G-MW's revenue submission to the Essential Services Commission (ESC) has foreshadowed significant challenges and changes to the future of G-MW's water pricing in response to the impact of drought and climate change and to ensure pricing provides relevant and timely signals for all water users.
According to G-MW Chief Financial Officer Peter Guy the submission details the revenue G-MW will need to recover from customers to deliver water services at agreed service levels, with G-MW proposing a total increase of $5.5 million through to 2012/13 from its previously approved 2008 total revenue requirement.
"Between now and 30 June the ESC will scrutinise our submission and undertake its own independent consultation to develop its determination. The revenue requirement is not approved until the ESC completes its process," said Mr Guy.
Mr Guy explained that through monthly meetings with customer committees, customer representatives have questioned, challenged and discussed the service-price trade-off associated with the various programs and initiatives - and in doing so provided valuable advice to G-MW.
"Our submission includes some challenging pricing outlooks for some irrigators and water users across the region as we deliver programs, adjust pricing frameworks and fund asset renewal and repair works that can sustain and enhance customer service levels," said Mr Guy.
"This is an exciting time for irrigation in Northern Victoria. Work is underway to deliver a once in a lifetime investment to the irrigation system to ensure the continuing success of irrigated agriculture and the economic prosperity of the region.
"Irrigation modernisation projects will deliver a more efficient water delivery network, will reduce system losses in every season enabling larger allocations sooner, and will see the installation of new technology that can support improved system management and improved on farm productivity. In all respects modernisation will enhance G-MW's service capabilities in the gravity Irrigation Areas," said Mr Guy.
Irrigation customers own more than $4.2 billion worth of tradable water entitlements. G-MW's revenue requirement reflects the costs of operating and maintaining the dams, channels and other assets that harvest, store and deliver water in line with these entitlements along a network that runs for thousands of kilometres.
"The $5 billion worth of assets that are in the ground are the key driver of costs for our customers and money needs to be invested to maintain assets and upgrade systems that ensure our customers continue to receive a high level of service,
"Already our customers are starting to see the benefits from irrigation renewal and this Government investment has meant that prices haven't increased as much as what they could have if we would have had to fund it on our own," Mr Guy said.
G-MW will provide a second submission to the ESC in March containing proposed 2010/11 tariffs and prices derived from the revenue requirement. G-MW offers more than 40 services but has more than 300 prices with service costs varying between irrigation areas and systems. This second submission will also be subject to ESC scrutiny.
"In this submission we have flagged some new directions for individual prices such as service point and drainage fees that will be further developed in consultation with our customer committees before they are included in our second submission in March. These changes are designed to provide customers with timely and appropriate pricing signals on which to plan their future water ownership and use," said Mr Guy.
A summary of key aspects of the submission follows.
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Media Contact: Linda Nieuwenhuizen, Manager Stakeholder Relations
Telephone: 03 5833 5776 or 0412 183 792
Summary - G-MW Revenue Submission
The 50 page submission is available from the ESC website http://www.esc.vic.gov.au/public/Water/Consultations/.
Key factors highlighted in the submission include:
Maintaining and renewing a $5 billion asset base
With more than $5 billion worth of assets in the ground, the delivery of capital works and maintenance programs that were previously deferred or will be due in the next three years is a significant driver of revenue requirements.
"There are some major channel structures that are approaching the end of their useful life and will require significant maintenance or replacement in the next 3 years. Each Irrigation Area has different levels of work to be undertaken depending on where the assets are in their life cycle. Some have minimal works while others will require more expenditure in the next three years,' said Mr Guy.
Investing to improve future services
"NVIRP will deliver a more efficient water delivery network, will reduce system losses in every season enabling larger allocations sooner, and will see the installation of new technology that can support improved system management and improved on farm productivity. In all respects the project will enhance G-MW's service capabilities in the Goulburn and Murray regulated river systems and greatly boost service capabilities in the six gravity Irrigation Areas which rely on channel delivery," said Mr Guy.
G-MW's submission details the process for funding Irrigation Area customers' investment in the modernisation project.
"In return, our customers will receive 75,000 ML of secure, tradeable entitlement that at current market values is worth around $150 million. The project will provide infrastructure assets worth almost $600 million and from next year irrigators will also receive 1/3 of the actual annual water savings in the form of increased allocations," said Mr Guy.
"NVIRP delivers a once in a lifetime investment in the continuing success of irrigated agriculture across our Irrigation Areas, and the economic prosperity of our region," said Mr Guy.
While the NVIRP works roll out, G-MW will be running the existing network alongside the automated network.
"Once NVIRP's modernisation works and customer connections programs are complete, we will see the full operational efficiencies reflected in customer pricing," said Mr Guy.
New approaches to minimise future price volatility
G-MW currently recovers around 20% of its revenue on the basis of volumes delivered in a season.
"We don't charge for the water, but we use the volume of deliveries as the basis for sharing some of the costs across actual users of the delivery network," said Mr Guy.
With inflows insufficient to enable 100% allocations over several seasons, some services and in particular some Irrigation Areas have accumulated revenue shortfalls that increase revenue and price volatility. G-MW proposes to calculate consumptive revenues on the basis of 60% allocations for Murray and Goulburn systems and 30% for all other regulated river systems.
"This means individual Irrigation Areas will not accumulate shortfalls in low allocation seasons that become a burden in the following seasons," said Mr Guy.
Mr Guy said the current pricing outlooks illustrated this point.
"Some Irrigation Areas have accumulated cash surpluses in recent seasons and their Customer Committees have advised they would like to use this to offset price increases over the coming seasons. However some areas are in the opposite position and will need to recover revenue shortfalls over the remainder of the plan period which exacerbates the upward price pressures for their Area," said Mr Guy.
Mr Guy said it was important for the community and particularly irrigators to understand that the submission only related to the costs associated with rural water services and maintaining the storage and delivery infrastructure.
G-MW's annual receipts have grown to around $180 million in recent years but barely half of this comes from irrigation and rural water customers. The growth has been a result of G-MW delivering projects and programs such as modernisation works, groundwater management plans and other programs that are funded by government, CMAs, DSE and other agencies.
"Our processing of water trading and licensing applications is funded by users of these processing services - not all irrigators - so the growth in activity and staff numbers to support this does not flow through to customer prices," said Mr Guy.
Summary by Irrigation Area
Revenue requirements for G-MW's six irrigation areas vary significantly depending on the combination and direction of factors driving costs in the Area.
"In Pyramid-Boort the 22% increase in revenue requirement reflects the combination of four main factors. A relatively low starting base, a significant capital program as the Area moves into an asset renewal phase which includes works along the Waranga Western Channel, the Areas essential link to the Goulburn system, their share of the investment in NVIRP modernisation and no cash surpluses to offset some of the price rises," said Mr Guy.
In comparison Central Goulburn has 0% change. This reflects the Areas relatively high cost base because of earlier significant channel replacement and maintenance works. With these works largely complete, current revenue levels are sufficient to fund their investment, and they are beginning to see the cost reductions that come from a modernised system," said Mr Guy.
"We are working with all customer committees to ensure everyone understands the drivers within their local Area," said Mr Guy.
Increased revenue requirements for groundwater and unregulated river systems are primarily driven by the need to protect customers' entitlements and ensure fair sharing of available resources through increased monitoring and initiatives including improved metering.
"We have scaled up our activity in these areas in response to increasing demand and the impact of drought on these resources," said Mr Guy.
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