The Australian Water Industry

1
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
2
The agenda for todays 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

3
Where is Australia ?
4
About the same size as the U.S.
And only 20 Million People
5

• Fast Facts
• Six States one Territory
• A Federation
• Climate is temperate to hot
• Most the population lives in urban areas
• Water is very important

6
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

7
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

8
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

9
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

10
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

11
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

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(No Transcript)
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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 States 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
  States environmental legislation and the
  principles of ecologically sustainable
  development.

14
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 corporations
  operating capability

15
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.
16
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
17
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
18
The aging process of the network, as a whole,
sheds light on the relative patterns of growth in
maintenance, repair, renewal and replacement
budgets
19
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

20
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

21
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

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(No Transcript)
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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

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(No Transcript)
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124 Rural Utilities
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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

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(No Transcript)
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Victoria - Service to a rural Area
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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

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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.

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Service Standards
Financial Feasibility
Ecological Sustainability
Business Management Plan
Management Plan
ASSET MANAGEMENT
Strategic Direction
Risk Management
Performance Assessment
Organizational Management Development
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BUSINESS MANAGEMENT PLAN
KEY
Service
Financial
Asset
Ecological
Risk
Performance
Organisation
RESULT
Standards
Sustainability
Management
Sustainability
Management
Management
Management
AREAS
Development
Financial
Water Demand
Water Loss
Environmental
Risk
Performance
Service Standards
Financial
Water Demand
Water Loss
Environmental
Risk
Performance
Human Resources
Service Standards
Management
Management
Management
Management
Management
Assessment
Human Resources
Plan
Management
Management
Management
Management
Management
Assessment
Management Plan
Plan
Plan
Plan
Plan
Plan
Plan
Plan
Management Plan
Plan
Plan
Plan
Plan
Plan
Plan
Infrastructure
Asset
Effluent
Quality
Drinking Water
Infrastructure
Asset
Effluent
Quality
Drinking Water
Planning
Procurement
Management
Management
Quality
Planning
Procurement
Management
Management
Quality
Overview
Plan
Plan
Plan
Management Plan
Overview
Plan
Plan
Plan
Management Plan
TYPICAL
Asset
Operations
Biosolids
Information
SUB-PLANS
Asset
Operations
Biosolids
Information
Evaluation and
Management
Management
Management
Evaluation and
Management
Management
Management
Renewal Plan
Plan
Plan
Plan
Renewal Plan
Plan
Plan
Plan
Maintenance
Sewer I/I
Trade Waste
Maintenance
Sewer I/I
Trade Waste
Management
Management
Management
Management
Management
Management
Plan
Plan
Plan
Plan
Plan
Plan
Water Source
Energy
Water Source
Energy
Management
Management
Tools
Management
Management
Plan
Plan
Plan
Plan
Community Consultation
Long-term Financial
Water Conservation Strategy
Outsourcing
Strategy
Environmental Plans
Risk/Hazard
Performance Reports
Organisational Structure
Model
under EPP (Water)
Assessment
Marketing Plan
Strategic Infrastructure Plan
OM Manuals
Performance Monitoring
Staffing Plan
Financial Management
Water Reuse Agreements
Critical Infrastructure
Customer Service Policy
Detailed Planning Studies
Telemetry Strategy
Benchmarking
Training and
Practice Manual
Management Plan
Trade Waste Policy
Development Program
Service Level Agreements
Capital Works Program
TMP Coordinators
Developer Contributions
Dam Safety
ERA Licenses
Manual
WHS Policy
Water Supply Agreements
Policy
Project Evaluation Manual
Counter Disaster Plans
with Major Customers
Catchment Management
Quality Management
Commercialisation
Infrastructure Charges
Infrastructure Planning/
Plans
Documented
Systems
Policies
Plan
Design Guidelines
Contingency Plans
WAMPs
Pricing Policy
Asset Registers
Insurance Policies
Environmental Flow
Full Cost Pricing Strategy
Asset Valuation Reports
Management Plan
Metering Policy
Water Source Entitlements
On-site Treatment
Water Allocations
33
Developer Fees
2. Yes we can, it will cost you ___ and
another ___ for existing head
works investments
1. Can you provide service to a site at oak
hill for 200 homes
3. As soon as we get your check we will proceed
and service will be available by ___
4. City Council, I have a commitment from
the water board to serve the site. I would
like zoning approval.
34
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

35
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

36
Concentrating on mass
Measuring overall daily performance
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LBL fee structure
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Load fee calculation formula

• Incorporates incentives for ongoing pollution
  reduction
• Targets (assessable) pollutants typically present
  atsignificant levels - assessable load (AL)

• Pollutant weighting (PW) - reflects pollutants
  harmfulness

• Critical zone weightings (CZ) - assigned to
  somepollutants 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

39
Load Reduction Agreements
Load limit
Agreed load
Actual/weighted load
Load (fee)
Portion of load attracting rebates
Year 1
Year 2
Year 3
Year 4
Time
40
Offsets emissions trading schemes

• Minimises compliance costs by channelling
  resources to cheapest abatement opportunities

• Ensures attainment of environmental goals

41
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 RD
  investment

42
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.

43
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.