Prudency and Efficiency Assessment - Queensland Urban Utilities QUEENSLAND COMPETITION AUTHORITY Price Monitoring of South East Queensland Water and Wastewater Distribution and Retail Activities 2013 - 2015 QE99110RP0001 | Final January 2014 Price Monitoring of South East Queensland Water and Wastewater Distribution and Retail Activities 2013 - 2015 Prudency and Efficiency Assessment - Queensland Urban Utilities Project no: QE99110 Document title: Price Monitoring of South East Queensland Water and Wastewater Distribution and Retail Activities 2013 - 2015 Document no: QE99110RP0001 Revision: Final Date: January 2014 Client name: Queensland Competition Authority Project manager: Madeleine Kench Author: Michelle Strathdee/Jeff Butler/Ewen MacDougall/Bob Shead (BDO) File name: \QE99110\QE99110RP0001 - QLD Urban Utilities.docx Sin clair Knight Merz ABN 37 001 024 095 32 Cordelia Street PO Box 3848 South Brisbane QLD 4101 Australia T +61 7 3026 7100 F +61 7 3026 7300 www.globalskm.com COPYRIGHT: The concepts and information contained in this document are the property of Sinclair Knight Merz Pty Ltd (SKM). Use or copying of this document in whole or in part without the written permission of SKM constitutes an infringement of copyright. QE99110RP0001 PAGE i Price Monitoring of South East Queensland Water and Wastewater Distribution and Retail Activities 2013 - 2015 Contents Limitation statement.................................................................................................................................................................................... 1 1. Introduction ................................................................................................................................................................................... 2 1.1 Terms of reference ........................................................................................................................................................... 3 1.2 Prudency and efficiency ................................................................................................................................................... 3 1.3 Scope exclusions ............................................................................................................................................................. 4 1.4 Report overview ............................................................................................................................................................... 4 1.5 Application of assessment ............................................................................................................................................... 4 2. Background ................................................................................................................................................................................... 5 2.1 The entities ...................................................................................................................................................................... 5 2.2 Queensland Urban Utilities .............................................................................................................................................. 6 2.3 The role of the Authority ................................................................................................................................................... 9 3. Policies and procedures ............................................................................................................................................................ 10 3.1 Introduction .................................................................................................................................................................... 10 3.2 Capital expenditure policies and procedures ................................................................................................................. 10 3.2.1 Good industry practice .................................................................................................................................... 10 3.2.2 Queensland Urban Utilities process ................................................................................................................ 13 3.2.3 Standardised approach to cost estimating ...................................................................................................... 13 3.2.4 Prepares a summary document ...................................................................................................................... 13 3.2.5 Prepares an implementation strategy.............................................................................................................. 14 3.2.6 Includes a ‘gateway’ review process ............................................................................................................... 14 3.2.7 Includes a detailed analysis of options for major projects ............................................................................... 14 3.2.8 Only includes only commissioned capital expenditure from 1 July 2010 in the RAB ...................................... 14 3.2.9 Compliance ..................................................................................................................................................... 14 3.2.10 Considers regional perspective ....................................................................................................................... 16 3.2.11 Asset management system (related to capital renewals) ................................................................................ 17 3.2.12 Procurement .................................................................................................................................................... 17 3.2.13 Capital expenditure program and delivery processes ..................................................................................... 17 3.3 Operating expenditure policies and procedures ............................................................................................................ 19 3.3.1 Good industry practice .................................................................................................................................... 19 3.3.2 Operating budget formation............................................................................................................................. 20 3.3.3 Compliance ..................................................................................................................................................... 21 3.3.4 Asset management system ............................................................................................................................. 22 3.3.5 Procurement .................................................................................................................................................... 25 3.4 Conclusion ..................................................................................................................................................................... 26 4. Operating expenditure................................................................................................................................................................ 27 4.1 Overview of operating expenditure ................................................................................................................................ 27 4.2 Historical costs and variances ....................................................................................................................................... 31 4.3 Costs in aggregate ......................................................................................................................................................... 34 4.4 Benchmarking ................................................................................................................................................................ 36 QE99110RP0001 PAGE ii Price Monitoring of South East Queensland Water and Wastewater Distribution and Retail Activities 2013 - 2015 4.4.1 Comparability of data ...................................................................................................................................... 36 4.4.2 Australian benchmarking ................................................................................................................................. 37 4.4.3 International benchmarking ............................................................................................................................. 40 4.5 Sample selection ............................................................................................................................................................ 43 4.6 Corporate costs .............................................................................................................................................................. 44 4.6.1 Costs in total.................................................................................................................................................... 44 Definition and comparability ........................................................................................................................................... 45 Allocation to non-regulated costs ................................................................................................................................... 47 4.6.2 Cost of each function......................................................................................................................................