Wholesale pricing for Sydney Water and Hunter Water

In 2017, IPART established an approach to regulating the prices Sydney Water and Hunter Water charge for wholesale water and wastewater services.

Wholesale customers purchase these services and on-sell them to their end-use customers, such as households and businesses. As on-sellers, these businesses compete with Sydney Water and Hunter Water for end-use customers. Many wholesale customers also supply recycled water. Wholesale customers are licensed under the Water Industry Competition Act 2006 (WICA).

Our regulatory framework for wholesale prices comprises two main components:

• Wholesale customers can enter into an ‘unregulated pricing agreement’ with Sydney or Hunter Water.
• If either party cannot reach agreement on an unregulated pricing agreement, they can ask IPART to set a price through a scheme-specific price review, which IPART would complete in four months.

We will consider the broader benefits of recycled water plants in our scheme-specific reviews, and reflect these in wholesale prices. Under our framework, the larger the cost saving to Sydney Water or Hunter Water (and their end-use customers) from a wholesale customer’s recycled water plant, the lower the wholesale price (all else being equal). Further information on scheme-specific reviews is available here.

We also set ‘system-wide’ wholesale prices to apply in a very limited range of circumstances from 1 January 2018. Notably, these prices do not apply to wholesale customers that operate a recycled water plant.

Competition in the NSW water market has emerged in recent years due to the Water Industry Competition Act 2006. We support competition where this will ultimately deliver benefits to customers.

We favoured a retail-minus pricing approach for on-selling to ensure that:

• Sydney Water, Hunter Water and on-sellers are on a level playing field in competing for end-use customers
• signals for efficient investment are sent to on-sellers so that investment decisions do not result in end-use customers paying more, and
• services provided to on-sellers are not at the expense of Sydney Water’s or Hunter Water’s customers.

Under a scheme-specific review, we would recognise the system-wide benefits (net avoided costs) of a wholesale customer’s recycled water plant through a commensurate reduction to the wholesale price. We would also consider all views and information presented by stakeholders in a scheme-specific review.

Our approach promotes efficient competition and investment in recycled water schemes, for the benefit of end-use customers.

We intend to undertake a comprehensive review of our approach to wholesale pricing following the completion of the current review of how we regulate water businesses.

In the meantime, wholesale suppliers and/or customers can seek a scheme-specific review from IPART at any time if they can’t reach an unregulated pricing agreement. As indicated above, in such a review, we would consider all proposals, views and information put forward by stakeholders.

Further information on our review of how we regulate water businesses can be found here.