Presentations from a Water Industry Alliance Market Solution Forum. Experts say South Australia could encourage much MUCH greater stormwater harvesting, not to mention a broader range of water innovation and services, IF we could enable greater third party access.

1. third party access
for water
… another Water Industry Alliance Market Solution Forum

2. James Cox
CEO
Independent Pricing and
Regulatory Tribunal

3. Independent Pricing and Regulatory Tribunal
Third Party Access- Water
Industry
Water Industry Alliance &
Stormwater Association
James Cox
CEO & Full Time Member
17 August 2010

4. Water Industry Competition Act 2006
(WICA)
 There is increasing interest in competition in the water
industry
 The NSW Government introduced the WICA to
harness the innovation & investment potential of the
private sector
 The Act came into operation in August 2008 on
finalisation of regulations
 Background:
 Severe drought
 ACT declared parts of Sydney Water’s sewage
transportation services following application by
Services Sydney (private corporation)
4

5. WICA continued
 The Act establishes regimes for:
 Licensing of industry participants
 Gaining access to infrastructure services
 Arbitration of sewer mining disputes
 The Act allows for price regulation of monopoly services to
small retail customers
 Licensing regime ensures the continued protection of public
health, the environment & consumers
 Ways to gain access
 Voluntary access agreement approved by IPART
 Granting a coverage declaration to applicant, establishing a
right to negotiate terms with service provider, arbitration by
IPART if dispute 5

6. Access- declaration criteria (s.23 of
WICA)
 The infrastructure is of State significance having
regard to its nature and extent and its importance to
the State economy
 It would not be economically feasible to duplicate the
infrastructure
 Access (or an increase in access) to the service by
third parties is necessary to promote a material
increase in competition in an upstream or
downstream market
6

7. Access- declaration criteria (s.23)
continued
 The safe use of the infrastructure by access seekers
can be ensured at an economically feasible cost and,
if there is a safety requirement, that appropriate
regulatory arrangements exist
 Access (or an increase in access) to the service
would not be contrary to the public interest
7

8. Who can be licensed?
 Licenses can only be granted to corporations who:
 Are fit and proper persons (Corporations Law)
 Have capacity (including financial, technical &
organisational) to carry out licensed activities
 Have appropriate insurance arrangements
 Will supply sufficient quantities of water sourced
otherwise than from a public water utility
 Satisfy other matters prescribed by regulations or
Minister (on grounds of public interest)
8

9. Types of licences
 A Network Operator’s Licence is required if you are
a private corporation that proposes to construct,
operate and/or maintain water industry
infrastructure
 A Retail Supplier’s Licence is required if you are a
private corporation that proposes to supply water or
provide sewerage services to others through water
industry infrastructure
 Licences are issued in perpetuity (may be cancelled)
with 5 yearly reviews
9

10. What activity has there been to date?
 No voluntary access agreements lodged & no
applications for declaration of infrastructure services
 5 network licences granted
 4 retail licences granted
 Licence applications include:
 Major industrial recycled water scheme with seed funding
from NSW Government
 Industrial recycled water scheme- source is polluted
underground water, company required to rectify
 Recycled water schemes in CBD office buildings mining
Sydney Water’s sewers
 Wastewater & recycled water schemes for out of sequence
residential developments 10

11. Competition in potable water supply
 Easing of drought conditions
 Several dams all operated by the Sydney Catchment
Authority;
 Fewer opportunities for transfer from irrigation to urban
uses than in some other cities;
 Limited opportunity for competitive sourcing of drinking
water in short term with Government directing:
 Sydney Water to build desalination plant
 Hunter Water to build Tillegra Dam and
 Prohibiting use of recycled water for drinking purposes
11

12. Competition in potable water supply cont.,
 However, application for WICA licence for desalination
plant- possible forerunner to establishment of
wholesale market (recently granted by Minister)
 If market established then access regime may be
invoked
12

13. What is IPART’s role?
 Licence applications are made to IPART
 IPART is required to:
 Call for public submissions
 Place applications on public register
 Submit applications to Ministers for Health; Water; Planning; &
Environment for comment
 Review applications & submissions & recommend to Minister
for Water
– Whether or not a licence should be granted
– The conditions to which a licence should be subject
13

14. What is IPART’s role? Cont.,
 Once licence is granted IPART has a licence
monitoring/ compliance/enforcement role
 Further assessment prior to infrastructure
commencing operation
 Significant penalties for breach of licence (including
cancellation of licence by Minister)
14

15. Issues to date
 Financial viability of small schemes Vs
 Continuation of postage stamp pricing
 Act provides for retailer of last resort but not supplier of last
resort (currently being reviewed)
 Overlap with local government approval processes
 Exemption provisions (currently being reviewed):
 Community title schemes, ski resorts
 Golf courses (on site sewer mining)
 Schemes on Commonwealth owned land – e.g. airports
15

16. Issues to date cont.,
 Property rights- Crown Vs private ownership
 No charges for untreated wastewater ‘product’
 Access pricing:
 ACCC decision in Services Sydney Vs Sydney Water
case- retail minus avoidable costs
 UK view that this approach may inhibit competition
 However, other approaches (e.g. system wide average
cost) may encourage ‘cherry picking’ that may leave
incumbent with large sunk network costs
16

17. Issues to date cont.,
 Mixing of products from different sources
 Cross contamination risk
 Chemical composition (e.g. groundwater Vs dam
water)
 Industrial Vs household wastewater discharge
 Infrastructure coordination (eg construction
standards)
17

18. In conclusion ….
 Access provisions of Act not invoked to date
 Licence applicants have been small scale, stand alone recycled
water & sewerage schemes- importance of establishing
supplier of last resort arrangements
 Compared with electricity, water & wastewater:
 Are costly to transport & historically catchment based
 Have a greater proportion of investment in the network and low
retail margin
 Exhibit less uniform characteristics
 Are less clear on property rights (e.g. stormwater)
 Have greater importance for public health
18

19. In conclusion continued
 Manufactured water (desalination & recycling) will
increasingly fill demand/supply gap leading to:
 Localised solutions (recycled water) &
 Making transporting over longer distances more
financially viable (potable water) & encouraging access
arrangements
19

20. Independent Pricing and Regulatory Tribunal
www.ipart.nsw.gov.au

21. Get connected with the
Water Industry Alliance
visit www.waterindustry.com.au