UNITYWATER CAPEX OPEX REVIEW CAPEX OPEX REVIEW ... 5.2.3. Good industry practice for CAPEX and OPEX

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Transcript of UNITYWATER CAPEX OPEX REVIEW CAPEX OPEX REVIEW ... 5.2.3. Good industry practice for CAPEX and OPEX

  • SEQ Interim Price Monitoring

    UNITYWATER

    CAPEX OPEX REVIEW

     Rev 2  Final  30 January 2012

  • The SKM logo trade mark is a registered trade mark of Sinclair Knight Merz Pty Ltd.

    SEQ Interim Price Monitoring

    UNITYWATER

    CAPEX OPEX REVIEW

     Rev 2  Final  30 January 2012

    Sinclair Knight Merz ABN 37 001 024 095 Cnr of Cordelia and Russell Street South Brisbane QLD 4101 Australia PO Box 3848 South Brisbane QLD 4101 Australia Tel: +61 7 3026 7100 Fax: +61 7 3026 7300 Web: www.skmconsulting.com COPYRIGHT: The concepts and information contained in this document are the property of Sinclair Knight Merz Pty Ltd. Use or copying of this document in whole or in part without the written permission of Sinclair Knight Merz constitutes an infringement of copyright.

    LIMITATION: This report has been prepared on behalf of and for the exclusive use of Sinclair Knight Merz Pty Ltd’s Client, and is subject to and issued in connection with the provisions of the agreement between Sinclair Knight Merz and its Client. Sinclair Knight Merz accepts no liability or responsibility whatsoever for or in respect of any use of or reliance upon this report by any third party.

  • PAGE i

    Contents 1.  Executive Summary 2 

    1.1.  Introduction and background 2  1.2.  Overview of information adequacy 3  1.3.  Policies and procedures 3  1.3.1.  Issues identified in the Authority’s 2010/11 report 3  1.3.2.  Good industry practice in budget development 4  1.3.3.  Standards of service 4  1.3.4.  Asset management and condition assessment 4  1.3.5.  Procurement 5  1.3.6.  Cost allocation 5  1.3.7.  Asset Lives 6  1.4.  Operating expenditure 6  1.5.  Capital expenditure 7  1.6.  Interaction between capital expenditure, operating expenditure and demand forecasting 9  1.7.  Summary and Conclusions 9 

    2.  Introduction 11  2.1.  Terms of reference 12  2.2.  Prudency and efficiency 15  2.3.  Scope exclusions 16  2.4.  Report overview 16  2.5.  Application of assessment 16 

    3.  Background 17  3.1.  Entities 17  3.2.  The role of the Authority 18  3.3.  Role of the SEQ Water Grid Manager 19 

    4.  Overview of Information Adequacy 21  4.1.  Summary of information received 21  4.2.  Operational expenditure 21  4.3.  Capital expenditure 22  4.4.  Information systems and process 23  4.5.  Obstacles to reporting 23  4.6.  Conclusions 25 

    5.  Policies and Procedures 26  5.1.  Issues identified in the Authority’s 2010/11 report 26  5.1.1.  Whole of entity perspective to capital expenditure 26 

  • PAGE ii

    5.1.2.  Commissioned capital expenditure 27  5.1.3.  Consistent approach to cost estimation 28  5.1.4.  Major projects summary document 31  5.1.5.  Major project implementation strategy 32  5.1.6.  Gateway reviews 32  5.1.7.  Indexation 34  5.1.8.  SKM’s Assessment 35  5.2.  Budget Formation 36  5.2.1.  Unitywater’s capital project budgeting process 36  5.2.2.  Unitywater’s operational expenditure budgeting process 37  5.2.3.  Good industry practice for CAPEX and OPEX budgeting 37  5.2.4.  Comparison of Unitywater’s budgeting process with good industry practice 43  5.3.  Standards of service review 44  5.3.1.  Customer service standards 45  5.3.2.  Design standards 46  5.3.3.  SKM’s assessment 46  5.4.  Asset management and condition assessment 50  5.4.1.  SKM’s assessment 53  5.5.  Procurement 53  5.5.1.  Procurement policies and procedures 53  5.5.2.  SKM’s assessment 56  5.6.  Cost allocation 57  5.6.1.  Cost allocation for operating expenditure 57  5.6.2.  SKM’s assessment 59  5.6.3.  Cost allocation for capital expenditure 60  5.6.4.  SKM’s assessment 60  5.7.  Asset Lives 61  5.7.1.  Useful lives for new assets 61  5.7.2.  Useful lives for new assets for tax purposes 63  5.7.3.  Summary 67 

    6.  Operating Expenditure 68  6.1.  Overview of operating expenditure 68  6.2.  Historical costs and variances 73  6.3.  Costs in aggregate 77  6.4.  Sample selection 81  6.5.  Corporate costs 83  6.5.1.  Overview of operating expenditure 83  6.5.2.  Provided documentation 85  6.5.3.  Prudency 85  6.5.4.  Efficiency 86  6.5.5.  Summary 89 

  • PAGE iii

    6.6.  Employee expenses 89  6.6.1.  Overview of operating expenditure 89  6.6.2.  Provided documentation 90  6.6.3.  Prudency 90  6.6.4.  Efficiency 90  6.6.5.  Summary 91  6.7.  Electricity costs 92  6.7.1.  Overview of operating expenditure 92  6.7.2.  Provided documentation 92  6.7.3.  Prudency 93  6.7.4.  Efficiency 93  6.7.5.  Summary 95  6.8.  Chemical costs 96  6.8.1.  Overview of chemical operating expenditure 96  6.8.2.  Provided documentation 98  6.8.3.  Prudency 98  6.8.4.  Efficiency 98  6.8.5.  Summary 103  6.9.  Sludge handling 103  6.9.1.  Overview of operating expenditure 103  6.9.2.  Provided documentation 104  6.9.3.  Prudency 104  6.9.4.  Efficiency 105  6.9.5.  Summary 107  6.10.  Overall operating expenditure review summary 108 

    7.  Capital Expenditure 110  7.1.  Overview of capital expenditure 110  7.2.  Historical Delivery 114  7.3.  Key Issues 117  7.3.1.  Cost drivers 117  7.3.1.1.  Growth driver 117  7.3.1.2.  Renewals 118  7.3.1.3.  Improvements 118  7.3.1.4.  Compliance 118  7.4.  Sample selection 119  7.5.  Overview of prudency and efficiency 119  7.6.  Burpengary Wastewater Treatment Plant Stage 2 Augmentation 120  7.6.1.  Proposed capital expenditure 120  7.6.2.  Project description 121  7.6.3.  Provided documentation 121  7.6.4.  Prudency 122 

  • PAGE iv

    7.6.5.  Efficiency 125  7.6.6.  Timing and Deliverability 128  7.6.7.  Efficiency Gains 128  7.6.8.  Allocation of overhead costs 128  7.6.9.  Policies and procedures 129  7.6.10.  Summary 129  7.7.  South Caboolture STP Upgrade and Augmentation (Stage 2) 130  7.7.1.  Proposed capital expenditure 130  7.7.2.  Project description 130  7.7.3.  Provided documentation 131  7.7.4.  Prudency 131  7.7.5.  Efficiency 134  7.7.6.  Timing and Deliverability 141  7.7.7.  Efficiency Gains 142  7.7.8.  Allocation of overhead costs 142  7.7.9.  Policies and procedures 142  7.7.10.  Summary 143  7.8.  Customer Services and Billing Solutions Project 144  7.8.1.  Proposed capital expenditure 144  7.8.2.  Project description 144  7.8.3.  Provided documentation 145  7.8.4.  Prudency 145  7.8.5.  Efficiency 147  7.8.6.  Timing and Deliverability 149  7.8.7.  Efficiency Gains 149  7.8.8.  Allocation of overhead costs 150  7.8.9.  Policies and procedures 150  7.8.10.  Summary 151  7.9.  Unitywater Fleet-light Asset Replacement Program 152  7.9.1.  Proposed capital expenditure 152  7.9.2.  Project description 152  7.9.3.  Provided documentation 153  7.9.4.  Prudency 153  7.9.5.  Efficiency 156  7.9.6.  Timing and Deliverability 157  7.9.7.  Efficiency Gains 158  7.9.8.  Allocation of overhead costs 159  7.9.9.  Policies and procedures 159  7.9.10.  Summary 160  7.10.  Upgrade Wastewater Pump Station MF01 Project 160  7.10.1.  Proposed capital expenditure 160  7.10.2.  Project description 161 

  • PAGE v

    7.10.3.  Provided documentation 161  7.10.4.  Prudency 162  7.10.5.  Efficiency 165  7.10.6.  Timing and Deliverability 171  7.10.7.  Efficiency Gains 172  7.10.8.  Allocation of overhead costs 172  7.10.9.  Policies and procedures 172  7.10.10.  Summary 173  7.11.  Kedron Brook Sewerage Catchment - New Sewage Rising Main RMN260 Project 173  7.11.1.  Proposed capital expenditure 173  7.11.2.  Project description 174  7.11.3.  Provided documentation 174  7.11.4.  Prudency 175  7.11.5.  Efficiency 178  7.11.6.  Timing and Deliverability 180  7.11.7.  Efficiency Gains 180  7.11.8.  Allocation of overhead costs 181  7.11.9.  Policies and procedures 181  7.11.10.  Summary 181  7.12.  Burpengary Sewer Rising Main Duplication Project 182  7.12.1.  Proposed capital expenditure 182  7.12.2.  Project description 182  7.12.3.  Provided documentation 183  7.12.4.  Prudency 183  7.12.5.  Efficiency 186  7.12.6.  Timing and Deliverability 188  7.12.7.  Efficiency Gains 188  7.12.8.  Allocation of overhead costs 188  7.12.9.  Policies and procedures 188  7.12.10.  Summary 189  7.13.  BI-01 Sewer Rising Main Duplication 190  7.13.1.  Proposed capital expenditure 190  7.13.2.  Project description 190  7.13.3.  Provided documentation 191  7.13.4.  Prudency 191  7.13.5.  Efficiency 193  7.13.6.  Timing and Deliverability 195  7.13.7.  Efficiency Gains 195  7.13.8.  Allocation of overhead costs 195  7.13.9.  Policies and procedures 195  7.13.10.  Summary 196 

  • PAGE vi

    7.14.  Ngungun Street, Landsborough – Water Pump Station Project 197  7.14.1.  Proposed capital expenditure 197  7.14.2.  Project description 197  7.14.3.  Provided documentation 197  7.14.4.  Prudency 198  7.14.5.  Efficiency 200  7.14.6.  Timing and Deliverability 201  7.14.7.  Efficiency Gains 201  7.14.8.  Allocation of overhead costs 201  7.14.9.  Policies and procedures 201  7.14.10.  Summary 202  7.15.  Coolum Sewage Treatment Plant Augmentation 203  7.15.1.  Proposed capital expenditure 203  7.15.2.  Project description 203  7.15.3.  Provided documentation 204  7.15.4.  Prudency 204  7.15.5.  Efficiency 206  7.15.6.  Timing and Deliverability 208  7.15.7.  Efficiency Gains 209  7.15.8.  Allocation of overhead co