ACCC



PUBLIC SUBMISSION TO CHARGE RULES ISSUES PAPER FOR IRRIGATION OPERATORS BY GOULBURN-MURRAY WATER ON 15 JULY 2008

INTRODUCTION

Goulburn-Murray Water (G-MW) is pleased to participate in the process for developing water charge rules for irrigation operators.

G-MW has unbundled its water entitlements into water shares, delivery shares and water use licences. Significant tariff reform has been an important and complementary component of water entitlement unbundling. G-MW is arguably one of the leading irrigation operators in relation to the development and implementation of delivery service access regimes.

G-MW welcomes further discussion with the ACCC in relation to the comments made in this submission or in relation to other matters that the ACCC may consider relevant to the development of water charge rules for irrigation operators.

COMMENTS ON SPECIFIC QUESTIONS IN THE ISSUES PAPER

Question 1 Are there any matters not mentioned above that are relevant in

establishing a methodology for determining prices consistent with the

objectives and principles of the Act?

G-MW comment

G-MW considers the proposed methodology suitable for determining prices consistent with the objectives and principles of the Act.

Question 2 Are there any issues the ACCC should be aware of in relation to service standards? Provide details including:

a) to what extent the proposed level of service is or should be communicated to customers during the price-setting process

b) the role of customers when establishing service standards

c) the role of customers in determining the balance between the level of prices and the standard of service

d) the extent to which service standards are, or should be, reported publicly

e) the extent to which service standards form, or should form, part of a customer service contract

f) the types of service standards that currently exist.

G-MW comment

Goulburn-Murray Water develops prices and service standards in a consultative process involving customer-elected consultative committees. This process is overseen by the Essential Services Commission. Customers heavily influence the service standards that are established and thereby the balance between level of service and price. Service standards are reported publicly and form part of a customer service charter. Service standards include the level of service, availability and timeliness.

Question 3 Are there any issues the ACCC should be aware of in relation to legislative and regulatory obligations? Provide details, including:

a) to what extent obligations are, or should be, clearly articulated by regulators and government

b) the types of obligations placed on operators

c) how the obligations currently placed on operators are, or should be, funded

d) the extent to which obligations are applied consistently across the basin?

G-MW comment

G-MW believes that obligations should be clearly articulated. G-MW’s functions and responsibility are described in the Water Act 1989 and its primary obligations in regard to discharging its functions are set out in the Statement of Obligations issued by the Minister. A copy is available upon request.

The funding of obligations placed on G-MW is generally by users. However, there are circumstances where other funding is provided or is appropriate in recognition that undertaking the obligation achieves wider public benefits or addresses legacies of previous government policies and therefore should not be funded solely by current users.

Question 4 In transitioning towards upper bound pricing:

a) What factors may influence the path or pace of transition? How might these factors be addressed?

b) Are there circumstances in which upper bound pricing cannot or should not be achieved?

G-MW comment

The factors which may influence the path or pace of transition include the base from which the transition starts, the quantum of increase required and the potential implications of upper bound pricing on future demand for the services. Transition plans that provide users with an adequate time to adjust are one mechanism that could be used.

If upper bound pricing would result in elimination of demand for the service then an alternative asset management and price path is indicated, possibly involving phasing out the service. In such circumstances upper bound pricing may not be appropriate. The Victorian Government has indicated in its White Paper Our Water Our Future that lower bound pricing is acceptable for existing rural water assets.

Question 5 To what extent are the two approaches applied consistent with the conditions listed above? Are there any issues that the ACCC should be aware of when considering the two approaches? Provide details, such as:

a) the current approach, or what might be considered an appropriate approach, for determining forward-looking capital expenditure needs

b) whether forward-looking expenditure programs are independently audited and, if so, at what frequency

c) what type of expenditure is suited to the renewals annuity approach

d) the period over which the renewals annuity and regulatory asset base expenditures are discounted and included in prices

e) how often the renewals annuity and associated bank surpluses or deficits are adjusted

f) what discount rate (or rate of return) is used under both approaches

g) what factors should be taken into account in determining the discount rate

h) whether there are any inhibitors to using the weighted average cost of capital as the discount rate and whether it is appropriate to use this approach

i) whether any operators recover a value of past investments in future prices

G-MW comment

G-MW previously operated under the renewals annuity approach and now uses the regulatory asset base approach. Under the regulatory asset base approach, the only future capital expenditure that can be included in the calculation of prices is that which is forecast to be undertaken within the current 5 year regulatory period. The forecast expenditure is closely scrutinized by customer committees and independently audited by the Essential Services Commitment to ensure that it is prudent and efficient. There is a very high degree of probability that the expenditure will be undertaken and that it will be undertaken at the cost and at the time forecast.

Under the renewals annuity approach, forecasts of capital expenditure up to 100 years into the future (depending on the asset type) can be included. There is far less certainty about such forecasts than exists with the regulatory asset base approach. This would be especially the case if there is significant future structural adjustment in the irrigation sector. Even without structural adjustment, i.e. all assets are still required, the cost and timing of capital expenditure will not always be the same as predicted in annuity calculations used in developing prices, which has implications for the prices applied at a particular point in time.

G-MW adjusted the renewals annuity and renewals reserve on an annual basis. Prices were calculated using a rolling calculation process that sought to mimic the actual changes in the renewal reserve balances based on the expenditure forecasts for each of the future years which affected the annuity calculation. For example, to calculate a 30 year price path with a 50 year renewal annuity required an 80 year capital expenditure forecast.

Under the renewals annuity approach, which was used prior to price regulation by the Essential Services Commission, a real discount rate of 4% was used for the renewals annuity calculation. Under the regulatory asset base approach the Essential Services Commission determines the weighted average cost of capital to be used.

Under either the renewals or regulatory assets base approach, the value of past investments may form part of future prices. With the renewals annuity approach this occurs because in practice a mix of debt and equity is used to finance capital expenditure and because the regulatory asset base approach involves debt financing which can include the inclusion in the asset base of debts related to previous capital expenditure.

Question 6 Are there any issues that the ACCC should be aware of in relation to asset valuation? Provide details, such as:

a) how operators currently finance capital investments—whether it is solely through the renewals annuity or through a combination of the annuity and separate contracts with certain customers (maintaining a separate asset base for pricing purposes)

b) under the regulatory asset base approach how existing assets should be valued

c) in what circumstances might it be reasonable to revalue assets under the regulatory asset base approach?

d) Are there any characteristics of irrigation assets that lend themselves to any particular asset valuation methodology?

G-MW comment

Capital expenditure related to renewal of assets is financed using the regulatory asset base approach. Creation of new assets is also financed in this way but can also be funded by grants, government equity contributions and customer contributions (either as up-front payments or by repayment of individual loans advanced by Goulburn-Murray Water). Only that component of the investment that is to be recovered from prices is included in the regulatory asset base.

Under the regulatory asset base approach existing assets should be valued at their depreciated value.

G-MW has not yet encountered any circumstances that would require asset revaluation under the regulatory asset base approach.

For accounting purposes G-MW believes the most appropriate valuation methodology is optimized depreciated replacement cost.

Question 7 Are there any issues that the ACCC should be aware of in relation to taxation? Provide details, including:

a) whether operators are subject to either the Federal Income Tax or National Tax Equivalent Regimes?

b) the implications for prices where varying tax obligations apply across the Basin

c) the extent to which taxation liabilities are calculated in a manner similar to the table above and details of any differences

d) any relevant issues, rulings, or tax laws that may influence the estimation of taxable income for the purpose of constructing a revenue requirement for pricing

e) examples of where a significant, inexorable, real tax timing disadvantage has been experienced from the receipt of termination fees

G-MW comment

G-MW is subject to the National Tax Equivalents Regime.

G-MW is not aware of how taxation obligations impact other organizations.

For G-MW, any Government grants for capital purposes will be treated as an equity contribution direct to the balance sheet and not included as revenue for taxation purposes. Other treatments are similar to those outlined in the Issues Paper.

G-MW is still incurring large tax losses as tax depreciation is still calculated using accelerated depreciation rates, and therefore tax issues have not materialized yet. As the tax losses reverse in the future other tax treatments will gain importance.

Termination fee receipts to date have been immaterial. However the taxation implications will need to be modelled and they will need to incorporate a tax impact or there will be real revenue leakage.

Question 8 To what extent do operators prepare, or should operators prepare, plans and undertake consultation processes for future capital and operating expenditure requirements? Where possible, provide details, including details of:

a) the consultation process undertaken by operators when developing capital and operating plans, and the role of customers in this process

b) independent review of asset management plans and operating and capital plans, and to what extent these reviews ensure that prices are based on prudent and efficient expenditure

c) how often independent reviews are undertaken

d) the role, if any, of independent consultants in the preparation of plans

e) to what extent the results of independent reviews are, or should be, made public and reflected in prices

f) programs currently in place, or that should be in place, to improve productivity and efficiency over time.

G-MW comment

Goulburn-Murray Water develops capital and operating expenditure plans in consultation with customer-elected consultative committees. Following the Victorian Government’s White Paper Our Water Our Future, Goulburn-Murray Water is placing an increasing emphasis on developing these plans within a 30 year strategic service and asset management plans. This has involved the creation of reference groups comprising customer and stakeholder representatives who participate in the development of proposals for reconfiguration of the delivery system. Goulburn-Murray Water has used independent consultants to assist its in-house expertise in the development of the strategic asset and service management plans.

Goulburn-Murray Water’s expenditure proposals are reviewed and audited by the Essential Services Commission to ensure they are prudent, efficient and incorporate the outcomes of customer and stakeholder consultation. The outcome of the reviews is made public and reflected in prices. The timing of reviews is determined by the Essential Services Commission. Goulburn-Murray Water set targets for productivity improvement, communicates them with customers, and develops budgets, expenditure forecasts and prices assuming that the productivity targets will be achieved. This is an important element of G-MW’s continuous improvement process.

Question 9: What principles and approaches are most appropriate when allocating fixed or common costs of irrigation delivery services (i.e. those costs that do not vary with the volume of water supplied)? Provide details, including:

a) to what extent embedded cross-subsidies or community service obligations (CSOs) currently exist within irrigation networks; in what circumstances and to what extent such cross-subsidies or CSOs should be maintained in perpetuity; and what processes are, or could be, used to reduce or eliminate crosssubsidies and CSOs

b) to what extent current charges do, and whether they should, reflect a uniform or postage stamp pricing policy

c) to what extent current charges do, and whether they should, reflect the costs of providing services to different segments of the market.

G-MW comment

G-MW believes there are few, if any, instances of CSOs in relation to its delivery services. Instances where this could arise might be the requirement to retain delivery infrastructure to deliver water for environmental watering purposes when the infrastructure would not otherwise be needed.

Prior to G-MW’s creation, postage stamp pricing was in place and prices were subsidized from consolidated revenue. As part of its formation and the transition to user –pays G-MW, in consultation with customers, adopted zonal pricing. The delivery system has been disaggregated into a number of zones based on the major nodes of the delivery system. As well as reflecting the physical delivery system, these nodes are geographically separate and align well with community identity and generally encompass a relatively similar agricultural industry mix with a common service level requirement. Within each of these zones, uniform prices apply.

Changing existing pricing aggregations is difficult. As well as determining whether the existing pricing arrangements are efficient there are also issues of equity, history and administrative feasibility to be dealt with. Landowners have bought and invested in properties based on current pricing approaches whereby all customers in a particular location have paid uniform delivery prices. Changes to pricing policies will have impacts on property values and wealth distribution between landowners and may undermine community harmony. These impacts need to be weighed against the possible efficiency gains that may be realized. With network services there is potentially a range of prices that can be efficient and community consultation and support is an important input to decision making about the extent of price differentiation.

G-MW does not believe that prices should be based on who is the end-user of the service or for the purpose for which water is delivered. Rather, price differentiation should reflect different levels of service and different levels of cost.

Question 10 To what extent and in what circumstances should the setting of fixed and volumetric charges be allowed to deviate from the underlying (fixed and variable) cost structure of the operator?

G-MW comment

G-MW seeks to align costs and revenues. Currently, its variable fees for delivery services are set somewhat higher than variable costs. This has resulted in significant operating losses in recent low delivery years. The imbalance between fixed revenue and fixed costs can be explained because G-MW is still in a state of transition from the tariff and price mix that existed for most of the last century, whereby: approximately 30% of revenue was variable; variable revenue was relatively stable due to high water availability; and, there was a stronger perceived need for overt price signals to minimise unnecessary water use.

Since then drought, the maturing of the water market and the introduction of carryover into the entitlement framework has changed the context within which prices are formed. Opportunity cost (rather than G-MW prices) is emerging as the primary determinant of customer behaviour in relation to water use.

Question 11 To what extent is pricing used as a cash management tool or insurance fund for irrigators? Are operators best placed to provide this service? What are the practical implications for the trade of water under such a pricing arrangement?

G-MW comment

G-MW does provide some cash flow management to customers due to variable charges being higher than variable costs, though this a consequence of the current price mix rather than a deliberate policy. In response to customer concerns regarding the payment of fixed charges for infrastructure in years of low water availability, G-MW has examined ways in which it might provide risk management services to customers. While irrigation operators could provide risk management services, G-MW believes that others, such as banks and insurance companies, are better placed to assess customer business viability and help customers understand and manage these types of risks.

If prices are biased towards variable fees as a cash management tool or insurance service then any delivery shortfall relative to the delivery volumes used in pricing calculations will result in revenue shortfalls – these delivery shortfalls could be partly due to trade of water allocation or entitlement. These revenue shortfalls will need to be made up through price increases in future years. G-MW’s experience is that most customers express a high priority for relatively stable, predictable future price paths. This is more difficult to achieve with a bias to higher variable fees. Also with a bias to higher variable fees, the overall revenue requirement is likely to be higher due to increased financing costs associated with revenue shortfalls. Again, most customers would prefer that overall prices were lower and that individual customers, rather than the irrigation operator, were responsible for managing farm cash flow.

Question 12 What progress has been made in the implementation of the access, exit and termination fee protocol to schedule E of the Murray Darling Basin Agreement—specifically in relation to the creation of delivery entitlements?

G-MW comment

G-MW is well advanced to the meeting the requirements of schedule E of the Murray Darling Basin Agreement. In 2007/08 it created explicit delivery entitlements for access to its delivery systems and transfer of delivery entitlements is being implemented in 2008/09.

Question 13 To what extent and in what circumstances does the creation of explicit delivery entitlements impact the operation of irrigation networks? More specifically:

a) are there expected benefits in terms of utilising spare capacity through trade in delivery entitlements? What advantages or disadvantages have resulted from the creation of explicitdelivery entitlements?

b) What practical issues and constraints might be involved in defining, measuring and monitoring explicit delivery entitlements? Can service standards (e.g. flow rates) be assigned to such entitlements?

G-MW comment

Delivery entitlements offer advantages. G-MW expects that customers will use delivery entitlements to better match access to the delivery system to their business requirements. Previously, access to the delivery system was determined by the water entitlement held. Landowners wanting secure access to the delivery system had little choice but to purchase additional water entitlement. Now landowners can manage their delivery access separately from their access to water. G-MW has already seen customers who have sufficient delivery access purchasing additional water entitlements for reliability risk management. This was previously not possible on fully committed channels when delivery access was derived from and bundled with the water entitlement. As yet no disadvantages have become evident.

G-MW has determined services standards for its delivery entitlements as part of the water entitlement unbundling process. The delivery entitlement represents a share of the available service, expressed as a flow rate in ML/day, and for practical purposes is the minimum level of service that customers can expect to receive during a congestion period. Each property’s delivery entitlement has been apportioned between its service points, meaning that the delivery entitlement also has a defined spatial attribute. A delivery share is an on-going entitlement and therefore creates an on-going obligation on G-MW to maintain and provide access to the delivery system.

Question 14 To what extent have the specific provisions of schedule E for dealing with explicit delivery entitlements been met by operators? Provide details including:

a) instances where specific requirements in relation to delivery entitlements are imposed upon the transfer of water access entitlements. If this is the case, in what circumstances and for what purpose have such arrangements been adopted?

b) instances where operators do not offer the option of paying delivery access charges once a water access entitlement is traded.

G-MW comment

G-MW does not impose any requirements in relation to delivery entitlements upon the transfer of water access entitlements.

G-MW offers the option of continuing to pay delivery access charges once a water entitlement is traded. So far, this option has been the choice made by nearly all water entitlement sellers.

Question 15 To what extent and in what circumstances are the security provisions within schedule E applied by operators? Provide details including:

a) To what extent do irrigators who elect to maintain their delivery entitlement following the sale of their water entitlement present a risk to the revenue security of an operator?

b) What security arrangements are currently used by operators? Do restrictions exist in terms of the percentage of a permanent water entitlement that can be traded before a termination fee is required?

c) Do current security provisions reflect an appropriate balance between the credit risk faced by the operator and the interests of the irrigator?

d) Are existing legal remedies for the recovery of debts adequate for operators to manage their credit risks? Are there impediments that limit an operator’s ability to enforce any contractual arrangements?

e) Is there scope to use other forms of security such as unmortgaged land or bank guarantees where an irrigator elects to maintain their delivery right after the sale of their water entitlement?

f) Should the amount of any security collateral requested be capped? If so, why and to what extent?

g) Are operators in a position to assess the extent to which particular irrigators represent a credit risk?

G-MW comment

So far, G-MW has not experienced difficulties with landowners not having sufficient security to meet on-going obligations to pay access fees. Access fees are a charge against the land. G-MW imposes no limit on the percentage of water entitlement that can be traded before a termination fee is required. G-MW believes that specialized skills would be required to assess the extent to which particular irrigators are a credit risk.

Question 16 To what extent have the provisions of schedule E in relation to prohibiting the levying of exit been adhered to by operators? More specifically (where possible, provide details of current practices):

a) are exit fees levied by operators—for instance, is a fee payable upon transfer of a permanent water entitlement rather than the surrendering or termination of a delivery entitlement?

b) are there instances where operators require the termination of delivery entitlements, and payment of termination fees, as a condition for the transfer of a permanent water entitlement?

G-MW comment

G-MW does not levy exit fees.

G-MW does not require surrender of delivery entitlements and payment of termination fees as a condition of transfer of a permanent water entitlement.

Question 17 In relation to the levying of fees and charges, do access fees recover an operator’s fixed costs and do operators calculate a separate levy for infrastructure service improvements?

G-MW comment

G-MW’s access fees recover the majority of its fixed costs.

At this stage, G-MW has not had need to calculate a separate levy for infrastructure service improvement costs. Where possible, it would prefer that such costs formed part of the regulatory asset base for calculation of the access fee rather than be levied as a separate fee – noting that such an approach may need to include scope for complementary increases in the termination fee if these upgrades are considered to be the product of ex-ante decisions.

Question 18 What factors impact on the choice to levy a separate fee or charge outside the renewals annuity?

G-MW comment

Factors that might impact on the choice to levy a separate fee or charge outside the renewals annuity (or regulatory asset base) might include whether all delivery entitlement holders in the customer group will benefit from the investment; whether this is to be treated as an ex-ante investment and how this would be reflected in the calculation of termination fees; and, the administrative and accounting issues associated with different asset categorizations.

Question 19 Have all operators adopted a multiple of 15 times the annual access fee?

G-MW comment

G-MW has adopted a multiple of 15 times the annual access fee, which is the maximum permitted under schedule E.

Question 20 Have any operators made an allowance in termination fees for avoidable costs associated with the surrendering or termination of a delivery entitlement?

G-MW comment

G-MW’s delivery assets generally have a life of 30 years of more. These assets are debt financed under the regulatory asset base approach. Accordingly, there is a good argument that a termination fee multiple in the order of 17 times (30 years with a 4% real discount rate) is appropriate since capital expenditure is recovered in arrears over the life of the asset nder the regulatory asset base approach. Accordingly, the adoption of a 15 times multiple potentially already includes a generic allowance for non-replacement of some assets – possibly appropriate under a renewals annuity approach where much of the capital expenditure included in the annuity calculation is yet to occur but arguably not appropriate under a regulatory asset base approach where the capital expenditure has largely already been incurred.

Notwithstanding, G-MW also may reduce or waive termination fees in specific cases where the reduction or surrender of a delivery entitlement by a landowner will result in the direct capture of avoidable costs, i.e. enables the rationalization of specific assets, and hence a lower price path for remaining delivery system customers. The quantum of the reduction in the termination fee needs to take into account the probability that the avoided cost would otherwise be incurred, with forecast expenditure many years into the future being less certain and therefore more heavily discounted. This probability assessment is especially important with the regulated asset base approach. Unlike the renewals annuity approach, the cash to fund the asset rationalization must be generated by an increase in today’s prices in order to achieve a potential future benefit rather than already being built into prices through the renewals annuity calculation.

Question 21 Which multiple/number of years (if any) represents a reasonable balance between removing potential barriers to trade and providing a sufficient timeframe for operators to adjust to new trade patterns, receive the appropriate investment signals and efficiently rationalize irrigation networks?

G-MW comment

G-MW notes that it debt finances capital expenditure under the regulatory asset base approach and therefore the access fee only includes asset expenditure already undertaken or proposed to be undertaken within the current 5 year regulatory period. Under the regulatory asset base approach the number of years used to determine the termination fee should be linked to the period over which the capital expenditure will be recovered through prices. G-MW has some delivery systems (Woorinen is an example) where the whole infrastructure has been renewed within the last decade based on ex-ante commitments from customers that the capital expenditure would be recovered over the life of the assets, expected to be 75 years. This discussion suggests that a range of multiples might all be reasonable for different circumstances.

ABARE (Exit Fees and Interregional Trade: An Analysis of the Efficiency Impacts of Exit Fees, 2006) found that if infrastructure access was unbundled and the liability to pay an access fee or termination fee was independent of whether an irrigator elected to trade all of their water entitlement it would not distort the incentive to trade. Given this, G-MW believes that the termination fee does not represent a barrier to water entitlement trade and this should not be a factor in determining the quantum of the termination fee. The termination fee is a mechanism to protect other delivery system customers from the risk of stranded assets and rising prices associated with surrender of delivery entitlements.

G-MW believes that for its delivery systems the minimum multiple should be not less than the existing 15 times and could be up to 25 times where ex-ante arrangements are in place for long-lived assets. Otherwise, G-MW risks not being able to recover capital already spent or having to raise prices for remaining customers in order to do so.

It should be noted that the discussion of multiples assumes that that the revenue stream they provide will be unaffected by taxation. To the extent this is not the case then the multiples will need to be adjusted upwards to ensure the pricing outcomes for remaining customers can be achieved. G-MW does not support the multiple reducing through time. Rather rationalization of the asset base should be reflected in lower access fees and not reduced multiples because G-MW has an on-going obligation to provide delivery services.

G-MW believes that under a regulatory asset base approach there is a very high level of scrutiny on every capital expenditure decision since expenditure translates directly into an increased cost base. Because of this, G-MW has strong incentives to pursue asset rationalization opportunities and to defer capital expenditure where future service requirements are uncertain. This ensures that an efficient access fee is the primary objective and effort is made to achieve the lowest possible access fee commensurate with the agreed level of service. G-MW has a comprehensive capital expenditure review / gateway process to ensure projects are scrutinized with regard to the expenditure being necessary and efficient.

Question 22 Aside from transitional issues, are there any circumstances under which a shadow access fee should be retained?

G-MW comment

G-MW does not believe there is a case for retention of shadow access fees.

Question 23 Are there instances where termination fees or charges applying to delivery entitlements are calculated on a basis other than an actual or shadow access fee as specified in schedule E? What practical or other reasons account for such practices?

G-MW comment

G-MW’s termination fees are calculated as a multiple of its access fees.

G-MW notes that using a multiple of the access fee is a simplifying approach adopted as an alternative to a first principles calculation of the present value of the price path. The first principles approach may be justified in circumstances where it would result in a materially different outcome from that achieved using the multiple method. The multiple method means that G-MW and remaining delivery system customers bear the risks associated with the forecast rising price path, likely real cost increases to maintain service levels and increased costs to meet expanding compliance requirements. The multiple method has the attraction of being simpler to calculate, audit and communicate to customers.

Question 24 Would operators be at a competitive disadvantage by having lower actual delivery access and termination fees? Provide details.

G-MW comment

G-MW believes that, everything else being equal, irrigation delivery operators with low access fees would be at a competitive advantage since this would result in a lower cost base for customers of these delivery systems.

Question 25 Are taxation adjustments made to termination fees? On what basis are

they made?

G-MW comment

G-MW has not yet made taxation adjustments to termination fees. G-MW believes that adjustments are warranted in situations where the post-tax revenue stream would not otherwise be sufficient to provide the intended price stability for remaining delivery system customers.

Question 26 To what extent do operators levy both regulated and unregulated water charges? More specifically (provide details where possible):

a) do operators provide services and levy charges in respect of services unrelated to access to their irrigation network?

b) do operators provide access to their network for the purpose of supplying both rural and urban customers?

c) do operators provide access to their network for basin water resources and non-basin water resources?

d) what practical issues might arise by virtue of water charge rules not applying to some of the activities of those operators referred to in the preceding points (i.e. regulatory accounting issues)?

G-MW comment

G-MW provides a range of services. Some of these are regulated and some not. Many are unrelated to providing access to its delivery systems. G-MW provides access to its delivery system for both rural and urban water delivery and for delivery to the environment. G-MW currently provides access to its delivery systems only for basin water resources but in-principle would support the delivery of non-basin water resources.

Question 27 To what extent and in what circumstances, should the water charge rules apply to all operators to the same degree? More specifically:

a) should any distinctions between classes of operators be based on the number of customers serviced, the volume of entitlements held, the size of the irrigation network or another characteristic of the operator?

b) is there merit in a delayed application of the water charge rules for specific classes of operators? If so, on what basis should operators be classified?

G-MW comment

G-MW believes that the water charge rules should apply to all operators. G-MW does not believe there should be delay in the application of the water charge rules for specific classes of operators.

Question 28 What factors should be considered when making rules about transition

arrangements? More specifically:

a) what length of time between the making of water charge rules and the commencement of water charge rules would provide adequate opportunity to operators and their customers to adjust to new arrangements?

b) are there any other transitional matters that the water charge rules should take into consideration?

G-MW comment

G-MW’s believes that a lead time of up to two years may be necessary to implement significant changes arising from the making of the water charge rules. There will need to be sufficient time for customer communication / consultation and to make submission to and gain approval from the Essential Services Commission in a manner that integrates with the price determination process.

Question 29 To what extent are regulated water charges payable to operators currently monitored and reported?

G-MW comment

G-MW is regulated by the Essential Services Commission. Prices are published prior to being levied and the price determination process provides a number of opportunities for customer participation.

Question 30 Are there any other issues that the ACCC should be aware of in developing and implementing arrangements to monitor compliance?

G-MW comment

G-MW believes that the compliance monitoring arrangements should contemplate different arrangements that reflect the intensity of independent economic regulation in each of the jurisdictions. Where there is already active independent economic regulation there would seem to be potential for the compliance monitoring arrangements to be incorporated into the existing regulatory regime and thereby minimize the regulatory burden on irrigation operators.

There should be scope for appeal to the ACCC by irrigation operators or their customers if they believe the arrangements, whether locally or in another jurisdiction, may not be consistent with the water charging objectives or principles.

Question 31 What considerations are relevant to establishing measures to mitigate the risk of perverse or unintended outcomes? More specifically:

a) how long after the commencement of the water charge rules should a comprehensive review of the water charge rules as a whole occur? Who should undertake this review, and should the process for changing the water charge rules to address the outcomes of the review be the same as the current process for developing the rules?

b) if the water charge rules were to confer a decision-making power onto some entity (for example, the determination of termination fees by the ACCC), what criteria should that entity use in deciding whether to vary or revoke a decision?

G-MW comment

G-MW suggests that a comprehensive review should not occur earlier than two years after making of the water charge rules and not later than five years. This should enable all irrigation operators to have implemented the water charge rules and for informed input to the review to be provided by irrigation operators, customers and stakeholders. The review process should include a mechanism for irrigation operators or customers to request an earlier review of an aspect of the water charge rules if unintended outcomes with material consequence occur before or between scheduled reviews.

The process to vary or revoke a decision made by a decision-making entity should be the same as that used to make the decision, including any consultative arrangements.

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