The influence of regulation on preference for utility infrastructure investment to generate income for Australian water corporations

Effects of price regulation and preference for utility supply infrastructure on Australian urban water utilities and urban water markets are examinated using historical data, models of the future and a case study of Greater Sydney. Australian regulators utilise the building block method based on operating and capital costs, and a Regulatory Asset Base to set nominal revenue requirements and ultimately prices for water utility services. Regulation of water utilities that is dependent on a Regulatory Asset Base drives preference for utility infrastructure and is remote from market mechanisms of consumer demands for water and sewage services. These regulatory processes are not linked to the operation of the urban water market of government owned utility and distributed solutions, and act to crowd out viable complementary solutions including water efficiency, distributed water sources and alternative pricing models. Government regulation, ownership and operation of utilities may produce strong performance from the perspective of urban water corporations but decrease economic efficiency, resilience and social welfare in urban water markets. The role of major water corporations needs to be redefined in a market recognising multiple complementary water sources and services. Regulation of utility services should have regard to the entire market, market demand, environmental health and consumer welfare.