Seqwater Irrigation Price Review 2013-2017 Assessment of Capital and Operating Expenditure FINAL December 2012 Seqwater Irrigation Price Review 2013- 2017 ASSESSMENT OF CAPITAL AND OPERATING EXPENDITURE Rev 6 Final 12 December 2012 Sinclair Knight Merz ABN 37 001 024 095 Cnr of Cordelia and Russell Street South Brisbane QLD 4101 Australia PO Box 3848 South Brisbane QLD 4101 Australia Tel: +61 7 3026 7100 Fax: +61 7 3026 7300 Web: www.skmconsulting.com COPYRIGHT: The concepts and information contained in this document are the property of Sinclair Knight Merz Pty Ltd. Use or copying of this document in whole or in part without the written permission of Sinclair Knight Merz constitutes an infringement of copyright. LIMITATION: This report has been prepared on behalf of and for the exclusive use of Sinclair Knight Merz Pty Ltd’s Client, and is subject to and issued in connection with the provisions of the agreement between Sinclair Knight Merz and its Client. Sinclair Knight Merz accepts no liability or responsibility whatsoever for or in respect of any use of or reliance upon this report by any third party. The SKM logo trade mark is a registered trade mark of Sinclair Knight Merz Pty Ltd. Contents 1. Executive summary 6 1.1. Introduction and background 6 1.2. Policy and procedure review 6 1.3. Capital expenditure 7 1.4. Operational Expenditure 12 2. Introduction 18 2.1. Terms of reference 18 2.2. Report overview 19 3. Background 20 3.1. Seqwater 20 3.2. The role of the Authority 22 3.3. Prudency and Efficiency 22 3.4. Background information 23 4. Policy and procedure review 25 4.1. Good industry practice 25 4.2. Budget formation 27 4.3. Risk and asset management planning 34 4.4. Seqwater installed capital asset cost escalation rate determination method 39 4.5. Corporate directives 47 4.6. Procurement 49 5. Capital expenditure 53 5.1. Overview of capital expenditure 53 5.2. Selected sample 53 5.3. Project status 57 5.4. Overview of prudency and efficiency 60 5.5. Cedar Pocket Dam Telemetry 60 5.6. Bromelton Weir Telemetry 66 5.7. Clarendon Dam Embankment – Refurbish Riprap 72 5.8. L1 Distribution Observation Bores 78 5.9. Clarendon Diversion Control Equipment 86 5.10. Central Lockyer Valley Water Supply Scheme Gauging Stations 92 5.11. Clarendon Diversion Access Road 99 5.12. Warrill Creek Diversion Weir - Access Road and Hard Standing 105 5.13. Calico Creek Channel and Pie Creek Main Channel Air Valves 113 PAGE i 5.14. Somerset Dam Inlet and Outlet Works 121 5.15. Clarendon Diversion - Trash Screens 126 5.16. Central Lockyer Valley and Mary Valley Metering 133 5.17. Overall Summary 149 5.18. Application to other projects 149 5.19. Summary of information provision 151 6. Operational expenditure 153 6.1. Overview of operating expenditure 153 6.2. Overview of prudency and efficiency 155 6.3. Direct Labour and Contractors, Cedar Pocket Dam Water Supply Scheme 157 6.4. Materials and Other, Central Brisbane River Water Supply Scheme167 6.5. Direct labour, Central Brisbane River Water Supply Scheme 183 6.6. Repairs and Maintenance – Planned, Central Lockyer Valley Water Supply Scheme 191 6.7. Repairs and Maintenance – Unplanned, Central Lockyer Valley Water Supply Scheme 199 6.8. Direct labour, Logan River Water Supply Scheme 206 6.9. Direct labour, Lower Lockyer Valley Water Supply Scheme 216 6.10. Materials and Other, Lower Lockyer Valley Water Supply Scheme 224 6.11. Direct Labour, Mary Valley Water Supply Scheme 234 6.12. Direct Labour, Morton Vale Distribution System 244 6.13. Repairs and Maintenance – Planned, Pie Creek Distribution System250 6.14. Materials and Other, Warrill Valley Water Supply Scheme 257 6.15. Historical projects - Recreation Maintenance, Mary Valley Water Supply Scheme 267 6.16. Historical projects - Repairs and Maintenance – Unplanned, Pie Creek 272 6.17. Overall Summary 277 6.18. Application to other projects 278 6.19. Summary of information provision 280 7. Conclusions and overall recommendations 282 7.1. Conclusion 282 7.2. Overall recommendations – policies and procedures 282 7.3. Adequacy of information 283 7.4. Capital expenditure 284 7.5. Operational Expenditure 286 Appendix A Terms of Reference 290 PAGE ii PAGE ii Appendix B Central Lockyer and Mary Valley Metering Full Cost Breakdown 299 PAGE iii PAGE iii Document history and status Revision Date issued Reviewed by Approved by Date approved Revision type Rev 1 07/09/12 S Hinchliffe T Saxby 07/09/12 Draft for client review Rev 2 21/09/12 S Hinchliffe T Saxby 21/09/12 Final draft for client review Rev 3 19/10/12 S Hinchliffe M Kench 19/10/12 Internal Review Rev 4 22/10/12 S Hinchliffe M Kench 22/10/12 Revised final Rev 5 31/11/12 S Hinchliffe M Kench 29/11/12 Final draft incorporating updated Seqwater information Rev 6 5/12/12 S Hinchliffe L Chin 12/12/12 Final Distribution of copies Revision Copy no Quantity Issued to Rev 1 1 1 Client, Seqwater – electronic copy Rev 2 1 1 Client, Seqwater – electronic copy Rev 3 1 1 Internal issue only Rev 4 1 1 Client, Seqwater – electronic copy Rev 5 1 1 Client, Seqwater – electronic copy Rev 6 1 1 Client, Seqwater – electronic copy Printed: 12 December 2012 Last saved: 12 December 2012 03:58 PM I:\QENV2\Projects\QE06612\Deliverables\Reports\QE06612 QCA Seqwater Irrigation File name: Price Review Report_Rev 6.docx Author: Michelle Strathdee Project manager: Stephen Hinchliffe Name of organisation: Queensland Competition Authority Name of project: Seqwater Irrigation Price Review 2013-2017 Name of document: Assessment of Capital and Operating Expenditure Document version: Rev 6 Project number: QE06612 PAGE iv PAGE iv Limitation statement The sole purpose of this report and the associated services performed by Sinclair Knight Merz Pty Ltd (SKM) is to assist the Queensland Competition Authority (the Authority) in its review of irrigation prices in accordance with the scope of services set out in the contract between SKM and the Authority. That scope of services, as described in this report, was developed with the Authority. In preparing this report, SKM has relied upon, and presumed accurate, any information (or confirmation of the absence thereof) provided by the Authority, Seqwater and/or from other sources. Except as otherwise stated in the report, SKM has not attempted to verify the accuracy or completeness of any such information. If the information is subsequently determined to be false, inaccurate or incomplete then it is possible that our observations and conclusions as expressed in this report may change. SKM derived the data in this report from information sourced from the Authority, Seqwater and/or available in the public domain at the time or times outlined in this report. The passage of time, manifestation of latent conditions or impacts of future events may require further examination of the project and subsequent data analysis, and re-evaluation of the data, findings, observations and conclusions expressed in this report. SKM has prepared this report in accordance with the usual care and thoroughness of the consulting profession, for the sole purpose described above and by reference to applicable standards, guidelines, procedures and practices at the date of issue of this report. For the reasons outlined above, however, no other warranty or guarantee, whether expressed or implied, is made as to the data, observations and findings expressed in this report, to the extent permitted by law. This report should be read in full and no excerpts are to be taken as representative of the findings. No responsibility is accepted by SKM for use of any part of this report in any other context. This report has been prepared within the time restraints imposed by the project program. These time restraints have imposed constraints on SKM’s ability to obtain and review information from Seqwater. This report has been prepared on behalf of, and for the exclusive use of, the Authority, and is subject to, and issued in accordance with, the provisions of the agreement between SKM and the Authority. SKM accepts no liability or responsibility whatsoever for, or in respect of, any use of, or reliance upon, this report by any third party. SINCLAIR KNIGHT MERZ PAGE 5 1. Executive summary The Queensland Competition Authority (the Authority) commissioned Sinclair Knight Merz Pty Ltd (SKM) to review the prudency and efficiency of capital expenditure and operating expenditure of Seqwater’s Irrigation Schemes. This review is part of the Authority’s process to develop irrigation prices to apply to seven Seqwater water supply schemes from 1 July 2013 to 30 June 2017 (four years). 1.1. Introduction and background The Authority appointed SKM to provide independent advice regarding the prudency and efficiency of Seqwater's capital (renewal) and operating costs to form the basis of costs eligible for recovery through cost-reflective irrigation prices during the 2013-17 regulatory period. Seqwater operates seven water supply schemes, being: Cedar Pocket Dam Water Supply Scheme Central Brisbane River Water Supply Scheme Central Lockyer (including Morton Vale Pipeline) Water Supply Scheme Logan River Water Supply Scheme Lower Lockyer Valley Water Supply Scheme Mary Valley (including Pie Creek) Water Supply Scheme Warrill Valley Water Supply Scheme 1.2. Policy and procedure review SKM has reviewed Seqwater’s capitalisation policy, budget formation, strategic development plans, risk and asset management planning, corporate directives, external drivers, procurement and cost allocation. A summary of SKM’s findings is presented below: Budgetary process The intent of Seqwater’s budgetary process is to be in line with good industry practice, which SKM considers that Seqwater largely achieves.