Financial Sustainability

Context

As autonomous businesses delivering services and managing long-lived infrastructure, water corporations negotiate an important balance between delivering affordable services now and effective service provision in the future. Water pricing should reflect the true cost of water services, which includes the cost of delivery in the present, and the cost of building, maintaining and renewing infrastructure over time. Embedded in this objective are principles of economic efficiency, intergenerational equity, and the need to smooth prices over time to avoid ‘bill shock’.

Achieving this outcome is made more complex by the fact that water industry assets are extremely long-lived – treatment plants generally last over 50 years, pipes may last 100 years, and dams could last 300 years. It is further complicated by the need to invest in new infrastructure to meet the projected needs of Victorian communities in future, without unfairly burdening one generation of water users.

Water corporations are committed to being efficient and acknowledge the range of checks and balances already in place to support this, noting the Essential Service Commission’s PREMO framework.

Water corporations are exposed to the challenges of climate change and population growth as well as broader changes in the Victorian economy and shocks such as COVID-19. It is essential that water corporations, policy makers and regulators take a long-term, strategic approach to enabling the water industry to meet these challenges through adequate revenue and prices. Maintaining lower prices needs to be balanced against the need to maintain intergenerational equity and affordability, service quality, and reliability.