Water sector overdue for pricing model switch

Posted 16 September 2016

Water dropRegulatory pricing models that are customer-centred and give water businesses greater autonomy are the way of the future, according to a leading Australian economist.

Synergies Director Martin van Bueren, who will be presenting at the upcoming AWA WA Policy Seminar: Doing more with less, said cost-based regulations had served Australia well, but were approaching their use-by-date.

“There have been enormous efficiencies delivered in the water industry and that's primarily through having better cost controls and looking at the building blocks of water business costs,” van Bueren said.

“That's delivered some big wins, but what the Victorian situation shows is that there seems to be diminishing returns in that space and we're looking to the next step – where's the next area where, through regulation, we can try to enhance efficiencies further?”

He said the pricing model proposed by Victoria's Essential Services Commission provided a good example of where regulations could be headed.

“The model draws on elements of approaches being used in the UK for regulating energy networks and water companies, which have been found to motivate businesses to prepare high-quality price submissions and deliver better price outcomes for customers,” Van Bueren stated in a recent paper.

“The model has several key features that are crafted to work together to achieve the ESC’s stated objectives of customer focus, business autonomy, meaningful performance outcomes and regulatory simplicity.”

Van Bueren said such a pricing model would require a significant shift in thinking for some utilities.

“What's done currently is typically a water business will develop their proposal and then they'll go out and consult and get some feedback,” he said.

“We need to be incentivising water businesses to engage more deeply with customers from the very start of the process of developing their pricing proposals.”

Although the proposed Victorian model would not be completely transferrable, other jurisdictions could draw on its key principles, Van Bueren said.

“What I'm doing is looking at their model, discussing that and presenting the aspects of innovation that they have adopted in their regulatory model to a West Australian audience,” he said.

“We hope to get some discussion going in the group about what elements of that framework may be transferrable and have some relevance to the WA context.”

To hear more about regulatory pricing models in the water sector, sign up for the WA Policy Seminar: Doing more with less, to be held in Perth on September 20.