Price Submission Summary

September 2012

HUNter WAter COrpOrAtION

2 Hunter Water Corporation price Submission Summary

Introduction

Hunter Water does not set its own prices. the prices you pay for water, sewerage and stormwater drainage services are set by the Independent pricing and regulatory tribunal (IpArt). IpArt is an independent NSW government agency that sets prices for a range of government services including water, public transport and aspects of gas and electricity charges.

IpArt sets Hunter Water’s prices for several years at a time, with annual price adjustments for inflation. prices were last set in 2009 and apply until 30 June 2013.

IpArt is now preparing to set new prices to apply from 1 July 2013. As part of that process, it has asked Hunter Water to provide a detailed submission containing the information about:

• How well Hunter Water has stayed within the costlimits set for it by IpArt in 2009.

• HowmuchwaterHunterWaterexpects tosell eachyearforthenextfiveyears.

• HowmanynewcustomersHunterWaterexpects toconnectinthenextfiveyears.

• WhatoperatingcostsHunterWaterexpects to incuroverthenextfiveyears.

• How much Hunter Water expects to invest inreplacement and new infrastructure over the next ten years.

• WhatpricesHunterWaterexpectstochargecustomersoverthenextfiveyearstocoverthesecosts.

In addition, IpArt wants to change the way prices are structured. IpArt considers that a proportion of the costs of serving residential customers are common to all residential customers so all residential customers should pay the same service charges, regardless of dwelling size or type. IpArt also wants the way Hunter Water charges its customers to be the same as the way customers are charged in Sydney and on the Central Coast. this simply means the charges will be applied the same way in these locations – it does not mean customers in all these places will pay the same prices.

the effect of IpArt’s changes to the way customers are charged will be to increase water and sewerage service charges for unit and flat owners. In our submission to IpArt, we have argued that this is fair for water service charges because most of the water component of your bill depends on how much water you use.

However, this is not the case for sewer service charges because they make up 100% of a sewerage bill. We have, therefore, argued in our submission that home units and flats should pay no more than 75% of the sewer service charge applying to a house. We have put this forward because census data shows that the average occupancy rates of units and flats is only 1.6 persons while the average occupancy of houses is 2.6 persons. this means, typically, average, units and flats discharge less to the sewer than houses. Further, 77% of units and flats in the Hunter are occupied by no more than 2 people.

Our 2012 pricing survey found that 57% of house and home unit owners supported the idea of units and flats paying a proportionate sewer service charge to reflect the lower occupancy levels in these dwellings.

IpArt is also proposing that we change the way we chargefixedservicechargestosmallindividualbusinesscustomers (non-residential customers) so that the service charges for these customers are the same as those paid by a residential house. these changes will only apply to business premises occupied by a single business with a 20 mm water meter.

Hunter Water‘s submission is now available on IpArt’s website.Hunter Water and IpArt welcome your comments on this submission.

Community consultation on prices

both Hunter Water and IpArt are committed to involving the community in the setting of new prices.

In June and July this year, Hunter Water asked customers to have a say about Hunter Water’s future prices. more than 1900 customers responded to a pricing survey and we have taken their views into account in framing our submission. the results from the survey can be found in our submission.

publication of the submission provides a further opportunity for community involvement and IpArt welcomes your comments on the proposals in this submission. Comments can be made on-line at www.ipart.nsw.gov.au or by mail to:

review of Hunter Water’s prices

IpArt

POBoxQ290

QVBPostOfficeNSW1230

Comments to IpArt close on 12 October 2012.

3Hunter Water Corporation price Submission Summary

What’s happening to prices?

Hunter Water has proposed a modest price increase only for thisnextpricepath.These typically singledigitpercentage increases ensure that Hunter Water remains a low priced water supplier.

Hunter Water proposes to reduce all stormwater charges and particularly stormwater charges for strata title units, some trade waste charges and some miscellaneous fees. Also, the additional water service charges paid by Dungog Shire residents will be removed and the special Clarence town Sewerage Levy will be reduced by $43 per year.

Other charges will increase. Service charges for home units and flats will increase mostly as a result of IpArt’s intention to have a single price applying to all residential customers, regardless of type or dwelling size.

Water usage prices are increasing while water service prices are being held constant. this will enable an average water and sewer bill to be made up of a variable (water usage) component of around 40%. Having a reasonable proportion of the bill subject to variable charges was suggested by 75% of respondents to our 2012 pricing survey.

the main features of our price proposals are:

• Waterservicechargesforhouseswillbereducedbyaround 11.8% and held constant in real terms for the nextfouryears.

• Homeunitsandflatswillseesmallincreasesinwaterservice prices in 2013. In most cases these increases will be less than $12 for the year or $4 per bill.

• The water service charge for customers in DungogShire will be reduced and aligned with the service charge of all other customers from 1 July 2013. this alignment will be four years earlier than originally planned.

• Water usage charges will increase by around 2.1%each year in real terms. this will modestly increase the variable component of most customers’ bills, providing customers with more control over their bill.

• Sewer service charges for customers in houses willincrease by 2.3% per year.

• Sewerservicechargesforunitsandflatswillincreaseby around 5.8% per year. this is a result of IpArt’s requirement for more uniformity between the service charges applying to houses and units and flats.

• Stormwater charges for home unit owners will bereduced by $55 in July 2013 with further reductions averaging 9.5% in subsequent years.

• Stormwater charges for all other customers will bereduced by an average of 7.5% per year.

• TheClarenceTownSewerageLevy to help fund the town’s recently-commissioned sewerage scheme will be reduced by $43 per year from 1 July 2013.

• New water and sewerage service charges will beintroduced for small non-residential customers. this will cap water and sewer service charges for these customers.

• Tradewastechargewillgenerallyincreaseinlinewithinflation. Some charges for receival of tanker waste are being reduced.

the proposed water, sewer and stormwater drainage prices are shown in a table at the end of this brochure. these are the prices that Hunter Water is proposing for review by IpArt. You can provide comments to IpArt on these prices and any other aspect of Hunter Water’s submission up to 12 October 2012.

remember too, prices will not change until 1 July 2013 and the prices that IpArt ultimately sets may be different to those proposed in Hunter Water’s submission and outlined in the brochure.

4 Hunter Water Corporation price Submission Summary

Why are prices going up?

Hunter Water is very aware of the growing financial pressure on customers through increases in other utility prices. However, like all other businesses and households, HunterWater isnot immunetorisingcosts.Weexpectthe prices of electricity, chemicals and other inputs will rise by more than inflation and these costs need to be recovered by the prices for our services.

electricity is a major cost for Hunter Water. We have over 520 pumping stations throughout our water and sewerage pipe networks and operate 6 water treatment plants and 19 wastewater treatment works. the cost of electricity alone to operate all these facilities makes up 12% of our total operating costs.

We are constantly looking at ways to save costs and reduce pressure on prices. Our energy conservation measures over the last four years have saved around 7 gigawatt hours of electricity producing a cost saving of $4.6 million. Other initiatives are reducing the costs of large water main repairs, data and communication systems, and treatment plant maintenance.

What are the changes to price structures?

IPART is changing the way the fixed water and sewerservice charges are billed to owners of houses, home units and flats and small non-residential customers.

At present, water service charges vary with the size of the water meter. most houses have a 20mm meter and pay the same service charges. However, there is no standard water service charge for home units and flats that share a single meter serving their building. residents of units and flats pay a share of the price applying to that meter. this means that while a house now pays a water service charge of around $19 per year, a home unit or flat may pay as little as $5 to $7 per year. this imbalance has influenced IpArt’s decision to propose standard water service charges for all residential households, regardless of property type. IpArt introduced this charging arrangement for Sydney households in July this year.

As a result of this change, unit owners in blocks of units served by a common meter will pay higher water and sewer service charges than before. Owners of blocks of flats will also see similar higher service charges.

Stormwater charges will change for home units. We are proposing a new, lower, stormwater charge for units.

this is consistent with a new charging structure that IpArt introduced for Sydney Water’s customers in July this year.

An important change for non-residential customers is that water and sewer service charges for small business customers will now be thesame as those applying to houses. this will address the situation where some small businesses pay higher service charges than houses even though they use less of our water and sewerage services. these changes mean that non-residential customers with their own 20 mm meter will be charged:

• thesamewaterservicechargeasahouse,

• the same water usage charge as residentialcustomers,

• thesamesewerservicechargeasahouse,and

• asewerusagecharge.

Non-residential customers with meter sizes of 25 mm or larger will continue to pay water and sewer service charges linked to the size of their water meter.

5Hunter Water Corporation price Submission Summary

How will these proposed price changes affect my bill?

Hunter Water’s proposals will affect residential customers in different ways depending on how much water they use, whether they own a house or an apartment, where they live (Dungog residents), whether they are eligible for the pensioner concession and whether they are liable for drainage charges.

The typical bill for a house will increase on average by 40c a week.

the table below compares the current bill with proposed annual bills for a sample of different customers for each ofthenextfouryears.Thebillsshowninthetablearein2012-13 dollars and will be subject to annual adjustment for inflation using the CpI.

Non-residential customers will be affected in different ways depending on how much water they use, whether they are connected to the sewer and if so, the volume of wastewater they discharge to the sewer, the size of

their land if they pay drainage charges and trade waste charges.

most small business customers with a 20 mm water connection will benefit from IpArt’s proposal for these customers to pay the same water and sewer service charges as a house. these customers will see reductions inbillsofupto25%in2013-14.Theexceptionstothisare small customers that discharge very small volumes of wastewater to the sewer - that is, small business customers that currently have low sewer discharge factors. For these customers, the new sewer service charge may be higher that their current sewer service charge, which is adjusted by the discharge factor. As a result, bills for most small non-residential customers will be reduced by 29% by 2016-17 but a small number may see increases of up to 25 per cent over the same period.

most other non-residential customers will see bills increase by between 4% and 10% by 2016-17.

Customer Current

2012-13 2013-14 2014-15 2015-16 2016-17 Average Increase per week over next 4 years

House (185kL/yr)

Water & sewer only $995 $1,019 $1,039 $1,057 $1,078 40 cents

% Change for year 2.4% 2.0% 1.8% 1.9%

Water, sewer & drainage $1,081 $1,102 $1,114 $1,125 $1,138 27 cents

Change 1.9% 1.0% 1.0% 1.2%

Apartment (125 kL/yr)

Water & sewer only $665 $705 $733 $761 $790 60 cents

% Change for year 5.9% 4.0% 3.8% 3.9%

Water, sewer & drainage $752 $736 $761 $786 $812 29 cents

Change -2.1% 3.4% 3.3% 3.4%

Pensioner-owned house (140 kL/yr)

Water & sewer only $607 $623 $636 $648 $660 25 cents

% Change for year 2.6% 2.1% 1.8% 1.9%

Water, sewer & drainage $694 $707 $711 $715 $721 13 cents

Change 1.9% 0.6% 0.6% 0.7%

House in Dungog

Water & sewer only $1,045 $1,019 $1,039 $1,057 $1,078 16 cents

% Change for year -2.6% 2.0% 1.8% 1.9%

NOTE: The bills shown in the table are in 2012-13 dollars and will be subject to annual adjustment for inflation using the CPI.

6 Hunter Water Corporation price Submission Summary

How do these prices compare with those in other places?

It is difficult to compare these proposed bills with those of other water utilities because very few Australian utilities havepublishedpricesforthenextfouryearsatthistime.earlier this year, IpArt set prices for Sydney Water to 2015-16 and so a comparison is possible with annual bills for Sydney customers up to 2015-16.

While the table shows that, even though bills for houses in Sydney are declining, they remain higher than bills for houses in the Lower Hunter. bills for units in the Lower Hunter also remain well below bills for units in Sydney.

Whathappensnext?

Hunter Water’s price submission was lodged with IpArt on 14 September 2012 and is open for public comment until 12 October 2012.

IpArt will hold a formal public hearing on Hunter Water’s prices in Newcastle on tuesday 13 November. the location and times will be advertised in local newspapers and available from IpArt’s website www.ipart.com.au

IPARTexpects to releaseadraftpricedeterminationofprices to apply from 1 July 2013 in march 2013 with a further opportunity for public comment on the prices proposed in the draft determination. A final determination will be released in June 2013.

Property type 2012-13 2013-14 2014-15 2015-16

Sydney house using 185 kL $1,084 $1,076 $1,068 $1,060

Lower Hunter house using 185 kL $995 $1,019 $1,039 $1,057

Sydney unit using 125 kL $892 $906 $919 $932

Lower Hunter unit using 125 kL $665 $705 $733 $761

proposed charges

7Hunter Water Corporation price Submission Summary

Proposed charges ($2012-13)(a)

Water Charges

Charge unit 2012-13 (current)

2013-14 2014-15 2015-16 2016-17

Usage – all customers (b) Service charges residential

$/kL 2.08 2.12 2.17 2.21 2.26

House $/occupancy 18.92 16.69 16.69 16.69 16.69

House - Dungog $/occupancy 69.56 16.69 16.69 16.69 16.69

Units and flats $/occupancy Varies(c) 16.69 16.69 16.69 16.69

Service charges

Non-residential

Small business customers (20mm individual)

$/connection 18.92 16.69 16.69 16.69 16.69

Other (meters 25mm and greater) $/20 mm meter

equivalent (d)

18.92 18.39 18.41 18.45 18.32

Sewer charges

Usage

Non-residential $/kL 0.67 0.65 0.64 0.62 0.61

Service charges

residential

Houses $/occupancy 555.23 573.82 584.74 595.85 607.11

Units and flats $/occupancy 363.20 387.33 409.32 431.99 455.33

Service charges non-residential

Small business customers (20mm individual)

$/connection 1,110.46 (e)

573.82 584.74 595.85 607.11

Other (meters 25mm and greater) (e)

$/ 20 mm meter

equivalent (d)

1,110.46 1,137.04 1,175.11 1,222.94 1,263.75

environmental improvement charge $/occupancy 35.89 35.89 35.89 35.89 35.89

Stormwater drainage charges

residential properties

Houses $/occupancy 86.42 83.58 74.95 67.22 60.32

Strata title units $/occupancy 86.42 30.92 27.73 24.87 22.08

Non-residential properties

Small (<1,000m2) / low impact $/occupancy 86.42 83.58 74.95 67.22 60.32

medium (1,001 - 10,000m2) $/occupancy 156.20 151.06 135.48 121.50 109.03

Large (10,001 - 45,000m2) $/occupancy 993.59 960.89 861.74 772.83 693.53

VeryLarge(>45,000m2) $/occupancy 3,156.84 3,052.97 2,737.94 2,455.46 2,203.49

Notes: (a) the amounts shown in the table are in 2012-13 terms and will change in line with inflation in future years. (b)Differentusagechargesmayapplytosomelargeindustrialcustomersforwateruseinexcessof50,000kilolitresperyear. Full details are provided in the Chapter 8 of the submission. (c) the current charge for each unit or flat varies depending on the size of the meter and the number of units or flats served by the meter. (d) this is the charge for a 20 mm meter equivalent. Customers with larger meters will pay a multiple of this charge depending on the size of the water meter. Charges for larger meters can be calculated as the charge shown in the table multiplied by (meter size)2 / 400. (e) Charges shown are for a 100% discharge factor and actual charges for individual customers are adjusted by the discharge factor applying to each customer – eg a customer with an 85% discharge factor would pay 85% of the charge shown.