OPINION: Water was once seen as a public good. But over recent decades water utilities have been corporatised and water is now a scarce commodity for sale. These statutory monopolies now primarily aim to maximize their economic performance, with secondary aims to protect the public good and our valuable water eco-systems.
The effects of this were dramatically highlighted by the mass fish deaths in the Darling River in December and January.
Part of the problem is no separation of powers
Two recent Royal Commission reports and the Productivity Commission underscore the dangers of not properly separating powers and responsibilities. The Banking Royal Commission revealed the conflicts of interest inherent in banks owning financial investment businesses. South Australia’s Murray Darling Basin Royal Commission highlighted the water industry’s lack of transparency, independence and accountability.
In each case, the driver is the same; putting profits and influence ahead of what’s best for the community.
While most water companies are owned by state governments, political accountability is confused and it is the unelected state bureaucracies who effectively exercise ownership control.
They oversee regulators, recommend executive appointments, decide membership of consultant panels, fund professional associations, and sponsor research. In other words, the various water bureaucracies in each state are regulating themselves, with few checks and balances.
As those who drafted Australia’s constitution well knew, governments and bureaucracies cannot govern themselves unless there is strong separation of powers to force better outcomes.
Despite a fixation on financial outcomes, over the last decade the economic efficiency of the water monopolies has dramatically declined, and consumers are paying for this inefficiency.
Sydney is an exception, but its performance is now under threat
The one exception was Sydney. Sydney Water Corporation performed much better than other capital city water utilities over the past decade for one simple reason: regulatory competition.
This was due to BASIX (Building Sustainability Index) and other legislation mandating water efficiency and alternative water sources. Crucially, this legislation is independent of the government water sector.
Now, Sydney’s superior performance is under threat. Current discussions about water conservation highlight the danger.
Sydney Water’s policy is to spend money on water conservation only if the cost to save the water is less than the assumed current average value of water.
Who calculates those costs? Sydney Water, which is required by its operating licence to conduct a successful business by selling water and building infrastructure. This makes selling more water a valid business objective for Sydney Water, even if it’s desalinated water.
Water conservation runs counter to this business objective. It reduces community water use, reduces water utility revenue and operating costs, and reduces the need for infrastructure.
Sydney Water calculates the short-term value of water at less than 128 cents for 1000 litres when Sydney is not experiencing drought. It argues that if a water conservation program costs more than 128 cents per thousand litres saved, it is uneconomic.
It calculates the long-term value of water at about $2.08 for 1000 litres, the same as the variable tariff paid by consumers. Similarly, alternative water sources must cost less than Sydney Water’s retail tariffs.
This is hard to swallow. The average Sydney household pays about $6 in fixed and variable charges for 1000 litres of water and sewage services. A water efficient household pays more – perhaps more than $10 – for the same services.
In other words, there is no incentive for water efficient households or businesses or for alternative water supplies.
The utility’s operating licence is now under review
Sydney Water’s operating licence is presently being reviewed by the NSW government’s Independent Pricing and Regulatory Tribunal. The licence requires Sydney Water to protect the environment and public health, as well as operate a successful business.
Clearly, the interests of the community living in a complex, urban system are not the same as Sydney Water’s business interests.
At the same time, the NSW Department of Planning and Environment is preparing a 2020 Greater Sydney Water Strategy which is not constrained by a business model for providing water services. This is a welcome chance to set performance targets and implement water efficiency programs, through Sydney Water or some other agency.
We need robust governance and business frameworks to deliver water to communities
The key issue is who are the policy makers representing; the community or the government-owned water monopolies? This is where the crux of the separation of powers problem lies.
What’s needed are robust governance and business frameworks to deliver essential water services to increasingly complex communities. The challenges of climate change and population growth makes this all the more urgent.
At the end of January, Sydney turned on its the desalination plant after dam levels dropped below 60 per cent. In the absence of water restrictions and support for water efficiency, Sydney’s water use has increased by over 100 GL/annum (100,000 Olympic Swimming Pools each year) over the last four years as show below.
This is driving high impacts on regional rivers, urban waterways, energy demands and ultimately household welfare. What happened to long term water efficiency programs, water restrictions, and all the hard-learned lessons from the millennium drought?
One of those lessons is that water security and water infrastructure are long term propositions – and many of our water assets are more than 100 years old. We need to analyse and plan over many decades. How we behave in the good years sets the scene for the impact of cyclical droughts.
Dr Peter J Coombes is a systems scientist at the independent Science and Policy Think Tank Urban Water Cycle Solutions.
Michael Smit is the technical and sustainability manager at Kingspan Water and Energy.
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