Water competition in NSW - what's the latest?

By Kirsten Webb.

Key Points:
The Act is intended to encourage competition in water supply and sewerage services and to promote recycled water of infrastructure. Until the Act commences a private corporation seeking to supply water or sewerage services is likely to face a regulatory minefield.

In October last year, the Water Industry Competition Bill was introduced to the New South Wales parliament, which passed it together with the Central Coast Water Corporation Act (we look at this here) in November 2006. It is, however, yet to commence; nor have the regulations been published.

The Water Industry Competition Act's purpose is to encourage competition in relation to the supply of water and the provision of sewerage services and to facilitate the development of infrastructure for the production and reticulation of recycled water. Until the Act commences, however, a private corporation seeking to supply water or sewerage services is likely to face a regulatory minefield, as the current legislative and regulatory framework, established at time where such services were provided solely by public utilities, does not readily fit with an environment in which there may be a number of competing providers of water and sewerage services.

The Act seeks to address these issues in three key ways:

• establishing a licensing regime to apply to private sector participants
• giving licensed network operators a range of rights with respect to works relating to water industry infrastructure; and
• establishing a third party access regime, further regulation of sewer mining and a range of customer protection provisions.

Central to the Act is the licensing regime to apply to private sector participants.

A person will need to hold a retail supplier's licence in order to supply water or sewerage services and will need to hold a network operator's licence in order to construct, maintain and operate water industry infrastructure, such as water or sewage pipes and treatment, production or filtration facilities. The Act sets out the framework for the application, assessment, grant and administration of such licences.

Such licences will be granted to the Minister after IPART has followed a public submission process and provided a report on the application to the Minister. In considering whether to grant a licence and in deciding what conditions to impose on a licence, regard must be had to four core principles:

• the protection of public health, the environment, public safety and consumers
• encouraging competition in the provision of water supply and sewage services
• ensuring the sustainability of water resources; and
• promoting the production and use of recycled water (see, for example Application by Services Sydney Pty Limited [2005] A CompT 7).

A licence may not be granted unless the Minister is satisfied of the following:

• the applicant has capacity to carry out the activities that the licence would authorise, in a manner that does not present a risk to public health, and has made appropriate arrangements with respect to insurance
• in the case of an application for a licence to supply water, that, if such a licence is granted, sufficient quantities of the water supplied by the licensee will have been obtained otherwise than from a public water utility (such as the Sydney Catchment Authority); and
• such other matters as are prescribed by the regulations and;
• such other matters as the Minister considers relevant, having regard to the public interest.

A licence will be subject to such conditions as are imposed by the Minister by the regulations. The conditions that may be imposed by the Minister include conditions concerning the technical, financial and organisational capacity of the licensee, provision of security for the fulfilment of its licence obligations and to maintain appropriate insurance arrangements. The conditions that may be imposed by the regulations include conditions concerning social programs for the supply of water and the provision of sewerage services to people in need.

The Act also contains provisions concerning the duration, variation, cancellation and enforcement of licences, licence fees, emergency directions to deal with public health and safety and the maintenance of a licence register. A licensee will also have to comply with other applicable laws, including obtaining any required licences under the Water Management Act and Protection of the Environment Operations Act.

This is only a framework, however, and much of the detail will be in the regulations which have yet to be published. Schedule 2 of the Act suggests that the range of matters to be covered by the regulations will be extensive, including:

• water quality and public health, including the production, treatment, storage and conveyance of water; the treatment, storage and conveyance of sewage; the assessment of risks to water quality; the treatment of water or sewage to avert such risks; and the implementation of water quality guidelines;
• construction and maintenance of water industry infrastructure, including design, construction, maintenance, repair, operation and renewal of infrastructure; procedures to be followed in accidents and emergencies and the development and implementation by licensed network operators of plans to ensure safe operation of infrastructure; safe connections to infrastructure; and reliability and quality of supply; and
• consumer protection, including water supply or sewerage service contracts, the establishing of marketing codes of conduct in relation to the supply of water and the provision of sewerage services; the development of payment plans for those suffering financial hardship; debt collection proedures; customer transfer procedures and obligations; service standards; managing failures in water supply; the installation, examination and testing of water and sewage meters; customer complaint handling; and information and disclosure requirements.

The regulations are therefore likely to, directly and indirectly, shape the nature of private sector provisions of water and sewerage services, as they will likely regulate the requirements that an applicant must satisfy in order to obtain a licence, the grant of a licence, and the conditions of that licence.

For example, a licence applicant seeking to supply water will be required to obtain sufficient quantities of water otherwise than from a public water utility. The intent of this requirement is to ensure that new suppliers contribute new commercial sources of water, so as to reduce demand on existing drinking water resources. Possible new sources include water generated through the commercialisation of storm water or roof water, or through recycling to be used for industrial or use or irrigation. Many questions remain, however, about how this will work in practice. For example, what will constitute a "sufficient quantity"? Will the applicant require a network operator's licence and a retail supplier's licence? How will water quality and health issues associated with the proposed alternative water source and with the supply of such water by a licensee be regulated? What will be the construction, operation and maintenance requirements for the supply of such water? How are each of those issues to be addressed in a licence application, the assessment of that application and in any conditions attached to that licence?

As we said last October, the detail will be in the regulations, which we await with interest.

For further information, please contact Kirsten Webb.