Urban water futures discussion paper

The Commission is undertaking work to advance urban water reform in Australia. As part of our engagement with stakeholders, we issued an Urban water futures discussion paper (PDF 700.5 KB).

This discussion paper highlights six thematic areas, including:

  1. Efficient and effective service delivery
  2. Aligning institutions and regulatory frameworks
  3. Access to capital and private sector investment
  4. Investing in people: skills and culture
  5. A customer focused sector, an engaged community
  6. Contributing to liveable cities

This discussion paper complemented the issues paper for the National Water Reform Assessment: 2014 (triennial assessment) call for public submissions. Submissions to the Urban water futures discussion paper are published with the triennial assessment submissions.


Introduction

The urban water sector  underpins public health and wellbeing, contributes to social development and enables strong economic activity and growth across Australia.  Over the last decade the sector has been through the most serious water security crises in Australia's modern history.  It has transitioned from one that was highly predictable, routinely mapping out investments in decade long cycles, to one that manages more complex risks under a range of variable supply and demand scenarios.

Australia's population is predicted to more than double by 2056 with over 65% of people living in capital cities and the vast majority in urban settings. Finding the appropriate water sources and developing the assets to deliver services, cost effectively, and with the pressure of climatic uncertainty are some of the critical challenges for the urban water sector.

Affordability remains a key consideration for all stakeholders. In response to the Millennium Drought, significant investments in water infrastructure were made and these costs now contribute to the fixed component of water bills. Ensuring that management of the current assets and the planning and implementation of the next wave of investments are prudent and efficient must be a high priority for governments, water suppliers, the private sector and customers.

Emphasis is now required on how the sector will find innovative ways to source, deliver and manage water, and how engagement with customers and the broad range of partners will help to optimise these decisions. The role that water contributes to liveable and sustainable communities and the interface of urban water with catchments, waterway health, energy, food, climate, planning and the community are key priority areas.

The Commissions' 2011 Urban Water in Australia: Future Directions report identified the need to focus on customers, ensure efficient regulatory arrangements, clarify the role of the urban sector in delivering on liveability outcomes and implement further change around institutional arrangements and policy settings.  Jurisdictions, together with the sector, have engaged in a range of reform measures that aim to address these challenges. It is appropriate to revisit the urban water sector, to acknowledge the positive reform undertaken and to refocus energy on the critical priorities that will determine success over the next 30 years. 

The Commission has identified six thematic areas for consideration.  Prompting questions aim to encourage discussion; however commentary is also encouraged on broader topics. The Commission is interested in your success stories, observations on ongoing challenges, suggestions for solutions and future focus.

The themes, identified by the Commission, are:

  1. Efficient and effective service delivery
  2. Aligning institutions and regulatory frameworks
  3. Access to capital and private sector investment
  4. Investing in people: skills and culture
  5. A customer focused sector, an engaged community
  6. Contributing to liveable communities

We look forward to working with you to further advance urban water reform in Australia.
 
Kerry Olsson
Acting Chief Executive Officer

Note: The Commission refers to the 'urban water sector' as the structures responsible for supplying a reticulated water or wastewater system and/or associated services to large cities, smaller cities and towns, and small communities, including some Indigenous communities. This includes the major urban services (50,000+ connections), the non-major urban services (10,000 to 50,000 connections) and the minor urban services (less than 10,000 connections).

Theme 1: Efficient and effective service delivery

Supply diversification and demand management measures continue to play an important role in ensuring urban water security. Many towns and cities throughout Australia have reached the limits on their cheapest sources of water which has led to investment in new supplies, leading to a rise in water prices. The sector is now challenged with optimising the use of multiple climate dependant and independent supply sources to balance security, cost and other network constraints.

It is important to ensure that long term planning and subsequent investment is not disadvantaged by a focus on short term cost and time pressures. The drought fundamentally changed the way the sector thought about the security of supplies from rainfall dependent sources and underscored the risks associated with planning, managing and investing on the basis of long-term averages and long-term population projections.

According to the Commission's latest National Performance Report for Urban Water Utilities, the 72 reporting water service providers above 10,000 connections are responsible for over $120 billion in water and sewerage assets. Some of these assets are over 150 years old and the decisions to maintain and improve these assets can be costly. 

In addition, many service delivery functions are now outsourced to the private sector and care must be taken to ensure that costs are not driving down the service component potentially exposing the sector and customers to the risk of price shock through undeliverable contracts or contract collapse.

Regional and remote water suppliers, often an arm of local government, find that the size of their organisation affects their capacity to deliver services. The ability to implement long term integrated planning strategies in an affordable way, with the revenue streams currently in place, remains a challenge.

Affordability has been a key theme across all stakeholders in the water sector in recent years and extra effort is being placed on ensuring that water services are provided in an efficient and effective way.

The evolution towards efficient and effective service delivery will require collaboration. Collaboration may be as a result of the demands on government agencies to enable efficiency through more flexible regulation; utilities developing sustainable business models and broadening supply options as well as the research sector developing innovations to meet the drive for efficiency and cost effectiveness.

Prompting questions

  1. How would you like to see the urban water sector collaborate in optimising efficient and effective service delivery?
  2. What do you see as the priority supply and demand management issues the urban water sector must address?

Theme 2: Aligning institutions and regulatory frameworks

The division of responsibility for urban water management has become a challenging issue for the sector. Different facets of the urban water cycle such as water supply, drainage, water pollution control, groundwater, water recycling, water conservation and land use planning are often managed by different government agencies or water businesses making it difficult to plan and implement systems holistically.

Economic, environmental and health regulation of the urban water sector is complex and often poorly aligned. It can impede efficient service delivery and stifle innovation and ultimately impose a significant additional cost to consumers.

Whilst there are advantages in regional and remote bodies assuming responsibility for water cycle management the administrative burden of aligning to regulations can be significant.

There is a need for regulation, planning and market frameworks that bring about greater coordination, cooperation and resource sharing in the management of the urban water cycle.

In Future Directions 2011 the Commission called for the roles of government, regulators and water businesses to be clarified. The Commission considers that the urban water sector can achieve greater outcomes from better integration of policy, regulation and service provisions across the urban water sector.

Prompting questions

  1. What do you consider to be the respective roles of economic, environment and public health regulation?
  2. How can regulation enable innovation?

Theme 3: Access to capital and private sector investment

Major infrastructure projects require access to capital. This capital has largely come from governments. As government spending is constrained the urban water sector is looking for private investors to provide the capital required or private service providers to enter the market. 

Private sector investors, specifically superannuation funds, are increasingly seen as an attractive alternative to traditional government sources. The urban water sector has also followed the recent trends in Australia to transfer key assets over to the private sector. However care needs to be taken in developing appropriate funding models and creating the right opportunities for investment.

There are other ways to increase the role of the private sector beyond the traditional methods of outsourcing operations and maintenance of the networks and treatment plants. Creating competition in the design phase of infrastructure projects and the more recent movements towards alliance contracting and joint venture arrangements are emerging options for engaging the private sector.

Regional and remote service providers face significant challenges in accessing capital necessary to manage the community's expectations of service. Challenges remain in both providing the environment for private investment and maintaining the capacity to manage the partnerships on an ongoing basis. 

Private providers have found it difficult to enter the delivery of water services. In recent years, legislation and licensing arrangements have opened up the network to private sector players and despite some small wins, mostly related through developers and providing onsite recycled water systems, there is further reform required to create an environment conducive to private retail water services.

The private sector has an important role to play in the future of the urban water sector. It will be important to ensure that these relationships provide value to customers, are well set up, have clear objectives and appropriate risk frameworks.

Prompting questions

  1. What are the preconditions for attracting private capital investment into the urban water sector?
  2. Should more be done to encourage the entrance of private retail providers?
  3. How do we encourage more investment in regional and remote areas of Australia?

Theme 4: Investing in people: skills and culture

Workforce challenges for the urban water sector include: an ageing workforce; attraction and retention (specifically within regional and remote locations); customer engagement and the ability to respond to a diversity of customer expectations; keeping abreast of rapidly developing technology; and competition from other sectors of the economy.

With a large percentage of the workforce looking to retire in the near future, there is a risk of losing knowledge and expertise in managing urban water systems at the very time that the systems are becoming more complex to operate. The Commission is aware of a number of strategies and programs implemented to respond to the universal challenge of an ageing workforce, but it is unclear whether this issue has now been managed effectively, including in regional and remote locations.

The urban water sector has traditionally prioritised excellence in engineering and service delivery; critical capabilities developed and maintained for the protection of public health and the environment. Increased customer awareness and rises in water bills has required the sector to move towards understanding and responding to customer needs and placing emphasis on a 'customer focused culture'.

The diversity of business models within the industry can mean that ongoing investment in skills development and maintenance required to deliver on existing responsibilities varies. There is concern that the willingness to embrace new ways of doing business is seen as a cost pressure rather than an investment in the delivery of outcomes.

It is critical that the sector considers the range of skills required to deliver on its current responsibilities and to respond to changing demands of the sector. Focusing on business development, community engagement, media and public relations as well as embracing the opportunities around 'big data' and information technology will be essential in broadening the skills set of the sector. Further engagement with schools, vocational education and training and the higher education sector will be required.

Prompting questions

  1. Are the challenges of an ageing workforce still a top priority issue?
  2. What will a future workforce look like (incl. cultural characteristics) and where do you see the critical skill gaps in the sector?
  3. How will the industry attract and retain people with the skills and qualities required to provide leadership across the sector?

Theme 5: A customer focused sector, an engaged community

The Commission considers customer engagement in policy and service delivery to be an important pathway to delivering consumer satisfaction, optimising service offerings and planning for long term water security.

Water service providers largely consist of government-owned monopoly businesses that face little direct competition. They are obliged to meet minimum service standards set externally by regulators and policymakers, charge prices that are determined by economic regulators, and comply with 'postage stamp' pricing and uniform restriction policies instituted by governments. In regional and remote locations where both bulk and retail prices aren't regulated, final prices are set annually in accordance with guidelines provided by the relevant government agency.

These arrangements mean that the supply of urban water and related services have been characterised by a lack of competition and choice. Customers have had relatively few alternatives: they can substitute self-supply in some end uses (e.g. by installing rainwater tanks for non-potable residential uses, by purchase of bottled water), and in some cases can seek an alternative supply (e.g. recycled water) from their main supplier or another supplier.

Given customers have limited switching options, providers face muted incentives to reduce costs and innovate. They also face poor investment signals about where, when and how to invest in the service to meet customers' needs.

The Commission would like to see customers able to express their values and preferences in urban water policy development and service offerings, including price, and the level and quality of service that best meets their needs. The Commission would also like to see investment decisions that incorporate customer and community values.

The water sector needs to move beyond the current traditional engagement practices of consultation and market research approaches towards methods that engage with consumers and the community, for example, utilising social media, citizen juries, choice modelling and learning alliances, to name a few.

As effort towards meaningful engagement continues, emphasis will need to be placed on ensuring communities are well informed, have access to the right information, written clearly and without jargon.

Prompting questions

1. What role do you see for customer engagement in urban water policy development and service provisions?

2. Does pricing policy and economic regulation pose a barrier to customer engagement and choice in services? How?

3. Whose role is it and who should pay to improve customer awareness and understanding of urban water issues?

Theme 6: Contributing to liveable communities

Liveability refers to the way the urban environment supports the quality of life and wellbeing of communities. The urban water sector contributes to liveability by providing water services, access to public amenities (sports ovals, public open space) and protection and enhancement of urban waterway health. The water sector has responded to liveability through the concepts of integrated water management, and more recently, cities of the future and water sensitive cities.

In urban centres, the water sector and consequently, water decisions, aren't always included as a core input to the planning and design process. Whilst integrated water management is a term the water sector has used for some time, the implementation has often been a 'once off' or trial approach, driven by informal working relationships and expertise of various individuals. In the urban cities context, it is the Commissions view that water often misses a 'seat at the table' in the broader urban planning discussions.

In many ways the regional and remote service providers, with their link to local government, are much better placed to incorporate integrated water management opportunities. However it is unclear how local governments are addressing the concept of liveability and the important role that water plays in delivering this.
Some of the challenges outlined in the Future Direction 2011 report included:

  • governments not being clear on a broader urban planning objective that articulates the roles and responsibilities of all parties, including urban water service providers
  • building new methodologies and assessment frameworks to quantify the full costs, benefits and risks associated with new and alternative sources of water (aiming for integrated and decentralised options to compete on an equal footing with more traditional options)
  • integration between institutions beyond the water sector are difficult due to the number of organisations involved, each with their own objectives, skills and accountability
  • extending the definition of a customer base; acknowledging that many integrated water management options have multiple benefits that advantage a variety of stakeholders who could all contribute to the cost
  • the Commission is interested in canvassing the progress that has been made next to these identified challenges and understanding how the sector can ensure better representation when decisions are being made on the liveability of our communities.

Prompting questions

1. How can the urban water sector more effectively influence decisions to support liveable communities?

2. Do the challenges differ in major cities, regional and remote locations?

Back to top