WaterNSW rural bulk water services expenditure review A review of capital and operating expenditure A Final Report prepared for the Independent Pricing and Regulatory Tribunal February 2017 © Aither 2017 Contents Executive summary .............................................................................................................. ix 1. Introduction ........................................................................................................................ 1 1.1. Overview ..................................................................................................................... 1 1.2. Background ................................................................................................................. 1 1.3. About WaterNSW’s pricing proposal .......................................................................... 4 1.4. Previous expenditure reviews and pricing determinations ......................................... 5 1.5. Review objectives and scope ..................................................................................... 8 1.6. Report outline ........................................................................................................... 10 2. Review methodology ...................................................................................................... 11 2.1. Overview ................................................................................................................... 11 2.2. Review process ........................................................................................................ 11 2.3. Assessment framework ............................................................................................ 12 2.4. Information sources .................................................................................................. 12 2.5. Review of strategic management ............................................................................. 13 2.6. Assessment of operating expenditure ...................................................................... 13 2.7. Assessment of capital expenditure ........................................................................... 14 2.8. Assessment of water take and other charges .......................................................... 18 2.9. Assessment of output measures .............................................................................. 19 2.10. Dollar values and inflation rates ............................................................................... 20 3. Strategic review .............................................................................................................. 21 3.1. Overview ................................................................................................................... 21 3.2. Policy and operating context .................................................................................... 21 3.3. Organisational management .................................................................................... 25 3.4. Assessment of WaterNSW’s strategic planning and asset management ................ 44 3.5. Summary of key findings .......................................................................................... 50 4. Capital expenditure ........................................................................................................ 52 4.1. Overview ................................................................................................................... 52 4.2. WaterNSW past and proposed expenditure ............................................................. 52 4.3. Review of capital expenditure in current determination period ................................ 59 4.4. Review of proposed capital expenditure in next determination period ..................... 60 4.5. Heritage assets ......................................................................................................... 68 4.6. Asset lives ................................................................................................................. 69 4.7. Deliverability of capital expenditure .......................................................................... 70 4.8. Recommended capital expenditure .......................................................................... 71 AITHER | Final Report i WaterNSW rural bulk water services expenditure review 5. Operating expenditure .................................................................................................. 79 5.1. Past operating expenditure ....................................................................................... 79 5.2. Our understanding of WaterNSW’s forecasting approach ....................................... 81 5.3. Approach to assessing forecast operational expenditure......................................... 82 5.4. High level analysis of WaterNSW’s forecast operating expenditure ........................ 83 5.5. Assessment of WaterNSW’s proposed organisational structure .............................. 89 5.6. Reconciliation of WaterNSW’s proposed starting operating expenditure figures ..... 92 5.7. Cost allocation issues ............................................................................................... 95 5.8. Assessment of WaterNSW’s forecast labour costs .................................................. 97 5.9. Assessment of key components of WaterNSW’s non-labour cost forecasts ........... 99 5.10. Changes in levels of service ................................................................................... 102 5.11. Basis for deriving user shares ................................................................................ 112 5.12. Conclusion – Operating Expenditure Forecasts ..................................................... 113 6. Performance against output measures ................................................................ 115 6.1. Operating – Facilities maintenance management system (FMMS) ....................... 115 6.2. Maintenance – asset condition profile .................................................................... 116 6.3. Maintenance – Completion of dam safety schemes ............................................... 117 6.4. Telemetry ................................................................................................................ 118 6.5. Environmental fish passes ...................................................................................... 120 6.6. Water Delivery – Expenditure to enhance the water delivery operations ............... 122 6.7. Proposed future output measures .......................................................................... 123 7. Water services charges .............................................................................................. 126 7.1. Overview ................................................................................................................. 126 7.2. Water take measurement charges ......................................................................... 126 7.3. Trade processing charges ...................................................................................... 130 8. Capital projects review .............................................................................................. 144 8.1. Renewals - review of forecasting model ................................................................. 144 8.2. Fish River Renewals ............................................................................................... 153 8.3. Fish River Renewals - Safety ................................................................................. 157 8.4. Redacted project ..................................................................................................... 159 8.5. Hunter Renewals .................................................................................................... 160 8.6. Lachlan - Carcoar 5 year Inspection ....................................................................... 162 8.7. Lachlan Valley - Electrical Switchboard and power upgrades ............................... 166 8.8. Lowbidgee and Murrumbidgee WHS Compliance Program (high level review only) ........................................................................................................................ 169 8.9. Macquarie - Automation and Communications Renewals & Upgrades ................. 174 8.10. Macquarie - Dam Surveillance Instrumentation Upgrades ..................................... 179 8.11. Murrumbidgee Renewals ........................................................................................ 184 8.12. Namoi - Keepit Dam Upgrade ................................................................................ 187 8.13. Corporate wide project - Communications Strategy & Implementation .................. 190 8.14. Corporate wide project - ICT Renewals & Replacement ........................................ 194 8.15. Corporate wide project - Water NSW ERP E6 ....................................................... 197 AITHER | Final Report ii WaterNSW rural bulk water services expenditure review 8.16. Rural Valleys wide project - Operational Systems Programme ............................. 200 8.17. Rural Valleys wide project - Renewal & Replacement Asset Engineering ............. 205 8.18. Rural Valleys wide project – Motor vehicle replacement ........................................ 207 Tables Table 1 Division of WaterNSW area of operations ..................................................................