In their role as the independent regulator responsible for determining the maximum prices that can be charged for certain water services in New South Wales, the Independent Pricing and Regulatory Tribunal (IPART) today released their Draft Determination regarding WaterNSW’s prices for NSW Rural Bulk Water Services to be applied from 1 July 2017.

WaterNSW provides a range of services to different users (some of whom are customers), and a key step in determining the prices charged for WaterNSW’s services is to determine the sharing of the costs of WaterNSW's rural bulk water supply between customers and the NSW Government.  While prices and charges for water should, in general, recover the full efficient cost of providing the service to water users, in some industries there are economic arguments for some government contribution to the cost of providing WaterNSW services. These arguments include the existence of public goods and unavoidable legacy costs, or where it is impracticable to recover costs from specific users of these services.

IPART engaged Frontier (Asia-Pacific) to prepare a report providing expert economic advice on the regulatory framework for sharing the costs of WaterNSW's rural bulk water supply between customers and the NSW Government. The report recommended a new long-term sustainable approach to cost sharing based on sound and well-accepted economic principles, which were ultimately adopted by IPART. In particular, in line with recommendations, IPART has opted to move towards an approach that involves:

  1. identifying the different services being delivered by WaterNSW in each valley
  2. establishing the efficient costs to specific services provided by WaterNSW
  3. subtracting legacy costs to determine the efficient forward-looking costs to be recovered from current and future impactors
  4. allocating efficient forward-looking costs between current and future impactors
  5. recovering costs from customers or NSW Government through prices and NSW Government contribution (or other cost-recovery mechanism).

However, given implementing aspects of the proposed approach requires a range of detailed information and potential changes to billing systems and/or legislative, policy or regulatory change, IPART has opted to retain the original cost share allocation throughout the 2017 determination period, with a move to undertake a targeted review to consult upon and implement aspects of Frontier’s proposed cost sharing approach for the 2021 determination period.

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