Tuesday, 11 February 2014

Submissions - The Australian Risk Policy Institute (ARPI)

Water security for SEQ

The Queensland Government has called for feedback on a discussion paper dealing with Water security for SEQ
Due: 17 January 2014
ARPI Web Publication: after 17 January 2014

ARPI argues that the monopoly bulk water infrastructure owner Seqwater should not be given the power to determine the standard of service for South East Queensland.  Government should remain responsible for setting the relevant levels but might properly have regard to views put to it by Seqwater and other parties. 
ARPI encourages the Queensland Government to expressly consider risk policy in future considerations.

Background to the review
This is a review of the level of performance (Level of Service – LOS) that South East Queensland residents can expect from their bulk water supply system.  Prior to the recent prolonged drought, average water used was assessed at 450 litres per person.  As the drought ended in Queensland in 2010, LOS objectives were set at 375 litres per person per day.  Surprisingly, average water use in 2013 was 253 litres per person per day.  Actual residential use is far lower than this (168 litres in 2013) – the average amount represents the cumulative effect of all water use.
Accordingly, LOS objectives are being reviewed to:
·         assess whether 375 litres per person per day remains an appropriate allowance for planning purposes; and
·         preventing over-capitalisation on existing or future infrastructure.

The discussion paper does not propose a new average level.  Instead it proposes that the monopoly bulk water infrastructure owner, Seqwater, be required to establish and justify water demand for planning purposes, for a period of 20 years.  The paper describes this as an adaptive management approach which will lead to cost effective planning.  The paper considers the use of water restrictions as part of an overall strategy to maintain appropriate levels of water but concedes that “adopting more severe water restrictions could lead to a cost saving for Seqwater, which could then have flow-on effects to future water prices”.
The attached regulatory impact statement (p9) infers that the existing standard materially impacts costs and imposes some red tape costs on Seqwater.  The new approach will remove these costs.

Risks associated with Monopoly providers
ARPI takes as its starting point that vulnerability defines the level of risk.  Accordingly, in considering this issue, ARPI has sought to understand the real risks and real consequences of placing all responsibility for determining water planning in the hands of a monopoly provider, in the first instance at the level of the water users but equally looking at the upstream, downstream and knock-on effects of a failure to protect the vulnerabilities of all those who may be impacted by the cost of ineffective investment in maintaining or improving water infrastructure.  Failure to provide adequate water infrastructure can have significant long term social and economic effects.  Failure to constrain unnecessary spending on water infrastructure can impose additional costs on the state and taxpayers (although, during building phases, it can be a useful source of employment and once established the source of considerable additional local amenity, at a possible cost to downstream users).

ARPI notes that this is not an issue restricted to South East Queensland – considerable concern has been directed at water authorities in every state as a result of stress placed on infrastructure by the drought, and any number of initiatives to provide greater capacity that concluded after the drought broke.  The extension of the Cotter Dam in the Australian Capital Territory by the monopoly water provider ACTEW is an example of a large infrastructure project that has faced a series of challenges.  The fact is that no government wants to bear the exceptionally high cost of new water infrastructure, and no government wants to be responsible for not having made adequate provision for drought.  Nevertheless, making provision for water security is a key responsibility of government in precisely the same way as maintaining a standing army in peacetime or funding a fire service which is only engaged on an occasional basis. 

The proposal places responsibility for determining the level of service in the hands of the monopoly bulk water infrastructure owner, Seqwater.  On one hand, this seems to place the decision making capacity in the hands of those with both the technical skills to make such determinations and the commercial responsibility to deliver the water.  On the other hand, the decision to give policy responsibility to Seqwater gives the monopoly an enormous degree of latitude in making final calls about how much water users in South East Queensland can access, before being exposed to water restrictions and additional cost,.  In particular, it gives responsibility for determining acceptable water level usage into the hands of a monopoly distant from the vulnerabilities of water users – and a monopoly which is capable of trading off the amenity and vulnerability of water users in the face of its own commercial pressures – a bit like giving the fox the keys to the hen house.  Giving a responsibility to set core policy settings to a body outside government is a most unusual step to consider. 

None of these risks would exist if government continued to set levels, on a regular basis, having regard to advice from relevant stakeholders, including Seqwater.  This would ensures that Government makes the decisions, and remains accountable for those decisions through the ballot box.  It means that Government would continue to be directly engaged in issues of community importance and vulnerability.

Red Tape and Monopolies
No one likes red tape.  Red tape can be particularly troublesome in competitive markets.

While monopolies don’t like red tape, different considerations apply.  Sometimes a monopoly has to be tied up very tightly to make it conform to the public interest.  The reduction of red tape in relation to a monopoly is of no significance unless it is established that the reduction is in the public interest.  Even then, if a monopoly appears to support a proposed reduction of red tape, Governments should pause and have a long hard look at what is actually going on.

January 2014

Note that this submission reflects input from other ARPI members.

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