Transcript No Slide Title

The Australian Water Industry
Infrastructure: A
Reform Agenda
Slides from address by Steve Allbee
The Association of Metropolitan Sewerage Agencies
Washington, D.C. , May 21, 2001
The agenda for today’s session
Quick update on the “Gap Analysis”
peer review process
Brief background on Australia
Overview of water reform policy
Examples of innovation
Potential for transfer
Where is Australia ?
About the same size as the U.S.
And only 20 Million People
Fast Facts:
Six States & one Territory
A Federation
Climate is temperate to hot
Most the population lives in urban areas
Water is
very important
Basic Policy
Water reform is a vital national priority that has
implication for the future wellbeing of all Australians
Water is critical to all economic activities and its
management and use is inextricably linked to the
protection of water quality and environmental process
The water reform initiatives have been formulated
with a recognition that an important part of the solution
lay in significant policy and institutional change
The Council of Australian Governments
(COAG) directed inter-linking changes
Price water for full cost recovery
Establish secure access to water separate from land and
provide for permanent trading in water entitlements
Water service providers are to operate on the basis of
commercial principles
Improve the institutional arrangements
Engage in public consultation
Foster public education
What are the similarities?
Three levels of government
The same technologies
Pursuing equivalent environmental outcomes
Similar association sectors (AWA) & (WSAA)
Very similar current challenges
Renewal of aging systems
Higher levels of treatment
Wet weather
Continuing water quality degradation in key inland waters
How is the industry different?
Urban water from the point of source acquisition through initial
treatment, distribution, collection, treatment and reuse or discharge
is managed as a government owned vertically integrated business
Services are typically delivered under large regional area service
arrangements
 The services are well on there way to being commercially based
& sustainable
Over the last decade asset management has become a fundamental
driver in the water industry
Risk management plays a larger roll in decision making
Water reform has been a big deal for the better part of the last
twenty years
The structure of the corporate businesses
They are created by State law & government owned
The businesses are managed the same as any private
corporation, they earn profits, pay dividends and have tax
equivalent charges, they are licensed to operated by an
environmental regulator and their have their price overseen by
an economic regulator (they are by definition monopolies)
 There is a Board of Directors selected the same way as a
corporate board is selected
The corporation has three equal drivers; strong commercial
performance, meet license (environmental) requirements and
fulfill community service obligations
They prepare annual financial reports and their finances are
externally audited and reported against corporate standards
New South Wales
Large State in land area
Around 7 million people
4 million in Sydney Region
Both government owned corporation type
models and rural community utilities
Hunter Water - Statement of
Corporate Intent
Charter “ To be commercially successful while delivering
value-for-money water, wastewater and associated services in an
environmentally responsible manner”
Objectives (From Annual Financial Reports)
Meet the requirements of its Operating License
Operate at least as efficiently as any comparable business
Maximize the net worth of the State’s investment in the corporation
Be a socially responsible member of the community it serves, and
Protect the environment by conducting operations in compliance with
the requirements of the State’s environmental legislation and the
principles of ecologically sustainable development.
Hunter Water - Statement of
Corporate Intent (Assets)
“To maintain and operate, at minimum overall cost
a system of assets which provides the operating
capability to deliver water, wastewater and stormwater
drainage services of the specified quantity, quality and
reliability
To acquire, as necessary and at minimum cost, new
assets to provide essential improvements or financially
viable expansion of the corporation’s operating
capability”
Asset management drives the system. They start by placing a heavy
emphasis on identifying the assets.
This is generally when we installed our pipe network.
In broad terms, using the
histogram of original
installation and the asset
elapsed life tools to yield
renewal and replacement
curves for assets. The
“Nessie” curve would be
a starting point
A major focus is placed on
understanding the
deterioration rate of the
assets and an initial
classification of the likely
condition of common
components of the system
If you apply their approach
to the aging of our pipe
network, this is the picture
an upcoming challenge that
continues to ramp upward
over a long period
Growth in the lower
classification
Table
4
Poor
Very
Poor
Life
Elapse
% of
system
2000
12276
9229
24667
7.8%
2020
149627
126892
46172
54.8%
The aging process of the
network, as a whole, sheds
light on the relative patterns
of growth in maintenance,
repair, renewal and
replacement budgets
Hunter Water -
The bottom line is that Hunter Water clearly
believes the management of the systems assets
is the primary job and manages information and
decision making processes across maintenance,
renewal and replacement strategies to drive
toward least life cycle cost scenarios.
In less than a decade, changes in financial
reporting (GASB 34) will bring us toward the
same optimization models in our water industry
Hunter Water
How well are they doing?
Hunter Water went from 1500 employees to 450 in a decade
In addition, about 100 of their employees work for a subsidiary, that provides
serves to Hunter Water and earns external income from other utilities by providing a
range of operating / consulting type service to other smaller utilities
They formed another subsidiary company for telemetry service and then sold that
company for revenue for reinvestment in the base system
Since 1990, their audited average operating costs per service have fallen by over
40% in real terms
Over the last decade average charges per customer were reduced by about 30% in
real terms.
The price reductions occurred during the same period when improved service
standards were adopted and customer satisfaction surveys document improved
customer satisfaction with service levels
12 of 21 wastewater treatment plants achieved full compliance with all license
conditions. The remaining 9 plants achieved 99.6% compliance
Sydney Water
Sydney Water has around 4,000 employees
800 employees are engaged in Asset Management activities
All of the operating, maintenance and capital cost come
from fees from users & developers
In addition, Sydney pays $200 million a year to NSW as
dividends, $28 million in Load Based Fees and $5 million in
administrative fees
Their user fees are comparable to ours
They receive around $60 million for community service
obligations from NSW for service to pensioners
New South Wales
Competition drives the industry
Whenever possible work is competed
Bench marking is huge
The IPART (economic regulator) is
responsible for assuring that your price structure
reflects economic reward for best practice
124 Rural Utilities
Victoria
About the same size as Utah
4.4 million people - - 3.1 in Melbourne
In 1982 about 450 utilities
Today 18 water and wastewater utilities
Criteria must have about $10 million in Revenues
Scale and size adequate to provide service in a professional manner
Amazing Facts
Within five years there will be no discharges from facilities
Even some rural utilities have ISO 14000 certifications
Victoria - Service to a rural Area
Queensland
About twice the size of Texas
Around 3 million people - - 1.3 in Brisbane
Utilities are managed at local level, about 225 providers
Used a very different approach to comply with the COAG
The local governments own the utilities, but they are setting them up
just like the State owned corporations and plan on receiving dividends
the same as NSW or Victoria
The next slide provides a quick glance at the decade long timeline
leading to implementation of the COAG reforms
The two slides that follow give a sense of the role of planning and the
integration of the process and system tools
The Queensland approach
is a local government reform model
The next three slides are taken from a presentation by:
•Asset Management Guidelines developed -1989/91
•TMP Planning Guidelines developed 1990-1993
•TMP Manual published - 1994
•DCILGPS Subsidy to develop TMPs - 1994/95
•Approved TMPs for full subsidy since 1996/7
•TMP Guidelines are now being revised & updated
•TMP Guidelines complement Water Act 2000.
Service Standards
Financial Feasibility
Business
Management
Plan
Ecological
Sustainability
Management
Plan
Strategic
Direction
ASSET
MANAGEMENT
Risk Management
Performance
Assessment
Organizational Management
& Development
BUSINESS MANAGEMENT PLAN
Service
Standards
Financial
Sustainability
Service Standards
Service Standards
Plan
Plan
Financial
Financial
Management
Management
Plan
Plan
Drinking Water
Drinking Water
Quality
Quality
Management Plan
Management Plan
Community Consultation
Marketing Plan
Customer Service Policy
Service Level Agreements
Water Supply Agreements
with Major Customers
Long-term Financial
Model
Financial Management
Practice Manual
Developer Contributions
Policy
Asset
Management
Risk
Management
Performance
Management
Risk
Risk
Management
Management
Plan
Plan
Performance
Performance
Assessment
Assessment
Plan
Plan
Water Demand
Water Demand
Management
Management
Plan
Plan
Water Loss
Water Loss
Management
Management
Plan
Plan
Environmental
Environmental
Management
Management
Plan
Plan
Infrastructure
Infrastructure
Planning
Planning
Overview
Overview
Asset
Asset
Procurement
Procurement
Plan
Plan
Effluent
Effluent
Management
Management
Plan
Plan
Quality
Quality
Management
Management
Plan
Plan
Asset
Asset
Evaluation and
Evaluation and
Renewal Plan
Renewal Plan
Operations
Operations
Management
Management
Plan
Plan
Biosolids
Biosolids
Management
Management
Plan
Plan
Information
Information
Management
Management
Plan
Plan
Maintenance
Maintenance
Management
Management
Plan
Plan
Sewer I/I
Sewer I/I
Management
Management
Plan
Plan
Trade Waste
Trade Waste
Management
Management
Plan
Plan
Water Source
Water Source
Management
Management
Plan
Plan
Energy
Energy
Management
Management
Plan
Plan
Water Conservation Strategy Outsourcing Strategy
Strategic Infrastructure Plan
O&M Manuals
Detailed Planning Studies
Telemetry Strategy
Capital Works Program
Project Evaluation Manual
Infrastructure Charges
Plan
Infrastructure Planning/
Design Guidelines
Pricing Policy
Asset Registers
Full Cost Pricing Strategy Asset Valuation Reports
Metering Policy
Ecological
Sustainability
Water Source Entitlements
Water Allocations
KEY
RESULT
AREAS
Organisation
Management &
Development
Human Resources
Human Resources
Management Plan
Management Plan
TYPICAL
SUB-PLANS
Tools
Environmental Plans
under EPP (Water)
Risk/Hazard
Assessment
Water Reuse Agreements
Critical Infrastructure
Benchmarking
Management Plan
TMP Coordinator’s
Dam Safety
Manual
Counter Disaster Plans
Quality Management
Documented
Systems
Contingency Plans
Trade Waste Policy
ERA Licenses
Catchment Management
Plans
WAMPs
Environmental Flow
Management Plan
On-site Treatment
Insurance Policies
Performance Reports
Organisational Structure
Performance Monitoring
Staffing Plan
Training and
Development Program
WH&S Policy
Commercialisation
Policies
Developer Fees
1. Can you provide
service to a site at
oak hill for 200 homes
4. City Council, I have
a commitment from the
water board to serve
the site. I would like
zoning approval.
2. Yes we can, it will
cost you $___ and
another $___ for
existing head works
investments
3. As soon as we get
your check we will
proceed and service will
be available by ___
Load based fees
Load based fees are a new innovation in NSW
To give a sense of the framework
( the next five slides are pulled from a NSW EPA
presentation)
The , Load Based Fee structure is very
interesting for a multitude of reasons. There is
quite a lot of additional detail available on the
NSW EPA web site. I encourage you to look at:
www.epa.nsw.gov.au/licensing
Load based fees
Multi - Media across air, land & water emissions
Equally applied across all industry segments
You pay the same for discharging a pound of a
regulated pollutant across all industries
A very user friendly on-line system is available
to help you understand your fee obligations and
your options
Concentrating on mass
Quantity of
emissions
Quantity of
emissions
Annual
load limit
Exceedence
Annual
load limit
LICENSEE A
12
Months
LICENSEE B
12
Measuring overall & daily performance
Months
LBL fee structure
Fee ($)
Pollution
load fee
Exceedence
Level Prosecutable
Admin
fee
Fee Rate
Threshold
Annual
Load
limit
Pollution
load
Load fee calculation formula
Incorporates incentives for ongoing pollution reduction:
•Targets (assessable) pollutants typically present at
significant levels - assessable load (AL)
•Pollutant
weighting (PW) - reflects pollutants’ harmfulness
•Critical
zone weightings (CZ) - assigned to some
pollutants discharged to sensitive or stressed environments
•Pollutant
fee units (PFU) - Amount of money owing per
unit of pollution, to increase of 3-year phase-in period
Load Reduction Agreements
Load limit
Load (fee)
Agreed load
Actual/weighted load
Portion of load attracting rebates
Year 1
Year 2
Year 3
Time
Year 4
Offsets & emissions trading schemes
•Minimises compliance costs by channelling resources to
cheapest abatement opportunities
•Ensures attainment of environmental goals
Emissions
Total
emissions
compatible
with ambient
goals
Emissions
Without ETS
Newest
industry
Original
industry
Number of
industries
Total
emissions
compatible
with ambient
goals
With ETS
Newest
industry
O r i g in a l
industry
Number of
industries
Lower compliance costs distributed equally amongst industries
The government played a significant
role in bring about water reforms
Set the policy direction toward major changes in the industry
Brought resources to bear in support of the reform agenda
Provided financial incentives in the form of transfer payments to
the State and local providers that proceeded with the changes
Established financial incentives, frequently in the form of debt for
equity swaps, where the State took over existing debt service
payments to give the new organizations a clean balance sheet on
which to build their water business
The government arranged for Community Service Obligation
payments (CSO) to address affordability issues of pensioners
The government supported a more aggressive R&D investment
Could we do the same thing?
This is quite a different paradigm from our current vision of how to
best get the job done. Some of the ideas have transfer application,
some may not
The set of ideas have an inter-locking character, which is important
to framing a comprehensive vision of integrated changes
The Australian reforms prove that you can achieve substantial
productivity gains, even in a well run industry, if you are willing to
make structural changes and support the investments necessary to
capture the productivity gain
Change of this magnitude requires that all the interest are party to
the reforms, so the regulators would need to be party to the changing
paradigm and new regulatory arrangements, such as an economic
regulator, would need to evolve.
In closing
I was impressed. I like the business-like model. I like the framework.
We are a much larger industry with a lot more players and for that reason
more complexity. Comparable change would be very difficult.
Their arrangements are a very rational models of water services
Right now, their fees for service are very similar to ours
My view is that in the out years their approach offers a competitive
advantage. They are better structured then we are to meet the upcoming
challenges of renewing an aging systems and meeting new performance
demands.
It was clear that we share similar evolving challenges, but I think their
ability to go forward looks like a better situation.
I think the growing demands, the competition for resources and the
upcoming changes in how we keep our financial books, will lead us in a
similar direction. It is a different paradigm, but an understandable vision.
I still have more homework to do, but I have quickly become a fan.