A new era of water industry competition in NSW has begun

After many years of consultation and consideration, significant reforms to the water industry market scheme in NSW have finally been made.

The Water Industry Competition Amendment Act 2021 (WICA21), which amends the Water Industry Competition Act 2006 (NSW) (WIC Act), commenced on 1 March 2024, along with an extensive set of regulations. The regulations have changed substantially since they were made available for public consultation in 2022, largely to address feedback from stakeholders.

We have outlined the key changes in WICA21 below.

New licences and approvals

The current WIC Act licensing regime requires a licence for the construction and operation of each water and wastewater network which it governs and a separate licence for retail services relating to that network. Each licence authorises both the activity and the person carrying it out.

WICA21 restructures this system, so that the following are required:

• operator and retailer licences, to authorise persons to carry out water industry infrastructure construction / operation or retailing across multiple infrastructure assets or networks; and
• scheme and operation approvals, to authorise the construction and operation (respectively) of specific water industry infrastructure assets or networks.

In addition, a person cannot construct or operate regulated scheme infrastructure, or sell water or sewerage services provided by means of a regulated scheme, unless the person is the registered operator or the registered retailer (respectively) for that scheme.

While this seems like duplication of authorisations, it is intended to streamline project-specific approvals, by removing some of the project applicant's qualification requirements (especially regarding the applicant's technical, financial, and organisational capacity) and addressing them in the State-wide operator and retailer licences instead.

The Regulations set out further technical requirements, including the following:

• before granting a scheme approval, IPART must be satisfied that the relevant operator licence authorises the activities proposed under the scheme approval; and
• before granting a scheme approval, IPART must also be satisfied that the relevant retailer licence authorises the activities proposed under the operational approval.

Importantly, the Regulations provide that certain recycled water schemes operated by metropolitan local councils will need a WIC Act authorisation, although there are substantial exclusions from those requirements as part of the transitional arrangements.

Last resort providers

WICA21 makes significant changes to the "last resort" regime. Broadly, "last resort" arrangements are intended to provide for the effective replacement of a scheme operator or retailer who can no longer act in relation to a scheme (ie. as a result of insolvency or some other factor).

Prior to WICA21, the WIC Act had a very basic "last resort" scheme, which applied only to retailers and was largely unstructured.

Under WICA21, the "last resort" scheme applies to both network operators and retailers, and provides a structured process for identifying "essential services" and declaring "last resort providers" for those services. The Regulation includes interim declarations of Sydney Water and Hunter Water as last resort providers for specified existing schemes, but WICA21 allows for private sector licensees to be declared as "last resort providers" in some situations.

WICA21 and the Regulation require considerable contingency planning from both the existing network operator and retailer, and the last resort provider, and some aspects of that planning are subject to independent technical review and IPART approval. Some of the last resort provider's contingency planning is at the existing network operator's and retailer's cost. There are also some very specific arrangements for a last resort provider to step into the existing provider's contractual arrangements and proprietary rights.

This regime is intended to give customers and property developers (who would bring WIC Act licensees into their development projects) comfort that the services which WIC Act licensees are authorised to provide are less subject to financial and other risks than they were previously.

Changes to customer contracts

WICA21 and the Regulation prescribe the terms of a customer contract that will be deemed to apply for small retail customers, putting WICA scheme operators and retailers on a footing similar to Sydney Water and Hunter Water (which have customer contracts prescribed in their operating licences)

Among other things, the contracts will provide rights of entry for network operators, and requirements for the and the owner or occupier of the retail customer's property to provide safe access for an authorised agent of the network operator exercising its statutory functions.

Other changes under WICA21

• Changes to the monopoly services provisions, including giving IPART the ability to investigate, report on, or determine a pricing methodology for a service, or a class of monopoly services, including the pricing methodology for connection charges relating to a monopoly service.
• Significant increases to penalties for offences.
• Expanded auditing, reporting and investigatory powers for IPART, including powers to inspect records and enter land.