Pricing policies for a rural water authority
Goulburn-Murray Water (G-MW), a major rural water authority in Victoria, retained Frontier (Australia) to undertake an independent review of its pricing methodologies and models. The Review focussed on the appropriateness of the annuity approach used by G-MW to fund its infrastructure renewals.
Frontier recommended that the current forward-looking annuity should be replaced with a Regulatory Asset Base (RAB) approach. Under a RAB approach, the business finances investment (using the appropriate mix of debt and equity) and then recovers the costs from users over time through an annual capital charge. Frontier’s recommendation was based on an assessment that the RAB approach provides greater scope for accountability of the organisation’s capital expenditure decisions and the positive implications for efficiency.