Addendum to Western Water s Corporate Plan 2016

Transcription

1 Addendum to Western Water s Corporate Plan 2016 Western Water s Corporate Plan 2016 was issued to the Department of Environment, Land, Water and Planning (DELWP) in April Following finalisation of the Melbourne Water Corporation Price Determination that takes effect from 1 July 2016, Western Water has revised its proposed 2016/17 tariffs to pass on savings to customers arising from lower Melbourne Water charges. This Addendum presents the revised sections of the Western Water Corporate Plan Page numbers within the Addendum reflect their original numbering within the Corporate Plan.

2 Financial analysis Western Water s Corporate Plan has been prepared after reviewing major assumptions including revised growth forecasts and the associated revenue and infrastructure expenditure impacts. The Corporate Plan continues to deliver the $100 per annum Government Water Rebate to residential customers until the end of the current regulatory period and assumes that continued operating efficiency savings will contribute to lower customer tariffs in the next Price Determination period. Revenue New Customer Contributions (NCC) revenue forecasts have been reviewed in line with revised growth forecasts and analysis of current trends in developer activity. In particular, consideration has been given to gifted asset contributions due to growth in Greenfield development as compared to infill development. Operating revenue forecasts reflect revised growth forecasts and price increases established under the Price Determination. For the 2018/19, 2019/20 and 2020/21 years, a price increase has been assumed that reflects continued operating efficiencies, a revised forecast of customer growth, and a return on the increasing capital expenditure. Expenses While local water sources will continue to be optimised, the assumed return to dry climate scenario requires the business to rely on transfers from the Melbourne system to meet customer demand. Charges associated with supply from the Melbourne system are under review with the financial forecasts reflecting the Melbourne Water Corporation Draft Determination released by the Essential Services Commission. Expenditure forecasts reflect a continued focus on delivering operating cost efficiencies to meet the $100 customer rebate while ensuring achievement of customer and community service levels. In line with the negotiated Enterprise Agreement, a 2.5% increase in employee expenses has been factored in assumed until December 2017, with 3.0% assumed beyond that period. Interest Borrowing costs reflect interest expense associated with existing fixed rate loans and forecast loan maturities refinanced at indicative forward fixed rates for loans with an average maturity of 6 years. Future new loan financing has also been forecast at current indicative forward fixed rates and an assumed financial accommodation levy of 1.9% (1.56% for 2015/16). Table 7: Variance from previous Corporate Plans FY17 to FY20 FY17 FY18 FY19 FY20 Growth forecast Corporate Plan FY15 3.5% 4.0% 4.2% - Corporate Plan FY16 3.0% 3.5% 3.7% 3.9% Corporate Plan FY17 3.8% 4.6% 4.1% 4.0% Operating income (excl NCC) ($ 000) Corporate Plan FY15 75,773 82,613 97,057 - Corporate Plan FY16 73,528 77,928 81,851 89,151 Corporate Plan FY17 65,904 72,313 93,217 99,022 Variance FY17 to FY16 (7,624) (5,615) 11,366 9,871 Variance % (10.4%) (7.2%) 13.9% 11.1% NCC income (cash and gifted assets) ($ 000) Corporate Plan FY15 19,723 26,121 29,969 - Corporate Plan FY16 12,058 14,503 16,584 18,313 Corporate Plan FY17 26,767 34,333 33,080 34,464 Variance FY17 to FY16 14,709 19,830 16,496 16,151 Variance % 122.0% 136.7% 99.5% 88.2% Bulk water purchases ($ 000) Corporate Plan FY15 14,888 19,132 20,869 - Corporate Plan FY16 11,869 12,805 10,805 11,264 Corporate Plan FY17 10,245 10,584 10,705 11,094 Variance FY17 to FY16 (1,624) (2,221) (100) (170) Variance % (13.7%) (17.3%) (0.9%) (1.5%) Bulk water demand (ML) Corporate Plan FY15 5,000 6,500 8,000 - Corporate Plan FY16 6,900 9,000 9,300 9,800 Corporate Plan FY17 10,500 10,300 9,400 9,700 Variance FY17 to FY16 3,600 1, Variance % 52.2% 14.4% 1.1% -1.0% Depreciation/amortisation ($ 000) Corporate Plan FY15 19,118 20,198 21,371 - Corporate Plan FY16 20,713 21,945 23,346 24,836 Corporate Plan FY17 19,484 21,533 23,923 26,352 Variance FY17 to FY16-1, ,516 Variance % -5.9% -1.9% 2.5% 6.1% CAPEX ($ 000) Corporate Plan FY15 64,750 62,950 83,641 - Corporate Plan FY16 66,435 63,296 79,826 77,709 Corporate Plan FY17 79,573 82,969 91,538 80,697 Variance FY17 to FY16 13,138 19,673 11,712 2,988 Variance % 19.8% 31.1% 14.7% 3.8% Debt ($ 000) Corporate Plan FY15 256, , ,000 - Corporate Plan FY16 247, , , ,000 Corporate Plan FY17 238, , , ,100 Variance FY17 to FY16 (8,800) 14,800 16,600 11,100 Variance % (3.6%) 5.0% 4.6% 2.7% 36 Western Water Corporate Plan 2016

3 Tariffs and charges Western Water s Schedule of Tariffs is included in Appendix 1. The schedule is in accordance with the ESC Final Determination and incorporates CPI increases in addition to the Price Path Multiplier (PPM) identified per year plus/ minus a desalination factor. A further to reflect the lower electricity expenditure post the abolition of the carbon tax effective from 2014/15 is also included, as well as an to reflect changes in bulk water prices following Melbourne Water s price submission. For example: Residential water tariff (20mm) for 2016/17 would be calculated as follows: $ x CPI x PPM x Desal Adj - Bulk Water Adj - Carbon Adj or $ x ( %) x ( %) x ( %) - $55 - $1 = $ The rising block tariffs structure was introduced on 1 November The tariffs included in this Corporate Plan through to the end of 2017/18 are in accordance with the ESC Final Determination (cap) and with consideration of the Government Water Rebate (GWR) initiative. A smoothed price path was applied from 2013/14 consisting of water services and water usage at CPI+3.3% and CPI+1.30% for sewerage services. The known impacts of the desalination (D factor) have been incorporated into water service and usage tariffs from 2014/15 onwards. No further s will be made after 2016/17 due to removal from the desalination pool. The financial statements have been prepared showing the $100 rebate credited to residential water usage customers each year until 2017/18, with prices beyond the current regulatory period being absorbed into the tariff process. For the years 2016/17 and 2017/18, a Bulk Water Adjustment has been applied to pass onto customers reductions in Melbourne Water Charges. For the years beyond 2017/18, the tariffs assume a price path that reflects maintenance of current operating efficiencies, revised forecast customer growth and increases in the regulated asset base as a result of capital expenditure in this Water Plan period. Customer impact snapshot Western Water has undertaken detailed analysis of the impact of the price increase on customers using 150kl, 200kl and 250kl per annum. The resulting tables are included in Appendix 2. New customer contributions (NCC) NCCs are proposed at $4, per lot for Greenfield (inclusive of water, sewer and potentially recycled water) and $2, for infill lots, regardless of the number of services provided. NCCs are assumed to continue to increase by CPI each year. Restriction levels The Corporate Plan 2016 assumes that all serviced areas remain on Permanent Water Saving Rules (PWSR) for the five year period. This restriction level is expected to be in line with metropolitan Melbourne predictions. Table 11 shows anticipated reductions in demand for each stage of restriction compared to a totally unrestricted approach to water availability. Table 11: Reduction in demand (est.) for each water restriction stage Restriction stage Estimated reduction in demand PWSR 2.9% Stage 1 2.9% Stage 2 8.0% Stage % Stage 3a 15.0% Stage % 39

4 Financial models Operating statement Table 12: Operating statement ($ 000) FY16 Plan FY16 Forecast FY17 Plan FY18 Plan FY19 Plan FY20 Plan FY21 Plan Operating revenue Water income 16,504 16,430 14,530 16,684 20,050 21,324 22,667 Sewerage income 31,800 31,898 30,226 32,764 39,258 41,803 44,486 Recycled water income 1,392 1,542 1,467 1,835 2,350 2,761 3,192 Water usage income 23,979 25,203 23,498 24,913 29,393 30,870 32,380 Government Water Rebate (5,567) (5,559) (5,730) (5,926) Melbourne Water GWR Efficiency Rebate 2,484 2, Interest income Government contributions/ grants Other income 2,019 2,124 1,848 1,953 2,065 2,184 2,310 72,722 74,537 65,904 72,313 93,217 99, ,103 New customer contributions (NCC) NCC - cash 4,919 7,351 8,602 10,937 10,578 11,026 11,549 NCC - assets 6,650 17,539 18,166 23,396 22,502 23,438 24,514 11,569 24,890 26,767 34,333 33,080 34,464 36,063 TOTAL REVENUE 84,291 99,427 92, , , , ,166 Direct expenses Depreciation/amortisation 18,663 18,663 19,484 21,533 23,923 26,352 29,528 Bulk water purchases 9,228 13,513 10,245 10,584 10,705 11,094 11,470 Contractors & consultants 6,012 6,325 7,898 7,617 8,259 8,770 9,437 Electricity 3,203 3,203 2,876 3,001 3,076 3,225 3,384 Other 4,774 4,534 3,612 3,940 4,172 4,472 4,645 Admin expenses Employee expenses 14,870 14,670 16,768 17,187 17,616 18,057 18,508 Printing, postage & phone Other 4,427 4,313 4,377 4,591 4,786 4,971 5,149 Profit/loss on sale of fixed assets Borrowing costs Interest 11,936 11,760 12,505 15,425 18,652 21,956 25,123 Environmental contribution Environmental contribution 2,410 2,410 2,410 2,410 3,896 3,896 3,896 TOTAL EXPENDITURE 76,420 80,329 81,245 87,408 96, , ,362 Profit/(loss) before income tax 7,870 19,099 11,426 19,237 30,060 29,505 28,804 Income tax expense 2,361 5,730 3,428 5,771 9,018 8,852 8,641 Dividend Retained earnings for the year 5,509 13,369 7,998 13,466 21,041 20,654 20, Western Water Corporate Plan 2016

5 Balance sheet Table 13: Balance sheet ($ 000) Current assets FY16 Plan FY16 Forecast FY17 Plan FY18 Plan FY19 Plan FY20 Plan FY21 Plan Cash 12,425 9,063 3,303 6,874 6,953 3,380 4,879 Receivables 10,841 10,841 9,793 10,573 12,839 13,612 14,414 Prepayments Other financial assets Total current assets 23,930 20,568 13,769 18,136 20,499 17,716 20,037 Non-current assets Trade and other receivables Infrastructure 742, , ,909 1,005,474 1,115,459 1,215,405 1,353,696 Accumulated depreciation (14,030) (85,267) (102,980) (122,265) (143,537) (166,685) (192,562) Property, plant & equipment 44,592 44,592 43,368 42,669 42,245 41,847 41,452 Intangible assets 10,016 12,639 14,226 16,835 18,003 18,709 19,114 Deferred tax assets 4,337 1, Total non-current assets 787, , , ,721 1,033,163 1,110,244 1,222,640 TOTAL ASSETS 811, , , ,857 1,053,662 1,127,960 1,242,676 Current liabilities Trade & other payables 14,070 13,925 19,996 21,197 23,329 23,032 24,389 Income in advance 1,843 1,843 2,004 2,191 2,618 2,782 2,953 Provisions 2,768 2,768 3,316 3,399 3,484 3,571 3,660 Interest bearing liabilities 10, Income tax payable - 3, ,421 2, Total current liabilities 28,681 21,723 26,143 29,208 32,353 29,773 31,320 Non-current liabilities Provisions Interest bearing liabilities 191, , , , , , ,900 Deferred tax liabilities 99,321 99, , , , , ,725 Total non-current liabilities 290, , , , , , ,290 TOTAL LIABILITIES 319, , , , , , ,610 NET ASSETS 492, , , , , , ,066 Equity Contributed capital 160, , , , , , ,413 Reserves 142, , , , , , ,436 Accumulated surplus 189, , , , , , ,217 Total equity 492, , , , , , ,066 41

6 Cashflow statement Table 14: Cashflow statement ($ 000) FY16 Plan FY16 Forecast FY17 Plan FY18 Plan FY19 Plan FY20 Plan FY21 Plan Cashflows from operating activities Receipts Tariffs received 67,910 69,422 64,124 69,744 89,284 96, ,174 MW Efficiency Rebate 2,484 2, Interest received Receipts from developers 4,919 7,352 9,941 11,040 10,839 10,696 11,661 Other receipts (incl GST on taxable supplies) 2,122 2,122 3,083 2,054 2,171 2,294 2,426 Melbourne Waterways Charge 4,769 4,769 5,017 5,378 5,740 6,122 6,524 Receipts from Government GST received from the ATO 6,747 5,408 10,503 10,891 11,955 10,803 11,324 89,062 91,874 92,733 99, , , ,178 Payments Payments for employees (14,596) (14,396) (16,120) (17,075) (17,502) (17,939) (18,388) Payments to suppliers (incl GST paid on operating & investing activities) (37,564) (36,616) (43,107) (43,798) (47,437) (47,948) (50,045) Interest payments (11,644) (11,468) (12,164) (14,759) (17,854) (21,247) (24,441) Income tax - (194) (4,655) (2,766) (6,698) (9,652) (7,245) Melbourne Waterways Charge (4,801) (4,801) (5,051) (5,415) (5,779) (6,163) (6,568) GST paid to the ATO (incl GST collected on asset disposals) (103) (136) (124) (132) (139) (146) (153) (68,708) (67,611) (81,221) (83,945) (95,409) (103,095) (106,840) Net cash flows from operating activities 20,354 24,262 11,512 15,252 24,681 23,126 27,338 Cashflows from investing activities Payments for infrastructure and PPE (49,326) (33,646) (71,517) (77,824) (86,991) (77,709) (80,013) Payments for intangible assets (3,176) (2,295) (3,359) (4,856) (3,819) (3,910) (4,055) Proceeds on disposal of assets Net cashflows from investing activities (52,082) (35,521) (74,471) (82,282) (90,401) (81,200) (83,639) Cashflows from financing activities Loan proceeds 35,000 15,000 67,200 87, ,900 64,500 75,300 Loan repayments of principal (15,000) (15,000) (10,000) (16,500) (42,100) (10,000) (17,500) Capital contribution Payment of dividends Net cashflows from financing activities 20,000-57,201 70,600 65,800 54,500 57,800 Net cash increase/(decrease) (11,728) (11,258) (5,760) 3, (3,574) 1,499 Opening cash held 20,978 20,321 9,063 3,303 6,874 6,954 3,380 Closing cash position 9,250 9,063 3,303 6,874 6,954 3,380 4, Western Water Corporate Plan 2016

7 Appendices Appendix 1: Schedule of tariffs Variable water, trade waste charges and dumping of effluent are rounded down to four decimal places. All other charges are rounded down to two decimal places. Tariffs are calculated assuming CPI of 1.31%. Tariff and price component Price ($) without desal (1 July 2015) Price Path Multiplier (Year 4) Bulk water Carbon Price ($) (1 July 2016) 1.1 Residential water tariff Service charge (per annum) 20mm % mm % mm % mm 1, % mm 1, % , mm 4, % , mm 6, % 1, , mm 14, % 3, , Usage charge (per Kl) - rising block tariff litres per day % litres per day % litres per day % Non-residential water tariff Service charge - Commercial/Free Access/Benevolent (per annum) 20mm % mm % mm % mm 1, % mm 1, % , mm 4, % , mm 6, % 1, , mm 14, % 3, , Usage charge (per Kl) - Non-residential % Residential sewerage tariff Sewer service charge (per annum) % Non-residential sewerage tariff Service charge - Commercial/Free Access/Benevolent (per annum) %

8 Tariff and price component Price ($) without desal (1 July 2015) Price Path Multiplier (Year 4) Bulk water Carbon Price ($) (1 July 2016) 1.5 Residential and non-residential recycled water tariff - Class A Service charge (per annum) 20mm % mm % mm % mm % mm % mm 1, % , mm 2, % , mm 6, % , Usage charge (per Kl) - Class A recycled water - residential % Trade waste charges Application fee Risk rank 1 (per application) Risk rank 2 (per application) Risk rank 3 (per application) Risk rank 4 (per application) Management fee Risk rank 1 (per annum) Risk rank 2 (per annum) Risk rank 3 (per annum) 1, , Risk rank 4 (per annum) 2, , Volumetric charge Category B (per kl) Category C (per kl) Western Water Corporate Plan 2016

9 Appendix 1: Schedule of tariffs cont. Tariff and price component Price ($) without desal (1 July 2015) Price Path Multiplier (Year 4) Bulk water Carbon Price ($) (1 July 2016) 1.7 Trade waste quality charges - risk ranks 2, 3 & 4 (per kg) BOD >400mg/L Suspended Solids >400mg/L Total Phosphorus >30mg/L Total Combined Nitrogen >60mg/L Total Oxidisable Sulphur >100mg/L Sodium >250mg/L Arsenic >0.2g/day Heavy metals Cadmium >0.4g/day Chromium (III & VI) >100g/day Copper >100g/day Lead >100g/day Mercury >0.2 g/day Nickel >10g/day Selenium >10g/day Zinc >100g/day Trade waste penalty units 1st major breach NOM nd major breach NOM rd major breach NOM th major breach 1, NOM 1, Customer contribution (per lot) Customer contribution - infill 2, , Customer contribution - greenfield 4, ,

10 Tariff and price component Price ($) without desal (1 July 2015) Price Path Multiplier (Year 4) Bulk water Carbon Price ($) (1 July 2016) 2.0 Miscellaneous fees and charges Water tapping fees - drinking and recycled water 20mm installation mm installation mm installation 1, , mm installation 2, , mm installation 3, , Water meter test mm (per test) Conditions of connection - sewer Residential standard (per application) Commercial standard (per application) Information statements Standard Plugging fees - drinking and recycled water Pressure and flow information Disposal of septic waste to treatment plants - per load per kg Non-core miscellaneous services Actual cost Actual cost 47 Western Water Corporate Plan 2016

11 Appendix 2: Customer impacts Water tariffs - fixed Water tariffs - variable Sewer charges - fixed Government Water Reabte Total tariffs Nominal change from prior year Modelling of price impact for 200kl consumption Residential customer FY16 $ $ $ $ $1, FY17 $ $ $ $ $ (6.06%) Non-residential customer FY16 $ $ $ $1, FY17 $ $ $ $1, (4.83%) Residential tenant FY16 $ $ $ FY17 $ $ $ % Modelling of price impact for 150kl consumption Residential customer FY16 $ $ $ $ $ FY17 $ $ $ $ $ (7.27%) Non-residential customer FY16 $ $ $ $1, FY17 $ $ $ $1, (5.77%) Residential tenant FY16 $ $ $ FY17 $ $ $ % Modelling of price impact for 250kl consumption Residential customer FY16 $ $ $ $ $1, FY17 $ $ $ $ $1, (5.03%) Non-residential customer FY16 $ $ $ $1, FY17 $ $ $ $1, (4.04%) Residential tenant FY16 $ $ $ FY17 $ $ $ % Modelling of price impact for 0kl consumption - all unconnected residential properties (vacant land) FY16 $ $ $ FY17 $ $ $ (10.12%) 48

12 Appendix 4: Financial performance indicators Performance indicator Target FY16 Plan FY16 Forecast FY17 Plan FY18 Plan FY19 Plan FY20 Plan FY21 Plan F1 Cash interest cover (times) Net operating cashflows before net interest and tax/net interest payments > F2 Gearing ratio (%) Total debt (including finance leases)/total assets < % 22.5% 27.3% 32.1% 35.6% 38.0% 39.2% F3 Internal financing ratio (Net operating cashflow - dividends)/ capital expenditure > F4 Current ratio (%) Current assets/current liabilities (excluding long term employee provisions and revenue in advance) F5 Return on assets (%) Earnings before net interest and tax/ average total assets F6 Return on equity (%) Net profit after tax/average total equity F7 EBITDA margin (%) Earnings before interest, tax depreciation and amortisation/total revenue >70 100% 120% 66% 77% 78% 76% 81% >0 2.6% 4.0% 2.8% 3.8% 4.8% 4.7% 4.5% >0 1.7% 2.8% 1.6% 2.6% 4.0% 3.7% 3.4% >0 45.5% 49.6% 46.8% 52.6% 57.4% 58.2% 59.1% 52 Western Water Corporate Plan 2016