Irrigation Price Path

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Irrigation Price Path
Irrigation Price Path – Glossary

Sunwater is developing a proposal to submit to the Queensland Competition Authority (QCA) in late 2023. This will inform irrigation prices for the period 1 July 2025 to 30 June 2029.

Glossary

Annuity contribution/allowance (also see renewal funding below)	A revenue allowance to recover renewals expenditure across a 30-year period (in net present value terms) as a constant annual amount. Requires a 30-year forecast of renewals expenditure.
Building blocks/Building blocks method	A method of determining the revenue a regulated business can earn for the services it provides. The “building blocks” currently used to calculate the revenue we should earn are reflective of the recovery of lower-bound costs and comprise operating expenditure (opex) and an annuity allowance (less any revenue offsets). It does not include any allowance for the cost of building the original scheme capital infrastructure (these allowances would be included in an upper bound context).
Capex	Shorthand term for capital expenditure which is all expenses incurred by a business in acquiring or maintaining fixed assets, such as land, buildings, and equipment.
Community Service Obligation (CSO)	A Queensland Government payment to cover the shortfall that arises when customer prices are set below the level required to recover lower-bound costs.
Cost pass through	An economic concept that allows less certain costs to be passed through to customers as they occur, rather than through prices based on a forecast. This ensures customers only pay for actual costs incurred.
Consumer Price Index (CPI)	The Consumer Price Index (CPI) is a measure of inflation. Various measures of CPI are used during a pricing review, generally for the purpose of ensuring a business is compensated for uncontrollable economy-wide changes to the price of cost inputs over time.
Depreciation	In regulatory terms, depreciation is the allowance a business receives from its customers (via prices) to pay off the principal component of its original capital investment. Typically calculated as the value of the original investment divided by the life of the asset.
Electricity cost pass through trial/mechanism	A three-year trial to evaluate the merits of applying a cost pass-through mechanism to electricity costs. A permanent mechanism would ensure that customers only ever pay for actual electricity costs.
Fixed price/charge (Part A/Part C)	A price charged to a customer based on the amount of Water Access Entitlement (WAE) held. Set at a level intended to recover the fixed costs associated with operating, maintaining, administering and renewing the bulk water supply scheme (Part A charges) or distribution system (Part C charges).
Headworks Utilisation Factor (HUF)	The HUF is a cost allocation tool, used to allocate some fixed costs between different water priority levels. Sunwater’s pricing approach seeks to follow economically efficient, user-pays pricing principles. As high priority entitlements receive a higher level of reliability (standard of service), it is appropriate that they incur a greater percentage of fixed costs. Water sharing rules (generally) provide a high priority water entitlement with superior access to the volume specified. The HUF is a way of quantifying this superior access.
IGEM (Inspector-General Emergency Management)	The IGEM is responsible for leading continuous improvement in emergency management including reviews and audits of emergency management activities in Queensland Government departments and utilities to enhance emergency management in Queensland. This is effectively an emergency management regulatory role.
Opex	Shorthand term for operating expenditure which is all expenses required to run a business’ operational activities. Opex is recovered from customer prices dollar for dollar in the year expended, compared with capex which is recovered over the life of the asset.
Queensland Competition Authority (QCA)	The economic regulator in Queensland tasked with ensuring monopoly businesses do not abuse their market power. They do this through price setting or monitoring roles across naturally monopolistic industries like water, rail, energy and ports, ensuring prices are competitive and access is fair.
QCA guidance	The formal guidance issued by the QCA that sets the parameters and expectations for a price submission.
Referral Notice (Referral)	The authority issued to the QCA by the Queensland Treasurer under sections 23 and 24 of the Queensland Competition Authority Act 1997 to investigate irrigation pricing practices.
Regulated asset base (RAB)	The current value of the regulated assets plus capital works planned for the price path period, with each capital works project depreciated according to its asset type and project life.
Regulatory period/price path period	The period of time that a regulator, like the QCA, makes a revenue and pricing recommendation for a regulated business. The irrigation price path regulatory period being considered is 1 July 2025 to 30 June 2029.
Renewal costs	Costs associated with extending the life of long-term assets – can include preventative maintenance and/or the building of new assets.
Renewal funding methodology/renewal cost recovery	The method to calculate the way renewal costs are recovered from customers. Sunwater currently applies an annuity methodology.
Service and performance plan (S&PP)	Each year, Sunwater prepares a service and performance plan for each irrigation service contract area. These plans detail a range of actual and forecast costs and activities. Performance against the QCA’s recommendations is detailed in annual performance reports for each irrigation service contract area.
Tariffs	Prices assigned to water services provided by a public utility.
Price targets (or target prices)	Prices designed to achieve the lower-bound revenue recovery. Sunwater will propose price targets for each tariff group in its price submission.
Variable price/charge (Part B/Part D)	A price per megalitre of annual usage, intended to recover the variable costs associated with the actual delivery (usage) of water from a bulk water supply scheme (Part B charges) or distribution system (Part D charges).
Weighted average cost of capital (WACC)	A method of determining the rate of return a business should earn on its investments. The WACC is the method that regulators typically use to determine what a reasonable rate of return is. The rate of return is a critical input into to the annuity building block.
WAE (water access entitlements)	Water access entitlements are rights to an ongoing share of the total amount of water available in a system whereas water allocations are the actual amount of water available under water access entitlements in a given season. Water access entitlements can have different priorities and these are considered in the way Sunwater prices its irrigation services. For example, high priority entitlements pay a greater portion of the renewals annuity than medium priority in recognition of the fact that 1ML of high priority entitlement consumes a greater proportion of storage capacity (and hence capital costs) than 1ML of medium priority because it is available more often. Medium priority entitlements are the first to be placed on restrictions in dryer periods.