Tariff Review 11 August 2016
The tariff structure review is about whether the usage price should change when specified usage levels are reached the balance between fixed charges and usage prices whether tariffs should vary between different customer classes The tariff structure review is NOT about The overall level of prices What it covers Current tariff Cost structure Customer view 2
ICRC Customers Economic efficiency Recovery of efficient costs Revenue sustainability Stability over time Transition arrangements Simplicity Transparent methodology Fairness Signalling value of water Bill impacts What we re trying to do Current tariff Cost structure Customer view 3
Water Current tariff Cost structure Customer view 4
Residential $529.38 per year Non-residential and some common properties $529.38 per year plus $517.73 per flushing fixture in excess of two Sewerage Current tariff Cost structure Customer view 5
2013-14 bill based on 200kL (water & sewerage) ($) 1800 1600 1400 1200 1000 800 600 400 200 0 Residential bill Current tariff Cost structure Customer view 6
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Index water bill base 2002/03 (nominal) 6 5 4 3 2 Smallest water users Largest water users 1 0 Over time Current tariff Cost structure Customer view 7
Maximum usage charge ($/kl) $6 $5 Weighted towards usage charges Icon Water $4 $3 $2 $1 Weighted towards fixed charges $0 $0 $20 $40 $60 $80 $100 Supply charge ($/quarter) Across jurisdictions Current tariff Cost structure Customer view 8
Revenue requirement Costs due to usage Two-part tariff Costs that vary with usage Recurrent costs that don t vary with usage Costs that vary with usage Impact on future costs External costs (e.g. environ.) Usage price Unrecovered sunk costs Residual Fixed charge Marginal cost Current tariff Cost structure Customer view 9
Water: Marginal cost Price Sewerage: Most significant misalignment is trade waste Compared to current tariff Current tariff Cost structure Customer view 10
100,000 kl Variable cost of $2/kL = $200,000 Price $5/kL = $500,000 $300,000 towards recovery of fixed and sunk costs must now be recovered from other customers Cost $4/kL = $400,000 Total cost incurred due to usage = $200,000 $400,000 Why does it matter? Current tariff Cost structure Customer view 11
Would you support a move from the current two-tier usage price to a single usage price (assuming that it would not change the amount you pay on your bill)? (n=607) Don't know 11% No 30% Yes 47% Yes, but only for non-residential customers 12% Removing the step Current tariff Cost structure Customer view 12
Would you support reducing the proportion of your bill that is made up of usage charges (assuming that it would not change the amount you pay on your bill)? (n=584) No 44% Yes 22% Yes, but it would depend on the extent of the change 34% Usage to fixed Current tariff Cost structure Customer view 13
Do you think prices should differ between residential and nonresidential customers? (n=524) Don't know 11% No 19% Yes 70% Customer type Current tariff Cost structure Customer view 14
Supply charge ($ per qtr) Tier 1 usage price ($/kl) Tier 2 usage price ($/kl) Current 25.28 2.60 5.22 Option 1 95 2.60 2.60 Option 2 60 2.60 3.90 Bill impact per quarter Hypothetical options Current tariff Cost structure Customer view 15
How suitable do you think each option would be for the ACT? (n=485) Very suitable Don't know Option 1 Somewhat suitable Somewhat unsuitable Not suitable at all Don't know Option 2 Very suitable Somewhat suitable Not suitable at all Somewhat unsuitable 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Suitability Current tariff Cost structure Customer view 16
For each of the two hypothetical options, over what period do you think a transition should be applied? (n=485) Option 1 Immediate - all applied at once Within 5 years - applied evenly over each year More than 10 years Within 10 years - applied evenly over each year Within 10 years - in two major adjustments Option 2 Immediate - all applied at once Within 5 years - applied evenly over each year More than 10 years 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Transition period Current tariff Cost structure Customer view 17
for tariff reform Working towards a single usage price that applies to all water use and is significantly lower than the current Tier 2 price of $5.24 per kilolitre Introducing separate residential and non-residential tariffs, with a higher supply charge for non-residential customers Introducing a charging regime for liquid trade waste Introducing drought pricing arrangements Proposal Current tariff Cost structure Customer view 18
A usage price of $1.74/kL would cover around 40 per cent of our total costs. How fair are the following ways of recovering the residual 60 per cent of costs? Basis Equal Customer type Connection size Water usage Notes Supply charge, divides residual costs equally e.g. different supply charges for residential and nonresidential customers Different supply charges for eight connection sizes (around 2/3 of non-residential connections are >20mm) Increasing the usage price above $1.74/kL When deciding on a transition to a new tariff structure, what is a reasonable limit to place on annual bill impacts for individual customers? Discussion Current tariff Cost structure Customer view 19
Timetable Current tariff Cost structure Customer view 20
Timetable Current tariff Cost structure Customer view 21