Victoria provides one such example. That state embarked upon a restructure of the metropolitan water industry in the 1990s that aimed to ‘introduce commercial measures [to] improve customer services…’ (Office of State Owned Enterprises 1995: 1). The main component of these commercial measures was division of the MMBW, the former all-encompassing metropolitan statutory water authority. The authority was separated into the corporate entity — Melbourne Water (see Melbourne Water Act 1992), whose functions largely became the provision of bulk water and wastewater disposal — and three state-owned enterprises that assumed responsibility for the retail supply of water (see State Owned Enterprises Act 1992). The state-owned enterprises were established in a corporate form, ‘as this best replicates a commercial operating environment.’ (Office of State Owned Enterprises 1995: 3). The commercial competition, however, was a ‘competition by comparison and benchmarking’ as the metropolitan region is divided into geographically discrete areas in which each water enterprise is the sole provider. Each water business functions under a separate operating licence. This is in contrast to the earlier system where all supply and distribution functions were consolidated in a single statutory entity. Water pricing in relation to the water retailers is set by an independent regulator, the Essential Services Commission. Detailed requirements for the economic regulation of the water industry are provided under a Water Regulatory Order. This model for the metropolitan water industry shares similar features with regulatory models adopted pursuant to competition-policy objectives in utility sectors across Australia and overseas.

The Victorian government, in line with water-policy initiatives at a federal level, released a White Paper, Our Water Our Future, announcing significant water-law reforms in mid 2004. Amendments to the Water Act 1989 (Vic) and the Water Industry Act 1994 have progressively introduced a raft of CoAG and NWI reforms which built on the extensive legislative reforms already undertaken in metropolitan water supply. While much of the reform agenda is directed specifically to rural areas (for example, ‘unbundling of water entitlements’), there are ramifications for urban areas. In addition, further changes have been introduced into the general regulatory structure with the move to instigate water authorities as corporate entities under the Corporations Law. As of 1 July 2007, all water authorities in Victoria were restructured and are now classified as corporations. This change arises from the Water (Governance) Act 2006, which came into operation on 18 October 2006. Of significance is that, as corporate entities under the Corporations Law, there are enhanced reporting and accountability requirements for these entities. Enhanced accountability is required to shareholders — which in this instance is the state government. Exactly how this blend of private corporate responsibilities may sit with public duties of water ‘ownership’, which to date remain vested in state control, remains to be seen. Such merging of public/private spheres is seen as evolving in the context of a wider move to open a space between ‘the old dichotomies of state, market, public, private, local, global’ (Considine 2005: 1).

Reform of the Victorian water sector, though, in some respects has not reached the level of privatisation of water and water infrastructure obtained in some other jurisdictions. Further, until recently, it was clear that there were significant political incentives to retain substantial governmental ownership and control of the water-resource sector given constitutional entrenchment of public provision of water services (ss 96, 97 Constitution Act 1975 Vic). However, the Victorian Competition and Efficiency Commission, which was established in 2004 with a brief to ‘improve the awareness of, and compliance with, competitive neutrality’, has undertaken an ‘inquiry into the reform of the metropolitan retail water sector’.

The inquiry made recommendations regarding:

(Victorian Competition and Efficiency Commission 2007: 6)

The context for such an inquiry is ‘The Next Stage of the Government’s Water Plan’ (Department of Sustainability and Environment 2007). A principal component of the plan was the announcement of major water-supply projects for Melbourne. These infrastructure projects include reconnecting the Tarago Reservoir (15GL), the Sugarloaf Interconnector (pipeline) (75GL) and Australia’s largest desalination plant (150GL). The projects are accompanied by large projected increases in average consumer water costs in Melbourne by 2012. Metropolitan water authorities — Melbourne Water, as the wholesale supplier, and three retail water companies, City West Water, South East Water and Yarra Valley Water — have finalised draft water-pricing proposals involving price increases of between 100 per cent and 140 per cent (Victorian Competition and Efficiency Commission 2007: 7).

At first instance, these reforms seem to be concerned principally with efficiency parameters and the operation of market mechanisms, such as water-pricing measures, within the urban water-industry sector. But on closer inspection it is apparent that the issues of water pricing and economic performance of metropolitan water retailers are being assessed in light of major capital investment, in water infrastructure projects for water supply, located predominately in non-urban locations. Moreover, in light of recommendations to identify objectives such as ‘the best structure to allow for the efficient and least-cost provision of Melbourne’s water supply upgrades’, are these structures to be considered as ‘any related improvements to governance and industry structure in the context of the Government’s Water Plan and climate change’? If so, at what scale and across which spatial and temporal dimensions will such objectives operate? Are the urban–rural interactions to be considered? The potential scope of any inquiry into metropolitan water governance reinforces the view that urban water regulation cannot be regarded as operating in isolation from surrounding regions. More controversially, perhaps urban water pricing should not be set without regard to the externalities and third-party effects that will occur in those regions, including potential widespread environmental effects. To understand potential ramifications, it is necessary to consider intra-urban water management and then regulation of water at the interface of the urban and rural.