ACCC & AER annual report 2016-17

Analysis of performance: Murray-Darling Basin water markets

Deliverable 3.1

Deliver network regulation that promotes competition in the long-term interests of end-users

Deliverable 3.2

Provide industry monitoring reports to government in relation to highly concentrated, newly deregulated or emerging markets

Deliverable 3.3

Improve the efficient operation of markets by enforcing industry specific competition and market rules

The ACCC’s work in the rural water market sector in the Murray-Darling Basin (the Basin) contributes to all three of the Strategy 3 deliverables, as it encompasses regulation, monitoring and enforcement.

The Water Act 2007 (Cth) aims to promote efficient water markets and sustainable use and management of water resources and water service infrastructure in the Basin. It was introduced because of concerns about the impact of irrigation on the environment, over-allocation of water and increasing water scarcity.

Our role helps to ensure that efficient water markets function in the Basin. This is important because water markets are a key way to allocate water—a scarce but vital resource—between competing uses, in a way that ensures it moves to its most productive use.

Under the Water Act, we are responsible for regulating and monitoring a range of water charges. We also monitor and enforce compliance with water market and charge rules made under the Water Act. The rules:

  • protect irrigators’ opportunities to transform their irrigation right held against an irrigation infrastructure operator into a separately held water access entitlement (transformation arrangements)
  • regulate the maximum fee that an operator can impose on an irrigator who terminates their access to an irrigation network
  • require infrastructure operators, water authorities and government departments to publish their regulated charges
  • restrict an infrastructure operator from imposing different charges for the same infrastructure service, in some circumstances
  • allow the ACCC or another accredited regulator to set the regulated charges of specific water infrastructure operators.
  • This year our priority relating to water markets was increasing confidence in the operation of emerging water markets by providing advice on water charge rules and ensuring the efficient operation of the water charge and market rules to meet the current requirements in the sector.

The following section discusses our outcomes in this priority area and other significant areas.

Regulating access terms, conditions and prices

Advice on water charge rules

Under the Water Act, the ACCC is required to provide advice to the Minister for Agriculture and Water Resources on the making, amending or revoking of water charge rules and water market rules. In December 2014 the Minister requested that we provide advice on possible amendments to the water charge rules. The water charge rules regulate charges imposed on rural water users in the Murray-Darling Basin and related matters. They have been in place for over six years. On 21 September 2016 the ACCC provided its final advice to the Minister on proposed amendments to the water charge rules. Our advice focused on ways to increase transparency, promote efficiency and increase protections for customers while also reducing the regulatory burden in the implementation of water charge rules.

On 15 November 2016 the Minister published the ACCC’s advice and announced his intention to remove the requirement for some infrastructure operators to prepare network service plans. The Minister continues to consider the remainder of the advice.

Advice on the water trading rules amendments

The ACCC published its advice to the Murray-Darling Basin Authority (MDBA) on proposed amendments to the Basin Plan water trading rules on 24 November 2016.

The water trading rules regulate matters relevant to the trade of tradeable water rights and apply to Basin water resources. The MDBA is required to obtain and have regard to advice from the ACCC when making or amending the water trading rules. The MDBA’s request for advice and publication of the ACCC’s advice forms part of its wider public consultation on proposed amendments to the Basin Plan 2012.

Monitoring activities

Water monitoring report

The ACCC monitors regulated water charges, transformation arrangements and compliance with rules made under the Water Act across the Basin. We report annually on the monitoring results.

We are required under ss. 94 and 99 of the Water Act to monitor regulated water charges, transformation arrangements, and compliance with the water charge and market rules in the Basin, and to give a report on the results of this monitoring to the Minister. The ACCC publicly released its seventh such annual report on 21 June 2017.

This year’s report highlights that operators and customers in the Basin are responding to the effects of structural changes in a variety of ways. Infrastructure operators have been upgrading existing services or offering new services. Customers are using market mechanisms in innovative ways to adjust their water holdings and access to infrastructure, signalling greater confidence in using markets.

In total, 35 gigalitres of irrigation rights were transformed in 2015–16, the lowest annual volume since monitoring began in 2009–10. Terminations of water delivery rights were lower in 2015–16 than in previous years. Termination fees were levied for 60 per cent of the total volume terminated, which is a significant increase from previous years.

Overall numbers of complaints and enquiries received by the ACCC in relation to rural water matters fell from 36 in 2014–15 to 18 in 2015–16. However, the number of complaints and enquiries from irrigators increased (from eight to 13), returning to levels in previous years.

Enforcing water industry-specific laws

We enforce the water market and charge rules made under the Water Act. We pursue a risk-based approach aimed at fostering a culture of compliance among regulated stakeholders in the Basin rural water sector. Our aim is to minimise the risk of stakeholders’ policies and practices causing harm to water users or impeding the functioning of water markets.

Our 2016–17 compliance agenda prioritised initiatives that contributed to the efficient operation of water markets and reduced barriers to trade. During 2016–17 we received around seven water-related queries and complaints and undertook preliminary investigations. Our approach is to promote compliance with the legal requirements by industry participants. Through our compliance and enforcement activities, we have raised awareness of the rights and responsibilities of water infrastructure operators and their customers under the water rules. As a result of this, we have seen a decrease in the overall level of complaints and improvements in the ability of water users to access water markets without unreasonable delay or cost.

Contravention of the water charge rules

In October 2016 the ACCC accepted an administrative resolution from Murrumbidgee Irrigation after it admitted to a breach of the water charge infrastructure rules. Murrumbidgee Irrigation failed to include certain water service charges in its schedule of charges between 2011 and 30 June 2016. We accepted an administrative resolution rather than a penalty due to the limited detriment to Murrumbidgee Irrigation’s customers. We also noted Murrumbidgee Irrigation’s cooperation in the investigation and promptness in rectifying its schedule of charges.

The administrative resolution of this breach requires Murrumbidgee Irrigation to revise and audit its internal systems and procedures to prevent any recurrence of the breach and to ensure ongoing compliance with the water charge rules more broadly.

Murrumbidgee Irrigation is one of the largest irrigation infrastructure operators in the Murray-Darling Basin, servicing 3200 properties and delivering around 640 000 ML of water in New South Wales.

Assistance and collaboration with other government agencies

In April 2017 the ACCC made a submission in response to the issues paper prepared by the PC for its inquiry into national water reform and assessment of progress against the National Water Initiative.

Also, as an observer, we participate in the MDBA facilitated Trade Working Group and Trade Operators Panel, both of which discuss interstate water trade issues in the Basin. We also participate in the Trading Rules Working Group, which considers matters relating to the Basin Plan water trading rules.

The ACCC is also a member of the National Water Information X-Change, facilitated by the Department of Agriculture and Water Resources. The group involves the participation of all the Commonwealth agencies with water-related responsibilities, which have been members of the Interagency Working Group on Water Information (coordinated by the Bureau of Meteorology).