WATER INDUSTRY COMPETITION AMENDMENT BILL 2011
Agreement in Principle
Mr MIKE BAIRD
(Manly—Treasurer) [12.30 p.m.]: I move:
That this bill be now agreed to in principle.
I am pleased to introduce the Water Industry Competition Amendment Bill 2011. The Water Industry Competition Act 2006 was introduced to enable new market entrants to access existing water industry infrastructure and to create a licensing regime to ensure that new entrants operate in a way that protects public health, consumers and the environment. The Act aims to harness the innovation and investment potential of the private sector and to put private sector providers on a similar footing to public water utilities. Since the Act commenced in 2008, seven schemes have been licensed—six recycled water schemes and one drinking water scheme, the Sydney desalination plant. The Government is currently progressing its election commitment to refinance the desalination plant to free up capital to spend on much-needed infrastructure. That point cannot be lost because this is an important part of our approach to attacking the State's infrastructure deficit.
The bill will provide additional funds to get on with the job of improving and building desperately needed infrastructure—despite what the Opposition says, this transaction will not impact on water prices. That is an important point that I am sure I will make many times in this House, but it is the fact. In anticipation of that process and to address a number of issues that have arisen since the enactment of the Water Industry Competition Act, this bill will strengthen and streamline the Act by adding new licensing principles, a new power to impose conditions to ensure fair competition in the drinking water market, and more consistent and streamlined requirements on licensees. The bill also addresses a number of anomalies and removes duplication between that Water Industry Competition Act and the Local Government Act 1993 to cut red tape and reduce costs for proponents and local councils.
I will now detail the reforms. The bill includes three new licensing principles to be inserted into section 7 of the Act. The Minister administering the Act is to have regard to these principles when determining whether to grant a licence and what licence conditions to impose. The first of the new principles relates to policies set out in any prescribed water policy document. The amendment makes clear that, in deciding whether to grant a licence and impose licence conditions, the Minister will have regard to relevant Government policies. For example, when the Sydney desalination plant was granted a network operator licence in mid 2010, licence conditions were imposed to ensure operation of the plant was consistent with the Metropolitan Water Plan, which sets out the measures that secure greater Sydney's water needs.
The second new licensing principle refers to the potential for adverse financial implications for small retail customers, including small retail customers of existing public water utilities and future customers of new market entrants. This principle builds on the existing licensing principle regarding consumer protection. The new principle will provide the Minister with a clear basis on which to consider the financial implications for small retail customers of activities proposed to be covered by a licence and to impose any appropriate conditions in a given case. It is not intended that this clause be used simply to refuse applications where costs are higher than those ordinarily charged by an existing water utility. This could stymie innovation and competition.
However, it is considered appropriate to include this additional principle to ensure that consumers are aware of the cost of essential services. The final licensing principle relates to equitable sharing among participants in the drinking water market of the costs of water industry infrastructure that contribute significantly to water security, such as the Sydney desalination plant. The bill inserts a new head of power to enable conditions to be imposed on drinking water retail supply licences to promote equitable sharing of costs. These amendments are designed to ensure a level playing field as the drinking water market evolves. With the proposed refinancing of the desalination plant, the potential for new drinking water market entrants is expected to increase.
Under the proposed amendment to section 13, the Minister has a discretionary power to impose licence conditions regarding cost sharing. The Minister may opt not to impose a condition at all, or may require the licensee to pay only a nominal contribution. Further, the proposed amendment confers power to impose such licence conditions on drinking water retailers only. This recognises that water recycling and stormwater harvesting schemes entail considerable cost and contribute a new source of water. The amendments will help prevent cross-subsidisation of large water customers by small retail customers, which could occur if a new retail supplier of drinking water were to enter the market and cherry-pick the largest water users.
The bill also confers new powers on certain licensed network operators to enter private land to inspect, maintain, repair and undertake emergency work on water industry infrastructure. This amendment is designed to put licensed network operators on a similar footing to other water and energy utilities while conferring protection of landowners' and occupiers' rights. The bill limits the grant of power to access private land to network operators that are prescribed authorities under the Conveyancing Act and regulations. In addition, the bill provides for a range of protections to landowners and occupiers in the event that the power of entry is exercised, and requires licensed network operators that are prescribed authorities to join the Energy and Water Ombudsman scheme.
I now refer to provisions in the bill that make minor amendments to the Water Industry Competition Act and general regulation. The bill amends section 5 of the Act so that a licensed network operator is not required to also hold a retail suppliers licence to supply water or provide sewerage services to a public water utility. The second minor amendment is to streamline licensing provisions in section 6 (1) of the Act by enabling the granting of retail suppliers licences that authorise both the supply of water and the provision of sewerage services. Currently, section 6 requires that separate licences be granted. This is unnecessary and inefficient. The bill clarifies the circumstances in which a licence may not be granted to a corporation on the basis that it is connected to a disqualified corporation.
Under section 10 (3) of the Act, a licence may not be issued to a disqualified corporation. The definition of a disqualified corporation includes a corporation that is a related entity and a corporation that has as one of its directors, or as one of the persons concerned in its management, an individual who is a disqualified individual. This due diligence requirement is onerous for the Independent Pricing and Regulatory Tribunal of New South Wales [IPART] as the regulator and for a corporation that is part of a multi-national company, especially for a company that has a multitude of related entities, many of which would not have any interest in or influence on the activities to be licensed.
The bill provides that a licence cannot be granted to a disqualified corporation or a related entity of a disqualified corporation, but only when the disqualified corporation would have a direct or indirect interest in or influence on the activities to be covered by the licence. This strikes an appropriate balance between providing a robust and credible licensing regime, and managing the cost to applicants and regulators. A further minor amendment revises section 64 of the Act to make clear that water industry infrastructure is owned by the person who constructs or installs it, or any person who subsequently acquires it, even if the land over or under which the infrastructure passes is owned by another party. This is designed to ensure that, at common law, infrastructure does not merge with the land in the event that, for example, a water industry competition licence is cancelled.
Amending section 64 to ensure the protection conferred pertains to infrastructure owners rather than licensed network operators is consistent with the architecture of the Act. The associated transitional provisions are designed to give effect to the amendment and avoid any unintended consequences. The bill also removes a requirement on network operators to publish on the internet the licensee's infrastructure operating plans and water quality plans. While such plans will still be provided to the Independent Pricing and Regulatory Tribunal, the requirement to publish the plans online is being removed in light of valid concerns regarding the security of water infrastructure and intellectual property rights.
I now turn to proposed amendments to the Water Industry Competition (General) Regulation. The bill imposes a requirement on the Independent Pricing and Regulatory Tribunal to notify public water utilities of applications for a licence under the Water Industry Competition Act if the applicant proposes to connect to or use any of the public water utility's water infrastructure. Past experience has shown that failure to consult early can result in inappropriate proposals and increased costs to proponents and utilities alike. The bill also enables transfer of codes of conduct to be made that relate to public water utilities as well as licensed retail suppliers. It rationalises and simplifies certain prescribed conditions for licences granted under the Act, and makes other amendments consequential on the amendments made by the bill.
Importantly, the bill addresses the duplication that currently exists between the licensing requirements of the Water Industry Competition Act and similar provisions in section 68 of the Local Government Act 1993. Section 68 approvals focus on the technical aspects of proposed water recycling schemes. The Water Industry Competition Act licences now also address these matters. It is important that this duplication is addressed promptly to remove unnecessary regulatory requirements of both the scheme proponents and local councils. I note that a section 68 approval is additional to the planning approval required under the Environmental Planning and Assessment Act 1979. Under this amendment private proponents will still need to obtain planning approval from the relevant determining authority and a licence under the Water Industry Competition Act to construct, maintain or operate water industry infrastructure. This amendment will cut red tape and reduce costs without compromising the protection of public health, safety and the environment.
The bill also extends by 12 months the transitional period in clause 19A of the general regulation, which is currently scheduled to end in June 2012. This will enable further deliberations regarding the appropriate extent of licensing requirements under the Water Industry Competition Act. These issues will be considered as part of the five-year statutory review of the Act, a report on which is due to be tabled in Parliament in late 2012. It is appropriate to extend the transitional period to June 2013 rather than require proponents to apply for a licence, which can involve considerable expense for proponents and regulators alike, when requirements may soon be amended in light of the statutory review. During the transitional period proponents of schemes covered by the provisions of section 68 of the Local Government Act will still be required to obtain approval from the relevant local council, unless they opt to obtain a licence under the Water Industry Competition Act.
Finally, the bill makes provision for savings and transitional matters consequent on the enactment of the proposed legislation. I am pleased to introduce the bill, which will strengthen and streamline the Water Industry Competition Act, and ensure a level playing field, fair competition, and more streamlined and efficient regulation. I acknowledge that these issues have been raised in the other place but I felt it important to raise them in this House. I also note that the passing of the bill will enable the Government to proceed with the refinancing of the desalination plant, which, I reiterate, will play a critical part in addressing the infrastructure backlog that we inherited. It will provide much needed capital to get on with job of rebuilding New South Wales. I commend the bill to the House.
Mr MICHAEL DALEY
(Maroubra) [12.41 p.m.]: I lead for the Opposition on the Water Industry Competition Amendment Bill 2011. I note that, in leading for the Opposition in the other place, the Hon. Luke Foley said:
The Opposition will oppose the bill if its significant concerns are not addressed in Committee.
Those concerns were addressed in Committee but they were addressed in the negative. The sensible amendments put forward by both the Opposition and the crossbenchers were defeated by the Government. Therefore the Opposition will oppose the bill in this place today. The Opposition is concerned about the amendment to section 13 of the Act contained in schedule 1  to the bill, which provides for new paragraph (c) and reads:
(c) in the case of a retail supplier's licence that authorises the licensee to supply drinking water—the Minister may impose conditions on the licence that the Minister is satisfied promote the equitable sharing among public water utilities and licensed retail suppliers of drinking water of the costs of water industry infrastructure that significantly contributes to water security, including (but not limited to) the following:
(i) a condition requiring the licensee to obtain a specified proportion of the water that it supplies under the authority of its licence by means of specified water industry infrastructure;
(ii) a condition requiring the licensee to contribute to the costs of specified water industry infrastructure (whether or not it is used to provide the licensee with the water that it is authorised to supply under the licence) calculated in a specified manner and payable to a specified person or persons.
At this juncture a recounting of history is appropriate. Water policy was unequivocally one of the great successes of the former Government. Members will remember what happened in 2007 and 2008 when a savage El Nino hit the east coast of Australia and almost overnight water security became a pressing issue for the people in our suburbs. I heard former Premier Nathan Rees, who was the Minister for Water at the time, say that if it were not for the fact that we were pumping water up from the Shoalhaven to the Warragamba system the dam levels in Sydney would have reached about 8 per cent, which would have resulted in a real crisis. Scientific forecasts at that time unequivocally pointed to the fact that Sydney in particular would face severe water shortages and water challenges in the next 30 years. Those scientific forecasts were met almost without contention. A decision was made—I acknowledge that it was controversial but highly warranted—to build a desalination plant in Sydney.
The desalination plant built by the former Government was meant to be a social and environmental insurance policy. After a two-year warranty period the desalination was to be effectively switched off if dam levels stayed above 70 per cent. That meant that if dam levels fell below 70 per cent the desalination plant would be switched on and it would operate at full capacity until the dam levels returned to 80 per cent. That was the reasoning the Government, advised by Sydney Water and its scientists, arrived at and that is how the contract stands today—if it rains consumers pay nothing for water coming out of the desalination plant because it is effectively turned off. The Government now wants to sell that asset and that will turn that rationale on its head. This was foreshadowed by the Hon. Greg Pearce to Mr Rod Sims, Chairperson of the Independent Pricing and Regulatory Tribunal, in a letter dated 2 May 2011, and I quote:
I write to advise you that I have signed an order declaring Sydney Desalination Plant Proprietary Limited (SDP) to be a monopoly supplier ... I write to request the Independent Pricing and Regulatory Tribunal (IPART) to determine the pricing for the declared monopoly services provided by SDP... I require IPART to consider the matters set out in the attached terms of reference in reaching its determination.
Under the heading "Matters for consideration—pricing principles" in the terms of reference it states:
Each price determination is to be consistent with the following pricing principles:
4. The structure of prices should encourage SDP to be financially indifferent as to whether or not it supplies water ...
That might be too complicated for the average punter who receives their water bill and who wants to get on with their life to contemplate and understand—the Government is banking on that—but it means that the Government is going to allow the new lessee of Sydney Water to charge for water at full capacity, even if the plant is turned off. The Opposition is concerned because that is one of the greatest rip-offs that have ever been perpetrated by a government upon its consumers. The Opposition has a major problem with the amendment to section 13. Schedule 1  to the bill that enables the Minister to impose certain conditions on a retail suppliers licence that authorises the licensee to supply drinking water—in other words, the bill will give the Minister power to impose unprecedented conditions on the licences of those private sector operators who enter the retail water market under the Water Industry Competition Act and are issued with a retailer suppliers licence. Section 13 has two limbs:
(a) a condition requiring the licensee to obtain specified proportion of the water that it supplies under the authority of its licence by means of specified water industry infrastructure, and
The next limb should be of particular concern to the private sector and other water suppliers in New South Wales—
(b) a condition requiring the licensee to contribute to the costs of specified water industry infrastructure (whether or not it issues to provide the licensee with the water that it is authorised to supply under the licence) ...
When the Hon. Greg Pearce introduced the bill in the other place he said:
I am pleased to introduce the Water Industry Competition Amendment Bill 2011. The Water Industry Competition Act 2006 was introduced to enable new market entrants to access existing water industry infrastructure and to create a licensing regime to ensure that new entrants operate in a manner that protects ... consumers.
That is not what they are doing now. The Government is not protecting consumers; it is ripping them off by forcing them to pay for water coming out of a desalination plant by artificially inflating the prices. The objective of the bill is to harness the innovation and investment potential of the private sector and to put the responsibilities and powers of private sector water providers on a similar footing to public sector water utilities. That is what the Minister said, but that is not what he is doing. Further, he said:
The granting of both a network operator's licence and a retail supplier's licence to Sydney desalination plant under the Act has introduced a new provider of bulk drinking water into the Sydney metropolitan market. The Government is currently progressing its election commitment to refinance the desalination plant so as to free up capital to spend on much needed infrastructure.
As I said earlier, artificially inflating water prices and hiding the scheme in letters to the Independent Pricing and Regulatory Authority and in words and legislation that they know consumers are never going to address is simply a construct designed to hide a rip-off. If the Government wants money for infrastructure and it is going to use a mechanism like this, why not be up front and levy households? I note that this afternoon the Treasurer said, "This transaction will not impact water prices". I do not believe that to be the case for the reasons I have set out—it will impact water prices. Recent media reports have indicated that this artificial construct, this legislative rip-off in respect of the desalination plant, will cost each household $50 for the life of the lease. If the Government wants $50 from each household for the life of the lease, why not just levy them instead of hiding it away in a regime like this and dressing it up as some sort of need for money for infrastructure? Raise it honestly—do not hide it. The Opposition will have none of this bill. This is a massive rip-off.
Mr JAI ROWELL
(Wollondilly) [12.51 p.m.]: The Water Industry Competition Amendment Bill 2011 will provide greater certainty for licensees to access their infrastructure and allow sharing of costs, including guaranteeing that the principles of competition are adhered to. The proposed reforms contained in the bill will empower the Minister to impose conditions on licensing that will ensure all drink and water retailers pay their fair share of the costs for the infrastructure to help shore up Sydney's water supply. The bill will work to facilitate fair competition in the market through promoting a level playing field. The need for this amendment has become apparent as there is the potential for new drinking water providers to enter the market. Currently Sydney Water's pricing takes into consideration infrastructure costs. Any new additions to the market could participate in a practice known as cherry picking whereby the customers of Sydney Water could cross-subsidise the new water entrants.
Further amendments will enable the Minister to impose licensing conditions that will go a long way to reduce the risk of customers suffering adverse financial consequences as a result of the licence grant—that should allay any concerns that individuals may have about high waste water service charges in future greenfield developments. The amendments will also give the Minister greater power to place water conditions on the Water Industry Competition Act licences. This would affect licences consistent with Government policy, including the Metropolitan Water Plan, which secures Sydney's water supplies. In addition amendments will provide greater certainty to the licensees, giving network operators the ability to access private land, and to inspect and maintain their water infrastructure, including the future lessee of the desalination plant. These amendments confer protections on landowners, providing them with low-cost dispute resolution.
Further minor amendments and drafting anomalies in the bill and general regulations include streamlining the application process, imposing consistent requirements for water and sewerage service providers and extending the existing transitional provisions applying to the removal of certain exceptions from licensing requirements. Further, we have cut red tape from the Local Government General Regulation 2005, which has been amended to remove duplication between the Local Government Act and the Water Industry Competition Act in relation to recycled water and sewerage schemes, benefiting scheme proponents and councils. These amendments will go a long away in providing greater certainty within the industry. However, a number of towns and suburbs in my electorate of Wollondilly still do not have the luxury of town water or connection to Sydney Water to enable modern sewerage connection systems to operate.
Towns such as Bargo, Buxton and Yanderra, as well as Wilton and Douglas Park, have been without sewerage connection for decades, despite being promised this on a number of occasions by those opposite. In Bargo alone residents are forced to pay pump-out fees fortnightly, often in excess of $200. Families are forced to implement cost-saving measures like recycling bath water or forgoing washing their dishes for a number of days in an effort to keep the cost of living down. In some cases residents have been known to empty their sewage tanks on to the street when it is raining as they can no longer afford the price of pump-out fees. I raise this point because it highlights how far the Labor Government let this State decline in its 16 years of power. Modern towns and suburbs, some less than an hour outside of the Sydney central business district, are forced to empty their sewage onto the streets.
The amendments in the bill are a sign that we are back on the right track, that we are identifying those areas that have been neglected and we are remedying them. We have a lot of work to do and we are far from getting that job done, but we are starting the job and we will get the job done. We are making the responsible decisions, like those made in the budget, to restore our State's financial health. We are making changes, like those you see before us today, to make industry fairer and we are delivering on vital infrastructure, such as the promised sewerage connections to the towns and suburbs of Wollondilly, and also the road and rail infrastructure in this year's budget. I am a proud to be a member of this Government and I commend the bill to the House.
Mr BART BASSETT
(Londonderry) [12.56 p.m.]: I support the Water Industry Competition Amendment Bill 2011, which corrects some anomalies and gives the Minister the authority to incorporate conditions on water retailers to guarantee the principles of competition are adhered to. Since the early 1990s comprehensive reforms have been implemented by governments of both persuasions to address anti-competitive practices by public sector utilities to ensure open access to a level playing field, where public sector utilities did not enjoy competitive advantages. The Hilmer report into competition policy formed the basis on which the most far-reaching and comprehensive reforms were undertaken: It has changed the Commonwealth and State framework and opened up areas such as electricity, gas, water and telecommunications to competition for the first time. As legislators we have the ability to shape public policy and deliver outcomes for the betterment of those we represent.
Reforms undertaken over the past two decades have provided consumers with choice. It is important that we keep abreast of any issues that may arise from time to time that could produce anti-competitive trading practices. The intent of the bill is to facilitate fair competition in the drinking water market by ensuring a level playing field. The bill gives the Minister authority to include conditions on licences to ensure all drinking water retailers pay fair and equitable costs of water infrastructure as well as measures to reduce the risk of customers suffering adverse financial consequences as a result of the granting of a licence. The bill addresses a number of administrative irregularities that will streamline the applications process, provide a dispute resolution mechanism, and remove the inconsistencies between the Water Industry Competition Act 2006 and the Local Government (General) Regulation 2005 to cut excessive regulations and costs for councils and operators of recycled water schemes.
Water security is one of the most important issues facing society in the twenty-first century. As a member who represents an electorate that has large parts of the Hawkesbury-Nepean catchment areas that fall below Warragamba Dam, I am very passionate about ensuring that we have a reliable supply of potable water for our population, and also the use of alternative water technologies for commercial and industrial uses. As a country we have just come through one of the worst droughts on record with storage levels falling to as low as 24 per cent in Sydney's dams. In some country areas such as Goulburn the water supply almost ran out. The supply of water is a fundamental human right that is not only necessary for our survival but also important for economic security. We must make sure that that the legislative framework in place for the retailing and distribution of water as a commodity is fair and equitable.
Even though my electorate is considered part of the greater Sydney metropolitan area, a large proportion of the Hawkesbury local government area does not draw its water supply from the Sydney network, fed mainly from Warragamba, but is supplied from water drawn directly from the Hawkesbury River at North Richmond. During the recent drought the environmental flows released from Warragamba Dam—to help to maintain water quality in the river that is used by agricultural, recreational and commercial users—was cut dramatically. At the North Richmond water treatment plant testing for pollution levels returned readings of approximately 30 per cent as the only fresh supply of water was fed from the Grose River to the south of the treatment plant. There are more than 20 sewage treatment plants along the catchment. It is important that there are provisions in place to promote and encourage recycling and reuse of waste water.
The Sydney Metropolitan Water Plan aims to secure the water supply for Sydney and has as a component a strong focus on recycling. By 2021 Sydney's population will increase to 4.9 million, resulting in an obvious increase in demand for water for residential and commercial uses. Currently effluent makes up approximately 75 per cent of the water balance, with only 2 per cent recycled. Increasing demands for a reliable supply of potable and recycled water make it a high priority that we have in place an effective legislative framework that encourages competition, innovation and investment.
Pursuant to standing and sessional orders business interrupted and set down as an order of the day for a future day.