Review of prices for the Water Administration Ministerial Corporation

9 Water management prices
Chapter 12 provides our analysis of the implications of these prices for water users
and NOW. Appendix K shows the prices in $2010/11, and Appendix O shows the
impact of the major cost drivers (cost allocation, entitlement volumes and usage
forecasts) on variations in prices between water sources and valleys.
9.1.1 Conversion factors and conversion ratios
Decision
17 IPART’s decision is to not include conversion factors or conversion ratios in this
Determination.
When a water sharing plan is implemented, Water Act (WA) licences, which are
denominated in ML, are converted to Water Management Act (WMA) licences,
which are denominated in unit shares. According to information provided by NOW,
this conversion occurs on a 1 ML equals 1 unit share basis. However, the water
sharing plan may reduce the volume of water that can be extracted in a valley.
For example, consider a valley with 100,000 ML of entitlement under the WA, which
will have extractions reduced to 80,000 ML after the implementation of the water
sharing plan. This would result in a valley entitlement of 100,000 unit shares under
the WMA, with each unit share allowing a user to extract 0.8ML (ie,
80,000 ML/100,000 unit shares = 0.8ML/unit share).
The 2006 Determination applied a ‘conversion factor’ to surface water (regulated and
unregulated rivers) to reduce a licence holder’s entitlement charge in line with the
initial reduction in entitlements when converting from a volumetric licence (under
the Water Act) to a licence based on unit shares (under the Water Management Act).
For example, a 20% reduction in entitlements resulted in a conversion factor of 0.8
being applied to the entitlement charge.
In contrast, a ‘conversion ratio’ was applied to groundwater entitlements. This was a
different mechanism to the conversion factor, which had the effect of keeping unit
share charges (and NOW’s revenue) constant, regardless of reductions in the users’
extractable water. The main reason given in the 2006 Determination for the different
treatment of groundwater was the low usage volumes for this water type. As a
result, at that time, it was considered that reductions in water available for extraction
were not likely to result in reduced levels of usage.
No submissions from stakeholders or NOW were receive in response to this proposal
following the release of the Draft Report and Determination.
Review of prices for the Water Administration Ministerial Corporation IPART 135