Sydney Water’s Cost Allocation Manual

The Water Industry Competition Act 2006 (WIC Act) provides for private sector participation and competition in the NSW water and wastewater industry.

To facilitate this, infrastructure services can be ‘declared’ under the WIC Act. This means that a third party must be granted access to these services, subject to certain criteria and the establishment of an access agreement or determination. Such ‘third-party access’ can allow new entrants to compete with incumbent suppliers in the provision of water and/or wastewater services to end use customers.

Under the WIC Act, Sydney Water, as a provider of a declared service must develop a cost allocation manual and submit it to IPART for approval. The cost allocation manual (CAM) sets out the basis on which the service provider will establish and maintain separate cost accounts for each of its declared services.

In July 2018, Sydney Water submitted its draft CAM to IPART to consider for approval and this was released on IPART’s website for stakeholder submissions. Following IPART’s initial assessment, Sydney Water submitted a revised CAM in May 2019 and this was also released on IPART’s website for stakeholder submissions. Stakeholder submissions closed on 23 August 2019 and we received no submissions.

Following our final assessment, IPART is satisfied that, in accordance with section 42(2) of the WIC Act, Sydney Water’s May 2019 CAM sets out the basis on which Sydney Water will establish and maintain separate cost accounts for its declared wastewater services. As such, IPART has approved Sydney Water’s May 2019 CAM under section 42(4) of the WIC Act.

The WIC Act does not specify the purposes of a cost allocation manual. We consider the purposes include:

• improving transparency and helping overcome information asymmetry between the service provider and potential access seekers, in order to facilitate the commencement of negotiations on access terms
• supporting access prices that would lead to appropriate incentives for entry in services potentially open to competition, and be in the long-term interest of end users, and
• assisting an arbitrator (eg, IPART) if requested to arbitrate a dispute over access terms.

To assist service providers in preparing cost allocation manuals, we published a Cost allocation guide. The guide is available here.

Key stakeholders in our review of Sydney Water’s cost allocation manual include potential access seekers and new suppliers of water and wastewater services.

As stated in Sydney Water’s May 2019 CAM, Sydney Water will review its CAM at the beginning of each regulatory pricing period. IPART is required to approve any updates to the CAM.