1. Rural & Regional Water Business Expenditure Review Briefing for Businesses 4 October 2005

2. Overview >Objectives of the review and SKM’s role >SKM team >Information requirements >Key milestones >Approach >Communication and feedback >Key contacts >Next steps >Questions and comments

3. Objectives and SKM’s Role >Key objectives to determine whether the capital and operating expenditure forecasts in the Water Plans are: o Reasonable; o Appropriate in relation to key drivers and obligations; o Robust (supporting analysis and systems); and o Deliverable over the 2 year regulatory period. >SKM is undertaking the reviews for the water businesses in North East Victoria – FMIT, Lower Murray Water and GWM Water (Grampians Wimmera Mallee Water) >Coordination between ESC, SKM and Halcrow to ensure consistency across the reviews

4. SKM Team >David Lynch o Led recent review of expenditure forecasts for regional water businesses o Melbourne Water senior executive experience o Extensive experience in developing capital programs and accountability for delivery >Pat Little o Recent review of expenditure forecasts for regional water businesses o 30 years water industry experience Justin Ginnivan o Management of regulatory performance of Victorian water businesses with ESC

5. SKM’s Responsibilities & Role >To assess the expenditure forecasts in relation to the key objectives of the review >To provide independent advice to the ESC >To propose to the ESC a revised expenditure level, if the proposed forecast(s) does not meet robustness, appropriateness, reasonableness, and deliverability tests as required >To seek more additional more focused information as required make an informed assessment >This role does not supplant the role of the executive or Board – not about “approvals”

6. Information Requirements >Need to liaise with the businesses during the review process – transparent, discussive, open process >Requests for additional information will be focused: o emphasis on material matters and sampling-based approach o ensure actual needs of the review for each business matched o avoid placing a burden on businesses to deliver information not actually required >Agreed turn-around times for both SKM and the businesses >Where commercially sensitive information is requested: o liaison with the ESC to determine appropriate protocols and arrangements for accessing the information for the purposes of the review o review team members have signed confidentiality deeds

7. Information Requirements >Will include (where not already provided in Water Plans): o Capex forecasts for each category at project level o Opex forecasts for each category split into: LabourMaterialsChemicals EnergyMaintenanceOut-sourced services Water purchases o Information on capital planning and asset management processes o Other information as determined through the review process

8. Key Milestones >Submission of Water Plans by businesses on 1 October >Key expenditure review deliverables: Issues Report (SKM):Friday 14 October Draft Report (SKM):Friday 11 November Comments received (feedback from businesses):Friday 25 November Final Report (SKM):Friday 16 December

9. Milestones Water plans submitted 1 October Key Issues report 14 October Queries sent to businesses 18 October Face to face meetings – week starting 24 October Draft report 11 November Responses by businesses 25 November Final report 16 December Face to face meetings – week starting 5 December Briefing session today Water businesses Interaction

10. Preliminary Review and Assessment >Initial review of Water Plans and information templates >Understand the submissions and forecasts, including key drivers and linkages >Preliminary assessment against key requirements and objectives >Identification of key issues that will need to be addressed >Identification of additional information required and clarifications for tailored discussions with individual businesses >Target to provide each business, by 18 October, with preliminary list of questions and requirements

11. What will we be looking for? >Trends >Nexus between forecasts and drivers / need o Timing in relation to drivers o Clear drivers >Basis of costings (eg unit costs, comparison with like projects) >Information to support Renewals or RAV approach subject to ‘Fit for Purpose’ test >Past performance (project delivery) >Project programmes >Productivity improvements, efficiency >Supporting systems o Capital planning and asset management processes

12. Detailed Review and Assessment >More detailed review of expenditure forecasts >Key focus on clarifying issues identified in preliminary review >Assessment of supporting systems and processes >More detailed assessment of Capex projects with significant impacts on revenue requirements >This phase of the review will include liaison with and feedback from the businesses o Face to face meetings in water business offices (dates and locations to be agreed with each business) during week starting 24 th October – after key issues report during week starting 5 th December – after response to draft review report o E-mail and telephone (backed up by e-mail)

13. Communication and Feedback >Businesses to nominate primary contact for liaison with SKM primary contact (David Lynch) >Opportunity for the businesses to make presentations on: o feedback on issues identified o supporting systems (eg. capital planning processes, asset management systems and processes) o key projects

14. Communication and Feedback >SKM’s approach will be to work cooperatively with the ESC and the businesses >Keep the ESC and the businesses informed of issues and outcomes as the review progresses – no surprises >Enable the businesses to provide feedback and responses to better inform the review process >Timelines will be important: o Target maximum 2 business days response times for data/information requests and answers to queries (businesses and SKM review team); OR o As agreed between SKM review team and the business

15. Communication and Feedback >2 rounds of formal meetings planned o Week starting 24 th October (response to key issues) o Week starting 5 th December (response to draft report) >Plus informal communication

16. Key Contacts >Primary SKM project team contact: David Lynch: Tel:03 9248 3107 E-mail:dlynch@skm.com.au >Other SKM project team contacts: Pat Little: Tel:03 9248 3356 E-mail:plittle@skm.com.au Justin Ginnivan: Tel:03 9248 3348 E-mail:jginnivan@skm.com.au

17. Next Steps >Businesses to provide primary contact details to ESC and SKM >Initial issue identification phase - 1 Oct to 18 Oct: o SKM review team queries through ESC o Issues Report to ESC 14 October o List of questions and issues for clarification forwarded to primary contacts 18 October (copy to ESC) >Detailed review phase – 19 Oct to 16 Dec: o Clarification of issues and face-to-face meetings 24 Oct to 28 Oct (dates and locations to be agreed with businesses) o Draft report to ESC 11 November o Feedback from businesses on Draft Report by 25 November

18. Questions and Comments