Commission of Inquiry on Water Pricing Bill

Second Reading

Mr WHETSTONE (Chaffey) (10:59): I move:

That this bill be now read a second time.

Essentially, this bill is for an act to provide for a commission of inquiry into water pricing to provide evidentiary powers and immunities in connection with the inquiry and for other purposes. What the commission will look at is essentially water pricing and how we actually derive water prices that are impacting on every person, every ratepayer, in South Australia. It has been widely recognised that South Australia does have the highest water prices in the country. Obviously, the recent ABS statistics have reassured critics that, yes, South Australians are paying the highest water prices even though the government continually denies that we are paying the highest water prices.

I will come back to some of the numbers, but the Liberal leader, Steven Marshall, the member for Dunstan, has introduced this commission of inquiry, and I think for good reason. Not only has he been inundated with concerned constituents who recognise that utility prices are having an impact on their daily lives but also every MP, I am sure, whether it be from the government side, whether it be from the opposition side, whether it be from Independents, everyone is feeling the pain, every one's businesses are being impacted.

Really, what we are now seeing is that the government has created a monopoly and it is dealing out pain spade after spade. What we would like to see, obviously, is someone looking at water pricing for consumers and users of water in South Australia, and why the charges here are higher than any other jurisdiction and any other economic legislative or other reform which would promote water pricing at lower charges to consumers, particularly in reference to the Essential Services Commission, and a third-party access scheme.

The commission of inquiry is established under clause 4 to be appointed by the Governor, and there are standard clauses in relation to the processes. One of the important matters which relates to the commission is that there is an obligation to provide evidence in a number of inquiries that this parliament may promote from time to time, namely, select committees.

We have a number of ministers who refuse to attend to give evidence, and they would have certain obligations under this bill. It is clearly intended to have an independent role. I state that it must be independent and it must have an independent role because South Australians do not have any confidence in the current fiasco that has gone on around water pricing and the lack of transparency.

I note of recent times where we have had this bit of a slinging match from the Treasurer against former employees, namely, Dr Kerin from ESCOSA—it is a 'he said/she said'. That is just not good enough. I think it has been widely recognised that the asset base has been overinflated by some $2 billion, so what that means is that every South Australian is picking up the tab for that overinflated price basically to underpin the coffers of the government.

It is a continual barrage, particularly with water. We have a Treasurer who continually cuts budgets in all sorts of areas that rely on water and service sectors, but he also has another coffer of money that comes from water charges.

It is getting to the point now where, unless we have an independent commission on water prices and the way that prices are set, South Australia will be none the wiser and South Australians will be the poorer people of this nation. It is now black and white that South Australians are paying about $1.21 more than the national average of water pricing. I think that is just outrageous.

I have had a look at some of the numbers according to Treasury papers, and since 2002-03 a $164 million profit was taken by the state government as a dividend from SA Water. That has risen to $235 million in 2012-13, and the forecast for the next four years alone is some $915 million, gouging out of people's utility bills. It is gouging people who cannot afford to pay inflated water prices here in South Australia.

Again, the standard line is that the government is addicted to gouging water prices. They are addicted to the high cost of charging people so that they can underpin their shabby budget that they cannot sustain. As I said, the ABS stats on water consumption in South Australia estimated in the 2013-14 year, 1.07 gigalitres—7 per cent of Australia's water consumption—compared with 1.1 gigalitres in 2012-13. It is showing that South Australians are using below the national average of water, yet we continue to pay the highest prices.

With the agriculture industry, one of the largest consumers of water in South Australia, it was 64 per cent of the total consumption in South Australia. Water consumption by industry and household per capita was 639 kilolitres, 20 per cent lower than the Australian average of 794 kilolitres per capita. The average water price paid by households was $4.29 per kilolitre in 2013-14. As I have said, it is the highest average water price in Australia. The average water price in Australia is $3.08. It is $4.29 in South Australia and the national average is $3.08. It is $1.21 above the national average and it shows that the current government is absolutely addicted to and reliant on charging high water prices.

One of the legacies that this current Weatherill government is working on is leaving South Australians with the highest price for water. Consumers in 2002 were paying 38ȼ a kilolitre; today it is $2.32. I think it is just outrageous that they continue to hit the people's pocket, the people who can least afford it and the people who the government is now relying on as one of its economic drivers. Irrigated horticulture, irrigated agriculture is one of the shining lights in South Australia. We have previously seen a strong resources sector but the lights are fading fast. I think water production in South Australia, right across the Murray-Darling Basin, is underpinning a huge economy, whether it is our strong national economy or whether it is our state economy, it is massive.

I think we have to understand that all of the water pricing increases are well above CPI. Yes, we have seen the construction of a desal plant. Yes, a desal plant is a good alternative when it comes to water supply. The question is whether it was money wisely spent, rather than putting up a Liberal initiative of a 45 gigalitre desal plant and looking at other diverse methods of providing a water supply. I think the government had rose-coloured glasses on the day that they decided that the federal government was going to fund the extra 50 gigalitres of that plant and make it 100 gigalitres, and that this would be a great windfall. However, the then treasurer did not understand that it would be GST compliant so that they would then have to charge the South Australian taxpayer for that extra 50 gigalitres. That $2.3 billion desal plant is currently running at a minimum. It is costing taxpayers an estimated $41 million a year, and that is obviously impacting on the price of water.

What the government failed to recognise is that it is an asset. It is an investment. It is a piece of infrastructure that is now sitting there, unproductive. It really is warranting justification. Sure, we will hit a drought and we will look at that desal plant, but why are we not looking at other streams of water? Why are we not looking at how we can diversify our supply so that we can keep our prices down? That would be because the government has a monopoly on water. It has a monopoly on water charges in South Australia. It has a monopoly on where it wants to supply its water.

We look at pipelines around the lakes; we look at treated water. I notice we have our purple pipe scheme coming out of the Glenelg treatment plant. Out of the 18 gigalitres that flows into that treatment plant, 13½ gigalitres (13,569 megalitres) goes out to sea. Just imagine what could be done with that sort of water. I fear the government is prepared to keep charging people high water prices so that it can underpin its shabby budget. It cannot see past its nose. It needs to be supplying people with cheaper water to become more productive so that we can grow more food and put it into our export markets—underpin an economy.

Mr Pengilly: That's it, feed the world.

Mr WHETSTONE: Feed the world. Well, how about we feed the people who are growing the food as well. Look at the diversity that we could have around supplying water out of the River Murray. Why are we not using our desal plant? Why do we not turn it on and bring it up to a productive standard? The water that we do not take out of the River Murray, why are we not putting that back into the market? Why are we not putting that into production, creating another micro-economy? Why are we not doing that?

Look at harvesting and storage. All water is stormwater, except for the desal water. All water is, in some way, shape or form, harvested. Why are we not looking at better ways to store our water? We hear all sorts of promises and plans that we are going to increase storage, but we are looking at a lazy government that says, 'We'll just keep sucking it out of the river. We'll just keep sucking the cheapest water we can because we've got a short-term view and no long-term vision.' The desal plant is a very expensive piece of infrastructure to operate, and yet we are prepared to have it sitting there: keep it shiny, keep that visitor information centre looking good, trying to justify why we have spent so much money on a desal plant that should be put into production.

The opportunities, the diversification I have just talked about. The structure of our water in South Australia is that SA Water is a vertically integrated monopoly. It is a provider of drinking water and sewerage services for metropolitan Adelaide. It also provides water for greater South Australia. Whether it is water to feed stock, whether it is water to put into fire hydrants, whether it is water that is put into households, they have a monopoly. I know that many regional centres, farmers, livestock producers, are selling their herds of sheep and cattle because they cannot afford to pay the price of water that this government, SA Water, is charging them. It becomes unviable.

It is becoming more viable now for our farmers and our irrigators to purchase water interstate, with land, at a cheaper price. So, why would they not produce livestock interstate rather than here in South Australia? We wonder why our economy is ailing like it is. We wonder why our population has almost come to a standstill. We wonder why we are relying on immigration to keep our population at a par. It is a crazy methodology that the government is living under. The Weatherill Labor government must establish an independent inquiry into water pricing in South Australia, that is what this bill is about. It is the only means of establishing what the real price of water should be, and could be.

I know that my time is fast running out but, before I finish up, I would like to touch on the service sector, the NRM levies. They are about to increase as well. That is a cost-shifting exercise if I have ever seen one. The NRM levy, my goodness, is increasing. We have the increase in the land levy and the increase in the NRM levy. It is a cost-shifting exercise that should be borne by the state, not by the water user. Every South Australian relies on water security.

The Hon. P. CAICA (Colton) (11:15): I have a bit of history in this area—some might say good history and others might say not so good, but it is a history of which I am proud, and today I will set out the reasons for the government's opposition to this bill.

In response to the extraordinary drought faced by South Australia, this government undertook a wide-ranging review to ensure South Australia's water security. The result was Water for Good, a plan which set out a range of actions to ensure our water future which, contrary to the comments of the previous speaker, do include water recycling. These actions include developing a state-based access regime and subjecting monopoly water and waste water service suppliers to independent economic regulation. The parliament passed the bill which will establish a state-based access regime on 14 October 2015, one that would be consistent with the requirements under national competition policy for certification.

There is no need to establish another review on the merits of third-party access. The government accepts the merits and put forward the bill to amend the Water Industry Act to establish a state-based access regime. Consistent with Water for Good, the government subjected SA Water to independent economic regulation by the Essential Services Commission of South Australia in 2013. The first price determination was made in May 2013 and the second is scheduled for 2016. ESCOSA (as it is commonly known) has applied the regulatory rules that form part of the National Water Initiative. That means the allowable revenue is determined by assessing the building blocks that make up the cost of SA Water drinking water and sewerage services.

ESCOSA has a very important job, which it has undertaken rigorously and independently. In its first determination, ESCOSA considered SA Water's proposals for $1.4 billion of proposed operating expenditure and $1.1 billion of new capital expenditure. In its May 2013 determination, ESCOSA reduced SA Water's operating expenditure allowance by $145 million (10.3 per cent) and reduced SA Water's capital expenditure allowance by $165 million (14.4 per cent). There is no need for an inquiry about institutional arrangements that have served (and the government certainly believes will continue to serve) South Australians well.

There are two regulatory building blocks that could be considered further. These are the regulatory asset base for infrastructure in existence before ESCOSA became the independent economic regulator and the regulatory rate of return. Indeed, it is the regulatory asset base for existing infrastructure that has been the subject (as you would be aware, Deputy Speaker) of much public comment. However, this government has followed the regulatory rule book by managing a transition from government price setting to independent economic regulation.

Consistent with regulatory practice in other jurisdictions, the government set the regulatory asset base and allowed ESCOSA to determine the regulatory rate of return. Consistent with the regulatory rule book and practice in other jurisdictions, it is standard practice for transitioning to independent economic regulation to involve an element of back-solving.

The outcome that the government was targeting was set out in the 2012-13 regulatory statement. It stated that CPI-like price increases for SA Water's drinking water services are expected from 2013-14. The government also took the view at the time that benefits from reduced operating and capital expenditure should be passed on fully to customers. It is true that the government's expectation was that this approach would lead to a reduction in the regulatory asset base.

Remember that, at the time, between the draft and final determinations, we saw significant reductions in observable rates of return which meant applying this approach actually led to an increase in the regulatory asset base. It was appropriate for the government at the time to ask ESCOSA to identify the impact of a range of different scenarios. Further, it was the government's role to consider those scenarios and balance the impacts on customers and the budget.

The ultimate outcome of this process is that ESCOSA identified efficiencies that could be achieved by SA Water and that the regulatory asset base was set to ensure that customers benefited from these efficiencies through lower prices. In 2013-14, water prices fell by 6.4 per cent. Water prices rose by 2.9 per cent in 2014-15 and 1.3 per cent in 2015-16. Whilst ESCOSA is still considering its second regulatory determination, SA Water's regulatory business proposal is calling for a further reduction in prices of water and sewerage retail services in 2016-17, followed by increases capped at CPI for the following three years.

Consideration must also be given to what would be the impact of this bill on the investment environment in South Australia. It would signal to investors a willingness of the parliament to overturn key regulatory parameters which underpin investment in regulated utilities. I understand such an approach is unprecedented in Australian regulatory practice and, as such, its impact would not be limited to the water sector. To competitors it would signal that the cost structure of SA Water is uncertain, substantially increasing risk to new market entrants and potentially discouraging them. This runs counter to the government's policy intentions and objectives of the Water Industry Act of encouraging new entrants into the new water industry.

In such a risky and uncertain environment, investors in the water industry, and perhaps other industries, will avoid South Australia unless higher rates of returns are available. I urge the parliament to carefully consider the impacts on investment from embarking on a path that potentially increases investors' perception of sovereign risk in South Australia.

My final point is what the commentators neglected to identify: that ESCOSA's decision, which is influenced by the regulatory asset base, is one factor that influences final prices charged by SA Water. Another factor is that SA Water continues to receive substantial community service obligation and concession payments from the budget amounting to over $700 million over the period 2015 to 2018-19. The fact that when the opposition says how much the dividend is, it fails to recognise the community service obligations that are passed on to South Australians. If the regulatory asset base is reduced, then the return to government will also be reduced.

In conclusion, the institutional structure adopted by the government is based on sound regulatory precedent and is serving South Australia well. As I have demonstrated, ESCOSA has been successful in lowering prices to South Australians of water and sewerage retail services. While writing down the regulatory asset base appears attractive to some commentators, it would have a serious impact on the investment environment in South Australia and would materially challenge the ability of the government to fund water community service obligations and concessions. The best way to achieve continued downward pressure on prices is to allow ESCOSA to do its job of scrutinising SA Water's operating and capital expenditure, and, Deputy Speaker, we oppose this bill.

The Hon. T.R. KENYON (Newland) (11:22): I rise very briefly, recognising the time left, to oppose the bill. I pick up on a couple of points that the member for Colton has already made in talking about the asset price being set. The asset price, or the regulatory asset base, was recommended by ESCOSA—the independent regulator—that the asset base be set by the government and not changed. For the parliament—or a government—to now intervene in the regulatory process by adjusting the regulatory asset base again would increase the perception of sovereign risk to future investors in South Australia.

Let's face it, the Liberal Party has a strong history of privatising monopoly assets in this state, but if you are going to sell it at some point in the future, should a future Liberal government choose to do that—and they have been the party that introduced this uncertainty in the pricing regime and the ability for the parliament to intervene whenever it thought it got politically uncomfortable for the government in the pricing regime—you are going to get a lower price for the asset down the track. I would think that is something that a thoughtful Liberal party would consider—obviously not.

The other thing is that a large part of the cost of the asset base is that it is contained in regional and rural South Australia: pipelines over a long distance to a comparatively small population. That obviously is not, in the normal scheme of things, a particularly economic asset. The requirement on top of that is to have a smeared price across the whole state so that everyone pays the same price for their water, and the actual cost of the water is not reflected in the cost of getting it to where it has to go, again, over some incredibly long distances—it must be some of the longest water transmission pipelines in the world in terms of one big potable water supply network. You have to take that into account at some point.

Because we are pushed for time, I am not going to be very coherent, but the other point I would like to raise very briefly before we get into the final wrap-up is that a number of members have raised the issue of the desalination plant. We are in the middle of a very strong El Nino event. I think you will see that there has been very low, if not drought level, rainfall in the Murray-Darling Basin from western Queensland right through western New South Wales and into Victoria. We are seeing very low inflows into the Murray-Darling Basin.

Come March next year, I think a lot of people in this state will be very grateful for the size of that desal plant and the ability to put a lot of water into the system. In fact, I think the people who will be most grateful will be irrigators in the Riverland who will have access to water that they may not necessarily have had access to in the drought conditions that are staring us in the face. With those very few words, I oppose the bill and look forward to the close of the debate and the vote.

Mr TRELOAR (Flinders) (11:25): I will be very brief, but I do want to speak in support of this bill. I want to congratulate the Leader of the Opposition for bringing this bill and the shadow minister for water for the work she did prior to going on leave. This bill is to introduce a commission of inquiry into water pricing, and it fulfils a Liberal Party commitment to establish an independent inquiry into our state's water pricing.

Water pricing has risen significantly. It has added to the cost of living for South Australian families and businesses, along with all the other utility prices that families and businesses are battling. We are disappointed, but probably not surprised, to note that the government is opposing this, given that SA Water is such a significant cash cow for the state's coffers. It is not in fact SA Water that is being used as a cash cow: it is the ratepayers, voters and constituents of South Australia who are being slugged to prop up this state's budget.

Water is not our most valuable commodity, but it is our most precious, and everybody understands that. It is not the water itself that is expensive in this state: it is the cost of delivery. I think it is high time that the cost of SA Water and its charges be investigated, and we do support the bill.

Mr WHETSTONE (Chaffey) (11:27): Every South Australian water user deserves an independent inquiry to put transparency into our water pricing in South Australia. The Treasurer and his government are gouging South Australian water users: we have the highest water prices in the nation. As I said, every South Australia deserves to know why the price of water is hurting their pocket. I commend Steven Marshall (member for Dunstan) for his call to have an independent inquiry into water pricing in South Australia.

The house divided on the second reading:

Ayes 20

Noes 24

Majority 4

Second reading thus negatived.