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INDEPENDENT PRICING AND REGULATORY TRIBUNAL (IPART)

Review of Asset Life Determination Sydney Catchment Authority (2009 Determination)

301015/00417 - 00417-00-GE-RPT-0003

9-Jan-2009

Infrastructure Level 12, 333 CollinsStreet Melbourne Vic 3000 Australia Telephone: +61 3 8676 3500 Facsimile: +61 3 8676 3505 www.worleyparsons.com WorleyParsons Services Pty Ltd ABN 61 001 279 812

© Copyright 2009 WorleyParsons Services Pty Ltd

INDEPENDENT PRICING AND REGULATORY TRIBUNAL (IPART) REVIEW OF ASSET LIFE DETERMINATION SYDNEY CATCHMENT AUTHORITY (2009 DETERMINATION)

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SYNOPSIS In determining prices of the Sydney Catchment Authority (SCA), IPART assesses the Agency’s revenue requirements. A key component of the revenue requirement is the provision for depreciation.

Currently, IPART calculates the depreciation requirement for SCA by using the straight-line depreciation method, applied to the SCA Regulatory Asset Base (RAB).

This report reviews SCA’s economic asset life process and depreciation calculations.

Disclaimer

This report has been prepared on behalf of and for the exclusive use of the Independent Pricing and Regulatory Tribunal (IPART) and is subject to and issued in accordance with the agreement between the IPART and WorleyParsons Services Pty Ltd. WorleyParsons Services Pty Ltd accepts no liability or responsibility whatsoever for it in respect of any use of or reliance upon this report by any third party.

Copying this report without the permission of IPART or WorleyParsons Services Pty Ltd is not permitted.

301015/00417/00417-00-GE-RPT-0003 - REVIEW OF ASSET LIFE DETERMINATION

REV DESCRIPTION ORIG REVIEW WORLEY- PARSONS APPROVAL

DATE CLIENT APPROVAL

DATE

A Outline Draft [ ] P Wilkie

[ C Berberich

[ ] C Berberich 2/10/2008

B Draft for IPART comment

P Wilkie

C Berberich

C Berberich

31/10/2008

C Revised Draft P Wilkie

C Berberich

C Berberich

26/11/2008

0 Finalised for Issue P Wilkie

C Berberich

P Draayers

9/1/2009


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CONTENTS EXECUTIVE SUMMARY .................................................................................................................1

1. INTRODUCTION ..............................................................................................................2

1.1 Overview ..........................................................................................................................2

1.2 Scope of services of this review........................................................................................2

1.3 Methodology .....................................................................................................................2

1.3.1 Overview..............................................................................................................2

1.3.2 Data acquisition ...................................................................................................3

1.3.3 Review of SCA economic asset life process ........................................................3

1.3.4 Review of SCA economic asset life application....................................................4

1.3.5 Review of SCA proposal for determination of average economic asset life..........4

2. REVIEW OF ECONOMIC ASSET LIFE............................................................................5

2.1 SCA economic asset life categories and determination ....................................................5

2.2 Comparison to other economic asset life determinations..................................................7

2.3 Comparison of economic asset life ...................................................................................8

2.3.1 Review of SCA economic asset life......................................................................8

2.4 Review of SCA current economic asset life methodology...............................................11

2.4.1 SCA economic asset life in the RAB ..................................................................13

2.4.2 SCA economic asset life in the Forward Capital Program..................................14

2.5 Review of SCA proposed methodology ..........................................................................15

3. SUMMARY AND RECOMMENDATIONS.......................................................................19

3.1 SCA economic asset life determination ..........................................................................19

3.2 Average economic asset life...........................................................................................19


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Appendices

APPENDIX 1 : MODIFIED SECTION OF REGULATORY ASSET BASE DATABASE. WORLEYPARSONS CALCULATIONS.

APPENDIX 2 : SUMMARY SECTION OF REGULATORY ASSET BASE DATABASE PROVIDED BY SCA.

APPENDIX 3 : SECTION OF FORWARD CAPITAL PROGRAM SPREADSHEET. AS ADJUSTED BY WORLEYPARSONS.

APPENDIX 4 : ENTIRE REGULATORY ASSET BASE DATABASE AS SUPPLIED BY SCA.

APPENDIX 5 : ENTIRE FORWARD CAPITAL PROGRAM SPREADSHEET AS SUPPLIED BY SCA


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EXECUTIVE SUMMARY

In determining prices of the Sydney Catchment Authority (SCA), IPART assesses the Agency’s revenue requirements. A key component of the revenue requirement is the provision for depreciation.

Currently, IPART calculates the depreciation requirement for SCA by using the straight-line depreciation method and an average economic asset life, applied to the SCA Regulatory Asset Base (RAB). Separate calculations are made for the existing RAB and for the Forward Capital Program (FCP), using average economic asset life values specific to each.

IPART engaged WorleyParsons to undertake a review of the economic asset life calculations by SCA and to recommend economic asset life values for IPART to use as a part of the 2009 price determination process.

WorleyParsons has reviewed the economic asset life of assets in the RAB and FCP of the SCA. The methodology used by SCA has been compared to industry standards and Australian Taxation Office (ATO) methods.

The review of economic asset life assignation by SCA has found only minor deficiencies. Amendments have been recommended to the SCA economic asset life evaluation process, as has the addition of a number of economic asset life classes to the standard economic asset life classification tables. In summary, the recommendation is for a more comprehensive list of asset classes and a reduction of the assigned economic asset life for a number of asset classes.

The use of 60 years as the average remaining economic asset life of the SCA current RAB, as proposed by SCA, has been found by WorleyParsons to be acceptable. The use of the same figure for the FCP has also been found to be acceptable, although the WorleyParsons’ calculated economic asset life of the current FCP is approximately 50 years and WorleyParsons considers this lower value to be more representative of the current FCP.

As the composition of the FCP may change significantly over time, the calculated economic asset life of the FCP at future price determinations could benefit by being reviewed against that calculated in this review to check that the economic asset life used remains acceptable.



1. INTRODUCTION

1.1 Overview

In determining SCA’s prices for the 2009 regulatory period, IPART assesses the agency’s revenue requirements over the regulatory period. A key component of the revenue requirement is the provision for depreciation.

Depreciation represents the reduction in the value of an agency’s assets due to usage, the passage of time, wear and tear, technological outdating or obsolescence, depletion or other such factors. It is calculated by the allocation of the historical cost of an asset across time periods when the asset is employed to generate revenues.

Currently, in relation to water utilities, IPART generally calculates the capital maintenance requirement by using the straight-line depreciation method, applied to the RAB. In its modelling to calculate depreciation at its last determination of SCA’s prices, IPART applied an average economic asset life of 70 years for existing assets and 100 years for new assets.

Straight-line depreciation is where the company expenses the original cost in equal portions over the period of time equal to the asset’s economic asset life.

1.2 Scope of services of this review

This report documents WorleyParsons’ review of SCA’s economic asset life assignation process and outcomes.

SCA has proposed an economic asset life of 60 years for both existing and new assets. This differs from asset lives used at IPART’s last determination of SCA’s prices (70 years for existing assets and 100 years for new assets). This review includes commentary on the applicability of the method and economic asset life recommended by SCA, and recommends average economic asset life figures for IPART to apply.

1.3 Methodology

1.3.1 Overview

This review followed the following broad and general steps. The general steps below are explained in greater detail in Sections 1.3.2, 1.3.3, 1.3.4 and 1.3.5.

• Receipt of SCA’s existing assets (RAB) and its FCP, with remaining economic asset lives and values. This information is presented in Section 2, Appendix 4 and Appendix 5.



• Documentation of tables of economic asset life applied to similar asset categories in industry and government. The table showing the comparison can be found in Section 2.2.

• Review of the appropriateness of SCA economic asset life tables compared with economic asset life tables used by other water industry companies and tables published by the ATO. The comparison table found in Section 2.2 is discussed in Section 2.3.

• Review of the application of SCA economic asset life tables to the RAB and FCP. The comments on this review can be found in Sections 2.4.1 and 2.4.2.

• Modification of the economic asset life of assets in the RAB and FCP, where WorleyParsons considers that a modification or change to the SCA process is warranted. The modified tables are shown in Appendix 1 and Appendix 3.

• Receipt and review of SCA’s calculation process for determining the average economic asset life from the database of individual asset lives. The calculation process is discussed in Section 2.5.

• Calculate relevant economic asset life values for the RAB and FCP should any differences in methodology be proposed or any inconsistency in the calculations be identified by Worley Parsons. The calculations are shown in Appendix 1 and Appendix 3.

1.3.2 Data acquisition

The SCA asset base, consisting of both existing assets (RAB) and future assets (FCP) was obtained from SCA. For each individual asset in the list, this data base contained: the current value of the asset, the economic asset life assigned to each asset, the type of each asset and a short description of each asset. SCA was also asked for details on how it had assigned economic asset life to existing and future assets. This information is presented in section 2 and appendix 4 and appendix 5.

1.3.3 Review of SCA economic asset l ife process

The method that SCA uses to assign an economic asset life to an asset (the asset class table) was compared with the practices of water authorities in other states of Australia. It was then also compared with the ATO’s ruling1 on assigning an economic asset life.

Where the existing assigned economic asset life was not consistent with current practices, WorleyParsons modified the value in the asset classification table to reflect its view of a more suitable economic asset life. When an asset type was not already covered by the SCA asset classification table, it was added with a suitable economic asset life. The table showing the asset classifications can be found in Section 2.2 and is discussed in Section 2.3.

1 Australian Government Australian Taxation Office Taxation Ruling TR2008/4. http://law.ato.gov.au/atolaw/view.htm?locid='TXR/TR20084/NAT/ATO'&PiT=99991231235958



1.3.4 Review of SCA economic asset l ife application

Select assets in the RAB were reviewed by WorleyParsons to check the applicability and consistency of the assigned economic asset life to the assets with the highest depreciation value. The land, building, plant and equipment asset types were not rigorously examined as their value is about 1.5 % of the RAB and the impacts on the average economic asset life would be limited. These assets, however, account for 11 % of the yearly depreciation, so select major assets within these asset types were individually reviewed.

The remaining assets, called facility assets, were reviewed in detail as they represent 98.5 % of the RAB and contributed 89 % of the yearly depreciation. The three hundred assets with highest depreciation value were reviewed for the suitability of their assigned economic asset life.

The review of the combination of the three hundred facility assets and the selected assets with high depreciation from the remainder of the RAB resulted in assets to the value of about 95 % of the RAB and 90 % of the depreciation being reviewed. Where assets on this list were clear duplicates, only one of each was included in the review spreadsheet for clearer reading.

The application of asset categories to the existing asset database (RAB) and FCP were reviewed. Where WorleyParsons considered that an adjustment to the economic asset life was required, the database was adjusted and the rationale for the change documented (Appendices 1 and 3 of this document). Where an asset was found to be unsuitable for inclusion in the RAB, it was removed and the rationale for the removal documented.

All of the SCA economic asset life values were compared against the economic asset life table developed by WorleyParsons. Where the asset was new and not acquired by SCA before 1999, the economic asset life was based solely on when it was built. Where an asset was originally created before 1999, the economic asset life takes into account the economic asset life assigned by SCA in a 2007 review of asset lives and the maximum life expected from the asset type.

This review has been documented in section 2.4.

1.3.5 Review of SCA proposal for determination of average economic asset l ife

The SCA’s proposed average economic asset life determination methodology was examined and reviewed by WorleyParsons. In doing so, WorleyParsons compared SCA’s proposal to standard accounting practices for the determination of depreciation and to the numbers employed by IPART at its last determination of SCA’s prices. The adjusted RAB asset lives for both the existing asset database and the FCP was reviewed to calculate a recommended average economic asset life for existing and new assets, respectively. This review can be found in Section 2.5.



2. REVIEW OF ECONOMIC ASSET LIFE

2.1 SCA economic asset life categories and determination

SCA was asked to describe its methodology for the determination of economic asset life. SCA provided Table 1 below as the list of economic asset life for various asset classes, as applied to their existing assets as supplied to IPART. SCA also provided its entire RAB in the form of a large spreadsheet, which included the economic asset life determination for each asset in the RAB.

Table 1 – SCA 2008 AIR Table 7.1: Classification and Depreciation of Assets Classification and Depreciation of Assets (Property, Plant & Equipment) NOTE : Categories should be defined, as far as possible, on the basis of the useful lives of new assets. Classification Information for year: 2008

(categories defined by user)

Book depreciation Tax depreciation rate

Water Assets Average useful life of new

assets (years)

Average remaining life of existing assets

(years)

Rate applicable to new assets (% per year)

Effective rate on existing assets (% per year)

Unallocated 56 42 1.8 % 2.4 % Dams 200 87 0.5 % 1.1 % Treatment plants 45 47 2.2 % 2.1 % Pipelines 120 99 0.8 % 1.0 % Reservoirs/tanks 150 44 0.7 % 2.3 % Pump stations 45 52 2.2 % 1.9 % Office equipment 12 9 8.3 % 11.1 % Buildings 50 47 2.0 % 2.1 % Vehicles 7 7 14.3 % 14.3 % Land na PERPETUITY na

An analysis by WorleyParsons of the RAB and Table 1 revealed that economic asset life figures allocated in the RAB did not appear to correlate directly with Table 1 and that the remaining economic asset life in some instances was larger than the economic asset life assigned to new assets. SCA was contacted to confirm the methodology used for economic asset life determination. The statement below confirms the application of Table 1 to the RAB, as the entire RAB was re-evaluated in 2007.

“All assets in existence prior to 31 December 2006 were re-evaluated for economic asset life as at 30 June 2007 as part of the asset revaluation process which took place concurrently (based on an Optimised Depreciated Replacement Cost methodology). For those assets capitalised after 31 December 2006 the approach is to identify individual asset lives of the components of the ‘larger



asset’ (This would result in a weighted average economic asset life for the ‘larger asset’). The figures found in the RAB are based on the outcome of the above approach. This explains why many assets have remaining lives expressed as values different than the table above (typically lower) (which are a composite useful life of the “larger asset”) and why many have fractions.”2

An investigation by WorleyParsons of the forward capital program (FCP) indicated that some assets were being classified based on values that did not appear in Table 1. Table 2 below is the compilation of the economic asset life assigned to various asset classes in the SCA FCP and compared to Table 1. Some of the classes found in Table 1 were not present in the FCP and some asset classes in the FCP were not present in Table 1.

Table 2: SCA Forward Capital Program apparent economic asset life. Classification and Depreciation of Assets SCA to IPART, (from Table 1) Forward Capital Program Dams 200 100 Treatment plants 45 45 Pipelines 120 100 Reservoirs/tanks 150 Pump stations 45 45 Mechanical Equipment 100/50 Electrical Equipment 40 SCADA Equipment 40 Office equipment 12 5 Computer Equipment 5 Furniture 10 Office amenities 10 Operation Equipment 6 Buildings 50 30/50 Fencing/Landscaping 20 Roads/Bridges 100 Vehicles 7 7 Systems/Software 5 Land PERPETUITY PERPETUITY

SCA were asked to clarify a number of these entries in the FCP and confirmed that a number of the projects did not have an economic asset life that matched entries in Table 1. They also confirmed that the same process as mentioned above will be applied to the FCP as projects are completed and added to the RAB.

2 Email, K Rasiah, SCA, 16/10/2008



2.2 Comparison to other economic asset life determinations

Table 3 below is a direct comparison of the economic asset life of the asset classes found in the SCA FCP and RAB to those applied by several other Australian water authorities (Melbourne Water, ActewAGL and Water Corporation of WA) and the official economic asset life numbers supplied by the ATO.

Table 3: Comparison of assigned Economic asset life. Classification and Depreciation of Assets SCA^ Melb Water@3 ActewAGL@4 WC of WA@ ATO5@ Dams 200/100 100 100* 120* 100* Treatment plants 45 80/25** 50/60* 30* 80/50/25/20# Pipelines 120/100 80 80* 80/110* 80* Tunnels 100 80 80* 150/100* 80* Reservoirs/tanks 150 80 80* 50/70* 80* Pump stations 45 80/25/10 35 to 60* 50* 100/40/25/20# Mechanical Equipment 100/50 25 25* 25* Electrical Equipment 40 25 25* 20/40* SCADA Equipment 40 10 10* 10* Office equipment 5 7* 15/10/5# Computer Equipment 5 3 5* 4* Furniture 10 7* 20/15/10# Office amenities 10 7* 15/10/5# Operation Equipment 6 7* 7/5/3# Buildings 30/50 40 30/50* 33.3/100* Fencing/Landscaping 20 40 30* 20* Unsurfaced Roads 100 20 30* 20/30/40/50# Bridges 100 40 40/50/60/80* 20/50# Vehicles 7 8* Systems/Software 5 3 5* # Land Perpetuity Perpetuity* Perpetuity*

* denotes data where the assets were easy to identify as the same asset type.

** denotes separate asset lives for subcategories within classification

# denotes data that is representative of the asset type but does not match exactly

^ SCA numbers presented here are a summary of Table 2

@ Multiple economic asset life numbers occur when the reference has further separated the SCA asset classes.

3 Melbourne Water and Water Corporation of WA supplied documentation

4 ACT commissioner for sustainability and the environment: indicator water infrastructure.

http://www.environmentcommissioner.act.gov.au/soe/2000_act_report/indicators/wateruse/waterinfrastructure

5 Australian Government Australian Tax Office Taxation Ruling TR2008/4. http://law.ato.gov.au/atolaw/view.htm?locid='TXR/TR20084/NAT/ATO'&PiT=99991231235958



Unlike the data from the water authorities, the data available from the ATO does not always match the exact asset class in the SCA list. In the case of treatment plants, ATO separates the plant down into many further sections, each having their own economic asset life. In the case of pump stations, 25 years is directly applicable for the pumps, 100 years for the building, 20 years is for switchboards and 40 years for transformers. In the cases of office equipment and amenities, furniture and operational equipment, the ATO has reasonably comprehensive listings for various parts of each type of asset and the economic asset lives listed are examples. The data from the ATO did not seem to cover bridge or road infrastructure. The numbers listed for these assets are from the economic asset life of rail track infrastructure and as such are only indicative.

2.3 Comparison of economic asset life

SCA has reassessed (in 2007) the entire RAB for remaining economic asset life (see Section 2.1). For each asset, SCA have based the remaining economic asset life on the weighted economic asset life of the larger or group asset. More recent assets have been separated into more specific asset classes to reflect different economic asset life of these classes. This re-evaluation is based on the Optimised Depreciated Replacement Cost method. This method measures the cost of replicating the system in the most efficient way possible, from an engineering perspective, given its service capability and the age of the existing assets using straight line depreciation on the asset age.6

While the ATO recommends that the economic asset life that it has determined for assets be used for tax depreciation, it does allow for industry to self assess the useful life of its own assets based on local conditions and industry standards of actual economic asset life. Such differences in the economic asset life are expected to be documented.7

This review by WorleyParsons did not take into account exact local conditions that affect the assets of SCA. It reviewed the economic asset life SCA presented for various categories using comparative data from other water authorities and those presented by the ATO. SCA has indicated that local conditions are considered in the asset life determination for all major projects completed after 30 June 2006. It has also advised that the review in 2007 documents the condition of older assets.

This methodology used by SCA (as described above and in Section 2.1) in the determination of an economic asset life for its RAB is considered by WorleyParsons to be acceptable.

2.3.1 Review of SCA economic asset l ife

Land and Fencing

6 New Zealand Commerce Commission’s handbook, Handbook for Optimised Deprival Valuation of System Fixed Assets of Electricity Line Businesses”, April 1999. www.med.govt.nz/upload/23445/hbook.pdf




There are very few economic asset life classifications that directly agree with the ATO. Land is correctly not depreciated and the assigning of a 20 year economic asset life to fencing is also considered appropriate.

Water Treatment Plants The assigning of a 45 year economic asset life to treatment plants is considered appropriate for medium to large water treatment plants (package plants have a shorter economic asset life). The ATO method is to separate the economic asset life of a plant into each treatment unit. This separation is suitable for large treatment plants.

Pump Stations The assigning of a 45 year economic asset life to a pump station is considered appropriate. Large pump stations could be separated into mechanical works (pumps), mechanical works (valves), electrical works, civil works and control works.

Office equipment, Computer equipment, Furniture, Office amenities and Operational equipment The choice of an economic asset life for the categories of office equipment, computer equipment, furniture, office amenities and operational equipment is in general agreement with the ATO. The ATO numbers are based on specific items. A few random assets were checked in the RAB and agreement was noted. SCA have not, however, documented the assigned economic asset life in the asset classification table (see Table 1), with the exception of those for office equipment.

Buildings The assigning of an economic asset life for buildings by SCA also appears to be reasonable. The assigning of a 30 year economic asset life to non brick buildings is considered appropriate and while the assigning of a 50 year life to a brick building is not as recommended by the ATO, it does correspond to the similar expected life from a similar working building by industry. The assigning of an economic asset life for very permanent buildings of 100 years and temporary buildings of 10 years is also considered acceptable.

Motor Vehicles The ATO has set depreciation of cars (general) at 8 years. SCA have chosen to depreciate their vehicle fleet over seven years, which is considered acceptable as long as the reason for this slightly shorter duration is recorded. Typically, operational vehicles will need to be replaced more often.

Dams The listing of an economic asset life of 200 years for dams seems at odds to the recommendation by the ATO of 100 years and the practice of other authorities. SCA use a 100 year economic asset life for their new assets, which is considered acceptable. SCA has advised that the asset life for this asset category may not have been reviewed as the organisation considers it unlikely that any new dams will be built in the foreseeable future. Given the nature of SCA’s dams, an economic asset life of 200 years may be justified. To fully update its procedures, SCA may wish to review or document the use of a value larger than 100 years for dams to confirm if they will last longer than 100 years without the need for an upgrade.



Pipelines and Tunnels Assigning an economic asset life to tunnels and pipelines in the range of 120 to 100 years is higher than the ATO recommended figure of 80 years. It is, however, within or close to the industry range for such a structure. It is assumed that SCA specifically assess each asset in this class to determine its economic asset life. Should this not be the case, the lower economic asset life of 80 years would be recommended.

Tanks and Reservoirs The choice of assigning an economic asset life of 150 years to reservoirs and tanks seems excessively large. Based on industry averages and ATO recommendations, this economic asset life should be reduced to an economic asset life of 80 years. SCA has advised that no tanks or reservoirs are included in its FCP. However, to present a complete procedure, it may wish to review the asset life for this category.

Mechanical Equipment The economic asset life assigned by SCA to mechanical equipment (which was not included in the information forming the basis of Table 1) seems larger than expected. Most pump sets would be expected to have a mechanical life of 25 years (valves 30 years). Most other mechanical equipment has been given this same economic asset life (except valves). One specific case where another determination may be suitable is for cranes and similar assets, where the ATO recommends an economic asset life of 33.3 years.

Electrical Equipment There was no specific listing for electrical equipment in the SCA information forming the basis of Table 1. High cost items of electrical equipment are transformers, with a 40 year economic asset life, and switchboards with a 20 year life. As most of the electrical equipment is used to start and operate the mechanical equipment the industry trend is to assign this class of asset the same economic asset life as the mechanical equipment. Thus, the use of 25 years as an economic asset life is recommended.

SCADA (Control and Instrumentation) The economic asset life assigned to control equipment by SCA is considered to be too large. Both the ATO and the industry typically recognise that this equipment needs frequent replacement. An economic asset life of 10 years is recommended for SCADA systems. Variable speed drives, however, have a slightly longer economic asset life at approximately15 years. There was not a specific listing in the information forming the basis of Table 1 for either of these asset types.

Roads and Bridges The data on comparative economic asset life for bridges and roads was not in the SCA information, nor was it found as a separate asset type in the ATO listing. Industry practice is to design roads for a service life of between 20 and 50 years. The design of a bridge is typically for the life of the attached water asset. Typically, an unsurfaced road will have a lower service life than a surfaced road as the road is less robust. The economic asset life of a bridge will very much depend on its method and materials of construction. It seems the ATO include the bridge as part of the infrastructure it is



designed to carry (road (20), pipe (80) or dam (100)). It is recommended that SCA review the design life of the roads and bridges in their capital program. For the calculations performed on the RAB and the FCP by WorleyParsons, the economic asset life of 20 years for roads has been used. For calculating the average asset life, Worley Parsons has retained an economic asset life of 100 years for bridges.

Systems and Software (Intangible assets) Many items in the RAB and FCP fall under the category of systems/software, which is not included in the SCA economic asset life information forming the basis of Table 1. This asset category covers a range of intangible assets that can be described as one of the following: commissioned computer software (other than “off the shelf” software, which SCA does not deem to be an asset), computer manuals, training manuals, training, office systems, safety systems, business systems, intellectual property and its development, risk management and knowledge management. These systems are required as part of many capital projects and many are directly required to use assets in the RAB on a day to day basis. However, expenditure in this area rarely produces a physical asset and as such the expenditure is typically amortised (depreciation of the intangible asset).

2.4 Review of SCA current economic asset life methodology

A review by WorleyParsons of the methodology and application of the SCA practices for economic asset life determination indicates that in general the process being used is correct and robust. SCA has correctly reviewed its asset base on acquisition and applied an economic asset life based on a list of economic asset life (as described in Section 2.1 and 2.3). SCA correctly assign new assets an economic asset life based on the SCA table of economic asset life (Table 1). A review of the entire RAB indicates that, in general, most assets have an assigned economic asset life that is suitable for the asset in question.

However, the RAB has an average economic asset life for the larger assets or group assets and does not always show the individual assets that make up the group asset. The FCP has smaller assets groupings than the RAB, but does not always show line by line an asset with a corresponding economic asset life from Table 1. Table 1, provided by SCA to determine economic asset life, has very few entries and did not cover the entire range of assets allocated an economic asset life in the RAB and FCP. These factors limited the results of the analysis of the assignation of economic asset life in the RAB and FCP.

The economic asset life assigned in the FCP and RAB did not always match those in the asset category life table provided (as shown in Table 2), partially because relevant entries in the table do not exist. Most of these, especially the land, plant and equipment assets (non facility assets), do however match economic asset life expected for these assets based on the ATO tax ruling. While the documentation of each assigned economic asset life can be found in the asset re-evaluation report



(2007) or the project file for new assets, this information did not carry through to the databases provided.

An issue for the review of an assigned economic asset life is that the only information accompanying the data from SCA about each asset is a short asset name or project title. It is possible that the major component of an asset in the RAB or FCP for this review has been incorrectly categorised by WorleyParsons due to the interpretation made on the basis of the asset/project name.

As the economic asset life table provided by SCA (Table 1) did not include all the required asset classes for an analysis of the RAB and FCP, a table was compiled by WorleyParsons for the review. This table compares the economic asset life commonly found in SCA’s RAB and FCP and the economic asset life selected by WorleyParsons for this review of the RAB and FCP. The economic asset life used by WorleyParsons in this review was based on three factors: what SCA appeared to use in the RAB and FCP (see Table 2), the industry standard and what was recommended by the ATO8. The last column of Table 4 below is the compiled list of the economic asset life based on WorleyParsons’ review of ATO and industry standards and SCA asset specific considerations.

Table 4: List of typically used economic asset life in SCA’s RAB and FCP compared to the economic asset life used for this review. Classification and Depreciation of Assets

Asset Class SCA Used in Worley

Parsons’ Review Dams DAM 200/100 100 Treatment plants WTP 45 45 Pipelines PIPE 120/100 80 Reservoirs/tanks TANK 150 80 Pump Stations PS 45 45 Mechanical Equipment MECH 100/50/40/30/20 25 Electrical Equipment ELEC 50/40/20 25 Variable Speed Drives VSD 40/20 15 SCADA Equipment CONT 40/20/5 10 Office equipment OF E 12/10/5 5 Computer Equipment CP E 10/5/4 5 Furniture FURN 20/15/10/5 10 Office Amenities OF A 20/15/10/5 10 Operation Equipment OP E 20/15/10/7/5 10 Buildings B(100) 100 100 Buildings B(50) 50 50 Buildings B(30) 30 30 Buildings B(10) 10 10




Classification and Depreciation of Assets

Asset Class SCA Used in Worley

Parsons’ Review Fencing/Landscaping FNC 30/20 20 Unsurfaced Roads RD 100 20 Bridges BDG 100 100 Leasehold 20 As per Asset Vehicles M VC 20/11/7 7 Systems/Software SS 5 5 Land LAND Perpetuity Perpetuity

2.4.1 SCA economic asset l ife in the RAB

In general, the economic asset life of the assets reviewed in the SCA’s RAB corresponds well with those of equivalent assets of other water industry companies, SCA’s documented asset life table (Table 1) or is based on ATO tax determinations (Table 2). As many of the actual economic asset life numbers in the RAB have been ‘averaged’ in the process described in Section 2.1 above, for some specific cases, especially when an asset is a larger or group asset, it is difficult to confirm that SCA follows its specified methodology as the economic asset life calculation has not been sighted.

For the purpose of the WorleyParsons review of an average economic asset life, the section of the data base selected had to be reviewed with a simple and understandable process. This process used the economic asset life values found in Table 4 above. The asset classes impacted most by the application of WorleyParsons’ asset life figures are roads, Variable Speed Drives, SCADA (Supervisory Control and Data Acquisition) systems, mechanical systems, electrical systems, tanks and pipes.

One issue identified in this review was the analysis of the non facility assets (land, plant and equipment). Many of these assets in the RAB have been individually assessed by SCA based on their own separate asset type and not a broad group. While they conformed to ATO depreciation guidelines, their asset life values were different to the economic asset life values documented by SCA (Table 1). An example was the section on motor vehicles, where of the most expensive vehicles, only one was a standard car, all of the rest were trucks, tankers and loaders. Each would normally have their own asset class for depreciation purposes. Another example of an asset class that has been specifically classified (and not included in Table 1) is the building class. This class appears to have been split into temporary buildings (10 years), permanent non brick buildings (30 years), permanent brick buildings (50 years) and permanent concrete buildings (100 years).

Significant differences between the economic asset life of assets in the SCA’s RAB and those used by WorleyParsons in the review did occur. Differences due to either the change of an economic asset life or grouping of assets (as described in 2.1) were expected. A small number off assets, however, had an assigned asset life notably different from values described in Table 1. Refurbished canal assets were one such exception, also a small number of assets which typically have a long economic



asset life, were assigned unexpectedly short ones. Table 5 below lists most of the entries in the RAB that had an unexpectedly short economic asset life. The overall impact of these variations on WorleyParsons’ findings is not significant and some variations are likely to have project or asset specific rationale.

Table 5: Section of RAB – highlighting assets with unexpectedly short economic asset life. Asset

Number Asset Description

Acquired

SCA Life

Life if New9

Asset Class

12709 Upper Canal Aqueduct Refurb. at Leafs Creek 82_m 2004 10 80 PIPE

12714 Rehabilitation of Upper Canal - Flumes, Drains, and Canal Wall - C1730608 2004 10 80 PIPE

12716 Refurbish Upper Canal Aqueduct at Elladale Creek 200 m 2004 10 80 PIPE

12682 Reinforced Concrete Weir 1995 23.23 100 DAM

12657 Channel, Prospect Spillway Central Low Flow Concrete Channel 2003 36.19 100 DAM

12658 26 m High & 2225 m Long Earth and Clay Core Embankment 2004 36.19 100 DAM

12696 Environmental flow releases at Woronora Dam – pipes 2003 20 80 PIPE

The refurbishment or rehabilitation works highlighted in Table 5 were specifically performed on canal or aqueduct assets. All of the assets were also reviewed as part of the SCA’s 2007 asset life review. SCA have confirmed that they follow the AASB 116 Standards in regards that refurbishment work will bring an asset back to its new condition. As the correct processes have been followed by SCA in the assigning of an economic asset life to these works, it appears that the table of economic asset lives from which SCA selects asset lives needs to be further expanded to include a classification for channels.

The second half of the works highlighted in Table 5 are all works on existing structures. While the works themselves should have an economic asset life taken from the “life if new” column in Table 5, as all of these assets we reviewed as part of the 2007 SCA asset review they would have been grouped together with the older larger (or group) asset and had an average asset life attributed to them. SCA have confirmed that all new assets post 2007 are individually assessed and included into the RAB on project completion.

2.4.2 SCA economic asset life in the Forward Capital Program

The economic asset life of the assets reviewed in the FCP corresponded well to expected economic asset life (SCA economic asset life Table 1, ATO economic asset life) with the same differences

9 From Table 1.



already discussed in section 2.3.1. These differences include the economic asset life of roads, Variable Speed Drives, SCADA (Supervisory Control and Data Acquisition) systems, mechanical systems, electrical systems, tanks and pipes.

Two projects, however, had economic asset life numbers that could be unsuitable. The projects relate to operational equipment and upgrades, and the economic asset life applied to these projects does not match the economic asset life expected from Table 1. CPX015 - Working plant and equipment – acquisition: had an SCA proposed economic asset life of 6 years, which, depending on exact asset type, may be reasonable, but is less than expected if the values in Table 1 are applied. Project CPO224 - Operational asset replacement program had an economic asset life of 40 years, which is significantly higher than the expected values of 10 (5/7/15) years for such assets. The first project highlights an issue of having a small table from which to assign economic asset life as the economic asset life assigned to a new asset either has to be incorrect for the asset (selected from the table) or correct for the asset but not according to the documented process. SCA have indicated that the second project is a group of equipment items not easily covered by Table 1 and was handled as a group asset to produce an average weighted asset life. SCA also indicated that the various portions of the asset will be assigned an appropriate economic asset life from the list in Table 4.

2.5 Review of SCA proposed methodology

For its previous determination of SCA’s prices (in 2005), IPART calculated SCA’s depreciation allowance by using a 70 year average economic asset life for SCA’s existing assets and 100 years for new works.

For IPART’s upcoming determination of SCA’s prices, SCA has proposed that IPART assume average asset lives of 60 years for both existing and new assets. This proposal is based on SCA’s observation that the remaining life of its RAB is, on average, 60 years, and that the average life of assets in its FCP for this upcoming regulatory period is also approximately 60 years. Accordingly, SCA has modelled its revenue requirement in its submission based on depreciating its whole RAB on a straight line basis by 1.67 percent per annum (evenly over 60 years).

While the ‘averaging’ of an asset base over a set number of years is not normally done for taxation depreciation, the application of an average life for use in accounting is acceptable for similar assets. The whole of a group of assets that are required to perform a water business can only be called similar when compared to other broad categories such as power supply, food preparation and mining. IPART currently already uses this method for its calculation of an agency’s capital maintenance (depreciation) requirement. Therefore, WorleyParsons did not review the applicability of this specific method. It only reviewed if the economic asset life number being used by SCA is suitable.

When grouping similar assets together to produce an average life, the following method can be used. Each asset is reviewed independently to assess its current value and economic asset life to produce a value for depreciation. The current value and the depreciation value of all of the assets are separately totalled. The sum of the current value for the asset base is then divided by the sum of the



depreciation value of the asset base, with the resulting answer being the average economic asset life of the asset base.

The original FCP provided by SCA calculated the average economic asset life based on a weighted average using the asset value. The above method determines economic asset life based on asset depreciation.

The need for this weighting can be seen when the average life is calculated for the RAB with and without non facility assets (land, plant and equipment). As typically these assets have short lives when compared to facility assets, the removal of these assets from the calculation of an average economic asset life should, and does, increase the average economic asset life by a small amount, but not significantly. This is because the RAB is the existing entire asset base and not a small snapshot in time of the new and replacement asset program (the FCP). A similar calculation on the FCP, however, produces a greatly differing result, effectively doubling the average economic asset life.

A review of the SCA’s FCP spreadsheet by WorleyParsons in preparation has highlighted a few issues in the spreadsheet that influence the calculation of an average economic asset life. The first thing noted is that not all projects in the FCP have a total cost equal to the sum of money budgeted in the 2008 to 2013 lists. Also, for a number of ongoing projects (vehicle fleet, dam safety equipment, etc) there is no total amount spent as these are ongoing capital projects. These aspects have been corrected in the spreadsheet for the average economic life calculation to evaluate their impact on the average economic life outcome. There are a number of projects flagged as being finished by 2012 that do not have a budget or have not had the budget carried through to the total expenditure column. The projects with no budget have been omitted from WorleyParsons’ average economic asset life calculation. The projects that had a budget, but whose total expenditure was not documented, have been included in the average economic asset life calculation. All of the projects added that have an economic asset life of 30 or less are not facility assets (land10, plant and equipment).

WorleyParsons:

• reviewed SCA’s calculation outcomes for the average economic asset life of depreciable assets for the existing SCA RAB, using current asset values and economic asset lives as presented by SCA

• calculated the average economic asset life for the RAB, using the asset life values documented in Table 4 (using the ‘Used in Review’ figures)

• reviewed the calculations presented by SCA for the FCP

• calculated the average economic asset life of the FCP with and without weighting, as discussed on the last page.

10 No asset life is applied to land



The results of these checks and calculations is summarised in Table 6 below.

Table 6: calculated economic asset life for the FCP and RAB based on the original data provided by SCA and the modified spreadsheets. Capital Depreciation Life Weighted FCP as supplied by SCA $316 M $7.0 M 65.5 Weighted FCP – calculated by WorleyParsons economic asset life $355 M $15.7 M 47.3 FCP as supplied by SCA (No weighting) $316 M $7.0 M 44.9 FCP – WorleyParsons calculated economic asset life (No weighting) $355 M $15.7 M 22.6 RAB (existing assets) as supplied SCA $960 M $17.4 M 55.3 RAB (existing assets) as supplied SCA (Facility assets only) $945 M $15.3 M 61.6 RAB – WorleyParsons calculated economic asset life $815 M $14.5 M 56.4

As can be seen from the results of the table above, the values obtained are in the range of 20 to 65 years. The economic asset life determinations from the RAB are in a fairly tight range from 55.3 to 61.6 years. Non facility assets (land, plant and equipment) have been removed from some calculations to demonstrate the minimal effect the short term assets have on the economic asset life. Based on WorleyParsons’ review and calculations, the application of a 60 year economic asset life to the RAB (existing assets) is considered to be appropriate.

A complication occurs when the results from the FCP are considered. As half of the depreciation comes from the short life or non facility assets, these skew the result towards a lower overall economic asset life. For example, the replacement of the car fleet contributes about a third of the total depreciation of the FCP and these have a seven year life cycle. As the FCP only covers a period of 5 years, it is unlikely to cover the full range of facility assets that will need to be built. The result for the assessed FCP without any weighting of 22.6 years reflects the influence of these short term assets in the calculation.

When the asset purchases are weighted by their expected frequency and hence total value in the FCP and the average economic asset life is calculated as before, a more representative outcome is observed. The FCP as supplied by SCA has an economic asset life of 65.5, which reduces to 47.3 in the WorleyParsons’ weighted economic asset life calculations. This is rounded up to an average economic asset life of 50 years. The major issue with this calculation is that the next five year capital program (FCP) will differ from this five year program - therefore, the weighted average economic asset life of the next FCP may be significantly different to the calculation for the FCP for this period. A review of the economic asset life of the FCP in five years is recommended to track these changes.

As the unweighted average economic asset life of the FCP is influenced by the short life assets and the weighted average economic asset life is significantly influenced by which major projects are



completed in any 5 year period, consideration should be given to reviewing the weighted average economic asset life of the FCP at each future price determination.



3. SUMMARY AND RECOMMENDATIONS

3.1 SCA economic asset life determination

SCA’s method for determining the economic life of assets in its RAB and FCP appears robust and sound. The economic asset life documented by SCA typically follows industry standard, SCA documented numbers (Table 1) or is based on ATO tax determinations. As many of the actual economic asset life numbers in the RAB have been ‘averaged’ as per the process described in Section 2.1, for specific assets it is difficult to confirm that they do follow their own specified method., Most of the economic asset life values are, however, close to values applied by other water authorities or the ATO.

It is recommended that SCA expand their current economic asset life list to cover all types of asset classes that are found in its RAB and FCP.

It is recommended that SCA confirm that they have documented their reasons for using each actual economic asset life, especially where this number differs from industry standard or ATO determinations.

It is recommended that SCA review the current economic asset life assigned to roads, tanks, pipelines, mechanical, control, instrumentation and electrical equipment. In general, the economic asset life assigned to these classes of assets is considered to be too large.

3.2 Average economic asset life

The proposal of SCA that a depreciation rate of 1.67%, corresponding to an average economic asset life of 60 years, be applied to its existing asset base (the RAB) is considered justified.

It could also be considered justified to apply this average economic asset life of 60 years to the FCP. However, based on the calculations in Table 6, WorleyParsons recommends that an average economic asset life of 50 years be applied to the current FCP.

Considering the potential variability of future FCP’s, any number applied to SCA’s current FCP (for the upcoming price determination) may not be representative of future FCP’s (ie, FCP’s beyond the next regulatory period). As such, WorleyParsons recommends that consideration be given to reviewing the economic asset life of the FCP at each future price determination.

Appendix Page 1 301015/00417 : Rev C

Appendix 1 : Modified Section of Regulatory Asset Base Database. WorleyParsons Calculations.


Eq num Asset Description class

Acquired Life Current Value

New Life

Life Left Depreciation Note

Asset Class

This detailed asset base information is commercial-in-confidence and provided to IPART only

All the above assets Capital Cost Depreciation 814,811,440 14,458,034

Only Facility Assets 812,779,530 14,136,709

Average Economic asset life over entire list Calculated by WorleyParsons

56.4

Average Economic asset life for Facility Assets only, Calculated by WorleyParsons

57.5


Appendix 2 : Summary Section of Regulatory Asset Base Database Provided by SCA.


Sydney Catchment Authority Maximo Listing Run on : 17th July 2008 Depreciable assets Only Current Value Depreciation

Average Life

Facility FACILITY ASSETS 945,358,813.98 15,342,980.65 61.62 Buildings BUILDINGS 598,571.63 17,621.62 33.97 LEASEHOLD 662,033.66 34,454.20 19.21 Plant & Equipment COMPUTER EQUIP 2,748,472.85 625,353.28 4.40 FURNITURE 371,714.54 34,367.04 10.82 MOTOR VEHICLES 5,124,982.25 718,268.99 7.14 OFFICE AMENITIES 115,029.23 11,463.19 10.03 OFFICE EQUIPMENT 847,262.95 105,981.77 7.99 OPERATION EQUIP 4,014,204.09 465,346.16 8.63 TOTALS 959,841,085.18 17,355,836.89 55.30


Appendix 3 : Section of Forward Capital Program Spreadsheet. As adjusted by WorleyParsons.


Corporate Program

Office No. Project Name

Total cost (commercial

-in-confidence, provided to IPART only)

Economic

asset life

Proposed Life

New Depreciation

Asset Class

Notes

Weighted Cost

CPO006 Project Management Information System acquisition 5 5 100,000.00 SS 13 2500000 CPO007 Prospect Reservoir - upstream embankment stabilisation upgrade 100 100 175,570.00 DAM 27 1755700000 CPO033 Upper Nepean environmental flows works 40 25 1,120,133.16 MECH 3 700083225 CPO036 SCADA - upgrade 40 10 197,800.00 CONT 1 19780000 CPO068 Narrow Neck Fire Tower 40 50 2,232.56 B(50) 23 5581400 CPO108 E-Office - development 5 5 50,000.00 SS 13 1250000 CPO109 Upgrade of cottages & other structures at dam sites 30 30 0.00 B(30) 21 0 CPO113 Warragamba Dam Crest Gates, Construction 40 25 1,187,692.00 MECH 3 742307500 CPO114 Warragamba Dam - electrical systems upgrade 40 25 103,011.80 ELEC 2 64382375 CPO122 Upper Canal Chlorination Facility 40 25 158,764.92 ELEC 2 99228075 CPO123 Metropolitan & Woronora Dams - reticulation and fire hydrants upgrade 40 25 46,208.44 MECH 11 28880275 CPO124 Upper Canal - upgrade fish biomonitoring stations 40 10 0.00 CONT 1 0 CPO127 Woronora & Nepean Dams - overhead cranes upgrades 40 25 0.00 MECH 12 0 CPO131 Middle Cascade, Lake Medlow and Greaves Creek - trunnion lifting

arrangements replacement

40 25 6,134.04 MECH 12 3833775 CPO132 Woronora & Nepean Dams - lifting & storage of stopboards & screens 40 25 0.00 MECH 12 0 CPO133 Woronora Dam - access roads upgrade 100 20 109,600.00 RD 7 43840000 CPO137 Burrawang Pumping Station Electrical system 40 25 100,000.00 ELEC 2 62500000 CPO138 Bridges - upgrades 100 100 19,800.00 DAM 27 198000000 CPO139 Upper Canal - access roads upgrade 100 20 204,750.00 RD 7 81900000 CPO140 Blue Mountains Dams - access roads upgrade 100 20 21,000.00 RD 7 8400000 CPO141 Upper Avon & Cordeaux - access roads upgrade 100 20 23,500.00 RD 7 9400000 CPO145 Bendeela Control Structure - stop boards acquisition 40 25 11,624.72 MECH 3 7265450 CPO150 Warragamba Dam - pipelines spare pipes & fittings 50 80 435.40 PIPE 10 2786560 CPO151 Prospect Reservoir - scours upgrade 50 25 200,505.68 MECH 4 125316050 CPO155 Campbelltown office - fit out 10 10 15,646.70 FURN 17 1564670 CPO162 Playgrounds - installation of new of softfall material 20 20 0.00 FNC 20 0 CPO163 Upper Canal - fencing upgrade 20 20 156,202.15 FNC 20 62480860 CPO174 Upper Canal - drainage upgrade 50 80 0.00 PIPE 10 0 CPO185 Land Information System 10 10 0 SS 13 0 CPO186 Wingecarribee Dam - safety upgrade 50 100 85,647.90 DAM 5 856479000 CPO197 Photocopiers - procurement 5 5 68,200.00 OF E 14 1705000 CPO199 Motor Vehicle Fleet - procurement 7 7 4,372,571.43 M VC 16 214256000 CPO200 Penrith Head Office - relocation 10 10 450,000.00 OF A 18 45000000 CPO201 Warragamba Dam - Precinct upgrade (landscaping) 20 20 336,033.25 FNC 20 134413300 CPO202 Warragamba Dam Operations Building and Visitor Centre 50 50 34,085.34 B(50) 23 85213350 CPO204 Warragamba Conference Centre - upgrade 30 30 9,271.03 B(30) 21 8343930 CPO209 Braidwood - fencing upgrade 20 20 0.00 FNC 20 0 CPO210 Fire tanker upgrade 10 10 13,500.00 CONT 1 1350000 CPO212 Regulatory and facilities capital signage upgrade 10 10 30,916.50 OP E 19 3091650 CPO213 SCA locking system - replacement 10 10 0.00 CONT 1 0 CPO214 South East Operational Area - fencing for access control upgrade 30 20 0.00 FNC 20 0 CPO216 Prospect Reservoir Raw Water Pumping Station 45 45 465,765.69 PS 24 943175520 CPO218 Hydrometric renewals programme 30 10 218,709.60 CONT 1 21870960 CPO219 Warragamba Pipeline, and Prospect - access roads upgrade 100 20 53,750.00 RD 7 21500000 CPO220 Shoalhaven - access roads upgrade 100 20 103,750.00 RD 7 41500000 CPO221 Metropolitan Dams - access roads upgrade 100 20 53,750.00 RD 7 21500000 CPO222 Upper Nepean / Leonay-Emu Plains / Wallacia - groundwater works 50 25 263,662.48 MECH 11 164789050 CPO224 Operational asset replacement program 40 10 538,402.30 OP E 9 53840230 CPO225 IT system - general upgrades 5 5 158,000.00 CP E 15 3950000 CPO226 IT business recovery services - procurement 5 5 105,600.00 SS 13 2640000 CPO227 IT telecommunications - general upgrades 5 5 80,400.00 SS 13 2010000 CPO228 IT desktop lifecycle - procurement 5 5 107,200.00 CP E 15 2680000 CPO229 IT server lifecycle - replacement 5 5 167,400.00 CP E 15 4185000 CPO230 Braidwood - cottages and other structures upgrades 30 30 7,333.33 B(30) 21 6600000 CPO231 Dam safety survey equipment - upgrade and replace 10 10 25,000.00 CONT 1 2500000 CPO246 Warragamba Pipelines - elec, monitoring and control systems acquisition 40 10 420,000.00 CONT 1 42000000 CPO247 Blue Mountains - electrical, monitoring and control systems acquisition 40 10 220,000.00 CONT 1 22000000 CPO252 Flood gauging winches - upgrades 40 25 44,612.80 MECH 12 27883000 CPO253 Warragamba Pipeline - ancillary valves upgrade 40 25 192,000.00 MECH 4 120000000 CPO254 Blackheath, Warragamba and Nepean - Special Area fencing upgrade 20 20 0.00 FNC 20 0 CPO264 St Senans Church - upgrade 30 30 7,465.47 B(30) 21 6718920 CPO272 Shoalhaven Transfers works 100 100 24,012.90 DAM 27 240129000 CPO273 Tallowa Dam - fish passage and environmental flow works 100 100 220,000.00 DAM 27 2200000000 CPO290 Hydrometric & water quality monitoring network - augmentation 10 10 0.00 CONT 1 0 CPO309 Warragamba Dam - ladders and platforms upgrade 40 25 53,600.00 MECH 3 33500000 CPO319 Lower Cascade Dam - 600mm scour valve replacement 40 25 7,200.00 MECH 4 4500000 CPO343 Bendeela Camping Ground - upgrade 20 20 150,000.00 FNC 20 60000000 CPO346 Metropolitan Dams Electrical system 40 25 240,000.00 ELEC 2 150000000 CPO351 Bendeela Campground - pump out tank 40 80 0.00 TNK 22 0 CPO355 Cordeaux Dam - upper scour valve house crane 40 25 2,000.00 MECH 4 1250000 CPO361 Metropolitan Dams - Internal access ladders for cranes 40 25 3,680.00 MECH 3 2300000 CPO362 Warragamba Dam - Rock Face stability 100 100 4,500.00 DAM 27 45000000 CPO364 Avon Dam Destratification Compressor 10 25 9,400.00 MECH 11 5875000 CPO377 Kangaroo Pipeline - access road 100 20 8,250.00 RD 7 3300000 CPO380 Bendeela Pipeline Internal Lining renewal 40 80 25,000.00 PIPE 10 160000000 CPO385 Warragamba Dam - Major refurbishment valve house over head cranes 40 25 34,000.00 MECH 4 21250000 CPO392 Fish River Water Supply - Raw water transfer system 40 45 7,777.78 PS 24 15750000 CPO403 Shoalhaven Expansion of SCARMS 10 10 140,000.00 CONT 1 14000000 CPO408 Knowledge Management System - development 5 5 40,000.00 SS 13 1000000 CPO410 Cataract and Warragamba Dam - cottages upgrade 30 30 8,333.33 B(30) 21 7500000 CPO411 Picnic Ground Refurbishment 20 20 50,000.00 FNC 20 20000000 CPO412 Woronora Dam - cottages upgrade 30 30 6,500.00 B(30) 21 5850000 CPO414 SCA business systems - upgrade and integration 5 5 124,600.00 SS 13 3115000 CPO416 Back office systems - upgrade 5 5 20,000.00 SS 13 500000 CPO417 IT service desk tool 5 5 12,000.00 SS 13 300000 CPO418 SCA network - improve access 5 5 14,000.00 SS 13 350000 CPO419 Laptops and PDAs 5 5 32,000.00 CP E 15 800000 CPO424 Incident Management System - acquisition 5 5 20,000.00 SS 13 500000 CPO427 Risk Management Software-Based System acquisition 5 5 50,000.00 SS 13 1250000 CPO428 SCA Photo & Image Library Project 5 5 26,000.00 SS 13 650000 CPO432 Tallowa Dam Safety Upgrade 100 100 5,000.00 DAM 27 50000000 CPO436 Seismic monitoring Upgrade 10 10 8,400.00 CONT 1 840000 CPO438 Warragamba Dam - deep storage access works 100 100 5,000.00 DAM 27 50000000 CPO480 Warragamba Dam Water Main Upgrade 50 80 0.00 PIPE 10 0 CPO492 Warragamba Dam Upgrading Communication Link 10 10 7,000.00 CONT 1 700000 CPX001 Warragamba Dam Environmental Flow Releases 50 25 480,000.00 MECH 3 300000000 CPX003 Warragamba West Bank Tower Refurbishment 100 100 25,000.00 DAM 27 250000000 CPX007 Inlake water treatment 45 45 17,777.78 WTP 25 36000000 CPX010 Upper Nepean Transfer Scheme 100 80 937,500.00 PIPE 26 6000000000 CPX013 Kangaroo Pipeline - Shaft - Relining 100 80 25,000.00 PIPE 26 160000000 CPX014 Catchment Security & Fencing Program 20 20 100,000.00 FNC 20 40000000 CPX015 Working plant and equipment - acquisition 6 10 125,000.00 OP E 19 12500000 Shoalhaven SCADA 20 10 0.00 CONT 1 0 Upper Avon - installation of turbidimeter 30 10 0.00 CONT 1 0 Warragamba Dam, Replace Valves & Ancillary Equipment 40 25 0.00 MECH 4 0 Burrawang Pump Cooling system 40 25 0.00 MECH 11 0 Upper Cascade Dam Raw Water Pumping Station 45 45 0.00 PS 24 0


Nepean Dam - deep storage access 100 100 0.00 DAM 27 0 CPO206 Land acquisition Perpetuity 0.00 LND 29

All the above projects Capital Cost Depreciation 355,186,568 15,712,170

(with the land value) 358,951,568

Due to finish by 2012 269,954,453 13,502,637

Average Economic asset life over entire list 22.6 Average Economic asset life for project due to finish by 2012

20.0

Average Economic asset life for Facility Assets only

38.0

Weighted Average Economic asset life over entire list

47.3

Weighted Average Economic asset life for projects due to finish by 2012

39.9

Notes 1 SCADA systems have a 10 year economic asset life 2 Electrical systems have a 25 year economic asset life. 3 Assuming these are not Dam structure works then 25 years is the appropriate economic asset life as a mechanical asset (see note 4). 4 Large valves may have an economic asset life up to 50 years but have been assessed as mechanical for this exercise. 5 Dam safety works should be as robust as the life as the dam 6 Unsure if this should be 45 for a treatment plant or 120/100 for pipes based on 50 for mechanical works 7 Access roads (even around dams) have a fairly short life. Unless the cost is for rock tunnels or bridges. 8 Buildings typically have a 50/30 year life span 9 The asset creation is replacing operational assets which typically have a 10 year life 10 Pipeline renewals should be at least a 80 year life 11 Mechanical works have a 25 year economic asset life 12 Gantry, cranes and similar probably should have a 33.3 year life as assessed by ATO, but have been classed as mechanical for this exercise. 13 Classed as System/Software 14 Classed as Office Equipment 15 Classed as Computer Equipment 16 Classed as Vehicle 17 Classed as Furniture 18 Classed as Office Amenities 19 Operation Equipment 20 Classed as Fencing/Landscaping 21 Classed as Building - Permanent Non brick (30) 22 Classed as Tank/reservoir 23 Classed as Building - Permanent Brick/Stone (50) 24 Classed as Pump Station 25 Classed as Treatment Plant 26 Classed as Pipeline 27 Classed as Dam works 28 Classed as Bridges 29 Classed as Land 30 Classed as Building - Temporary (10) 31 Economic asset life reduced based on SCA Assessed Life 32 Economic asset life reduced based on Installed Date 33 Classed as VSD (15) 34 Classed as Building - Permanent Concrete (100)


Appendix 4 : Entire Regulatory Asset Base Database as supplied by SCA.


See attached File

Maximo Asset database.xls


Appendix 5 : Entire Forward Capital Program Spreadsheet as supplied by SCA


See Attached File

Calc of new asset lives.xls

review of asset life determination€¦ · the sca asset base, consisting of both existing assets...

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