2% 1,206 0.4% 1,600 0.5% Eastern Treatment Plant Total 18,139 5.7% 21,352 7.0% 20,400 6.6%

Total recycled 41,307 12.9 % 32,432 10.9% 61,940 20.2% Treated wastewater available for 320,356 304,506 recycling Conservation flows at Western 16,500 16,416 Treatment Plant Total incl. conservation flow 57,807 48,848

*Refers to percentage of treated wastewater produced at Melbourne Water’s treatment plants. ML = million litres

21 Service delivery Sewerage

22 “The Eastern Treatment Plant Tertiary Upgrade received an industry award at the Global Water Summit in Seville, Spain, where it was named 2012 Water/Wastewater Project of the Year.”

Key achievements Disappointments • Awarded the Water/Wastewater • Failed our odour complaints Project of the Year for the Eastern target, with 14 complaints Treatment Plant Tertiary Upgrade against a target of 10 at the 2013 Global Water Summit • Delayed completion of new aeration • Received national and state tanks at Eastern Treatment Plant until awards for the Melbourne Main December 2013 due to substantial Sewer Replacement project defects requiring rectification. • Trialled the use of biosolids as fertiliser to improve soil structure Challenges and boost the yield of crops such • Rehabilitating the Eastern Drop as wheat and corn. Structure on Hobsons Bay Main Sewer in a ‘live’ sewer environment to facilitate the construction of an air treatment facility • Reviewing our Corrosion and Odour Management Program to manage issues such as the impacts of reduced sewer flows on odour- causing compounds • Positioning Melbourne Water to take advantage of new markets for resources produced from sewage and biosolids.

23 Service delivery Sewerage

Our sewerage system Eastern Treatment Plant The upgrade has introduced an advanced tertiary stage of sewage Melbourne Water’s sewerage Melbourne Water’s $418 million treatment at Eastern Treatment system consists of: upgrade of the Eastern Treatment Plant, improving the quality of water Plant was completed on time and • 400 kilometres of sewers it produces and making it one of within budget. Delivered by the the most sophisticated large-scale • Eight sewage pumping stations Eastern Tertiary Alliance (a partnership treatment facilities in the world. between Baulderstone, United Group • The Eastern Treatment Plant The aim of the project was to benefit Infrastructure, Black & Veatch, KBR at Bangholme and the Western the marine environment by significantly and Melbourne Water), the project Treatment Plant at Werribee improving the Eastern Treatment was handed over to Melbourne Water • Nine air treatment facilities. Plant’s discharge quality. Combined in April 2013 following commissioning with an innovative treatment approach, and successful performance trials Melbourne Water treated a total the upgrade also provides a new source in late 2012. of 305,901 million litres of sewage of high quality recycled water for at Eastern Treatment Plant and fire-fighting, flushing toilets, washing Western Treatment Plant in 2012–13. machines, watering gardens and lawns, This was similar to 2011–12 flows and washing cars. (320,067 million). The upgrade received an industry About 43% of this sewage was treated award at the Global Water Summit in at Eastern Treatment Plant and 57% Seville, Spain, where it was named 2012 was treated at Western Treatment Plant. Water/Wastewater Project of the Year. It was recognised for its groundbreaking trials and innovative processes, which use a combination of ozone treatment, filters, and UV and chlorine disinfection.

Figure 10 Melbourne Water’s N sewerage system

Melbourne Water Yarra Valley Water Northern sewerage pipeline Sewer City Melbourne Pipeline Melbourne Water West Main Sewer Yarra East Main Water North sewerage pump station West Kew PS Sewer Brooklyn South Sewer Eastern Sewerage system outlet Trunk Hoppers Sewer treatment plant Crossing PS Hobsons North Road Ps Bay Main Western Trunk Western Mordialloc Wet Treatment Weather PS Plant Mordialloc No.2 PS Mordialloc No.1 PS Eastern Bondi Rd PS Dandenong Valley TrunkTreatment Port Phillip Bay Plant South East Water

Western Port

French Island

South Eastern Outfall

Bass Strait Phillip Island

24 Melbourne Water Annual Report 2012–13 Rising to the challenge Western Treatment Plant The studies also revealed an opportunity to maintain the bay’s In 2012, a joint on the South Eastern biodiversity while improving water Outfall rising main began to leak, just Covers renewal project quality. It was shown that adjusting downstream of the Eastern Treatment progressing well the distribution of treated effluent, Plant Outfall Pump Station. Works to replace and double the size so it is delivered more directly to of the existing covers on treatment The South Eastern Outfall rising main foreshore areas, will deliver the lagoons at the Western Treatment is used to pump treated and disinfected most benefit to the bay. Meeting Plant are progressing well. effluent 10 kilometres uphill from the these biodiversity requirements more Eastern Treatment Plant to Frankston, Four times the size of the MCG, efficiently will also require less water where it flows into the much larger the new covers will help reduce odour and increase the amount of recycled South Eastern Outfall and is then and capture more to generate water that can be reused. gravity-fed to the Ocean Outfall . About 70% of Projects to implement these at Boags Rocks near Gunnamatta. the upgrade has been completed, improvements are now planned for The same main also supplies recycled with the remaining segments expected 2014–15, and will make a significant water to South East Water customers to be completed in early 2014. contribution to Melbourne Water’s directly or via the TopAq tertiary plant. In 2012, the project was also chosen vision of Enhancing Life and Liveability A number of solutions for fixing the leak as a finalist in the WorkSafe Victoria through an integrated water cycle were investigated; however, the only Awards for improvements to work management approach. viable option was to cut and remove methods that have significantly reduced the leaking joint and replace the faulty the high risk of manual handling injuries Program of works to increase valve. This involved the complete (see Organisational capability chapter). capacity at the Western shutdown and drainage of the rising Treatment Plant main while still maintaining normal Supporting biodiversity and With sewage loads to the Western treatment plant operations and storing improving the marine environment Treatment Plant growing in recent the treated effluent onsite. The shutdown years, a three-stage program of was well planned with recycled water An innovative approach to risk works has been developed to cater customers, South East Water and assessment has been developed for the for increased demand. TopAq, and took 48 hours of non-stop Western Treatment Plant to manage work to complete. the dual challenges of receiving water Scheduled to take place between quality and biodiversity objectives. 2014 and 2021, the works will Aeration tank works now on track Intensive scientific studies were efficiently match capacity with undertaken in 2012 to develop a more customer demand. The works are A contract was awarded to construct rigorous understanding of the planned to balance environmental four additional aeration tanks in early interactions between treated effluent performance with customer service 2007 to support the conversion of discharges and receiving waters, and levels, as well as minimising financial existing aeration tanks to an ammonia an Environmental Risk Assessment impacts on our customers. reduction process, and provide for found the risk to Port Phillip Bay was ongoing population-based load growth The first stage of works at the Western low. Studies also showed that nutrients to the Eastern Treatment Plant. Treatment Plant will optimise existing in the effluent provided an important lagoons through low-cost changes However, a number of defects relating benefit to the receiving waters, to enable major expenditure on new to the construction of the concrete increasing the productivity of aquatic assets to be deferred. The work will aeration tanks became apparent, causing animals living in the bay’s mudflats include flow distribution modifications significant delays and increased costs. and supporting internationally within the treatment process. This will significant populations of migratory Identifying the potential causes of provide targeted nutrient delivery shorebirds. These shorebirds are one of the defects and developing appropriate to the Lake Borrie lagoon to support many important values that contribute solutions has been complex. It has internationally significant waterfowl to the listing of Western Treatment Plant also required a high level of cooperation populations. as a wetland of international importance between Melbourne Water, the project under the Ramsar Convention. The second stage of works will include manager, designer and constructor. construction of a new activated sludge The current completion date for the plant to deliver additional treatment construction phase of the project is capacity in the medium term, and December 2013 with all parties working enhance the reliability of Class A recycled constructively towards this goal. water supply. The new sludge plant will enable stage three refurbishment of older assets between 2019 and 2021.

25 Service delivery Sewerage

Transfer system Ringwood Sewer/Dandenong Melbourne Main Sewer Creek Strategy Replacement project complete During 2012–13, considerable planning has taken place for future upgrades Preliminary work has started to The Melbourne Main Sewer Replacement to the sewerage transfer system. gain a better understanding of the project, one of the most complex sewer These upgrades will commence during biodiversity and threatened species tunnelling projects undertaken in Water Plan 3 (2013–14 to 2017–18). habitat of the Dandenong Creek as part Australia, was completed on 7 July 2012. Funding for these projects will be of implementing the Ringwood Sewer/ The project replaced a 2.3 kilometre determined by the Essential Services Dandenong Creek Strategy. Future work section of the 110 year-old Melbourne Commission (ESC). will include determining the range Main Sewer which will triple sewerage of pollutants in the creek and possible capacity and cater for inner growth options for prevention. Establishing Progress on North Yarra Main for the next century. An additional a clear focus on the natural amenity Sewer replacement 1.9 kilometres of smaller branch and for receiving waters and habitats will reticulation sewers were also Melbourne Water is replacing the also be important. The approach is constructed to connect existing century old North Yarra Main Sewer innovative in that it allows for the sewers to the new sewer tunnel. and the Kew North Branch Sewer, deferral of a $100 million sewer located in Alphington and Kew North. upgrade while achieving improved A major component of the project was The relevant section of the North Yarra environmental outcomes. The strategy building a 140 metre pipeline under the Main Sewer runs within the Latrobe Golf will be implemented during Water Plan 3 Yarra River that took specialist divers Course and Coate Park in Alphington, (2013–14 to 2017–18), with initial works and engineers two years to build. adjacent to the Yarra River. The relevant due to be completed in mid-2014. The project was recognised by the section of the Kew North Branch lies following industry awards: between a point south of the Eastern Freeway, near Princess Street, and a • Winner of the 2012 Australian connection point on the North Yarra Society for Trenchless Technology Main Sewer. Project of the Year – New Installation The project will reduce the risk of • Winner of the 2012 Victoria Civil a potential sewer failure as the asset Contractors Federation Earth Awards approaches the end of its useful life (Category 5) projects greater than and will provide increased capacity, $75 million. enabling the sewer to keep up with Melbourne Water delivered the works demand and reducing the potential with John Holland, GHD and Aurecon. for spills. Since 2010, Melbourne Water has worked closely with the City of Yarra, Parks Victoria and Latrobe Golf Course through an initial options assessment process, a series of design workshops and more detailed design options. The proposed works will involve a combination of tunnelling and trenching. Substantial progress has been made on the planning phases of the project, with works expected to start in late 2013 and scheduled to take about three years to complete.

26 Melbourne Water Annual Report 2012–13 Managing corrosion and odour Managing biosolids Sewer mining Melbourne Water received 14 odour Melbourne Water is trialling the Melbourne Water updated its complaints related to the sewerage application of biosolids as fertiliser Strategic Sewerage Assessment transfer system this year. This was to improve soil structure and boost Tool this financial year to reflect the same as in 2011–12, but more crop yields on land currently leased current treatment system performance. than our target of no more than 10. to MPH Agriculture at the Western The updated modelling tool is now Treatment Plant. Most of the odour complaints related capable of analysing the system-wide to manhole covers being dislodged The biosolids, most of which come effects of sewer mining and localised or damaged by traffic as well as normal from the Western Treatment Plant, , including energy discharge of sewer gases from vent have been stockpiled for just over consumption, greenhouse gas stacks or ventilation associated with three years and are being used on emissions, nutrient and water flows. works undertaken in sewer network. wheat crops in winter and corn crops Together with the Hydraulic and Sewage in summer. A small amount of biosolids A key component of our Corrosion Quality Model, the Strategic Sewerage stockpiled at the Eastern Treatment and Odour Management Program is Assessment Tool will be used to support Plant for about four years are also the development of sewer management the development of integrated water being used. All of the biosolids have plans at a catchment scale with water cycle strategies in Melbourne. been tested for metals, organochlorides retailers. Other program activities and pathogens and meet relevant include analysing factors contributing EPA Victoria guidelines. to the generation and release of gases, identifying hotspots, and determining The trial will reuse more than 1,500 the most effective ways to manage dry tonnes of biosolids spread over corrosion risk and odour over the 100 hectares of agricultural land. next 20 years. The method chosen for spreading the biosolids allows for direct comparison Works to address sewer corrosion and of seven different application rates/field odour from the Eastern Drop Structure treatment options, including a control. (EDS) manhole on the Hobsons Bay Main Sewer continued this year, Preliminary results will be known after with the completion of below-ground the winter crop has been harvested rehabilitation works and the and full results will be available after commencement of a $23 million air April 2014, when the summer crop is treatment facility. The EDS allows harvested and field testing is complete. sewage from Melbourne’s city fringe It is expected that biosolids reuse will and bayside areas to drop down and have a beneficial impact on grain yield, flow beneath the Yarra River. It handles protein content and soil structure. about 175 million litres of sewage a day and is the main crossing point for sewage on the way to the Western Treatment Plant. Melbourne Water is also contributing to the Sewer Corrosion & Odour Research (SCORe) Project, established to help the Australian water industry “The Melbourne achieve cost-effective and efficient Main Sewer Replacement corrosion and odour management in sewers. The tools generated by the project, one of the most SCORe Project cover four key areas: complex sewer tunnelling • Liquid phase controls projects undertaken in • Gas phase controls Australia, was completed • Corrosion control, prediction on 7 July 2012.” and coating performance • Odour and corrosion control through integrated management of assets.

27 Service delivery Waterways

28 “Melbourne Water works with many organisations, groups and individuals to look after our waterways, and the plants and animals that depend on a healthy river environment.”

Key achievements Disappointments • Completed Flood Management Plans • Several heavy rainfall events caused with all 38 local councils in our region flooding in the Koo Wee Rup and • Removed 1,021 kilometres of weeds Longwarry Flood Protection District. and planted 259 kilometres of native vegetation along waterways Challenges • Developed a new Waterways and • Integrating flood management with Drainage Strategy, approved by our broader stormwater quality/quantity Board in September 2012, which sets management and overall integrated 39 performance targets that will be water cycle management independently assessed each year • Managing expectations about water for the next five years quality during and after heavy • Finalised our Healthy Waterways rainfall events Strategy, which identifies priority • Meeting the growing needs of areas and management actions urban development in a way that to improve waterway health from considers waterways, regional 2013–14 to 2017–18 drainage and floodplain management • Finalised our Stormwater Strategy, • Developing a measure of the which focuses on the integrated social value of waterways and management of stormwater to a deeper understanding of how achieve multiple community our management practices can outcomes from 2013–14 to 2017–18 improve amenity. • Completed a successful pilot program to limit pollutants from rural land entering waterways • Built a new fishway at Dights Falls, Abbotsford on the Yarra River to improve passage for migratory fish to breed.

29 Service delivery Waterways

Our waterways and Improving river health Under our Stream Frontage drainage system Management Program, we provided Melbourne Water works with many $2.44 million to support 700 projects Melbourne Water oversees river health organisations, groups and individuals on private property (compared to in the Port Phillip and Westernport to look after our waterways, and the $2.56 million to support 725 projects region. In this role, we manage: plants and animals that depend on in 2011–12) and we provided $773,254 a healthy river environment. These • 8,400 kilometres of rivers and creeks to support 44 Rural Land Program organisations include local councils, projects. We also provided funding • 1,484 kilometres of drains landowners, community groups, for 133 Community Grant waterway developers, farmers, government • 435 constructed waterway management projects totalling agencies and research institutions. treatment systems and wetlands $617,255 (125 grants totalling • 308 monitoring stations Melbourne Water removed and $590,000 in 2011–12) and supported on waterways and drains managed weeds across 1,021 kilometres public land managers through and revegetated 259 kilometres of land 89 Corridors of Green projects • 160 urban lakes. along waterways. These works help totalling $659,158 (114 grants improve river health and protect totalling $969,000 in 2011–12). riverbanks from erosion. Our River Health Incentives Program New Waterways and provides funds and support for Drainage Strategy landowners and managers to improve In September 2012 the Melbourne the health of land adjoining waterways. Water Board approved a draft We provided 966 grants this year Waterways and Drainage Strategy valued at $4.49 million (compared to challenge the business to perform to 964 grants valued at $4.19 million at the highest standard and make us in 2011–12). more accountable to our customers, stakeholders and the community.

Figure 11 Melbourne Water’s waterways N and drainage systems map

Retarding basin Drainage pumping station Wetlands Channel (modified waterway) Underground drain Natural waterway River basin catchments Waterways and Drainage Boundary Port Phillip Bay

Western Port

French Island

Phillip Bass Strait Island

30 Melbourne Water Annual Report 2012–13 The strategy was a specific Melbourne Water consulted extensively Dights Falls fishway working well requirement of Melbourne Water’s with interested landowners, community A new fishway at Dights Falls in Statement of Obligations and groups, government agencies and local Abbotsford on the Yarra River was formed the basis of the Waterways councils to ensure broad customer and officially launched by the Honourable and Drainage component of our stakeholder support. The consultation Peter Walsh MLA, Minister for Water, Water Plan 3 (2013–14 to 2017–18) process (which was run in conjunction on 14 December 2012. submission to the Essential Services with the Stormwater Strategy, see page Commission (ESC). 32) included 22 workshops and more The Dights Falls fishway and weir than 11,000 people visited our website replacement project was one of the most The Waterways and Drainage Strategy and forum page to provide comment. significant river health projects in Water sets robust key performance indicators, Plan 2 (2008–09 to 2012–13). It involved presented as 39 targets (and associated replacing the old weir and improving performance measures) against which Defining the social value passage for migratory fish through the progress is independently assessed of waterways installation of a vertical slot fishway. each year. Although the social value of waterways has long been recognised, Melbourne The heritage-listed Dights Falls Weir, The Waterways Advisory Committee, Water completed research in 2012–13 built in 1895, had reached the end which consisted of representatives to refine our understanding of ‘social of its life and needed to be replaced. from the land development industry, value’ in relation to amenity. community groups, local councils, The new weir continues to play the Department of Environment While developing our Healthy an important role controlling water and Primary Industries4, EPA Victoria, Waterways Strategy, we undertook levels in the Yarra – pooling water Parks Victoria, the Port Phillip and additional analysis so we could include for approximately 17 kilometres Westernport Catchment Management amenity as a key waterway value upstream and protecting important Authority and the University alongside fish, frogs, , platypus, social, economic and environmental of Melbourne, helped develop macroinvertebrates and vegetation. values of the river. the strategy and contributed to Previous research has shown that people The Yarra River supports 17 species its strategic direction and targets. feel waterways are places of value where of native fish – 11 of which need to A major challenge was bringing they can undertake passive and active make movements up and downstream together the diverse views of the recreation. However, developing our to breed. The new fishway directly committee members to develop understanding of how waterway benefits the Yarra and its upstream and finalise the strategy. management can influence this kind tributaries by boosting native migratory of amenity for the better is a challenge. fish numbers and species diversity. Healthy Waterways Strategy Preliminary studies show it is working Although we have a good understanding adopted well and allowing many species to of the factors that influence amenity, Melbourne Water finalised our Healthy migrate past the weir. such as vegetation and sensory access to Waterways Strategy, which outlines the waterway, further research is needed Works were done with extensive how we will work in partnership with to determine how much and what consultation and carried out under the community, our customers and quality of vegetation enhances amenity. a Cultural Heritage Management stakeholders to manage rivers, estuaries Plan approved by Heritage Victoria. and wetlands in the Port Phillip and By managing the amenity of The project was delivered by the Westernport region. waterways, Melbourne Water hopes Waterways Alliance – a partnership to provide a setting that supports The new strategy will be used as between Fulton Hogan, Ecodynamics, a range of other community values a guide to protect the environmental SMEC and Melbourne Water. such as liveability and recreation. health of our waterways and the amenity they provide. Activities guided by the strategy include vegetation management, environmental flows, habitat enhancement and working with communities to achieve healthy waterways. The strategy identifies priority areas and management actions from 2013–18.

4 Formerly two separate departments known as the Department of Sustainability and Environment and the Department of Primary Industries.

31 Service delivery Waterways

Works at Mullum Mullum Creek Water quality Successful trial reduces waterway improve habitat for platypus pollution from rural land Living Rivers is a Melbourne Water Melbourne Water planted program that operates in partnership A trial to reduce pollutants from rural 16,000 native trees and removed with 38 local councils to identify land entering waterways has been 3.5 kilometres of weeds along needs and deliver sustainable stormwater a huge success. a stretch of Mullum Mullum Creek management outcomes. Over the More than 100 landholders were between Deep Creek Road in Mitcham past 12 months, Living Rivers has recruited in three catchments to take and Park Road in Donvale. provided $4.5 million in project action to reduce pollutant loads to support to local councils for projects A key aim of the project is to improve waterways during the pilot of the aimed at building capacity for sustainable platypus habitat. Eight platypuses were Rural Land Program. stormwater management. found in the creek during surveys in Modelling for the activities funded November 2012 – the highest count Key projects include: in the pilot (e.g. stock exclusion fencing, since Melbourne Water started surveys • The development of water sensitive revegetation, paddock re-alignment, in 1995. It is hoped that improved urban design maintenance guidelines etc.) has estimated an annual reduction conditions will continue to support and life cycle costing of water of 21,925 kg/year nitrogen, 8198 kg/ breeding and expand the platypus sensitive urban design assets year phosphorus and 2321 tonnes/year habitat into other areas of the creek. (all councils) sediment from entering into Port Phillip Bay and Western Port. Baby boom for Melbourne’s • Tattersons Park wetland platypus (City of Greater Dandenong) The Rural Land Program is set to become a core program of Water Plan 3 (2013–14 Our Urban Platypus Program’s autumn • Dobsons Creek stormwater to 2017–18), and will be delivered as survey found the percentage of juvenile disconnection retrofit part of the broader Stormwater Strategy platypuses sighted in Melbourne is the (City of Knox and South East Water). implementation program and the River highest in at least five years. Melbourne Health Incentives Program. The trial Water conducts platypus surveys twice Stormwater Strategy completed was funded by the Department of a year to determine the status of platypus Melbourne Water recently finalised Environment and Primary Industries5, populations across greater Melbourne our new Stormwater Strategy 2013–18 and will be funded by Melbourne Water and the threats platypuses face in to help manage stormwater and in the future. urban areas. protect and improve the health Alternative delivery methods are also To help ecologists gain a better of waterways and bays. being tested including a partnership understanding of the platypus The strategy sets out a high level with Mornington Peninsula Shire population and aid conservation, strategic direction for managing Council to develop and deliver a platypusspot.org was launched in stormwater in rural and urban areas customised version of the program in conjunction with cesar (a research to deliver multiple community two rural catchments on the peninsula, organisation that runs Melbourne outcomes, including alternative and better integration with the Tarago Water’s Urban Platypus Program) water supply, public safety, healthy Sustainable Farms Program through the to encourage people to share their waterways and bays, and wellbeing Neerim South Landcare Group. platypus sightings online. and liveability. The consultation process was run in conjunction with the Healthy Waterways Strategy (see page 31).

5 Formerly two separate departments known as the Department of Sustainability and Environment and the Department of Primary Industries.

32 Melbourne Water Annual Report 2012–13 Environmental flows Waterway diversions However, several diverters still exceeded their allocation. This resulted in warning In 2012–13, Melbourne Water delivered Melbourne Water manages about letters being issued to some growers and 14 separate environmental flows in 1,900 licenced waterway diverters a small number of cases are still being the Werribee, Tarago and Yarra rivers, that extract licensed water from the considered for legal action. Action is delivering about 17,000 megalitres Yarra River, Maribyrnong River, Stony considered necessary by Melbourne of water to improve river health and Creek, Kororoit Creek, Laverton Creek Water when the breach is significant meet our ecological objectives. and Skeleton Creek catchments. and places access for the environment Water is mainly used for agricultural, The Werribee system received seven and other water users at risk. industrial, commercial, domestic environmental flows using water and stock purposes. The dry conditions also resulted in from the environmental entitlement, a higher number of water trades on and additional water secured through the water market with a 20% increase a temporary trade. This allowed us Dry change presents challenges in trade applications on last year. to provide flows from the Werribee for water users Other tasks included: Diversion Weir for the first time, After two years of wetter conditions, providing benefits for water quality, the dry 2012–13 irrigation season • Implementation of the Stream Flow fish and platypus around Werribee. caught some water diversion licence Management Plans for the Woori Community feedback has been holders off guard, presenting challenges Yallock Creek and the Little Yarra positive, and monitoring has for Melbourne Water. and Don River catchments, revealed unexpected benefits such introducing revised flow triggers as support for the frog population The Yarra Valley experienced a long, for bans/ restrictions and new water of Coimadai Creek. dry summer with little autumn rain trading rules in these catchments and above average temperatures. The first ever environmental flow For example, rainfall at Coldstream • Closer monitoring of users in the Tarago River took place in between October 2012 and April along the Yarra River during November 2012, targeting the 2013 was 257.4 millimetres, 146.3 environmental flow releases migration of Australian Grayling, millimetres below the long-term to ensure preservation of the a threatened native fish species. average (Bureau of Meteorology, 2013). releases for their intended purpose. Since the success of the first release, two additional releases Site inspections by Melbourne Water have taken place. across summer and autumn uncovered a significant number of diverters who Four environmental releases occurred were approaching or had reached their in the Yarra River in 2012–13, including water entitlement. Thankfully most the largest to date. Designed to mimic users were able to be directed to an autumn high flow, this release was additional water through trade intended to promote the spawning of on the temporary water market. Australian Grayling. For the first time ever, water was simultaneously released from four separate delivery points to achieve the required flow magnitude. Recent monitoring indicates these environmental flows have helped improve water quality by flushing stagnant water from the river bed to maintain fish and macroinvertebrate.

33 Service delivery Waterways

Stormwater licensing Flood management Work continuing on Koo Wee Rup and Longwarry flood protection Melbourne Water continued to work Floods are a natural and inevitable with local councils and water retailers event, and we can’t always control The Koo Wee Rup and Longwarry around new stormwater harvesting them. Therefore, we must learn how Flood Protection District is a unique schemes. As of June 2012 we have to live with them while minimising area within Melbourne Water’s issued 30 stormwater licences for risks to public health and safety, operating region. A former swamp, a total of 1,291 million litres. This property and infrastructure. the area was drained for farming in represents an increase of 571 million the mid-late 1800s and drains were Flooding deeply affects individuals, litres over last year’s figures. New cut through the land to manage households, and the community long schemes included: flooding that remains common after flood waters have subsided. The in the area. • DeWinton Park, Rosanna tangible damages, clean-up costs and • Chelsworth Park, Ivanhoe loss of earnings have a direct financial Melbourne Water is responsible for impact on those flooded and on the maintaining these drains and charges • Kalparrin Lake, Greensborough community. The intangible damages, a special rate to fund the increased • Elsternwick Park, Elsternwick. such as emotional suffering, loss level of service across the district. of irreplaceable memorabilia and Councils including , Following concerns regarding flooding perceived loss of security, can’t City of Boroondara and City of Moonee in early 2012, Melbourne Water be measured in monetary terms. Valley have schemes currently being fast-tracked works to improve drainage assessed. Ongoing demand for In determining flood risk, Melbourne across the Koo Wee Rup and Longwarry stormwater is expected to continue Water considers economic impacts, area. We adopted a staged approach, as it remains a key element in flood hazard and the social impacts tackling areas that did not require integrated water cycle management of flooding. Our long-term aim is extensive ecological assessments first. to minimise all currently known strategies. In the face of ongoing One of the projects completed was intolerable flooding risks to public demand we are continuing to assess an upgrade of the Bunyip Main Drain health and safety, property and the potential impacts of harvesting in Vervale, which raised the drain’s infrastructure. on receiving urban waterways and levee and rebuilt its 4 kilometre adapting policy and harvesting rules. Although our focus for structural works southern bank. The upgrades allow is on extreme flood risk properties, the new drain to withstand a one-in-15 Service standards we are also working with councils and year flood, whereas previously it could Melbourne Water has met the service the Victoria State Emergency Service only cope with a one-in-7 year event. on non-structural measures such standards set out in our Customer Nearly 100 kilometres of works are now as flood management plans, flood Charter for Diversion Services. The complete, which has helped prepare the emergency plans, education and number of applications received in district for future high rainfall. We will awareness programs and flood overlay total was up from last year but we have now focus on a series of more complex updates in council planning schemes. maintained performance with 96.9% works in 2013–14. of all applications determined within A key activity of the strategy was to the specified time limits. complete 38 local flood management plans, which we successfully achieved in 2012–13. Even though these non-structural activities do not reduce the size of a flood, they do promote better understanding of flood risk and provide guidance on what people can do to lessen the impact of flooding.

34 Melbourne Water Annual Report 2012–13 Frankston Drainage Improvement Flood risk reduced in Maribyrnong Guiding urban growth project reduces flood risk Melbourne Water has reduced the In 2012–13, Melbourne Water Now in the final stage, the Frankston flood risk in the Maribyrnong River continued its focus on working Drainage Improvement project catchment by introducing a full with the Growth Areas Authority, has greatly reduced flood risk to range of non-structural flood risk the Office of Living Victoria, local central Frankston. reduction measures. councils, water retailers and the land development industry to provide Central Frankston contains important In a one-in-100 year storm event, appropriate infrastructure for regional infrastructure that is subject 478 properties in the area are flood Melbourne’s urban growth in a way to flooding in a one-in-100 year prone. Key measures to reduce risk that onsiders waterways, regional storm event, including Bayside North have included planning scheme overlays, drainage and flood management. Shopping Centre, the law courts, police flood management and flood emergency station and Chisholm Institute of TAFE. plans, a flood warning system and Melbourne Water received Monash University’s Peninsula Campus a Flood Safe/Storm Safe program. approximately $39 million in is also affected by flooding. developer contributions (excluding Under the latest improvements, each contributed assets) in 2012–13, A total of 1,427 properties were prone flood-affected property owner now which was less compared to to flood in a one-in-100 year storm has details of the flood implications previous years ($57 million in event including 1,104 residential for their property linked to river 2011–12). These contributions properties and 323 industrial and gauge levels. Forecasted flood level are paid to Melbourne Water commercial properties. This flooding information is conveyed to the to fund infrastructure and posed a significant economic and community as flood warnings by the water quality projects. social risk to Frankston and the media, providing time for residents to broader community. prepare for any future flooding event. Despite less developer contributions, it has still been a big year for capital To reduce this risk, the Pipelines Alliance expenditure in developer works, with (a partnership between Melbourne about $82 million spent on projects Water, Fulton Hogan, Jaydo and GHD) across greater Melbourne (compared completed major drainage works. to $76 million in 2011–12). The works took place in three stages: Melbourne Water prepares drainage • Stage 1 – a 1.5 kilometre drain as master plans known as Development built between Monash University’s Services Schemes which include Peninsula Campus and Kananook Creek a catchment drainage strategy with • Stage 2 – drainage infrastructure was a pricing arrangement to support land upgraded within Frankston’s Central development. A scheme is prepared Activity District to plan the required infrastructure • Stage 3 – construction of a drain to ensure new urban development upstream of Monash University meets appropriate standards of flood along Bloom Street, Roberts Street, protection, stormwater management Heatherhill Road and Manly Avenue. and waterway health. The current model enables the infrastructure to be fully funded by financial contributions from developers or landowners, with all developable properties contributing on the basis of land area and land zoning.

35 Corporate

36 Environmental stewardship Page 38 Relationships Page 46 Financial sustainability Page 52 Organisational capability Page 62

37 Corporate Environmental stewardship

38 “Melbourne Water is committed to protecting, conserving and improving natural assets and using natural resources sustainably.”

Our aim Key achievements Challenges • Developed a new Energy Productivity • Maximising value from the sale Protect the natural environment Plan which identifies a potential of Renewable Energy Certificates and ensure resource availability 5% reduction in energy use and and the purchase of offsets to for future generations. operational cost savings meet our 2018 greenhouse target We will do this by: • Invested significantly in biodiversity • Minimising waste volumes and conservation at the Western converting waste to valuable • Meeting environmental obligations and Treatment Plant including pest resources minimising environmental impacts animal and weed control. • Respecting Aboriginal heritage as • Conserving biodiversity we deliver on-the-ground projects Disappointments • Responding to climate change • Protecting and improving biodiversity and variability through mitigation • Did not meet our office water use on land and waterways managed measures target in 2012–13, with consumption by Melbourne Water. • Using natural resources efficiently of 3,594 litres per full-time equivalent employee (FTE) per year, compared to • Minimising waste through recycling a target of 3,177 litres per FTE per year. and reusing initiatives • Preserving and promoting cultural heritage • Encouraging our suppliers and partners to apply sustainable business practices.

39 Corporate Environmental stewardship

Environmental stewardship Energy and greenhouse Our performance gas management Melbourne Water uses significant Our environmental commitment To minimise the potential impacts amounts of energy to deliver water Melbourne Water is committed of climate change on our business and sewerage services to its customers to protecting, conserving and and on the people of Victoria, and the community. We are among improving natural assets and using Melbourne Water has introduced the top 15 electricity users in Victoria natural resources sustainably. a number of mitigation strategies. and the top 150 in Australia. Our Environment Policy specifies As a business we are committed In 2012–13, we used 1.457 million actions and outcomes to achieve to actively managing our own gigajoules of energy (compared to maximum net environmental benefits contribution to greenhouse gas 1.390 million gigajoules in 2011–12) to society and to promote sustainable emissions by establishing a target and emitted total net greenhouse resource management and use. to reduce net greenhouse gas gas emissions including: We have an Environmental Management emissions to zero by 2018. • Water treatment and pumping 49,697 System certified to the international We completed a comprehensive tonnes of carbon dioxide equivalent standard ISO 14001, which establishes Greenhouse and Renewable Energy management requirements to protect • Wastewater treatment and pumping Strategy in 2008–09 to identify how the environment, prevent pollution and 322,837 tonnes of carbon dioxide to meet our targets most efficiently. improve environmental performance. equivalent Most of the actions in this strategy We also use our Community, have now been achieved and a new • Transport 3,493 tonnes of carbon Environment and Public Health Energy Productivity Plan is in place. dioxide equivalent Assessment checklist and triple This plan discusses issues raised • Other energy use (including offices) bottom line guidelines to help assess by the Carbon Pricing Scheme, 7,535 tonnes of carbon dioxide and plan for potential environmental the purchase of emission permits equivalent impacts from our activities, while and offsets, and methods to further • Offsets purchased 5,765 tonnes balancing community benefits and reduce greenhouse gas emissions. of carbon dioxide equivalent meeting efficiency requirements The plan also identifies a potential for public spending. 5% reduction in energy use and Melbourne Water spent $24 million operational cost savings. this year on energy compared with $22.9 million in 2011–12.

Figure 12 Energy by source 2012/2013 in gigajoules

49% Grid Electricity 714469gj 12% On-site Generation WTP 181163gj 25% Trigeneration at ETP 369341gj 0% Hydro on-site at Winneke 0gj 3% Vehicle Fuels 38374gj 5% Stationary Fuels 69466gj 6% Natural gas 84110gj

40 Melbourne Water Annual Report 2012–13 Figure 13 Energy by use 2012/2013 in gigajoules

82% Water 1,195,797gj 10% Sewage 152,364gj 4% Vehicles 63,246gj 1% Offices 9,095gj 3% Other incl. stationary fuels 38,374gj

Greenhouse gas National Greenhouse Carbon pricing mechanism emissions reduction and Energy Reporting System Melbourne Water is a liable entity Melbourne Water’s target is to reduce We report to the Federal Clean under the Carbon Pricing Mechanism net greenhouse gas emissions to zero by Energy Regulator under the National (CPM) for some wastewater treatment 2018. In 2012–13, the progressive target Greenhouse and Energy Reporting activities. During the year, Melbourne is a reduction of 45% compared to the System (NGERS). During 2012–13, Water was required to estimate and calculated 2000–01 emissions of 725,225 direct discussions with the Clean pay for its Interim Emissions Number tonnes of carbon dioxide equivalent. Energy Regulator assisted in clarifying (an estimate of 75% of Melbourne greenhouse emission accounting Water’s liable emissions for the year), Our preliminary estimation of 2012–13 methodologies to more accurately of 140,000 tonnes of carbon dioxide emissions is 382,867 tonnes of carbon represent emissions from our equivalent. Final greenhouse gas dioxide equivalent and corresponds sewage treatment plants. emissions for 2012–13 will finalised to a 47% reduction compared to under the CPM in February 2014. 2000–01. Final emission data is Studies commenced into measuring calculated in October and is not nitrous oxide emissions and measuring expected to materially differ. the capture of from the wastewater treatment plants. Melbourne Water emitted 431,679 Melbourne Water is working with tonnes of carbon dioxide equivalent the University of Queensland and in 2009–10, 468,094 tonnes in 2010–11 the CSIRO respectively on these and 418,807 tonnes in 2011–12. studies. The overall aims of these studies are to improve the accuracy of current fugitive emissions calculation methodologies which will inform the business on ways to minimise or eliminate fugitive emissions.

Carbon emission history Melbourne Water historic greenhouse gas emissions have been (tCO2e): 2008–09 2009–10 2010–11 2011–12 2012–13 Water treatment and pumping 74,893 108,991 124,462 62,437 49,697 Wastewater treatment 316,215 303,395 324,201 341,878 322,141 Waste disposal - - - - - All other energy use (non-fleet) 9,528 15,741 15,977 10,999 7,535 Vehicle fleet 3,710 3,552 3,454 3,493 3,493 Offsets purchased 13,952 78,677 79,546 62,893 -

N.B. NGER determination used to calcuate emissions from wasterwater treatment plus current energy and fuel data.

41 Corporate Environmental stewardship

Figure 14 Goulburn River Melbourne Water water supply N system with mini hydro electric power stations

Mini hydro electric power station Water supply pipeline, aqueduct Yarra Valley Water Water supply storage reservoir Sugarloaf Upper Yarra City Preston Water supply catchment area West Water Olinda Retail Water area boundary Thomson Mt View Silvan Melbourne Notting Cardinia Hill

Port Phillip Bay South East Water

WesternWestern Port Port

French Island

Phillip Bass Strait Island

Securing onsite energy sources After commissioning six mini This year’s report examined efficiency hydro-electricity plants at our improvements at the Eastern Treatment Melbourne Water operates biogas- reservoirs, Melbourne Water has Plant, the Western Treatment Plant fuelled generation facilities at its identified five suitable sites for and the Winneke Treatment Plant. Eastern and Western Treatment Plants. additional mini-hydros. These Completed in December 2012, the During 2012–13, the Eastern Treatment projects are awaiting construction. report found the potential cost savings Plant power station generated 148,583 associated with improvements at gigajoules of electricity, 30.5% of its Energy efficiency studies the three plants was $1.4 million need. The Western Treatment Plant per year. EEO projects with total power station (owned and operated In 2012–13, Melbourne Water submitted savings of $690,000 have been by AGL) generated 181,163 gigajoules its fifth public report, completing its implemented to date. of electricity, 65.3% of its need, including first five-year cycle under the Federal Twenty-five opportunities were 1,951 gigajoules exported to the grid. Government’s Energy Efficiency included in the report, including: The Western Treatment Plant’s Opportunities (EEO) program, which production for the year was reduced requires large energy-using businesses • Upgrading fixed speed pumps due to limited biogas supplies during the to conduct energy efficiency studies to variable output and identify energy saving opportunities. replacement of the 55 East Lagoon cover. • Refurbishing pumps We generated and used 610,726 As part of the second cycle, Melbourne Water completed its second Assessment • Optimising operational control gigajoules of onsite generated energy in settings and algorithms 2012–13 (633,916 gigajoules in 2011–12). Plan which was approved by the The amount of onsite generated energy Department of Resources, Energy and • Implementing new control codes we used and generated as a proportion Tourism. The Assessment Plan details • Removing redundant energy of total energy was 37.8%. Melbourne Water sites that are required consuming assets to undergo an energy audit over the next In October 2012, the refurbishment of the five years, including major sites such • Upgrading office lighting. hydro-electricity plant as sewage and water treatment plants, At the end of 2012–13, more than 96% was completed. Since recommissioning, and pump stations. of Melbourne Water’s electricity use the plant has generated 37,766 gigajoules had been audited. of electricity in 2012–13.

42 Melbourne Water Annual Report 2012–13 Energy data management system Sustainability in our workplace New waste to resources plan Melbourne Water has appointed During 2012–13, Melbourne Water a vendor for implementing the new Leading the way in sustainability drafted a Waste to Resources Plan Energy Data Management System Melbourne Water was a finalist in the and commissioned the development (EDMS). The EDMS will replace an 2012 Banksia Environmental Awards of a comprehensive waste database. ageing energy data management for integrating sustainable practices into This plan will result in Melbourne Water system that has been in use since our operational activities and reducing looking outside its business to other 2000 and reached the end of its our environmental footprint. We were waste managers in an effort to find useful life. The EDMS will provide shortlisted in the category of ‘Leading cost-effective and environmentally expanded data management and in Sustainability – Setting the Standard sound solutions and markets for reporting capabilities as well for Large Organisations’, recognising reusing its waste products. as storage of site-related data. our coordinated approach to making sustainability ‘business-as-usual’. Conserving biodiversity Environment resource Melbourne Water was also awarded Melbourne Water is a significant efficiency plans gold Waste Wise certification in landholder and waterways manager EPA Victoria concluded the Environment November 2012 for two years by within the Port Phillip and Westernport Resource Efficiency Plans (EREP) the Metropolitan Waste Management region. We develop and implement program early in 2012–13, which Group. This certification recognises strategies that support biodiversity, meant Melbourne Water did not have ongoing improvement in sustainable in compliance with Victorian and to provide an annual report on EREPs practices such as waste minimisation Commonwealth biodiversity obligations. for this financial year. Ongoing and office-based resource efficiency. management of water, energy and In 2012–13, 73% of office waste was Consistent approach to protect waste will continue without the either composted or recycled. biodiversity formal requirement to report against Melbourne Water’s Biodiversity an EREP for the Eastern Treatment Office water use Plant, the Western Treatment Plant Strategy ensures a consistent approach and the Winneke Treatment Plant. Melbourne Water did not meet its to managing biodiversity across the office water use target in 2012–13. organisation and sets priority actions Consumption was 3,594 litres per for improvement. Corporate Licence full-time employment (FTE) per During 2012–13, Melbourne Water Melbourne Water’s Corporate Licence year compared to a target of 3,177 also started development of an was amended in May 2013 after EPA litres per FTE. Environmental Stewardship Strategy. Victoria introduced Amalgamated This was mainly due to commissioning This strategy will help protect the natural Licences. These have removed the issues with our new head office, environment and ensure resource Sustainability Commitment section resulting in more potable water use availability for future generations. of the Corporate Licence and adopted instead of rainwater and stormwater. common language for all licence This included commissioning issues clauses. Parameters for the Eastern with water tanks and excessive use of Treatment Plant have been amended water for cooling the building’s sewage to account for the upgraded treatment pumps. These issues have now been process. Melbourne Water will report resolved and we have a new building against the parameters in the superseded management system (software Corporate Licence as this applied for application) that alerts us when more the majority of 2012–13. water is being used than expected.

43 Corporate Environmental stewardship

Managing important The Ramsar-listed Western Treatment Melbourne Water continues to conservation sites Plant is possibly the most important update management plans for sites refuge for waterfowl in Victoria. of biodiversity significance. During Melbourne Water manages major It supports migratory shorebird 2012–13, we reviewed our Sites of portions of two Ramsar-listed wetlands populations and a significant population Biodiversity Significance Strategy, of international importance – the Port of the nationally-endangered Growling which establishes targets in our Healthy Phillip (Western Shoreline) and Bellarine Grass Frog. Its native grasslands support Waterways Strategy. This will build Peninsula Ramsar site at the Western the endangered Spiny Rice-flower and greater understanding of the importance Treatment Plant, and the Edithvale- its coastal salt marsh areas support of these sites and drive priority Seaford Wetlands Ramsar site. Orange-bellied Parrots. Significant on-ground works. A strategy for Three of our reservoirs are designated investment in biodiversity conservation the protection and enhancement ‘biosites’: Sugarloaf, Cardinia and Yan at Western Treatment Plant has included of biodiversity values across the Hallam Yean. A further 34 Melbourne Water pest animal and weed control, Valley floodplain was also prepared properties are listed as ‘sites of environmental watering of wetlands and is now the basis of triple bottom biodiversity significance’. All of these and ecological burn-offs of grassland. line planning for this area for which sites support biological communities significant Commonwealth funding The Ramsar-listed Edithvale-Seaford or populations of at least regional is being sought through the Wetlands are part of the larger Carrum significance as well as rare or Biodiversity Fund. Wetlands Important Area. This threatened species of animals or plants. area includes the Eastern Treatment The effectiveness of our biodiversity Plant and several adjacent wetlands, management program is assessed which are important habitats for through five-yearly monitoring of waterbird and wetland vegetation key fauna and flora, regular reviews communities and also for a community of site management plans, and of bats and Eastern Grey Kangaroos. waterbird monitoring at relevant sites. Major hydrological reset works are planned to improve water management at Eastern Treatment Plant to ensure appropriate habitat is maintained for a variety of waterbirds.

Figure 15 Melbourne Water biodiversity N

Biosites of regional, state, national MARIBYRNONGMaribyrnong and international significance on or CATCHMENTCatchment adjacent to Melbourne Water land YARRA RIVER CATCHMENT RAMSAR wetland Yarra River Catchment Biosite or waterways site of biodiversity significance WERRIBEEWerribee CATCHMENTCatchment Parks Victoria land Directory of Important Wetlands in Australia DANDENONGDandenong Primary river basin catchment CATCHMENTCatchment Melbourne Water waterways and drainage boundary Port Phillip Bay Westernport Catchment Western Port Western Port

Bass Strait

44 Melbourne Water Annual Report 2012–13 Cultural heritage Improving sanitation and drainage in Dili Melbourne Water continues to look for mutually beneficial heritage outcomes In January 2013, a joint venture beyond compliance, by working in between Melbourne Water and Yarra partnership with key stakeholders. Valley Water developed a Sanitation and Drainage Master plan for the While there are still some challenges city of Dili in Timor Leste. in terms of integrating legislative requirements into planning processes, The Government of the Democratic opportunities have opened up for key Republic of Timor Leste funded stakeholder input. development of the master plan as well as construction of two sanitation Our corporate goal of protecting and pilot projects. Melbourne Water and promoting cultural heritage is detailed Yarra Valley Water provided in-kind in our Strategic Direction and further support to manage the overall project. embedded in our Cultural Heritage Strategy, which integrates Aboriginal The pilot projects provided two and post-contact cultural heritage community sanitation facilities for into our core business. disadvantaged communities in the Maskarinas and Bidau Santana districts By integrating cultural heritage into of Dili. These communities previously our Environmental Stewardship had very limited access to toilet Strategy, we acknowledge cultural facilities. One community had a single, heritage as one of many intrinsic shared toilet in very poor condition, values in the environment. while the other had no proper toilet Our Cultural Heritage Risk Matrix facilities at all. The new facilities have recognises that cultural heritage plays well-functioning and clean toilets, a key role in water resource planning as well as personal washrooms and and delivery. Our commitment to a laundry, and will greatly improve cultural heritage management is the quality of life in these communities. demonstrated by participation in The master plan recommends the following activities: a staged approach to providing • National Aborigines and Islanders sanitation services and improved Day Observance Committee drainage and flood protection for (NAIDOC) week Dili over the next 25 years. The project • Government Agency Heritage Asset has also provided recommendations for Managers Forum institutional arrangements to support implementation of the master plan. • Cultural heritage tours • Wurundjeri country plan • Kulin Nation Koorong project – bark canoe making • Cultural awareness training • Community interpretive theatre – big play.

45 Corporate Relationships

46

“Melbourne Water has continued to implement its Customer Strategy to adopt a more commercial, whole-of- business approach to managing relationships with customers and stakeholders.”

Our aim Key achievements Disappointments • Received our highest ever community • Underestimated the impact of the To be valued by our customers satisfaction rating with regard to Frankston Drainage Improvement and stakeholders, and a business the management of waterways – project on a group of 17 local traders. of choice for our partners. 77% in a June 2012 community study Challenges We will do this by: • Developed a portable Water Smart City model that improves the delivery • Communicating the value of our • Strengthening relationships with of our key education messages on services to customers, who are customers, stakeholders and the whole urban water cycle entitled to know how funds collected suppliers • Received several awards for our new through the Waterways and Drainage • Developing a deeper understanding Edithvale-Seaford Wetland Education Charge are spent of our customers’ needs Centre, recognising its sustainable • Working with retailers to implement • Seeking and respecting customer implementation and unique design changes to the Waterways and and stakeholder views in our • Developed a Relationship Agreement Drainage Charge. decision-making with City West Water as part of • Collaborating widely to find better the implementation of our new solutions through knowledge sharing Customer Strategy and genuine partnership. • Formed a Customer Experience Team to lead and build customer focus across the organisation.

47 Corporate Relationships

Building strong relationships However, over the past 12 months, Communicating value Melbourne Water and area residents Melbourne Water’s success in achieving to our customers have been participating in an Independent its vision of Enhancing Life and Liveability A key challenge for Melbourne Water is Review of management arrangements depends on building strong partnerships communicating the value of its services for Patterson Lakes. The review was and relationships with customers to customers, who are entitled to know initiated to consider the rates we and stakeholders. We are committed how we spend funds collected through charge Patterson Lakes residents and to listening to their needs, being the Waterways and Drainage Charge. make recommendations about future responsive and pooling our knowledge management and maintenance This is a considerable challenge given and expertise to create better solutions. arrangements, and how they should the scope of our services, which range be funded. This was in direct response from major capital projects such as Customer Strategy leads to new to community requests to clarify who the $75 million Frankston Drainage relationship agreement is responsible for the care of local lakes Improvement project, to new wetlands Melbourne Water has continued and waterways. constructed to benefit the environment, to implement its Customer Strategy and other services such as grass cutting More consultation will occur throughout to adopt a more commercial, or weed removal along waterways. 2013–14 to identify how the waterways whole-of-business approach can be managed into the future to While communicating value is to managing relationships with enhance local amenity and clarify critical, doing so in a resource-strained customers and stakeholders. responsibilities and obligations. environment requires innovative One of our key achievements for the year ways to get our messages out into has been a new relationship agreement Package of measures negotiated the community. Recently we improved with City West Water. This agreement with Heatherhill traders our efforts to communicate the value includes guiding principles for the of our maintenance and low risk capital After initially underestimating the relationship and identifies priority joint program by informing local members of impact of the Frankston Drainage initiatives over the next 12 months. parliament and installing better signage Improvement project on a group to explain the value of these activities. of 17 local traders, Melbourne Water Review of Patterson Lakes engaged an independent facilitator We have also increased our presence responsibilities underway to negotiate a traffic management on social media such as Twitter and Traditionally, Melbourne Water has plan and package of mitigation Facebook to inform a new audience managed Patterson Lakes waterways measures to minimise the project’s about our role and the value of and flood protection structures using impact on the traders. our services. funds collected through a special The works were part of the final stage precept rate. of the project and involved building new The precept rate helps us provide stormwater drains through residential services such as flood protection and streets and past the businesses, known maintenance to residents in the Tidal locally as the Heatherhill traders. Waterways and Quiet Lakes areas. Before agreeing to the package, When Patterson Lakes was developed, the traders had lobbied to change it was agreed we would manage the the location of works or halt the waterways within these areas. project. Although the project benefitted central Frankston, the traders felt it had considerable impacts on them at a time when the economic climate and other major projects were already damaging their bottom line. Works and road closures will now have less impact on the traders, and new traffic measures will ensure businesses remain open and accessible during construction.

48 Melbourne Water Annual Report 2012–13 Explaining the new Waterways Improved customer focus Sponsorship for pioneering and Drainage Charge energy project In response to customer feedback, our Effective from 1 July 2012, the Customer and Community Group was Melbourne Water has joined forces residential Waterways and Drainage restructured over the last 12 months. with Poo Power, a pioneering Melbourne- Charge is now billed as a ‘flat rate’ based project that aims to turn dog Reflecting our Strategic Direction, for each occupancy, spreading the cost poo into a renewable energy source. a Customer Experience Team has now more equitably across property owners been formed to be a central, first point The man behind Poo Power, Duncan in Melbourne. Every dwelling on each of contact for customer enquiries and Chew, has designed an anaerobic property title is now billed a flat rate. to act as a centre of excellence, leading methane digester that uses biogas Previously, the residential Waterways and building customer focus across the from dog waste to light up a local and Drainage Charge was calculated organisation. dog park in the City of Yarra. according to property values, and subject In addition, the Customer and The benefits are two-fold, with the to a minimum charge. The actual charge Community Group’s new regional digester educating park users on local was calculated based on 1990 property delivery model focuses on developing biogas production and similar work values and a ‘rate in the dollar’ figure. closer connections and a deeper at the Western Treatment Plant, and The new method for calculating understanding of the needs and expected improvements to waterway the charge has been approved by expectations of our customers health. The project will include a the Essential Services Commission (ESC) and stakeholders. 12-month education tour of community and is in line with flat rate charges events prior to installation, followed paid by retail water customers outside Community engagement by interpretative signage at the park. metropolitan Melbourne. It is also similar to the way other utility companies Highest ever satisfaction Sculpture raises awareness charge for their products and services. rating for waterways about willows and river health In the last 12 months Melbourne Water Melbourne Water received its highest Over the course of three weeks, artist developed a detailed Communications ever community satisfaction rating Patrick Dougherty wove more than five and Engagement Plan in consultation of 77% for waterways in the greater tonnes of willows into a spectacular with water retailers. This involved writing Melbourne area in 2012. sculpture at Federation Square to raise to every multiple dwelling owner/ awareness of the harmful effects of The Community Perceptions of customer in the South East Water and willows on river health. Yarra Valley Water regions (City West Waterways study was conducted from Melbourne Water provided some Water not yet complete) to explain the May to June 2012 and surveyed more of the willows for the artwork, which new billing system. The letter included: than 3,800 Melburnians who had visited their local waterway in the were removed, from vegetation work, • what we had discovered previous 12 months. to reinforce its role as Melbourne’s waterways manager and educate • a fact sheet explaining impacts The biennial study has reviewed the community about maintaining community attitudes and perceptions • relevant contact information, and healthy rivers. to waterway maintenance, amenity • a mechanism for managing and health since 1993, as well as financial impacts. stormwater and flooding. In response to the question: How satisfied or dissatisfied are you with the rivers and creeks in the greater Melbourne area overall?’ 77% of respondents answered ‘satisfied’, an increase of 7% on our KPI of 70%.

49 Corporate Relationships

Expanding our online presence Community education Edithvale-Seaford Wetland Education Centre continues Melbourne Water is using its online to win awards presence to improve stakeholder New model for delivering engagement and customer service. community education Since its completion in October Our new website, launched in Melbourne Water has developed 2011, the Edithvale-Seaford Wetland August 2013, has been restructured a portable Water Smart City model Education Centre has won several based on extensive user-testing to improve community education awards for its unique design and to help people access relevant about the urban water cycle. sustainable implementation. and helpful information fast. The new model takes participants Recent awards have included the An increased focus on social media through the stages of urban development, 2012 Premier’s Design Award, a 2012 is also attracting new users to our from the catchment to city streets. Victorian Architecture Award for new Facebook page, and helping us The model includes Lego building Public Architecture, and a 2012 Master collaborate with community partners. pieces, which people pour water over, Builders Association of Victoria We generated greater awareness so they can see and discuss the impacts Excellence in Construction Award about urban water management of stormwater on the landscape. for Best Sustainable Energy Project. through Facebook and the launch The final step is to adapt the city by Home to more than 7,000 birds, the of a short film competition in June. replacing pavement, adding green roofs centre’s latest feature is an interactive and installing water tanks to make the We also trialled a local Twitter page display, allowing students and visitors city ‘water smart’. in Melbourne’s south-east to better to zoom into the wetlands through inform local community members, a high-resolution camera, offering media and stakeholders about ongoing School education a detailed view of the birdlife. Other water management issues. The programs expanded new displays allow visitors to hear successful program will be extended Melbourne Water’s school education the sounds of the wetlands – birds, to our other regions late 2013. programs were expanded in 2012–13 bats and frogs – or compare historical to include river health excursions, and current maps of the site. which complement ongoing The centre is now open to the public treatment plant tours and new every Sunday, giving people more activities at the Edithvale-Seaford opportunity to visit this internationally Wetland Education Centre. significant site. Designed for primary and secondary students, the excursions cover topics such as water as a resource and waterways biodiversity to help young people understand water use issues and make positive change. Melbourne Water’s role in protecting, managing, treating and supplying water to greater Melbourne is also showcased. All activities support the Department of Education and Early Childhood Development’s new AusVELS curriculum in the areas of science and geography as well as the water and biodiversity modules in Sustainability Victoria’s ResourceSmart AuSSI Vic framework.

50 Melbourne Water Annual Report 2012–13 Raingardens Program Energy and Water Ombudsman builds momentum The Energy and Water Ombudsman Stage two of the 10,000 Raingardens (Victoria) investigates and resolves Program was undertaken throughout disputes between Victorian consumers 2012–13. The program promotes a new, and their energy, gas and water service responsible way of gardening to help providers. Melbourne Water is one people create their own sustainable of 19 Victorian water businesses that garden and do their bit to protect are members of the scheme. our rivers and creeks. This year we responded to 25 Believed to be the first program of investigated cases, 37 less than its type in Australia, the Raingardens the previous year. Enquiries covered Program started in 2008 and originally issues such as vegetation management, focused on working with local councils water licensing, drainage charges, and schools to create raingardens project impacts, development works, in public spaces. security of property, flooding-related issues and property damage. In 2012, the program went public with a marketing campaign aimed We are working to resolve two at creating greater public awareness, of these cases which remain open – and turning that awareness into action both relating to flooding issues. and registrations of built raingardens. We have now reached our target of 10,000 registrations.

“Melbourne Water has developed a portable Water Smart City model to improve community education about the urban water cycle.”

51 Corporate Financial sustainability

52 “Melbourne Water’s operating environment continues to provide significant challenges to the business.”

Our aim Key achievements Disappointments • Developed a Financial Sustainability • Recorded a loss of $30.1 million, Maintain financial viability Strategy to strengthen our mainly due to the full return to and increase business value. commercial focus customers of revenue collected in advance in 2011–12 to make forecast We will do this by: • Established a Commercial Transformation Program to drive obligatory payments relating to the • Maintaining sound financial value for customers and deliver Victorian Desalination Plant. governance services more efficiently Challenges • Operating efficiently and managing • Delivered $331.1 million of capital commercial risk effectively works in 2012–13, the final year of the • Managing significant impacts • Investing prudently and efficiently $3.7 billion Water Plan 2 (2008–09 on our financial performance due to 2012–13) capital program to delays in commissioning the • Continuously improving business Victorian Desalination Plant productivity • Achieved above our financial performance targets for Return • Managing impacts on our financial • Earning a commercial return on Equity, Interest Cover, and viability due to lower than proposed on investments. Gearing ratios as a result of lower price increases than expected net loss for 2012–13 • Determining how best to pass on (explained further under Financial desalination costs from 2016–17 performance) onwards to minimise the impact • Signed a 20-year lease agreement on customers while still maintaining for the use of agricultural land at the financial viability Western Treatment Plant, enabling • Ensuring financial sustainability within greater sustainable and productive our current operating environment. use of the land and providing an improved commercial return for Melbourne Water.

53 Corporate Financial sustainability

Ongoing operational challenges For Melbourne Water specifically, Total assets increased to $14,478.1 the ESC also only approved prices for million at 30 June 2013 from $10,034.1 Melbourne Water’s operating wholesale water and sewerage for the million at 30 June 2012. This increase environment continues to provide next three years (2013–14 to 2015–16). is mainly due to the recognition of significant challenges to the business. The ESC’s decision to only approve $4.4 billion of finance lease assets These include responding to the financial these prices for three years instead for the desalination plant (following impacts of the Victorian Desalination of five years was influenced by its commissioning in November 2012) Plant, higher input costs across a considerations around paying combined with the investment of spectrum of activities, service delivery, desalination costs. $331.1 million ($547.1 million in meeting customer expectations in 2011–12) in capital works. relation to affordability, and effectively While being satisfied that capitalisation planning for an increasing population. will become increasingly sustainable Total liabilities increased to $10,116.7 from 2016–17, the ESC was not able million at 30 June 2013 from $5,495.1 The key financial challenge of 2012–13 to form a view with sufficient confidence million at 30 June 2012. This increase related to delays in commissioning about the amount which could be is mainly due to the recognition of the Victorian Desalination Plant, capitalised without impacting on $4.4 billion finance lease liabilities contributing to a loss of $30.1 million Melbourne Water’s financial viability. associated with the desalination (compared to a profit of $269.9 plant finance lease arrangement. million in 2011–12). To determine how best to pass on desalination costs from 2016–17, we During 2012–13, Melbourne Water Revenue had been collected in 2011–12 will be working with the ESC, focusing made cash payments to the Victorian to make forecast obligatory payments on minimising the impact to customers Government of $94.7 million relating to the Victorian Desalination while still maintaining financial viability (compared with $289.3 million in Plant. These payments were not for Melbourne Water. 2011–12 and a target of $183.2 million). required at that time due to delays This consisted of income tax equivalent in the plant’s commissioning, resulting Financial performance payments of $53.9 million, a financial in revenue from customers being higher accommodation levy of $37.1 million than costs. While Melbourne Water made a loss and local council rate equivalents of $30.1 million in 2012–13, it was Our draft plan for the next pricing of $3.7 million. There was no dividend significantly less than the $144.1 million period (2013–14 to 2017–18) outlined paid in 2012–13. The target of $183.2 loss we had planned for. The loss for the intention to return this revenue million was not achieved as a result 2012–13 is primarily a result of the to customers over the five year pricing of the Department of Treasury and return to customers of revenue that was period, but we returned the funds Finance deferring payment of 2011–12 collected in advance in 2011–12 to make earlier, in 2012–13, in response to dividends declared of $94.5 million forecast obligatory payments relating strong community feedback. This to July 2013. to the Victorian Desalination Plant. was achieved by freezing 2012–13 We also incurred expenditure to the Total revenue for 2012–13 was prices at 2011–12 levels and paying Victorian Government of $20.6 million $1,270.8 million ($1,240.2 million a rebate for the net amount not repaid in land tax ($19.4 million in 2011–12) in 2011–12). While the water and through the price freeze. and $4.7 million in payroll tax sewerage prices were frozen at 2011–12 ($4.1 million in 2011–12). As a result, $310.8 million was returned levels, increases to revenue arose to water consumers in 2012–13 and this primarily through increased demand Due to the loss in 2012–13 our return contributed to a financial loss for for water and an improvement in on equity was (0.7)% compared with Melbourne Water. the market value of our defined 5.9% in 2011–12 and our planned target The final pricing determination for superannuation benefit fund. of ≥(3.4)%. The result was better than 2013–14 to 2017–18 was made by our Total expenditure was $1,315.9 million planned as a result of the lower than economic regulator, the Essential Services ($867.4 million in 2011–12). The key planned loss (as explained above). Commission (ESC), in June 2013. Lower driver for the increase compared to Our gearing ratio of 66.0% (45.8% in than proposed prices were announced 2011–12 was the inclusion of $436 2011–12) and our interest cover (cash) which will challenge Melbourne Water’s million of expenses (operating, financing ratio of 1.5 times (3.7 times in 2011–12) future financial viability. and amortisation) paid to the State worsened primarily due to recognition in relation to the desalination plant of the desalination finance lease and following its commissioning in associated additional expenses. November 2012. Other business as These results were better than our usual expenditures for 2012–13 remained planned target ranges of ≤ 66.1% materially consistent with 2011–12. and ≥ 1.3 times (respectively) due to the improved operational financial performance compared to plan.

54 Melbourne Water Annual Report 2012–13 Figure 16 Revenue ($M) 2012/13

2011/12

Bulk water services 2010/11 Bulk sewerage services Waterways charges 2009/10 Developer charges, contributions & contributed assets 2008/09 Biological assets revenue 0 200 400 600 800 1,000 1,200 1,400 Other revenue

Figure 17 Expenditure ($M) 2012/13

2011/12

Desalination plant expenses 2010/11 (see Figure 18) Depreciation & amortisation 2009/10 Operational Employee benefits 2008/09 Repairs & maintenance 0 200 400 600 800 1,000 1,200 1,400 Administrative Finance costs Other expenses

Figure 18 2012/13 Desalination Plant Expenses Breakdown $M

Operating expenses $86.0M Amortisation of finance lease $48.0M Finance lease interest $302.5M

Figure 19 Capital Expenditure ($M) 2012/13

2011/12

Corporate 2010/11 Waterways and Drainage

Sewerage 2009/10 Water 2008/09

0 200 400 600 800 1,000 1,200

55 Corporate Financial sustainability

Financial Sustainability Strategy Transformational change Efficiency through collaboration Melbourne Water’s vision of Enhancing Life and Liveability is underpinned Established commercial Capital works achievements transformation program by providing efficient, affordable During Water Plan 2 (2008–09 and valued services to all customers One of the key components of our to 2012–13), Melbourne Water and stakeholders. Financial Sustainability Strategy is the faced the challenge of drought and Commercial Transformation Program. However, changes to our operating an unprecedented capital program, which required a unique delivery environment can affect our ability The aim of the program is to enhance model to complete a remarkable to achieve this. Global economic Melbourne Water’s commercial range of projects. volatility, introduction of the Victorian performance and ensure key elements Desalination Plant and affordability of the Financial Sustainability Strategy This year, $331.1 million of capital pressures are among several drivers are delivered efficiently and effectively. works were delivered through teams that have required Melbourne Water The initiative will be self–funded and working on projects such as the to improve its financial performance. deliver a fully costed, target–driven Eastern Treatment Plant Tertiary program to: In 2012–13, Melbourne Water prepared Upgrade and the Melbourne Main Sewer Replacement. As part of Water a Financial Sustainability Strategy • Drive value for customers by knowing Plan 2, we successfully delivered which outlines the objectives, operating what customers want and delivering $3.7 billion of water, sewerage activities, governance structure and key these services efficiently performance indicators necessary to and drainage infrastructure. • Commercially position Melbourne achieve financial sustainability as set Water to improve its financial out in Melbourne Water’s Strategic Our new strategy performance and provide sustainable, Direction, and to bring a commercial for capital delivery long–term returns to government focus to all its activities. Customer affordability is at the • Build organisational capacity to forefront of our new Water Plan 3 The Financial Sustainability Strategy deliver transformational initiatives. was approved by the Board in August (2013–14 to 2017–18). Elements of the Commercial 2012 and is being implemented under The new Capital Delivery Strategy Transformation Program include seven focus areas including financial is framed by our Services Strategy, a review of expenditures, asset and risk management and business which contains the following land utilisation, identification of efficiency. Measures include: recommendations: new revenue opportunities and • A review of financial risk procurement benefits. • Deliver smaller, lower risk projects management policy and guidelines through maintenance contracts resulting in significant future • Develop an individual fit-for-purpose financing costs being avoided during delivery strategy for major stand- the next Corporate Plan period alone projects • Implementation of productivity • Bundle the majority of remaining and efficiency activities via an projects into programs based on organisational-wide review activity type • Establishment of a dedicated • Projects delivered by Melbourne Investment Steering Committee Water project managers must use to enhance financial management either ‘design then construct’ or practices across the organisation ‘design and construct’ methodologies. through disciplined and informed decision-making processes for The current operating environment capital investments will see Melbourne Water deliver fewer large projects, with a focus on more • Redesigning our investment efficient and affordable services for prioritisation model and increasing customers and the wider community. the rigour on investment criteria We are shifting our focus away from for all business cases large infrastructure projects to • A change management plan that renewing ageing infrastructure and focuses on collaboration and maintaining an expanded asset base. empowerment to think differently.

56 Melbourne Water Annual Report 2012–13 New contracts to manage Corporate governance Our governance procedures assets more efficiently and risk management Melbourne Water’s policy is to adopt New contracts were awarded in appropriate corporate governance 2012–13 to drive efficiencies in asset Ethics and values practices and regularly review them management across Melbourne Water. Melbourne Water’s directors and to ensure we are up-to-date with best practice. Contractor, Wood Group PSN, employees are committed to operating has started delivering our mechanical, ethically and in the best interests of As part of these improvements, electrical and civil maintenance program customers, the Victorian Government, all Board members now receive as well as low-risk capital works for employees, suppliers and other papers in electronic form. Board water supply and sewerage systems. stakeholders. The Board has adopted and committee paper formats Another contract was awarded to a Director’s Code of Conduct. have been reviewed and updated. Fulton Hogan/Ecodynamics to maintain All directors, managers and employees Improved Board training and our waterways and drainage assets. are expected to perform their duties development processes have also been implemented. In addition, The benefits of these new contract with integrity and honesty. This a structured approach to Board arrangements include incentives to expectation extends to dealing with development (both at a Board drive efficiency and productivity. our people, customers, suppliers and individual Board member Our service providers will also have and the community. Melbourne level) has been adopted. the opportunity to look for continual Water employees and managers improvement opportunities across must comply with Melbourne our asset business, particularly in Water’s Code of Conduct. relation to work identification and Policies and procedures exist for programming, for the benefit of directors and employees in relation our customers. to the identification of actual and potential conflicts of interest. Leasing agricultural land at These documents are regularly the Western Treatment Plant updated. The Corporate Secretary Melbourne Water has signed a maintains a Register of Director’s 20-year lease agreement to enable Interests and a register of gifts MPH Agriculture to convert some and invitations accepted by directors land at the Western Treatment Plant or employees. for sustainable, productive uses. As part of maintaining a safe and Attached to the lease is a supply healthy working environment, the agreement for 25 gigalitres of Board has approved behavioural and Class C recycled water per annum workplace policies for specific purposes, for agricultural production. such as occupational health and safety and discrimination. These policies are The lease agreement is the product distributed and widely publicised of a 2006 strategy to maintain to our employees. the functionality of the Western Treatment Plant for the community while also preserving existing important environmental values, restoring degraded land and achieving a sustainable commercial return for Melbourne Water. The strategy recommended a structured change of existing agricultural operations to implement a diverse range of agricultural enterprises, with the management of agricultural land outsourced to private enterprise.

57 Corporate Financial sustainability

Powers and accountability The Board has ratified a Corporate Financial Sustainability Committee Governance Policy. Key features of Melbourne Water operates under This committee assists the Board its activities include: the Water Act 1989. in fulfilling its responsibilities relating • Hold 11 Board meetings a year, to risk management, financial Melbourne Water has two current undertake site visits and participate management and operational control by-laws, Water Supply Protection No 1 in monthly business strategy practices, and compliance with (2006) and Waterways, Land and Works workshops with Melbourne Water’s relevant laws and regulations. Protection and Management (2009). Leadership Team. Special Board and At 30 June 2013, the committee The Minister for Water has delegated committee meetings are convened comprised Dana Hlavacek (Chairman), powers of management under the as required to meet the needs of Richard McKinnon, Janice van Reyk and Water Act relating to licensed private the business Paul Clark. A report about the activities water diversions from waterways to • Monthly updates on Board activities of the committee in fulfilling its charter Melbourne Water, effective as of 1 July are made available to all employees is prepared annually. 1999. The Water Act and by-laws can and the community be purchased from the Information Victoria bookshop, 356 Collins Street, • Periodic strategy discussions are People and Safety Committee Melbourne or phone 1300 366 356. held with relevant stakeholder groups This committee assists the Board The Honourable Peter Walsh MLA, • A structured induction program in fulfilling its responsibilities relating Minister for Water, was the Minister exists for new Board and committee to human resources issues, remuneration, responsible for Melbourne Water members and workplace health and safety. from 1 July 2012 to 30 June 2013. • Development opportunities are made For details of directors’ and executives’ Melbourne Water works with officers available for Board members on an remuneration, refer to pages 121–122 of the Department of Environment ongoing basis of the Financial Statements. 6 and Primary Industries and the • Conflicts of interest are declared At 30 June 2013, the committee Department of Treasury and Finance. and a director does not participate in comprised Peter Vines (Chairman), Statutory and other reports are decisions where such a conflict exists Dana Hlavacek and Paul Clark. provided, covering Melbourne Water’s A report about the activities of performance against the objectives • Directors have the right to seek the committee in fulfilling its charter and performance indicators, in the independent professional advice, is prepared annually. Corporate Plan. at Melbourne Water’s expense, in connection with their duties Integrated Water Management and responsibilities Primary responsibilities Committee • Declarations of pecuniary interest Melbourne Water’s Board has adopted by directors are made annually, This committee assists the Board in a charter that defines its role and with procedures for updating that fulfilling its responsibilities relating responsibilities within the legislative information between declarations to integrated water cycle management. framework provided by the Water Act and other applicable legislation • There is an annual review of Board At 30 June 2013, the committee including the Public Administration performance. comprised Janice van Reyk (Chairman), Act 2004. The Board makes plans to Garry Smith and Warren Hodgson. achieve specific objectives, including: Committees A report about the activities of the committee in fulfilling its charter • Long-term, sustainable, outcomes- The Board has four sub-committees, is prepared annually. based on a triple bottom line approach each comprising at least three non-executive directors, who meet • Approval of corporate plans together periodically to focus on finance and with key performance indicators sustainability, people and safety, linked to objectives integrated water management, and • Approval of annual financial service delivery. The Managing Director statements and monitoring and responsible General Managers of performance against objectives attend meetings of committees and risks by invitation. The Board approves • Monitoring of safety, health the charters of each committee. and environmental standards and management systems.

6 Formerly two separate departments known as the Department of Sustainability and Environment and the Department of Primary Industries.

58 Melbourne Water Annual Report 2012–13 Service Delivery Committee Strategic risk Insurance and incident management framework This committee assists the Board in To assist in the strategic management fulfilling its governance responsibilities of risks at an organisational level, To help mitigate the commercial, relating to the planning and delivery Melbourne Water has identified key social and environmental impact of capital projects and services. strategic risks and assessed each risk of risk events, Melbourne Water based on the current risk level. has several control measures in place At 30 June 2013, the committee including an emergency and incident comprised Warren Hodgson (Chairman), Melbourne Water actively manages management framework and a Peter Vines, Richard McKinnon and strategic risk with a strong focus on comprehensive insurance portfolio. Garry Smith. A report about the continuous improvement. Melbourne activities of the committee in fulfilling Water’s risks will continue to be managed As part of this framework, Melbourne its charter is prepared annually. through a Risk Management Framework, Water has developed emergency comprising major elements such as: management and contingency plans, which are regularly tested and reviewed. Risk management • Certified management systems Melbourne Water adopts a balanced • Appropriately skilled people and In addition to local emergency approach to risk management that sound operational procedures management arrangements, Melbourne considers its commercial, social and Water assists in the development of environmental responsibilities with • A robust capital works program industry response plans and protocols. regard to short-term and long-term goals. • Sound technological applications We work with water retailers and such as our Supervisory Control government departments/agencies Risk management is used to ensure and Data Acquisition (SCADA), that assign roles and responsibilities Melbourne Water understands its Asset Management and GIS systems in the event of large-scale incidents. business risks and manages them These plans are also tested and • Close working relationships with consistently. Effective and efficient reviewed with water retailers. management of risk is central to the water industry, government the achievement of our vision. departments, local councils, customers, developers and the Audits and risk reviews Melbourne Water adopts a ‘whole community. Melbourne Water continually of business’ approach by considering reassesses its risk profile through risks on a group, team and project Melbourne Water has identified external reviews by subject matter basis. Trends and commonalities the following key strategic risks: specialists and a comprehensive are also identified across these areas. • Health, safety and security risk-based internal audit program. To effectively manage risks across of people, property and environment the organisation, risk assessments In addition to these reviews, are conducted on a regular basis • Environmental damage to Melbourne Water undertakes to identify the: Melbourne’s waterways/bays quarterly self-assessments on the current management of risks and • Likelihood or probability • Financial and governance framework the identification of new or emerging of a risk occurring • Recycled water (quantity and quality) risks and opportunities. The results • Consequence of a risk occurring • Engaging, understanding and working of these reviews are presented to the • Effectiveness of mitigating strategies with key stakeholders and the Board via its Financial Sustainability in place to manage risks. community Committee, which oversees Melbourne Water’s risk management processes. The capital prioritisation process • Water supply uses risk assessment as a key tool • Water quality for determining the need for, and • Asset lifecycle relative timing of, investments. Operational risks are managed daily • Capital delivery by the organisation and through • Impact of flood on the community specialised management systems. • 2018 greenhouse target • Recruiting, developing and retaining our employees • Delivering obligations in Water Plan 3 (2013–14 to 2017–18) • Biosolids and by-products (quantity and quality).

59 Corporate Financial sustainability

Attestation on Compliance Statements of Obligations On 26 March 2012, the Minister for with the Australian/New Zealand Water issued an amendment to this Two Statements of Obligations, issued Risk Management Standard Statement of Obligations, the purpose by the Minister for Water pursuant to of which was to set out the new rules I, Paul Clark, certify that: Section 4I of the Water Industry Act 1994, for the future use of the North- are applicable to Melbourne Water: Melbourne Water Corporation has South Pipeline. risk management processes in place 1) The Statement of Obligations Melbourne Water’s Board monitors consistent with the Australian/New applicable from September 2012 compliance with these Statements Zealand Risk Management Standard formalises Melbourne Water’s of Obligations and reports any (AS/NZS ISO 31000:2009). obligations in relation to the significant non-compliance to performance of functions and An internal control system is in the Minister. exercise of powers including place that enables the executive the areas of: to understand, manage and Board of Directors satisfactorily control risk exposures. • the Water Plan The Minister for Water, in consultation The Financial Sustainability Committee • governance with the Treasurer, appoints the verifies this assurance. • customer and community directors of Melbourne Water for terms The risk profile of Melbourne Water engagement of up to four years and the Victorian Government sets their remuneration. Corporation has been critically • risk management reviewed within the last 12 months. Directors are eligible for reappointment • planning for subsequent terms. • water services In making new appointments to • compliance. the Board, the Victorian Government ensures the Board has the necessary Paul Clark 2) The Statement of Obligations combination of skills and experience. Chairman applicable from 1 July 2009: The Managing Director is appointed Melbourne Water Corporation (a) Imposes obligations on by the Board, subject to the approval Melbourne Water in relation of the Minister in consultation with the to our water supply function Treasurer, for a term of up to five years. established under section 171B Annual reviews are conducted of the of the Water Act 1989, and performance of the Board as a whole the exercise of our powers. and of individual members. Pursuant (b) Clarifies Melbourne Water’s role to a Statement of Obligations issued as manager of the Melbourne by the Minister, the outcomes of these headworks system in relation performance reviews are reported to the obligations of the water to the Treasurer and the Minister. retailers as holders of certain The Board of Directors currently water entitlements. comprises a non-executive Chairman, six non-executive directors and the Managing Director.

Figure 20

Organisation Structure Managing Director Shaun Cox

General General General General General General General General General General Manager, Manager, Manager, Manager, Manager, Manager, Manager, Manager, Manager, Manager, Operations and Waterways Strategic Customer and Business People and Capital Asset Commercial Service Maintenance Planning Community Services Safety Delivery Planning Transformation* Delivery* Tony David Ben Anne Malcolm Linda David Paul Cameron Chris Antoniou Ryan Furmage Randall Haynes Heron Morse Pretto FitzGerald Chesterfield

*Commercial Transformation and Service Delivery were created in March 2013 to enable Melbourne Water to focus appropriate attention on the commercial and service aspects of our business, to better manage our work and to challenge ourselves to achieve even greater results for our organisation, our customers and our stakeholders. There was no overall increase in our head count to support these changes.

60 Melbourne Water Annual Report 2012–13 Paul Clark Shaun Cox Dana Hlavacek Chairman Managing Director Director Paul Clark was appointed to the Board on 1 Shaun Cox commenced as Managing Director Dana Hlavacek was appointed to the Board October 2012. Mr Clark is a corporate adviser of Melbourne Water on 8 March 2011. Shaun on 1 October 2011. Ms Hlavacek is a finance specialising in debt, performance improvement is currently a Board member (and former Chair) executive with considerable experience with and strategy, and has been on a number of the Smart Water Fund and the Water Services Rio Tinto Treasury and, before that, KPMG. of unlisted company Boards and executive Association of Australia. He holds a degree in She is a Trustee of the Victorian Arts Centre committees. Mr Clark has previously held civil engineering, a Masters of Engineering and Trust, a Governor of the Arts Centre Melbourne senior executive roles with Ernst Young, HBOS Technology Management and is an Adjunct Foundation and is also on the Board of RSPCA Australia, BankWest, National Australia Bank Professor at the University of Queensland. Victoria. Ms Hlavacek is a member of the and Bank of New Zealand. Before joining Melbourne Water, Mr Cox held the Salvation Army Corporate and Philanthropic positions of Managing Director at South East Water Committee and of the Brotherhood of and Chief Executive Officer at Gold Coast Water. St Laurence’s Audit Committee.

Garry Smith Peter Vines Warren Hodgson Director Deputy Chairman Director Garry Smith was appointed to the Board on 1 Peter Vines was appointed to the Board in Warren Hodgson was appointed to the Board October 2012. Mr Smith is a director of DG October 2005. Mr Vines has held chief executive on 1 July 2008. Mr Hodgson was previously Consulting, provides advice on water and natural and executive management positions in the Secretary, Department of Innovation, Industry resource management policy and strategy, and energy and infrastructure sector, including and Regional Development, and before that, has previously held senior management roles in directorships in various utility companies in Under Secretary, Department of Treasury the rural water industry. He is an Advisory Board Australia and internationally. Mr Vines holds and Finance. Mr Hodgson has a background member for the National Centre for Groundwater qualifications in civil engineering, economics in the manufacturing industry, qualifications Research and Training and Chair of Trustees for and management. He is a member of the in science and engineering, and is a graduate the Sampson Leadership Trust. Mr Smith is also Australian Institute of Company Directors of the Australian Institute of Company Directors. Chair of Goulburn Valley Community Fund and and a member of the Institution of is a former Director of eWater Pty Ltd. Engineers Australia.

Janice van Reyk Richard McKinnon Director Director Janice van Reyk was appointed to the Board Richard McKinnon was appointed to the Board in October 2012. Ms van Reyk is a Non-Executive on 1 October 2012. Mr McKinnon has had a Director of the Port of Melbourne, Citywide 40 year career in the finance industry including and the Northern Territory Environment senior executive roles in investment banking Protection Authority, and an Independent Member and commercial banking. He spent 19 years of the Salvation Army Audit Committee and with National Australia Bank (NAB) where he of Sustainability Victoria’s Audit Finance and Risk was Chief Financial Officer, a member of the Committee. Ms van Reyk previously served two Group Executive Committee and a Director terms as a Non-Executive Director of Gippsland of a number of NAB subsidiary companies. Water and was Chair of its Safety, Health and Since retiring from NAB, Mr McKinnon has Environment Committee. She has broad-based been in private practice as a financial consultant business skills gained as a senior executive in and has held Board positions with Carey Baptist ASX100 industrial companies as well as a Grammar School Ltd and Responsible Gaming consultant advising on major projects and public Networks Pty Ltd. policy. Ms van Reyk is a Leadership Victoria Fellow.

61 Corporate Organisational capability

62 “Melbourne Water continues to attract and retain a diverse, motivated and skilled workforce, bringing talent into the organisation through a variety of measures.”

Our aim Key achievements Disappointments • Achieved Australian and New Zealand • Recorded 16 employee and Strengthen the capability safety standard 4801 certification contractor lost time injuries (LTIs), of the organisation to deliver of our safety management system failing to meet our zero harm target. better customer and community in June 2013 outcomes. • Received an Australian Water Challenges We will do this by: Association Safety Excellence Award • Continuing to build a constructive for our work as part of the Water culture by focusing on strategies • Continuing to build a collaborative Resource Alliance to develop high performing teams culture • Reached the finals of the 2012 • Continuing to build leadership • Supporting our people to take WorkSafe Victoria Awards for capability and develop the talent responsibility for health and safety the Western Treatment Plant of our people. • Developing a high-performing Covers Renewal Project organisation that values innovation, • Team Leader of Water Supply customer service and commercial Operations at Silvan, Nick Stuart, and technical expertise was awarded the Australian Water • Promoting diversity and flexibility Association’s Victorian Operator to attract and retain a motivated of the Year and skilled workforce • Rolled out a change management • Fostering a learning organisation approach and toolkit to support that collaborates in research, project outcomes embraces emerging thinking • Our work to build a constructive and adapts to new technology culture was recognised with a Culture • Using innovative technological Transformation Sustainability Award solutions to improve the at the 2012 Human Synergistics effectiveness and efficiency conference in Melbourne. of business processes.

63 Corporate Organisational capability

Safe and healthy workplace The Water Resources Alliance is To reduce the associated health a partnership between Baulderstone, and safety risks, Melbourne Water Melbourne Water is committed to Sinclair Mertz Knight, United Group, developed a Membrane Deployment achieving a zero harm workplace where Infrastructure, MWH Australia, Beca Device, which acts like a dispenser the safety of people is paramount. and Melbourne Water to deliver for 1.5 tonne rolls of membrane. In 2012–13, we failed to achieve our works to improve and expand the The new device enables the membrane goal of zero lost time injuries (LTIs) water storage system and water to be seamlessly rolled out onto the for employees and contractors, with distribution network. cover and significantly reduces the 16 LTIs, although this was less than need for workers to drag the sheet 20 LTIs last financial year. The number Australian Water Association into place as it rolls. of days lost due to LTIs is 1607. Operator of the Year 2012 As part of an internal review of safety Nick Stuart, Team Leader of Water New People and Safety Strategy performance we developed a Safety Supply Operations at Silvan, won Melbourne Water’s People and Safety Improvement Plan to identify areas the Australian Water Association’s Strategy was developed to increase of concern, quantify objectives and Victorian Operator of the Year 2012. capability and enhance services and targets to improve performance, programs across the business. and nominate resources responsible The award recognises the outstanding for achieving these targets. efforts of an operator working in The strategy was developed following Victoria who has direct responsibility extensive consultation with our people for operational decisions at community and external research and benchmarking. Achieved Australian and New water, sewer or recycled water systems/ It supports our Strategic Direction and Zealand safety standard 4801 networks and/or water, wastewater or was approved by the Board in May 2013. Melbourne Water achieved Australian recycled water treatment plants or There are four focus areas within and New Zealand safety standard industrial water or wastewater plants. the strategy: (AS/NZS) 4801 certification of our safety management system in June Lagoon covers project recognised • Promoting Life and Liveability – 2013. This standard recognises that for safety creating a workplace free from injury we systematically identify and address and illness, and Enhancing Life and Melbourne Water has been chosen occupational health and safety Liveability for everyone, every day issues with a focus on continuous as a finalist in the WorkSafe Victoria • Building Capability – to deliver improvement. The certification Awards for work method improvements a better way of doing business enhances the commitment in our that have significantly reduced the Strategic Direction to achieving high risk of manual handling injuries. • Achieving a High Performance zero harm in the workplace. The Western Treatment Plant Covers Culture – together we will challenge Renewal Project involves replacing all our teams to achieve a high Alliance wins national and doubling the size of lagoon performance culture safety award covers. Four times the size of the • Transforming Our Customers MCG, the new covers will help reduce The Water Resource Alliance received Experience – together we will odour and capture more biogas an Australian Water Association Safety transform our customers to generate renewable energy Excellence Award for its innovative experience to deliver customer (see Sewerage chapter). approach to communicating safety focused outcomes. information to staff. In the early stages of the project, deployment of the new membrane The introduction of Quick Response (QR) (7 metres wide x 105 metres long code technology enables workers to scan x 2 millimetres thick) involved unrolling a QR code at a construction site and it on the embankment, cutting it to offers a mobile way of communicating length and using up to 12 people to high risk procedures to frontline workers. drag the heavy membrane into position The Water Resource Alliance’s QR code across the existing cover, over water. approach has taken safety policies and procedures from a hard copy format to an engaging visual demonstration.

7 Only Melbourne Water employee lost time injuries were included in this figure. Days lost due to lost time injuries is not availiable for contractors.

64 Melbourne Water Annual Report 2012–13 Creating a high performance In 2012–13, targeted resources and Our workforce culture training were provided to Melbourne Melbourne Water continues to attract Water teams and a new Innovation Melbourne Water’s work to build and retain a diverse, motivated and Strategy is due for completion in and maintain a constructive culture skilled workforce, bringing talent into August 2013. Highlights from the was recognised with a Culture the organisation through a variety program include: Transformation Sustainability Award of measures. at the 2012 Human Synergistics • Our online Idea Pool was enhanced These initiatives include engaging conference in Melbourne. with a new feature, called the ‘Help graduates, trainees and vacation Tank’, where users can post business The award demonstrates Melbourne students, and facilitating a range problems and seek solutions in Water’s real commitment to constructive of development opportunities such the form of a challenge for other behaviour from all levels of the as job rotations and secondments employees. organisation and is well deserved between internal teams and external recognition for everyone who has • A Help Tank microsite for the Water organisations. worked to transform and maintain Services Association of Australia Our measures encourage people our culture over the last five years. technology assessment group was commissioned to capture suggestions to understand and engage with The next phase of Melbourne Water’s about how Melbourne Water can use the organisation, develop their full culture program was also developed industry-developed technology. The potential and support the delivery during 2012–13, with a focus on building system streamlines management of of organisational outcomes. high performance in line with the these ideas to ensure efficient voting People and Safety Strategy. and feedback on new technologies. By the numbers A leader capability framework was Voting and review runs quarterly At 30 June 2013: completed to guide leadership where innovators select the top development including the integration five ideas. • Our total workforce was 865 of wellbeing, safety, change, resilience, (832 full-time equivalent) compared • Practical innovation training workshops with 834 at 30 June 2012. customer engagement and commercial were conducted with over 200 acumen capabilities. This will be people. The training introduced • The average age of Melbourne supported by formal learning programs, participants to a range of practical Water employees was 42.5 years coaching to enable learning from others, tools and techniques to tackle (42 at 30 June 2012). and learning on the job through project current service delivery problems • The proportion of women placements or job rotations. and find new ways of doing things. in our workforce was 34.1% • An innovation needs and capability (32.9% at 30 June 2012). Innovation analysis was undertaken with the During 2012–13: To help provide efficient services findings presented to the Leadership in a complex environment, Melbourne Team in August 2012. Leadership • The average age of new starters Water introduced a program of initiatives capability statements for innovation was 37 years (33 in 2011–12). to boost innovation in late 2010. have now been incorporated in the • 235 roles were filled, 77% by internal organisation’s capability framework. This included an innovation toolkit candidates (162 roles filled in with resources for creative thinking • Innovation was actively championed 2011–12, with 43.2% internal and team problem-solving, and an and supported across Melbourne candidates). online software tool – the Idea Pool – Water by the Innovation Advisory • Total voluntary and managed to allow people to share their ideas Group and our Innovation Champions. turnover was 7.86% (9.79% across the business. Building on past efforts, the new in 2011–12). Innovation Strategy identifies opportunities to enhance our innovation culture, provide innovation tools and build capability to deliver outcomes that transform the business.

65 Corporate Organisational capability

Workforce distribution

Melbourne Water workforce distribution 2012–13 2011–12 2010–11 2009–10 M F M F M F M F Executives 38 15 42 10 48 9 42 8 Technical/professional 373 226 361 216 352 214 348 206 Operational 147 3 142 1 148 2 148 3 Administration 12 51 14 48 15 53 18 55 Total 570 295 559 275 563 278 556 272 Total male and female 865 834 841 828

Developing leadership potential A change management approach This award followed national and toolkit were developed to support recognition at the actKM Gold Over the last 12 months we developed our people in making these changes. Knowledge Management Excellence a capability framework comprising Awards which recognises significant leader competencies, business skills Melbourne Water established and achievements in organisational and functional competences. This work trained a group of ‘change coaches’ capability, performance or sustainability has been undertaken on the basis that who will ensure we continue to be through the application of knowledge- all of our people are leaders, not just adaptable and resilient to an ever- based projects or activities. those in people management roles. changing environment. An ongoing measure of the amount of change The judging panel praised Melbourne Other leadership development taking place within Melbourne Water’s information management measures included: Water has also been established program for its “excellence in • Introducing the Hogan interpretive as part of the project. elegant design and development tool for our Board and Leadership of an information management Team, direct reports and in some Information technology culture strongly supported by senior recruitment processes. The tool is management and enabled through supported by a robust development Information management the use of technology”. planning process and a new talent program receives multiple awards management system. Melbourne Water’s new information • Providing support for collective management program received two leadership development through awards in 2012–13 for its contribution leadership forums. The forum series to improving business efficiency. has focused on safety leadership as well as customer focus, financial The program won the Medium sustainability and innovation. Government Agency category of the 2013 Sir Rupert Hamer Awards. Toolkit for managing change Presented by Public Record Office Victoria, the award recognises Two organisation-wide initiatives programs that ensure a high level emerged in the last year: Commercial of compliance with government Transformation and Service Delivery, records management policies, aimed at changing the way we do regulation and standards. business, building the capacity of our people and improving the level of service and products for our customers.

66 Melbourne Water Annual Report 2012–13 Data centre goes green Upgrading our asset • The final year of a mangrove management system planting project took place along Melbourne Water’s new data centre the north-eastern shores of Western has won the Victorian iAward for Melbourne Water is replacing its Port to reduce severe coastal erosion. Sustainability and Green IT. ageing asset management system More than 10,000 seedlings were and streamlining its core asset The award recognises the innovative planted and a range of innovative management processes. This approach Melbourne Water has taken techniques were trialled to provide improvement will be applied across to limit the environmental impact protection from wind-driven waves the whole asset lifecycle for the of its data centre by: that are thought to be contributing entire business. to seedling mortality. • Installing ‘free air’ cooling that Our aim is to introduce common uses outside air to regulate the • Investigation continued into the processes throughout the business, inside temperature presence and nature of the protozoan increase the currency and accuracy parasite Cryptosporidium in native • Recycling water from the air cooling of asset data, and improve knowledge and feral animals in protected water systems about asset performance to enable supply catchments. Results support • Using sustainable building materials more informed decisions. Melbourne Water’s unfiltered and waste recycling water status. Research and technology • End-to-end virtualisation • Melbourne Water took up a position technologies. To ensure Melbourne Water continues on the Research Advisory Council to provide high quality services, These innovations are key factors in of the National Centre for Excellence research and development initiatives reducing power consumption by 40% for Recycled Water and is working are undertaken to improve efficiency compared to the previous data facility. on a major project to set national through scientific excellence, innovation The facility also delivers twice the data validation guidelines for recycled water. and the adoption of new technology. storage and real time synchronisation of • We continued to work with the Key initiatives in 2012–13 included: production and disaster recovery storage. Victorian Centre for Aquatic Pollution • Understanding the Western Port Identification and Management on New technology helps Operations Environment: a summary of current a major research program to develop and Maintenance team knowledge and priorities for future a better understanding of the impact research was publicly released in of toxicants such as pesticides on Melbourne Water’s Operations and March 2012. Since then, the majority aquatic ecosystems in waterways. Maintenance team is changing the of high priority research projects have way it works, with mobile tablets now • Melbourne Water was successful commenced and some preliminary being rolled out to provide real time in eight of its 13 Australian Research results were presented at a stakeholder access to business systems, workflow Council grant applications. The eight seminar held in March 2013. management and data capture in projects represent $3.4 million the field. in funding over four years and demonstrate a strong collaborative The changes give our people access approach to research. to information in the field to aid decision-making, reducing the effort needed to collect and process data, and allowing information to be sent in real time to improve performance and risk management. This leaves more time to focus on optimising system operations and improving customer service. The initiative is likely to provide ongoing “Melbourne Water’s savings in time, equipment and fuel costs as mobile computing takes work to build and maintain off across the business. a constructive culture was recognised with a Culture Transformation Sustainability Award at the 2012 Human Synergistics conference in Melbourne.”

67 Financial Report

Contents Five-year financial summary Page 69 Directors’ Report Page 71

Financial Statements Statement of Profit or Loss and Other Comprehensive Income Page 74 Statement of Financial Position Page 75 Statement of Changes in Equity Page 76 Statement of Cash Flows Page 77 Notes to the Financial Report Page 78 Statement by Directors and Chief Finance Officer Page 124 VAGO Audit Report Page 125

68 Five-year financial summary

Summary of Financial Results

Statement of Profit or Loss 2013 2012 2011 2010 2009 For the year ended 30 June – Extract $M $M $M $M $M Revenue and other income 1,270.8 1,240.2 997.3 858.4 732.2 Operating and other expenses 450.7 375.7 328.0 326.6 330.6 Depreciation and amortisation expenses 315.9 242.6 231.9 122.0 105.8 Finance expenses 549.3 249.2 223.3 171.3 122.0 Net result from operations before tax (45.1) 372.7 214.1 238.5 173.8 Tax benefit/(expense) 15.0 (102.8) (56.2) (52.1) (45.8) (Loss)/Profit for the period after tax (30.1) 269.9 157.8 186.4 128.0

Statement of Financial Position 2013 2012 2011 2010 2009 For the year ended 30 June – Extract $M $M $M $M $M Current assets 259.8 97.6 109.6 71.4 108.7 Non-current assets 14,218.3 9,936.5 9,644.8 8,876.9 5,312.4 Total assets 14,478.1 10,034.1 9,754.5 8,948.3 5,421.1 Current liabilities 770.7 1,142.6 1,365.5 1,096.5 862.3 Non-current liabilities 9,346.0 4,352.5 4,014.2 3,833.4 2,557.0 Total liabilities 10,116.7 5,495.1 5,379.7 4,929.9 3,419.3 Net assets 4,361.4 4,539.0 4,374.8 4,018.4 2,001.8 Total equity 4,361.4 4,539.0 4,374.8 4,018.4 2,001.8

Statement of Cash Flows 2013 2012 2011 2010 2009 For the year ended 30 June – Extract $M $M $M $M $M Net cash inflows from operating activities 219.3 520.0 266.6 302.9 278.8 Net cash outflow from investing activities (361.2) (620.2) (785.8) (936.2) (935.4) Net cash inflow from financing activities 286.9 98.6 520.9 633.3 656.4

69 Financial Report Five-year financial summary (continued)

Summary of Financial Performance

Performance indicators included in Melbourne Water’s Corporate Plan Performance indicator 2013 2012 2011 2010 2009 Return on Equity % (Net Profit After Tax/Total Equity) (0.7%) 5.9% 3.6% 4.6% 6.1% Internal Financing Ratio % 56.4% 64.5% 29.5% 23.4% 22.0% Gearing Ratio % (Total Debt/(Total Debt + Equity)) 66.0% 45.8% 45.3% 43.3% 54.1% Cash Returns to Government $M 94.7M 289.3M 173.1M 175.9M 92.3M

Performance indicators mandated by the Minister for Water through Ministerial Reporting Direction 01 Performance indicator 2013 2012 2011 2010 2009 Return on Assets % 4.1% 6.3% 4.7% 5.7% 6.0% Return on Equity % (Net Profit After Tax/Average Total Equity) (0.7%) 6.1% 3.8% 6.2% 6.4% Gearing Ratio % (Total Debt/Total Assets) 58.5% 38.2% 37.1% 34.3% 43.5% Interest Cover (Earnings Before Interest and Tax) Times 0.9 2.5 2.0 2.4 2.4

Performance indicator mandated by the Minister for Water and included in Melbourne Water’s Corporate Plan Performance indicator 2013 2012 2011 2010 2009 Interest Cover (Cash) Times 1.5 3.7 2.8 3.4 3.3

Explanatory Notes: Refer to the Annual Performance Reporting chapter at pages 127 to 139 for definitions of financial performance indicators and reporting of all 2012/13 performance indicators (financial and non financial) against targets with supporting explanations for any significant variations.

70 Melbourne Water Annual Report 2012–13 Directors’ Report

Directors

The Directors of Melbourne Water (‘the Corporation’) in office, during the financial year were: Paul Clark^ (Chairman) Richard McKinnon^ Shaun Cox (Managing Director) Garry Smith^ Peter Vines (Deputy Chairman) Eleanor Underwood^^ Warren Hodgson Terry Larkins^^ Dana Hlavacek Maria Wilton^^ Janice van Reyk^

^ Appointed to the Board on 1 October 2012 ^^Appointment to the Board expired on 30 September 2012 Particulars of the Directors’ qualifications, experience and special responsibilities are set out on page 61 of this report.

Directors’ meetings During the financial period, the Corporation held 12 meetings of Directors. Attendance at meetings of the Board and its Committees were:

Integrated Water Financial Management Service Delivery Sustainability Committee Committee Committee (formerly (formerly (formerly Audit Environment and Capital Planning and Corporate People and Safety Public Health and Delivery Board Risk Committee) Committee Committee) Committee) Attended Maximum Attended Maximum Attended Maximum Attended Maximum Attended Maximum Possible Possible Possible Possible Possible Paul Clark^ 8 8 3 4 3 3 - - - - Shaun Cox 12 12 5 6 4 4 2 2 3 3 Peter Vines 11 12 2 2 3 3 - - 3 3 Warren 11 12 2 2 - - 1 1 2 3 Hodgson Dana Hlavacek 12 12 6 6 4 4 - - - - Janice van Reyk^ 8 8 2 3 - - 2 2 1 1 Richard 8 8 4 4 - - - - 2 2 McKinnon^ Garry Smith^ 8 8 - - - - 1 2 2 2 Eleanor 2 4 - 2 1 1 - - - - Underwood^^ Terry Larkins^^ 3 4 - - 1 1 - - - - Maria Wilton^^ 4 4 2 2 1 1 - - - -

Director benefits Directors and Officers liability insurance No Director has received, or become entitled to receive, During the financial year, the Corporation paid insurance a benefit (other than a benefit included in Notes 25a and 25b premiums in respect of Directors’ and Officers’ Liability to the Financial Statements) because of a contract that the insurance. The policy does not specify a premium for Director, a firm of which the Director is a member, or an individual directors and officers. entity in which the Director has a substantial financial The insurance policy provides cover for directors and officers interest, has made (during the period ended 30 June 2013 of the Corporation against loss arising from claims made or at any other time) with: against them during the period of insurance by reason (a) the Corporation; or of any wrongful act committed or alleged to have been committed by them in their capacity as directors or officers (b) an entity that the Corporation controlled, or a body of the Corporation and reported to the insurers during the corporate that was related to the Corporation, when policy period, or if exercised, an extended reporting period. the contract was made or when the Director received, or became entitled to receive, the benefit. The terms of the insurance policy prohibit the disclosure of the nature of the liabilities insured and the amount of the premium.

71 Financial Report Directors’ Report (continued)

Interest in contracts Environmental regulation

No contracts involving Directors’ interests were entered into The Corporation is subject to significant environmental since the end of the previous financial year, or existed at the regulation in respect of managing its sewage treatment end of the 2012/13 financial year, other than the transactions plants, maintaining environmental flow requirements and detailed in Notes 25a and 25b to the Financial Statements. managing the Ramsar wetlands. Additional information on these topics is included in the Corporation’s 2012/13 Principal activities Annual Report. The Corporation is owned by the State of Victoria. Sewage treatment plants The Corporation manages and maintains Melbourne’s water supply catchments, removes and treats most of Melbourne’s EPA Victoria (EPAV) issued an amalgamated licence for sewage, and manages rivers, creeks and major waterways the discharge parameters for the Eastern and Western and drainage systems in the Melbourne region. The Corporation Treatment Plants (ETP and WTP) on 30 May 2013. Included also provides water and sewerage services to Melbourne’s in the amalgamated licence is a change to the licence three metropolitan retail water businesses: City West Water, parameters for ETP which relates to the upgrade of the South East Water and Yarra Valley Water. plant that was effectively completed in December 2012. The parameters included in the previous corporate licence Operating results and dividend will be used to measure compliance for 2012/13 as there was only one month in 2012/13 that was covered by the new The Corporation’s loss, after providing for income tax was amalgamated licence. Discharge parameters were complied $30.1 million (2011/12: profit of $269.9 million). There has with during the financial year but both plants recorded been no dividend payment made or determined in relation attributable odour complaints, a breach of a clause in to the 2012/13 financial year and any dividend for the 2012/13 the corporate licence. financial year will be determined by the Treasurer of Victoria after consultation with the Corporation’s Board of Directors Ramsar sites at WTP and Edithvale and the Minister for Water. Seaford Wetlands The Treasurer of Victoria has determined a dividend of Melbourne Water has two sites that are listed under the $94.5 million to be paid in relation to the 2011/12 financial Ramsar International Convention and these are managed year. The determination was made in June 2013 for payment within the parameters of the Convention’s “wise use” test, in July 2013. Consequently a payable for $94.5 million has which aims to protect wetlands with internationally been recorded at 30 June 2013. significant environmental values. Review of operations During the financial year, extensive work on biodiversity conservation and management of habitat areas at WTP The Directors’ review of the Corporation’s operations during continued in line with the 2010 Ramsar Site Management the financial period ended 30 June 2013 is set out in the Plan, the 2008 Land Use Strategy, and the 2008 approved Chairman and Managing Director’s report on pages 2 and 3 Environment Protection and Biodiversity Conservation (EPBC) of this report. Strategic Compliance Plan. Significant on-ground investment continued to be made in water level management, pest plant State of affairs and animal control, monitoring of key populations/communities During the financial year, the Victorian Desalination Plant and through research projects to support an adaptive was commissioned and integrated into the Corporation’s management approach. Annual compliance reports are operations. The desalination plant has been built through submitted to the Federal Department of Sustainability, a Public Private Partnership managed by the Department Environment, Water, Population and Communities presenting of Environment and Primary Industries (DEPI) and the the results of studies and monitoring of key populations/ desalination plant assets will transfer from the department communities. In addition, 2012/13 saw an independent five year to the Corporation at the end of the project contract term audit of our compliance with the terms of the conditional presently planned for 2039. There were no other significant approval for the 2002 Environment Improvement Project changes in the state of affairs of the Corporation during the which noted that there were no significant adverse outcomes. financial period ended 30 June 2013. Actions in the ‘Edithvale-Seaford Wetlands Ramsar Site Management Plan’ were implemented as required. These included significant investigations and planning to improve hydrological control at the wetlands as required. An EPBC referral was prepared and approved for these works. Other management activities included monthly bird surveys, trial weed control, and establishing a research project with the University of Melbourne to monitor vegetation responses to hydrological management.

72 Melbourne Water Annual Report 2012–13 Environmental flow requirement – – Commitments made for contractors to undertake training bulk entitlements in civil construction, conservation and habitat management or horticulture relating to the Maintenance The Corporation manages bulk entitlements to water and Low Risk Capital Waterways and Drainage contract; from the Thomson, Maribyrnong and Yarra Rivers. During the financial year, the requirements were met for all rivers – Commitments made for contractors to undertake with environmental flow entitlements. training in behavioural safety, team effectiveness, team management and health and safety; Memorandum of Understanding (MOU) – – Customised training programs developed for the Ringwood South sewer upgrade Corporation’s employees in the use of the Asset Melbourne Water and the EPAV have signed a MOU on Management Information System; and adopting an alternative approach to achieving compliance – Commitments made for training and skills development with the sewage containment policy. Instead of upgrading in the operation of Supervisory Control and Data the sewer to contain sewage in up to 1–5 year rainfall events, Acquisition software for the Corporation’s employees. over the next 5 years, Melbourne Water will implement a program of works including pollution identification and control, amenity enhancement around Dandenong Creek Contracts completed to which the VIPP applied: and habitat improvements. The Corporation completed twelve contracts totalling $518.8 million in value to which the VIPP applied. The total Environmental incidents number and value of these relate to 7 metropolitan and 1 regional contracts. During the 2012/13 financial year, there were no significant environmental incidents related to Melbourne Water’s activities. The outcomes reported by contractors under the VIPP included: Implementation of the Victorian Industry • An overall level of local content of 97.0% Participation Policy (VIPP) of the total value of the contracts In accordance with the VIPP Act 2003, the following • 427 full time equivalent jobs VIPP contracts commenced or were completed during the 2012/13 financial year: • 2 full time equivalent apprenticeships and traineeships • All committed skills and technology transfers were Contracts commenced to which the VIPP applied: achieved for these contracts. These skills included: The Corporation commenced 7 metropolitan contracts – Drainage works and wetland construction skills totalling $504.9 million in value to which the VIPP applied. for contractors; The commitments by contractors under the VIPP included: – Training in pipe boring and trenchless technology for the Corporation’s employees; • An overall level of local content of 95.5% of the total value of the contracts – Training and up skilling in high voltage works and testing for contractors; • 460 full time equivalent jobs – Training and development of skills in technologies • 60 full time equivalent apprenticeships and traineeships utilised in the tertiary upgrade project for the • A number of benefits to the Victorian economy in terms Corporation’s employees; of skills and technology transfers were provided by contractors including: – Training undertaken in new technology relating to virus testing, protozoa and pathogen testing and – On the job training in the use of Global Positioning other emerging technologies for the Corporation’s System equipment for contractors; employees; – Commitments made to offer the Corporation’s employees – Training in the operation of a tracked submersible the opportunity to develop engineering designing and dredge for the contractors; and planning skills; – Training provided in confined space, entry traffic – Commitments made for ongoing training, skills management, spotter course and manual handling. development and research and development across all sampling, analysis and laboratory services for the Corporation’s employees and contractors;

Paul Clark Shaun Cox Chairman Managing Director

73 Financial Report Financial Statements

Statement of Profit or Loss and Other Comprehensive Income

For the year ended 30 June 2013 2013 2012 Notes $000 $000

Revenue Revenue 3(a) 1,236,043 1,231,609 Other Income 3(b) 34,762 8,611 Total revenue 1,270,805 1,240,220

Expenses Depreciation and amortisation expenses 4(a) (315,901) (242,582) Operational expenses 4(b) (192,272) (109,138) Employee benefits expenses 4(c) (86,936) (103,462) Repairs and maintenance expenses 4(d) (71,088) (69,328) Administrative expenses 4(e) (36,309) (36,884) Finance expenses 4(f) (549,334) (249,152) Other expenses 4(g) (64,045) (56,911) Total expenses (1,315,885) (867,457)

Net result from operations before tax (45,080) 372,763 Tax benefit/(expense) 5 (a,b) 15,001 (102,844) (Loss)/Profit for the period after tax (30,079) 269,919

Other comprehensive (expense)/income net of tax Items that will not be reclassified to profit or loss Revaluation decrease on infrastructure assets 17 (53,065) - Reversal of deferred tax liabilities recognised on revaluation of land 17 - 13,507 (53,065) 13,507

Items that may be reclassified to profit or loss Net value gain on cash flow hedges 17 12 14 12 14 Other comprehensive (loss)/income for the period net of tax (53,053) 13,521

Total comprehensive (loss)/income for the period after tax (83,132) 283,440

The above Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes on pages 78 through to 123.

74 Melbourne Water Annual Report 2012–13 Statement of Financial Position

As at 30 June 2013 2013 2012 Notes $000 $000 Assets Current assets Cash and cash equivalents 6 145,179 228 Trade and other receivables 7(a) 100,974 78,228 Other current assets 8 9,137 7,939 255,290 86,395 Non-current assets classified as held for sale 9 4,513 11,242 Total current assets 259,803 97,637

Non-current assets Property, plant and equipment 10(a) 14,206,461 9,920,689 Intangible assets 10(b) 11,410 15,803 Defined benefit superannuation plan asset 15(b), 23(d) 504 - Total non-current assets 14,218,375 9,936,492

Total assets 14,478,178 10,034,129

Liabilities Current liabilities Trade and other payables 11(a) 382,769 264,309 Interest bearing liabilities 12(a) 355,395 789,335 Provisions 13(a) 3,179 16,961 Current tax liability 5(c) 2,107 45,617 Employee benefits 15(a) 27,246 26,406 Total current liabilities 770,696 1,142,628

Non-current liabilities Trade and other payables 11(b) 1,663 1,701 Interest bearing liabilities 12(b) 8,109,893 3,045,753 Provisions 13(b) 1,476 1,082 Net deferred tax liabilities 14 1,224,452 1,272,575 Employee benefits 15(c) 8,554 31,371 Total non-current liabilities 9,346,038 4,352,482

Total liabilities 10,116,734 5,495,110

Net assets 4,361,444 4,539,019

Equity Contributed equity 16 559,173 559,116 Reserves 17 2,243,759 2,303,724 Retained profits 18 1,558,512 1,676,179 Total equity 4,361,444 4,539,019

The above Statement of Financial Position should be read in conjunction with the accompanying notes on pages 78 through to 123. 75 Financial Report Financial Statements

Statement of Changes in Equity

For the year ended 30 June 2013 Contributed Retained Total Notes Equity Reserves Profits $000

Balance at 1 July 2012 559,116 2,303,724 1,676,179 4,539,019

Comprehensive loss for the period Loss for the period after tax - - (30,079) (30,079) Other comprehensive loss net of tax - (59,965) 6,912 (53,053) Total comprehensive loss for the - (59,965) (23,167) (83,132) period after tax

Transactions with equity holders in their capacity as equity holders Dividends payable 22 - - (94,500) (94,500) Net increase in contributed equity 16 57 - - 57 Total transactions with owners 57 - (94,500) (94,443)

Balance at 30 June 2013 16, 17, 18 559,173 2,243,759 1,558,512 4,361,444

Balance at 1 July 2011 559,952 2,292,504 1,522,359 4,374,815

Comprehensive income for the period Profit for the period after tax - - 269,919 269,919 Other comprehensive income - 11,220 2,301 13,521 for the period net of tax Total comprehensive income - 11,220 272,220 283,440 for the period after tax

Transactions with equity holders in their capacity as equity holders Dividends paid 22 - - (118,400) (118,400) Net decrease in contributed equity 16 (836) - - (836) Total transactions with owners (836) - (118,400) (119,236)

Balance at 30 June 2012 16, 17, 18 559,116 2,303,724 1,676,179 4,539,019

The above Statement of Changes in Equity should be read in conjunction with the accompanying notes on pages 78 through to 123.

76 Melbourne Water Annual Report 2012–13 Statement of Cash Flows

For the year ended 30 June 2013 2013 2012 Notes $000 $000

Cash flows from operating activities Receipts from customers (inclusive of goods and service tax) 1,256,017 1,211,642 Payments to suppliers and employees (inclusive of goods and service tax) (478,190) (418,702) Income tax paid (53,889) (133,308) Interest received 234 112 Interest and other costs of finance paid (548,789) (244,722) Other receipts 43,924 104,987 Net cash inflow from operating activities 28 219,307 520,009

Cash flows from investing activities Payments for property, plant and equipment (388,961) (627,580) Proceeds from sales of property, plant and equipment 27,751 7,331 Net cash outflow from investing activities (361,210) (620,249)

Cash flows from financing activities Proceeds from borrowings 1(q), 2 902,850 2,186,207 Repayment of borrowings 1(q), 2 (591,375) (1,968,983) Repayments for outstanding finance lease liability (810) (205) Repayments for desalination plant finance lease liability (23,811) - Dividends paid 22 - (118,400) Net cash inflow from financing activities 286,854 98,619

Net increase/(decrease) in cash and cash equivalents 144,951 (1,621) Cash and cash equivalents at the beginning of the financial year 228 1,849 Cash and cash equivalents at the end of the financial year 6 145,179 228

The above Statement of Cash Flows should be read in conjunction with the accompanying notes on pages 78 through to 123.

77 Financial Report Financial Statements Notes to the Financial Report

1. Summary of significant accounting policies (a) (i) General used to determine the Corporation’s estimate of the defined benefit superannuation asset/liability, fair value These Financial Statements of Melbourne Water of infrastructure assets, employee and other provisions, Corporation (‘the Corporation’ or ‘Melbourne Water’) commitments for the Victorian Desalination Plant, useful represent the audited general purpose financial report lives of plant, property and equipment and recognition that consists of a Statement of Profit or Loss and Other of deferred tax balances. These assumptions and their Comprehensive Income, Statement of Financial Position, related carrying amounts are discussed in Notes Statement of Changes in Equity, Statement of Cash 1(d,e,f,p,r,u), 5, 10, 13, 14, 15, 20(g) and 23. Flows and Notes accompanying these statements. This general purpose financial report complies with (vii) Financial statement presentation Australian equivalents to International Financial Reporting Standards (AIFRS), other authoritative The Corporation has adopted the revised AASB 101 pronouncements of the Australian Accounting which became effective on 1 July 2012. The revised Standards Board, including Australian interpretations, standard includes a change to the name of the Statement the requirements of the Financial Management Act of Comprehensive Income to ‘Statement of Profit or 1994 and applicable Ministerial Directions. These Loss and Other Comprehensive Income’. It requires that Financial Statements have been prepared on accrual entities group items presented in other comprehensive and going concern bases. income on the basis of whether they are subsequently reclassifiable to profit or loss (reclassification adjustments) (ii) Accounting policies or not. The change does not remove the option to present profit or loss and other comprehensive income in two Unless otherwise stated, all accounting policies applied statements, nor change the option to present items are consistent with those of the prior year. Where of other comprehensive income either before tax appropriate, comparative figures have been amended or net of tax. The Corporation has elected to present to accord with current presentation and disclosure items of other comprehensive income net of tax. made of material changes. Revenue (iii) Classification between current and non-current (b) (i) Bulk water and sewerage services In the determination of whether an asset or liability The Corporation collects bulk water and sewerage is current or non-current, consideration has been given services revenue for providing storage operator to the time when each asset or liability is expected services and bulk water and sewerage services to to be realised or paid. The asset or liability has been retail metropolitan and regional water businesses. classified as current if it is expected to be turned over Bulk water and sewerage services revenues consist within the next twelve months, being the Corporation’s of a variable metered component (based on volumes operational cycle – see Note 1(p) for a variation of usage) and a fixed fee (for service availability). in relation to employee benefits, and Note 1(q) The metered usage component of the revenue is for a variation in relation to borrowings. recognised when the service has been used with (iv) Rounding settlement from date of invoice. The fixed fee service availability components of the revenues are recognised Unless otherwise stated, amounts in the report have on a monthly basis with settlement at 14 days. been rounded to the nearest thousand dollars. Bulk water and sewerage services revenues are collected from the various water businesses. (v) Historical cost convention The Essential Services Commission (ESC) regulates the These Financial Statements have been prepared prices and service standards for the provision of storage under the historical cost convention, as modified operator services and bulk water and sewerage services. by the revaluation of certain classes of property, The ESC’s general regulatory powers are set out in: plant and equipment and financial instruments. • the Essential Services Commission Act 2001; (vi) Accounting estimates • Part 1A of the Water Industry Act 1994; and • a Water Industry Regulatory Order made under The preparation of financial statements in conformity section 4D of the Water Industry Act 1994. with AIFRS requires the use of certain accounting estimates. It also requires management to exercise its judgement in the process of applying the Corporation’s accounting policies. Areas involving a high degree of estimates and assumptions, which can materially impact the financial statements relate to the assumptions

78 Melbourne Water Annual Report 2012–13 1. Summary of significant accounting policies (continued) (ii) Waterways charges Expenses Waterways charges are recognised in the year for (c) Finance costs which the rate is levied. Charges are levied either quarterly or annually. Waterways charges are collected Finance costs are recognised as expenses in the period by various retail water businesses on behalf of the in which they are incurred. Corporation. A lien is held over each property to All qualifying assets (being assets that necessarily take ensure that any outstanding amounts are recovered a substantial period of time to get ready for their intended upon sale of the property. use or sale) are measured at fair value. Therefore, any The ESC regulates the prices and service standards finance costs directly attributable to the acquisition, for the provision of waterways. construction or production of these qualifying assets are not required to be capitalised and will continue to (iii) Developer charges and contributions be expensed in the period in which they are incurred. and contributed assets Finance costs include interest on short-term and Developer charges and contributions are recognised long-term borrowings, finance lease charges and the when received. Developer contributed assets consist Victorian Government’s financial accommodation levy. of assets received free of charge or for nominal (d) Taxation consideration and are recognised as revenue at fair value on completion of works and their acceptance The Corporation is subject to the National Tax Equivalent by the Corporation. Regime (NTER), which is administered by the Australian Taxation Office (ATO). The difference between the (iv) Interest receivable NTER and the Commonwealth legislation is that the Interest receivable is recognised as revenue when tax liability is paid to the State Government rather earned and is accrued in accordance with the terms than the Commonwealth Government. and conditions of the underlying financial instrument The income tax expense or benefit for the period is or other contract. the tax payable on the current period’s taxable income based on the national corporate income tax rate of 30%, (v) Net gain from disposal of property, adjusted by changes in deferred tax assets and liabilities plant and equipment attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts Property sales in relation to the Corporation’s in the financial statements, and to unused tax losses. arrangements with Places Victoria are recognised upon settlement due to the nature of the arrangement Deferred tax assets and liabilities are recognised between Places Victoria and the Corporation. for temporary differences at the tax rate expected Other property sales are recognised on signing of to apply when the assets are recovered or liabilities an unconditional contract of sale. Property sales are settled, based on those tax rates which are enacted recognised in the Statement of Profit or Loss and or substantially enacted. The relevant tax rates are Other Comprehensive Income on a net basis of sale applied to the cumulative amounts of deductible proceeds less costs. and taxable temporary differences when they arise in a transaction, that at the time of the transaction (vi) Government grants and contributions did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible Grants from the Victorian Government are recognised temporary differences and unused tax losses only if it at their fair value where there is a reasonable assurance is probable that future taxable amounts will be available that the grant will be received and the Corporation will to utilise those temporary differences and losses. comply with all required conditions. Current and deferred tax is recognised in profit or loss, Government grants relating to costs are included as except to the extent that it relates to items recognised deferred income in liabilities and are recognised in the in other comprehensive income or directly in equity. Statement of Profit or Loss and Other Comprehensive In this case, the tax is also recognised in other comprehensive Income over the period necessary to match them with income or directly in equity respectively. the costs that they are intended to compensate. Government grants relating to the purchase or construction of property, plant and equipment are deducted in arriving at the carrying amount of the asset.

79 Financial Report Financial Statements Notes to the Financial Report

1. Summary of significant accounting policies (continued) Assets The fair value of land and buildings is determined as the amount for which an asset could be exchanged (e) Property, plant and equipment between knowledgeable, willing parties, in an arm’s (i) Recognition and measurement of assets length transaction. Crown land is measured with regard to the property’s highest and best use after Property, plant and equipment represent non-current due consideration is made for any legal or constructive physical assets comprising land, buildings, water, restrictions imposed on the asset. The last independent sewerage and drainage infrastructure, plant and equipment valuation of the Corporation’s land and buildings was assets used by the Corporation in its operations. Items performed by the Valuer General Victoria (VGV) in with a cost or value in excess of $500 (capitalisation 2010/11 to determine the fair value of the land and threshold) and a useful life of more than one year are buildings, in accordance with FRD 103D as explained recognised as assets with the exception of lifecycle costs in note 10(a)(i). for the Victorian Desalination Plant which are expensed. All items with a cost or value less than $500 are expensed. The fair value of infrastructure assets is determined annually using the ‘income approach’ (based on Cost includes such expenditure that is directly discounted cash flows), as explained further at attributable to the acquisition of the asset. Cost may Note 10 (a)(ii). also include transfers from equity of any gains/losses on qualifying cash flow hedges relating to foreign The fair value of the remaining plant and equipment currency purchases of non-current physical assets. (consisting of plant and equipment, fleet vehicles and works in progress) is determined based on cost less Subsequent costs are included in the asset’s carrying any accumulated depreciation and any accumulated amount or recognised as a separate asset, as appropriate, impairment losses. This is deemed the most appropriate only when it is probable that future economic benefits basis to approximate fair value given: associated with the item will flow to the Corporation and the cost of the item can be measured reliably. – there is no evidence that a reliable market based fair value or other relevant fair value indicators for these All other subsequent costs are charged to the Statement assets exists; and/or of Profit or Loss and Other Comprehensive Income during the financial period in which they are incurred. – these assets are acquired and disposed of frequently, typically have short depreciable lives, and these (ii) Repairs and maintenance assets are relatively low in value (with the exception of works in progress) compared to land and buildings Routine maintenance, repair costs and minor renewal and infrastructure assets. costs are expensed as incurred. Where the repair relates to the replacement of a component of an asset and (iv) Impairment the cost exceeds the capitalisation threshold, the cost is capitalised and depreciated over the remaining life All assets are assessed for indicators of impairment of the asset. on an annual basis. Such assets are tested to ascertain whether the carrying amount exceeds (iii) Valuation of non-current physical assets their recoverable amounts. Impairment losses are recognised immediately in the All non-current physical assets are recognised initially Statement of Profit or Loss and Other Comprehensive at cost and subsequently revalued at fair value less income, except that, to the extent that a credit balance accumulated depreciation and impairment in accordance exists in the revaluation reserve in respect of the same with the requirements of Financial Reporting Direction assets, they are debited to the revaluation reserve. (FRD) 103D Non-Current Physical Assets. Refer to Notes 10(a)(iii) and 10(b) for the results Revaluations are conducted either independently of the 2012/13 annual impairment test. (as required under FRD103D) or using management expertise and classified as a managerial revaluation.

The Corporation also considers more frequent revaluations such as during price determination years. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset.

80 Melbourne Water Annual Report 2012–13 1. Summary of significant accounting policies (continued) (v) Revaluations (g) Cash and cash equivalents Revaluation increments are credited directly to equity For the purposes of the Statement of Cash Flows, cash in the revaluation reserve, except that, to the extent and cash equivalents include cash on hand, deposits that an increment reverses a revaluation decrement held at call with financial institutions, other short-term in respect of the same asset previously recognised as and highly liquid investments with original maturities an expense in determining the net result, the increment of three months or less, that are readily convertible to is recognised as revenue in determining the net result. known amounts of cash and which are subject to an Revaluation decrements are recognised immediately insignificant risk of change in value. Bank overdrafts as expenses in the net result, except that, to the extent (if applicable) are shown within interest bearing liabilities that a credit balance exists in the revaluation reserve on the Statement of Financial Position. in respect of the same class of asset, they are debited to the revaluation reserve. (h) Receivables All receivables are recognised at the amounts receivable (vi) Non-current assets held for sale less any allowance for doubtful debts. Receivables are Non-current assets that are classified as held for sale reviewed on an ongoing basis to identify any receivables are stated at the lower of their carrying amount and fair which cannot be collected. Debts which cannot be value less costs to sell, as their carrying amount will be collected are written-off when identified. A provision recovered principally through a sale transaction, rather for doubtful debts is established when there is objective than through continuing use. The Corporation considers evidence that the Corporation is highly unlikely to collect that the sale of these assets are highly probable and the all amounts due according to the original terms of assets are available for immediate sale in their present receivables. The amount of the provision is the difference condition. These assets are not depreciated or amortised between the asset’s carrying amount and the present while classified as held for sale and are disclosed value of estimated future cash flows, discounted at the separately in the Statement of Financial Position. effective interest rate. The amount of the provision is recognised in the Statement of Profit or Loss and Other (f) Depreciation and amortisation Comprehensive Income. of non-current assets (i) Other current assets Where assets have separate identifiable components that have distinct useful lives and/or residual Other non-financial assets include prepayments values, a separate depreciation rate is determined which represent payments in advance of receipt for each component. of goods or services or that part of expenditure made in one accounting period covering a term extending Depreciation on other assets is calculated using the beyond that accounting period. straight line method to allocate their cost or revalued amounts, net of their residual values, over their estimated (j) Inventories useful lives, commencing from the time the asset is held ready for use. The assets’ residual values and useful lives Stores and materials are used in the construction are reviewed annually, and adjusted if appropriate, at the of new works and for the repair and maintenance end of each reporting period. Land is not depreciated. of existing assets. All stores are valued at the lower Major depreciation and amortisation periods used are of cost and net realisable value. listed below and are consistent with the prior year: (k) Smart Water Fund Buildings 10 to 100 years The Smart Water Fund was established by the Victorian Plant and equipment 3 to 50 years Government and is managed by the Corporation and Infrastructure assets 3 to 200 years the three retail water businesses for the purpose of providing grant funding to support the development Fleet vehicles 3 to 12 years of sustainable water use projects. Each water business Intangible assets 3 to 5 years has a 25 per cent interest in the Fund. Contributions made to the Smart Water Fund are initially recognised as prepayments in the Corporation’s Statement of Financial Position. Expenses are subsequently recognised by the Corporation when incurred by the Fund.

81 Financial Report Financial Statements Notes to the Financial Report

1. Summary of significant accounting policies (continued) (l) Intangible assets and research Receivables and payables (including commitments) & development costs are stated inclusive of GST. The net amount of GST (i) Intangible assets recoverable from, or payable to, the ATO is included as a current asset or liability in the Statement of Financial Intangible assets (primarily consisting of information Position. Cash flows arising from operating activities technology software and renewable energy certificates) are disclosed in the Statement of Cash flows on a gross represent identifiable non-monetary assets without basis i.e. inclusive of GST. physical substance. Intangible assets are measured The GST component of cash flows arising from investing at cost less accumulated amortisation and impairment. and financing activities which is recoverable from, or Costs incurred subsequent to initial acquisition are payable to, the ATO are presented as operating cash flows. capitalised when it is expected that additional future economic benefits will flow to the Corporation. Liabilities Amortisation is allocated to intangible assets with estimated finite useful lives on a systematic basis over (n) Leased assets the asset’s estimated useful life. Amortisation begins (i) Finance leases when the asset is available for use, that is, when it is in Leases of property, plant and equipment, where the the location and condition necessary for it to be capable Corporation substantially bears all the risks and rewards of operating in the manner intended by management. incidental to ownership, are classified as finance leases. The amortisation period and the amortisation method Finance leases are capitalised at the lease’s inception for an intangible asset with an estimated finite useful life at the lower of the fair value of the leased property are reviewed at least at the end of each annual reporting and the present value of the minimum lease payments. period. In addition, an assessment is made at each reporting The corresponding rental obligations, net of finance period to determine whether there are indicators that the charges, are included in the Statement of Financial intangible asset concerned is impaired. If so, the assets Position. Each lease payment is allocated between the concerned are tested as to whether their carrying value liability and finance charges so as to achieve a constant exceeds their recoverable amount. rate on the finance balance outstanding. The interest Refer to Note 10(a)(iii) for the results of the 2012/13 element of the finance cost is charged to the Statement annual impairment test. of Profit of Loss and Other Comprehensive Income over the lease period so as to produce a constant periodic rate (ii) Research & development costs of interest on the remaining balance of the liability for Expenditure on research activities is recognised each period. The property, plant and equipment acquired as an expense in the period in which it is incurred. under finance leases is amortised on a straight line basis An internally generated intangible asset arising from over the estimated useful life of the asset. a development project is recognised when it is probable that the project will be completed and generate future (ii) Operating leases – expenses economic benefits and its costs can be measured reliably. Leases in which a significant portion of the risks and Where no internally generated intangible asset can rewards incidental to ownership are retained by the lessor be recognised, development expenditure is recognised are classified as operating leases. Payments made under as an expense in the period it is incurred. operating leases, net of any incentives received from the lessor, are charged to the Statement of Profit or Loss and (m) Goods and Services Tax Other Comprehensive Income on a straight-line basis over the period of the lease, in the periods in which they are Revenues, expenses and assets are recognised net incurred, as this represents the pattern of benefits derived of goods and services tax (GST), unless GST incurred from the leased assets. is not recoverable from the ATO. In these circumstances, the GST is recognised as part of the cost of acquisition (iii) Lease incentives of the asset or as part of the expense. In the event that lease incentives are received upon

entering into operating leases, such incentives are recognised as a liability. The aggregate benefits of incentives are recognised as a reduction of rental expense on a basis which reflects the time pattern in which economic benefits from the leased asset are consumed.

82 Melbourne Water Annual Report 2012–13 1. Summary of significant accounting policies (continued) (o) Payables (iii) Long service leave (i) Trade payables The liability for long service leave is recognised in the provision for employee benefits and is measured as the Payables are recognised when the Corporation present value of expected future payments to be made becomes obliged to make future payments resulting in respect of services provided by employees up to the from the purchase of goods and services. end of the reporting period. Consideration is given to (ii) Accruals expected future salary levels, experience of employee departures and periods of service. Expected future cash These amounts represent liabilities for goods and services payments are discounted using market yields attached provided to the Corporation prior to the end to the Reserve Bank of Australia’s 10 year rate for of the financial year, which are unpaid. The amounts semi-annual coupon bonds at the end of the reporting are unsecured and are usually paid within 30 days period with terms to maturity that closely match the of recognition or in accordance with contract terms. estimated future cash outflows. Provisions made for unconditional long service leave (where the employee (iii) Interest payable has a present entitlement to the benefit) are classified Interest is recognised as an expense in the reporting as a current liability. The non-current liability represents period in which it is payable and accrued in accordance long service leave entitlements accrued for employees with the terms and conditions of the underlying financial with less than seven years of continuous service. Amounts instruments or other contract. expected to be paid within 12 months are measured at nominal value, and amounts expected to be paid beyond (p) Employee benefits 12 months are measured at present value.

(i) Salaries and annual leave (iv) Superannuation Liabilities for salaries, including non-monetary benefits Defined contribution plans expected to be settled within 12 months of the reporting Contributions to defined contribution superannuation period, are recognised in employee benefit liabilities plans are expensed when incurred. in respect of employees’ services up to the end of the reporting period and are measured at the amounts Defined benefit superannuation plan expected to be paid when the liabilities are settled, A liability or asset in respect of the Corporation’s equip at their nominal values. Employee benefits which defined benefit superannuation plan is recognised in are not expected to be settled within 12 months are the Statement of Financial Position and is measured as measured as the present value of the estimated future the difference between the present value of employees’ cash outflows to be made by the Corporation, in respect accrued benefits at the end of the reporting period and of services rendered by employees up to the end of the net market value of the superannuation plan’s assets the reporting period. Regardless of the expected timing at that date. The present value of benefits is based on of settlements, provisions made in respect of employee expected future payments which arise from membership benefits are classified as a current liability, unless there of the plans at the end of the reporting period. Consideration is an unconditional right to defer the settlement of the is given to expected future salary levels, experience liability for at least 12 months after the reporting period, of employee departures and periods of service. Expected in which case it would be classified as a non-current liability. future payments are discounted using market yields of the 9 year Commonwealth Government bonds that (ii) Sick leave match the estimated future cash flows. Sick leave payments are made in accordance with The amount brought to account in the Statement relevant awards, determinations and Corporation of Profit or Loss and Other Comprehensive Income in policy. No provision is made in the financial statements respect of superannuation represents the contributions for unused sick leave entitlements as these are made to the equip defined benefit superannuation non-vesting benefits. fund, adjusted by the movement in the defined benefit superannuation plan liability or asset which is determined annually by independent actuarial assessment.

83 Financial Report Financial Statements Notes to the Financial Report

1. Summary of significant accounting policies (continued) (v) Termination benefits (ix) Workers compensation Liabilities for termination benefits are recognised The Corporation continues to be liable for workers when the Corporation is demonstrably committed compensation claims incurred prior to the introduction to terminating employment of current employees, according of Work Care (now Work Cover) in 1985. An independent to a detailed formal plan without possibility of withdrawal. actuarial assessment is obtained for all outstanding The liabilities for termination benefits are recognised workers compensation claims as at 30 June 2013, as payables in the provision for employee benefits. which are recognised as a liability. Liabilities for termination benefits expected to be settled Refer to note 15(c)(ii) for details of the independent within 12 months are measured at the amounts expected actuarial assessment. to be paid when they are settled. Amounts expected to be settled more than 12 months from the end of the reporting (q) Interest Bearing Liabilities period are measured as the estimated cash outflows, Interest bearing liabilities consist of borrowings and discounted using market yields at the reporting date finance lease liabilities. All borrowings are required on the 10 year bond rate. to be transacted through the Treasury Corporation of Victoria whose liabilities are guaranteed by the (vi) Employee benefit on-costs Victorian Government. Employee benefit on-costs, including payroll tax and The Corporation’s borrowings are comprised of floating workers compensation are recognised and included in rate note (FRN) loans, fixed interest loans and an employee benefit liabilities and costs when the employee overnight loan (11 am account) facility. FRN loans are benefits to which they relate are recognised as liabilities. fixed term loans with a margin that is reset to a variable interest rate every ninety or one hundred and eighty days. (vii) Performance payments Generally, these notes are issued with maturity terms Performance payments for the Corporation’s employees between three and nine years. Fixed interest loans are are based on achievement of agreed performance targets interest only loans with the full face value repaid at and are based on a percentage of the annual salary maturity or refinanced for a new term. Most have package provided under their contracts of employment maturity terms set between 1 and 11 years (2011/12: in accordance with the Corporations performance bonus 1 and 12 years). The overnight loan facility interest rates policy. A liability is recognised and is measured as the are floating rates that fluctuate with the cash rate. aggregate of the amounts accrued under the term of Borrowings are initially recognised at fair value, net of the contracts at the end of the reporting period. transaction costs incurred. Borrowings are subsequently measured at amortised cost using the effective interest (viii) Work Cover method, with interest expense recognised on an effective The Corporation is registered as a self-insurer for workers yield basis. compensation and is liable to the workers or workers’ Where the Corporation has an unconditional right to dependants to pay compensation under the Accident defer settlement of the liability for at least 12 months Compensation Act 1985. An independent actuarial after the balance date, borrowings are classified as assessment has been obtained for outstanding claims non-current liabilities. Otherwise, borrowings are incurred and not settled, and for claims incurred but classified as current liabilities. See Note 2 for further not reported as at 30 June 2013 which are recognised details on financing arrangements and risk management. as a liability. Other claims incurred and settled during Refer to Note 1(n)(i) for further details on finance the period are charged to the Statement of Profit lease liabilities. or Loss and Other Comprehensive Income. In accordance with Section 146(5)(a) of the Accident Compensation Act 1985, the Corporation must provide a bank guarantee to the Victorian Work Cover Authority as part of its Work Cover self insurance commitments. Refer to note 15(c)(i) for details of the independent actuarial assessment and bank guarantee.

84 Melbourne Water Annual Report 2012–13 1. Summary of significant accounting policies (continued) (r) Provisions, Contingent Assets (t) Cash flow hedges and Contingent Liabilities In order to hedge the effect of foreign exchange rate Provisions are recognised when the Corporation has movements on the fair values of assets purchased, a present legal or constructive obligation as a result the Corporation occasionally enters into forward foreign of past events, it is probable that an outflow of resources exchange contracts. These hedges are classified as cash will be required to settle the obligation and the amount flow hedges with the associated gains or losses recognised has been reliably estimated. Provisions are not recognised directly in equity. As the hedged firm commitment results for future operating losses. in the recognition of an asset, the associated gains/losses The amount recognised as a provision is the best estimate that had previously been recognised in equity are included of the consideration required to settle the present in the initial measurement of the acquisition cost. obligation at the end of the reporting period, taking These are accounted for at settlement date. The gain into account the risks and uncertainties surrounding the or loss relating to the ineffective portion is recognised obligation. Where a provision is measured using the cash immediately in the Statement of Profit or Loss and flows estimated to settle the present obligation, its Other Comprehensive Income. carrying amount is the present value of those cash flows. At any point in time, any cumulative gain or loss on the When some or all of the economic benefits required cash flow hedge is retained in equity until the forecast to settle a provision are expected to be recovered from transaction occurs. a third party, the receivable is recognised as an asset If a hedged transaction is no longer expected to occur, if it is virtually certain that recovery will be received and the net cumulative gain or loss recognised in equity the amount of the receivable can be measured reliably. is transferred to the Statement of Profit or Loss and Provisions for Gainshare on Capital Projects and Other Comprehensive Income. Remediation Works are included within the cost of the non-current physical assets to which they are directly (u) Commitments attributable to in accordance with criteria in note 1(e). Commitments (capital and other) are disclosed at their Contingent assets and contingent liabilities are not nominal value and inclusive of the GST payable. In recognised in the Statement of Financial Position addition, where it is considered appropriate and provides but are disclosed by way of a note, and if quantifiable, additional relevant information to users, the net present are measured at nominal value. values of significant individual projects are stated. In accordance with the Water Interface Agreement Other Significant Accounting Policies and Supplementary Water Interface Agreement between Melbourne Water and the State, commitments in respect (s) Foreign currency translation of the Victorian Desalination Plant project are recorded (i) Functional and presentation currency as per information provided by the Department of The functional and presentation currency Environment and Primary Industries. of the Corporation is the Australian dollar. (v) Contributed equity (ii) Transactions Additions and disposals to net assets are designated All foreign currency transactions during the reporting as contributed equity when approved by the Minister period are brought to account using the exchange for Finance and have met the requirements of FRD 119 rate in effect at the date of the transaction. Contributions By Owners. Other transfers that are in the nature of contributions or distributions have also been designated as contributed equity.

(w) Dividend policy The Corporation is required to pay a dividend in accordance with a determination of the Treasurer of Victoria based on a prescribed methodology. An obligation to pay a dividend only arises after a formal determination is made by the Treasurer following consultation with the Corporation’s Board of Directors and the Minister for Water.

85 Financial Report Financial Statements Notes to the Financial Report

1. Summary of significant accounting policies (continued) (x) New Accounting Standards (iii) AASB 1053 ‘Application of Different Tiers and Interpretations of Australian Accounting Standards’, AASB 2010-2 and AASB 2011-2 ‘Amendments to Australian Certain new accounting standards and interpretations Accounting Standards arising from Reduced relevant to the Corporation have been published that Disclosure Requirements’ are not mandatory for the 30 June 2013 reporting period. The Corporation has not adopted and does not intend AASB 1053 and AASB 2010-2 arise from the new to adopt these standards early. The Corporation’s Reduced Disclosure Regime requirements. They are assessment of the impact of these new standards applicable to annual reporting periods commencing and interpretations is set out below: on or after 1 July 2013. AASB 1053 establishes a differential financial reporting framework consisting (i) AASB 9 ‘Financial Instruments (December 2009)’, of two tiers of reporting requirements for preparing AASB 2009-11 and AASB 2010-7 ‘Amendments general purpose financial statements. AASB 2010-2 to Australian Accounting Standards arising from makes amendments to many Australian Accounting AASB 9’ Standards, including interpretations, to introduce The revised version of AASB 9 incorporates revised reduced disclosure requirements to the pronouncements requirements for the classification and measurement for application by certain types of entities. While of financial liabilities, and carrying over of the existing the Corporation is currently assessing the impacts, derecognition requirements from AASB 139 ‘Financial it does not expect any material changes as it is Instruments: Recognition and Measurement’. This expected that Tier 1 will be mandated to apply. Standard supersedes AASB 9 (December 2009) and is effective for annual reporting periods commencing (iv) AASB 119 ‘Employee Benefits (2011)’, on or after 1 January 2013. The revised financial AASB 2011-10 ‘Amendments to Australian liability provisions maintain the existing amortised Accounting Standards arising from AASB 119 cost measurement basis for most liabilities. New (2011)’ and AASB 2011-11 ‘Amendments to AASB requirements apply where an entity chooses to 119 (September 2011) arising from Reduced measure a liability at fair value through profit or loss. Disclosure Requirements’ In these cases, the portion of the change in fair value The revised version of AASB 119 ‘Employee Benefits’ related to changes in the entity’s own credit risk is with revised requirements for pensions and other presented in other comprehensive income rather than post-employment benefits, termination benefits within profit or loss. The Corporation does not expect and other changes is applicable for annual reporting this to have a material impact as all financial liabilities periods commencing on or after 1 January 2013. are currently measured at amortised cost. The key amendments include eliminating the ‘corridor approach’ permitted by the existing AASB (ii) AASB 13 ‘Fair Value Measurement’ and 119, introducing enhanced disclosures about defined related AASB 2011-8 and AASB 2012-1 benefit plans and modifying accounting for termination ‘Amendments to Australian Accounting Standards benefits, including distinguishing benefits provided arising from AASB 13’ in exchange for service and benefits provided This is a new accounting standard applicable for in exchange for the termination of employment annual reporting periods commencing on or after and affect the recognition and measurement of 1 January 2013. It replaces the guidance on fair value termination benefits. Furthermore, the interest measurement in existing AASB accounting literature cost and expected return on plan assets used in with a single standard. The AASB defines fair value, the previous version of AASB 119 are replaced provides guidance on how to determine fair value with a ‘net interest’ amount, which is calculated and requires disclosures about fair value measurements. by applying the discount rate to the net defined However, AASB 13 does not change the requirements benefit liability or asset. The amendments to AASB regarding which items should be measured or 119 require retrospective application. The Corporation disclosed at fair value. The Corporation is currently is currently assessing the impacts of this change. assessing the impact and does not expect any material changes given that it is already applying the fair value requirements in existing AASB accounting standards which are not expected to change.

86 Melbourne Water Annual Report 2012–13 2. Financial risk management objectives and policies (a) Principal financial instruments Forward rate agreements are used occasionally where it is perceived that a lower interest rate can be achieved. The Corporation’s principal financial instruments comprise The purchase of forward agreements is limited in terms of (as per Note 19): of volume and time, and is subject to a maximum term (i) Cash assets; of 18 months forward. (ii) Trade debtors and other receivables; (iii) Creditors, accrual and interest payable; (d) Financing arrangements (iv) Lease liabilities; The capacity to borrow funds and manage the associated (v) Other payables; and risks is subject to the provisions of the Borrowing and (vi) Borrowings. Investment Powers Act (1987). In accordance with this Act, the Treasurer of Victoria issues annual approval, (b) Financial risk management objectives permitting new borrowings and the refinancing of all loan maturities for that year. All funding is sourced from the The objectives of the Corporation’s Financial Risk Treasury Corporation of Victoria (TCV). Management Policy and Guidelines are to: The Corporation’s total approved maximum borrowing (i) Manage the daily and long term liquidity for 2012/13 of $4,249.5 million (2011/12: $4,166.3 million) needs of the Corporation; was not exceeded at any stage throughout the financial year. (ii) Optimise cash resources, in such a way as to minimise net financing costs and maximise the repayment (e) Capital Management of debt within acceptable levels of risk; (iii) Ensure that all financial and treasury management The Corporation manages its finances in order to maintain operational exposures are fully identified, quantified, a satisfactory gearing ratio, to provide adequate returns, planned, approved and managed; and maintain its current credit rating and to ensure that it can fund its operations as a going concern. (iv) Safeguard the organisation’s financial resources by maintaining appropriate internal control over The Corporation is currently reviewing the strategy the corporate treasury functions. adopted to manage its finances through the These objectives are consistent with the Corporate Risk implementation of a Financial Sustainability Strategy. Management Policy and Framework of the Corporation, The only externally imposed capital requirements the Corporation’s Commercial Management Policy, the of the Corporation are that: Treasury Management Guidelines issued by DTF and the – financial accommodation does not exceed the approval Victorian Public Sector Debt Management Objectives. limits set by the Treasurer of Victoria pursuant to the Borrowing and Investment Powers Act 1987; and (c) Financial risk management strategy – the Corporation, with the exception of a trading account The Corporation manages financial risk by maintenance with overdraft facilities, is required to borrow exclusively of approved debt portfolio structure and strategic targets with TCV. as required by its Financial Risk Management Policy and The Corporation’s gearing ratio (debt/(debt+equity)) at Guidelines. This includes: 30 June 2013 was 66.0% (2011/12: 45.8%). The increase (i) Portfolio composition compared to 2011/12 is mainly attributed to additional (i.e. fixed, floating, indexed exposure): borrowings as a result of the commencement of the Victorian Desalination Plant finance lease and capital During the financial year, the Corporation’s debt expenditure on projects. portfolio was managed within the bands of: Gearing is one of a number of benchmarks that are Floating interest rate borrowings 10–40% considered by the Board when considering the capital Fixed interest rate borrowings 60–90% structure and is approved via the Corporate Plan.

(ii) Physical maturity profile: (f) Market risk Debt maturity of fixed and floating interest rate Market risk is the risk that changes in market prices will borrowings (excluding 11am account) is not to exceed affect the fair value of/or future cash flows of the financial 20% of the total debt portfolio in any year. instruments. Market risk is comprised of the Corporation’s foreign exchange risk, price risk and interest rate risk. (iii) Interest rate risk profile: The Corporation’s exposure to market risk is primarily Fixed and floating interest rate borrowings maturing through interest rate risk and the exposure to price risk or to be re-priced within one year are not to exceed is primarily through commodity and energy price risks. 40% of the total debt portfolio. There is insignificant exposure to foreign exchange risks. Objectives, policies and processes used to manage these risks are disclosed below.

87 Financial Report Financial Statements Notes to the Financial Report

2. Financial risk management objectives and policies (continued) (f) Market risk (continued) As Trade Debtors are made up predominantly by the metropolitan retail water businesses, the Corporation’s (i) Foreign exchange risk exposure to credit risk has been assessed to be minimal. Foreign exchange risk arises when future commercial These debtors are invoiced in two parts. The first part is transactions and recognised assets and liabilities are a usage charge that is invoiced weekly and paid within denominated in a currency that is not the entity’s seven days. The second part is an availability charge functional currency. that is invoiced monthly and paid within 14 days. It is the Corporation’s policy to hedge the effect of foreign The major exposure to credit risk arises from Other currency exchange rate movements on the fair values of any Receivables, which have been recognised net of any transactions in excess of AUD$1 million. The Corporation’s provision for doubtful debts. The receivable balance policy requires all hedging to be undertaken through consists of a large number of residential and business TCV in the form of forward foreign exchange contracts. customers which are spread across a diverse range of At 30 June 2013, the Corporation did not have any industries. Receivable balances are monitored on an material forward exchange contracts. on-going basis to ensure that exposure to bad debts is not significant. The Corporation has in place a policy (ii) Price risk and procedure for the collection of overdue receivables. All financial risk management instruments are transacted Price risk is the risk that the Corporation will suffer financial with TCV, whose liabilities are guaranteed by the loss due to adverse movements in the price of commodity Victorian Government. The Corporation potentially inputs and/or outputs related to its business operations. has a concentration of credit risk with the TCV as No significant exposure exists within the Corporation’s the central borrowing authority of Victoria. This risk present operating framework. Lower level exposures exist is considered minimal. and supply and service contracts are executed as part of the normal course of business to mitigate this risk (h) Liquidity risk where possible. The Corporation manages liquidity risk by maintaining (iii) Interest rate risk and conducting efficient banking practices and account structures, sound cash management practices and regular Interest rate risk is the risk that the organisation will suffer monitoring of the maturity profile of assets and liabilities, a financial loss due to adverse movements in interest rates. together with anticipated cash flows. Exposures arise predominately from liabilities bearing The Corporation obtains annual approval from the variable interest rates as the Corporation intends to hold Treasurer for new borrowings, borrowings to refinance fixed rate liabilities to maturity. The mix of floating and maturing and non-maturing loans and temporary purpose fixed rate debt is managed strategically within a range of borrowing facilities. In addition, the Corporation has an Board approved parameters, in order to minimise overdraft facility of $1 million with the Westpac Banking exposure to fluctuations in variable rates and to minimise Corporation, of which nil was drawn down at 30 June 2013 the long-term net cost of funding. (2011/12: Nil). (g) Credit risk The objective of the Corporation’s financial risk management policies is the optimal utilisation of cash with all surplus Credit risk is the risk of financial loss to the Corporation funds repaid in borrowings. This results in a working capital as a result of a customer or counterparty to a financial deficiency of $510.9 million (2011/12: $1,045.0 million) instrument failing to meet its contractual obligations at the end of the reporting period. The deficiency occurs in full and on the due date. The Corporation’s exposure at a point in time only due to timing of revenue receipts and to credit risk is influenced by the individual characteristics does not reflect the permanent situation of the Corporation. of each customer. This deficiency is funded by the financing arrangement with All receivables are recognised at the amounts receivable TCV and there is no reason to indicate that the Corporation less any allowance for doubtful debts. Receivables are cannot pay its debts as and when they fall due. reviewed on an ongoing basis to identify amounts which At 30 June 2013, the Corporation held significant cannot be collected. Debts which cannot be collected are amount of cash as the Corporation had accessed written-off. A provision for doubtful debts is established $200 million of long term Floating Rate Notes (FRNs) when there is objective evidence that the Corporation will to lock in Financial Accommodation Levy (FAL) at 1.1% not be able to collect all amounts due according to the on 28 June 2013 effectively repaying its entire 11AM original terms of receivables. overnight borrowings and carrying a cash deposit The amount of the provision is the difference between the of $145.2 million at 30 June 2013. asset’s carrying amount and the present value of estimated The Corporation’s financial liability maturities have future cash flows, discounted at the effective interest rate. been disclosed in Note 19. The amount of the provision is recognised in the Statement of Profit or Loss and Other Comprehensive Income.

88 Melbourne Water Annual Report 2012–13 3. Revenue 2013 2012 Notes $000 $000

(a) Revenue Sales revenue Bulk water services 547,619 512,277 Bulk sewerage services 400,169 406,911 Desalination Plant rebate* (14,777) - Waterways charges 220,199 213,845 Total sales revenue 1,153,210 1,133,033

Other revenue Developer charges and contributions 38,736 56,806 Developer contributed assets 27,114 30,262 Interest revenue 266 112 Biological assets 305 4,941 Licence fees 2,679 2,556 Bad and doubtful debt expenses recovered - 15 Fees and charges and other revenue 13,733 3,884 Total other revenue 82,833 98,576 Total revenue 1,236,043 1,231,609

(b) Other income Defined benefit superannuation plan income 23(e) 18,732 - Net gain on disposal of property, plant and equipment 13,267 4,968 Government grants** 2,763 3,643 Total other income 34,762 8,611 Total revenue 1,270,805 1,240,220

*Desalination plant rebate The desalination plant rebate relates to payments made to the retail water businesses in relation to the early recovery of desalination plant costs in 2011/12. This is the return required in addition to the price freeze.

**Government grants Government grants of $2.8 million (2011/12: $3.6 million) were recognised as other income by the Corporation during 2012/13 for various projects. All conditions attached to Government grants have been satisfied prior to their recognition in the Statement of Profit or Loss and Other Comprehensive Income. The recognition of Government grants with unfulfilled conditions have been recognised as deferred income (included in advances within trade and other payables) in the Statement of Financial Position. Any grants relating to assets that meet the conditions attached are recorded against the asset.

89 Financial Report Financial Statements Notes to the Financial Report

4. Expenses

2013 2012 Notes $000 $000

(a) Depreciation and amortisation expenses Depreciation Buildings 10(c) 947 1,497 Leasehold improvements 10(c) - 293 Plant and equipment 10(c) 14,076 9,161 Infrastructure assets 10(c) 241,388 221,216 Fleet vehicles 10(c) 1,535 1,079 Total depreciation 257,946 233,246 Amortisation Desalination plant infrastructure assets under finance lease 10(c) 48,023 - Other infrastructure assets under finance leases 10(c) 3,488 2,158 Intangible assets 10(c) 6,444 7,178 Total amortisation 57,955 9,336

Total depreciation and amortisation expenses 315,901 242,582

(b) Operational expenses Desalination plant operating expenses 86,043 - Materials, chemicals and laboratory expenses 12,419 12,276 Energy expenses (including renewable energy) 24,004 22,903 Agricultural expenses 204 3,832 Insurance expenses 5,685 6,030 Transport expenses 4,699 4,916 Grants and contributions expenses 9,822 10,911 External professional services expenses 12,458 10,169 Contract works 29,352 29,210 Other expenses 7,586 8,891 Total operational expenses 192,272 109,138

(c) Employee benefits expenses Salary expenses 64,424 60,115 Post employment benefits 5,074 6,136 Annual, long service and shift leave expenses 7,864 12,728 Defined benefit superannuation fund expense 23(e) - 16,925 Other employee expenses 9,574 7,558 Total employee benefits expenses 86,936 103,462

90 Melbourne Water Annual Report 2012–13 4. Expenses (continued)

2013 2012 Notes $000 $000

(d) Repairs and maintenance expenses Repairs and maintenance 67,226 65,949 Information technology maintenance 3,862 3,379 Total repairs and maintenance expenses 71,088 69,328

(e) Administrative expenses Waterways charges billings and collection 10,156 10,852 Information technology and telecommunication expenses 14,164 13,117 Legal expenses 2,887 1,859 Education and training expenses 2,129 2,811 Advertising expenses 394 267 Other expenses 6,579 7,978 Total administrative expenses 36,309 36,884

(f) Finance expenses Interest expense 208,621 214,134 Desalination plant finance lease interest 302,512 - Financial accommodation levy 38,201 35,018 Total finance expenses 549,334 249,152

(g) Other expenses Government rates and taxes (including carbon price, land tax, FBT and other) 31,221 26,519 Rental and lease expenses 6,830 3,183 Bad and doubtful debt expenses 43 - Assets written off/written down* 15,132 25,000 Impairment expense 10(c) 6,570 - Other expenses 4,249 2,209 Total other expenses 64,045 56,911 Total expenses 1,315,885 867,457

* Asset write-offs primarily relate to Drainage Developer Scheme works within a catchment size of less than 60 hectares that are transferred to Councils for ongoing maintenance.

91 Financial Report Financial Statements Notes to the Financial Report

5. Income tax 2013 2012 Notes $000 $000

(a) Components of tax benefit/expense Current tax 9,110 147,808 Deferred tax relating to temporary differences (28,778) (42,458) Adjustments for current tax of prior periods 4,667 (2,506) Total tax (benefit)/expense (15,001) 102,844

(b) Numerical reconciliation of income tax to prima facie tax payable (Loss)/profit before income tax (45,080) 372,763 Tax at the Australian tax rate of 30% (2011/12: 30%) (13,524) 111,829 Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: Adjustment in respect of income tax of previous year 4,667 (2,506) Non assessable and non deductible for income tax purposes (2,398) (1,964) Assessable income / (deductible expenses) not booked (3,128) 48 Research and development tax incentive (618) (4,563) Income tax as reported in the Statement of Profit or Loss and Other Comprehensive Income (15,001) 102,844

(c) Income tax payable Current tax payable (2,107) (45,617) Total income tax payable (2,107) (45,617)

(d) Income tax recognised in other comprehensive income Deferred tax arising on items recognised in other comprehensive income: Decrement in deferred tax on infrastructure assets revalued 17 (22,742) - Reversal of deferred tax liabilities on revaluation of land 17 - (13,507) Net value gain on cash flow hedges 17 5 6 Total income tax recognised in other comprehensive income (22,737) (13,501)

6. Cash and cash equivalents 2013 2012 Notes $000 $000 Cash on hand 20 18 Cash at bank 145,153 160 Cash advances 6 50 Total cash and cash equivalents 19 145,179 228

92 Melbourne Water Annual Report 2012–13 7. Trade and other receivables 2013 2012 Notes $000 $000

(a) Trade and other receivables Trade debtors 19 53,114 44,462 Other receivables Other receivables 31,923 19,268 Net GST receivable from the Australian Tax Office 9,947 8,664 Sugarloaf pipeline security deposit 6,049 5,866 Less: provision for impaired other receivables (59) (32) Total other receivables 47,860 33,766 Total trade and other receivables 100,974 78,228

(b) Ageing Analysis of Receivables All receivables are recognised at the amounts receivable less any allowance for impaired receivables. Receivables are reviewed on an ongoing basis to identify debts that cannot be collected. Debts which cannot be collected are written-off.

Current Past Due but not Impaired 31–60 61–90 0–30 days days days 91 days + Impaired Total 30 June 2013 Notes $000 $000 $000 $000 $000 $000

Receivables Trade debtors 7(a) 36,961 12,561 3,553 39 - 53,114 Other receivables 7(a) 35,379 132 5,160 7,248 (59) 47,860 Total Receivables 72,340 12,693 8,713 7,287 (59) 100,974

Current Past Due but not Impaired 31–60 61–90 0–30 days days days 91 days + Impaired Total 30 June 2012 Notes $000 $000 $000 $000 $000 $000

Receivables Trade debtors 7(a) 41,980 2,449 10 23 - 44,462 Other receivables 7(a) 26,483 477 19 6,819 (32) 33,766 Total Receivables 68,463 2,926 29 6,842 (32) 78,228

8. Other current assets

2013 2012 Notes $000 $000 Prepayments 2,630 2,057 Stores 6,507 5,882 Total other current assets 9,137 7,939

93 Financial Report Financial Statements Notes to the Financial Report

9. Non-current assets classified as held for sale

2013 2012 Notes $000 $000 Property, plant and equipment – held for sale* 4,513 11,242 Total assets classified as held for sale 4,513 11,242

* The Corporation currently holds 65 lots of land for sale mainly as part of the Riverwalk (Western Treatment Plant) development. These lots were being marketed for private sale by Places Victoria during the 2012/13 financial year. At 30 June 2013, these lots were still on the market and an active program is underway to locate buyers. The 36 lots of surplus land recorded as held for sale at 30 June 2012 were mainly part of the Riverwalk development and 22 were sold in the 2012/13 financial year and are no longer recorded within held for sale assets. The remaining lots are still on the market and an active program is underway to locate buyers at 30 June 2013.

10. Property, plant and equipment and intangible assets 2013 2012 Notes $000 $000 (a) Classes of property, plant and equipment Crown land Crown land at fair value 133,973 133,867 Total Crown land (i) 133,973 133,867 Freehold land Freehold land at fair value 1,033,794 1,023,058 Total freehold land (i) 1,033,794 1,023,058 Buildings Buildings at fair value 21,102 22,890 Less: accumulated depreciation (2,912) (2,023) Total buildings (i) 18,190 20,867 Plant and equipment Plant and equipment at fair value 89,956 83,303 Less: accumulated depreciation (73,100) (63,118) Total plant and equipment 16,856 20,185 Fleet vehicles Fleet vehicles at fair value 11,286 7,373 Less: accumulated depreciation (3,435) (1,900) Total fleet vehicles 7,851 5,473 Infrastructure assets Infrastructure assets at fair value 7,859,478 7,644,065 Less: accumulated depreciation – (215,173) Sub total infrastructure assets 7,859,478 7,428,892 Infrastructure assets under finance lease Desalination plant assets under finance lease at fair value 20(g)* 4,662,793 – Less: desalination plant assets accumulated amortisation (48,023) – Other infrastructure assets under finance lease at fair value 11,303 39,490 Less: other infrastructure assets accumulated amortisation and impairment – (2,158) Sub total finance lease 4,626,073 37,332 Total infrastructure assets (ii) 12,485,551 7,466,224 Capital works in progress 510,246 1,251,015 Total property, plant and equipment 14,206,461 9,920,689 * Total desalination plant assets under finance lease at fair value are higher than the finance lease liability recorded at 20(g) as the liability reflects the net of principal repayments and other capital payments already made to 30 June 2013.

94 Melbourne Water Annual Report 2012–13 10. Property, plant and equipment and intangible assets (continued)

(a) Classes of property, plant and equipment (continued) (i) Valuations of land and buildings A valuation of the Corporation’s land and buildings was performed internally by management in 2012/13 to determine the fair value of the land and buildings using Valuer General Victoria (VGV) postcode and building/land use indices. This valuation indicated that the fair value of land and buildings has not materially changed from the last independent valuation of the Corporations’ land and buildings which was performed by the VGV in 2010/11. If land and buildings were measured at historical cost, the carrying amounts would be as follows: 2013 2012 $000 $000 Land 784,705 768,770 Buildings 25,749 25,195 Total 810,454 793,965

(ii) Valuations of infrastructure assets The fair value of infrastructure assets has been determined independently by Deloitte Touche Tohmatsu at 30 June 2013, using the ‘income approach’ (discounted cash flow) method. The discounted cash flow method estimates fair market value by discounting reliable estimates of future cash flows to their present values. The significant assumptions used in determining fair value at 30 June 2013 are summarised below: – Nominal after tax discount rate in the range of 6.0% to 6.5% (2011/12: 6.0% to 6.5%) – Long term inflation of 2.5% – 10 year valuation model life (based on two Water Plan periods, one known and one estimated) The 2012/13 valuation resulted in a decrement of $71.1 million compared to the managerial valuation in 2011/12. If infrastructure assets were measured at historical cost, the carrying amount would be as follows: 2013 2012 $000 $000 Infrastructure assets – Owned 5,443,445 4,871,778 Infrastructure assets – Under finance lease 4,627,994 20,910 Total 10,071,439 4,892,688

(iii) Impairment Property, plant and equipment is assessed for indicators of impairment on an annual basis. At 30 June 2013, the Eastern Irrigation Scheme Interim Treatment Plant was identified as impaired. The total impairment expense identified for the Eastern Irrigation Scheme Treatment Plant was $5.9M. 2013 2012 $000 $000

(b) Intangible assets* Intangible assets at cost 47,742 46,122 Less: accumulated amortisation and impairment (36,332) (30,319) Total intangible assets 11,410 15,803

*Intangibles assets consist primarily of information technology software and renewable energy certificates.

Impairment Intangible assets are assessed for indicators of impairment on an annual basis. At 30 June 2013, Renewable Energy Certificates were identified as impaired. The total impairment expense identified for the Renewable Energy Certificates was $0.7M.

95 Financial Report Financial Statements Notes to the Financial Report

10. Property, plant and equipment and intangible assets (continued)

(c) (i) Reconciliation of movement in property, plant and equipment and intangible assets for 2012/13 Fleet Infrastructure Crown Freehold Buildings Leasehold Plant and vehicles Infrastructure assets under Capital Intangible land at land at fair at fair improvements equipment at fair assets at fair finance lease works in assets at fair value value value at fair value at fair value value value at fair value progress Total cost 2012/13 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 Carrying amount at 1 July 2012 133,867 1,023,058 20,867 - 20,185 5,473 7,428,892 37,332 1,251,015 9,920,689 15,803 Additions 158 18,880 415 - 11,699 4,297 744,922 4,662,793 - 5,443,164 3,257 Disposals and write-offs (52) (14,873) (2,204) - (141) (384) (15,070) - - (32,724) - Depreciation and amortisation - - (947) - (14,076) (1,535) (241,388) (51,511) - (309,457) (6,444) Transfers between classes - - 59 - (811) - 13,196 (11,885) - 559 (559) Assets classified as held for sale - 6,729 ------6,729 - Revaluation decrements ------(71,074) (4,733) - (75,807) - Impairment losses ------(5,923) - (5,923) (647) Capital expenditure ------331,121 331,121 - Capitalisation of works in progress ------(1,071,890) (1,071,890) - Carrying amount at 30 June 2013 133,973 1,033,794 18,190 - 16,856 7,851 7,859,478 4,626,073 510,246 14,206,461 11,410

(ii) Reconciliation of movement in property, plant and equipment and intangible assets for 2011/12 Plant and Fleet Infrastructure Crown Freehold Buildings Leasehold equipment vehicles Infrastructure assets under Capital Intangible land at land at fair at fair improvements at fair at fair assets at fair finance lease works in assets at fair value value value at fair value value value value at fair value progress Total cost 2011/12 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 Carrying amount at 1 July 2011 133,774 1,007,921 19,552 293 17,338 3,949 6,700,657 39,490 1,702,921 9,625,895 13,056 Additions - 26,620 2,813 - 12,175 2,603 973,917 - - 1,018,128 9,642 Disposals and write-offs - (3,085) (1) - (167) - (22,428) - (425) (26,106) (1,755) Depreciation and amortisation - - (1,497) (293) (9,161) (1,079) (221,216) (2,158) - (235,404) (7,178) Transfers between classes 93 (93) - - - - (2,038) - - (2,038) 2,038 Assets classified as held for sale - (8,305) ------(8,305) - Revaluation increments ------Capital expenditure ------547,110 547,110 - Capitalisation of works in progress ------(998,591) (998,591) - Carrying amount at 30 June 2012 133,867 1,023,058 20,867 - 20,185 5,473 7,428,892 37,332 1,251,015 9,920,689 15,803

96 Melbourne Water Annual Report 2012–13 11. Trade and other payables

(c) (i) Reconciliation of movement in property, plant and equipment and intangible assets for 2012/13 2013 2012 Fleet Infrastructure Notes $000 $000 Crown Freehold Buildings Leasehold Plant and vehicles Infrastructure assets under Capital Intangible land at land at fair at fair improvements equipment at fair assets at fair finance lease works in assets at fair value value value at fair value at fair value value value at fair value progress Total cost (a) Current 2012/13 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 Carrying Creditors 52,567 42,144 amount at 1 Interest payable 63,472 62,928 July 2012 133,867 1,023,058 20,867 - 20,185 5,473 7,428,892 37,332 1,251,015 9,920,689 15,803 Additions 158 18,880 415 - 11,699 4,297 744,922 4,662,793 - 5,443,164 3,257 Accruals – Other 186,612 33,719 Disposals and Accruals – Capital 68,728 112,309 write-offs (52) (14,873) (2,204) - (141) (384) (15,070) - - (32,724) - Depreciation Other payables 11,390 13,209 and amortisation - - (947) - (14,076) (1,535) (241,388) (51,511) - (309,457) (6,444) Total trade and other payables – current 382,769 264,309 Transfers between classes - - 59 - (811) - 13,196 (11,885) - 559 (559) Assets classified (b) Non-current as held for sale - 6,729 ------6,729 - Other payables 1,663 1,701 Revaluation decrements ------(71,074) (4,733) - (75,807) - Total trade and other payables – non current 1,663 1,701 Impairment losses ------(5,923) - (5,923) (647) Total trade and other payables 19 384,432 266,010 Capital expenditure ------331,121 331,121 - Capitalisation of works in 12. Interest bearing liabilities progress ------(1,071,890) (1,071,890) - Carrying amount at 30 (a) Current June 2013 133,973 1,033,794 18,190 - 16,856 7,851 7,859,478 4,626,073 510,246 14,206,461 11,410 Desalination plant and other lease liabilities 20 (d),(g) 60,395 535 Borrowings* 295,000 788,800 (ii) Reconciliation of movement in property, plant and equipment and intangible assets for 2011/12 Total interest bearing liabilities – current 19 355,395 789,335 Plant and Fleet Infrastructure Crown Freehold Buildings Leasehold equipment vehicles Infrastructure assets under Capital Intangible land at land at fair at fair improvements at fair at fair assets at fair finance lease works in assets at (b) Non-current fair value value value at fair value value value value at fair value progress Total cost 2011/12 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 Desalination plant and other lease liabilities 20 (d),(g) 4,264,893 5,753 Carrying Borrowings* 3,845,000 3,040,000 amount at 1 July 2011 133,774 1,007,921 19,552 293 17,338 3,949 6,700,657 39,490 1,702,921 9,625,895 13,056 Total interest bearing liabilities – non-current 19 8,109,893 3,045,753 Additions - 26,620 2,813 - 12,175 2,603 973,917 - - 1,018,128 9,642 Total interest bearing liabilities** 8,465,288 3,835,088 Disposals and write-offs - (3,085) (1) - (167) - (22,428) - (425) (26,106) (1,755) * Current and non-current borrowings comprise both fixed and floating interest rate notes depending on the dates of maturity. Depreciation ** Interest bearing liabilities are unsecured (note – The Victorian Government does provide a guarantee to TCV over its liabilities as detailed in note 2(g)). and amortisation - - (1,497) (293) (9,161) (1,079) (221,216) (2,158) - (235,404) (7,178) Transfers between classes 93 (93) - - - - (2,038) - - (2,038) 2,038 Assets classified as held for sale - (8,305) ------(8,305) - Revaluation increments ------Capital expenditure ------547,110 547,110 - Capitalisation of works in progress ------(998,591) (998,591) - Carrying amount at 30 June 2012 133,867 1,023,058 20,867 - 20,185 5,473 7,428,892 37,332 1,251,015 9,920,689 15,803

97 Financial Report Financial Statements Notes to the Financial Report

13. Provisions (excluding employee benefits)

2013 2012 $000 $000

(a) Current Insurance claims 2,234 1,783 Remediation works 655 - Gainshare on capital projects - 13,363 Other provisions 290 1,815 Total provisions – current 3,179 16,961

(b) Non-current Insurance claims 1,476 1,082 Total provisions – non current 1,476 1,082 Total provisions 4,655 18,043

(c) Movements in provisions Gainshare Insurance Remediation on Capital Other Claims Works Projects Provisions Total $000 $000 $000 $000 $000 Carrying amount at 1 July 2012 2,865 - 13,363 1,815 18,043 Additional provisions recognised 1,247 655 19,588 175 21,665 Amounts utilised during the year (402) - (18,363) (1,700) (20,465) Amounts transferred to accruals - - (14,588) - (14,588) Carrying amount at 30 June 2013 3,710 655 - 290 4,655

Gainshare Insurance Remediation on Capital Other Claims Works Projects Provisions Total $000 $000 $000 $000 $000 Carrying amount at 1 July 2011 613 514 68,618 2,553 72,298 Additional provisions recognised 2,744 396 14,289 395 17,824 Amounts utilised during the year (492) (910) (69,544) (1,133) (72,079) Carrying amount at 30 June 2012 2,865 - 13,363 1,815 18,043

(i) Insurance Claims The amount represents a provision for public liability, motor vehicle and property claims. The amount classified as current is expected to be settled within 12 months. The amount classified as non-current is expected to be settled later than 12 months. The provision amounts are based on an independent assessment of claim costs. (ii) Remediation Works The amount represents remediation works at the Riverwalk Estate at Werribee. (iii) Gainshare on Capital Projects The amount represents a provision for ‘gainshare’ on capital projects. (iv) Other Provisions The amount represents other provisions that satisfy the recognition requirements of AASB 137 Provisions, Contingent Liabilities and Contingent Assets. The amount is based on legal advice and is expected to be settled within 12 months.

98 Melbourne Water Annual Report 2012–13 14. Net deferred tax liabilities – non-current 2013 2012 The balance comprises temporary differences attributable to: Notes $000 $000

Amounts recognised in Profit or Loss Property, plant and equipment 414,600 440,467 Employee entitlements (8,578) (8,421) Developer contributions 9,674 12,022 Finance lease (1,726) 2,325 Defined benefit obligation 151 (6,596) Provisions (1,512) (1,703) Revenue in advance (1,139) (1,414) Other (1,936) (1,761) Total recognised in Profit or Loss 409,534 434,919

Amounts recognised in Other Comprehensive Income Gain on revaluation of land and buildings 15,366 15,366 Net gain on revaluation of infrastructure assets 799,552 822,295 Net value loss on cash flow hedges - (5) Total recognised in Other Comprehensive Income 814,918 837,656 Net deferred tax liability 1,224,452 1,272,575

Movements Opening balance at 1 July 2013 1,272,575 1,326,930 Credited to Profit or Loss (28,778) (42,459) Debited to Other Comprehensive Income 5(d) (22,737) (13,501) Adjustment in respect of deferred tax of prior period 3,392 1,605 Closing balance at 30 June 2013 1,224,452 1,272,575

Net Deferred tax liabilities to be recovered after more than 12 months 1,233,105 1,280,841 Net Deferred tax liabilities to be recovered within 12 months (8,653) (8,266) Total non-current liabilities – Deferred tax liabilities 1,224,452 1,272,575

99 Financial Report Financial Statements Notes to the Financial Report

15. Employee benefits 2013 2012 Notes $000 $000

(a) Current liabilities Accrued salaries 667 611 Employee benefits expected to be settled within 12 months after the end of the period measured at nominal value 6,946 6,778 Long service leave representing more than 7 years of continuous service measured at present value 18,526 17,975 Other employee benefits 1,107 1,042 Total employee benefits liability – current 27,246 26,406

(b) Current assets Defined benefit superannuation asset 23(d) 504 - Total employee benefits asset – current 504 -

(c) Non-current liabilities Other employee benefits 5,300 6,003 Long service leave representing less than 7 years of continuous service 3,254 3,380 measured at present value Defined benefit superannuation liability 23(d) - 21,988 Total employee benefits liability – non current 8,554 31,371 Net employee benefits liability 35,296 57,777

The aggregate employee benefit liability includes amounts for annual leave, shift leave, long-service leave, salaries, Work Cover, superannuation and termination benefits. (i) Work Cover Based upon an independent actuarial assessment, a provision of $5.8 million (2011/12: $5.2 million) has been made for outstanding claims incurred and not settled, and for claims incurred but not reported at 30 June 2013. The value of the bank guarantee to the Victorian Work Cover Authority (as part of the Corporation’s Work Cover self insurance commitments) at 30 June 2013 is $8.9 million (2011/12: $8.9 million). (ii) Workers Compensation Based on an independent actuarial assessment, a provision of $0.6 million ($1.0 million in 2011/12) has been made for all outstanding workers compensation claims at 30 June 2013.

100 Melbourne Water Annual Report 2012–13 16. Contributed equity 2013 2012 Notes $000 $000 Opening balance 559,116 559,952 Capital transactions with the State in its capacity as owner arising from: Adjustments relating to the transfers of Crown assets (to)/from the Government 57 (836) Total contributed equity at the end of the year 559,173 559,116

17. Reserves 2013 2012 Asset revaluation reserve Notes $000 $000

Land Opening balance 384,374 373,168 Revaluation reserves transferred to retained profits on derecognition of asset 18 (6,912) (2,301) Decrement in deferred tax on asset revaluation 14 - 13,507 Closing balance 377,462 384,374

Buildings Opening balance 677 677 Closing balance 677 677

Infrastructure assets Opening balance 1,918,685 1,918,685 Revaluation decrease on infrastructure assets 10(c) (75,807) - Decrement in deferred tax on asset revaluation 22,742 - Closing balance 1,865,620 1,918,685 Closing balance (total asset revaluation reserve) 2,243,759 2,303,736

Summary of movements in asset revaluation reserve Opening balance 2,303,736 2,292,530 Revaluation decrement on non-current physical assets (75,807) - Revaluation reserves transferred to retained profits on derecognition of asset (6,912) (2,301) Decrement in deferred tax on asset revaluation 22,742 13,507 Closing balance (total asset revaluation reserve) 2,243,759 2,303,736

The asset revaluation reserve is used to record asset revaluation increments and decrements in the value of non-current physical assets.

Cash flow hedge reserve Opening balance (12) (26) Gain taken to equity 7 9 Decrement in deferred tax on cash flow hedges 5 5 Closing balance - (12) The cash flow hedge reserve represents the gain or loss on conversion to Australian dollars of the cash flow hedge. Total reserves at the end of the year 2,243,759 2,303,724

101 Financial Report Financial Statements Notes to the Financial Report

18. Retained profits

2013 2012 Notes $000 $000 Retained profits at the beginning of the year 1,676,179 1,522,359 Net (loss)/profit for the period after tax (30,079) 269,919 Transfer from asset revaluation reserve 17 6,912 2,301 Dividends payable/paid 22 (94,500) (118,400) Retained profits at the end of the year 1,558,512 1,676,179

19. Financial instruments

Financial instruments are shown exclusive of GST

(a) Categorisation of financial instruments Contractual Contractual financial financial Derivative assets liabilities at Total financial – loans and amortised carrying instruments receivables cost Amount 30 June 2013 Notes $000 $000 $000 $000

Financial assets Cash 6 - 145,179 - 145,179 Trade debtors 7 - 53,114 - 53,114 Other receivables 7 - 37,913 - 37,913 Total financial assets - 236,206 - 236,206

Financial liabilities Trade and other payables 11 - - (384,432) (384,432) Desalination plant lease liabilities 12 - - (4,319,537) (4,319,537) Other lease liabilities 12 - - (5,751) (5,751) Borrowings 11am overnight loans 12 - - - - Floating rate notes 12 - - (440,000) (440,000) Fixed interest 12 - - (3,700,000) (3,700,000) Total financial liabilities - - (8,849,720) (8,849,720)

102 Melbourne Water Annual Report 2012–13 19. Financial instruments (continued)

Financial instruments are shown exclusive of GST

(a) Categorisation of financial instruments (continued) Contractual Contractual financial financial Derivative assets liabilities at Total financial – loans and amortised carrying instruments receivables cost Amount 30 June 2012 Notes $000 $000 $000 $000

Financial assets Cash 6 - 228 - 228 Trade debtors 7 - 44,462 - 44,462 Other receivables 7 - 25,102 - 25,102 Total financial assets - 69,792 - 69,792

Financial liabilities Trade and other payables 11 - - (266,010) (266,010) Desalination plant lease liabilities - - - Lease liabilities 12 - - (6,288) (6,288) Borrowings 11am overnight loans 12 - - (568,800) (568,800) Floating rate notes 12 - - (80,000) (80,000) Fixed interest 12 - - (3,180,000) (3,180,000) Total financial liabilities - - (4,101,098) (4,101,098)

(b) Net holding gain/(loss) on financial instruments by category Total Net interest Fee holding income/ income/ Impairment gain/(loss) (expense) (expense) loss Total 30 June 2013 Notes $000 $000 $000 $000 $000

Financial assets Financial assets - 103 - - 103 Derivative financial instruments - - - - - Total financial assets - 103 - - 103

Financial liabilities Financial liabilities at amortised cost 4(f) - (549,334) - - (549,334) Total financial liabilities - (549,334) - - (549,334)

103 Financial Report Financial Statements Notes to the Financial Report

19. Financial instruments (continued)

Financial instruments are shown exclusive of GST

(b) Net holding gain/(loss) on financial instruments by category (continued) Total Net interest Fee holding income/ income/ Impairment gain/(loss) (expense) (expense) loss Total 30 June 2012 Notes $000 $000 $000 $000 $000

Financial assets Financial assets - 45 - - 45 Derivative financial instruments 9 - - - 9 Total financial assets 9 45 - - 54

Financial liabilities Financial liabilities at amortised cost 4(f) - (249,152) - - (249,152) Total financial liabilities - (249,152) - - (249,152)

(c) Interest rate exposure Interest Rate Exposure Weighted average Non Total interest Floating Fixed interest carrying rate interest interest bearing Amount 30 June 2013 Notes % $000 $000 $000 $000

Financial assets Cash 6 2.70 145,179 - - 145,179 Trade debtors 7 - - - 53,114 53,114 Other receivables 7 2.70 6,049 - 31,864 37,913 Total financial assets 151,228 - 84,978 236,206

Financial liabilities Trade and other payables 11 - - - (384,432) (384,432) Desalination plant lease 12 11.29 - (4,319,537) - (4,319,537) liabilities* Other lease liabilities 11.03 - (5,751) - (5,751) Borrowings 11am overnight loans 12 2.95 - - - - Floating rate notes 12 2.92 (440,000) - - (440,000) Fixed interest 12 5.44 - (3,700,000) - (3,700,000) Total financial liabilities (440,000) (8,025,288) (384,432) (8,849,720)

* The weighted average interest rate for lease liabilities is the interest rate implicit in the lease.

104 Melbourne Water Annual Report 2012–13 19. Financial instruments (continued)

Financial instruments are shown exclusive of GST

(c) Interest rate exposure (continued) Interest Rate Exposure Weighted average Non Total interest Floating Fixed interest carrying rate interest interest bearing Amount 30 June 2012 Notes % $000 $000 $000 $000

Financial assets Cash 6 4.28 228 - - 228 Trade debtors 7 - - 44,462 44,462 Other receivables 7 3.45 5,866 - 19,236 25,102 Total financial assets 6,094 - 63,698 69,792

Financial liabilities Trade and other payables 11 - - (266,010) (266,010) Desalination plant lease - - - - liabilities* Lease liabilities 12 11.03 - (6,288) - (6,288) Borrowings - 11am overnight loans 12 3.67 (568,800) - - (568,800) Floating rate notes 12 3.36 (80,000) - - (80,000) Fixed interest 12 5.86 - (3,180,000) - (3,180,000) Total financial liabilities (648,800) (3,186,288) (266,010) (4,101,098)

105 Financial Report Financial Statements Notes to the Financial Report

19. Financial instruments (continued)

Financial instruments are shown exclusive of GST

(d) Fair value The carrying amounts and net fair values of financial assets and liabilities at balance date are: 2013 2012 Book Net fair Book Net fair value value* value value* $000 $000 $000 $000

Financial assets Cash 145,179 145,179 228 228 Trade debtors 53,114 53,114 44,462 44,462 Other receivables 37,913 37,913 25,102 25,102 Total financial assets 236,206 236,206 69,792 69,792

Financial liabilities Trade and other payables (384,432) (384,432) (266,010) (266,010) Desalination plant finance lease liability (4,319,537) (4,319,537) - - Other lease liabilities (5,751) (5,751) (6,288) (6,288) Borrowings 11am overnight loans - - (568,800) (568,672) Floating rate notes (440,000) (440,005) (80,000) (80,016) Fixed interest (3,700,000) (4,025,339) (3,180,000) (3,576,151) Total financial liabilities (8,849,720) (9,175,064) (4,101,098) (4,497,137)

*Net book values are capital amounts. The differences between book values and net fair values relate principally to interest rate movements.

Net fair values of financial instruments are determined as follows: Cash, deposit investments, short-term borrowings, cash equivalents and non-interest-bearing financial assets and liabilities (trade debtors and trade creditors) are valued at cost. Interest bearing liabilities are estimated based on the present value of expected future cash flows discounted at current market interest rates quoted for securities issued by TCV or interest rates implicit in the lease for finance leases. Derivative financial instruments are measured at fair value. The fair value of the desalination plant finance lease liability has been determined by the Department of Environment and Primary Industries (DEPI) in accordance with the requirements of the relevant accounting standards.

106 Melbourne Water Annual Report 2012–13 19. Financial instruments (continued)

Financial instruments are shown exclusive of GST

(e) Maturity analysis of financial liabilities

The following table discloses the contractual maturity analysis for the Corporation’s financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.

Total Total carrying contractual 1 year 1 to 5 Over 5 Amount cash flows or less years years 30 June 2013 $000 $000 $000 $000 $000 Financial liabilities Non-interest bearing (384,432) (384,432) (382,769) (1,663) - Variable rate (440,000) (559,440) (41,168) - (518,272) Fixed rate (8,025,288) (18,512,476) (336,086) (3,879,913) (14,296,477) Total financial liabilities (8,849,720) (19,456,348) (760,023) (3,881,576) (14,814,749)

Total Total carrying contractual 1 year 1 to 5 Over 5 Amount cash flows or less years years 30 June 2012 $000 $000 $000 $000 $000 Financial liabilities Non-interest bearing (266,010) (266,010) (264,309) (1,701) - Variable rate (648,800) (676,640) (630,990) (45,650) - Fixed rate (3,186,288) (4,408,713) (191,145) (1,394,148) (2,823,420) Total financial liabilities (4,101,098) (5,351,363) (1,086,444) (1,441,499) (2,823,420)

(f) Interest rate risk sensitivity analysis

Exposures arise predominately from liabilities bearing variable interest rates as the Corporation intends to hold fixed rate liabilities to maturity. At 30 June 2013, if interest rates had changed by +/- 50 basis points from the year end rates with all other variables held constant, the net loss after tax and the impact on equity would have changed by the amounts shown below.

Profit or Loss Equity -50 +50 -50 +50 basis basis basis basis points points points points 30 June 2013 $M $M $M $M Cash - - - - Interest Bearing Liabilities (2.8) 2.8 (2.8) 2.8 Total (2.8) 2.8 (2.8) 2.8

30 June 2012 Cash - - - - Interest Bearing Liabilities (3.6) 3.6 (3.6) 3.6 Total (3.6) 3.6 (3.6) 3.6

107 Financial Report Financial Statements Notes to the Financial Report

20. Commitments

Commitments are shown inclusive of GST except for finance lease liabilities.

(a) Capital commitments Total capital expenditure contracted for the construction of water, sewerage and waterways and drainage infrastructure at 30 June 2013 but not provided for in the accounts: 2013 2012 Property, plant and equipment payable: $000 $000 Within one year 58,378 107,575 Later than one year but not later than five years 363 7,097 Total capital commitments 58,741 114,672

(b) Operating lease commitments (i) Melbourne Water as lessee The Corporation leases buildings and motor vehicles under non-cancellable operating leases. The building lease agreements have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: 2013 2012 $000 $000 Within one year 8,305 7,594 Later than one year but not later than five years 35,171 32,909 Later than five years 100,458 107,962 Total operating lease commitment 143,934 148,465

There are no lease incentives on non-cancellable operating leases included in trade creditors at 30 June 2013 (2011/12: Nil).

(ii) Melbourne Water as lessor Operating leases relate to land owned by the Corporation. All operating lease contracts contain market review clauses. The lessee does not have an option to purchase the land at the expiry of the lease period. Commitments for minimum lease payments in relation to non-cancellable operating leases are receivable as follows:

2013 2012 $000 $000 Within one year 1,284 1,309 Later than one year but not later than five years 2,013 2,158 Later than five years 435 274 Total operating lease commitment 3,732 3,741

(c) Smart Water Fund The Corporation has a commitment to the Victorian Government’s Smart Water Fund. The Smart Water Fund was established by the Victorian Government and is managed by the Corporation and the three retail water businesses for the purpose of providing grant funding to support the development of sustainable water use projects. 2013 2012 $000 $000 Within one year 1,000 1,000 Later than one year but not later than five years 2,000 4,000 Later than five years - - Total operating lease commitment 3,000 5,000

108 Melbourne Water Annual Report 2012–13 20. Commitments (continued)

Commitments are shown inclusive of GST except for finance lease liabilities.

(d) Finance lease commitments (excluding Victorian Desalination Project) The Corporation has a finance lease agreement with TopAq Pty Ltd. The agreement involves the development of a water recycling project that uses effluent sourced from the Corporation’s Eastern Treatment Plant and treats this effluent to produce and supply Class A Water to customers in the project area. Commitments in relation to finance lease are payable as follows: 2013 2012 $000 $000 Within one year 5,960 1,203 Later than one year but not later than five years - 4,810 Later than five years - 3,406 Minimum lease payments 5,960 9,419 Less: Future finance charges (209) (3,131) Total finance lease liability 5,751 6,288

Representing finance lease liability: Current (refer to note 12a) 5,751 535 Non-current (refer to note 12b) - 5,753 Total finance lease liability 5,751 6,288

(e) Other operating commitments Total operating expenditure (excluding leases) contracted for at balance date but not provided for in the accounts is payable as follows: Not later than one year 15,097 13,965 Later than one year but not later than five years 18,461 18,645 Later than five years 11,649 20,289 Total other operating commitments 45,207 52,899

(f) Build, Own and Operate (BOO) commitments

The Corporation has allocated a parcel of land at the Western Treatment Plant (WTP) for the operation of a 9.2 Gigawatt biogas electricity generation plant, managed under a BOO contract with AGL. The Corporation delivers biogas extracted from the treatment process to AGL, who in turn provides this generated electricity exclusively to Melbourne Water. In 2010, the contract moved into Stage 3 which enables the export of excess electricity to the national electricity grid. This aligned with a separate grid import electricity contract allowing for the import and export of electricity at agreed contract rates across our remaining sites. Both of these contracts are currently in effect. Based on contracted projections of biogas supply and returned electricity generation, the minimum obligation (excluding the effect inflation) over the term of the whole arrangement is $49.5M. The arrangement commenced on 25 February 2000 and expires on 31 December 2020. This calculation has been based on both historical site data and contracted volumes of peak and off peak electricity throughput.

2013 2012 Future minimum obligations $000 $000 Not later than one year 4,047 3,586 Later than 1 year but not later than 5 years 16,188 14,340 Later than 5 years 10,117 12,547 Total value of future minimum obligations 30,352 30,473

109 Financial Report Financial Statements Notes to the Financial Report

20. Commitments (continued)

Commitments are shown inclusive of GST except for finance lease liabilities.

(g) Victorian Desalination Plant Finance Lease and Other Commitments

On 30 July 2009, the State of Victoria (‘the State’) through the Department of Environment and Primary Industries (DEPI) entered into a 30 year Project Deed with the AquaSure consortium to build and operate the desalination plant in Wonthaggi under a Public Private Partnership (PPP) arrangement, with a connection to the Melbourne Water System. Construction of the desalination plant began in September 2009. The project operation term commenced from the date of commercial acceptance which occurred on 17 November 2012, triggering the recognition of the finance lease payable. The Minister for Water issued a Statement of Obligations (SoO) to Melbourne Water Corporation under section 4I of the Water Industry Act 1994 on 26 June 2009. The SoO requires Melbourne Water Corporation to pay all monies payable by the State under the Project Deed with AquaSure. Melbourne Water also entered into a Victorian Desalination Project ‘Water Interface Agreement’ (WIA) and a Supplementary Water Interface Agreement with the State to record the terms of the interface and financial arrangements between the Project and Melbourne Water. Under the arrangement, Melbourne Water Corporation has an obligation to make Project Deed Payments to the DEPI, who are managing the contract with AquaSure on behalf of the State government. The portions of the Project Deed Payments that relate to the right to use the project assets are accounted for as a finance lease as disclosed in the table at (i) below. In addition, the Project Deed Payments also include other commitments for operating, maintenance and lifecycle costs as disclosed in the table at (ii) below. The desalination plant assets will transfer from DEPI to the Corporation at the end of the project contract term presently planned for 2039. As per information provided by DEPI, the Corporation has recognised the following finance lease liability, and an asset of equal value:

(i) Victorian Desalination Plant Finance Lease Liability: Minimum future lease Present value of minimum payments future lease payments 2013 2012 2013 2012 $000 $000 $000 $000 Not later than 1 year 539,190 - 54,642 - Later than one year but not later than five years 2,087,670 - 213,633 - Later than five years 10,723,730 - 4,051,260 - Minimum future lease payments 13,350,590 - 4,319,535 - Less: Future finance charges (9,031,055) - - - Total finance lease liability 4,319,535 - 4,319,535 -

Representing finance lease liability: Current (refer to note 12a) 54,642 - Non-current (refer to note 12b) 4,264,893 - Total finance lease liability 4,319,535 -

110 Melbourne Water Annual Report 2012–13 20. Commitments (continued)

Commitments are shown inclusive of GST except for finance lease liabilities.

(g) Victorian Desalination Plant Finance Lease and Other Commitments (continued) (ii) Victorian Desalination Plant Other Commitments Payable: Based on information provided by DEPI, the disclosures for other commitments payable at 30 June 2012 have been restated to include amounts relating to Renewable Energy Certificates (RECs) and the connection services charges. The commitment has also been adjusted to exclude the high voltage alternating transmission line asset transactions as those commitments were not a commitment for Melbourne Water. The adjustments have increased the commitment reported in the comparative year by $1,070.3 million in nominal terms. The Project Deed requires the payment of an annual connection services charge and the purchase of a minimum number of RECs to offset the electricity used by the plant. The number of RECs that are consumed will vary based on the volume of water produced by the plant. If there are any surplus RECs at the end of the project term, the Project Deed requires AquaSure to transfer them to the State, or sell them at arms length commercial terms on behalf of the State with all proceeds paid to the state. DEPI will transfer any surplus RECs or proceeds from sales thereof to Melbourne Water at the end of the project contract term. The other commitments payable are disclosed based on information provided by DEPI. 2013 2012 $000 $000 Within one year 115,361 45,807 Later than one year but not later than five years 497,987 401,454 Later than five years 4,390,942 3,885,117 Total other commitments (inclusive of GST): 5,004,290 4,332,378 Less: GST recoverable from the Australian Taxation Office (454,935) (393,858) Total other commitments (exclusive of GST) 4,549,355 3,938,520

(iii) Victorian Desalination Plant Finance Lease Project Commitment:

At 30 June 2012, the Victorian Desalination Plant project operation term had not yet commenced and therefore the finance lease liability was not yet recognised. Refer to Note 20(g)(i) for the finance lease liability disclosures at 30 June 2013 following commencement of the project operation term on 17 November 2012. Refer below for the minimum future lease payments commitments disclosed at 30 June 2012, based on information provided by DEPI.

Nominal values Present values 2013 2012 2013 2012 $000 $000 $000 $000 Minimum future lease payments: Finance lease payable from commencement date Not later than 1 year - 321,042 - 306,561 Later than one year but not later than five years - 2,260,735 - 1,679,657 Later than five years - 11,941,205 - 2,537,437 Minimum future lease payments - 14,522,982 - 4,523,655 Less: GST recoverable from the Australian Taxation Office - (1,320,271) - (411,241) Total minimum lease payments - 13,202,711 - 4,112,414

Notes: At 30 June 2012, the present value of the minimum future lease payments was discounted to the date of expected commercial acceptance using the interest rate implicit in the lease.

111 Financial Report Financial Statements Notes to the Financial Report

20. Commitments (continued)

Commitments are shown inclusive of GST except for finance lease liabilities.

(h) Food Bowl Modernisation Commitment Stage 1 of the Victorian Government’s Northern Victoria Irrigation Renewal Project (NVIRP) had planned total expenditure of $1.004 billion. The previous Victorian Government mandated that the Corporation will contribute $330 million (including GST) towards the total investment in the project, and there is an agreement for the three metropolitan retail water businesses to make direct payments to the Corporation to finance this contribution. At 30 June 2013, $330 million (including GST) has been invoiced by DEPI to the Corporation, and accordingly the Corporation has invoiced $330 million to the retail water businesses. The amounts invoiced have been paid to DEPI and reimbursed by the retail water businesses. The associated income and expense flows have been offset in the Statement of Comprehensive Income and the Statement of Financial Position to reflect the substance of the transaction being that the Corporation is merely a “pass through” agent. There are no commitments outstanding at 30 June 2013.

2013 2012 $000 $000 Not later than one year - 33,000 Total commitment - 33,000

21. Contingent assets and liabilities 2013 2012 Notes $000 $000 (a) Contingent assets Details and estimates of maximum amounts of contingent assets for which no provision is included in the accounts, are as follows: Legal claims arising out of various matters connected with the Corporation’s 30,602 35,119 business dealings. Total contingent assets 30,602 35,119

(b) Contingent liabilities Details and estimates of maximum amounts of contingent liabilities for which no provision is included in the accounts, are as follows: Legal claims arising out of various matters connected with the Corporation’s 12,938 4,074 business dealings. Possible gainshare payable by the Corporation on capital projects - 3,718 (not yet able to be measured with sufficient reliability as a provision). Total contingent liabilities 12,938 7,792

22. Dividends

Dividend payable (relating to previous financial year) 94,500 - Dividend paid (relating to previous financial year) - 118,400 Total dividends 18 94,500 118,400

The Corporation’s loss, after providing for income tax was $30.1 million (2011/12: profit of $269.9 million). There has been no dividend payment made or determined in relation to the 2012/13 financial year and any dividend for the 2012/13 financial year will be determined by the Treasurer of Victoria after consultation with the Corporation’s Board of Directors and the Minister for Water. The Treasurer of Victoria has determined a dividend of $94.5 million to be paid in relation to the 2011/12 financial year. The determination was made in June 2013 for payment in July 2013. Consequently, a payable for $94.5 million has been recorded at 30 June 2013.

112 Melbourne Water Annual Report 2012–13 23. Defined benefit superannuation Defined benefit superannuation The equip superannuation fund (‘the fund’) provides lump sum benefits based on length of service and final superannuable salary for employees engaged up until 31 December 1993. Employees contribute at rates between 0 to 7.5 per cent of their superannuation salary. The Corporation contributes to the fund based on the Corporation’s commitments under the Employee Participation Agreement and Contribution Policy with the Trustee of the Fund.

2013 2012 Notes $000 $000 (a) Employer contributions Employer contributions to defined contribution funds 5,074 6,136 Employer contributions to the defined benefit superannuation fund 3,760 1,913 Total employer contributions 8,834 8,049

(b) Reconciliation of the Present Value of the Defined Benefit Superannuation Obligation Balance at the beginning of the year 114,953 104,807 Current service cost 2,493 2,651 Interest cost 2,898 4,441 Contributions by Plan participants 1,157 1,185 Actuarial (gains)/losses (9,076) 9,485 Benefits paid (6,971) (7,130) Taxes and premiums paid (734) (486) Present value of the defined benefit obligation at the end of the year 104,720 114,953

(c) Reconciliation of the Fair Value of Plan Assets Balance at the beginning of the year 92,965 97,831 Expected return on Plan assets 6,310 6,578 Actuarial gains/(losses) 8,737 (6,926) Employer contributions 3,760 1,913 Contributions by Plan participants 1,157 1,185 Benefits paid (6,971) (7,130) Taxes and premiums paid (734) (486) Fair value of Plan assets at the end of the year 105,224 92,965

(d) Reconciliation of the Assets and Liabilities Recognised in the Statement of Financial Position Present value of the defined benefit obligation 104,720 114,953 Fair value of Plan assets (105,224) (92,965) Net defined benefit superannuation (asset)/liability* 15(b) (504) 21,988

* The Corporation has recognised an asset in the Statement of Financial Position in respect of its defined benefit superannuation arrangements at 30 June 2013 (2011/12: liability). If the defined benefit superannuation fund is in surplus, the Corporation may reduce the required contribution rate, depending on the advice of the Plan’s actuary. If a deficit exists in the Fund, the Corporation may be required to increase contribution rate, depending on the advice of the Plan’s actuary consistent with the Plan’s deed.

113 Financial Report Financial Statements Notes to the Financial Report

23. Defined benefit superannuation (continued)

2013 2012 $000 $000 (e) (Income)/Expense Recognised in the Statement of Profit or Loss and Other Comprehensive Income Service cost 2,493 2,651 Interest cost 2,898 4,441 Expected return on Plan assets (6,310) (6,578) Actuarial (gain)/loss recognised in year (17,813) 16,411 Total defined benefit superannuation (income)/expense (Note 3 & 4) (18,732) 16,925

(f) Categories of Plan assets The percentage invested in each asset class at the Statement of Financial Position date was: Australian Equity 29% 35% International Equity 30% 27% Fixed Income 12% 11% Property 9% 10% Alternatives/Other 15% 10% Cash 5% 7% Total 100% 100%

(g) Fair Value of Plan Assets

The fair value of Plan assets includes no amounts relating to: a) any of the Corporation’s own financial instruments; and b) any property occupied by, or other assets used by, the Corporation.

(h) Expected Rate of Return on Plan Assets

The expected return on Plan assets assumption is determined by weighting the expected long-term return for each asset class by the target allocation of assets to each asset class and allowing for the correlations of the investment returns between asset classes. The returns used for each asset class are net of investment tax and investment fees. An allowance for administration expenses has also been deducted from the expected return.

2013 2012 $000 $000 (i) Actual return on Plan assets 15,047 (348)

(j) Principal Actuarial Assumptions at the Balance Sheet Date %pa %pa Discount rate (active members) 3.0% 2.7% Discount rate (pensioners) 3.3% 3.0% Expected return on Plan assets (active members) 7.0% 7.0% Expected return on Plan assets (pensioners) 7.5% 7.5% Expected salary increase rate 3.25% 4.0% Expected pension increase rate 3.0% 3.0%

114 Melbourne Water Annual Report 2012–13 23. Defined benefit superannuation (continued)

2013 2012 2011 2010 $000 $000 $000 $000 (k) Historical Information Present value of defined benefit obligation 104,720 114,953 104,807 100,174 Less: fair value of Plan assets (105,224) (92,965) (97,831) (90,221) (Surplus)/deficit in Plan (504) 21,988 6,976 9,953 Experience adjustments (gain)/loss – Plan assets (8,737) 6,926 (1,771) (2,144) Experience adjustments (gain)/loss – Plan liabilities (230) 1,296 (159) (1,337)

(l) Expected Contributions

Employer contributions for defined benefit superannuation plan members during the financial year ending 30 June 2014 are expected to be $1.5 million.

(m) Defined contribution superannuation

Employees engaged from 1 January 1994 are entitled to benefits under accumulation funds. The majority of these employees are covered by Vision Super Pty Ltd. Employees have the opportunity to make personal contributions to this fund (or other funds) at a self-nominated rate or amount. The minimum employer contribution to the fund, pursuant to the Superannuation Guarantee Charge was 9.0 per cent in 2012/13 (2011/12: 9.0 per cent).

115 Financial Report Financial Statements Notes to the Financial Report

24. Related party transactions (a) Entities with significant influence – Department of Environment and Primary Industries and Department of Treasury and Finance The Department of Environment and Primary Industries (DEPI), formerly called the Department of Sustainability and Environment (DSE) leads and directs the Corporation in the implementation of the framework for achieving the Victorian Government’s responsibilities for sustainability of the natural and built environment. DEPI monitors the Corporation’s compliance with the Water Act 1989, Water Interface Agreement and the Supplementary Agreement to the Water Interface Agreement. The Department of Treasury and Finance (DTF) monitors the Corporation’s compliance with the Financial Management Act 1994. DTF is responsible for protecting the shareholder’s interest in respect of corporate business plans and capital project approvals above $50 million (2011/12: $50 million). DTF also collects income taxes, the financial accommodation levy and dividend payments from the Corporation.

(b) Related parties with significant transactions The following entities have the same controlling entities as the Corporation, and therefore are considered to be related parties of the Corporation: City West Water, South East Water, Yarra Valley Water, Western Water, Gippsland Water, Southern Rural Water and City West Water, South East Water, Yarra Valley Water, Western Water, Gippsland Water, Barwon Water and Southern Rural Water are Government owned water corporations with agreements with the Corporation that include bulk water and sewerage, bulk recycled water supply and biosolids storage arrangements. These agreements operated on normal terms and conditions during the reporting period. Treasury Corporation of Victoria TCV provides financial accommodation (loans to the Corporation), executes financial arrangements (derivatives) and provides/arranges the provision of financial services to the Corporation. Any investments above $2 million are also required to be invested with TCV. Places Victoria Places Victoria is the Victorian Government’s sustainable urban development agency. The Corporation is involved with Places Victoria in commercial arrangements associated with the development of land at the Dandenong Treatment Plant (Meridian and Logis developments), surplus land at Werribee Treatment Plant (Riverwalk development)and drainage developer works.

(c) Other related parties The following entities have the same significant influencing entities as the Corporation, and therefore are considered to be related parties of the Corporation. – Sustainability Victoria – Environment Protection Agency (EPA) Victoria – Parks Victoria – Port of Melbourne Corporation – Vic Roads

116 Melbourne Water Annual Report 2012–13 24. Related party transactions (continued)

2013 2012 Notes $000 $000 (d) Transactions with related parties Receipts from related parties DEPI 1,920 2,299 DTF 5,544 - City West Water 299,647 288,221 South East Water 436,448 421,231 Yarra Valley Water 444,807 428,075 Western Water 13,624 9,287 Southern Rural Water 384 40 Gippsland Water 32 24 Barwon Water 166 - Places Victoria 11,155 17,864 Other related parties 165 2,761 Payments to related parties DEPI 527,631 24,319 DTF 95,442 172,416 City West Water 9,169 3,758 South East Water 7,175 4,742 Yarra Valley Water 7,971 5,770 Western Water 4,485 147 Southern Rural Water 47 - Barwon Water 2 - TCV 207,409 208,981 Places Victoria 29,006 15,107 Other related parties 1,000 2,906 Dividend paid DTF 22 - 118,400 Equity contributions (transfer of crown land) DEPI 16 57 (836)

117 Financial Report Financial Statements Notes to the Financial Report

24. Related party transactions (continued)

2013 2012 Notes $000 $000 (f) Outstanding balances arising from sales/purchases of goods and services The following balances are outstanding at the reporting date in relation to transactions with related parties: Current receivables DEPI 311 - City West Water 11,515 9,940 South East Water 14,104 13,366 Yarra Valley Water 25,002 21,157 Western Water 1,616 307 Southern Rural Water 9 4 TCV 7,098 5,866 Places Victoria 11 - Other Related parties 497 - Current payables DEPI 54,380 64,058 DTF 105,737 8,898 City West Water 189 142 South East Water 341 58 Yarra Valley Water 313 509 TCV 11(a), 12(a) 358,472 851,728 Places Victoria 1,779 635 Other Related parties 7 - Non current payables DEPI 12(b) 4,259,739 - TCV 3,845,000 3,040,000

(g) Terms and conditions

Transactions relating to dividends are subject to final determination by the Treasurer after consultation with the Corporation’s Board of Directors and the Minister for Water. Transactions relating to equity contributions are determined by the Minister for Water in consultation with the Corporation. Transactions relating to trading activities of the Corporation including sale of bulk water, sale of sewerage services and collection of drainage rates are based on normal commercial terms and conditions. Outstanding balances are unsecured and are receivable/payable in cash under normal trading terms.

(h) Guarantees

There are no guarantees given or received for the current and non-current payables, current receivables and borrowings.

118 Melbourne Water Annual Report 2012–13 25. Responsible persons disclosures (a) Responsible persons The names of persons who were responsible persons at anytime during the financial year were: The Hon. Peter Walsh MLA, Minister for Water (1 July 2012 to 30 June 2013) Board Members: Chairman Paul Clark 1 October 2012 to 30 June 2013 Chairman Eleanor Underwood 1 July 2012 to 30 September 2012 Deputy Chairman Peter Vines 1 July 2012 to 30 June 2013 Managing Director Shaun Cox 1 July 2012 to 30 June 2013 Director Dana Hlavacek 1 July 2012 to 30 June 2013 Director Warren Hodgson 1 July 2012 to 30 June 2013 Director Janice van Reyk 1 October 2012 to 30 June 2013 Director Richard McKinnon 1 October 2012 to 30 June 2013 Director Garry Smith 1 October 2012 to 30 June 2013 Director Maria Wilton 1 July 2012 to 30 September 2012 Director Terry Larkins 1 July 2012 to 30 September 2012

Remuneration of responsible persons Remuneration paid to the Minister is reported in the Annual Report of the Department of Premier and Cabinet. Other relevant interests are declared in the Register of Members’ Interests which each Member of Parliament completes. The number of responsible persons whose remuneration from the Corporation was within the specified bands were as follows:

Total Remuneration 2013 2012 Income Band ($) Number Number 10,000–19,999 2 2 20,000–29,999 1 - 30,000–39,999 3 1 40,000–49,999 3 4 60,000–69,999 1 - 70,000–79,999 - - 90,000–99,999 - 1 420,000–429,999 - 1 470,000–479,999 1 - Total numbers 11 9

$000 $000 Total amount 845 778

119 Financial Report Financial Statements Notes to the Financial Report

25. Responsible persons disclosures (continued)

(b) Related party transactions There were no amounts paid by the Corporation in connection with the retirement of responsible persons of the Corporation during the 2012/13 financial year. There were no loans in existence by the Corporation to responsible persons or related parties during the 2012/13 financial year. Related party transactions involving Board Members are as follows:

2013 2012 $000 $000

(i) Janice van Reyk – Director Janice van Reyk is a Director of the Port of Melbourne Corporation. All dealings with this agency were on normal terms and conditions during the reporting period.

Total payments made to Port of Melbourne Corporation were: 1,000 -

(ii) Terry Larkins – Former Director (term expired on 30 September 2012) Terry Larkins, is the Chairman of Western Water. He is also a Director and Melbourne Water’s representative at the Victorian Water Industry Association (Vic Water). All dealings with these agencies were on normal terms and conditions during the reporting period.

Total revenue received from Western Water was: 13,624 9,287 Total payments made to Western Water were: 4,485 147

All other transactions with related party entities were made on normal terms and conditions during the financial year.

120 Melbourne Water Annual Report 2012–13 26. Remuneration of executives

The numbers of executive officers (including those that have the authority and responsibility for planning, directing and controlling the activities of the Corporation, directly or indirectly, during the financial year), other than responsible persons (as defined in FRD 21B Responsible Person and Executive Officer Disclosures in the Financial Report) whose remuneration (total and base) falls within the specified bands above $100,000 are as follows: (Total remuneration is inclusive of bonus payments, long-service leave payments, redundancy payments and retirement benefits paid and payable. Base remuneration excludes these components).

Total Remuneration Base Remuneration 2013 2012 2013 2012 Income Band ($) Number Number Number Number 100,000–109,999 - - - - 110,000–119,999 - - - - 120,000–129,999 - - - - 130,000–139,999 - - - 1 140,000–149,999 1 1 3 4 150,000–159,999 1 - 7 8 160,000–169,999 4 5 12 10 170,000–179,999 5 7 9 4 180,000–189,999 6 10 7 7 190,000–199,999 13 5 3 1 200,000–209,999 5 3 3 3 210,000–219,999 5 3 - - 220,000–229,999 2 1 - - 230,000–239,999 2 3 3 2 240,000–249,999 1 - 1 - 250,000–259,999 - - 1 4 260,000–269,999 2 2 2 - 270,000–279,999 1 - - - 280,000–289,999 - 3 - - 290,000–299,999 3 1 - - 300,000–309,999 - - - - 310,000–319,999 - - - 1 320,000–329,999 - - 1 - 330,000–339,999 - - - - 340,000–349,999 - - - - 350,000–359,999 - 1 - - 360,000–369,999 1 - - - Total numbers 52 45 52 45

Total annualised employee equivalent (AEE)* 51.8 43.8 51.8 43.8

$000 $000 $000 $000 Total amount 10,801 9,259 9,601 8,227

* Annualised employee equivalent is based on working 38 ordinary hours per week over the reporting period. There are no other personnel with significant management responsibilities.

121 Financial Report Financial Statements Notes to the Financial Report

27. Key management personnel compensation Key management personnel (as defined in AASB 124 Related Party Disclosures) includes the Managing Director and executive officers who have the authority and responsibility for planning, directing and controlling the activities of the Corporation, directly or indirectly, during the financial year.

2013 2012 $000 $000 Short-term employment benefits 2,974 2,694 Post-employment benefits - - Other long-term benefits* 663 568 Termination benefits - - Share-based payments - - Total amount 3,637 3,262

Total numbers 9 9

* Other long-term benefits represents long service leave.

28. Reconciliation of net cash provided from operating activities to net profit/(loss) 2013 2012 Notes $000 $000 Loss/(profit) for the period after tax 18 (30,079) 269,919

Plus/(less) non cash items: Depreciation and amortisation 4(a) 315,901 242,582 Net gain on sale of non-current assets 3(b) (13,267) (4,968) Assets written off/written down 4(g) 15,132 25,000 Impairment 4(g) 6,570 - Developer contributed assets 3(a) (27,114) (30,262)

Changes in operating assets and liabilities (net of investing items): (Increase)/Decrease in trade and other receivables (22,773) 23,425 (Increase)/Decrease in other assets (1,198) 1,159 Increase/(Decrease) in provision for impaired receivables 7(a) 27 (15) Increase in trade and other payables 82,092 2,643 (Decrease)/Increase in provisions (18,866) 5,978 (Decrease)/Increase in current tax liability 5(c) (43,510) 10,385 (Decrease)/Increase in defined benefit superannuation fund (18,228) 15,012 Decrease in deferred tax liabilities 14 (25,380) (40,849) Net cash provided by operating activities 219,307 520,009 .

122 Melbourne Water Annual Report 2012–13 29. Remuneration of auditors During the reporting period, the following fees were paid or payable for services provided by the Victorian Auditor General’s Office: 2013 2012 $000 $000 Audit of financial report 155 151 Drainage and Waterways review 40 39 Total amount paid/payable 195 190

30. Events occurring after balance sheet date No matters or circumstances have arisen since the end of the reporting period which significantly affected or may significantly affect the operations of the Corporation, the results of those operations, or the state of affairs of the Corporation in future financial years.

123 Financial Report Melbourne Water Corporation

Statement by Directors and Chief Finance Officer

We certify the attached Financial Statements for the Melbourne Water Corporation (‘the Corporation’) have been prepared in accordance with Standing Direction 4.2 of the Financial Management Act 1994, applicable Australian Accounting Standards, Interpretations and other mandatory professional reporting requirements. We further state that, in our opinion, the information set out in the Statement of Profit or Loss and Other Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows and Notes to and forming part of the Financial Statements, presents fairly the financial transactions during the year ended 30 June 2013 and the financial position of the Corporation as at 30 June 2013. We are not aware of any circumstance which would render any particulars included in the Financial Statements to be misleading or inaccurate. Dated at Melbourne on this 6th day of September 2013. The Financial Statements were authorised for issue by the Directors on the 6th day of September 2013. On behalf of the Board:

Paul Clark Shaun Cox Malcolm Haynes Chairman Managing Director Chief Finance Officer

124 Melbourne Water Annual Report 2012–13 125 126 Melbourne Water Annual Report 2012–13 Performance reporting

Contents Performance Report Page 128 Certification of Performance Report Page 131 Auditor General’s Report Page 132 Melbourne Water’s Key Performance Indicators Page 134

127 Performance Reporting Performance Report

Financial Performance Indicators

MRD 01 Reference Performance Indicator 2011–12 2012–13 [1] Variance Target Target Result Target Result % Met Notes F1 Internal Financing Ratio – (Net operating cash flow – dividends) / capital expenditure) % 22.9% 64.5% 9.2% 56.4% 513.0% Y [2] F2 Gearing Ratio – (Total debt (including finance leases) / total assets) % 59.5% 38.2% 58.9% 58.5% -0.7% Y F3 Interest Cover – EBIT (Earnings before net interest and tax expense / net interest expense) – times ≥1.0 2.5 ≥0.6 0.9 50.0% Y [2] F4 Interest Cover – Cash (Cash flow from operations before net interest and tax payments / net interest payments) – times ≥1.5 3.7 ≥1.3 1.5 15.4% Y [2],[3] F5 Return on Assets (Earnings before net interest and tax / average total assets) % 4.2% 6.3% 2.9% 4.1% 41.4% Y [2] F6 Return on equity – (Net profit after tax / average total equity) % 0.5% 6.1% -3.3% -0.7% -78.8% Y [2]

128 Melbourne Water Annual Report 2012–13 Performance Report

Service And Environmental And Other Performance Indicators

MRD 01 Reference Performance Indicator 2011–12 2012–13 Variance Target [1] Target Result Target Result % Met Notes S1 Water Quality Compliance with BWSA water quality requirements: S1.1 Microbiological standards – E.coli % 100% 100% 100% 100% 0% Y [3] S1.2 Aesthetics – turbidity % ≥91.5% 100% ≥91.5% 98.0% 7.1% Y [3],[4] E1 Reliability of Sewerage Collection Services EPA Victoria SEPP System failure E1.1 System failure – zero spills due to sewerage system failure 0 1 0 0 0.0% Y [3] E2 Sewerage Treatment and Disposal – WTP E2.1 Offensive odours beyond the boundary (number) 0 0 0 0 0.0% Y [3] E2.2 Raw sewage TDS (mg/L) ≤1000 980 ≤1000 990 -1.0% Y [3]

E3 Sewerage Treatment and Disposal – ETP E3.1 Offensive odours beyond the boundary 0 0 0 0 0.0% Y [3] E3.2 Ammonia limit (mg/L) ≤5.0 2.79 ≤5.0 0.80 -84.0% Y [3],[4] E4 Waterways – Drainage and Flood Protection E4.1 Currently known intolerable flood risks reduced by 10% by 2013 0 0 100% 100% 0.0% Y [3] E4.2 Achieve Water Plan implementation targets assigned to Melbourne Water from the Regional River Health Strategy and Addendum (%) 100% 100% 100% 100% 0.0% Y [3] E5.1 Recycled Water E5.1 Capacity to supply recycled water of specified reliability and quality from ETP and WTP to enable retail water businesses to meet their targets for potable water substitution (volume – ML) 830 1,404 964 964 0.0% Y [3]

129 Performance Reporting Performance Report

Notes – to Performance Report:

[1] Performance indicators as mandated in Ministerial Reporting Direction 01 – Performance Reporting (MRD 01) have been marked with their MRD 01 reference numbers. [2] While the targets have been achieved for these financial performance indicators, the variance between the results achieved and targets set for these financial performance indicators are above the % thresholds mandated under MRD 01 defining significant variances requiring explanatory notes. The key factor for the improvement compared to target across all of these financial performance indicators is due to the better than plan financial performance for 2012/13. While Melbourne Water has made a loss in 2012–13, it was significantly less than the $144.1 million loss we had planned for, with the improvement a result of higher revenues (increased water sales and improvement in the market value of our defined superannuation benefit fund) and lower expenditures compared to Plan (primarily finance charges and operating expenses), while still ensuring that the over recovered desalination revenue from 2011–12 was fully returned to customers. [3] These performance indicators are mandated and measured consistently by both MRD 01 and by the Melbourne Water Board of Directors. Therefore the results have not been repeated within the ‘Melbourne Water’s Key Performance Indicators’ section of the Performance Reporting chapter. [4] The % variance between the results achieved and target set for this performance indicator is above the % threshold mandated under MRD 01 defining significant variances requiring explanatory notes. Given that the target was set at a range of “less than or equal to” rather than a specific number, and results achieved were well within the less than, greater than or equal to range, this is not deemed as a significant variance by Melbourne Water.

Target Met = Target has been assessed as met when actual result is greater than or equal to the target set or the performance indicator.

130 Melbourne Water Annual Report 2012–13 Certification of Performance Report for 2012–13

We certify that the accompanying Performance Report of Melbourne Water in respect of the 2012–13 financial year is presented fairly in accordance with the Financial Management Act 1994.

The statement includes the relevant performance indicators as determined by the responsible Minister, the actual results achieved for the financial year against predetermined performance targets and these indicators, and an explanation of any significant variance between the actual results and performance targets.

As at the date of signing, we are not aware of any circumstances which would render any particulars in the Performance Report to be misleading or inaccurate.

Paul Clark Shaun Cox Malcolm Haynes Chairman Managing Director Chief Finance Officer

Dated this 6th day of September 2013

131 132 Melbourne Water Annual Report 2012–13 133 Performance Reporting Melbourne Water’s Key Performance Indicators

Financial Performance Indicators

Performance Indicator 2011–2012 2012–13 Target Financial Sustainability Target Result Target Result Met Notes Meet regulated Water Plan operating expenditure $M 368.8 325.4 565.0 428.3 Y Cash Returns to Government $M 158.3 289.3 183.2 94.7 N [1] Gearing % – (Debt/Debt + Equity) 66.9% 45.8% 66.1% 66.0% Y Return on equity % – (NPAT/Total Equity) 0.5% 5.9% -3.4% -0.7% Y Efficient and effective delivery of the capital program; On time 80.0% 55.9% 80.0% 54.5% N [2] On budget 95.0% 82.4% 95.0% 88.8% N [3]

Performance Indicator 2011–2012 2012–13 Target Water Target Result Target Result Met Notes Production and Storage Operate water supply system within environmental requirements – % compliance 100% 100% 100% 100% Y Maintain system losses as a % of water supplied to retail water businesses % <1.0% 1.27% <1.0% 1.14% N [4] Water Transfer Compliance with retail water businesses’ pressure requirements as set out in BWSAs % >99.6% 99.9% >99.6% 99.9% Y Water Quality Compliance with BWSA water quality requirements: Disinfection by-products % 100% 100% 100% 100% Y Aesthetics – Aluminium % 100% 100% 100% 100% Y

134 Melbourne Water Annual Report 2012–13 Financial Performance Indicators

Performance Indicator 2011–2012 2012–13 Target Sewerage Target Result Target Result Met Notes ETP EPA Licence Compliance Compliance with EPA Victoria discharge licence requirements % 100% 100% 100% 100% Y [5] Litter at beach [that results in a licence breach] 0 0 0 0 Y WTP EPA Licence Compliance Compliance with EPA Victoria discharge licence requirements % 100% 100% 100% 100% Y Sewerage Transfer System EPA SEPP compliance for sewerage system spills Zero spills due to storm events of a severity of up to 1-in-5 years 0 0 0 0 Y Complaints relating to transfer system odour <10 14 <10 14 N [6] Biosolids Management Maximise sustainable reuse of biosolids: ETP- biosolids reuse of 90,000 cubic metres for construction fill by 2013 35,000m3 0 45,000m3 131m3 N [7] WTP- biosolids reuse 0 0 0 1,512 Y

135 Performance Reporting Melbourne Water’s Key Performance Indicators

Financial Performance Indicators

Performance Indicator 2011–2012 2012–13 Target Waterways Target Result Target Result Met Notes Achieve Waterways and Drainage Operating Charter performance targets 100% 97.5% 100% 100% Y Drainage & Flood Protection All new development complies with flood protection standards 100% 100% 100% 100% Y Stormwater Quality Contribute to reducing the waterway nitrogen load to Port Phillip Bay through targeted stormwater action (tonnes) 104 109 106 109 Y Waterways Condition Achieve Water Plan implementation targets set out in the Waterways Water Quality Strategy and Regional River Health Strategy for water quality programs and works 100% 100% 100% 100% Y Land Development Development services schemes prepared, implemented and reviewed according to the development planning program 100% 100% 100% 100% Y Statutory and agreed industry response times will be achieved for all development referrals 100% 100% 100% 100% Y Streamflow Diversions Diversions to be managed: In accordance with rules specified in streamflow management plans, local management rules or drought responses plans 100% 100% 100% 100% Y To meet the service requirements in Melbourne Water’s Customer Charter [Diversion Services] 100% 100% 100% 100% Y

136 Melbourne Water Annual Report 2012–13 Financial Performance Indicators

Performance Indicator 2011–2012 2012–13 Target Recycled Water Target Result Target Result Met Notes Compliance with retail BRWAs requirements for reliability and water quality; ETP 100% 92% 100% 100% Y WTP 100% 92% 100% 100% Y

Performance Indicator 2011–2012 2012–13 Target Environmental Stewardship Target Result Target Result Met Notes Sustainability Achieve sustainability performance score within 20% of the best score by global water utilities and Australian utilities, using the Dow Jones Sustainability World Indices within 20% (DJSI) – measured every two years N/A N/A of best score Achieved Y Greenhouse Renewable energy and greenhouse Renewable energy used or exported as % of total energy used >60.0% 60.0% 61.0% 0.0% N [8] % reduction on 2000/01 greenhouse gas emissions >42.0% 50.2% 45.0% 47.7% Y Office Based Resource Efficiency % reduction on 2006/07 office water consumption per FTE 3.50% 9.9% 60.00% 55.0% N [9] % reduction on 2006/07 office paper use per FTE 14.0% 27.7% 16.0% 23.0% Y % reduction on 2006/07 office waste to landfill per FTE 14.0% 33.1% 20.0% 40.0% Y % reduction on 2006/07 office energy use per FTE 4.5% 24.4% 30.0% 49.0% Y [10] For the 9 DEPI designated sites of high biodiversity significance [BioSites], the number of BioSites that have: Had management plans developed [cumulative] 9 9 9 9 Y Had management plans implemented [cumulative] 8 8 9 9 Y

137 Performance Reporting Melbourne Water’s Key Performance Indicators

Financial Performance Indicators

Performance Indicator 2011–2012 2012–13 Target Result Target Result Target Notes Relationships Met Complaints referred to EWOV 100% 97.3% 100% 96.0% N [11] responded to within EWOV established time Maintain at least 70% total 70.0% 77% N/A N/A N/A [12] community satisfaction with Waterways (measured every two years) Effectiveness of community 85.0% 86.0% N/A N/A N/A [13] committee and community consultation processes Effectiveness of community 85.0% 97.7% 90.0% 98.0% Y [14] education programs

Performance Indicator 2011–2012 2012–13 Target Result Target Result Target Notes Organisational Capability Met Number of lost time injuries: 0 20 0 16 N [15] Melbourne Water people and contractors [injuries] Increase in constructive behaviours Achieved Achieved N/A N/A N/A (measured every two years)

Notes – to Melbourne Water Key Performance Indicators: [1] The annual target was not achieved mainly due to deferral of payment of the 2011/12 dividend of $94.5M to July 2013, following determination made by the Treasurer of Victoria in June 2013. [2] The target was not achieved due to optimistic forecasting of project duration. For Water Plan 3, Capital Delivery is investigating how it can prepare risk-adjusted schedules that recognise the inherent time risks of the project. The Water Plan 3 capital delivery strategy also includes back-to-back contractor KPIs to improve on-time delivery accountability. [3] The target was not achieved due to a small number of projects realising greater risk costs than budgeted. The next capital delivery strategy includes back-to-back contractor KPIs to improve on-budget delivery accountability. [4] Melbourne Water’s total water loss reported for 2012/13 is 1.14% of the water supplied to the retail water companies. The water loss volumes reported this year decreased slightly when compared to last year’s figure of 1.27% primarily owing to reduced cleaning following a bow wave of increased post drought cleaning in 2011/12. The reduction in cleaning losses was offset to some extent by an increase in operational losses due to impacts of algal growth in one treatment facility and the need to maintain high quality drinking water. Melbourne Water remains proactive and committed to further improvements in the management of system loss where the benefit outweighs the cost. Results to be audited by Cardno in September. Results to be published first week of October. [5] There were four odour complaints confirmed at ETP, but no action was undertaken by EPA Victoria.

138 Melbourne Water Annual Report 2012–13 [6] Melbourne Water received 14 odour complaints related to the sewerage transfer system this year. The complaints were due to a range of reasons, mainly discharge of sewer gases from vent stacks in accordance with the vents intended function of removing sewer gases to prevent corrosion with the balance arising from manhole covers being dislodged or damaged by traffic. A key component of our Corrosion and Odour Management Program is the development of Sewer Management Plans with the retail water businesses at a catchment scale to analyse the factors contributing to the generation and release of gases, identifying hotspots and determine the most effective options to manage the risk of corrosion and odour over the next 20 years. Melbourne Water is also contributing to the (SCORe) Project, which will be rolled out progressively in 2014. This project is established to provide knowledge and technology to support the Australian Water Industry to achieve cost-effective and efficient corrosion and odour management in sewers. The tools generated by the SCORe Project will cover four key areas: – Liquid phase controls – Gas phase controls – Corrosion control, prediction and coating performance – Odour and corrosion control through integrated management of asset [7] A total of 131m3 of biosolids was reused from Eastern Treatment Plant in 2012–13. Melbourne Water is seeking to engage a third party to promote and expand the use of biosolids in fill projects, and is contracting for reuse of biosolids on farmland as a soil amendment and fertilizer. It is expected that this will result in no further stockpiling of ETP biosolids by 2017–18 or earlier. [8]  Melbourne Water decided not to achieve its Renewable Energy Target, recognising that due to factors such as increasing water costs and the introduction of a carbon price, some concessions were needed to balance our impact on the environment and Melburnians’ water bills. Melbourne Water remains fully committed to reaching our target of zero net emissions by 2018. This commitment is shown through our use of onsite energy sources. This year we used a total of 1,255,748MWh of electricity in 2012-13, of which 369,348MWh was generated onsite from Melbourne Water’s renewable biogas generation plant at ETP. In addition to this, another 28,673MWh of renewable hydro-electricity was generated and exported back to the grid from Melbourne Water’s seven hydro generation facilities. [9]  This KPI is based on the office water use at our 990 La Trobe Street office only. The main reason for this target not being achieved is commissioning issues with the water tanks and water used to cool the building’s sewage pumps at our new head office. These issues have now been resolved and we have a new building management system (software application) that will alert us when more water is being used than expected. [10] Melbourne Waters office energy KPI is based on our electricty use at 990 La Trobe Street only. The large decrease in our energy use per FTE is mainly due to moving to our new head office as well as our data centre moving from our head office. [11] In December 2012, 1 out of 4 cases was not responded to within EWOV time frames. EWOV cases are now managed and tracked. This allows actions to be assigned to relevant stakeholders and allow greater visibility of progress and performance against EWOV reporting requirements. Since December 2012, 8 EWOV complaints have been responded to in the required timeframe. [12]  Survey is undertaken every two years, last surveyed in 2011–12. [13]  Stakeholders in these committees strongly indicated that they did not want to be surveyed again this year. The committees meet four times a year and an annual survey was viewed as excessive by members. Stakeholders indicated their feedback and results would be similar to previous years when the KPI has been met. [14]  This figure is approximate. [15]  The annual target was not achieved due to 16 lost time injuries to employees and contractors. We are committed to improving our health & safety performance by continuing the focus on a Zero Harm culture. Such improvement is reflected in our recent achievement of attaining AS4801:Occupational Health and Safety Management System certification in June 2013.

Target Met = Target has been assessed as met when actual result is greater than or equal to the target set or the performance indicator.

139 Statutory information

Disclosure Index Melbourne Water’s Annual Report 2012–13 is prepared in accordance with all relevant Victorian legislation and pronouncements. This index has been prepared to facilitate identification of Melbourne Water’s compliance with statutory disclosure requirements.

Legislation Requirement Page Reference Report of Operations

Charter and purpose FRD 22D Manner of establishment and the relevant Minister 1,58–61 FRD 22D Objectives, functions, powers and duties 1,57–61 FRD 22D Nature and range of services provided 1

Management and structure FRD 22B Organisational structure 60

Financial and other information FRD 10 Disclosure index 140–141 FRD 22D Statement of workforce data 62–67 FRD 22D Summary of the financial results for the year 52–57 FRD 22D Five year summary of financial results 69–70 FRD 22D Significant changes in financial position during the year 51–57 FRD 22D SD 4.2(k) Operational and budgetary objectives and performance against objectives 1–67, 128–139 FRD 22D Occupational health and safety policy 64–67, 138–139 FRD 22D Major changes or factors affecting performance 1–67, 128–139 FRD 22D Subsequent events 123 FRD 22D Application and operation of the Freedom of Information Act 1982 143–145 FRD 22D Compliance with building and maintenance provisions of Building Act 1993 150 FRD 22D Statement of National Competition Policy 143 FRD 22D Application and operation of the Whistleblowers Protections Act 2001 151–152 FRD 22D Details of consultancies over $10,000 142–143 FRD 22D Details of consultancies under $10,000 142 FRD 22D Statement of availability of other information 150 FRD 22D Environmental performance 1–67, 128–139 FRD 25 Victorian Industry Participation Policy disclosures 73 FRD 27B Presentation and Reporting of Performance information 128–139 FRD 29 Workforce data disclosures in the report of operations – public service employees 65–66 FRD 30A Standard requirements for the design and print of annual reports Entire report SD 4.5.5 Risk management compliance attestation 60 SD 4.2(g) General information requirements 1–67 SD 4.2(j) Sign-off requirements 2–3

Ministerial reporting directions MRD 01 Performance reporting 128–139 MRD 02 Reporting on water consumption and drought response 8–13 MRD 03 Environmental and social sustainability reporting 1–67, 128–139 Disclosure of information on bulk entitlements, transfers of water entitlements, MRD 04 145–150 allocations and licenses, irrigation water usage and licence requirements

140 Melbourne Water Annual Report 2012–13 Disclosure Index (continued)

Legislation Requirement Page Reference Financial Report

Financial statements required under Part 7 of the Financial Management Act 1994 SD 4.2(b) Statement of Profit or Loss and Other Comprehensive Income 74 SD 4.2(b) Statement of Financial Position 75 SD 4.2(b) Statement of Changes In Equity 76 SD 4.2(b) Statement of Cash Flows 77 SD 4.2(b) Notes to the financial statements 78–123

Other requirements under Standing Directions 4.2 SD 4.2(c) Compliance with Australian accounting standards and other authoritative pronouncements 78 SD 4.2(c) Compliance with Ministerial Directions 78 SD 4.2(c) Accountable officer's declaration 124 SD 4.2(d) Rounding of amounts 78

Other disclosures as required by FRDs in notes to the financial statements FRD 03A Accounting for dividends 85, 112 FRD 07A Early Adoption of Authoritative Accounting Pronouncements 86 FRD 11 Disclosure of ex-gratia payments N/A FRD 17A Long service leave wage inflation and discount rates 83, 100 FRD 19 Private provision of public infrastructure (BOO/BOOT) 109 FRD 21B Responsible person and executive officer disclosures 119–121 FRD 103D Non-current physical assets 80, 94–96 FRD 105A Borrowing costs 79, 91 FRD 104 Foreign currency 85, 87, 88 FRD 106 Impairment of assets 80, 95 FRD 108A Classification of entities as For-Profit 78 FRD 109 Intangible assets 82, 95 FRD 110 Cash flow statements 77, 81 FRD 112C Defined benefit superannuation obligations 83, 113–115 FRD 114A Financial Instruments – General Government Entities and Public Non-Financial Corporations 78–88, 102–107 FRD 119 Contributions by owners 85, 101 FRD 120G Accounting and reporting pronouncements applicable to the 2012–13 reporting period 86 FRD 121 Infrastructure assets 80–81, 94–96

Key Legislation Water Act 1989 Freedom of Information Act 1982 Building Act 1993 Whistleblowers Protections Act 2001 Victorian Industry Participation Policy Act 2003 Financial Management Act 1994

141 Statutory information

Consultants During 2012–13, Melbourne Water engaged 16 consultants at less than $10,000 each to undertake operational and capital works projects at a total cost of $96,211 (exclusive of GST). In addition, Melbourne Water engaged 29 consultants (see table below) at over $10,000 to undertake the following projects (expenditure excludes GST):

Total fee Expenditure Future Consultant Project approved 12/13 expenditure ACCSR CSR strategy 23,755 23,755 - AECOM Australia Wet Algae Biogas to Biomass – Evaluation 27,634 27,634 - AECOM Australia Biosolids – Waste to Resource Market Assessment 88,696 88,696 - ATMECO Pty Ltd Methane Emissions Analysis 13,574 13,574 - ATURA Pty Ltd Land application of Biosolids – Risk Assessment 85,697 85,697 - Blueshpere Review of the GW monitoring program for WTP 35,000 30,950 4,050 environmental Changeworks Change management for new contract 34,375 23,750 10,625 CPG Australia Wet Algae Biogas to Biomass – Evaluation 14,702 14,702 - D J O'brien Operations and Maintenance Strategy 20,000 18,000 2,000 and Associates Deloitte Biosolids – Waste to Resource Market Assessment 15,465 15,465 - Environmental WTP Soil Contamination Strategy 15,703 15,703 - Earth Sciences Frost & Sullivan Biosolids – Waste to Resource Market Assessment 32,500 32,500 - GHD Pty Ltd Winneke Major Hazard Facility Re-licensing 246,700 34,210 - engineering consultancy GHD Pty Ltd Silvan QRA and Chlorine Consequence Modelling 51,746 29,005 22,741 GHD Pty Ltd Methane Emissions Analysis 15,230 15,230 - GHD Pty Ltd Use of Recycled Water for agricultural/land 25,342 25,342 - application purposes – Bunyip Food Belt GHD Pty Ltd Biosolids – Sample Analysis 11,136 11,136 - Halcrow Pacific Determination of Best Practice Monitoring and 32,033 32,033 - Operating of Pumping Stations HRL Technology Methane Emissions Analysis 23,250 23,250 - Ivana Gillard Consulting for Business Services Leadership Team 15,750 15,750 - Workshop / Consulting for ISC Workshop KPMG Financial Sustainability Strategy 223,165 223,165 - KPMG Greenhouse and Energy Strategy 95,000 95,000 - Monash University Greenhouse Mitigation Plan 10,250 10,250 - Net Balance Sustainability Assurance Review 25,500 25,500 - Management Group P/L Parsons Wet Algae Biogas to Biomass – Evaluation 60,000 60,000 - Brinckerhoff Plant Performance Wet Algae Biogas to Biomass – Evaluation 46,670 46,670 - Press play Industry tour finding report 13,920 13,920 - Protiviti Risk Management – review consequence tables 18,700 18,700 -

142 Melbourne Water Annual Report 2012–13 Consultants (continued)

Total fee Expenditure Future Consultant Project approved 12/13 expenditure PWC Authorisation levy policy 28,656 28,656 - Seed Advisory Greenhouse and Energy Strategy 16,875 16,875 - Sinclair Knight Environmental Stewardship 20,000 20,000 - Metz SMEC Australia Embankment Stability Review – Clay Rich Biosolid Fill 30,524 30,524 - Pty Ltd SP-BIC Pty Ltd Central Operations process review, Sewerage 49,800 49,800 - operations review, Civil Maintenance review SPIIRE Australia Wet Algae Biogas to Biomass – Evaluation 26,198 26,198 - The Humphreys Extravision project 26,250 26,250 - Group TOTAL > $10,000 $1,519,795 $1,267,888 $39,416

National Competition Policy Melbourne Water submitted its 2009 Water Plan for water, sewerage and recycled water services to the Essential Services Commission in November 2008 to enable the Essential Services Commission to make a price determination for the four-year period commencing 2009–10. The 2009 Water Plan set out proposed performance relative to the expenditures and outcomes included in the Essential Services Commission’s first determination as well as proposed outcomes, expenditures and prices for the second price determination period. In December 2007, Melbourne Water submitted its 2008 Water Plan for waterways and drainage services, which enabled the Essential Services Commission to make a price determination for these services commencing in 2008–09 for a five-year period. These processes are consistent with the pricing and institutional reform objectives of the National Competition Policy. Melbourne Water is corporatised and therefore has an independent Board, with independent and objective performance monitoring. We face equivalent tax treatment, borrowing requirements and regulations as a private business. As outlined above, we also operate in an environment where the Essential Services Commission determines cost-based pricing. In this regard, our processes are consistent with the requirements of the Victorian Competitive Neutrality Policy.

Freedom of Information Melbourne Water is subject to the Freedom of Information Act 1982 and is committed to releasing documents in our possession unless exempt. We also welcome enquiries about the broad range of documents we provide outside the Freedom of Information Act. The designated persons for the purpose of the Freedom of Information Act 1982 are: Principal Officer: Mr P Clark Chairman, Melbourne Water Board Authorised Officer: Mr M Keough FOI and Privacy Advisor and Government Liaison, Melbourne Water The Office of the FOI Commissioner was established this year. Decisions made after 1 December 2012 are subject to review by the FOI Commissioner rather than internal review.

143 Statutory information

Requests for information This year we received 20 requests for access to documents under the Freedom of Information Act 1982 and finalised five requests from the previous year. Three requests from the previous year were not proceeded with.

Decisions on requests Requests related to: Reviews of decisions Access in full 1 Environment and planning 5 Internal reviews 2 Access in part 17 Flooding 5 Reviews by FOI Commissioner 1 Access refused 4 Litigation 2 Documents not located 3 Property 4 Complaints Applicant did not proceed 3 Water supply 10 Complaints to FOI Commissioner 0 Not finalised 0 Complaints to VCAT 0 Withdrawn 0 Other 2

Reviews and complaints In 2012–13: • Internal reviews were requested of two decisions. One decision was confirmed and one was varied resulting in more documents being released. • One review was sought of the FOI Commissioner, who affirmed Melbourne Water’s decision. • No notifications of VCAT hearings were received.

Year/Number of requests 2005–06 14 2006–07 20 2007–08 20 2008–09 35 2009–10 43 2010–11 32 2011–12 25 Grounds for refusing release of documents included: documents affecting personal privacy, legal proceedings, State security or commercial undertakings, and internal working documents the disclosure of which would not be in the public interest.

Access to documents People wanting access to Melbourne Water documents under the Freedom of Information Act 1982 should write to: Freedom of Information Officer Melbourne Water PO Box 4342 Melbourne Victoria 3001. Each application must clearly identify the documents sought and be accompanied by the required application fee ($25.70 from 1 July 2013). General enquiries concerning Freedom of Information can be made by telephoning the Freedom of Information Officer on (03) 9679 6821 between 9am and 5pm, Monday to Friday or via email to: [email protected] Information required under Part II of the Freedom of Information Act is available on our website, melbournewater.com.au under About us, Legislation and policies. The statement includes information about Melbourne Water functions, decision-making, consultation arrangements and publications. It also outlines how to make a Freedom of Information request and how to request information outside the scope of the Act.

144 Melbourne Water Annual Report 2012–13 Categories of documents We use a computerised records management system to manage our correspondence and documents. We use online computer systems to manage our financial, human resource and other operational activities and plans relating to water supply, waterways, drainage and sewerage responsibilities. Historical archives of our activities are available through the Public Records Office Victoria. More information is in our Part II Information Statement on our website.

Pricing Melbourne Water’s 2012–13 water and sewerage prices remained at 2011–12 prices. This price freeze occurred in order to return funds to customers that were recovered early for the Victorian Desalination Plant. In addition, Melbourne Water’s reform of the residential waterways and drainage charges culminated in 1 July 2012 when all residential customers moved to a flat charge. This resulted in customers facing differing price changes for the year, although the maximum price increase was 5.5% in real terms.

Bulk Entitlements The three metropolitan Retail Water Corporations hold Bulk Entitlements to the water resources of the Yarra River, Thomson River, Tarago River and Bunyip River, Silver Creek and Wallaby Creek (Goulburn River Basin) and to the Victorian Desalination Project. The entitlements have been established as a collective ‘pool’. On 2 July 2012, the Minister for Water gazetted new Bulk Entitlements for the Retail Water Corporations in the River Murray and Goulburn System of up to 75,000 megalitres annually, as a result of the Water Retail Corporation’s investment in the Goulburn-Murray Water Connections Project. Prior to this (26 March 2013), the Minister for Water amended the retail corporations Statement of Obligations (System Management) to provide clarity on when the retail corporations may draw on this water for Melbourne’s consumptive use. This included; the need for Melbourne’s total system storage levels to be less than 30% as at 30 November that year and that allocations have been made against high-reliability water shares in the Goulburn System for the current irrigation season, and water is available in the critical water reserve. The Statement of Obligations (System Management) amendment also allows for up to 300 megalitres to be used annually to maintain the North-South Pipeline in good working order and kept ready for fire-fighting purposes.

Table 1 – Compliance with all Bulk Entitlements held by the three Melbourne retail water corporations (retailers) Melbourne Combined Yarra Silver Thomson Tarago and Victorian Goulburn River Retail Water Yarra River, River3 and River8 Bunyip Desalination System18 19 Murray23 24 Corporations Silver and Wallaby Rivers11 Project14 reporting Wallaby Creeks5 obligation Creeks, Thomson River The volume of Clause 15.1 (a) Clause Clause Clause 15.1 Clause 14.1 Clause 11.1 (a) Clause 14.1 0 ML water taken by 325,855 ML 15.1 (a) 13.1 (a) (a) 25,148 (a) 0 ML15 16 (b) the Retail Water 299,636 1,071 ML ML 4,612 ML 18 ML 20 Corporations in ML (Tarago) 2012–13 2,190 ML (Bunyip) Compliance Clause 15.1 (b) Clause Clause Clause Clause 14.1 Clause 11.1 (e) N/A N/A with the long 411,571 ML1 15.1 (b) 13.1 (b) 15.1 (b) (f) 7,545 ML 0 ML term average 297,382 13,487 109,694 ML9 (Tarago)12 Bulk Entitlement ML4 ML6 2,192 ML diversion limit (Bunyip)13 The total annual 404,260 ML N/A N/A N/A N/A N/A N/A N/A consumption in 2012–13 The Retail Water N/A Clause Clause Clause Clause 14.1 Clause 11.1 (a) Clause 14.1 Clause 11.1 Corporations 15.1 (a) 13.1 (a) 15.1 (a) (a) N/A (c) (a) share of flows in 312,311 N/A 140,799 ML 26,924 ML 18,099 ML 8,943 ML 2012–13 ML The Retail Water N/A Clause N/A Clause 15.1 Clause 14.1 N/A 27,104 ML21 13,315 ML25 Corporations 15.1 (a) (a) (a) share of storage 428,906 754,560 ML 29,547 ML volume at ML 30/06/13

145 Statutory information

Bulk Entitlements (continued)

Table 1 – Compliance with all Bulk Entitlements held by the three Melbourne retail water corporations (retailers) (continued) Melbourne Combined Yarra Silver Thomson Tarago and Victorian Goulburn River Retail Water Yarra River, River3 and River8 Bunyip Desalination System18 19 Murray23 24 Corporations Silver and Wallaby Rivers11 Project14 reporting Wallaby Creeks5 obligation Creeks, Thomson River Volume supplied Melbourne Clause N/A N/A Clause 14.1 Clause 11.1 (a)17 N/A N/A to Primary ‘pool’2 15.1 (a) (a) 346 ML N/A Entitlement N/A (Gippsland 10,433 ML Holders Water) (Western 0 ML Water) 0 ML (Southern (Barwon Water) Rural 0 ML Water) (Westernport Water) 0 ML (South Gippsland Water) Any assignment N/A Clause Clause Clause 15.1 Clause 14.1 Clause 11.1 (b) Clause 14.1 Clause 11.1 of water 15.1 (c) 13.1 (c) (c) (b) Nil (d)22 (b)26 allocation or Nil Nil Nil Nil -25,892 ML +4,372 ML temporary/ Clause 14.1 Clause 11.1 permanent (e) (c) transfers of the Nil Nil Bulk Entitlement Any temporary N/A Clause Clause Clause 15.1 Clause 14.1 N/A N/A N/A or permanent 15.1 (d) 13.1 (d) (d) (a) transfer of the Nil Nil Nil Nil Bulk Entitlement which may alter the flow in the waterway Any amendment N/A Clause Clause Clause 15.1 Clause 14.1 Clause 11.1 (c) Clause 14.1 Clause 11.1 to the Bulk 15.1 (e) 13.1 (e) (e) (d) Nil (f) (d) Entitlement Nil Nil Nil10 Nil Nil Nil Any new Bulk N/A Clause Clause Clause 15.1 Clause 14.1 Clause 11.1 (d) Yes19 Yes24 Entitlement 15.1 (f) 13.1 (f) (f) (e) Nil granted to the Nil Yes7 Nil Nil Retail Water Corporations Any failures to N/A Clause Clause Clause 15.1 Clause 14.1 Clause 11.1 (f) Clause 14.1 lause 11.1 (e) comply with any 15.1 (g) 13.1 (g) (g) (g) (g) Nil Nil provision of the Nil Nil Nil Nil Nil Bulk Entitlement Any difficulty N/A Clause Clause Clause 15.1 Clause 14.1 Clause 11.1 (g) Clause 14.1 Clause 11.1 experienced in 15.1 (h) 13.1 (h) (h) (h) Nil (h) (f) complying with Nil Nil Nil Nil Nil Nil the Bulk Entitlement and if so, any remedial action taken or proposed

146 Melbourne Water Annual Report 2012–13 Notes for compliance with Bulk Entitlements

Combined Yarra River, Silver and Wallaby Creeks, Thomson River 1. Compliance with the long-term average diversion limit of 555,000 megalitres is assessed using a 15-year rolling average annual diversion. 2. The supply of water to Primary Entitlement Holders is obligated under the Victorian Desalination Project Bulk Entitlements via water sources from the Melbourne ‘pool’ of all Melbourne’s Bulk Entitlement sources.

Yarra River 3. The Retail Water Corporations hold the following Bulk Entitlements on the Yarra River • Bulk Entitlement (Yarra River – Melbourne Water for City West Water Limited) Conversion Order 2006 – BEE049364 • Bulk Entitlement (Yarra River – Melbourne Water for South East Water Limited) Conversion Order 2006 – BEE049363 • Bulk Entitlement (Yarra River – Melbourne Water for Yarra Valley Water Limited) Conversion Order 2006 – BEE049362 4. Compliance with the long-term average diversion limit of 400,000 megalitres is assessed using a 15-year rolling average annual diversion.

Silver and Wallaby Creeks 5. The Retail Water Corporations hold the following Bulk Entitlements on the Silver and Wallaby Creeks • Bulk Entitlement (Silver & Wallaby Creeks – Melbourne Water for City West Water Limited) Conversion Order 2006 – BEE049475 • Bulk Entitlement (Silver & Wallaby Creeks – Melbourne Water for South East Water Limited) Conversion Order 2006 – BEE049474 • Bulk Entitlement (Silver & Wallaby Creeks – Melbourne Water for Yarra Valley Water Limited) Conversion Order 2006 – BEE049473 6. Compliance with the 3-year total diversion limit of 66,000 megalitres is assessed using a 3-year rolling total diversion. 7. The Retail Water Corporation’s received new Bulk Entitlements on 2 July 2013 in the Goulburn System as a result of the investments made in the G-MW Connection’s Project.

Thomson River 8. The Retail Water Corporations hold the following Bulk Entitlements on the Thomson River • Transfer of Bulk Entitlement (Thomson River – Melbourne Water Corporation) Conversion Order 2001 to City West Water Limited 2006 – BEE049361 • Transfer of Bulk Entitlement (Thomson River – Melbourne Water Corporation) Conversion Order 2001 to South East Water Limited 2006 – BEE049360 • Transfer of Bulk Entitlement (Thomson River – Melbourne Water Corporation) Conversion Order 2001 to Yarra Valley Water Limited 2006 – BEE049359 9. Compliance with the long-term average diversion limit of 171,800 megalitres is assessed using a 15-year rolling average annual diversion. 10. On 12 May 2013, the Minister for Water amended the Bulk Entitlement (Thomson River – Environment) Order 2005, to provide changes to passing flow obligations. These changes were noted by the Retail Water Corporations and Melbourne Water.

Tarago and Bunyip Rivers 11. The Retail Water Corporations hold the following Bulk Entitlements on the Tarago and Bunyip Rivers • Bulk Entitlement (Tarago and Bunyip Rivers – Melbourne Water for City West Water Limited) Conversion Order 2009 – BEE049358 • Bulk Entitlement (Tarago and Bunyip Rivers – Melbourne Water for South East Water Limited) Conversion Order 2009 – BEE049357 • Bulk Entitlement (Tarago and Bunyip Rivers – Melbourne Water for Yarra Valley Water Limited) Conversion Order 2009 – BEE049356 12. Compliance with the Tarago River long-term average diversion limit of 24,950 megalitres is assessed using a 5-year rolling average annual diversion. 13. Compliance with the Bunyip River long-term average diversion limit of 5,560 megalitres is assessed using a 5-year rolling average annual diversion.

147 Statutory information

Victorian Desalination Project 14. The Retail Water Corporations hold the following Bulk Entitlements to the Victorian Desalination Project • Bulk Entitlement (Desalinated Water – City West Water Limited) Order 2010 – BEE050814 • Bulk Entitlement (Desalinated Water – South East Water Limited) Order 2010 – BEE050815 • Bulk Entitlement (Desalinated Water – Yarra Valley Water Limited) Order 2010 – BEE050816 15. On 1 April 2012, the Minister for Water made a zero desalinated water order for the 2012–13 year. 16. 24,850 megalitres was transferred to Cardinia Reservoir for commissioning of the Victorian Desalination Plant, this is not considered to be water taken under the Bulk Entitlement. 17. As the Primary Entitlement Holders are supplied from the Melbourne ‘pool’, this is reported under note two of the combined Yarra River, Silver and Wallaby Creeks and Thomson River.

Goulburn System 18. The Retail Water Corporations hold the following Bulk Entitlements to the Goulburn System • Bulk Entitlement (Goulburn System – City West Water) Order 2012 – BEE049478 • Bulk Entitlement (Goulburn System – South East Water) Order 2012 – BEE049477 • Bulk Entitlement (Goulburn System – Yarra Valley Water) Order 2012 – BEE049476 19. The Retail Corporations were granted Bulk Entitlement’s to the Goulburn System on 2 July 2012. 20. 18 megalitres of water was used to maintain the operational capacity of the North-South Pipeline and keep the pipeline charged for fire-fighting purposes, as allowed under clause 9.1 (c) of the Retail Water Corporation’s Statements of Obligations (System Management). 21. The Retail Water Corporations had 16,682 megalitres deducted from their 30 June 2012 volumes as a result of carry over rules and spillable water account spill losses during 2012–13. 22. The Retail Water Corporations have in place water management strategies to manage water allocation holdings in in the River Murray and Goulburn System to maximise the value of the resources held to their customers and minimise risk of spilling water allocation. These strategies include the transfer of allocations between Bulk Entitlement Allocation Bank Accounts and trading allocations.

River Murray 23. The Retail Water Corporations hold the following Bulk Entitlements to the River Murray • Bulk Entitlement (River Murray – City West Water) Order 2012 – BEE049481 • Bulk Entitlement (River Murray – South East Water) Order 2012 – BEE049480 • Bulk Entitlement (River Murray – Yarra Valley Water) Order 2012 – BEE 049479 24. The Retail Water Corporations were granted Bulk Entitlement’s to the River Murray on 2 July 2012. 25. The Retail Water Corporations had 0 megalitres deducted from their 30 June 2012 volumes as a result of carry over rules and spillable water account spill losses during 2012–13. 26. The Retail Water Corporations have in place water management strategies to manage water allocations holdings in the River Murray and Goulburn System to maximise the value of the resources held to their customers and minimise risk of spilling water allocation. These strategies include the transfer of allocations between Bulk Entitlement Allocation Bank Accounts and trading allocations.

148 Melbourne Water Annual Report 2012–13 Melbourne Water’s Bulk Entitlement Melbourne Water holds a Bulk Entitlement to the water resources of the Maribyrnong Basin to supply irrigators diverting water from Jacksons Creek, downstream of Rosslynne Reservoir, and the Maribyrnong River between its confluence with Jacksons Creek and Shepherd Bridge.

Table 2 – Compliance with the Maribyrnong River Bulk Entitlement held by Melbourne Water Melbourne Water reporting obligation Maribyrnong River The volume of water taken by Melbourne Water to supply licence holders in 2012–13 Clause 19.1 (b) 106 ML Compliance with the 5-year rolling average annual Bulk Entitlement diversion limit of 1,056 megalitres 141 ML Melbourne Water’s share of flow into the Rosslynne Reservoir in 2012–13 Clause 19.1 (a,iii) 648 ML Melbourne Water’s share of storage volume in the Rosslynne Reservoir at 30/06/13 Clause 19.1 (a,ii) 2,116 ML Transfer and operating losses within the system Clause 19.1 (a,iv) 0 ML Releases made from the Rosslynne Reservoir to supply licence holders in 2012–13 Clause 19.1 (a,i) 0 ML Releases from Melbourne Water’s share of flow to meet minimum flows Clause 19.1 (a,v) 55 ML Any temporary or permanent transfers of the Bulk Entitlement Clause 19.1 (c) nil Any temporary or permanent transfer of the Bulk Entitlement which may alter the flow in the waterway Clause 19.1 (d) nil Alteration to volume of water under licences issued by Melbourne Water Clause 19.1 (e) nil Alteration to security of supply of entitlements under licences Clause 19.1 (e) nil Transfer of licences (number, amount and places) Clause 19.1 (f) Yes1 Any amendment to the Bulk Entitlement Clause 19.1 (g) nil Any new Bulk Entitlement granted to Melbourne Water Clause 19.1 (h) nil Implementation of metering program Clause 19.1 (i) Yes Any failures to comply with any provision of the Bulk Entitlement Clause 19.1 (j) nil Any difficulty experienced in complying with the Bulk Entitlement and if so, any remedial Clause 19.1 (k) action taken or proposed nil

1 Two transfers of licences were made: 1) Subdivide licence with 24 ML in Keilor; 2) Subdivide licence with 19 ML in Keilor.

149 Statutory information

Environmental Entitlements

Table 3 – Compliance with the Environmental Entitlements held by the Victorian Environmental Water Holder Yarra River Thomson Silver and Tarago and River Wallaby Creeks Bunyip Rivers Environment’s share of storage volume 34,965 ML 0 ML1 N/A 1,808 ML at 30/06/13 Compliance with environmental flows Yes Yes Yes Yes

1 Releases from the Thomson Environmental Water Account in 2012/13 exceeded the environment’s actual share of storage by 187 ML. The over release was reconciled on 1 July 2013 with the new annual allocation.

Compliance with Building Act 1993 Melbourne Water’s major premises are compliant with the Building Act 1993. Melbourne Water has a program to refurbish its remote sites to ensure compliance with the Building Code of Australia 2009. All sites that the Property Team is accountable for are Essential Safety Measures compliant with follow-up audits undertaken as required. Defects are rectified as part of ongoing maintenance requirements. Melbourne Water’s leased corporate office at 990 La Trobe Street, Docklands is compliant with the Building Code of Australia 2009, and Essential Safety Measures are in place and compliant.

Privacy legislation Melbourne Water is subject to the Information Privacy Act 2000 and the Health Records Act 2001 and is committed to protecting the privacy of personal and health information it collects and handles. Melbourne Water collects and handles personal and health information only to carry out its functions and activities. Melbourne Water is committed to openness and transparency and welcomes any queries about its approach to privacy. We endeavour to resolve any privacy complaints quickly and effectively. People wanting to make a privacy complaint, or seek a copy of Melbourne Water’s Privacy Policy, should write to: Privacy Advisor Melbourne Water PO Box 4342 Melbourne Victoria 3001.

Information available on request Further information is available on request about: • Pecuniary interests of relevant officers • Details of shares held by a senior officer as nominee or held beneficially in a statutory authority or subsidiary • Details of changes in prices, fees, charges, rates and levies charged if relevant • Details of Melbourne Water publications • Committees chaired by Melbourne Water • Major external reviews carried out on Melbourne Water • Research and development activities • Overseas visits • Major promotional, public relations and marketing activities • Melbourne Water’s Code of Conduct • Assessments and measures to improve the occupational health and safety of employees • Statement of industrial relations • Details of time lost through industrial accidents and disputes • Major sponsorships. Phone 131 722 (within Victoria) or (03) 9679 7100 (within the rest of Australia) or visit melbournewater.com.au

150 Melbourne Water Annual Report 2012–13 Protected Disclosure Act 2012 The Whistleblowers Protection Act 2001 was repealed and replaced with the Protected Disclosure Act 2012 on 10 February 2013. As the change of legislation occurred midway through the 2012–13 financial year, this disclosure complies with the requirements of the Protected Disclosure Act 2012 and section 104 of the Whistleblowers Protection Act 2001, for each of the relevant time periods.

Compliance with the Protected Disclosure Act 2012 The Protected Disclosure Act 2012 was part of a package of integrity reforms introduced by the Victorian Coalition Government, which also established the Independent Broad-Based Anti-Corruption Commission (IBAC). The Protected Disclosure Act 2012 enables people to make disclosures about improper conduct within the public sector without fear of reprisal. It aims to ensure openness and accountability by encouraging people to make disclosures and protecting them when they do.

What is a ‘protected disclosure’? A protected disclosure is a complaint of corrupt or improper conduct by a public officer or a public body. Melbourne Water is a “public body” for the purposes of the Protected Disclosure Act 2012.

What is ‘improper or corrupt conduct’? Improper or corrupt conduct involves substantial: • Mismanagement of public resources, or • Risk to public health or safety or the environment, or • Corruption. The conduct must be criminal in nature or a matter for which an officer could be dismissed.

How do I make a ‘protected disclosure’? You can make a protected disclosure about Melbourne Water or its board members, officers or employees by contacting IBAC using the contact details provided below. Please note that Melbourne Water is not able to receive protected disclosures.

How can I access Melbourne Water’s procedures for the protection of persons from detrimental action? Melbourne Water has established procedures for the protection of persons from detrimental action in reprisal for making a protected disclosure about Melbourne Water or its employees. You can access our procedures on our website at melbournewater.com.au (> About us > Who we are > Legislation and policies).

Contacts Independent Broad-Based Anti-Corruption Commission Victoria Address: Level 1, North Tower, 459 Collins Street, Melbourne Victoria 3001 Mail: IBAC, GPO Box 24234, Melbourne Victoria 3000 Internet: www.ibac.vic.gov.au Phone: 1300 735 135 Email: See the IBAC website for the secure email disclosure process, which also provides for anonymous disclosures.

151 Statutory information

Disclosures under the Whistleblowers Protection Act 2001 (up to 9 February 2013) The archived procedures established under the Whistleblowers Protection Act 2001 are available upon request. The disclosures detailed in the table below relate to the period commencing on 1 July 2012 and ending on 9 February 2013.

The number and types of disclosures made to Melbourne Water during the year (1 July 2012 to 9 February 2013): 2012–13 number 2011–12 number Public interest disclosures Protected disclosures 0 0 The number of disclosures referred during the year by Melbourne Water 0 0 to the Ombudsman for determination as to whether they are public interest disclosures The number and types of disclosed matters referred to Melbourne 0 0 Water by the Ombudsman for investigation The number and types of disclosures referred by Melbourne Water 0 0 to the Ombudsman for investigation The number and types of investigations taken over from Melbourne 0 0 Water by the Ombudsman The number of requests made by a whistleblower to the Ombudsman 0 0 to take over an investigation by Melbourne Water The number and types of disclosed matters that Melbourne Water 0 0 has declined to investigate The number and types of disclosed matters that were substantiated 0 0 upon investigation and the action taken on completion of the investigation Any recommendations made by the Ombudsman that relate 0 0 to Melbourne Water: Recommendation regarding file security and management

152 Melbourne Water Annual Report 2012–13 ISSN: 1838–3718 (Print) ISSN: 1838–3734 (Online)

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