Icon Water has cancelled a contract with Snowy Hydro for back-up water supplies for the ACT, as much of regional NSW grapples with drought.
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In budget estimates last week, Icon Water officials said increased water storage in the ACT meant the "Tantangara insurance policy" was no longer required.
The company told Fairfax Media the ACT's current water supplies can withstand the worst drought on record.
The Tantangara Transfer Option was the ACT's ace-in-the-hole for ensuring water supply in future droughts, in addition to the construction of the Murrumbidgee pipeline and Cotter Dam expansion.
Icon Water managing director John Knox said while those two infrastructure projects boosted the ACT's water storage capacity by 35 per cent, they also looked for more options to get extra surface water into the system in the case of severe and prolonged drought.
"Icon Water entered into a contract with Snowy Hydro Limited in 2014 known as the Tantangara Transfer Option, to provide for the release of water from Tantangara Dam in NSW," Mr Knox said.
"Tantangara Dam is the only significant water storage asset upstream of the ACT and the only source that can provide additional surface water to the region from NSW. It was for this reason the Tantangara Transfer Option was recommended as supplementary security as part of the ACT’s response to the millennium drought."
Mr Knox said it was considered "prudent" to have the Tantangara option up their sleeve, despite the "comparatively high water supply cost"compared with other water sources.
However, at the same time the ACT government implemented measures to cut water consumption by one-quarter on pre-drought levels.
Mr Knox said the Canberra community "embraced water-smart behaviours" and blitzed the target, reducing water usage by 40 per cent. That lower level of water consumption continues today.
"Given the increased storage of our system and the sustained water-smart behaviours of the ACT community, this high-cost water source is no longer required to supplement our existing sources," Mr Knox said.
"Even without the Tantangara option, our modelling shows that our water system can withstand the worst drought on record."
Icon Water would not disclose how much the Tantangara option had cost over the years.
Mr Knox said the annual fees were "quite immaterial" in context of Icon's total cost base, and the contract included a provision for a notice period prior to termination, which Icon Water had now invoked at no cost.
"At the completion of the notice period, we will realise cost savings which will be passed on to the ACT community," Mr Knox said.
The ACT just recorded its driest autumn since 2004, with 41.8 mm during the whole season - a mere 30 per cent of the long term average.
However more than one-third of NSW is in or approaching drought, with most of the state experiencing severe or serious shortfalls in rainfall over the past five months.
The NSW government recently doubled the level of funding drought-affected farmers can receive, in a $600 million package that offers no interest loans, mental health services and more kangaroo culling.
Mr Knox said while it had been a dry years, Canberra's water supply is "extremely secure" with storage levels are now sitting around 70 per cent.
The dams would have been at capacity under our old level of storage, Mr Knox said.
Cotter Dam was enlarged to increase its storage capacity by nearly 20 times about five years ago, although the project blew out both in time and cost.
The average ACT residential water bill is set to fall by $42 from July 1, under last month's ruling from the Independent Competition and Regulatory Commission.
At the time, Senior Commissioner Joe Dimasi said the lower prices were the result of efficiencies in Icon Water’s planned operating and capital expenditure, lower interest rates and the commission’s decision on how to calculate the return on Icon Water’s capital investments.
