Transcript
Check against delivery
Introduction
Thank you for the invitation to speak with you today. I like to see this as an opportunity not just to update you on what the ACCC is doing but also to hear your views and concerns and take them back to the ACCC.
Before I get onto the review of the water charge rules, I thought it might also be useful to briefly mention recently announced initiatives in the ACCC’s role in rural industries.
In July this year, the Government released its Agricultural White Paper setting out its priorities and investment plans for the farm sector.
The measures announced include giving the ACCC an additional $11.4 million over the next four years to establish an Agricultural Enforcement and Engagement Unit. We’re in the process of setting this up and it should be fully up and running by the end of September.
We also understand that the Government intends to appoint a new Commissioner to the ACCC with responsibility for agriculture issues although that is still to be finalised.
I’d like to emphasise that the ACCC is not being given any new roles. While the additional funds are earmarked for investigations and engagement in rural and regional areas, the ACCC already has powers under the Competition and Consumer Act that allows us to investigate a range of anti-competitive activities.
I should also say, that this is in addition to the work we do in water regulation, and various industry codes such as horticulture, wheat access and the grocery code of conduct.
We intend to use the additional funds to:
- investigate breaches of the Competition and Consumer Act that affect farmers and small businesses in rural areas including investigations of cartels, misuse of market power and misleading or unconscionable conduct,
- and to strengthen our engagement with agricultural industries to understand factors that affect competition in rural markets, and to better explain our decisions to farmers and regional small businesses.
Both of these functions are incredibly important and their relevance to adding value to the farm sector has being heightened by our practical experience in the water sector.
Review of the water charge rules
So, onto the review.
Anyone who’s spent any amount of time looking at the rules might well conclude that they are pretty dense and possibly not as helpful as they should be.
If that’s your experience, then you’re not alone.
However, what lies behind the rules, the need to ensure that water users have consistent, specific and timely information about the water charges, as well as the level of the charges themselves, is in our view a critical aspect of effective water markets.
Being able to trade water is an important tool for irrigators and operators. It allows them to manage their water holdings in a way that better suits their needs. It gives them the flexibility to respond to variations in availability and allows valuable water resources to move between users more easily in response to climate conditions and commodity prices.
Tradeable markets and clear price signals are also essential if we’re to see the right type and level of investment over the longer term.
With the right information, irrigators and operators can more easily make these decisions.
So, the aim of any regulation should be to facilitate these sorts of trade and investment decisions.
The issue for us is how regulation can help in this process without imposing undue regulatory burdens on the sector.
The rules and the ACCC’s role
So what are these rules? And how does the ACCC fit into the water space?
I won’t go into a lot of detail about the rules themselves other than to say there are three sets of rules. The first covers the maximum fee that an operator can impose on an irrigator for terminating their access to an irrigation network.
The other two sets of rules include measures about the information that infrastructure operators have to publish about their regulated charges and investment plans and rules which set out the information relating to water planning and management activities.
The current rules date back to 2009 when water markets were struggling with the impact of the drought. At that time, water charges and information requirements for these charges were different across the Basin States making trading difficult.
The Government asked the ACCC for advice on how this framework could be improved to help give effect to the Basin water charging objectives and principles. There are a number of objectives but essentially their focus is on:
- promoting efficiency in the use of water resources, infrastructure and markets and sustainable management of water resources in the Basin.
- making sure that the efficient costs of doing this are recovered
- pricing transparency for the various aspects of water planning, storage and delivery, and
- avoiding perverse or unintended pricing outcomes.
Apart from the water charge rules, there are water trading rules which also require information disclosure as well as prohibiting certain restrictions on the trade of water rights.
So a lot of information requirements.
Our role is to monitor regulated water charges across the Basin and ensure compliance with the various rules. More broadly, we also monitor compliance by infrastructure operators and water brokers with the competition and consumer protection requirements of the Competition and Consumer Act 2010.
Since the start of the rules, we’ve seen a major improvement in the transparency of charges imposed by infrastructure operators and governments.
There are instances of non-compliance amongst operators in the way they calculate termination fees and their information disclosure. But generally this reflects the fact that they don’t fully understand the rules and how they apply.
This isn’t altogether surprising given that many of the operators are small scale with perhaps only a couple of staff, who sometimes work on a voluntary basis and that the wording of the rules is complex and open to interpretation.
Our approach to compliance has been very much to work with the operators to help them understand the basis for the rules, and the way in which the rules should be interpreted and applied. Our aim is to help them to comply.
We’ve found that most operators welcome this approach and will be pro-active in letting us know of possible breaches or concerns. They are happy to come to us looking for guidance on how they can comply.
Where we have found breaches or potential breaches, the response is generally very positive and the operator will work with us to take steps to remedy the problem.
A timely review
So if it’s working reasonably well, why are we reviewing the rules?
The Government undertook a broad ranging review of the Water Act last year. One of the findings coming out of that was that the water charging framework was complex and could be improved.
So we’ve been asked to review the water charge rules and prepare advice on how they can be simplified, made more effective and less of a burden to users, operators and governments.
The rules had been in existence for five years and so this review is timely. Stakeholders have been critical of aspects the rules that they feel don’t contribute to improving water markets, have significant compliance costs or simply are just not adding any value.
As I mentioned before, as part of our compliance work, we’ve experienced first-hand the complexity of the rules and the difficulty that some of the operators and irrigators have with them.
This review also fits into the broader government deregulation agenda. Like other Government agencies, we’re looking at ways of cutting red tape, reducing duplication of information requests and making sure that whatever regulation we recommend is justified. We’re very aware of these issues, and have incorporated this into the way we have prepared this review.
Our timeline for this review is to provide our advice and proposed rule changes to the Minister by the end of this year.
An update on progress
So what have we done to date?
Our starting point for this review is that our advice to government is best informed through consultation with those affected by the water charges rules.
The rules are complex and many stakeholders have neither the time nor resources that we have. So to help stakeholders we prepared and released an issues paper in May which set out what we thought were the key issues and invited stakeholders to make submissions to us.
The key issues are around:
- the consistency of water charging regimes across the MDB
- whether there are opportunities to combine the three water charge rules into one instrument
- what potential there is to reduce regulation particularly in regards to information requirements
- whether the current tiered approach to regulation of infrastructure operators is still appropriate
We received 28 submissions, from operators, peak bodies, individual irrigators (mostly in Victoria), from state government departments and regulators.
In essence, we’ve heard that there was general support for consolidating the three water charge rules into a single set of rules.
In terms of information disclosure, irrigators and water brokers are telling us some operators are not providing enough detail about how they calculate certain charges.
The operators on the other hand, support providing irrigators with a schedule of charges but want more discretion to set their own formats and more flexibility around timing.
On the issue of information relating to water planning and management charges, support is mixed. Victoria has a comprehensive water planning and management information framework and submissions from the Victorian Farmer's Federation generally saw value in this. In other states, which do not have significant WPM frameworks, there is less interest and a concern that disclosure was a burden.
Many submissions from operators in NSW noted a lack of information disclosed by the MDBA regarding its activities.
There was also support for reducing the compliance requirements of member-owned operators particularly the requirement that they prepare network service plans which cover their pricing approaches and investment plans over five years. The member owned operators want to replace this with a less prescriptive and simpler disclosure framework.
In terms of the charges themselves, there was general support for maintaining the current arrangements for calculating termination fees.
Public Forums
Apart from the issues paper, we’ve been meeting directly with Basin State governments, operators and peak bodies to discuss these issues.
We’ve also been holding public forums in regional communities across the Basin where one of our Commissioners and our staff have gone to present on what we are doing and to listen to the views of the community.
So far we’ve held forums in Mildura, Shepparton, Renmark, Griffith, Deniliquin, St George and this week we’ll be in Tamworth and Dubbo.
The forums give water users an opportunity to be part of the process, to hear about the issues raised in our paper, to ask questions or provide comments.
I’m sure it would not surprise you to hear that the forums generated a wide range of concerns and some very passionate views. What we heard though in terms of water charges was consistent with the submissions we received. That is, there is room for improvement.
Specifically, irrigators expressed concern with their operator’s structure and level of charges, their approach to consultation, and the size of termination fees they would be subject to if they wanted to terminate their right of access.
Some irrigators also suggested that the rules should be recast to be more favourable to irrigators, especially if they had previously made a capital contribution to the construction of the irrigation network.
We also heard from irrigators and operators about their concerns on the scale of water recovery through the Commonwealth.
Others expressed concern about high water allocation prices and the participation in water markets by ‘speculators’ and other non-irrigators.
We appreciate the efforts of those who took time out to attend send us submissions and to attend the forums. We know that there are a number of other reviews taking place and that making representations to government isn’t part of their core business. So we are really happy to get this sort of feedback even if it is not all about water charges.
We’ll work through the issues raised that relate specifically to our review and pass comments about areas outside the scope of our review to the relevant agencies as appropriate.
Another area we’ve been interested in exploring is how we at the ACCC can do our job better. We asked for comment on our role in especially:
- providing information to users and operators, and
- enforcing compliance with the rules
We’ve received some very useful feedback and we will definitely be looking at suggestions.
In particular, operators thought our guidelines were useful but could be simplified. Irrigators felt that we needed to do more to understand their view point, and that we should review the information we provide to them.
In terms of our compliance approach, several submissions argued that a light-handed educative approach was appropriate and some suggested we should adopt “regulation by exception” where we should only seek information if we receive an irrigator complaint.
As part of this review we are also keen to understand how irrigators use the information that is provided to them under the various rules and what impact consistency of water charging regimes may have on water trade (particularly interstate trade).
Irrigators survey
To help us with this, we asked ABARES to survey irrigators throughout the Basin about their experiences with water trading and the water charge rules. The survey of 270 farms, in both the Northern and Southern Basin, asked questions about the impact of water charges on their decisions to trade water, the information provided by their operators about these charges and network planning, and how this information was used.
The survey results were quite interesting:
- there was a mixed response to how satisfied irrigators are with the level of engagement from their operator about changes to future fees and charges
- a large proportion of irrigators in the northern Basin didn’t remember receiving or where uncertain that they had received a schedule of charges from their operator in the last 12 months
- in relation to network planning, there was mixed responses to how well-informed irrigators felt about planned maintenance, expansion or improvements to their operator’s infrastructure.
Report on trade decisions
We also engaged a consultant firm, Marsden Jacob, to look at how the water charge structure may distort trade decisions or act as a barrier to trade and to suggest changes to the water charge rules to make sure this doesn’t happen.
The main findings of that report were that:
- there are some anomalies being created by current pricing structure used by Water NSW on irrigators selling their water allocation interstate
- there are more significant drivers of trade ‘in’ and ‘out’ of irrigator operator systems than the charges they impose, and
- regulators should ensure that water infrastructure charge structures have a neutral influence on incentives to trade water.
These two reports are both available on our website, and they’ll be valuable inputs into our advice.
Next steps
The next step in this process is for us to prepare consider all the information we’ve gathered and to put this together in a draft advice on what rule changes we think are appropriate and draft rules that capture these. We expect to finalise this in October.
As with the issues paper, stakeholders will be invited to look at the draft advice and provide us with their views.
Many of you are affected by the water charge rules in some way. Your members or clients are likely to be subject to charges for water infrastructure services or in relation to water planning and management activities.
We’re very keen to draw on those experiences in the advice we propose to government and hopefully today’s presentation will set out how you, your members or clients can get involved in the process. If you think there are data or insights that would help us in shaping the rule changes we would be grateful to receive it.
I would like to finish up by thanking the Association for the opportunity to speak with you on the work we do in the farm sector and I hope there will be other like opportunities in the future.