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Attachment 1 Context and Background Attachment 1 Context and background 30 June 2017 2018–23 Water and Sewerage Price Proposal © 2017 Icon Water Limited (ABN 86 069 381 960) This publication is copyright and is the property of Icon Water Limited. Icon Water Page i Table of contents 1 Introduction......................................................................................................... 1 1.1 Background ........................................................................................................................... 1 1.2 Icon Water’s 2018–23 water and sewerage price proposal ................................................. 2 1.3 Purpose of this attachment ................................................................................................... 3 2 Organisational context ....................................................................................... 4 2.1 Introduction ........................................................................................................................... 4 2.2 Corporate vision .................................................................................................................... 4 2.3 Icon Water’s water and sewerage network........................................................................... 6 2.4 Legislative framework ........................................................................................................... 8 2.5 Greenhouse gas abatement ............................................................................................... 12 2.6 Catchment management .................................................................................................... 12 2.7 Customer engagement ....................................................................................................... 13 3 Regulatory context for the 2018 price review ................................................. 14 3.1 Introduction ......................................................................................................................... 14 3.2 Terms of reference ............................................................................................................. 14 3.3 ICRC Act ............................................................................................................................. 15 3.4 Future price reset principles ............................................................................................... 17 3.5 ICRC information request ................................................................................................... 18 3.6 ICRC issues paper .............................................................................................................. 18 4 Key challenges ................................................................................................. 19 4.1 Introduction ......................................................................................................................... 19 4.2 Stable operating environment ............................................................................................. 19 4.3 Challenges .......................................................................................................................... 20 4.4 Meeting the challenges ....................................................................................................... 23 Icon Water Page ii List of tables Table 1-1: Icon Water’s 2018–23 price proposal documentation ..................................................... 2 Table 2-1: Icon Water's water and sewerage network, key numbers .............................................. 6 List of figures Figure 2-1: Icon Water ....................................................................................................................... 5 Figure 2-2: Icon Water’s water and sewerage network ..................................................................... 7 Figure 2-3: Icon Water's legislative framework .................................................................................. 8 Figure 4-1: Water security – scenario modelling results for water storage ..................................... 19 Figure 4-3: Icon Water asset classes .............................................................................................. 21 Figure 4-4: Residential water charges – Australian major water utilities (>100,000 customers) .... 22 Figure 4-2: Icon Water billed sales forecast compared to Industry Panel decision ......................... 23 List of boxes Box 3-1: ICRC Act 1997 price direction provisions ........................................................................... 15 Icon Water Page iii 1 Introduction 1.1 Background 1.1.1 Icon Water Icon Water protects and supports the community and the environment by providing high quality drinking water and sewerage services to the Australian Capital Territory (ACT) and surrounding regions. Icon Water provides drinking water to households, and commercial and industrial customers in the ACT and bulk water to the city of Queanbeyan. Water is sourced from storages on the Cotter and Queanbeyan Rivers, and directly from the Murrumbidgee River, and is treated to a high standard in either of Icon Water’s two water treatment plants. The water is then stored in numerous local reservoirs around the ACT before being distributed to approximately 172,000 customers via a network of pipelines. Prior to arriving at your tap, water goes through many stages. First it is collected through river catchments and makes its way to Icon Water’s dams, which store water before it is transferred for treatment at a water treatment plant. After treatment is it distributed to urban water service reservoirs before being distributed via pumping stations and water mains to customers. Sewage1 makes its way through a network of pipes to a sewage treatment facility where it is treated and discharged back into the environment, where it flows downstream to be used again. Sewage, including household waste and liquid trade waste, is carried by the sewerage network for treatment and ultimate discharge into the lower Molonglo River. Some sewage is extracted from the network and treated for reuse in irrigation and other non-potable uses. Widespread monitoring of key steps and maintenance of relevant facilities is required to ensure public health, environmental, safety and reliability targets and obligations are met. New and replacement facilities must be planned well in advance, and evaluated and implemented to meet the demands of growth and functional obsolescence. Programs must be designed around the best use of current resources, including demand management and conservation when demand cannot be met from existing supply. Icon Water is responsible for ensuring that these services are provided to the community efficiently and in compliance with all regulations, including price regulations. 1.1.2 The 2018 price review The current prices charged by Icon Water for the provision of water and sewerage services to the ACT community are regulated by the Independent Competition and Regulatory Commission (ICRC) under the Substituted Price Direction (the current price direction), made by the Industry Panel in May 2015.2 The current price direction expires on 30 June 2018. On 13 December 2016, the ACT Treasurer signed terms of reference under the Independent Competition and Regulatory Commission Act 1997 (ICRC Act) for an investigation into, and the making of a price direction for, regulated water and sewerage services provided by Icon Water for the period 1 July 2018 to 30 June 2023. On 4 January 2017, the ICRC provided Icon Water with an information request under section 17(4) of the ICRC Act, setting out the information that Icon Water is required to submit to the ICRC for the purposes of the 2018 water and sewerage price review (the 2018 price review). On 31 March 2017, the ICRC published an issues paper that set out the key issues it intends to address in the review, and outlined its intended approach to meeting its various regulatory objectives (ICRC 2017c). 1 Sewage is the waste matter and sewerage refers to the physical facilities through which sewage flows. 2 Industry Panel, 2015: 1-26. Icon Water Page 1 1.2 Icon Water’s 2018–23 water and sewerage price proposal 1.2.1 Presentation Icon Water’s 2018–23 water and sewerage price proposal (2018 price proposal) comprises an overview document, 13 detailed attachments that cover the standard elements that make up a regulatory price proposal, and two models: the revenue and water sales forecasting models (see Table 1-1). In an effort to make the proposal more accessible to the ACT community, Icon Water has also developed a user-friendly and customer-focused website (ourpricing.iconwater.com.au). The website provides an interactive way for Icon Water’s customers to better understand and explore the key parts of the proposal. It also provides access to the overview, attachments and models. Table 1-1: Icon Water’s 2018–23 price proposal documentation Attachments Title/ description 1 Context and background 2 Form of regulation 3 Service standards 4 Demand forecasts 5 Asset management and governance 6 Capital expenditure 7 Operating expenditure 8 Regulatory asset base 9 Rate of return and forecast inflation 10 Corporate income tax 11 Revenue requirement and price path 12 Tariff structure 13 Consistency with ICRC objectives Revenue model Post-tax revenue model used to determine proposed revenue requirement and price path Demand model Time series forecasting model (and associated
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