SA Water told by ESCOSA to cut more than $26 from bills
SA Water proposed it cut household bills by an average of $26 a year – but the state regulator says it must do much better, while reining in costs.
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Consumers should get a get a bigger cut to their bills than the $26 a year proposed by SA Water, the Essential Services Commission says.
It on Wednesday published its draft ruling on how much the utility can earn over four years from July 1.
The commission wants SA Water to cut its revenue by $711 million over the four years.
“There will be a very significant decrease in water prices,” Premier Steven Marshall said.
The commission said some of the spending proposed by SA Water was “neither justified nor consistent with customers’ clearly expressed main priority, which is that prices should be kept as low as possible while maintaining current levels of service”.
SA Water general manager customer delivery Kerry Rowlands said the utility would rework its proposal to deliver price cuts and better services.
“We’ve heard loud and clear that our customers want low and stable prices, with a real price reduction, and we need to make sure that outcome is achieved without impacting service levels or resulting in under investment that creates operational problems and a cost burden in a few years’ time,” she said.
The commission sets the maximum revenue SA Water can make in four-year blocks.
Once revenue is set, SA Water decides what prices consumers will pay, so in its draft ruling the commission did not specify the expected saving for the average household.
Commission chief executive Adam Wilson said it was difficult to discuss prices.
“But you’d expect there to be some reductions overall,” he said.
In its proposal, SA Water had offered a $26/year cut on the average residential bill for water and sewerage to $1232 in the metropolitan region and $23 to $1146 in regional areas.
This was based on total revenue of $4.3 billion.
The commission’s draft ruling reduces the revenue to $3.6 billion.
It wants an 18 per cent cut to water costs and 13 per cent to sewerage services.
The biggest reduction was because of the cheaper cost of borrowing money but the commission also found some water quality projects had not been fully justified and a zero carbon energy initiative should be funded commercially not through consumer bills.
Mr Wilson said metropolitan quality improvements were “a good idea” but should be rolled out over a longer period.
Ms Rowlands said the utility also wanted to provide potable water to towns such as Oodnadatta and improve supply to towns such as Naracoorte.
The draft comes ahead of a final ruling to be made in May following further consultation.
Treasurer Rob Lucas said the draft was a “first step in a longer and more detailed process” toward pricing from July 1 this year to June 30, 2024.
Separately, the Government is considering whether to reduce prices by devaluing the assets held by SA Water.
That decision, budget implications, whether there should be changes to the Community Service Obligation – under which the Government pays SA Water to provide water at the same price to regional areas and the city — and licensing fees also needed finalisation.
SA Water is expected to pay the Government $259 million this financial year, according to Budget papers.
Opposition Treasury spokesman Stephen Mullighan said a decision by Mr Lucas to increase the dividend paid by SA Water to Treasury raised doubts about the Government’s claim to be pursuing the lowest possible prices for consumers.
Mr Mullighan also questioned why the Government had allowed SA Water to submit an initial proposal to ESCOSA which the regulator had found to be inflated.
Last year, Mr Lucas commissioned an inquiry by former SA Water chairman Lew Owens into whether the assets had been overvalued in 2013 when the pricing system changed with ESCOSA empowered as the independent regulator of SA Water’s allowable revenue.
Mr Owens found the assets had been overvalued by about $520 million.
SA Water earns a return on the assets – called its regulated asset base.
Mr Owens estimated reducing the regulated asset base by $520 million would cut SA Water revenue by $31 million a year.
SA Water currently values its water assets at $8.8 billion, which would entitle it to claim $300 million to $350 million a year from consumers. It sewerage assets are valued at $4.3 billion, which would return $142 million to $164 million a year.
Business SA estimates water bills would drop by 5 to 6 per cent – or $60 to $70 – if the asset base is devalued.
Mr Lucas said the Government was still considering the “smorgasbord” of options presented by Mr Owens.
A decision would be made before the Budget in June, he said.