Conclusions of the webinar

The four panellists concurred that IWCM represents a significant departure from the traditional services provided by the urban water sector. It presents a challenge to existing institutions and service models because the outcomes being sought (urban amenity, healthy environment, urban cooling, etc.) have public good characteristics and as such cannot be readily funded through a standard ‘customer pays’ model. Further, it is often the case that IWCM demands the participation of multiple parties over varying timescales in the production of outcomes, some of whom have not previously had a role in the water sector.

The panellists identified a number of directions that would contribute to furthering the vision of IWCM:

•  A ‘coordinating institution’ is needed for the purpose of defining objectives, principles and outcomes for IWCM at national and state levels

• The institutional framework for evaluating IWCM opportunities and business cases needs to evolve so as to focus on strategic outcomes, with less emphasis on particular technologies or    targets

• Measures are needed to overcome the high transaction costs that currently exist in coordinating implementation across multiple layers of planning and regulation.  Clarity on who is responsible for delivery and what tests should be applied may require legal or statutory measures.

Bringing about these changes will require policy leadership and a deliberate reform strategy that is appropriately sequenced so as to effectively alleviate constraints holding back IWCM. 

Several high-profile reviews have challenged the conventional wisdom of the past 25 years. Reviews by the ACCC, the Productivity Commission, and of course the Hayne Royal Commission, have raised questions about whether retail energy and financial markets are demonstrating the level and type of competition required to deliver beneficial consumer outcomes. The ACCC’s digital platform review has highlighted questions about competition, consumer protection and broader regulation in the digital economy.

In response, there have been simultaneous calls for policies that promote greater competition, greater regulation, and much greater enforcement.  Calls for completely new forms of intervention are also entering the public discourse – for example: ASIC placing psychologists in board rooms, or APRA remuneration guidelines, or forced divestment of energy generation assets in response to conduct in the retail energy market.  These interventions go beyond the traditional economic arguments for intervention (such as correcting for market failures).

Terms like fairness, culture, ethics, trust and social licence now rest squarely at the centre of the policy discussion. Yet what do these terms really mean for effective regulation? Are we now in a post-competition policy environment? If so, what comes next for markets, regulation and consumers?

Regulated industries have evolved with a tradition of independent regulation putting regulatory decision-making at arm’s length from policy frameworks set by government.  In some cases, regulators have been established with wide discretion, strong powers and strong independence (e.g. Ofgem).  In Australia, in contrast, a system of checks and balances was preferred with (1) independent regulation with detailed regulatory rules that limit the discretion of the regulator (2) separation the role of regulatory and rule-maker (3) transparent mechanisms for government policy direction within a federal structure. 

However, both approaches arguably appear to have failed to withstand political pressures and are not perceived to meet customer expectations.  In energy this has played out through three policy dimensions (a) climate change policy; (b) reliability policy and (c) concerns about affordability as prices rise.  Regulatory policy is tending to be increasingly shaped by new institutions, grafted on to the existing arrangements, perhaps representing government direction through other means (e.g. CMA and CCC in UK, ACCC and ESB in Australia). 

Is this institutional evolution problematic, or is it rather a natural response to changing policy priorities?  Has government made best use of the regulatory frameworks that it set up to meet changing expectations and new market conditions?  Or is it bypassing the frameworks it has to meet short term objectives?  Do governments and policy-makers need to rethink how they make best use of their regulators, and if so, how do we get back on track?

Professor Yarrow launched the seminar and Dr Fred Hilmer (RPI, Distinguished Fellow) provided keynote observations. This was followed by a panel session chaired by G+T partner Luke Woodward with panellists Dr Ron Ben-David (Chair, Essential Services Commission (Vic)), Dr Peter Boxall (Chair, Indendent Pricing and Regulatory Tribunal) and Nevenka Codevelle (Group Executive Governance, Risk & Legal, APA Group; Chair, Energy Charter Industry Working Group). Professor Yarrow and Philip Davies closed the launch

Professor Yarrow kicked off the event by explaining the key driving force behind the RPI in developing an understanding of regulatory policies, the importance of confidentiality in RPI discussions, and stressing that the RPI is just as centred on research as it is on events. Professor Hilmer, the RPI’s first Australian Distinguished Fellow and architect of the National Competition Policy, then gave keynote remarks, reflecting on the last 25 years in Australian regulatory policy. Some of the themes raised by Professor Hilmer included the need for better political input and policies with respect to carbon, a need to rethink privatisation in the context of state monopolies and price surveillance as regulatory solutions, and the rise of new markets such as digital platforms.

Luke Woodward then introduced the three panellists and set the scene for the panel session (Luke Woodward’s opening remarks). Luke noted the loss of public faith and trust in competition in critical service markets, and questioned where this will lead, and who is to blame.  Dr Ben-David’s presentation framed the issue through the concept of a ‘nonsumer’ market – a market in which purchases are involuntary, consumption is inelastic, product substitutes are lacking and services are homogenous. Dr Ben-David stressed the lack of consumer choice over their consumption of energy, and the need for responsibility-based regulation and fairness in retail energy markets.

Ms Codevelle reframed the issue as relating to people and trust. As Chair of the Energy Charter Industry Working Group, Ms Codevelle stressed the need for a collaborative, consultative, customer centric and principles-based approach (rather than a regulatory approach) to regaining public faith in the energy sector. Dr Boxall questioned whether there was a need to re-regulate retail energy for the sake of ‘nonsumers’. He argued that energy consumers exercise choices, such as how much to buy and what time of the day to buy it. Dr Boxall presented the results of studies examining varied energy usage amongst households and the key drivers of usage, arguing that prices have similar impacts in energy markets as they do in other markets. Dr Boxall ended his presentation with a caution against further retail energy price regulation.

A panel Q&A followed the presentations. Prof Yarrow then brought the seminar to a close, with some closing remarks from Philip Davies on the future of the RPIANZ.

You can view the event gallery here and download the presentation slides here.

Supporting reports:
Fairness in the age of competition by Dr Ron Ben-David (Chairperson, Essential Services Commission).