Simpler, cheaper regulation for SEQ water retailers

The Queensland Competition Authority (QCA) today released a Position Paper outlining its ideas for a new ‘light handed’ regulatory framework for water retailers in south east Queensland.

“Since 2009, the QCA has monitored water retailers in south east Queensland to ensure that these monopoly businesses are not using their market power to set unjustifiably high prices. Only last month, the QCA released detailed reports into Unitywater, Queensland Urban Utilities, Logan Water, Redland Water and Gold Coast Water,” said QCA chairman Malcolm Roberts.

“Over the last five years, the QCA has exhaustively assessed the capital and operating costs of retailers without finding evidence of misuse of market power.

“Such intensive price monitoring is costly – the latest review will cost retailers more than $1 million per year (this excludes the cost of developing the long-term framework). In light of the progress made in recent years, the QCA believes a more light handed approach can be safely adopted.

“A light handed approach would reduce the regulatory costs paid by customers while retaining independent oversight of retailers.

“The proposed approach is expected to reduce regulatory charges by about 50 per cent (c. $0.5 million pa) with possibly equal or greater internal savings for retailers,” said Malcolm Roberts.

The QCA is proposing a new set of annual performance reporting for retailers.

“Reporting would focus on key indicators such as prices, revenue and service quality. The QCA is suggesting no fewer than 38 indicators be used to assess the performance of each retailer. Most of these indicators are part of the National Performance Reporting framework.

“Annual efficiency targets would be set to encourage productivity improvements. Price increases in real terms would require justification (except for increases due to factors clearly outside the control of the retailer). A pattern of significant price increases could trigger an intensive review of the business.

“The QCA is also recommending legislative changes which would allow the QCA to set prices if abuses of monopoly power occur. Similar powers exist in other States.

“Retailers will be expected to have in place effective strategies to engage customers. Most retailers already have arrangements to test customer opinion: retailers would be expected to produce detailed engagement plans by October 2015.

“The QCA is proposing changes which will continue effective regulatory oversight of water monopolies without the hefty costs of intensive price monitoring. If evidence emerges of market power being misused, the QCA could quickly launch an investigation and, if necessary, even set prices,” said Malcolm Roberts.

We encourage customers, retailers and all other interested parties to respond to the Position Paper (available at Submissions close on 30 June 2014.

Further Position Papers on Pricing Principles and Return on Capital will be published in coming months.
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