Nyngan-Cobar water train. Photo: NSW State Archives

“The lawyer I respect most, a blind man on a galloping horse, can read every IPART report and conclude none of the tribunal members have read these sections or, if they have, have chosen to ignore them”.

Pricing of NSW government water, transport and energy monopolies has failed.

“Once we allow ourselves to be disobedient to the test of an accountant’s profit, we have begun to change our civilisation”

Keynes, 1933

For the past 28 years, since it was created by the Greiner government in 1992, the NSW Independent Pricing and Regulatory Tribunal has set maximum prices for the state’s water, energy and transport monopolies.

Have those prices, and the policies IPART makes, achieved the goals of the Act which created the tribunal? Is the tribunal relevant and useful today?  Have its prices damaged or enhanced the services and resources of water, energy and transport?

Now is a good time to ask these questions because the tribunal’s opinion about itself, and perhaps its answers to such questions, are expected soon. Last month it invited comments from anyone about its work generally and a report is expected soon.

Let’s remember what the Greiner government intended the tribunal to do.

The second reading speech for the act, the place courts and lawyers turn to when deciding a dispute about what parliament intended such a body to do, makes clear parliament did not intend the tribunal to view the world, the state’s assets of water, energy and transport, through an accountant’s eyes.

The key section in the act is s15. It lists 12 criteria the tribunal must consider when setting prices. There’s a broad range going well beyond profit and loss or accounting issues some of which read as follows:

“(e) the need for greater efficiency in the supply of services so as to reduce costs for the benefit of consumers and taxpayers,

(f) the need to maintain ecologically sustainable development (within the meaning of section 6 of the Protection of the Environment Administration Act 1991 ) by appropriate pricing policies that take account of all the feasible options available to protect the environment,

(i) the need to promote competition in the supply of the services concerned,

(j) considerations of demand management (including levels of demand) and least cost planning,”

This is what Premier Greiner said about section 15 in his second reading speech

“The purpose of this bill is to establish a government pricing tribunal to determine the maximum price for monopoly services supplied by nominated government agencies and to report on the pricing policies of those agencies. Its principal aim is to ensure that the interests of the citizens of New South Wales, both as consumers and taxpayers, are protected and are seen to be properly protected. Many government businesses in New South Wales are monopoly suppliers of services, notably, electricity, water and transport. As a result, these agencies are not subject to competitive forces and are able to set their prices without reference to the prices of substitutes for their services. In the absence of regulation these monopolies can charge prices which are higher or lower than they would be if set in a competitive market.

The pricing tribunal established by this bill with power to review and determine prices charged by monopolies will ensure that monopolies do not abuse the power which they have by being the sole supplier of a good or service. The tribunal will provide a proxy of conditions which would operate were the monopoly in a competitive market . . . Its approach would encourage efficiency, equity or the appropriate allocation of resources either in the short term or the long term. The introduction of a price formula and nothing more would encourage a mindset within authorities and the Government whereby government charges are simply allowed to increase by the consumer price index each year.”

“The tribunal will, therefore, be constrained by strict efficiency and cost issues but will take a broader range of matters into account when making determinations and recommendations. This will ensure that environmental and social issues form part of the equation and the tribunal will need to weigh these matters against strict cost-related factors. Honourable members would be aware that any reasonable analysis of the price or pricing structure of monopoly services, such as electricity, water and sewerage, must take into account the externalities relevant to the supply of the services. The cost of avoiding or minimising any environmental damage which might occur as a result of the supply of monopoly services should be taken into account when determining the appropriate price to be charged. This action will promote sound environmental practices and decisions as well as determining economically appropriate prices for the benefit of the people of this State. It will be a further factor operating to discourage and minimise environmental degradation.”

The parliamentary second reading speech would be read by a court in any judicial challenge to the tribunal’s decision where the scope of its powers and duties was being reviewed.

Tribunal decisions, like those of most other such bodies, are amenable to judicial review.

At the heart of any litigation would be the failure of the tribunal when determining water prices to do what the premier said (above) the legislation intended it to do:

“any reasonable analysis of the price or pricing structure of monopoly services, such as electricity, water and sewerage, must take into account the externalities relevant to the supply of the services”. 

In 2018, 26 years after the act set up the tribunal, something happened which reverberated in media, policy, governments and citizen conversations around Earth. 

In 2018, the United Nations said if nations wished to sustain Earth’s climate its countries had until 2030 to end climate pollution and the destruction of water, soil, nature and the resources upon which the climate and our human lives depend. Local and national media in Australia have covered the UN reports frequently since then.  As The Guardian put it:

“The world’s leading climate scientists have warned there is only a dozen years for global warming to be kept to a maximum of 1.5C, beyond which even half a degree will significantly worsen the risks of drought, floods, extreme heat and poverty for hundreds of millions of people.

The authors of the landmark report by the UN Intergovernmental Panel on Climate Change (IPCC) released on Monday say urgent and unprecedented changes are needed to reach the target, which they say is affordable and feasible although it lies at the most ambitious end of the Paris agreement pledge to keep temperatures between 1.5C and 2C.”

Since 2018, and in all of its reports about water, energy and transport, IPART has never mentioned:

  • The UN reports
  • The need to end climate pollution by 2030
  • The UN predictions for increased heat, bushfires, water insecurity in NSW

 Let’s also look at what section 6 of the Protection of the Environment Administration Act says in part – and which the tribunal is obliged by section 15 of its act to consider when setting prices:

“Ecologically sustainable development can be achieved through the implementation of the following principles and programs:

(a) the precautionary principle–namely, that if there are threats of serious or irreversible environmental damage, lack of full scientific certainty should not be used as a reason for postponing measures to prevent environmental degradation.

(d) improved valuation, pricing and incentive mechanisms–namely, that environmental factors should be included in the valuation of assets and services, such as:

(i) polluter pays–that is, those who generate pollution and waste should bear the cost of containment, avoidance or abatement,

(ii) the users of goods and services should pay prices based on the full life cycle of costs of providing goods and services, including the use of natural resources and assets and the ultimate disposal of any waste,

(iii) environmental goals, having been established, should be pursued in the most cost effective way, by establishing incentive structures, including market mechanisms, that enable those best placed to maximise benefits or minimise costs to develop their own solutions and responses to environmental problems.”

The lawyer I respect most, a blind man on a galloping horse, can read every IPART report and conclude none of the tribunal members have read these sections or, if they have, have chosen to ignore them. The “precautionary principle” is ignored by the tribunal in its decisions.

I consider there is a reasonable prospect of litigation against the tribunal seeking to have its water pricing decisions declared invalid due to failure to properly or at all considers some of the criteria when deciding water prices. I’m sticking to water here because to include energy and transport would make this article too long. They’ll be dealt with soon enough.

In my view there are several failures by IPART to consider either at all, or to afford due weight to, these environmental criteria in the act when deciding prices for water, energy and transport. 

First, the tribunal doesn’t take into account at all the pollution – an externality – it causes as a direct result of its water prices. The pollution is obvious whenever it rains as rivers of wasted, polluting stormwater run down millions of street gutters in Sydney. There’s as much water runs off Sydney into the harbour and ocean as fills the harbour from Parramatta to The Heads.

It runs there because the tribunal’s prices reward, maintain and funds Sydney Water’s and the local councils’ polluting stormwater systems, almost as if they were designed by nature and are the natural, inevitable result of urban life.

Second, the tribunal has failed to implement section15 (f) because it makes no pricing decision by reference to that subsection, simply saying that because the Environment Protection Authority has issued a licence for sewage and other pollution that the “environmental” issue has been addressed.

Third, and perhaps most tellingly, the tribunal has been captured by the NSW water industry which expects no discipline or public criticism from IPART of its licence, pricing or environmental failures because there has been none, not even a wrist slap here or there. It has taken the NSW Audit Office to blow the whistle.

That’s because the tribunal has been shown to either ignore or miss fundamentally failures by Sydney Water to observe its licence and statutory duties. The failures  are detailed in the damning report of 23 June 2020 by the NSW Audit Office, Water Conservation in Greater Sydney, which concluded, among other things, that:

“The Department and Sydney Water have not effectively investigated, implemented or supported water conservation initiatives in Greater Sydney.”

The agencies have not met key requirements of the Metropolitan Water Plan and Sydney Water has not met all its operating licence requirements for water conservation. There has been little policy or regulatory reform, little focus on identifying new options and investments, and limited planning and implementation of water conservation initiatives.

As a result, Greater Sydney’s water supply may be less resilient to population growth and climate variability, including drought.”

A reader of the audit report may legitimately ask, “Why do we need IPART and what benefit does it provide to water management?”

Fourth, the tribunal has taken to speaking in “economic tongues” at a level barely intelligible to ordinary consumers, and now its decisions are  largely irrelevant and unreadable for most water consumers and the voiceless, declining water catchments.  Look at the accountant-speak in these images of the key yribunal guidelines to agencies making submissions.

Fifth, the tribunal has in recent years allowed Sydney Water to discontinue reporting to the tribunal and the public the amount of greenhouse gas emissions. Data such as this image shows it is no longer part of the pricing discussion, yet Sydney Water is about the state’s 20th biggest greenhouse polluter:

Pity. But after 28 years it’s time for a new broom, new pricing, and a law-abiding tribunal.

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4 Comments

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  1. Thank you Michael for this well researched piece. We are increasingly aware of the conflict of interest; water utilities are incentivised to increase the asset base of big infrastructure. IPART needs to put a price on stormwater and a value on water efficiency that is fair and realistic. This issue is urgent!

    1. Hello, Stuart Thank you for your feedback which I find helpful. Pricing stormwater so its free if its stored but costly if its wasted seems essential to me if we’re to do several things at once; to cut household water bills, to cut local council rates and stop the unforgivable (in my mind, at least) pollution of our beautiful harbour and oceans. We’ll get there, Michael

  2. Thanks Michael, very timely and appropriate. The need to be ‘law abiding’ is pointed. And the lack of reference to the changing climate and even the NSW Govt’s own commitments is startling.