Toowoomba Cluster – Operational
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Queensland Competition Authority Review of SunWater's Network Service Plans Toowoomba Cluster - Operational and Capital Expenditure Auugust 2011 This Review of SunWater's Network Service Plans - Toowoomba Cluster - Operational and Capital Expenditure (“Report”): 1. has been prepared by GHD Pty Ltd (“GHD”) for the Queensland Competition Authority; 2. may only be used and relied on by Queensland Competition Authority; 3. must not be copied to, used by, or relied on by any person other than Queensland Competition Authority without the prior written consent of GHD; 4. may only be used for the purpose of reviewing the prudency and efficiency of SunWater’s proposed operation costs (except administration, insurance, indirect and overhead costs), renewals and rehabilitation expenditures; and the appropriateness of the methodology used for the attribution of operating costs to irrigation schemes and customers in the Toowoomba cluster of water supply schemes (and must not be used for any other purpose). GHD and its servants, employees and officers otherwise expressly disclaim responsibility to any person other than Queensland Competition Authority arising from or in connection with this Report. To the maximum extent permitted by law, all implied warranties and conditions in relation to the services provided by GHD and the Report are excluded unless they are expressly stated to apply in this Report. The services undertaken by GHD in connection with preparing this Report: were limited to those specifically detailed in section 3 of this Report; did not include those items listed in section 3.3 of the Report. The opinions, conclusions and any recommendations in this Report are based on assumptions made by GHD when undertaking the services and preparing the Report (“Assumptions”), including (but not limited to): Data and information requested by GHD and provided by SunWater was assumed to be complete, free from errors and not misleading; Requests by GHD to the Queensland Competition Authority for data or information from SunWater were assumed to be conveyed promptly and without amendment by the Authority. GHD expressly disclaims responsibility for any error in, or omission from, this Report arising from or in connection with any of the Assumptions being incorrect. Subject to the paragraphs in this section of the Report, the opinions, conclusions and any recommendations in this Report are based on conditions encountered and information reviewed at the time of preparation and may be relied on until 31 December 2011, after which time, GHD expressly disclaims responsibility for any error in, or omission from, this Report arising from or in connection with those opinions, conclusions and any recommendations. 41/23618/424421 Review of SunWater's Network Service Plans Toowoomba Cluster - Operational and Capital Expenditure Executive Summary GHD has been commissioned by the Queensland Competition Authority to review the operational expenditure (Opex) and capital expenditure (Capex) listed in SunWater’s Network Service Plans (NSPs) for seven schemes. The schemes included in this review are: Chinchilla Weir Water Supply Scheme; Cunnamulla Water Supply Scheme; Macintyre Brook Water Supply Scheme; Maranoa River Water Supply Scheme; St George Water Supply Scheme; St George Distribution System; and Upper Condamine Water Supply Scheme. GHD’s review has been limited to the following: The prudency and efficiency of SunWater’s proposed operating costs (except administration, insurance, indirect and overhead costs), and renewals and rehabilitation expenditures; and The appropriateness of the methodology used for the attribution of operating costs to irrigation schemes and customers. The approach to reviewing the NSPs involved a desktop review of information and data, meetings with QCA, SunWater, Stakeholders, and verification of information in the NSPs by site inspection at selected Schemes (Macintyre Brook WSS, St George WSS, and St George Distribution System). The Opex and Capex review concluded that: SunWater has valid and sound methodologies for developing their forward cost estimates, but the information and data provided by SunWater did not allow a full evaluation of their forward costs. Although additional requests for information of sufficient detail for proper evaluation were made of SunWater by the Authority on behalf of all reviewing consultants, provision of the required information was not timely, not in sufficient detail and hence, hindered the evaluation process. While SunWater’s escalation factors for labour cost are considered prudent and efficient, the escalation factor of 4% for contractors and materials could not be justified. SunWater has escalated Electricity at CPI, in lieu of Benchmark Retail Cost Index (BRCI), citing that the BRCI is not stable or consistent. SunWater’s argument does not provide sufficient justifiable reason for GHD to accept this approach. The information and data provided by SunWater did not allow a full evaluation of the forward costs. For the Macintyre Brook Water Supply Scheme, GHD would refer whether the cost over-runs on the Whetstone Weir rehabilitation project should be included in the opening renewals balance to the Authority for consideration. 41/23618/424421 Review of SunWater's Network Service Plans Toowoomba Cluster - Operational and Capital Expenditure For the St George Water Supply Scheme, GHD would recommend SunWater adjust projected Capex expenditure for Jack Taylor Weir to include the repairs to the balustrades and revise the cost estimate for the restoration of the wing walls and flood damaged rock pitching. For the St George Water Distribution Scheme, GHD would recommend SunWater review of the design option for the St George Pump Station Refurbishment Project and review of the need for retention of the Buckinbah Pump Station. GHD would recommend some efficiency gains could be made by implementing electronic water ordering, reducing the number of water products and have customers read and enter their meter readings via the SunWater Online Customer accounts and SunWater reduce their own meter reading routine to quarterly. 41/23618/424421 Review of SunWater's Network Service Plans Toowoomba Cluster - Operational and Capital Expenditure Contents 1. Introduction 1 1.1 Background 1 1.2 Purpose and Requirements of the Consultancy 1 1.3 Structure of the Report 3 2. Overview of SunWater’s Network Service Plans 4 2.1 Description of Schemes 4 2.2 SunWater’s Service Framework and Obligations 7 2.3 Operating Cost Program Planning and Generation Process 8 2.4 Renewals Forecast Planning and Generation Process 9 2.5 Renewals Annuity Methodology 9 3. Scope and Methodology 11 3.1 Definitions 11 3.2 Scope 12 3.3 Exclusions from the Scope 13 3.4 Methodology 13 4. Assessment of Elements Common to Each Scheme 21 4.1 Operational Costs Review 21 4.2 Capital Costs Review 26 4.3 Stakeholder Comments from Consultation Sessions 31 5. Assessment of Chinchilla Weir Water Supply Scheme 34 5.1 Network Service Plan Overview 34 5.2 Operational Costs Review 34 5.3 Capital Costs Review 39 6. Assessment of Cunnamulla Water Supply Scheme 43 6.1 Network Service Plan Overview 43 6.2 Operational Costs Review 43 6.3 Capital Costs Review 48 41/23618/424421 Review of SunWater's Network Service Plans Toowoomba Cluster - Operational and Capital Expenditure 7. Assessment of Macintyre Brook Water Supply Scheme 52 7.1 Network Service Plan Overview 52 7.2 Operational Costs Review 52 7.3 Capital Costs Review 59 8. Assessment of Maranoa River Water Supply Scheme 67 8.1 Network Service Plan Overview 67 8.2 Operational Costs Review 67 8.3 Capital Costs Review 72 9. Assessment of St George Water Supply Scheme 76 9.1 Network Service Plan Overview 76 9.2 Operational Costs Review 76 9.3 Capital Costs Review 83 10. Assessment of St George Distribution System 94 10.1 Network Service Plan Overview 94 10.2 Operational Costs Review 94 10.3 Capital Costs Review 101 11. Assessment of Upper Condamine Water Supply Scheme 109 11.1 Network Service Plan Overview 109 11.2 Operational Costs Review 109 11.3 Capital Costs Review 116 12. Conclusion 124 12.1 Observations 124 12.2 Annuity Period 126 12.3 Benchmarking 127 12.4 Recommendations 127 12.5 Conclusions Summary 132 13. Data Sources and References 134 41/23618/424421 Review of SunWater's Network Service Plans Toowoomba Cluster - Operational and Capital Expenditure Table Index Table 1 Water Supply Scheme Clusters 2 Table 2 Bulk Water Assets 6 Table 3 Chinchilla Weir WSS - Operational Expenditure Type – Actuals and Averages 36 Table 4 Chinchilla Weir WSS - Operational Expenditure Type Averages Vs. Forecast 36 Table 5 Chinchilla Weir WSS - Renewals and Refurbishment Projects 2012 to 2016 39 Table 6 Cunnamulla WSS - Operational Expenditure Type – Actuals and Averages 45 Table 7 Cunnamulla WSS - Operational Expenditure Type Averages Vs. Forecast 45 Table 8 Cunnamulla WSS - Renewals and Refurbishment Projects 2012 to 2016 48 Table 9 Macintyre Brook WSS Operational Expenditure Type – Actuals and Averages 56 Table 10 Macintyre Brook WSS Operational Expenditure Type - Averages vs. Forecast 56 Table 11 Macintyre Brook WSS - Renewals and Refurbishment Projects 2012 to 2016 61 Table 12 Macintyre Brook WSS - Renewals and Refurbishment Projects Beyond 2016 62 Table 13 Macintyre Brook WSS - Renewals and Refurbishment Projects 2006 to 2011 63 Table 14 Maranoa River WSS Operational Expenditure Type – Actuals and Averages 69 Table 15 Maranoa River WSS Operational Expenditure Type Averages Vs. Forecast 69 Table 16 Maranoa WSS - Renewals and Refurbishment Projects 2012 to 2016 73 Table 17 Maranoa River WSS - Renewals and Refurbishment Projects Beyond 2016 73 Table 18 St George WSS Operational Expenditure Type – Actuals and Averages 78 Table 19 St George WSS Operational Expenditure Type - Averages Vs. Forecast 78 Table 20 St George WSS - Renewals and Refurbishment Projects 2012 - 2016 84 Table 21 St George WSS - Renewals and Refurbishment Projects Beyond 2016 87 Table 22 St George Distribution Systems Operational Expenditure Type – Actuals and Averages 96 Table 23 St George Distribution System Operational Expenditure Type Averages Vs.