A cut in sewerage charges will save Canberra households about $83 a year on their annual water and sewerage bills.
But the Independent Competition and Regulatory Commission will increase water prices by 5 per cent this financial year amid fears ACTEW would become “insolvent” if water charges were cut.
The commission said water prices would have to rise by about 20 per cent over the next six years to avoid a “serious threat” to the government-owned water utility’s financial stability.
But ACTEW Water managing director Mark Sullivan said on Wednesday night the utility would have maintained capacity to pay debts and ultimately could have relied on the ACT Government.
‘‘We were never at risk of being insolvent,’’ he said.
The regulator also renewed its call for a shake-up of ACTEW’s governance, including its full separation from electricity retailer ActewAGL.
The independent pricing regulator‘s determination on Wednesday varied significantly from its draft determination in February.
The ICRC had recommended a 16.9 per cent reduction in water prices, while ACTEW argued for a 6 per cent increase.
The combined effect of the 5 per cent increase in water prices and an 18 per cent reduction in sewerage charges will save the average household $83 this year.
In its draft, the commission had recommended a $230 cut to household bills.
Senior commissioner Malcolm Gray said on Wednesday the regulator had been forced to conclude that a cut to water prices was not viable.
Mr Gray said it was necessary to increase water charges because water consumption had fallen as a result of the drought and because of the amount of debt ACTEW had taken on to finance water security projects such as the enlarged Cotter Dam.
He said ACTEW’s huge investment in water security had been undertaken “almost entirely through borrowing”.
“Their financial stability would have been threatened [if we did not increase water prices],” Mr Gray said.
“They would have been insolvent, formally speaking, and they would have been trotting along to the Treasury to ask to be bailed out.”
Mr Gray said the increase to water prices would be phased in over six years to avoid putting the full burden on households all at once.
Future increases would be in line with inflation, or one to two percentage points higher, he said.
Deputy Chief Minister and Treasurer Andrew Barr welcomed the ICRC’s final pricing determination.
“I think in the end it’s a balanced outcome which delivers a real saving to households and doesn’t endanger the territory budget,’’ he said.
Mr Barr said it was not yet clear what impact the new pricing schedule would have on the size of ACTEW’s dividend payments to the government but he predicted any associated changes to the territory’s budget outcome would be modest.
“We won’t know the full impact for some time so won’t be updating our budget position until the mid-year update in early 2014,” he said.
Opposition treasury spokesman Brendan Smyth said ACTEW’s inability to cope financially with cuts to water prices reflected poorly on the government’s oversight of the utility.
Mr Smyth said it was disappointing that Mr Gray had been forced to reconsider his original intention to reduce water prices.
"Had he asked ACTEW just simply to have a reasonable return on the investment on the infrastructure, then they ran the risk of ACTEW becoming insolvent,’’ Mr Smyth said.
"The question for the chief minister and the treasurer is how did they allow that to happen?”
An ACTEW spokesman said the corporation “welcomes the regulator’s general acceptance of our operational and investment expenditure, including acceptance of the enlarged Cotter Dam.”
“This will allow us to continue delivering a secure supply of high quality drinking water, while protecting the natural environment and supporting the economic growth and development of the Canberra region for many years to come,” he said.