The extensive network of water infrastructure that delivers services to more than 20 million people nationally is under increasing pressure due to population growth, climate change, growing customer and community expectations, and aging infrastructure. Infrastructure Australia has called on Australia’s governments and utilities to make fundamental changes to the governance and regulation of Australia’s urban water markets.
In December 2017, Infrastructure Australia released its report Reforming Urban Water: A national pathway for change to address the mounting challenges in the urban water industry and provide a case for a national reform while outlining the potential costs of inaction.
Water Services Association of Australia (WSAA) Executive Director, Adam Lovell, said WSAA welcomes the report as it has the long-term interest of customers in mind.
“WSAA supports the calls from Infrastructure Australia for a new national urban water reform plan and an independent national urban water reform body. It is good to see the strong and growing consensus around urban water reform that has developed between governments, water utilities and the private sector.
“While the industry is well regarded across the world and has made significant gains in efficiency and customer focus, WSAA agrees with Infrastructure Australia that the institutional environment in which the industry operates needs to evolve if it is to meet the challenges of the future,” Mr Lovell said.
Vulnerability in the sector
Infrastructure Australia has highlighted the Millennium Drought of 1997–2012, the most severe Australian drought on record, as exposing a number of vulnerabilities in the sector.
The response to the drought saw a return to major supply-side and led to over $11 billion of investment (in today’s dollars) to augment supply through desalination plants. Because of this, the urban water sector emerged from the Millennium Drought with a resilient, high-quality and diversified supply.
However, the supply challenges faced and crisis-based response from governments during that time raised questions about whether decision-making processes, policy settings and institutional arrangements were delivering the most efficient and effective outcomes for the community.
Infrastructure Australia Chief Executive, Philip Davies, said, “If Australians want continued access to safe, reliable and affordable water in the future, we need to begin a staged approach to reforming the sector now — starting with a new national urban water reform plan.
“Now is the time for governments to get on with the job of bringing urban water policy, regulation and governance up to speed so that it can meet the changing needs of Australians in the twenty-first century.”
Consequences of inaction
Factors such as climate variability and aging infrastructure could put upward pressure on the costs of delivering water services. In order to better gauge the potential impact these challenges have on affordability, Infrastructure Australia commissioned modelling to offer accurate projections on what the future of household water bills may look like.
The analysis found that without appropriate action, a typical residential water and sewerage bill could rise by around $600 in today’s money over the next ten years. By 2040, the average bill could be as high as $2553 in real terms — more than double what it is today.
Mr Lovell said that while WSAA hasn’t seen the detail behind the modelling of future price rises, it does know that substantial capital investment will be required to meet the water and wastewater needs of Australia’s growing cities, and this will ultimately be funded by customers.
“WSAA agrees that unless a new reform program is effectively implemented, customers could be exposed to rising bills in the coming years,” Mr Lovell said.
“We do know categorically that price spikes, caused by a number of factors, including political expediency, poor planning or adverse environmental or external shocks, cause customers distress and lower trust and satisfaction scores.
“We are seeing growing numbers of vulnerable customers who are more acutely exposed to any price increases. Programs such as the Thriving Communities Partnership are working across sectors (banking, energy and others) to reduce the pain and hardship experienced by these customers.”
The report states that for many families, growth in bills of this scale could cause significant hardship, ‘In the context of slow wage growth and rising cost of living pressures, including increasing bills across other forms of infrastructure, it is imperative that the urban water sector ensures services remain affordable’.
Infrastructure Australia suggests short-term measures such as running down legacy assets will do nothing to address long-term affordability of urban water services. “Instead, utilities – with the support of governments and regulators – should look to forward-thinking, efficiency enhancing solutions to service delivery and network management. Advances in technologies, processes and analysis can help utilities to extract more value from existing assets, which can lead to better services at lower costs,” the report said.
The pathway forward
The report suggests that in order to reduce the challenges faced, the urban water industry should move away from a sector where governments balance roles as owner, regulator and policymaker, into a more sophisticated, well-regulated, responsive sector with stronger links between supply and demand, and clearer signals for efficient investment.
Infrastructure Australia has condensed its 12 recommendations into a three stage approach to reforming urban water.
The first stage is for the Australian Government to establish a national reform pathway by the end of 2018, including agreeing to a new national urban water reform plan, establishing an independent national reform body and using incentive payments to drive reforms.
This national agreement should follow four national objectives outlined in the report:
- A focus on the long-term interests of users
- Efficiency and affordability
- Independence, transparency and accountability
- Security and resilience
Infrastructure Australia also called for an independent national champion of urban water reform. A body that would provide support to jurisdictions through their separate reform efforts, guide public discussions about urban water and call out instances where reforms are not being progressed as planned.
The report states that “the key to unlocking reforms across other states and territories is to examine what has worked, what may have been less successful, and how these can be applied across the country in a way that maximises benefits for customers and taxpayers”.
The second stage is to rollout nationally consistent reforms over the next five years. This includes refinements to regulation and governance in each state and territory, improvements to long-term planning and pricing frameworks, and enhanced collaboration between regulators.
Under this stage, regional outcomes should be prioritised to ensure customers outside major cities also benefit from progress in urban water delivery. Private participation should be encouraged where there is potential for it to improve services and reduce costs.
The final stage is to consider further reforms over time, such as moving to a national regulator and privatising urban water assets.
The report suggests moving to a national regulator and privatising urban water assets could provide substantial benefits to customers if implemented in the right way—but it is important to recognise that the sector needs to be reformed first.
Mr Lovell said that while it welcomes the report, WSAA does not agree with all the recommendations.
“For example, we have not argued for national regulation, however we support minimum standards for state regulation.
Minimum standards would help prevent fraying at the edges of the governance, institutional and regulatory settings that are not consistent with the long-term interest of customers.
“In relation to private ownership, WSAA considers this a matter for individual government shareholders to consider on a case by case basis. WSAA, in its submission to the Productivity Commission’s Draft Report on National Water Reform calls for the Commonwealth and states to negotiate a new National Water Agreement to progress urban water reform.”
Infrastructure Australia has stressed that it is essential to take action before future challenges, such as another major drought or failing assets, prevent clear thinking on efficient, long-term solutions.