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WATER LEGISLATION (ESSENTIAL SERVICES COMMISSION AND OTHER AMENDMENTS) BILL 2003

      Water Legislation (Essential Services
    Commission and Other Amendments) Bill

                         Circulation Print

              EXPLANATORY MEMORANDUM


Clause 1   sets out the purpose of the Bill which is to amend the Water
           Industry Act 1994 to specify the role of the Essential Services
           Commission in relation to the water industry, to amend the
           Water Act 1989 to reinstate the capacity of the Central
           Gippsland Water Authority to accept certain types of waste
           material for treatment or disposal and to amend the Essential
           Services Commission Act 2001 and the Water Act 1989.

Clause 2   provides for the commencement of the Bill. The new section
           12(1) is deemed to have come into operation on 4 April 2002, the
           remaining provisions, apart from the commencement and purpose
           sections which come into operation on assent, will come into
           operation on a day or days to be proclaimed or, if not proclaimed,
           on 1 July 2005.

Clause 3   inserts a new Part 1A into the Water Industry Act 1994 which
           sets out the framework for the regulation of the regulated water
           industry under which the Essential Services Commission will
           operate as the economic regulator of the water industry.
           Unlike other essential services regulated by the Essential
           Services Commission, an explicit pricing framework for the
           Victorian water industry does not exist. There are a number of
           key pricing, service quality and other related matters where it is
           desirable to establish an overarching long term regulatory
           framework under which the Essential Services Commission can
           conduct its regulatory role. This provision introduces a number
           of initiatives to underpin this process as well as providing for the
           making of a number of statutory instruments to complement these
           reform initiatives. These include the making of a Water Industry
           Regulatory Order, Codes and Statements of Obligations, each of
           which is to be established under specific provisions of this Part.




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551062                                        BILL LA CIRCULATION 10/4/2003

 


 

New section 4A provides definitions of words and phrases used in the Bill. The 'regulated water industry' is the Melbourne Water Corporation, the licensees under Part 2 of the Water Industry Act 1994, the Regional Urban Water Authorities and the Rural Water Authorities. New section 4B provides for the regulated water industry to be a regulated industry under the Essential Services Commission Act 2001, and that this Part is to prevail if there is any inconsistency between this Part and the Essential Services Commission Act 2001, the Water Act 1989, the Melbourne and Metropolitan Board of Works Act 1958 or the Melbourne Water Corporation Act 1992. New section 4C supplements the objectives provided for in the Essential Services Commission Act 2001 with objectives specific to the regulated water industry to provide specific direction to the Essential Services Commission to guide it in the exercise of its regulatory powers and functions. It provides that the objectives of the Essential Services Commission for the purposes of this Part are to ensure that-- · wherever possible the costs of regulation will not exceed the benefits; · regulatory decision making and regulatory processes by the Essential Services Commission will take into account the differences between the operating environments of the various regulated entities; and · health, safety, environmental sustainability (including water conservation) and the social obligation will be taken into account. New section 4D provides for the making, amendment, variation or revocation of a Water Industry Regulatory Order by the Governor in Council. The Order establishes the regulatory framework for economic regulation by the Essential Services Commission and is intended to provide for specific direction to the Essential Services Commission. Amongst other things, it may specify-- · services that will be subject to price and service quality regulation; · particular arrangements that will apply to price regulation in the first regulatory period; 2

 


 

· the approach and methodology to be adopted by the Essential Services Commission for price regulation and the sharing of efficiency gains with customers; · regulatory asset values of the regulated entities to be adopted by the Essential Services Commission when regulating prices; · the functions of the Essential Services Commission regarding monitoring and reporting publicly on the regulated entities; · the functions of the Essential Services Commission relating to compliance auditing of asset management and other obligations placed on the regulated entities under the Statements of Obligations to be made by the Minister administering the Water Industry Act 1994; · the functions of the Essential Services Commission relating to dispute resolution; and · any matters to which the Essential Services Commission must have regard in exercising its powers and functions. New section 4E sets out the other regulatory powers of the Essential Services Commission. These provide that the Essential Services Commission may regulate standards and conditions of services and supply and market conduct relating to declared goods and services. In doing do the Essential Services Commission must do so in a way which it considers will best meet the various objectives contained in both the Essential Services Commission Act 2001 and the Water Industry Act 1994 as well as complying with anything that may have been specified in the Water Industry Regulatory Order. New section 4F provides for Codes which may be made or revoked by the Essential Services Commission. Codes may require the development of customer-related standards, procedures, policies and practices and will be issued by the Essential Services Commission and, whilst not a determination of the Essential Services Commission for the purposes of the Essential Services Commission Act 2001, must be complied with by the regulated water industry. This will assist in the development of a transparent regulatory framework which will be further supplemented by the requirement for the Essential Services Commission to ensure that notice of the making, amendment or revocation of a Code is given in the Government Gazette. 3

 


 

Codes may specify minimum customer-related standards, procedures, policies and practices that must be included in a customer charter. Importantly, the proposed Codes may require a regulated entity or class of regulated entities to enter into an agreement with another regulated entity of class of regulated entities to ensure that obligations relating to customer-related standards can be met. The Codes may also require regulated entities to maintain accounting records as specified and to prepare accounts according to principles specified in the Code. New section 4G requires a regulated entity to provide information to the Essential Services Commission in the manner and form required to enable the Essential Services Commission to perform its functions. New section 4H provides that the regulated entities are to contribute to the costs of the Essential Services Commission. The amount to be contributed under this provision is to be determined by the Minister administering the Essential Services Commission Act 2001 after consultation with the Minister administering the Water Industry Act 1994 and after having regard to the total costs and expenses incurred by the Essential Services Commission in relation to its role as economic regulatory of the regulated water industry. New section 4I provides for the Minister to make, amend vary or revoke a Statement of Obligations for each of the water entities, including a Rural Water Authority, which set out the obligations imposed by government on the water authority and with which it must comply in carrying out its business. Statements of Obligations may include matters relating to governance, quality and performance standards, community services obligations, any obligations of a water authority with respect to other public authorities and may also include provisions relating to any failure to comply with obligations imposed in a Statement of Obligations. A Statement of Obligations may also specify a maximum in relation to payments by an owner for the provision of sewerage services under section 268(1) of the Water Act 1989. It is envisaged that the proposed Statements of Obligations will assist the Essential Services Commission in making a price determination because the Statements will identify the obligations placed on the water entities by the Minister. The Minister is required to consult with the Treasurer and the Essential Services Commission. Before any amendment or variation can be made to a Statement, the Minister must either have the water entity's agreement to the proposed change or have given written notice to the authority and considered any submission that may have been made by the authority. If there is 4

 


 

any inconsistency between a provisions in a Statement of Obligations and a provision in a Code the provision in the Statement of Obligations is to prevail. To ensure transparency, notice of the Statement of Obligation is to be published in the Government Gazette Clause 4 substitutes Division 1 of Part 2 of the Water Industry Act 1994. Division 1 provides for licences which may be issued under the Act. Many of the existing provision are to be retained, however, a number of changes are to be made to underpin the move to economic regulation of this sector by the Essential Services Commission. New section 5 provides for an application for an operating licence to be made to the Minister and is similar to the existing provision under which a licence application may be made. New section 6 provides for the Minister to grant or refuse an application and the matters in relation to which the Minister must be satisfied. As for the new section 5, the proposed section is similar to the existing provision in the Act except that it is the Minister who may grant a licence rather than, as is currently the case, the Essential Services Commission. New section 7 sets out the provisions that may be provided for in a licence. These are similar to the existing provisions except that the Minister is given discretion to provide for a licence to be for an unlimited term or for a specified term rather than, as is presently the case, for a period of not less than 6 months or more than 30 years. New section 8 provides for the Minister to make a Statement of Obligations for a licensee. These provisions mirror the new section 4I that provides for the making, amendment, variation or revoking of Statements of Obligations for the other water entities. New section 9 restates the existing provision which requires a licence to include a condition requiring the licensee to enter into a customer dispute resolution scheme approved by the Essential Services Commission. It also sets out the matter to which the Essential Services Commission is to have regard in approving such a scheme. These include the accessibility of the scheme to the licensee's customers, ensuring that the proposed scheme is independent of the members of the scheme, that the scheme is fair and is seen to be fair, and that decisions and information about complaints will be published. It also requires that there be provision for regular reviews of performance. 5

 


 

New section 10 provides that the charge for a licence will be as specified in the licence itself, as will the arrangements for payment. New section 11 provides for the area to be covered by a licence and is the same as the existing provision in the Act relating to licence area. New section 12 sets out the provision for variation to a licence and which, as is currently the case, requires notice of any intended variation to be given to the licensee in writing. Any written submission made by the licensee must be considered prior to the making of any variation. New section 13 requires notice of the licence to be gazetted and sets out the matters that must be included in any such notice. These include the name of the licensee, the term of the licence, the area of the licence, and the place where a copy of the licence may be inspected. Notice of any variation is similarly required to be gazetted. New section 14 states that a licence cannot be transferred. New section 15 recognises the three operating licences already issued and deems them to have been issued under this Part. New section 16 provides that licensees which are public authorities with all the shares held by or on behalf of the State do not represent the Crown. Clause 5 provides for the repeal of Division 2 of Part 2 of the Water Industry Act 1994. Clause 6 provides for the repeal of section 21A of the Water Industry Act 1994. Section 21A relates to the Pricing Order for the three metropolitan licensees. Since this Order will not be continued once the Essential Services Commission has made its first price determination in relation to these particular regulated entities, it is proposed that this section will then be repealed. Clause 7 removes the current statutory immunity for officers and members of Regional Urban Water Authorities and Rural Water Authorities provided for under section 90 of the Water Act 1989. However, the removal of the statutory immunity will only apply to members of these authorities after the expiry of their current terms of office. This will then bring the position relating to officers and members of these authorities into line with existing position for the Melbourne Water Corporation and the licensees. 6

 


 

Clause 8 inserts two new sections into the Water Act 1989, sections 120 and 121. The new section 120 provides for the proposed Schedule 8 to apply to the Central Gippsland Region Water Authority and also that the other provisions of that Act apply to the Central Gippsland Region Water Authority to the extent that they are not inconsistent with Schedule 8. The new section 121 deems actions of the Central Gippsland Region Water Authority done prior to the commencement of the Bill to have been validly done. Clause 9 provides for the repeal of sections 247(2)(c) and 247(9) of the Water Act 1989 and is consequential upon the Regional Urban Water Authorities and Rural Water Authorities moving to economic regulation by the Essential Services Commission. Section 247 currently provides for authorities to include financial statements in their corporate plan. This will no longer be necessary for those authorities once the Essential Services Commission makes its first price determination for those authorities. Clause 10 inserts a new Schedule 8 into the Water Act 1989 to apply only to the Central Gippsland Region Water Authority. The provision provides a definition of waste that includes trade waste, or sewage, any matter that is offensive or injurious to human life or health, any ash, coal dust or other matter that may discolour water, and any other matter that the Authority by by-law declares to be waste. The Schedule also provides the Central Gippsland Region Water Authority with the function of receiving waste for treatment or disposal from any person either within or outside its sewerage districts. Clause 11 amends the Essential Services Commission Act 2001 to provide that a Water Industry Regulatory Order is an 'empowering instrument' for the purposes of that Act. This will allow the relevant provisions of that Act to apply to a Water Industry Regulatory Order. Clause 12 is a statute law revision that corrects a typographical error in the Water Act 1989 and repeals section 231(7) which no longer applies. 7

 


 

 


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