Three Waters Infrastructure: Co-regulatory Models

Malcolm AlexanderChief Executive

30 May 2018

Presentation to Water Summit

What is co-regulation?

1. It is regulation

2. It is independent

3. It attempts to align the long-term interests of suppliers and consumers

4. It seeks to improve the quality of the information presented to the regulator to allow for more informed decision-making

What outcomes might be attained?

> Required regulatory outcomes do not and should not differ from direct regulatory models

• Focus on delivering customer value• Effective stewardship of the assets• Performance improvement and transparency

> Outputs and interventions may differ

• Better information• Better regulatory culture

Decision-making processes that resolve competing national, regional and local

interests

Transparency on performance, with improved performance

over time

Asset management practices that are based on consistently high quality information on the

state of assets

Financial management that provides confidence that resources will be available for investments as and

when required

The use of appropriate tools to manage demands on assets and services

LGNZ’s policy on design of an efficient and

sustainable three waters sector

What benefits does co-regulation bring?> Buy in from the regulated sector

• Shared regulatory outcomes• Less adversarial more collegial

> Better information to support regulatory decisions

• Regulated players bring sector knowledge willingly to the table• Creates incentives on the regulated sector to bring that data forward to

improve regulatory decision-making

> Better performance and transparency

• Regulator makes better and more informed decisions over time• Transparency of regulatory processes to regulated sector generally improves

> Lower costs

• Regulators funded by sector levies• Better and speedier decision-making lowers costs directly and improves

investment certainty• Places downward pressure on “empire- building”

Case Study: Gas Market Regulation

> Approved industry body under the Part 4A Gas Act 1992 (since 2004)

> Required to deliver against Gas Act and GPS outcomes

• develop arrangements, including regulations where appropriate, which improve the operation of gas markets, access to infrastructure, and consumer outcomes

• develop these arrangements with the principal objective to ensure that gas is delivered to existing and new customers in a safe, efficient, reliable, fair and environmentally sustainable manner

• oversee compliance with, and review such arrangements.

> Independent members in the majority

> Defined working group structure

> Subject to “regulatory threat” – Energy Commission (Electricity Authority expanded)

> Lines (tx and distribution) under Commerce Act Part 4 regime

Case Study: Electricity Market Regulation

> Regulated activity• Wholesale market rules

• Retail switching

• Metering and reconciliation of consumed quantities

> Lines (tx and distribution) under Commerce Act Part 4 regime

> Sophisticated working group processes populated by industry players and consumer representatives to inform top table decision-making

Case Study: Telecommunications Market Regulation

> TCF recognised by Government as the “Telecommunications Industry Forum” referred to in the Telecommunications Act 2001

> Prepares telecommunication access codes for adoption by the Commerce Commission

• Customer transfer (number portability)• Co-siting

> Tertiary level regulation

> Code compliance framework – incentive to comply is regulatory threat

A possible model?

Responsible Minister

Statutory & GPS Objectives

Water Sector NewCo

• Funded by sector levy• Majority independent

board members• Minority sector

representatives• Enforcement entity

Regulated Sector

Asset owner shareholders

LGNZ “Straw person” drinking water regulatory model

Standard Setting Advisory Body

• Appointed by Minister• Independent Chair• Majority of Independent persons• Includes asset owning water sector

experts

Responsible Minister

• Approves/rejects Advisory Body’s recommendations

• Sets regulatory standard by OIC• Incentivises appropriate enforcement

culture through SCI with independent regulator

• Appoints Board of independent regulator

Independent Regulator

• Enforces standards• Promotes public awareness of drinking

water quality issues• Incident management & emergency

response