We set prices to recover the efficient costs that Hunter Water would need to deliver its services over the next four years.
Hunter Water submitted its five-year expenditure proposal to us. We made some cuts to expenditure and applied an ongoing efficiency adjustment of 0.8% to expenditure to encourage Hunter Water to seek further efficiencies each year.
We also allowed an additional $17 million in expenditure for discretionary projects where there is evidence that customers are willing to pay.
Higher expenditure is not reflected in prices
Under our draft decision, Hunter Water’s capital expenditure allowance for the next four years is 62.6% higher than what we used to set prices from 2016-17 to 2019-20. However, this does not appear as an increase in prices at this review.
A key component in the way we set prices is the cost of capital for Hunter Water (WACC). The WACC is currently very low, which means that the increase in capital expenditure does not result in an increase in our draft prices. However, if the cost of capital increases in the future, there would be upwards pressure on prices.
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