In many ways, the WICA access regime reflects the generic access regime available under the TPA. For example, the criteria for declaring an infrastructure service open to the access regime are quite similar. Importantly, both include requirements that access or increased access would ‘not be contrary to the public interest’.^[58]

However, retention of the public-interest test in its present form has prompted criticism for not placing a positive onus on the access seeker. To explain, the TPA does not define public interest and the NCC and the ACT^[59] have dealt with the issue on a case-by-case basis, relying tentatively on clause 1.3 of the Competition Principles Agreement (PIAC Submission to Creating a Dynamic and Competitive Water Industry 2006: 11). That Agreement supports considerations relating to ecologically sustainable development, social welfare and equity considerations, occupational health and safety issues, industrial relations issues, economic and regional development, consumer interests, competitiveness of business and the efficient allocation of resources being taken into account. Accordingly, the Public Interest Advocacy Centre (PIAC) distilled from those considerations issues such as ‘the loss of equity in pricing, the impact on prices for the incumbent, risk of consumers being excluded from price benefits and the magnitude of public costs’ as all being relevant and coming under the head of ‘public interest’ (PIAC submission to Creating a Dynamic and Competitive Water Industry 2006: 11). PIAC went on to argue that the WICA access regime should place a greater burden on the access seeker to demonstrate that these concerns have been adequately addressed. It also favoured demonstration of a positive-outcomes approach by access seekers rather than the mere demonstration that outcomes will not negatively affect the public interest. PIAC claimed that its proposal was consistent with the Intergovernmental Agreement on a National Water Initiative (IGA), which was agreed in June 2004 by the Council of Australian Governments (PIAC Submission to Creating a Dynamic and Competitive Water Industry 2006: 13). It favoured the onus in the public-interest test from negative to positive.

While at one level it would seem insufficient for access seekers to argue that their business models promote competition and, by extension, that environmental benefits will flow and that those benefits will not be against the public interest, change to the public-interest test along the lines of PIAC’s recommendation may also pose problems. The proposed switch of onus from negative to positive could potentially place an enormous burden on the applicant unless the public-interest test were focused on achieving better outcomes on specified issues, such as pricing and environmental protection.

In regard to retail pricing, the applicant already has to show how access will promote competition. One of the difficulties in showing that competition will reduce prices is that the public-utility models have artificially suppressed prices by applying a pricing formula which has not been based on full cost recovery. The Australian Competition Tribunal (ACT) in the Services Sydney decision acknowledged the difficulties caused by artificial price suppression (Application by Services Sydney Pty Ltd [2005] at [201]).

As to environmental outcomes, any likely adverse environmental impact from an associated works proposal would be subject to an environmental impact assessment. Hence, protective mechanisms are already in place. Yet, perhaps PIAC would consider that mechanisms of this nature still do not go far enough because they do not require demonstration of a positive outcome. They simply protect against adverse ones.

In the specific case of Services Sydney, it is arguable that the company could have easily satisfied a positive-outcomes test because it proposed treating the relevant sewage to secondary and tertiary levels (Application by Services Sydney Pty Ltd [2005] at [70]–[73]), whereas Sydney Water had only been treating sewage to primary levels and then discharging it to ocean outfalls. Further, Services Sydney also intended charging customers much the same price as Sydney Water charged, but Services Sydney planned to attract customers with its greener credentials. The problem in such a case is perhaps not one whereby the applicant finds meeting the positive-outcomes test too burdensome but, rather, that there would be little incentive for the public utility to improve its own standards when to do so would have cost implications for it.

Questions have emerged about the pricing of access to the infrastructure service and of access to the sewage resource itself. The pricing of both may prove important to setting the conditions for successful entry of third parties into the wastewater and water-recycling industries. The power to determine the price for access to infrastructure rests with the ACCC under the TPA and with IPART under WICA where the incumbent service provider and the access seeker cannot agree (see previous discussion). The power to determine the price of recycled-water services (that is, the supply of recycled water) rests only with IPART under the IPART Act 1992 (NSW) s 11 and Part 3, Division 5, but only in respect of prices to be charged by a ‘government monopoly service’.

What of the power to determine the price of the sewage charged to the sewer miner? On our reading of the IPART Act, IPART also has the power to determine the price of the sewage resource charged by a government monopoly service to a sewer miner. However, an alternative opinion is that the IPART Act only authorises IPART to determine the price for the interconnection service for sewer mining, which does not include pricing the sewage resource itself. However, under WICA ss 45 and 46, IPART does have the power to determine the price of the sewage to be drawn by a sewer miner where the infrastructure ‘service provider’ has agreed to IPART having the jurisdiction to arbitrate such disputes consistent with the terms of the service provider’s policy on sewer mining. That policy may contain propositions about pricing the sewage. Here, however, the definition of ‘server provider’ means any person who has, or is to have, control of the infrastructure; so this will include private providers. Thus, the service providers, public and private, can set the parameters for IPART’s determination of the price of the sewage as a resource.

The price of access to the incumbent’s infrastructure is a very important factor in the success or otherwise of any third-party access regime. Should the price of access be set too high, competition is unlikely to ensue because access seekers will presumably opt not to take up the access opportunities that they have been granted. Alternatively, if access seekers do take up the access that they have been granted and enter the market but find that the access price has been set at a level too high for them to operate a successful business, the customers of the incumbent and the new service provider may ultimately pay for inefficiencies in price setting. A possible outcome is that one group of customers may end up subsidising another (PIAC Submission 2006 Creating a Dynamic and Competitive Water Industry: 11).

The legislation provides various principles to be applied in determining the price of access, but there are still choices about pricing methodologies that are available (TPA s 44X; WICA s 41). Some were discussed in the ACCC’s TPA determination of the access-pricing dispute between Services Sydney and Sydney Water (ACCC Arbitration Report 2007). The ACCC noted that the most appropriate methodology depends on a range of factors, including the infrastructure facilities to which access is sought and the particular characteristics of the upstream and downstream markets (ACCC Arbitration Report 2007: 1).

In that dispute, Services Sydney favoured a ‘bottom-up’ building-block methodology under which the price is calculated by building up the various blocks of costs associated with providing the service. Sydney Water, on the other hand, favoured a ‘retail-minus’ methodology, which calculates price by first determining Sydney Water’s regulated retail price and subtracting from it the cost of contestable services (for example, sewage treatment and sewage disposal and recycling) associated with the supply of the product or service in the downstream market. To that figure any facilitation costs (those associated with the provision of the service by Sydney Water to Services Sydney) are then added.

Ultimately, the ACCC favoured Sydney Water’s ‘retail-minus’ approach but, instead of subtracting ‘avoided’ costs, it subtracted ‘avoidable’ costs or costs that could in the long run be avoided. The result is that access prices are lower than if only actually avoided costs were subtracted. The types of concerns addressed by the ACCC under the TPA regime will also need to be addressed in relation to access that is made available under WICA and other state-based regimes (Economic Regulation Authority, Western Australia, 2007: 79 ff).

Pursuant to TPA s 44X(2), the ACCC also took into account some other matters such as the complexity that would be involved in practically implementing each party’s proposed access-pricing methodologies. As part of its decision, the ACCC retained postage-stamp pricing for all customers, thus favourably addressing many equity concerns raised by consumer-interest groups. Although the provision of sewerage services to different parts of Sydney costs vastly different amounts, to a considerable extent consumers have already paid for that cost differential through the developer charges for different areas, which are meant to reflect the cost differential. To apply this cost differential to the periodic charges for sewerage services would effectively require the consumers in high-cost areas to pay twice.^[60] Consequently, WICA specifically requires that the pricing principles for access to infrastructure services be implemented in a manner that is consistent with any pricing determinations for the supply of water and the provision of sewerage services, including the maintenance of ‘postage-stamp pricing’ for the provision of those services.^[61]

However, a real concern for legislators is that, having developed extensive regimes for access, the so-called opportunities might not be taken up by third parties because the price of access does not leave the opportunity for sufficient profit. Anecdotally, some large water companies have expressed concerns about whether it is worth their while entering the market. They have suggested that, due to cost constraints, third-party access may well end up only being viable for greenfield residential developments or large industrial sites. In Sydney, this would limit third parties to about a 20 per cent market share, given that it has been estimated that about 80 per cent of Sydney Water’s existing customers are not in greenfield developments and are small, largely residential customers. If that is so, perhaps the TPA and WICA third-party access regimes might not provide the levels of competition envisaged by legislators. Further, with retail prices for services being set by state regulators (for example, by IPART in NSW) and the infrastructure access prices being set by the ACCC in cases coming under the TPA, some third parties may see high transaction costs as a disincentive to invest. Practitioners report that there does not appear to be a large number of potential, third-party access seekers lining up to enter the market.^[62] Yet this position could change. Indeed, a declaration made under the TPA could even be revoked under s 44J of that Act if an alternative, effective state-access regime becomes available. One would expect that the WICA regime should provide the basis for the TPA declaration of Sydney Water’s sewerage network to be revoked. That expectation should be measured against the sceptical assessment of WICA by one NSW member of Parliament: ‘The Competition Bill may well prove to be only window-dressing in terms of actual competition.’^[63]

It will be interesting to see whether in the hard, cold, light of a commercial day Services Sydney ultimately decides that it is worthwhile pursuing the competitive opportunity available to it, given the price it will have to pay for access to the infrastructure service of sewage transportation.^[64] Much may depend on (a) the estimates of the value of the ultimate product — recycled water — and (b) the related cost of acquiring the raw resource of sewage in the first place. It would seem that Services Sydney may not have to pay for the resource at all. As Sydney Water would not be the supplier of raw sewage to Services Sydney, it could not charge for supply of the resource as distinct from the provision of the service of sewage transportation. Instead, Services Sydney will take delivery of the sewage from its own customers. If Services Sydney customers ‘give’ rather than sell their (purported) property rights^[65] in ‘their’ sewage to the company, then the company will receive a windfall benefit of ‘free’ sewage.

Accordingly, in the recycled-water market, Services Sydney may be at a competitive advantage over sewer miners who take delivery of raw sewage from Sydney Water. Why? Because IPART chose not to regulate sewer-mining prices in its 2006 pricing determination (IPART, Pricing Arrangements for Recycled Water and Sewer Mining, September 2006: 66). Unless IPART regulates the price of sewage for sewer miners, Sydney Water will be able to charge them what it likes if it abandons its current policy of zero pricing of sewage. Even more significant, potentially, is that there is no regulatory regime applicable to the choices that private sewerage-service providers make with respect to sewer miners, either as to whom they choose to sell the sewage or as to the price that they charge. Similarly, private sewerage-service providers who decide to recycle the water will be subject to no direct pricing regulation for their product, other than the market competition from the regulated public-sector providers. If public-policy concerns develop about how private providers are allocating the sewage resource, either as sewage or as recycled water, then consideration may need to be given to whether sewage may need to be made the subject of a resource regulation regime, not just a competition and service regulation regime. These issues are ripe for further investigation.