The influence of regulation on preference for utility infrastructure investment to generate income for Australian water corporations
New Journal paper from Peter J Coombes explores the influence of regulation, legislation and monopoly processes on preference for utility supply side infrastructure. The peer reviewed paper is available at the Australasian Journal of Water Resources is available here: The Publication
The effects of price regulation and preference for utility supply infrastructure on Australian urban water utilities and urban water markets are considered by examination of historical data and models of the future of a case study of the Greater Sydney and Melbourne regions. Australian regulators utilize the building block method based on operating and capital costs, and a Regulatory Asset Base to set nominal revenue requirements and ultimately maximum prices for services provided by water utilities.
This investigation reveals that the regulation of water utilities based on the building block method dependent on a Regulatory Asset Base drives preference for utility infrastructure and is not based on the market mechanisms of fluctuating consumer demands for water and sewage services. These regulatory processes are not linked to the operation of the urban water market that includes the government owned utility and many distributed solutions, and act to crowd out viable complementary solutions such as water efficiency, distributed water sources and alternative pricing models.
Government regulation, ownership and operation of utilities may produce strong performance from the perspective of the urban water corporation but decrease economic efficiency, resilience and social welfare with respect to the urban water market. The role of major water corporations needs to be redefined in a market recognising multiple complementary water sources and services. Regulation and pricing for utility services should have regard to the entire market, market demand, environmental health and consumer welfare.
