In 2009, the Government announced a framework of reforms and commitments to address water security issues for South Australia’s environmental, economic and social benefit. A comprehensive framework of reforms and commitments to address water security issues in South Australia is contained in “Water for Good: a plan to ensure our water future to 2050”. This plan designates the Commission as the independent economic regulator for monopoly supplies of urban and sewerage services in South Australia. The Commission’s role, as laid out in Water for Good, encompasses licensing, consumer protection, performance monitoring, compliance and pricing matters.
In 27 September 2010, the Treasurer sought advice from the Commission on the proposed form of the economic regulation regime that should apply to the water and sewerage industry in South Australia. In accordance with the Treasurer’s request, the Commission has prepared a Statement of Issues to facilitate public consultation on many of the detailed aspects of the regulatory arrangements that the Commission will need to develop for the water and sewerage industry. The Statement of Issues covers a wide range of matters, relating to licensing, consumer protection issues, compliance frameworks, performance monitoring, and pricing.
The Commission is requesting written submissions to this paper. Submissions are sought by 28 January 2011. Further, the Commission will be meeting directly with key stakeholders to discuss the key issues. The Commission will be taking into account relevant matters raised during public consultation in preparing its draft advice to the Government on the regulatory framework, which is to be provided to the Treasurer when the Water Industry Bill has been finalised for introduction into parliament.
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The Water Industry Bill 2011 (Bill) was introduced into the South Australian Parliament on 27 July 2011, having been previously released as a consultation draft during 2010. Amongst other things, the Bill proposes that the Essential Services Commission of South Australia (Commission) will be the independent economic regulator of the water industry in South Australia.
To provide greater certainty as to the proposed scope and operation of regulation under the Bill, in September 2010 the Treasurer sought the advice of the Commission as to the nature and form of the regulatory regime that the Commission would implement if the Bill were enacted. In accordance with the Treasurer’s request, in December 2010 the Commission released its Statement of Issues on the Economic Regulation of the South Australian Water Industry (Statement of Issues). The Commission received a number of submissions in response to the Statement of Issues and it has given careful consideration to these submissions in preparing this Draft Advice to the Treasurer. The Commission will provide its Final Advice to the Treasurer soon after the Bill has been enacted.
This Draft Advice is based on the Commission’s understanding of the regulatory context that will apply from the time the Commission takes over the independent regulation of the water industry. As little competition is likely to exist during the period of the First Price Determination (likely to be for the 3 year period beginning 1 July 2013), the Commission cannot rely on competitive forces to ensure that the long-term interests of consumers are protected; therefore, the Commission's proposed regulatory framework for SA Water’s drinking water and sewerage services is relatively heavy-handed. The Commission proposes relatively light-handed regulation of other entities and services. However, the Commission notes that its regulatory framework may need to change as the regulatory context changes.
A key aspect of the Commission’s proposed regulatory framework is licensing arrangements. The Commission will license those who provide retail services—that is, supply water and/or sewerage services to consumers. Licences will contain conditions, dealing with matters that are central to the provision of retail services, such as: an obligation to supply services to a consumer on request; obligations to comply with consumer protection codes established by the Commission; a requirement to belong to and participate in an industry ombudsman scheme; and obligations to comply with and report on mandatory service standards. The regime will, however, need to be tailored and targeted to reflect the scale and scope of different water and sewerage operation throughout the State.
Under the licensing regime, the Commission will establish industry codes. Those industry codes will establish the details of the binding standards of service for water business, relating to matters such as the way in which businesses respond to queries and complaints or how quickly businesses will be required to restore service following a disruption. In cases where it is not appropriate to apply a code entirely, having regard to the nature of particular operations, the Commission will look to incorporate relevant principles from those codes within licensing arrangements to ensure that appropriate consumer protections are maintained.
The Commission will also regulate standard contractual terms and conditions under which all water businesses will provide their services to consumers. The Commission will ensure that contractual terms are fair and reasonable, particularly in relation to rights of connection, billing and the provision of information, and that any disputes arising under those contracts are dealt with by the business appropriately.
Independent control over the prices charged by water businesses is the other side of the regulatory regime established by the Commission. For SA Water, the Commission will initially set prices from 1 July 2013, following a public price review period leading up to that time. In setting multi-year price paths, the Commission will carefully scrutinise SA Water’s proposed outlays (both capital and operating) and determine the appropriate rate of return which SA Water should receive on its assets.
The purpose of preparing this Draft Advice is to obtain feedback from the Treasurer and as wide a range of stakeholders as possible. The Commission values feedback as it follows a collaborative approach and regards comments and insights from stakeholders as essential in the development of the final regulatory regime. The Commission therefore encourages stakeholders to review this Draft Advice, including the associated draft regulatory instruments released at the same time, and to provide comment by 19th December 2011.
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