21 December 2012

Mr James Cox PSM Chief Executive Officer and Full Time Member Independent Pricing and Regulatory Tribunal PO Box Q290 QVB Post Office NSW 1230

Dear Mr Cox

Sydney

WAT~R

SW Ref: 8052

Re: Sydney Water Submission to IPART Issues Paper: Reforming Licensing in NSW

I refer to the Independent Pricing and Regulatory Tribunal's (!PART's) Issues Paper, Reforming licensing in NSW· Review of licence rationale and design.

Sydney Water supports the Draft Framework for assessing licences, which is outlined in the Issues Paper. Licences which satisfy the various criteria in the Draft Framework would be consistent with well-established principles of best practice regulation, such as those set out in the NSW Government's 'Guide to Better Regulation'. These principles include that there should be a clear case for regulation and the cost of regulation should be outweighed by the economic benefits.

Ensuring that Sydney Water's licences comply with these principles has the potential to deliver better value to Sydney Water's customers and the community. Sydney Water's licences, which include its Environment Protection Licences (EPLs) and an Operating Licence, are significant cost drivers. Improving the efficiency and effectiveness of licence conditions has the potential to lower overall water and wastewater prices to customers across Sydney.

The Issues Paper asks whether the Draft Framework could be used effectively by regulators when proposing new licences and reviewing existing licences. Sydney Water considers that the Framework would provide a good guide for !PART's review of Sydney Water's Operating Licence and recommends that the Framework be used to guide !PART's next review of the Licence.

There may be scope to improve the Operating Licence's compl iance with the Draft Framework in a number of areas. For example, the Operating Licence could be argued to contain some examples of 'regulatory creep'. The Licence has been gradually added to such that it is now a varied collection of requirements, many of which may not (or may no longer) satisfy the condition that there needs to be a clear case for regulatory action. For example, the Licence

Sydney Water Corporation ABN 49 776 225 038 1 Smith St Parramatta 21SO I PO Box 399 Parramatta 2124 1 OX 14 Sydney IT 13 20 92 I www.sydneywater.com.au

Delivering essential and sustainable water services for the benefit of the community

Sydney

WAT~R

includes a condition that Sydney Water implement recycling targets set by Government, but only to the extent that this is financially viable. In view of other requirements imposed on Sydney Water (eg. EPL requ irements to reduce treated effluent discharges and legislative requirements to protect the environment and be a successful business) it is likely that Sydney Water would implement financially viable recycling schemes without a corresponding Operating Licence condition.

Application of the Draft Framework to reviews of the EPLs is also supported but may be more difficult. There is less scope in the EPL framework, under the Protection of the Environment Operations (POEO) Act, to conduct a full and rigorous cost benefit analysis of EPL requirements. The EPA's statutory objectives centre on protecting, enhancing and restoring the environment. However, we note that the EPA's corporate mission is 'Healthy Environment, Healthy Community, Healthy Business'. Consideration could be given to better alignment of these issues.

Thank you for the opportunity to provide Sydney Water's views on this important matter. We look forward to further consultation with you as the review progresses. For further information, the relevant contact is Sandra Gamble, General Manager, Business Strategy and Resilience, who may be contacted on telephone (02) 8849 6884.

Yours sincerely

Kevin Young Managing Director

Sydney Water Corporation ABN 49 776 225 038 1 Smith 5t Parramatta 2150 I PO Box 399 Parramatta 2124 1 DX 14 Sydney IT 13 20 92 1 www.sydneywater.com.au

Delivering essential and sustainable water services for the benefit oft he community