At a glance

  • Premier Chris Minns has asked IPART, the state pricing regulator, for a water pricing framework under which data centres fund their own supply, and submissions close on 2 October.
  • His referral puts eleven questions to the tribunal, four of which go beyond cost recovery, including stranded asset risk and competitive neutrality between Sydney Water and private recycled-water suppliers.
  • Sydney Water charges A$3.41 a kilolitre for business water in 2026-27, the rate that covers a data centre and a warehouse alike.
  • Sydney Water told IPART in 2025 that data centres may need up to 250 megalitres a day by 2035, and IPART judged the build too uncertain to put in its prices.
  • Victoria's regulator approved data centre connection principles in June, while IPART's nine months only start once the Premier signs the final terms.

The Independent Pricing and Regulatory Tribunal sets the maximum prices Sydney Water and the state's other metropolitan utilities can charge. On 4 September it published draft terms of reference for a review of how water services to data centres should be priced in New South Wales. It comes as a letter from Premier Chris Minns, who administers the IPART Act, with the draft terms enclosed and referred under section 12A. Section 13 obliges IPART to consult on those terms before he finalises them, and submissions close on Friday 2 October.

New South Wales wrote the water conditions for data centres in August and left the price out of them. The data centre guidelines published on 17 August ask a site using evaporative, adiabatic or open-loop cooling, all of which lose water to the air, to run that cooling on recycled water, or to hold a clear agreement with its utility to move to a supply that does not depend on rainfall. The guidelines describe that measure as "an interim step while IPART conducts a review into water pricing for data centres".

New South Wales counted 19 data centre projects worth A$50.3 billion in its state planning pipeline as at July 2026, and more than 60 data centres operating or under construction. That is the fleet the framework will price.

A data centre in Sydney buys water at the published business rate, A$3.41 a kilolitre, and negotiates the cost of its connection separately. The review covers both.

Minns refers eleven questions, including stranded asset risk

The terms set the answer they want before they list the questions. The recommended framework, Minns writes, "should provide for data centre operators to fund the upfront and ongoing costs of providing them water services including augmenting capacity, without placing undue burden on existing and future water customers". Augmenting capacity is the expensive half of that sentence. It means paying to build new supply, on top of paying to connect to the supply that exists.

Eleven questions follow, and four of them go past cost recovery.

The terms ask the tribunal to weigh stranded asset risk, and how the cost of augmenting supply should be split between data centres, existing customers, future customers "and any other parties". They ask what service levels data centres need and how those differ from other large water users, which is the question that decides whether they end up in a class of their own. They ask about competitive neutrality between public water utilities and licensees under the Water Industry Competition Act, the private suppliers that compete with the state utility, recycled water included. And they ask IPART to weigh incentives for data centres to optimise water use "with energy consumption implications", which puts the cooling trade-off inside the pricing question, because a site that spends less water usually spends more power.

Tim White, who runs the advisory firm Utilities Regulation Advisory and previously led KPMG's national water regulation practice, wrote on LinkedIn on 4 September that the referral moves past cost recovery. Cost allocation is not the same thing as risk allocation, he argued: the harder questions are who creates the risk that capacity goes unused, and who carries it.

The other seven cover forecast costs, demand risk, the water security data centres need and how a framework should handle it, drought restrictions, the state's competitive position and the jobs data centres bring, other jurisdictions, and anything else IPART judges relevant. The government pays for the review on a fee-for-service basis.

IPART Chair Anthony Wing put the funding question, in the tribunal's media release, as considering "how data centre operators should contribute to the costs they create, while ensuring existing customers are not required to subsidise them". The tribunal can recommend changes before the Premier finalises the terms, so October closes the argument about scope and the review proper starts when he issues them.

Sydney Water charges A$3.41 a kilolitre for business water

Sydney Water's published prices for 2026-27 set drinking water usage at A$3.41 a kilolitre. That rises to A$3.84 if dam storage falls below 60 per cent, and wastewater usage runs at A$1.50. Recycled water is on the same list at A$3.07, with no drought rate attached. Commercial and industrial properties sit in one class, from a corner shop to a hyperscale campus.

Goodman's Project Apollo at Macquarie Park, approved on 2 September, was assessed at up to 1.5 gigalitres of cooling water a year at maximum load. That is 1.5 million kilolitres, or about A$5.1 million a year in usage charges. At the drought rate it comes to A$5.8 million. Actual draw depends on the tenants, so treat it as the top of the range.

Two mechanisms already sit outside the price list. Sydney Water can charge developers up front, under plans IPART approves, to recover the cost of the infrastructure a new connection uses up. It can also strike a negotiated agreement with a large non-residential customer, data centres among them.

IPART excluded data centres from Sydney Water's 2025-30 prices

The tribunal has been here once. Its September 2025 determination fixes what Sydney Water can charge until 2030. It records that "Sydney Water estimates the water needs of data centres may be up to 250 megalitres a day by 2035". The same ruling treats 200 kilolitres a year as the average an individually metered Sydney household uses, so a year at that rate would match the annual consumption of roughly 450,000 homes.

IPART put the cost outside the ruling: "Due to both the preliminary information available and the considerable uncertainty of large-scale data centre development, we have not included an allowance for additional efficient costs of serving them in this determination." It pointed to upfront developer charges, negotiated agreements and third-party recycled water instead, which is the arrangement in force until the review reports.

That forecasting problem is now the review's first order of business. Forecast costs and demand risk, the first two of the eleven questions, both rest on a demand number the tribunal would not price in 2025. Electricity reached the same impasse in June, when Transgrid put its answer as a large user paying for its full connection capacity whether it uses it or not.

Infrastructure NSW asks for full cost recovery on water

The August framework rests on three pillars: the guidelines themselves, reform of who pays for electricity network upgrades, and this review. Infrastructure NSW sets out the third as an IPART review "to consider the full recovery of costs of water provision to data centre customers". The referral is written more softly than that: it asks operators to fund the costs "without placing undue burden" on other customers, which leaves the tribunal room the framework's own description does not.

Cooling is the reason an AI data centre uses water at all, and operators have moved faster on design than on where the water comes from. AWS reports 0.10 litres per kilowatt hour for its Sydney region, where lower is better, against a global industry average it puts at 0.84, and Firmus makes dry cooling its default. NEXTDC switched OpenAI's S7 campus to waterless cooling after the recycled-water pipeline it wanted proved unavailable, which is the supply problem the guidelines hand to this review. Apollo was approved on drinking water, with a Sydney Water compliance certificate, measures to reduce potable use and ongoing monitoring attached as conditions.

A second IPART review prices new connections by August 2027

The tribunal opened a review of developer charges and recycled water prices for Sydney Water, Hunter Water and Central Coast Council in May 2026. These are the charges a utility levies on whoever creates the need for new infrastructure, and IPART last reviewed them for the metropolitan utilities in 2018. A position paper is due in December 2026, a draft report in April 2027 and the final report in August 2027.

Both reviews answer a version of the same question about who funds the capacity a connection uses up, and the two answers arrive within months of each other in 2027. The data centre clock starts when the Premier signs the final terms, so which answer comes first is still open.

Victoria's regulator approved data centre connection principles in June

The terms send IPART looking at other jurisdictions, and the nearest answer is three months old. Melbourne Water put pricing principles for large and complex connections into its 2026 price submission, and the Essential Services Commission's April draft decision sent them back, finding Melbourne Water "generally slow to respond to the issue of large load demand (particularly from data centres)" and its principles not yet justified.

The commission approved a revised set on 5 June. Its final decision carries "new connection principles that Melbourne Water will apply to commercial and industrial consumers seeking to use significant amounts of water (for example, data centres)", which it says protect the existing customer base "by requiring cost-recovery from these large users". Victoria settled it inside one price review. New South Wales starts with nine months, counted from terms of reference the Premier has yet to finalise.

What to watch

The 2 October deadline. IPART can still recommend changes to the terms, so the scope of the review is decided before the answers are.

When the final terms are signed. The nine-month clock starts there, and nothing about the review is fixed until it does.

The energy trade-off. The referral asks IPART to weigh water efficiency against energy consumption, so a cooling design that saves water and spends power is inside the pricing question.

Whether Sydney Water follows Melbourne Water. Victoria's connection principles are approved and operating, and IPART can take them as a model or write its own.

Sydney Water's answer at Macquarie Park. A recycled supply to the Apollo site on Talavera Road has to be built, by Sydney Water or by a licensed third party, and the guidelines accept a transition agreement in the meantime.