Actew's $200m water slide

Peter Jean, Lisa Cox April 03, 2012

Canberra residents could be hit with ''dramatic'' water price hikes after Actew revealed it is facing a $200 million revenue shortfall due to the climactic extremes of a drought followed by floods.

The government-owned corporation has also reported it intends to pay off blowouts in the cost of enlarging the Cotter Dam over the next century.

In a submission to the Independent Competition and Regulatory Commission, Actew said it would fall well short of water revenue targets set by the Commission in 2008 for the five-year period up to 2013.

Actew managing director Mark Sullivan said deviations of 3 per cent above or below the revenue forecast had to be made up.

Actew had previously warned the commission that water prices should be set annually to avoid price shocks instead of relying on long-term water use forecasts.

''In this instance there is a greater than 3 per cent under-collection of revenue which could have a dramatic impact on water prices, but Actew has yet to determine whether we will seek to recover this, and if we do it would still need to be approved by the ICRC,'' he said

''This issue really shows how ineffective the previous method of forecasting water use for such a long period [five years] has been.''

The dramatic fall in revenues comes on top of repeated blowouts in the cost of enlarging the Cotter Dam.

The bill for the project hit $397 million before the March floods, $11 million of which will be offset by savings from other projects.

But Actew said in its submission to the ICRC, that the cost rise would only have a small impact on price rises in the near future.

''Despite receiving significantly more attention than the under-recovery of revenue, Actew notes that unforeseen cost increases in relation to the Enlarged Cotter Dam will have a relatively small impact on prices in the next regulatory period, if ACTEW seeks full recovery of costs, as it will do over the next century as part of the asset base,'' the submission said.

In a discussion paper, the ICRC said the under-recovery of revenues could be factored into future prices in a number of ways.

''These include as a one-off price increase during 2013-14 or as an increase that is smoothed across each year of the forthcoming price direction period,'' the commission said.

''Alternatively, the revenue shortfall could be 'capitalised' and thereby included in the asset base with recovery taking place over the longer term.''

ACT Treasurer Andrew Barr said the government had made a submission to the independent regulator asking it to ensure the impact of the revenue shortfall on consumers was limited.

Mr Barr said the effects of the shortfall and increased costs of building the Enlarged Cotter Dam could be dealt with by spreading the costs over the full five years of the next regulatory period for water prices or over the life of the infrastructure.

''These are the most appropriate and equitable ways to ensure all ACT households, especially those on lower incomes, can adjust to rising prices,'' he said.

''In addition, the government considers that a more flexible pricing regime, which would allow the ICRC to review and modify the price during the five-year period, could benefit consumers.''

Opposition Leader Zed Seselja said last night that Canberra residents were facing more punishment for conserving water.

''The sort of thing we should be doing is now taking a closer look at Actew's cost structures, because maybe there needs to be a little more transparency in relation to how they're spending their money,'' Mr Seselja said.

''It's very difficult for Canberrans to swallow that because they've used less water they will once again be charged more,'' he said.

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