Industry Panel
MS MARY ANNE HARTLEY Q.C.
MS SALLY FARRIER
MS CLAIRE THOMAS PSM
Mr J Knox
Managing Director
ACTEW Corporation Ltd
GPO Box 366
CANBERRA CITY ACT 2601
Dear Mr Knox
Engagement of Cardno and further information request
As foreshadowed at the directions hearing, the Industry Panel is cognisant of the need to ensure it has access to the relevant information and analysis required to make its decision about the price direction for regulated water and sewerage services in the ACT.
In that context, I am writing to inform you that the Panel is engaging Cardno (Qld) Pty Ltd (Cardno) to assist it with various aspects of its review of the Independent Competition and Regulatory Commission (ICRC)’s price direction for regulated water and sewerage services from July 2013 to June 2019.
I enclose the full terms of reference for the tasks assigned to Cardno, which cover:
· operating and capital expenditure forecasts for 2013-14 to 2017-18;
· water sales forecasts for 2013-14 to 2017-18; and
· the regulatory treatment of the water security projects.
While this letter includes a preliminary information request from Cardno, it is likely that Cardno will want to engage directly with ACTEW as it undertakes it assignment, which will present an opportunity to discuss and refine the scope of the data that Cardno requires. Given the tight timeframes involved, I would appreciate ACTEW’s cooperation with Cardno’s team, which is being led by Mr Stephen Walker.
In addition to Cardno’s preliminary information request, I am also attaching a further information request from the Panel’s technical advisers, arising from their continuing detailed analysis of ACTEW’s Statement of Facts and Contentions and supporting material. These requests cover:
· issues that are relevant to the Panel’s consideration of depreciation; and
· clarification of differences between the models ACTEW has provided as attachments to its Statement of Facts and Contentions, and the model which used by the ICRC in reaching its final decision.
Industry Panel
______
GPO Box 158, Canberra ACT 2601
Phone: (02) 6207 6128 Fax: (02) 6207 0267 Email:
Website: http://apps.treasury.act.gov.au/industrypanel
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I appreciate that compiling this information requires resources and imposes costs on ACTEW. The Panel is mindful of the principles of proportionality and materiality, and is balancing these with the importance of ensuring our decisions are appropriately informed.
To facilitate the Panel’s timely analysis and preparation of its draft report, the Panel would prefer that the above information be provided as soon as it becomes available. To help ACTEW prioritise the requests set out above, the Panel’s preference is to have the information required by Cardno supplied first (part A of the attachment), followed by the responses to the depreciation questions (part B), and the reconciliation of models (part C).
All information may be sent to the Panel via its secretariat, which can be contacted via email at or by telephone on (02) 6207 6128.
Yours sincerely
Mary Anne Hartley QC
President of the Industry Panel
25 August 2014
Encl. Cardno’s terms of reference
Attachment. Information request
Industry Panel
______
GPO Box 158, Canberra ACT 2601
Phone: (02) 6207 6128 Fax: (02) 6207 0267 Email:
Website: http://apps.treasury.act.gov.au/industrypanel
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Attachment
INFORMATION REQUEST
PART A: Preliminary information required by Cardno
(Note: This information request below is indicative and may be discussed and refined by ACTEW in discussions with Cardno.)
1. To enable Cardno to review the demand projections, it is requesting all water billing records from 2001-2014 in a database format.The specific information Cardno is seeking includes:
i. a customer or property ID no.;
ii. the property type;
iii. where relevant, the number of units or flats associated with a specific meter;
iv. the period over which consumption has been measured; and
v. consumption in this period.
Note that no customer specific information is required (i.e. no information on customer names, address or billed amounts is required).
2. A description of the methodology used by ACTEW to calculate the yield for each water source and the current yield estimate.
3. Operating log sheets for all water treatment plants and dams for the last five years.
PART B: Information about depreciation
ACTEW has proposed that the asset lives for new and existing water and sewerage assets be based on the estimates contained in Attachment 17.10 of its April 2013 submission to the ICRC. Based on the Panel’s preliminary review of this attachment, there appear to be some inconsistencies between the values ACTEW has used to derive the remaining and standard asset lives and the information contained in its regulatory proposal.[1]
The Panel therefore requests ACTEW provide the following information so that it can properly assess its view on the asset lives that should be adopted..
4. Forecast capital expenditure
Please provide:
i. a project based breakdown of ACTEW’s proposed capital expenditure for water ($169.78million) and sewerage assets ($313.8million) for the 2013-14 to 2017-18 period;
ii. information on the expected economic life of each project and the basis on which this economic life has been determined (e.g. ATO effective life assumption, engineering assessment, life assumed by other regulated entities, etc); and
iii. the financial year in which the projects are expected to be commissioned.
Ideally, this information would be presented at the same level of disaggregation as that set out in the Gen CAPEX program tab in Attachment 17.10 with an additional column setting out the financial year in which the asset is to be commissioned. We would also expect the forecast expenditure in this tab to line up with ACTEW’s capital expenditure proposal.
Please also provide a list of the assumptions that have been made about the economic lives of particular asset classes (e.g. water asset classes: dams and weirs, water treatment plants, water mains, valves, flow meters, etc; and Sewerage asset classes: Sewer mains, sewerage treatment plants, sewerage pump stations, meters, etc).
5. Enlarged Cotter Dam (ECD) and Murrumbidgee to Googong Pipeline (M2G) projects
Please provide:
i. a breakdown of ACTEW’s actual expenditure on the ECD and M2G projects in the 2008-2013 regulatory period into asset classes (e.g. dams and weirs, dam or weir intake structures, valves, flow meters and pressure sensors/transmitters and meters); and
ii. information on the remaining economic life of each asset class as at 1July 2013.
Ideally, this information would be presented at the same level of disaggregation as that set out in rows 102-117 of the CIP – Jan’12 tab in Attachment 17.10. The reported expenditure on these two projects should also line up with expenditure approved by the ICRC in the Final Decision, which has been rolled into the regulated asset base.
6. Other water and sewerage assets in existence as at 1 July 2013
Please provide an estimate of the remaining economic lives of all the other water and sewerage assets in existence as at 1 July 2013, excluding the ECD and M2G projects.
While ideally this would be broken down into asset classes for both water and sewerage, we understand that ACTEW is unlikely to be in a position to provide this level of information in the time available, so as an alternative, please use the net book value approach employed in the Output 1 and Summary tabs of Attachment 17.10.
(Note the information in the Output 1 tab should be updated to reflect the assets in existence as at 1 July 2013 rather than 1 May 2012.)
7. Land and easements as at 1 July 2013
Please provide an estimate of the value of land and easements included in the regulated asset base as at 1 July 2013 with a description of the basis of the valuation.
PART C: Reconciling differences between ACTEW’s models and the ICRC’s final decision
8. The Panel has identified a number of prima facie differences between the values in the models accompanying ACTEW’s Statement of Facts and Contentions, and those adopted in the ICRC’s final decision model. In some cases, the differences cannot be directly attributed to the claims set out in the Statement of Facts of Contentions. An example is the opening value of the water and sewerage Regulatory Asset Base contained in ACTEW’s roll forward model (Attachment A3), which are, respectively, $30.5million and $4.7million lower than the opening values adopted by the ICRC in its final decision.
The Panel would like to give ACTEW an opportunity to review its models and to:
· identify any differences between the values used in its model and those adopted in the ICRC’s final decision pricing model; and
· in those cases where the difference cannot be directly attributed to the claims set out in the Statement of Facts and Contentions, clearly explain why there is a difference.
Where explanations are not provided, the Panel intends to revert back to the ICRC’s final decision, subject to any submission ACTEW makes on this issue.
Industry Panel
______
GPO Box 158, Canberra ACT 2601
Phone: (02) 6207 6128 Fax: (02) 6207 0267 Email:
Website: http://apps.treasury.act.gov.au/industrypanel
[1] For example:
§ the forecast expenditure in the Gen CAPEX program tab does not line up with ACTEW’s current capital expenditure proposal; and
§ the expenditure on the ECD and M2G projects in the CIP-Jan 12 tab do not line up with the actual expenditure that the ICRC approved in its final decision for these two projects.