ACCC 2013 Regulatory Conference Making water reform work Matthew - PowerPoint PPT Presentation

ACCC 2013 Regulatory Conference Making water reform work Matthew Toulmin 26 July 2013 1

Transforming northern Victoria v Food Bowl / NVIRP / Connections Program v $2 billion investment in irrigation system modernisation v Aim to promote productivity and create water savings v Explore theory and practice of implementing investment in supply system transformation 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 2

Northern Victoria 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 3

This Presentation v Project objectives and drivers v Key program elements v Decision principles for investment v Customer input to process v Lessons learnt 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 4

Objectives and drivers: synergies v 3 program drivers/objectives • Productivity – the primary driver • Water supply for Melbourne • E-flows for the River Murray v Synergies between drivers v Cost benefit analysis included all three v Regional benefits based on CGE 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 5

The Goulburn-Murray Irrigation District (GMID) 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 6

The Irrigation District v 68,000 km 2 in area v 9,600 customers – most very small non commercial v 6,300 km of channels – half small spur channels v 24,000 outlets – most simple and inefficient v 1,000’s of road crossings, regulators, culverts etc v 3,000 GL taken for irrigation • 2,100GL used • 900GL lost in distribution = 30% 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 7

Driver 1: Infrastructure constrains productivity v Dairy is the main sector – most exported • A price-taker in international markets v Needs economies of scale from larger properties • Doubling size without doubling labour costs v Requires automated water use on-farm. That means • Getting rid of complex small-scale systems • Automating distribution at higher levels of service 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 8

Driver 1: Infrastructure constrains productivity v Supply system designed for 70 cow dairy herd v Dairy herd now often 700 cows v Multiple supply channels, roadways and assets constrain productivity & economies of scale v Water trading out of the GMID v New developments and investment taking place down-stream or in NSW where large scale greenfield v Water charges going up v Lack of investment confidence 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 9

Driver 2: Water for Melbourne v Drought from 1997-2007 v Stage 3 water restrictions with risk of Stage 4 restrictions v Melbourne growing by 1,500 people a week v Desalination plant long-term solution but 5 year construction schedule from 2007 v Interim solution needed to fill the gap v NVIRP provides 75 GL = 18% of annual demand via 70 km pipeline 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 10

Water for the River Murray v River health under threat from level of diversion v Millennium drought exposes/exacerbates risks v Solutions • The Living Murray 2004: $500M for 500GL for six icon sites • Water Act 2007 - the Basin Plan • Buy-back v NVIRP generates water savings for environmental flows 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 11

NVIRP v The Food Bowl Alliance driven by local business concerned at declining commercial viability of region v NVIRP - $2 bn investment in system modernisation v Restore Food Bowl productivity v Generate 425GL of water savings: • 75GL to Melbourne • 75GL to irrigators • 275GL to environment 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 12

Program outline v 2 main elements: $1bn each • Backbone automation • Connections program v Backbone • Retract public system by 50% to major channels • Water super highway >20ML/day • Automation of control systems • Water savings from reduced outfalls 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 13

Backbone profile > 20ML flow PYRAMID HILL BOORT 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 14

Connections Program v 5,500 customers on spur channels v New connection from each farm to the backbone v Multiple outlets/meters rationalised v Connection assets privatised v 3,000km of spur channels retrenched v Water savings from: • Closing leaky spur channels • More accurate meter outlets 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 15

Customer base: 9,600 properties v 300 large commercial operators > 1,000ML/yr v 750 medium commercial irrigators ~ 500ML/yr v 3,000 small users < 100ML/yr v 5,500 rural residential & domestic and stock v Dairy - the major commercial force v Mixed - annual crops - opportunistic v Horticulture - niche in Central Goulburn 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 16

Irrigation sectors Property Types – 2008 Data 2000 1800 1600 1400 1200 Dairy Mixed 1000 Horticulture 800 Rural Residential 600 400 200 0 Central Goulburn Rochester Loddon Valley Murray Valley Torrumbarry 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 17

Connections case-study ! ! 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 18

Connections Options v New individual connection to backbone – 80% v Joint large connections (syndicates) – few v Joint D&S piped supplies – 200 v Relocate farm to the Backbone – 6 to date v Create new supply to river / groundwater – few v Exit irrigation convert to dryland – 70 v Do nothing – face formal closure 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 19

Decision framework v Not just retrofit new assets to existing farms v Transformation not standard funding model v Fit for purpose / value for money / water savings v Type of property: large commercial vs. lifestyle v Size of realistic future demand v Distance from backbone and cost v Integration with other users 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 20

Decision framework: size and distance 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 21

Customer engagement – 3 decision levels v District Plan – 6 districts for broad directions • Water Services Committees v Strategic Connection Plans (SCPs) • 168 SCPs @ ~ 100 properties • Realistic integrated decisions at local scale • Landowner Steering Committees v Property scale • Landowner decision 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 22

Individual landowner decisions v Contribute to SCP discussions at local scale v Review their options – funds for independent advice v Indicate interest and preference v GMW makes formal offer v Agreement leads to formal contract v Appeal available through Independent Review Panel v Ultimately termination of supply and compensation 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 23

Lessons v Strategic change is challenging v Commercial imperative not operator interest v Strategic scale for decision / not marginal change v Recognise synergies and interactions v Build trust: engage regional partners & local champions v Robust process to ensure confidence • Balance discretion/innovation against equity • Both carrots and sticks are needed 26 July 2013 ACCC Regulatory Conference Matthew Toulmin - RMCG 24