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Legislative Council - Fifty-Third Parliament, Second Session (53-2)
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Water Industry (Third Party Access) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 5 May 2015.)

The Hon. I.K. HUNTER (Minister for Sustainability, Environment and Conservation, Minister for Water and the River Murray, Minister for Climate Change) (16:40): I would like to thank honourable members for their consideration of the bill and for their contributions. As I have said in this place previously, this bill is an important step in the water industry reforms that this government has progressed since the release of the state's water security plan, Water for Good, in 2009.

The government is committed to the reform of its water industry to encourage the development of a more mature market with greater competition. The access regime set out in the bill is proportionate, we believe, to the water industry that it intends to reform. I would like to thank the honourable members who have indicated their support in principle for this bill.

The Hon. Michelle Lensink has queried the proposed scope of the access regime. The regime has received extensive public consultation throughout the preparation of Water for Good and this bill. The scope of access regimes in Australia have been the subject of two Productivity Commission inquiries. The Productivity Commission recently stated in its review of the National Access Regime that:

Greater private sector involvement in the contestable elements of the urban water supply chain (potentially bulk water services, wastewater treatment and discharge services, and retail services) may mean that access to the natural monopoly component of the supply chain (water, wastewater and stormwater transmission and distribution networks) is required.

The explanatory memorandum that accompanied the consultation draft of this bill identified these services as within the scope of the access regime. The proposed access regime will initially apply to SA Water's bulk drinking water pipelines and the Glenelg to Adelaide recycled water pipeline. This is because the upstream market for bulk water is far more fully developed, taking into account the market for River Murray water entitlements and technological advances in water production.

The scope of assets outlined in the explanatory memorandum is appropriate for the South Australian water market in its current stage of development. Importantly, the bill also requires that ESCOSA provide an annual report and a periodic review so that the regime can be adjusted when the developing market matures.

The Hon. Michelle Lensink also queried the adoption of a light-handed negotiate/arbitrate regime for the pricing principles as provided by the national competition principles rather than a more heavy-handed price regulation by ESCOSA. This query implies that SA Water would be likely to set unreasonable prices as part of the negotiate/arbitrate process. The Productivity Commission, in its recent inquiry into the National Access Regime noted that:

The Commission has previously concluded that the misuse of market power is not a large problem in the urban water sector (PC 2011a). While the potential misuse of market power has led to high levels of government direction and regulation of prices, the potential for monopoly pricing is considered to be small if utilities are government owned and if governments are committed to efficient pricing and establishing good governance arrangements and processes (PC 2011a).

The South Australian government is committed to good governance arrangements and processes and believes that it has established sufficient pricing protection. The access regime in this bill is designed to comply with the national competition principles and to provide an effective access regime under the Competition and Consumer Act 2010. The bill also clearly maintains the current legislative and regulatory frameworks for public health, environment and safety.

In her comments on this bill, the Hon. Michelle Lensink also claimed that SA Water was so intransigent that the Salisbury council had to install its own pipe network system to service customers. Government policy prevents recycled water from being injected into the drinking water pipes, and this will continue to be our position.

In addition, the quality of water produced at Salisbury does not meet drinking water requirements specified under the Safe Drinking Water Act 2011. This government makes no apology for placing the health and safety of South Australians as our primary consideration in this legislation. This bill encourages private sector participation in the water industry in this state whilst retaining the current protections for the safety and security of the state's water supply.

The Hon. Tammy Franks, the Hon. John Darley and the Hon. Kelly Vincent have also raised a number of matters in relation to this legislation. The first matter relates to whether the bill imposes additional costs on SA Water and its customers and the impact on customer prices of this bill. These questions were also raised by the South Australian Council of Social Services, who suggested detailed modelling should be undertaken before an access regime is implemented at all.

The bill contains provisions relating to costs. Under section 86G, the regulated operator, such as SA Water, may make a reasonable charge for the provision of specific information to access seekers. During commercial negotiation, the regulated operator may notify the access seeker of the terms under which it would provide access or make any alteration or addition to infrastructure. Should arbitration be necessary, the arbitrator must take into account certain principles relating to the recovery of costs and pricing for the provision of access to the regulated operators network infrastructure services. Section 86ZH provides that the costs of an arbitration are to be borne by the parties in proportions to be decided by the arbitrator, should arbitration be necessary.

The bill provides for innovative market outcomes and a regulatory framework that does not discriminate for or against the regulated operator, including SA Water. It is not the government's expectation that this bill would have a significant price impact on SA Water's small customers. The government is committed to limiting cost of living impacts on South Australians.

The government recently rejected recommendations by ESCOSA of pricing reforms for SA Water's retail water and sewerage services because they would unduly impact on small customers. The same intention is evident in the government's preferred approach of a light-handed regulatory approach. The government is very confident that the bill will not have a significant price impact on the broader SA Water customer base.

In relation to the modelling requested by SACOSS, I am advised that this is not possible because it would be difficult to establish numeric assumptions regarding the nature of these future access arrangements. Nevertheless, the impact of access arrangements on SA Water prices has been examined in general. SA Water would be expected to establish contracts for access to its network infrastructure services on the basis of retail prices minus avoidable costs that SA Water, as the access provider, could avoid.

There may be, for example, costs that SA Water could avoid by not supplying existing customers. The system of rating on abuttal would remain and the treatment of SA Water's current rating on abuttal, or water supply charge, would need to be reviewed in the context of access pricing. For access arrangements that provide retail services to customers that are not currently serviced by SA Water, it would receive additional revenue, which ESCOSA would be expected to recognise and which would provide downward pressure on prices to small customers.

While I consider that the current bill is sufficient, in response to concerns raised by SACOSS and the crossbenchers, I have filed an amendment that should provide further comfort that existing retail customers will not be negatively impacted by new access contracts. The amendment would require the arbitrator to take into account any direction that I give to SA Water under section 6 of the Public Corporations Act 1993. These directions currently include non-commercial activities performed by SA Water, such as fluoridation and statewide pricing. It is my intention to provide SA Water with a direction regarding the basis for negotiating access prices with an access seeker, which would include retail minus avoidable costs.

Through the current regulatory framework, the government will also have the ability to ensure that this bill does not impact prices for small retail customers, as well as ensure that there continues to be adequate arrangements for concessions and community service obligations. Again, I reiterate that the government is confident that this bill would not have significant adverse price impacts on small customers.

The Hon. Tammy Franks also raised the issue of building additional capacity for third parties and future use of SA Water's spare capacity. Under this bill, SA Water is required to provide the access seeker with specific information about the extent to which SA Water's infrastructure is currently being utilised and the extent to which it would be necessary, or technically and economically feasible, to make alterations and additions to that infrastructure. SA Water can make a reasonable charge for providing this information.

Once the application for access has been received, SA Water must then notify the access seeker about whether they would be prepared to provide access or agree to any alteration or addition and, if so, under what terms. The bill provides for the cost of providing access, including the cost of alterations and additions to be recovered. SA Water would be expected to negotiate and manage its contracts in such a way that it can meet the current and future needs of its customers and provide negotiated access to its network infrastructure services where capacity is not being utilised.

The Hon. Tammy Franks also asked about the failure or financial viability of a third-party access seeker. A water retailer who has access to SA Water's network infrastructure services must first obtain a licence from ESCOSA. This would require ESCOSA to consider a number of matters, including the licensee's ability to meet reasonably foreseeable obligations under contracts for the sale and supply of water or sewerage services.

The water retailer would also be subject to economic regulation by ESCOSA, including service standards and prices. But, under division 6 of the Water Industry Act 2012, the Governor may make a proclamation for ESCOSA to take over the operations of a water retailer if, in ESCOSA's opinion, it is necessary to ensure adequate supply of water or the proper provision of sewerage services to customers. SA Water's customers would not be liable for any additional cost, I am advised, in this scenario.

The Hon. Tammy Franks also questioned whether this bill would result in unsafe water being put into SA Water's pipelines, a potential cost of spills and water losses. The Hon. John Darley also indicated that had some reservations about maintaining the maintenance of water quality. Under the Safe Drinking Water Act 2011, third-party providers would not be able to put unsafe water into any of SA Water's pipelines. Again, the government's primary consideration is the health and safety of all South Australians, and this bill would maintain the protection of the state's water supply by maintaining the current regulatory framework. An arbitrator cannot set an award that is inconsistent with SA legislation relating to public health, safety and environment.

The government intends to oppose amendments to the bill moved by the Hon. Michelle Lensink that, if successful, would jeopardise the probability of the access regime being recommended as an effective access regime under part IIIA of the commonwealth's Competition and Consumer Act 2010 by the National Competition Council.

I acknowledge support from members for the implementation of many of the measures contained in the bill. I would like to acknowledge in particular the members of the crossbench and the South Australian Council of Social Service in the way they have engaged to resolve their concerns with this bill. I look forward to an interesting committee stage, when no doubt a wide range of views will be expressed. I commend the bill to the council.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

The Hon. T.A. FRANKS: I rise on behalf of the Greens to speak to the amendments I filed previously and indicate to members in this place that I will not be moving those amendments, following negotiations with stakeholders and the minister's office.

The amendments address the concerns raised by stakeholders and, in particular, SACOSS. With regard to amendment No. 1, it addresses the concern that the third-party access regime would allow for cherrypicking of SA Water's existing customers. Our amendment No. 2 sought to ensure that the arbitration should be conducted through a public participation process to enable consumers to fully scrutinise the implications of any disputed third-party access arrangement. Amendment No. 3 protected commercial confidentiality, and our fourth amendment sought to ensure that the arbitrator gave public notice of the outcome of an arbitration.

As indicated, we have had a number of productive meetings with stakeholders and the minister's office with regard to these amendments. We have also been informed that the Greens' amendments would be contrary to the national competition principles and therefore likely to affect the certification of the access regime as effected under the Competition and Consumer Act 2010.

I would particularly like to thank SACOSS for their contribution to this bill, in particular policy adviser, Jo De Silva, and thank the minister's advisers, Rosanna McClelland, Tara Bates and Tom Mooney, for providing information and clarification upon request.

The Hon. J.M.A. LENSINK: In relation to consultation matters, two sets of stakeholders have contacted me this year in relation to concerns about potentially being covered by the bill. I will invite the minister to comment in relation to the first stakeholder, the Local Government Association, who on 4 May sent me an email to say, in part:

Following the receipt of legal advice, we understand that Councils will only come within the purview of the Bill if they are subsequently 'proclaimed' to fall within the ambit of the proposed provisions. I am therefore writing to let you know that we are writing to the Hon Minister Hunter to seek his assurance that Councils will not be 'proclaimed' under the new provisions, as the Bill does not make any provisions for exempting local government.

I just ask the minister to comment in relation to the LGA's concerns and whether it is the government's intention to proclaim any of their assets.

The Hon. I.K. HUNTER: I thank the honourable member for her question. It is proposed that the access regime will be fully applied to the bulk water transport services provided by the following SA Water pipelines: Murray Bridge to Onkaparinga systems, Mannum to Adelaide, Swan Reach to Paskeville, Myponga to Adelaide, Morgan to Whyalla, Tailem Bend to Keith, Eyre Peninsula, Glenelg to Adelaide. In relation to the LGA's correspondence and their suggestion there should be consultation prior to the proclamation of the infrastructure services of the proposed bill, this government is happy to commit to undertaking consultation on the proposed proclamations before they are made and, indeed, this is what the government has done in the lead-up to this bill, so we will have no problems with that LGA suggestion at all.

The Hon. J.M.A. LENSINK: In relation to the second group of stakeholders, I understand that BHP Billiton and Santos are similarly concerned that they may also be captured by the bill. I understand that consultation has been taking place through the Minister for Mineral Resources and Energy. Can the minister also comment in relation to what the government's intention is?

The Hon. I.K. HUNTER: The first part of my answer to this is similar to the LGA in terms of listing those systems. In terms of other companies like BHP and Santos it is worth noting this Productivity Commission note on national access regimes; that is, access regulation is unlikely to increase efficiency where the infrastructure services provider has no ability to affect downstream markets, for example, where prices are determined in world commodity markets. Access regulation would need to lead to more efficient outcomes than would be achieved through negotiation between the parties.

So access regulation should not be used to avoid the duplication of infrastructure per se or to address wider social and economic issues such as income distribution or environmental concerns. These observations suggest that the infrastructure services provided by private sector operators, such as those listed by the Hon. Michelle Lensink, in state mining or agricultural sectors, would face world commodity markets every day of the week, and they would be unlikely to be proclaimed under this access regime into the future because it would not meet the requirements of the national access regime.

The Hon. R.L. BROKENSHIRE: I rise to put on the public record Family First's final position regarding this bill because during the second reading speech I said that we supported the intent but we may either table or look at other parties' or colleagues' amendments. Since then we have been able to carefully look at amendments and also have had meetings with the minister's chief of staff and adviser.

We understand that the South Australian Council of Social Service (SACOSS) is now happy with the way in which the government has things structured. We did look at the opposition's amendments, but this is something that we have wanted to see happen for well over a decade, and in fact it goes back closer to two decades now that we actually got some legislation coming through like this.

We now do have that legislation. It may not be perfect according to what some members may desire, but it is a very strong step in the right direction. When we were advised by the government that with some of the opposition's amendments there could be potentially unintended consequences where people with dams or bores on their farming property may have a situation where they would have to actually—

The Hon. J.M.A. Lensink: That is not true, Rob.

The Hon. R.L. BROKENSHIRE: That is the advice that we have had. That actually is of huge concern, because that goes out of the scope criteria and what we were desiring to have when it came to third party access with respect to the water industry. Having considered it, noting the importance of getting on with this and the time that it has taken, notwithstanding that as a caveat we will monitor and watch this and we will not be frightened and we will be asking questions of the minister, if we do not see people being able to access, we will not be frightened then to either put up private members' amendments or request the government put up further amendments. As a strong step forward, all things being considered, Family First will be supporting the government's existing legislation.

The Hon. J.M.A. LENSINK: I was not going to make any more remarks at this particular clause. I was just going to address some comments in relation to particular amendments, but I have to say that, having heard the Hon. Rob Brokenshire's comments just now, I am incredibly disappointed in him as someone who offers and proclaims that he is a champion of people on the land. For him to use the word 'strong' in relation to this regime I find somewhat staggering. If he talked to anybody in the water sector, he would know that this particular regime has been deliberately designed to ensure there is as little competition as possible and therefore those in primary production are unlikely to benefit from third party access as they might have hoped.

I do note from his comments that I think he has succumbed to two issues the government has raised in relation to some of the amendments that I had drafted. One is that farm dams might be captured. I will put that as a question to the minister, if he would not mind tabling some advice that states that. From my understanding, this bill applies only to the definition of 'regulated operators', which are proclaimed under the act. How that applies to a private farm dam is really beyond me and I will have some more questions following the minister's response on this.

The CHAIR: Minister.

The Hon. I.K. HUNTER: I haven't been asked a question; I thought it was coming later.

The Hon. J.M.A. LENSINK: It was a comment, but there was a question in there, which was: is it the minister's advice that my amendments, particularly 1 and 2, could potentially capture farm dams? Will he table the advice or provide some further comments to explain that, please?

The Hon. I.K. HUNTER: My advice is that it is probably the first set of amendments filed by the Hon. Michelle Lensink which had the potential to cover farm dams. I understand this is a second set of amendments that she has filed, changing a provision under clause 1, and my advice is that with the second set of amendments it is unlikely that farm dams will be covered at amendment No. 2.

The Hon. J.M.A. LENSINK: I will just respond and say that neither the first nor the second version would have captured farm dams, because they are not part of the water industry under the Water Industry Act: they are part of the Natural Resources Management Act. I would assume that somebody in crown law or among the many thousands of people who are employed within the government could have pointed that out to the minister. The second set of amendments made that completely and abundantly clear, just in case the government continued to use that to try to fool people, as they seem to have fooled the Hon. Mr Robert Brokenshire into not being able to support this particular amendment.

In relation to certification of the scheme, if I can just draw members' attention to two documents which are COAG documents: one is the Competition Principles Agreement which is dated 11 April 1995 and which is signed by all jurisdictions, and there is a further document, the Competition and Infrastructure Reform Agreement signed 10 February 2006, and I thank the minister's advisers for providing me with that particular document.

In the Competition Principles Agreement 1995 the relevant clause which has been lifted and inserted into the bill is No. 6 entitled 'Access to services provided by means of significant infrastructure facilities' and, in particular, subclause (4)(i) which I understand mirrors 86P(1) of the bill. Further, in the Competition Infrastructure Reform Agreement, the officers drew my attention to 2.4 which falls under the heading 'Simpler and consistent regulation of significant infrastructure'—and most of that is reflected in clause 7 of the bill as well, at 86P(2). I just make those comments.

Again, there has been some fairly deliberate misinformation put about in relation to some of my amendments. Can the minister say what advice he has received from the National Competition Council and whether these specific amendments were brought to their attention in attempting to assess whether the scheme would be certified if my amendments were included in the final legislation?

The Hon. I.K. HUNTER: There are a couple of points. I am grateful to the Hon. Michelle Lensink for further elaborating because she has really made my point for me. The issue about her amendment is simply this: it is not clear what the consequences will be because what her amendment does is to take away the ability of government or parliament to actually determine what will be covered and what will not be covered, and hand it to an unelected body, ESCOSA.

I have already made the point that ESCOSA has pursued before, and possibly will again, some fairly economically devastating policy positions which would impact vulnerable people and vulnerable communities far more than it would impact on anybody else. What the Hon. Michelle Lensink's amendments are trying to do is to take away the ability of government to set the parameters and give it to an unelected body.

The question she asked me earlier about BHP and Santos, about whether I could give a commitment that they are captured, under her amendments I could not give that commitment because I would not have that power—because she wants to hand it to ESCOSA. This is the key crux of her amendments: she wants to take away the ability and hand it to an unelected body that has no consideration or no concern about impacting on community. They take a very narrow, dry, economic window and that is what they pursue. That is fine; that is what they are there for, but it is the government's role and the parliament's role to take into consideration other aspects, and one is the social impact. That is why we are opposing the Hon. Michelle Lensink's amendments.

In terms of whether I had passed her amendments to the National Competition Council for any remarks, the answer is no. I sought my own advice internally about the potential for changes that she has elaborated in these amendments to cause us some difficulty with certification. My advice is that there is that potential. However, the key crux of the matter is this: the Hon. Michelle Lensink's amendments will give power to ESCOSA with no direction from government. It could pursue its own schemes for its own purposes, which is economic efficiency and support that from that perspective, but government would not be able to give a direction—and we oppose that position.

The Hon. J.M.A. LENSINK: I note with interest that ESCOSA are now the bad guys, even though their charter is protection of consumer interests. Nevertheless, I move on. The minister has an amendment himself to one of these principles. Has he also sought advice from the NCC on whether that will have any impact on certification?

The Hon. I.K. HUNTER: My advice is that, of course as we move further and further away from the core principles that have been set out for us to adopt, the risk increases that we may not get certification. My advice is simply that, in terms of the undeveloped market we have at the minute, this amendment that I propose to move at clause 7 should be acceptable. I stand to be corrected if we find out ultimately that it is not certifiable, but our strong view is that it probably will be.

The Hon. J.M.A. LENSINK: I take it then that, no, it has not actually been checked with the NCC, and that the government also cast similar concerns about some of the Greens' amendments as potentially jeopardising certification without having checked. Nevertheless, my final point that I would like to raise at this particular juncture is in relation to certification. From what I understand at the moment through national laws, various parties are able, if they feel aggrieved through competition or lack thereof, to take action through the ACCC or through the National Competition Council, but that once the scheme is certified that avenue is closed off to them. Could the minister comment on that particular matter?

The Hon. I.K. HUNTER: My advice is that the whole process on which we are embarking is actually designed to make sure that the access regime we are instilling in this bill will be complied with, so the national access regime will no longer be available once this regime is in place.

Clause passed.

Clauses 2 to 4 passed.

Clause 5.

The Hon. J.M.A. LENSINK: I move:

Amendment No 1 [Lensink–1]—

Page 3, lines 21 to 24, page 4, lines 1 to 7—Delete subsections (1), (2) and (3)

These amendments arise from ESCOSA's strong view in relation to consultation. Amendments Nos 1 and 2 (No. 2 being at clause 7) relate to the same issue, that is, the scope of assets. ESCOSA—as the minister described them, the unelected body (mind you, the commissioners are all appointed by the government)—said that they clearly believe there was more infrastructure that should be included within the access regime. I will quote from one of their submissions. It stated:

No reasons are given for exclusion of other supply chain elements, other than the suggestion that a 1997 report prepared by Tasman Asia Pacific identified only four elements of the supply chain as meeting the criteria for declaration of assets.

In relation to this, ESCOSA at the time had been critical that the government had not actually released the market analysis. I understand that still has not taken place.

One of the areas that the Liberal Party has advocated before is, for instance, sewer mining, and we believe that ESCOSA ought to be the body that can make the determinations about which assets should be included. As I have said before, they are there to protect consumers and we believe they are the body best placed to make these sort of decisions. I think the government is going to continue without any amendments to this piece of legislation to continue to itself cherrypick which parts of our water and related segments participate in this scheme. Therefore, we think that ESCOSA ought to have a greater scope under this particular regime.

The Hon. I.K. HUNTER: The government opposes amendment No. 1 and I also foreshadow we will oppose amendment No. 2. We will come to that, but they are related. The Hon. Michelle Lensink effectively has made the argument for me in relation to outlining the dangers of cherrypicking, and this is precisely why we oppose these amendments. This amendment proposes to delete the clauses relating to the partial coverage of specified water and sewerage infrastructure services by the access regime.

The bill acknowledges that private sector involvement in the South Australian water industry is at a very early stage. As industry develops, the government and members of parliament should have access to information about market activity, of course. It is for this reason that the bill has included the concept of partial application. This enables parts of the regime, primarily about information to access seekers and the regulator, to be applied to water or sewerage infrastructure operators without more onerous and costly obligations.

The bill proposes that the infrastructure operator would be required to provide specific information to ESCOSA about an access seeker. ESCOSA would be required to report annually to the government on the work which it has carried out during the year. ESCOSA's report would be required to be tabled in parliament. This report will be an important source of information for the government and the parliament to make informed decisions, but the Hon. Michelle Lensink's amendment seeks to remove that partial coverage and apply a much more onerous approach.

We object to that. We think the direction the Hon. Michelle Lensink is taking these amendments does lead very decidedly to the option of cherrypicking by the private sector on assets that SA Water currently operates, which would lead potentially to adverse effects on our customer base, particularly the most vulnerable.

The committee divided on the amendment:

Ayes 8

Noes 11

Majority 3

AYES
Darley, J.A. Dawkins, J.S.L. Lee, J.S.
Lensink, J.M.A. (teller) Lucas, R.I. McLachlan, A.L.
Stephens, T.J. Wade, S.G.
NOES
Brokenshire, R.L. Finnigan, B.V. Franks, T.A.
Gago, G.E. Hood, D.G.E. Hunter, I.K. (teller)
Kandelaars, G.A. Maher, K.J. Ngo, T.T.
Parnell, M.C. Vincent, K.L.
PAIRS
Ridgway, D.W. Gazzola, J.M.

Clause 6 passed.

Clause 7.

The Hon. J.M.A. LENSINK: The next amendment is consequential to No. 1 so my explanation should suffice, and I will not divide on this one. I move:

Amendment No 3 [Lensink–2]—

Page 5, after line 29—Insert:

86BA—Pricing principles

The pricing principles relating to the price of access under this Part are as follows:

(a) that access prices should be set so as to generate expected revenue that is no more than necessary to meet the efficient costs of providing access;

(b) that access prices should allow multi-part pricing and price discrimination when it aids efficiency;

(c) that access prices should not allow a vertically integrated operator to set terms and conditions that would discriminate in favour of its upstream and downstream operations;

(d) that access prices should provide incentives to reduce costs or otherwise improve productivity.

This is in relation to who should set access prices. This is a key issue in that we strongly believe that ESCOSA should be the price setter. The current process, which is outlined in the bill, for anyone who applies for access is as follows: apply to SA Water and then negotiate with SA Water. If this fails, ask ESCOSA to mediate or, if that fails, ESCOSA can then appoint an arbitrator.

In our view, ESCOSA's role as independent regulator is limited. In its submissions, ESCOSA recommended that it should have the discretion as to whether it sets prices directly. What amendments 3, 7 and 11 standing in my name have the effect of doing is enabling ESCOSA or the access seeker to go to ESCOSA to seek a price rather than undergo this long, convoluted and incredibly expensive and obfuscated process in order to get a price.

In relation to concerns that SACOSS have had which have been expressed to a number of members, myself included, Professor Dick Blandy, in providing evidence to the Budget and Finance Committee, was asked about assets and the like. He made the point that regulators, that is ESCOSA, are not going to cause the utility to have financial difficulties because they recognise that that is not in their interests. He described ESCOSA as a very reasonable body looking at these matters and, 'if I can say so, very professional.' He also said, 'I have huge admiration for the work that ESCOSA did over the time I was there.'

My understanding is that ESCOSA certainly does not have the view that they are there to make life difficult for the utility: they are there to provide fair prices, and that is something that they have fought for very hard. This particular clause is probably the most important one that I have had drafted, and I will be dividing on it.

The Hon. I.K. HUNTER: The government will oppose this clause. It is probably the second most dangerous, I suppose, of the set of amendments that the Hon. Michelle Lensink is moving today. I just want to back pedal a bit and talk about ESCOSA. No-one has made any assertions that ESCOSA are not in the business of looking after the consumer, or protecting consumers, but they do it through a very tight lens of economic efficiency. That is their job. That is our expectation of them. It is not their role to consider social impacts of the decision-making—

The Hon. J.M.A. Lensink: Yes, it is.

The Hon. I.K. HUNTER: That is our role.

The Hon. J.M.A. Lensink: No, that's not true. You read the act.

The Hon. I.K. HUNTER: Social impacts do not come into their purview. This amendment inserts the pricing principles as relating generally to the price of access under this access regime, rather than matters that the arbitrator must take into account when making an award. It is difficult to consider this amendment on its own, so I will refer in part to coming amendment Nos 7, 8 and 11 by the Hon. Michelle Lensink to explain our opposition to this amendment.

This raft of proposed amendments introduce a new untested model, one that perhaps could be described as: negotiate, regulate and then arbitrate. It is an untested model. It is totally new. The South Australian water industry, in our view, should not be the guinea pig for this untested model—

The Hon. J.M.A. Lensink: So is your bill.

The Hon. I.K. HUNTER: No, our model has been tested in other regulatory regimes.

The Hon. J.M.A. Lensink: Yes, and it hasn't been very successful there either.

The Hon. I.K. HUNTER: At least it has been tested and we know where the bumps in the road are to be ironed out. This is a totally new proposition and it is a very risky proposition at that. The negotiate-arbitrate model we are preferring would require SA Water to develop its pricing and access terms and conditions. This would enable SA Water to adopt a retail price, less avoidable cost approach. This approach has been adopted in other states and for other infrastructure services. It is suitable for a retail market that is subject to regulation and with requirements like statewide pricing.

The government, as owner of SA Water, retains the capability under section 6 of the Public Corporations Act to direct, if required, SA Water to adopt this approach. I have already said that that will be our intention. The proposed amendments of the Hon. Michelle Lensink hand the access pricing model decision to the regulator. It is clear from ESCOSA's report on pricing structure that it prefers, from a pure economic perspective, a pricing structure that will have a significant negative impact on the welfare of small and vulnerable customers.

Under the proposed amendment of the Hon. Michelle Lensink, the regulator would have the power to pursue a pure economic approach, and they have done it already. They have done it already, and the government has rejected that approach because it hurts the people that we should be looking after the most.

Proposed amendment No.11, which I said needs to be considered in conjunction with this amendment, would require the regulator to make a price determination in relation to access if a dispute is referred to arbitration. Given that access applications may vary significantly in terms of their number and complexity, this approach to access regulation could come at quite a significant cost to SA Water customers.

The proposed amendment would prevent the arbitrator from having any discretion in relation to price and weighing up the matters that it has to consider in making an award. For these reasons, I strongly urge the committee to oppose this amendment by the Hon. Michelle Lensink and subsequent ones.

The Hon. J.M.A. LENSINK: If I could just respond: my, how the rhetoric changes. When ESCOSA was first set up by former Premier Mike Rann in 2003, I do not think he quite described them as the Eliot Ness of regulation of utilities, but certainly they were going to be a strong regulator. We have seen through the whistleblower comments of Dr Paul Kerin (now Professor Paul Kerin) how the government has managed to hamstring the so-called independent regulator on the pricing of water and sewerage. The minister has referred several times to their particular report.

The evidence we have been provided by former commissioners and the former CEO, Professor Kerin, who I am more inclined to believe, is that they were basically forced into a position where they did not have any ability to make recommendations that would have been much broader. So, I do find some of the comments in relation to this debate rather extraordinary, in that the independent regulator, which has the charter and which has an act of parliament which clearly state that its role is protection of consumers, is suddenly being portrayed as some sort of economic rationalist in all this debate. I will read some further comments of Professor Blandy who, when asked about third-party access, said:

Access by competitors is of course...incredibly important…in terms of keeping pressure on prices. So far I think there is very restricted access by competitors on the South Australian water network. A good model of regulation would be for SA Water to provide access to its pipes for anybody who wants to put the water down them to provide for consumers. Of course, if they could do so at a much lower cost than SA Water, this would put real pressure on SA Water in terms of its customer base.

That customer base, of course, includes all the people who are covered by it, including the people SACOSS particularly has concerns about. I just find the way that this debate has been twisted rather extraordinary, but nevertheless we will continue to argue the case.

The committee divided on the amendment:

Ayes 8

Noes 11

Majority 3

AYES
Darley, J.A. Dawkins, J.S.L. Lee, J.S.
Lensink, J.M.A. (teller) Lucas, R.I. McLachlan, A.L.
Stephens, T.J. Wade, S.G.
NOES
Brokenshire, R.L. Finnigan, B.V. Franks, T.A.
Gago, G.E. Hood, D.G.E. Hunter, I.K. (teller)
Kandelaars, G.A. Maher, K.J. Ngo, T.T.
Parnell, M.C. Vincent, K.L.
PAIRS
Ridgway, D.W. Gazzola, J.M.

Amendment thus negatived.

The Hon. J.M.A. LENSINK: I move:

Amendment No 4 [Lensink–2]—

Page 7, line 18—Delete '$20 000' and substitute '$200,000'

All honourable members in this place will appreciate that I can count the numbers, and I will not be calling 'divide' on any more of these, but I think those two particular issues were very important for us to get on the record. These ones fall into the category of what I would call obfuscation and delaying opportunities. Many honourable members would be familiar with the experience nationally in telecommunications and the way in which Telstra caused undue delay to access to its infrastructure as a way of keeping out competitors such as Optus, and that got dragged on through the courts for some time.

I believe there are many elements of this bill which also fall into that category. This one, in particular, amendment No. 4, is in relation to the information brochure. The new proposed 86F, which will be inserted into the act, provides that the regulated operator must provide a brochure within 30 days and there is a maximum penalty of $20,000, which is kind of not really much of an incentive at all. So for that reason we are proposing that this particular one should be increased to $200,000 as a greater incentive to ensure that that is done in a timely manner.

The Hon. I.K. HUNTER: The government opposes the amendment, notwithstanding the intent of the Hon. Michelle Lensink in this matter, but we need to consider what this might do for a provider who wants to engage at this very early stage in a very undeveloped water market, designing new systems, testing those systems and having to respond to these requirements. Setting such a heavy penalty at this stage of the legislation and the market is, we consider, far too onerous. It might be something that you will revisit after you do a review of it after a couple of years, but at this stage such a heavy penalty we think is not commensurate with the objective of trying to make this access regime work.

Amendment negatived.

The Hon. J.M.A. LENSINK: I move:

Amendment No 5 [Lensink–2]—

Page 7, after line 42—Insert:

(3) The information must be provided within 30 days (or a longer period allowed by the regulator) after the regulated operator receives the application.

(4) If a regulated operator fails to comply with this section in any respect, the regulated operator is guilty of an offence.

Maximum penalty: $200,000.

Similarly, this relates to proposed 86G which will be inserted into the act, which provides for information that is requested by the access seeker. I note that the government has not introduced either a time limit or a penalty into this particular clause which we think is reasonable to do so. So we have inserted that the time limit for providing that information back to the access seeker be 30 days (which is the same as has been put in 86F) and that a penalty of some $200,000 be applied for failing to do so.

I do note that the 'poor little organisation' that the minister was referring to in his previous explanation was SA Water rather than some sort of small utility. I think even $200,000, it could be argued, is probably not enough incentive for that. But, be that as it may, we believe that this amendment has merit.

The Hon. I.K. HUNTER: Again, we oppose this amendment. In the same manner as amendment No. 4, imposing a penalty of $200,000 at this very undeveloped stage of the water market, when the systems need to be put in place to actually affect these changes in terms of third-party access, we think is putting the cart before the horse. This is something you would do after you have had a review of the act and its efficiency, and if you need to impose these sorts of penalties, that is when you would do it; you would not do it now at the outset.

Amendment negatived.

The Hon. J.M.A. LENSINK: I move:

Amendment No 6 [Lensink–2]—

Page 10, line 20—Delete '6 months' and substitute '3 months'

This amendment relates to the time permitted for arbitration before it is considered not resolved. The advice that I have received in relation to arbitration is that it is better if it is done in a shorter time frame. Again, in relation to the ability for the regulated operator to obfuscate and delay, we believe six months is too long and so we have sought to make that three months.

The Hon. I.K. HUNTER: Again, we are basically taking a model that already works in terms of, I understand, the railway access legislation process. That model has worked; that time frame seems to have been appropriate. We think, at least in the very early stages, we should model that on the previous successful railway access legislation . We do believe three months is too short, again, for the reasons I have stated in relation to the other two amendments. We are just setting this process up. We need to work our way through it. We have a successful model that works with the railway access legislation; let's copy it. We believe that is the appropriate way forward.

Amendment negatived.

The Hon. I.K. HUNTER: I move:

Amendment No 1 [SusEnvCons–1]—

Page 11, after line 33—Insert:

(ia) any direction given to the regulated operator (in the case of a regulated operator that is a public corporation) by its Minister under the Public Corporations Act 1993 that is relevant to the arbitration; and

Whilst I said earlier that I consider this bill sufficient in its current form, in response to some concerns raised by particularly SACOSS and some crossbench legislative councillors, I have moved this amendment that would provide further comfort that existing retail customers will not be impacted by new access contracts.

This amendment would require the arbitrator to take into account any direction that I give to SA Water under section 6 of the Public Corporations Act 1993. These directions currently include non-commercial activities performed by SA Water, such as fluoridation and statewide pricing. It is my intention to provide SA Water with a direction regarding the basis for negotiating access prices with an access seeker, which would include retail minus avoidable costs.

Through the current regulatory framework, the government will also have the ability to ensure this bill does not impact prices for small retail customers, as well as ensuring that there continue to be adequate arrangements for concessions and community service obligations. This government is confident that this bill would not have significant adverse price impacts on small customers. However, this amendment does give extra comfort for those people who continue to have those concerns.

The Hon. J.M.A. LENSINK: I note that this is one of the amendments that the government is making to the pricing principles and has not been checked by the MCC, and therefore under its rationale of opposing other amendments they could potentially ensure that the regime is not certified.

The Liberal Party was going to support some of the Greens' amendments, those ones that would have sought public openness and transparency. We thought they were actually a very good solution and we are very happy to support those, so we are a bit disappointed that those ones are not going to be included.

It is unsurprising that the government prefers that the default position for these hearings should be held privately. I do note that the Greens also had an amendment that if there were commercial in confidence requirements that they should be adhered to. My concern with this particular amendment, which the minister's office only sent to me at 10 minutes to 5 yesterday, knowing that our process is to have things submitted to our own party room by Monday so that they can be considered at 3 o'clock on a Monday afternoon, is that this clause may be much broader than what the government intends to do. My understanding is that the concerns of SACOSS relate to CSOs and that there is nothing really to undo the community service obligations that would come about by the passage of the bill as it is. My concern is that this direction is going to be given, potentially, much more broadly.

My question to the minister is: how broad is this? I do not think there are any restrictions on any matters, so perhaps I am answering my own question, but it really does allow the minister to give directions in relation to any matter. Why did the minister not consider that it could have been drawn more tightly and refer specifically to CSOs or done in some other manner that referred to CSOs so that it directly addressed the concerns raised by SACOSS?

The Hon. I.K. HUNTER: My understanding is that section 6 of the Public Corporations Act gives me incredibly wide powers now. I can give a direction to a public utility such as SA Water in any manner that I consider fit as long as it is not illegal, as I understand it. So, this is actually confining that ability in this respect somewhat more and, as I just said, other than CSOs I would also be intending to provide SA Water with a direction regarding the basis for negotiating access prices with an access seeker, which would include retail minus avoidable costs.

I agree with you: I think that the bill as it stands is sufficient protection, but it has been raised with me that there are further concerns. This amendment, we believe, will give people comfort to understand that directions under CSOs, or the one I just outlined, would be not impacting on our customer base.

The Hon. J.M.A. LENSINK: I think the minister's explanation actually gives me even more cause for concern—having admitted that it is incredibly broad. What this clause is doing is telling the arbitrator that the minister can give any direction under the Public Corporations Act to SA Water and the arbitrator will have to take that into account. So, Treasury comes along and says, 'We'd like some more money, please, minister,' and the minister makes some sort of thing, as we have been seen done, but I will not digress into the number of areas in which the government has chosen to gouge the pockets of all sorts of consumer groups in South Australia. That is what I can potentially foresee if this amendment is supported. I urge all honourable members to oppose it, and I am sorry to break my previous commitment but I will be calling a division on this one.

The Hon. I.K. HUNTER: Just a slight correction: I did not say this amendment was incredibly broad: I said the existing section 6 legislation under the Public Corporations Act is already incredibly broad, and the things that the Hon. Michelle Lensink just contemplated about Treasury instruction can already be done. This amendment does not impact any of those decisions whatsoever. What it does do is—

The Hon. J.M.A. Lensink interjecting:

The Hon. I.K. HUNTER: —instruct the arbitrator—you are quite right—that we must take into consideration impacts on the most vulnerable community members. I do not think there is anything wrong with that.

The Hon. T.A. FRANKS: The Greens will be supporting the government amendment and welcome it.

The committee divided on the amendment:

Ayes 12

Noes 7

Majority 5

AYES
Brokenshire, R.L. Darley, J.A. Finnigan, B.V.
Franks, T.A. Gago, G.E. Hood, D.G.E.
Hunter, I.K. (teller) Kandelaars, G.A. Maher, K.J.
Ngo, T.T. Parnell, M.C. Vincent, K.L.
NOES
Dawkins, J.S.L. Lee, J.S. Lensink, J.M.A. (teller)
Lucas, R.I. McLachlan, A.L. Stephens, T.J.
Wade, S.G.
PAIRS
Gazzola, J.M. Ridgway, D.W.

Amendment thus carried.

The Hon. J.M.A. LENSINK: My next amendment, No. 7, is consequential. I will not move my amendments Nos 8 or 9. I move:

Amendment No 10 [Lensink–2]—

Page 16, line 8—Delete '6 months' and substitute '3 months'

This also applies in relation to my comments on obfuscation and delaying. It seeks to limit the time for arbitration, the period in which the dispute is referred to arbitration, so the relevant new section within the bill is 86ZC, from six months to three months.

The Hon. I.K. HUNTER: The government opposes this amendment, and whilst I might share with the Hon. Michelle Lensink a desire to have an award made within that timeframe I cannot imagine any arbitrator that I have ever experienced being able to make such a decision in such a complex area with only three months. To have this amendment would make, I believe, the bill unworkable. We oppose it.

Amendment negatived; clause as amended passed.

Remaining clause (8) and title passed.

Bill reported with amendment.

Third Reading

The Hon. I.K. HUNTER (Minister for Sustainability, Environment and Conservation, Minister for Water and the River Murray, Minister for Climate Change) (17:57): I move:

That this bill be now read a third time.

Bill read a third time and passed.

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