MY ACCOUNT
STORAGE LEVELS
WATER DATA
ANNOUNCED ALLOCATIONS
Published on YouTube 29 January 2026 (Duration: 03:39)
[music plays]
[drone footage of Marian Weir]
Narrator: The income Sunwater earns through customer prices provides us with the funds we need to deliver water safely and efficiently. But how do we determine what those prices should be?
[graphic showing cost components that contribute to setting customer prices]
Like many utilities in Australia, we use a building block model to calculate customer prices.
Each component of our costs – what we incur to operate, maintain and renew our assets – is converted into a revenue building block, which is recovered through customer prices.
[infographic showing how operating expenditure becomes the opex building block, and renewals costs become the renewals building block]
Like many utilities in Australia, we use what is called a building block model to calculate customer prices.
Each component of our costs – what we incur to operate, maintain and renew our assets – is converted into a revenue building block, which is recovered through customer prices.
Our operating costs don’t change much from year to year. So we can convert them from operating expenditure into an opex building block on a one-to-one basis. If we spend a dollar, we add a dollar to the opex building block.
Because renewals costs vary from year to year, we need to smooth them out before we convert them to a revenue building block. This is so customer prices don’t vary dramatically from year to year. We can do this through either an annuity or a RAB method.
[infographic showing how the renewals building block is calculated under both the annuity and RAB methods]
We calculate the annuity contribution building block by estimating what renewals work might need to be done over the coming 30 years and how much that might cost. We then determine how much customers would need to pay each year over that 30-year period to cover the forecast cost.
With the RAB method, the annuity contribution building block is replaced by a building block for interest (or return on capital) and a building block for principal (or return of capital, sometimes called depreciation).
Importantly though, these building blocks are based on what has already been spent on renewals plus a small four-year forecast period.
Regardless of which method we use, smoothing also creates the potential of a tax obligation. This becomes a tax allowance building block, which is usually a zero amount, or a very small amount.
[infographic showing how building blocks become customer prices, and the split of prices between fixed and variable components]
We then convert these building blocks into prices, beginning with deciding how to structure the charges.
Our customers pay a fixed charge based on the water allocations they hold, and whether these are high or low priority, as well as a variable charge based on the water they use each year.
[infographic showing how costs are assigned to either variable or fixed charges]
To calculate prices, we need to assign revenue from the building blocks to each of these charges.
First, we assign some opex costs to the variable charge bucket, and then all the rest of the costs go into the fixed charges bucket, where we split them into either high or medium priority.
[infographic showing how costs are divided by water volumes to determine the prices per megalitre]
Finally, we divide the costs in each bucket by the relevant volumes to determine the price per megalitre. For example, we would divide the high priority fixed costs by the high priority water allocation to determine the dollar per megalitre price.
Further adjustments are made to smooth out prices year on year, as required by the terms of the pricing direction notice from Government.
[Sunwater logo appears with link to more information at bit.ly/RAB_cost_price_calculator]
You can see the process in action by checking out the cost to price tool available on our website.
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