Hunter Water needed to increase its capital investment in coming years to compensate for a period of under investment, an Independent Pricing and Regulatory Tribunal hearing into water prices has heard.
Acting chief executive Graham Wood told Tuesday's hearing that one of the main drivers behind Hunter Water's pricing proposal for the next four years was the need to increase capital expenditure.
"If you look at our capital investment over time you can see that we have had a period of under investment. We have had our credit metrics under pressure, we had to reduce our investment, we sweated the assets as much as we could and manged the risk accordingly. So now, in this price submission, we are in catch up," Mr Wood said.
"Basically we are returning to a long term average rate of investment and catching up on some of the issues that we created in the past."
Under a revised proposal submitted in November, a typical household bill would increase by six per cent and an apartment bill would increase by 11 per cent over five years from July 2020 when inflation is taken into account.
Without taking inflation costs and stormwater into account, Hunter Water estimates the new proposal would result in a 7.2 per cent drop in the average annual household bill and a 3.4 per cent drop in the average apartment bill over four years from July 2020
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Hunter Water chief investment officer Darren Cleary told the hearing that a methodology better suited to estimating the impact of drought was applied to produce its revised submission.
"Our previous methodology used an averaging process over a number of years to try and estimate the effects of climate. That averaging process had a number of wet years," he said.
The new method is using the model which is well adopted throughout the Australian water industry. It is trying to set up as best as we can a reasonable estimate of what average conditions will be."
Hunter Water estimates residential demand will remain similar to its previous forecast but non-residential demand will be slightly higher.
