ESC Water Pricing Decision

This morning, Chairperson of the Essential Services Commission (ESC), Dr Ron Ben-David, announced the ESC’s draft outcome for Melbourne’s water pricing for the next five years.  An extensive 6-month investigation taking into account both the financial requirements of Melbourne’s water wholesaler and retailers, as well as the welfare of households and consumers, has produced a 300-plus page document concerning the residents of Victoria.

Theo Josseff (Vice-President) and Kim Liu (Equilibrium Editor) were in attendance from ESSA to listen to Dr Ben-David present the Commission’s findings to the media and public.

For the average household, consumers should be expecting a $200 per annum increase in their water bills come July 1; which will then be indexed to inflation over the next five years.  Notably, this comes at a $100 savings compared to the proposed price figures provided by the industry.  Retailers had proposed an average increase in (real) prices of around 35%, which the ESC has responded with revised draft figures of 20.6% for City West Water, 24.8% for South East Water, 25.8% for Yarra Valley Water and 5.9% for Western Water[1].

Cost savings were identified in productivity, financing costs, deferred/removed capital expenditures and operating efficiencies, which have helped reduce the large step-increase in water rates.  This included the Commission’s decision to increase “Waterways & drainage” charges by a negligible 0.5% compared to 14.1% proposed by businesses.  The variable proportion of a typical household’s water bill was kept in line with trend figures; maintaining the relative level of control that customers have over their water expenses.

The Victorian (Wonthaggi) Desalination Plant was the major justification for the large increase in water prices.  The current deal is for consumers to meet the financial obligations of the plant over a period of 27 years. This is in contrast to the operating life of the plant, which is expected to be at least 50 years and potentially even more. These annual security payments are to be made for the next 27 years, irrespective of usage. The Commission is not satisfied with Melbourne Water’s proposal that sees the next 27 years of customers being made to bear the cost of an operation benefiting generations of Victorians. The Commission has required Melbourne Water to resubmit its proposal for recovering the plant’s costs from customers.  However, Dr Ben-David did mention the important trade-off and balance between low short-term prices and longer-term price stability.

After the release, Tony Kelly, Managing Director of Yarra Valley Water, spoke to the media about the ESC’s findings.  He was reluctant to make any definitive comments, but told those in attendance, that it was now time for the water industry (and everyone else) to examine the ESC’s report, to make submissions by May 20^th, and then wait for the final decision on water pricing at the end of June.

The Essential Services Commission is an independent economic regulator, in which one of its legislated responsibilities is to promote the long-term interests of Victorian consumers as well as ensure sustainable revenue and costs for water businesses.  To learn more about the ESC or the Draft Water Pricing Decision, click here.

We would also like to thank our sponsor ESC and Dr Ron Ben-David for inviting ESSA to attend their media release on water pricing.  We look forward to further building our relationship together.