third party access for water

… another Water Industry Alliance Market Solution Forum

James Cox

CEO Independent Pricing and

Regulatory Tribunal  

Independent Pricing and Regulatory Tribunal

Third Party Access- Water Industry

Water Industry Alliance & Stormwater Association

James Cox CEO & Full Time Member

17 August 2010

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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)

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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

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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

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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

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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)

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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

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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

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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

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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

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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

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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)

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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

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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

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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)

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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

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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

Independent Pricing and Regulatory Tribunal

www.ipart.nsw.gov.au

Get connected with the Water Industry Alliance

visit www.waterindustry.com.au