Sydney Water’s dirty secret

 “Sunlight is the best disinfectant”, asserted former U.S. Supreme Court Justice Louis D. Brandeis (1856-1941), when referring to the benefits of openness and transparency.

After all, as Wikileaks reminded us, transparency is the lifeblood of democracy. And Sydney, like every other major city, can sure use more transparency, especially in the all-too-opaque world of regulation of monopolies.

Government owned monopolies in particular.

On Wednesday, NSW Shadow Minster for Water, Walt Secord  (MLC, Labour), a former journalist, did the media’s job for them when he discovered that15% of the staff at Sydney Water have been shown the door since the Liberal/National Coalition swept to power in March 2011, after what seemed an epoch of economic maladministration and fetid corruption under Labor.

A total of 459 jobs were axed or outsourced from the 3,005 that held ”full time equivalents” when Premier Barry O’Farrell took the oath of office.

What Secord did not obtain and what has been flying under the media’s radar, is just how the water monopolist makes some of its money. It’s something most of us missed. I too almost missed it, but for two related incidents that got me thinking.

First, I was recently subjected to unjust charges when the monopolist billed me for a very, very simple plumbing job.

I booked a plumber through Sydney Water; was told a price; agreed to that price; the plumber came unprepared; he needed to scoot to a hardware store to buy the parts; he chose to go ignore my directive of driving to a store 5 mins away, and instead travelled 25 mins (each way) to another store; fleeced me two and a half times the price he paid for the goods and had the gall to charge me for travelling and shopping time! I kid you not.

Second, when I contested those outrageous charges and got nowhere with the monopolist’s staff - who are all uniformly honours graduates of the “talk to the hand” school of customer service - I wrote to the minister. And it was then that I learned something quite extraordinary: some charges the monopoly imposes on the public are unregulated and have no ceiling whatsoever. The plumber could literally have gone to any hardware store in the state and I would be liable for his travelling and shopping time. No ifs no buts.

A bit of background first.

Monopolies in vital areas such as utilities are considered “regulated” concerns. The Independent Pricing and Regulatory Tribunal, a NSW government funded but arms-length authority regulates thewater, gas, electricity and transport industries in the First State. Established in 1992 by Premier Nick Greiner, IPART regulates the maximum prices for monopoly services by government utilities and mass transit.

But it doesn’t regulate prices for all the products or services provided. And there’s the rub.

Currently the state of NSW both owns several monopolistic providers and also regulates them. Or in Sydney Water’s case chooses to regulate part of its activities and allows it to throw its monopolistic weight around in other parts of its operations. Quite a juggling act, huh? And if that wasn’t enough, if an individual contests a bill or queries a service then, you guessed it, NSW, through the Consumer, Trader & Tenancy Tribunal  provides the forum in which a citizen can seek redress. With so many balls in the air, is it any wonder the NSW government cannot focus on a singular objective such as maximising profit or consumer protection or reasonable regulation? It certainly cannot do all things well.

This self-evident bomb of complexities needs defusing and perhaps Sen. Arthur Sinodinos (Liberal NSW) is just the candidate for the job.

While he’s been confirmed as the Assistant Treasurer, his functions have not been publically revealed in full, but it’s a fair guess that he will continue with a focus on deregulation.

That said, I’d like to toss a project into his in-tray: improve the regulations under which state based monopolies operate by taking ownership of the relevant regulatory functions.

There are numerous benefits to the Commonwealth taking such ownership of such a functions, but two quickly bounce to mind: first, demonstrating his government’s solid commitment to ramping up productivity and second, as voiced earlier, to unbundle state governments’ intrinsic conflict of interest when it is both owner of a business, say a utility and simultaneously that business’s regulator.

Such work should nicely dove tail into the operations of his Coalition Deregulation Reform Taskforce, which on page 7 of its November 2012 discussion paper stated:

We recognise that a prosperous economy and equitable society depend on robust governance frameworks that correct market failures, appropriately minimise foreseeable risks to individuals and society as a whole, and provide stable and predictable rules under which individuals and businesses can plan and organise their activities.

Continuing with Sydney Water, let me show you what I mean by unregulated revenues.

A peek at recent financial statements reveals the following. Given the 2012-13 Annual Report is not yet publically available, let us assume that those revenue numbers will mirror those in 2011-12.

Alternatively, one could, instead, utilise the Dec 2012 Sydney Water published budget estimates as a guide to the June 2013 result, but given the authority’s lacklustre skills in forecasting – after all in 2011-12 it forecasted a Net Profit after Tax of $271 million and in the event, undershot its mark by a whopping 35%. The NPAT came in at $367 million, I think not.

Regulated revenue (covering drinking water, wastewater and some stormwater services) is, as earlier mentioned, set by the independent NSW body, IPART.

But unregulated revenue  – that is, revenue unhindered by the straight jacket of any overseer - shot up under the O’Farrell government from $145 million to $402 million. Put another way, from $48,000 to a whopping $158,000 per member of staff.

Now that is what I call prepping for privatisation.

A truly independent (Canberra based) body examining the regulatory costs imposed on Sydney Water as well as those areas where regulation is deficient would be a great disinfectant. Let such a body add or subtract regulation depending on what it takes to prioritise the consumers’ interest above all else.

High regulatory costs contribute to stifling economic activity, while no regulation or the wrong type of regulation turns an essential service like Sydney Water into a thieving rent seeking predator.

Finding the right balance should be child’s play for former Prime Minister John Howard’s Chief of Staff.

Who knows, separating ownership in Sydney from regulation in Canberra may well embolden Premier Barry O’Farrell to sell Sydney Water as soon as possible given how high he is ridingin the polls.

And for that matter, privatizing shouldn’t scare any of us provided the process is transparent; in any regulatory framework the interest of taxpayers and consumers take priority over maximizing the cash offered by a potential buyer; and that Premier O’Farrell takes to heart another of Justice Brandeis’ saying: “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both”.

As for me, I guess I’ll have to wait to see the colour of Sydney Water’s refund cheque.