Review of prices for the Water Administration Ministerial Corporation

2 Overview of the approach we used to set NOW’s prices
2.2.4 Decide on water management price structure for each water source in each
valley, then set prices
Once we had determined the user share of NOW’s efficient costs, we decided how
these charges should be structured, taking into account the principles of efficient
pricing and the distribution of risk between NOW and water users. In particular, we
made decisions about:
The geographic split of prices. We considered whether to maintain the current
valley-based prices for regulated and unregulated rivers, and whether to move to
an ‘inland’/‘coastal’ geographic split for groundwater.
The structure of charges. We considered whether, and in what circumstances,
water management charges should be fixed or variable, or a combination of fixed
and variable.
The scope of charges. We considered whether we should extend NOW’s charges
to basic water rights holders (such as stock and domestic rights holders), and set
new charges for special categories of entitlement such as floodplain harvesting,
high flow and supplementary water.
The level of the minimum bill.
The price path and whether or how price increases should be limited.
Each of these decisions is discussed in Chapter 6.
2.2.5 Allocate the user share of NOW’s total efficient costs to individual water users
across water sources and valleys
Having determined the user share of NOW’s total notional revenue requirement for
the 2011 Determination period, and made the decision to set valley-based prices, the
next step was to attribute a portion of this aggregate user share to each valley (by
water source). Given that NOW does not record actual costs on a valley basis, this
involved allocating the total users share of costs to each valley (by water source),
using the best available cost driver (or allocator) for each activity code.
Our decisions in relation to this step are discussed in Chapter 7.
2.2.6 Convert user share costs for each valley into water management prices, using
forecasts of entitlement and usage volumes
Once user share costs for each valley (by water source) were determined, the next
step in our process was to convert these costs into water management prices. Given
our decision to set a mixture of 1 and 2-part tariffs, comprised of fixed charges (per
ML of entitlement or unit share) and usage charges (per ML of water extracted), this
required us to determine and apply forecast entitlement and extraction (or ‘usage’)
volumes.
28 IPART Review of prices for the Water Administration Ministerial Corporation