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RAB Irrigation Price Review
Sunwater will submit a proposal to QCA for consideration of a regulated asset base methodology for renewals recovery.
Responding to customer feedback
During November, Sunwater held online information sessions and provided updates at Customer Advisory Committee meetings. These sessions provided information on several key topics, including:
- the irrigation customer invoice calculator
- closing annuity balances and their relationship to opening RAB balances
- Sunwater’s capitalisation policy and why this is important under a RAB methodology
- forecasting and how actual overspend of renewal allowances are treated under both annuity and RAB approaches.
To address the feedback received to date from irrigators, we have compiled a list of answers to questions raised during these sessions.
We are also preparing supplementary information that will provide even more transparency about the price setting process. This will include building block revenue requirements, renewal expenditures and related weighted average asset lives. We’ll share this information with customers in early 2026.
Frequently asked questions
What is the capital amount of the annuity?
The annuity approach is based on both operating (opex) and capital expenditure (capex) for renewals. QCA did not previously consider our capitalisation policy relevant given the annuity method has been in use, but it is very focused on capitalisation treatments under a possible RAB approach. This is because the RAB approach throughout Australia is typically reserved for capital expenditure.
In the time available for this review, Sunwater has adopted a top-down approach that results in a high proportion of annual renewal expenditure being capitalised under the RAB approach. This is consistent with the intent of the annuity approach. It also minimises price fluctuations from large expenses that occur every two to 10 years, which we have historically treated as opex.
Sunwater is also revising its capitalisation polity and procedures to support bottom-up classification of expenditure as capex or opex from 1 July 2027.
How did Sunwater determine the opening annuity balance in the calculator?
We used the balance set by QCA, which is consistent with its January 2025 final position. This was required by the Direction Notice.
What weighted average cost of capital (WACC) will be used in setting prices?
For both approaches, Sunwater has modelled prices based on a nominal post-tax WACC of 6.66 per cent, as per the January 2025 QCA final position. This is discussed in detail in Section 6.2 of the QCA Final Report.
Sunwater has included a taxation allowance under the proposed RAB approach consistent with standard regulatory practice and QCA’s guidance. Our forecast tax allowance under the RAB method is very low — less than one per cent of the total revenue requirement. This is because current tax rules allow irrigation water providers like Sunwater to fully deduct new capital expenditure in the year it occurs.
Can you explain the closing RAB balance at the end of the 30-year forecast period, and the capital return and tax allowances over the forecast period?
Sunwater has added additional explanatory text in the customer invoice calculator to provide the forecast closing RAB balance in 2057-58.
How can Sunwater improve the accuracy of its 30-year renewal forecasts?
It is challenging to forecast renewal expenditure over a 30-year period, which is required to set annuity-based prices. This is one of the key reasons why Sunwater believes the RAB approach is better for customers.
To satisfy the requirements of the Direction Notice, Sunwater must calculate proposed prices under both approaches based on the final cost and other key input positions in the QCA final report (except for the removal of CASPr opex).
How would the RAB approach handle cost overruns during the price path?
QCA assesses the prudency and efficiency of forecast renewal expenditure and then reassesses actual expenditure against the same criteria. This approach applies regardless of whether a RAB or annuity approach is adopted. As a result of this assessment, QCA may allow Sunwater to recover an overspend of renewal expenditure allowances, if it deems it was prudent and efficient spend.
Under RAB, how would Sunwater show how actual renewal expenditures compare to QCA allowances?
Sunwater will continue to share actual renewal expenditure against QCA allowances regardless of the approach adopted by the Queensland Government. We share this information through our annual Service and Performance Plans.
Does the customer invoice calculator show the total bill (not just capital side) and the CPI assumption?
Our customer invoice calculator shows the total bill under both approaches.
Under the terms of the Direction Notice, Sunwater must adopt QCA’s Final Report position on CPI and WACC. For WACC this is a post-tax nominal rate of 6.66 per cent. The CPI rate is consistent with Table 30 of QCA’s Final Report that is trending to 2.5 per cent early in the next price path period.
What are the relative merits of the annuity and RAB approach?
Sunwater outlined its position on the relative merits of the annuity and RAB approaches in the information provided to customers during the 2025-29 irrigation pricing review.
Watch this video (or read the transcript) to learn more about the differences between the annuity and RAB approach.