1.5 Heave plates
1.5.2 Modelling
The Terms of Reference for the Inquiry state that:
“the Inquiry should identify arrangements that will enable customers of water utilities in regional NSW to benefit from a secure water supply, professionalism, cost effective service standards and regulatory safeguards in the provision of water supply and sewerage services.
As a minimum, the Government expects water supply and sewerage service providers to:
respond and plan in advance to the challenges facing the industry;
be financially self sufficient;
be able to comply with appropriate stringent environmental and public health standards; and
implement cost-effective service standards.”
To that effect, this chapter focuses on appropriate regulatory frameworks for local water utilities by evaluating the effectiveness of the present framework and assessing alternative options.
SUBMISSIONS TO THE INQUIRY
Local government submissions to the Inquiry tended to focus on the need to streamline and better coordinate regulation by the various government bodies, as opposed to expressing particular views on the regulatory arrangement for improving performance by local water utilities.
Of those that did provide a preference, views were mixed and ranged from maintaining the current voluntary system to mandating the application of the current Best Practice
Management of Water Supply and Sewerage Guidelines administered by the Department of Water and Energy.
“..the basis for any regulatory arrangement should be the continued implementation and improvement of the existing best practice framework.” (Local Government and Shires Association).
and
“Council would be keen to consider any proposals that involved Council as an equal partner (via the LGSA and the NSW Water Directorate) in the continuous
improvement of the Best Practice Principles in return for making the Best Practice Principles minimum statutory conformance standards.”( Narrabri Shire Council).
and
“… there is a need for the NSW Government, in consultation with the community, to clearly determine the performance standards required. Having done that, Council's preferred model would then be for those standards to be mandated (for example mandatory compliance with the best practice Guidelines)” (Ballina Council).
Muswellbrook Shire Council suggest an operating licence arrangement administered by IPART….
“Council does acknowledge the need for changes in some areas of service delivery, in particular a uniform licensing/regulatory and pricing framework would see more uniform standards applied across the state.” (Muswellbrook Shire Council).
Concern was raised in some citizen submissions regarding potable water quality in their local government area. One (anonymous) submission from a former employee of Tweed Shire Council stated that:
“As a Water Treatment Plant operator I believed it my duty, that after several very serious contaminations including preventable Boiled Water Alerts, I could no longer ignore what could be a life-threatening incident to occur without taking some action.”
This submission stated that employees of Tweed Shire Council were not encouraged to
‘speak up’ about poor management practices within the local water utility.
Ms Coral White of Cowra also expressed concerns about the quality of water provided to Cowra residents:
”Regularly dirty water is the norm, which contributes to the excess of waste of water through flushing of mains and household lines which compounds the amount of water that goes through the water treatment system.”
While not a part of the current Inquiry, complaints about ‘dirty water’ have also been often made by residents in the Gosford region. Discoloured water may not always be a health issue, but it is important to note given that concern was raised by some submissions
CURRENT REGULATORY ARRANGEMENTS
Under the Local Government (LG) Act 1993 and the Water Management Act 2000, the Minister for Water is responsible for overseeing the performance of local water utilities in the sustainable provision of water supply and sewerage services to the community.
The Department of Water and Energy, on behalf of the Minister for Water, monitors the performance of the local water utilities. Unlike the major metropolitan utilities, whose performance is monitored via an operating licence regime, the Department of Water and Energy applies a “light-handed” regulatory framework in accordance with the Best-Practice Management of Water Supply and Sewerage Guidelines. These Guidelines were developed pursuant to Section 409(6) of the Local Government Act and are the key driver for reform of planning and management and for continuing performance improvement by local water utilities.
The purpose of the Best-Practice Management of Water Supply and Sewerage Guidelines is to encourage and facilitate the effective and efficient delivery of water supply and sewerage services and to promote sustainable water conservation practices and water demand management throughout NSW. The key elements of the Guidelines are:
1. strategic business planning and long term financial planning;
2. water supply and sewerage pricing and developer charges (including liquid trade waste policy, approvals and pricing);
3. water conservation and demand management;
4. drought management;
5. annual performance monitoring; and 6. integrated water cycle management.
The Guidelines recommend further initiatives that are encouraged, but do not compel the utilities to develop or implement such initiatives. These include the development and implementation of a framework for the management of drinking water quality, the development of a risk based drinking water quality management plan an environmental management plan and pricing of recycled water and stormwater reuse.
The Guidelines were gazetted in May 2004 and revised in August 2007 to incorporate a number of requirements from the National Water Initiative, and a requirement that all local water utilities were expected to substantially comply with the Guidelines by June 2009. The aim of the revised Guidelines was to encourage local water utilities to achieve the outcomes outlined in the Guidelines. In so doing, the local water utilities will reinforce a commercial
focus in managing and operating local water utilities and achieve continuing improvement; as well as satisfying National Water Initiative obligations.
The Guidelines are not enforceable. There is, however, a financial incentive for local water utilities to comply with the Guidelines, namely:
the payment of a dividend from the water and sewerage business to the Council’s general revenue; and
financial assistance towards the capital cost of backlog infrastructure.
For a council to receive either a dividend payment from the surplus of a local water utility’s water and sewerage business or financial assistance, compliance with all elements of the Guidelines is required.
Compliance with the Guidelines has been relatively successful. Nevertheless, the Guidelines remain voluntary and, as such, there is limited recourse in the event of poor performance.
The only recourse the Minister has for poor performing utilities is that a council will be unable to deduct a dividend if, in the opinion of the Minister, the utility has not substantially complied with the Guidelines. The Minister can also “direct the council to comply with any particular aspect of the guideline before making any further deduction”. This clause of the Local Government Act 1993 has not been utilised to date.
In terms of pricing regulation, unlike the larger metropolitan utilities where water and sewerage pricing is regulated by IPART, local water utilities determine their own prices in accordance with the Best-Practice Management of Water Supply and Sewerage Guidelines.
The Department of Water and Energy provides utilities with pricing and financial planning guidelines and software based on IPART principles, to assist with their pricing
determinations. Regulation of pricing is further discussed in Chapter 8.
ARE THE CURRENT ARRANGEMENTS EFFECTIVE?
The NSW Government’s policy for local water utilities is “to achieve sustainable water supply and sewerage services through leadership, guidance and encouragement of the local water utilities serving the urban areas of country NSW”17.
In addition, as per the Terms of Reference of this Inquiry, the Government’s underlying objectives are that water supply and sewerage service providers:
respond and plan in advance to the challenges facing the industry;
be financially self sufficient;
be able to comply with appropriate stringent environmental and public health standards;
and
implement cost-effective service standards.
In essence, NSW local water utilities have a responsibility to:
protect public health and safety;
protect the environment; and
to deliver a cost-effective, sustainable service to the satisfaction of its customers.
As noted above, implementation of the Government’s policy and underlying objectives is currently based on a “light-handed” regulatory framework where local water utilities are encouraged to continue to improve performance by complying with non-mandatory Guidelines.
To be able to assess whether the current arrangement is effective in meeting the
Government’s policy and underlying objectives it is important to have an understanding of the overall performance of the local water utilities.
Compliance with Best Practice Management Guideline Criteria
As discussed in Chapter 3, following release of the Best-Practice Management of Water Supply and Sewerage Guidelines in May 2004, there has been good progress in
implementation of the requirements of the Guidelines by local water utilities. The overall level of compliance with the requirements of the Guidelines is shown in Table 6.
Table 7. Compliance with Requirements of Best-Practice Management Guidelines
Year Compliance (%)
2003/04 46 2004/05 59 2005/06 65 2006/07 77
However, compliance with the requirements of the Best-Practice Management of Water Supply and Sewerage Guidelines is quite wide ranging. Utilities with more than 3,000 connected properties achieved an average of 90 per cent compliance with the requirements for water supply and 89 per cent compliance for sewerage. The 52 utilities with fewer than 3,000 connected properties achieved 74 per cent compliance for water supply and only 60 per cent compliance for sewerage. Refer also to Figure 1 in Chapter 3, which shows that while utilities with over 10,000 connected properties achieved an average compliance of 97%
for sewerage, the utilities with fewer than 1,500 connected properties only achieved an average compliance of 53% for sewerage.
In terms of the utilities’ responsibilities regarding the protection of public health, the
environment and delivering a cost-effective service to the satisfaction of its customers, based on the current performance, the following issues need to be addressed:
A) Improvement in Long Term Water Security Planning
The overall compliance for water conservation, drought management and Integrated Water Cycle Management was 69 per cent, 74 per cent and 64 per cent, respectively in 2006/07.
Although this is a marked improvement in development of these plans over the three years the Guidelines have been in place, if the Government’s primary aim for local water utilities is
“to achieve sustainable water supply and sewerage services”, the current compliance levels suggest that the regulatory framework may not be as effective as it could be in driving performance.
B) Improvement in Compliance with Water Quality Standards
Although there has been an improvement in the percentage of utilities complying with microbiological requirements since 2004, Table 7 below shows that 17% of utilities failed to comply with Australian Drinking Water Guidelines in 2006/07.
The percentage of samples tested over the last four years which complied with the
microbiological requirements is shown below. The percentage of local water utilities which complied is also shown.
Table 8. Compliance for Microbiological Water Quality
Year % of Samples
complying
% of Local Water Utilities Complying
2003/04 98 68
2004/05 98 78
2005/06 99 80
2006/07 99 83
The data above shows that there have been improvements in both the percentage of samples complying and percentage of local water utilities complying over the last 4 years.
However, the 17 per cent of utilities that failed to comply in 2006/07 need to urgently review and improve their water quality management practices in order to comply with Australian Drinking Water Guidelines. Key consideration for these local water utilities is early inspection of each of their service reservoirs to ensure they are bird-proof. In addition, each utility should ensure it is maintaining a free chlorine residual of at least 0.15mg/L throughout its distribution system.
In terms of public health, compliance with microbiological requirements is imperative.
Therefore, it is of concern that approximately 20 per cent of utilities are consistently not complying. The number of boil water alerts issued in the last year also signals that poor water quality is not an isolated issue. In addition, in discussions with the Inquiry Panel, the NSW Department of Health has indicated particular concerns in regard to protection of public health. These concerns primarily relate to the smaller water utilities which appear to have greater issues managing drinking water quality compared to the larger utilities.
For 2006/07, the levels of compliance with the Australian Drinking Water Guidelines 2004 (ADWG) for microbiological and chemical requirements were wide ranging. Compliance is shown below for four local water utilities size ranges. As can be seen, many local water utilities need to improve their compliance, particularly those with fewer than 3,000 connected properties.
Table 8. NSW Local Water Utilities Compliance with Australian Drinking Water Guidelines (ADWG) 2006/07.
>10,000 properties 89 67
3,001 – 10,000
*NB: Most of the chemical non-compliances above are not health-related and involve
parameters such as hardness, iron and manganese. A number of the utilities affected have an existing unfiltered water supply and are proposing to construct new water treatment works Only five of the local water utilities have completed a risk based drinking water quality management plan. This lack of formal risk management planning is an important issue, not only for the worst performing utilities, but across the spectrum of local water utilities. If public health is to be consistently protected, preparation and implementation of a risk-based
drinking water quality management plan is urgently required and must be made a requirement in any update of the Best-Practice Management Guidelines.
The many challenges discussed in Chapter 3, such as the current drought, ageing assets and skill shortages will no doubt be contributing to the difficulties some of the smaller water utilities are having in managing their water quality. However, the provision of safe drinking water is paramount and all the utilities need to consistently achieve 100% compliance for microbiological water quality.
C) Improvement in Compliance with Environmental Standards for Wastewater The Department of Water and Energy undertakes annual performance monitoring of local water utilities to determine their performance in relation to the Best Practice Management of Water Supply and Sewerage Guidelines. The Guidelines specify six criteria for best practice management including performance reporting. As part of performance reporting, local water utilities are required to report on their social, financial and environmental performance.
Specifically, local water utilities with over 10,000 connected properties are to arrange
auditing of their core performance indicators in accordance with the auditing requirements of the National Performance Framework.
The National Performance Framework sets out reporting indicators, including sewerage treatment plant compliance (% of sewerage volume that was discharged to the environment, which was compliant with environment protection licence discharge limits). Each local water utility is responsible for reporting their relative compliance with these indicators to the Department of Water and Energy. This is done with regard to the sampling schedule and any specified limits outlined in a facility’s environment protection licence. The utility must determine the number of scheduled samples tested for particular pollutants which complied with the specified limits in the facility’s environment protection licence divided by the total number of scheduled samples in the reporting period (12 months). Environment protection licences specify different percentile limits for particular pollutants (commonly 90th or 100th percentile), so there may be instances where a sample may legally exceed the specified limits. 18
In 2006/07, 80 out of 101 NSW local water utilities which provided sewerage services reported their performance to DWE. Based on the information provided by these reporting utilities, their compliance with the 90th percentile limits was:
• 72 of 80 local water utilities complied for BOD (biochemical oxygen demand); and
• 58 of 80 local water utilities for SS (suspended solids). 19
The median number of sewer overflows to the environment per 100 km also increased - from eight in 2005/06 to 18 in 2006/07. This increase is most likely attributable to the flooding experienced by many areas in June 2007.
Although the Guidelines have assisted in focusing the utilities on their performance, the variation in compliance levels suggests that further encouragement is required to improve compliance across all utilities. Mandatory reporting against all the National Performance Framework performance indicators and a requirement to audit data would provide for a more robust and effective framework than the current voluntary arrangements.
D) Cost-Effective Service Provision
Cost-effective service provision is a key element of the strategic business planning process.
The Best-Practice Management of Water Supply and Sewerage Guidelines require a
Strategic Business Plan to be prepared and submitted. The documents are assessed by the Department of Water and Energy to ensure they are soundly based, and the Department of Water and Energy advises the utilities of any needed improvements including the need for
18 This is a self-assessment of compliance with environment protection licence limits and performance and does not reflect any formal licence compliance assessment undertaken by the Department of Environment and Climate Change which is the legal regulator for environment protection licences.
19 It is important to note the 21 utilities which did not report to the Department of Water and Energy were also deemed to be non-compliant by the Department.
the local water utility to review any costs which appear to be not efficient in comparison with those of similar utilities. Each local water utility is required under the Best-Practice
Management of Water Supply and Sewerage Guidelines to prepare an annual Action Plan to address any areas of under-performance and to report progress against the key activities in its Strategic Business Plan. The outcomes achieved by each utility are annually monitored and publicly disclosed in the NSW Performance Monitoring and Benchmarking reports.
The Guidelines also require that Asset Management Plans be prepared as part of the
strategic business planning process. The aim of these plans is to detail how a utility proposes to operate, maintain, renew and augment its infrastructure in order to meet customer
expectations. However, as implementation of these plans is not determined, it is unclear how valuable these plans are in ensuring cost effective service provision, or indeed reducing operational risks such as infrastructure failure etc. Assistance with asset management planning was raised as an issue in some of the submissions, indicating that stronger guidance as required.
The Best-Practice Management of Water Supply and Sewerage Guidelines also state that the Strategic Business Plan must identify the levels of service which the community wants and is willing to pay for. Again, as the Guidelines do not require regulation of the service standards, it is unclear if (the self-determined) service levels are adequate, or are being met by utilities.
Ultimately the current framework does not establish an open and transparent reporting and monitoring structure that allows the true performance of utilities to be assessed.
INDUSTRY VIEWS ON EFFECTIVENESS OF CURRENT FRAMEWORK
The views expressed in the submissions are also important indicators as to how effective the local water utilities believe the current framework is. Some considered the Guidelines to be effective:
“Council considers the Best Practice Management Guidelines as having been an effective tool to focus councils on required performance standards. Council is therefore supportive of this approach as providing some industry leadership.”
(Ballina Shire Council).
and
“The general thrust of the Best Practice Management process is very good
“The general thrust of the Best Practice Management process is very good