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Australia's Urban Water Sector

Inquiry report

This inquiry report into Australia's Urban Water Sector was released on 12 October 2011.

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  • Key points
  • Contents
  • In recent times, the urban water sector has faced drought, growing populations and ageing assets.
  • Governments have largely responded with prolonged and severe water restrictions and investments in desalination capacity.
  • The costs to consumers and the community have been large.
    • Water restrictions are likely to have cost in excess of a billion dollars per year (nationally) from the lost value of consumption alone.
    • Inefficient supply augmentation in Melbourne and Perth, for example, could cost consumers and communities up to $4.2 billion over 20 years.
    • Large government grants for infrastructure may have led to perverse outcomes.
  • Conflicting objectives and unclear roles and responsibilities of governments, water utilities and regulators have led to inefficient allocation of water resources, misdirected investment, undue reliance on water restrictions and costly water conservation programs.
  • Therefore, the largest gains are likely to come initially from establishing clear objectives, improving the performance of institutions with respect to roles and responsibilities, governance, regulation, competitive procurement of supply, and pricing, rather than trying to create a competitive market as in the electricity sector.
  • To implement the recommended universal reforms, governments should:
    • clarify that the overarching objective for policy in the sector is the efficient provision of water, wastewater and stormwater services so as to maximise net benefits to the community
    • ensure that procurement, pricing and regulatory frameworks are aligned with the overarching objective and assigned to the appropriate organisation
    • put in place best practice arrangements for policy making, regulatory agencies, and water utilities
    • put in place performance monitoring of utilities and monitor progress on reform.
  • The circumstances of each jurisdiction and region differ and there is not a 'one size fits all' solution to industry structure. In addition to recommended universal reforms, the Commission has set out:
    • four structural options for large metropolitan urban water systems
    • three options for small stand-alone regional systems.
  • There is a role for COAG, but each government can proceed independently to implement the key reforms.
  • Implementation of the reform package, with commitment by governments, will provide consumers with greater reliability of supply, greater choice of services at lower cost than otherwise and reduce the likelihood of costly and inconvenient restrictions.

Background information

John Salerian (Assistant Commissioner) 03 9653 2190

  • Preliminaries
    • Cover, Copyright, Letter, Terms of reference, Contents and Abbreviations
  • Overview - including key points
  • Recommendations and findings
  • Chapter 1 Introduction
    • 1.1 Background to this inquiry
    • 1.2 What has the Commission been asked to do?
    • 1.3 Scope of the inquiry
    • 1.4 The Commission's approach
    • 1.5 Conduct of the inquiry
    • 1.6 Guide to the report
  • Chapter 2 About Australia's urban water sector
    • 2.1 Supply of water, wastewater and stormwater services
    • 2.2 Water consumption
    • 2.3 Recent supply augmentation and demand management initiatives
    • 2.4 Performance of the urban water sector
    • 2.5 Structural, institutional, governance and regulatory arrangements
  • Chapter 3 Objectives for the urban water sector
    • 3.1 What objectives?
    • 3.2 Economic efficiency as an overarching objective
  • Chapter 4 The role of governments
    • 4.1 Market provision
    • 4.2 Government involvement
    • 4.3 Conclusions
  • Chapter 5 Supply of water, wastewater and stormwater services
    • 5.1 Making better supply augmentation decisions
    • 5.2 Improving system operations and asset management
    • 5.3 Other opportunities in the supply of wastewater and stormwater services
    • 5.4 Achieving integrated water cycle management
    • 5.5 Scope for efficiency gains in regional urban areas
  • Chapter 6 Pricing of water, wastewater and stormwater
    • 6.1 Pricing of bulk water
    • 6.2 Pricing of wastewater and stormwater services
    • 6.3 Pricing of water and wastewater transmission and distribution networks
    • 6.4 Final retail pricing
    • 6.5 Assessment of NWI pricing principles
  • Chapter 7 Non-price demand management
    • 7.1 Water restrictions
    • 7.2 Water use efficiency and conservation measures
  • Chapter 8 Achieving affordability and consumer protection objectives
    • 8.1 Affordability of water and wastewater services
    • 8.2 Consumer policy framework
  • Chapter 9 Framework for reform
    • 9.1 Objectives for reform
    • 9.2 Reform options
  • Chapter 10 Improving institutional arrangements
    • 10.1 Assigning roles and responsibilities
    • 10.2 Framework for improving governance of utilities and regulators
    • 10.3 Improving governance arrangements for utilities and regulators
    • 10.4 A charter between governments and utilities
  • Chapter 11 Rethinking price regulation
    • 11.1 What is the rationale for prices oversight?
    • 11.2 How significant are these problems likely to be?
    • 11.3 Options for future prices oversight
    • 11.4 Assessment of regulatory options
    • 11.5 Future arrangements for prices oversight
    • 11.6 Is there merit in a national economic regulator for the urban water sector?
    • 11.7 Third party access regulation and licensing
  • Chapter 12 Structural options for large cities
    • 12.1 Competition, efficiency gains and structural reform
    • 12.2 Option 1: Vertically-integrated water and wastewater utility
    • 12.3 Option 2: Vertical and horizontal separation of the bulk water supply function
    • 12.4 Option 3: Vertical and horizontal separation of the wastewater treatment function
    • 12.5 Option 4: Horizontal separation of retail-distribution
    • 12.6 Conclusion
  • Chapter 13 Reform in regional areas
    • 13.1 Regional water, wastewater and stormwater sector
    • 13.2 Option 1: Horizontal aggregation
    • 13.3 Option 2: Regional alliance
    • 13.4 Option 3: Horizontal disaggregation
    • 13.5 Other issues for regional areas
  • Chapter 14 Implementing reform and monitoring progress
    • 14.1 The reform package
    • 14.2 The role of governments in implementing reform
    • 14.3 Facilitating reform and monitoring progress
  • Appendix A Public consultation
  • Appendix B Further information on Australia's urban water sector
  • Appendix C Lessons from other water sectors
  • Appendix D Lessons from reform in other utility sectors
  • Appendix E Supply augmentation case studies
  • Appendix F Portfolio managers, opportunity cost and tariffs
  • Appendix G Competition and structural reform
  • Technical Supplement 1: Partial equilibrium models of the urban water sectors in Melbourne and Perth
  • Technical Supplement 2: Insights into residential water consumption and expenditure using combined census and utility billing data
  • References

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