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Z/Corporate/Publication/Production/Annual Report 2002/OWR Annual Report 1st draft.doc 2

Contents

Letter of Transmittal 4

Coordinator’s Foreword 5

Statement of Compliance with Public Sector Standards 7

ROLE OF THE OFFICE OF WATER REGULATION 8

Key Activities 8

OFFICE OF WATER REGULATION: OUR PURPOSE 10

HIGHLIGHTS OF THE YEAR IN REVIEW 2001/2002 12

Statistical Profile and Performance Benchmarking of Water Supply Services in 32 MajorWestern Australian Towns 1999/2000 12

State-wide Survey of Customer Satisfaction with Water Services 12

Western Australia’s First Public Review of Water Service Standards 13

Office of Water Regulation Represents WA in the Development of National Plumbing Code 14

Significant Issues and Trends 2001/2002 14

Future Directions 15

REPORT ON OPERATIONS 17

Licensing Water Service Providers 17

Protecting the Interests of Customers 19

Performance Reporting 22

Policy Advice 23

Water Industry Development 24

Plumbers Licensing Board 27

COMPLIANCE REPORT 28

Declaration of Interests 28

Enabling Legislation 28

Customer Outcomes 29

Accountability Outcomes 31

OWR Organisation Structure 30 June 2002 33

3

PERFORMANCE AND FINANCIAL STATEMENTS 36

Output Measures 36

Auditor General’s Opinion 39

CERTIFICATION OF PERFORMANCE INDICATORS 40

REPORT ON PERFORMANCE INDICATORS 41

1. Water Service Operating licences 41

2. Water Industry Development 46

Auditor General’s Opinion 58

CERTIFICATION OF FINANCIAL STATEMENTS 59

FINANCIAL STATEMENTS (APPENDIX 1) 61

4

Letter of Transmittal

Dr J M Edwards MLAMinister for theEnvironment and Heritage

Dear Minister

In accordance with Section 66 of the Financial Administration and Audit Act 1985, theReport of the Office of Water Regulation for the period 1 July 2001 to 30 June 2002 issubmitted for presentation to Parliament.

The Report has been prepared in accordance with the provisions of the FinancialAdministration and Audit Act 1985.

Yours sincerely

5

Brian MartinCoordinator of Water Services

Coordinator’s Foreword

The past year has been a difficult and trying one for staffof the Office of Water Regulation.

While the concept of an Economic Regulation Authority(ERA) to replace some of the functions of this Office isgenerally welcomed, the uncertainty for all staff duringthis extended period of impending change has beenenergy sapping and severely disruptive to ongoing workprograms.

The formation of an Economic Regulator was announcedin February 2001 as a pre-election commitment of thenew Government. On its election, the Governmentinitiated the Machinery of Government (MoG) process –which was a thoroughgoing review of most areas ofGovernment. This Office made several written andverbal submissions to the Review.

Two recommendations of the MoG report affecting this Office have already beenimplemented – the Farm Water Branch, which is responsible for Rural WaterPlanning, has transferred to the Department of Environment, Water and CatchmentProtection, formerly the Water and Rivers Commission. Administrative support forthe Plumbers Licensing Board, which was established by this Office in 1999, hastransferred to the Department of Consumer and Employment Protection.

The remaining major recommendation of the MoG report, which impacts on thisOffice, is the formation of an Economic Regulation Authority. The Treasury ismanaging implementation of this Authority, and legislation is currently being draftedwith the objective of establishing the Authority from 1 January 2003.

Another major activity for the Office, which has drawn resources away from thepriorities of our Business Plan, has been the State’s response to the continuing run ofdry winters, and the especially poor rainfall of 2001. To address these issues, thePremier established a Ministerial group, supported by a Task Force, to investigate allaspects of the problem and potential solutions. The Minister for the Environment andHeritage is a member of the Ministerial group and this Office is part of the supportingTask Force.

A major focus of the State’s response has been assembling information andgathering ideas to address the problem, not just from experts but from across the fullbreadth of the community. Some 18 Forums are proposed for metropolitan andregional Western Australia. These will gather information and ideas to be submittedto a Symposium convened by the Premier in early October 2002.

For the coming year the major challenges for the staff of this Office will be to continueto make significant contributions to these new whole of Government initiatives, whilemaintaining and improving our performance in areas of ongoing responsibility.

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During the coming year, also, the Office will be attending to the review of the WaterServices Coordination Act (1995). This review, a requirement under the provisions ofthe Act itself, will be a significant piece of work and draw resources from other areasof need.

A further challenge for the staff of the Office will be the ongoing provision of supportservices to the Minister responsible for the water industry – the Minister for theEnvironment and Heritage. These support services are not to be provided by theERA. We will need to develop appropriate structures and working arrangements, toensure the continuation of functions such as industry advice, strategic planning,policy development and protection of consumer interests.

Under the timetable set for establishment of the ERA, the year ahead will be one ofconsiderable challenge and it will be a year that fundamentally alters our work placeand our work relationships. I wish each of my colleagues in the Office a satisfyingyear as they deal with the pressures that will inevitably come.

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Statement of Compliance with Public Sector Standards

In accordance with Section 31(1) of the Public Sector Management Act 1994, theOffice of Water Regulation (OWR) is required to report on the extent of compliancewith Public Sector Standards for Human Resource Management and Ethical Codes.

The Office has developed relevant policies and has implemented appropriateprocesses and procedures to ensure compliance.

A Code of Conduct, consistent with the Western Australian Public Sector Code ofEthics was adopted in 1997, reviewed in 1999, and reviewed and revised through aseries of workshops in 2002. Awareness sessions have been conducted aboutpublic sector standards and ethics in the workplace. As part of the induction processnew staff are provided with copies of the Public Sector Code of Ethics and theCommission’s Code of Conduct.

These codes and policies are accessible to all staff through the Intranet. Managersshare the responsibility for compliance and the Manager Corporate Services isresponsible for ensuring transactions meet the standards.

The Office’s grievance resolution process supports and promotes an environmentthat cultivates job satisfaction and maximises performance.

No complaints were received by the Office in relation to the processes associatedwith the Public Sector Standards in Human Resource Management.

In the administration of the Office of Water Regulation, I have complied with thePublic Sector Standards in Human Resource Management, the Western AustralianPublic Sector Code of Ethics and our Code of Conduct.

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ROLE OF THE OFFICE OF WATER REGULATION

The Office of Water Regulation (OWR) is a Western Australian Government agencyoperating under the Water Services Coordination Act 1995.

During 2001/2002 OWR reported to the Minister for the Environment and Heritage.

The Coordinator of Water Services, Dr Brian Martin, is Chief Executive Officer of theOffice of Water Regulation, appointed under Part 3 of the Public Sector ManagementAct 1994.

Key Activities

Licensing

The Office of Water Regulation regulates the water industry through a licensingsystem established under the Water Services Coordination Act 1995. Licencesspecify technical standards, standards of service to customers and a requirement toestablish asset management systems to ensure infrastructure is properly planned,maintained and funded. Water service providers are required to report against theprescribed standards.

Licensees are subject to regular performance audits. Their purpose is to ensureasset management systems and reporting systems are rigorous and reliable.

Protecting the Interests of Customers

While the licensing of service providers is its main administrative function, theprimary focus of the Office of Water Regulation is in promoting better outcomes forcustomers, in both the immediate and longer term. It does this by setting standardsin licences, by facilitating competition in some circumstances and by encouragingefficiencies in the delivery of water services.

The requirement to establish customer service charters has assisted in safeguardingquality and service standards in the water industry.

The Office of Water Regulation conducts an annual survey to obtain an industry-widemonitor of community perceptions of water and sewerage services over time. Thesurvey measures the importance of, and satisfaction with, various aspects of supplywhilst highlighting major existing or potential concerns.

The Office also has a role as water ombudsman. It conciliates complaints fromcustomers who have been unable to have the complaint resolved with the serviceprovider. It also offers an arbitration option. The Office of Water Regulation workswith providers to address systemic causes of complaints with the objective ofobviating the need for complaints in the first place.

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Performance Reporting

Licensing is the primary basis of authority to have reports and information provided tothe Office. This information is essential for the Office to be a source of expertise onthe performance of the industry, for it to be able to report publicly, and to be a sourceof informed and independent advice to the Minister responsible for the water industry.Some other powers under the Act enable the Coordinator of Water Services and theMinister to access information.

Provision of Advice

The Act requires the Office of Water Regulation to provide advice to the Minister forthe Environment and Heritage and to report more generally on the performance ofthe water industry. It specifies a responsibility to advise the Minister on a range ofperformance matters, which include standards of service to customers and in relationto decisions on prices for publicly owned providers. The Act has explicit powers todirectly regulate prices for private sector providers, and the structure of tariffs andcharges for the industry. The Office is also the Minister’s prime source ofindependent advice on the future development of the industry.

Industry Reform

The Office of Water Regulation has a responsibility for the ongoing process of waterindustry reform in this State. This includes the range of water reform measures towhich the State is committed under the CoAG Agreement. Here there is a sharedresponsibility with the Water Resource Manager. Again, the Office of WaterRegulation is jointly responsible with the Water Resource Manager for the review,and later reform, of all legislation governing the water industry in this State.

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OFFICE OF WATER REGULATION: OUR PURPOSE

To pursue the sustainable, efficient and effective delivery of water services to thecommunity by regulating licensed providers of water services, encouragingcompetitiveness and fostering the development of water services.

Vision

To improve water services by delivering good value and sustainable outcomes for thepeople of Western Australia.

Mission

To be a highly effective economic water industry regulator, by regulating forefficiency, equity and quality of service.

The outcome we seek is an efficient and competitive water industry, whichprovides a fair deal for customers and providers.

OWR Business Values and Principles

The Office of Water Regulation has adopted the following Business Values in pursuitof its vision and mission. These values and guiding principles are an essentialfoundation for our operating philosophy and are an integral part of the Office of WaterRegulation activities and interactions. Our guiding principles are aligned to theexpectations of our external stakeholders.

Key Values

• To be independent in our advice and decisions, based on consultation, analysisand judgement;

• To influence others by working cooperatively with them;

• To build and maintain credibility; and

• To create a satisfying work environment based on teamwork, mutual respect andprofessional development.

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Business Values

Best Practice Regulation in the water industry.

Independence in analysis and advice from the influences of stakeholders andspecial interest groups, to ensure the delivery of objective and balanced outcomes.

Accessibility to all stakeholders ensuring they have fair and reasonable opportunityto contribute views and have them considered.

Industry knowledge giving a sound appreciation of operational issues and thecapacity to understand and respond to industry concerns.

Technical expertise ensuring that assessments and judgements are reliable,justifiable and based on sound analytical procedures and processes.

Accountability to Government to ensure we take responsibility and are answerablefor all actions and decisions.

Transparency and consistency to give stakeholders confidence in an open andconsultative process, with impartiality and quality of the work of the Office of WaterRegulation.

High professional and ethical standards that encourage stakeholders to work withus.

Responsiveness to ensure matters are dealt with in a timely manner.

Awareness and sensitivity to community values to ensure work and actions areequitable to consumers and consistent with societal priorities, including ecologicaland environmental sustainability.

Contacting the Office of Water Regulation:

Level 6197 St Georges TerracePerth WA 6000

Telephone: 08 9213 0100Facsimile: 08 9213 0101Postal: PO Box 8449

Perth Business CentrePerth WA 6849

Website: www.wrc.wa.gov.au/owr

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HIGHLIGHTS OF THE YEAR IN REVIEW 2001/2002

Statistical Profile and Performance Benchmarking of Water SupplyServices in 32 Major Western Australian Towns 1999/2000

Responses to OWR’s milestone report Statistical Profile and PerformanceBenchmarking of Water Supply Services in 32 Major Western Australian Towns1999/2000 have been received from local, national and international water industryexperts, water service providers and peak water organisations. The Office has beenparticularly encouraged by the compliments received from highly respected andcredible global organisations (including the World Bank and the International WaterAssociation).

The World Bank and Public Utility Research Centre (PURC) Economics, have alsoasked the Office for permission to include the report on the Reference CD, which ismade available to attendants of their International Training Program on UtilityRegulation and Strategy. In addition, the Office has accepted an invitation from theWorld Bank to partner in an international water industry benchmarking project and tolink Western Australia to their international benchmarking network.

Building on significant and growing national and international interest in OWR’sperformance reporting activities, the Office has set about developing guidelines andcriteria by which relevant water industry performance indicators and benchmarks canbe reliably selected and effectively evaluated. The Office has also commenced workon two important longitudinal benchmarking reports, one for sewerage services andanother for water services; these will enhance its evaluation of provider and industryperformance in Western Australia by comparing pertinent performance parameterswith those of national and international water service providers.

OWR is developing a proposal to establish a metric benchmarking partnership withother Australian water industry Regulators and will initiate discussions with regulatorsand the Australian Standards Association on the possible design of a national waterindustry performance reporting format and standard.

State-wide Survey of Customer Satisfaction with Water Services

In July 2001, the Office of Water Regulation expanded its annual, industry-wide waterand sewerage services survey to include a much larger portion of Western Australia’spopulation. This expansion enabled OWR to monitor the customer satisfaction withservices in regional and remote areas. The survey, conducted over the past threeyears, offers an independent, reliable and consistent measure of communityperceptions.

Research revealed that the majority of Western Australians remain satisfied with theirwater and sewerage services, with overall ratings of ‘good’ or ‘very good’ at 87% orabove for providers. The issues of most importance to customers were water qualityand reliability of supply. Regional respondents were more likely to experienceinterruptions to their water supply than metropolitan customers.

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Useful insights were gained into customers’ views on financial compensation insituations where a service provider fails to meet minimum standards. Other issuesincluded billing frequency, an independent dispute resolution service to resolvedisputes between customers and their providers and customers receiving drinkingwater quality information.

The results of the survey informed the Office’s Review of Service Standards,conducted in February 2002.

Western Australia’s First Public Review of Water Service Standards

A review of service standards conducted by the OWR recommended licencechanges that will see the introduction of a water service customer code, a focus onimproving aesthetic quality and a requirement to publish water quality results.

The conduct of the review included an invitation for written submissions and aworkshop. The workshop was held on 21 February 2002 and was attended by 20invited customer representatives. In addition, 10 utility representatives attended(from organisations including the Water Corporation, Aqwest and the Fremantle PortAuthority). Also present were10 representatives from Government agencies (such asHealth, OWR and the Department of Environment and Water Catchment Protection,formerly the Water and Rivers Commission).

The workshop was run as a discussion group to gather views and feedback on arange of potential responses to written submissions received, from both customersand water utilities.

Customers provided valuable information to the review, with 66 written submissionsreceived. Many more customers expressed interest through contacting OWR to getinformation on the review process and a copy of the discussion paper.

The recommendations that OWR has drawn from the written submissions, workshopand our survey work are as follows:

� Water service licences are to set a timetable for compliance with the 1996Australian Drinking Water Guidelines, for health and aesthetic quality.

� Publishing water quality results will be a requirement of water service licences.� Guidelines for providing drainage services are to be developed by the Water and

Rivers Commission in conjunction with the Water Corporation. Compliance withthe guidelines will be a licence condition.

� A customer code will be developed to protect water service customers. The codewill address areas of concern to customers such as disconnection/restrictionpolicies and customer complaint handling.

� OWR will work towards setting service standards at a local scheme level. As afirst step, the OWR will work with licensees to identify appropriate reporting levels.

� OWR and the Water Corporation will review areas receiving low water pressureand develop a strategy to deal with customers.

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Office of Water Regulation Represents WA in the Development ofNational Plumbing Code

The Office of Water Regulation represents Western Australia on the NationalPlumbing Regulators Forum (NPRF), which is the national policy advisory body forregulation of on-site plumbing.

The principle activity of NPRF is the development of a Plumbing Code of Australia.Such a code will benefit industry by providing greater national consistency in theregulation of on-site plumbing and certification of plumbing and drainage products.

It is intended that the Draft Plumbing Code of Australia be released for comment inAugust 2002. The Code is to be modelled on the Australian Building Code.

Following completion, responsibility will still rest with each State and Territory inrespect to the adoption of the final Code.

Significant Issues and Trends 2001/2002

The most significant issue for OWR is the Government’s establishment of anEconomic Regulator with responsibility for water, gas, electricity and rail industries.The Economic Regulator will take responsibility for the provision of advice on prices,tariffs, and access arrangements. Given the time-line extension for theestablishment of the Economic Regulator, the Office of Water Regulation willcontinue to exercise this role for the water industry under present legislation and tothe extent authorised by the Minister. The following significant issues and trendsaffecting OWR staff and future operations also occurred or were implemented duringthe reporting year of 2001/2002:

• The Office has implemented Machinery of Government recommendations inrelation to the transfer of the Plumbers Licensing Board to the Department ofConsumer and Employment Protection, effective 1 March 2002. OWR previouslyundertook the role of managing the transition to an industry-funded PlumbersLicensing Board, which was established by legislation amending the WaterServices Coordination Act 1995. The Board commenced operations on 19 June2000 and now holds responsibility for the licensing of plumbers operating inWestern Australia. The Plumbers Licensing Board can be contacted on (08) 92820478. The Plumbers Licensing Board is self-funded with an administration feelevied against revenue to cover Administrative and Corporate Services. Fundshave been transferred to the Department of Consumer and EmploymentProtection.

• Another Machinery of Government recommendation saw responsibility for RuralWater Planning move to the Department of the Environment, Water andCatchment Protection last year. Staff in the Rural Water Planning area can becontacted on (08) 9278 0300. All funding for Rural Water Planning wastransferred to the Department of the Environment, Water and CatchmentProtection from 1 July 2001.

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• A major activity for OWR is managing the licensing system to improve the qualityof water and wastewater services. The Office is responsible for administering ascheme for licensing water utilities to provide drainage, water supply, sewerageand irrigation services for the State of Western Australia. These licences setstandards for service delivery, which licence holders are obliged to meet. Licenceholders are required to report to OWR against these standards on a regular basis,and are subject to operational audits during the term of the licence.

• Trends in water industry performance are measured by the Coordinator of WaterServices, who prepares reports partly based on the information gained from therequirements specified in the licences. Reports on technical and servicestandards are specified in consultation with service utilities.

• As in previous years, the Office promotes improved efficiencies within waterservices through ‘competition by comparison’. The Office has put in placesystems and processes to enable the analysis and evaluation of dis-aggregatedperformance data received from the Water Corporation. The products of thiswork are reflected in internal and external reports, which include performancebenchmarking and comparative studies.

• Financial performance within the water industry is an area in which the Officeprovides advice to the Minister. This is provided within the context of the annualprices and charges reviews. The Office is working toward amendments tolegislation to ensure access to necessary information to enhance its performancewithin this important function, as specified in the Water Services Coordination Act,1995.

Future Directions

Strategic Initiatives in Relation to Government Objectives

As previously stated, a key focus for OWR in 2001/2002 has been contributing to theformation of the Economic Regulatory Authority in line with the Government’sstrategic objective to:

Protect customers against abuse of market power, while creating andmaintaining a sound business environment, efficiently.

For OWR, the above strategic objective is translated into the following six operationalobjectives:

1. Protect the interests of consumers in relation to prices.2. Protect the interests of consumers in relation to service quality and reliability.3. Consider the legitimate business interests of investors.4. Consider the legitimate business interests of service providers.5. Ensure economically efficient outcomes.6. Deliver regulatory services that are well targeted and efficient.

Projects relating to the above objectives are a central feature of the current OWRBusiness Plan.

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Licensing: Key Goals for 2002/03

� Implementation of recommendations arising from this year’s Review of ServiceStandards, including the development of a customer code and drainagestandards.

� In 2002/2003 compliance audits of local government sewerage schemes, thePreston Valley Irrigation Cooperative, the Water Corporation, Aqwest and theBusselton Water Board, Nilgin and the Rottnest Island Authority will beconducted.

� It is expected that the Ord Irrigation Cooperative will be licensed for the provisionof irrigation services during the year.

A Multi-Utility ‘Ombudsman’ for Water, Gas and Electricity

OWR believes that in the interests of consistent and efficient treatment of essentialservice customers it is necessary to develop a multi-utility ‘Ombudsman’ for water,gas and electricity. The Office will be developing a mandatory, specialised disputeresolution system to propose to Government.

Debt Management and Recovery for Essential Services

The Office of Water Regulation proposes to establish a taskforce to examine andimprove debt management and recovery practices amongst essential service utilities.The taskforce will identify present inequities and inefficiencies within and betweenutilities and make recommendations to achieve fair, equitable and consistenttreatment for customers. It is proposed that a Utility Debt Management andRecovery Code be developed to provide a basis for policy frameworks andprocedural guidelines that ensure fair, equitable and consistent debt managementand recovery practices by essential service providers.

Customer Service Code Development

OWR has identified that many aspects of water utilities’ dealings with customers aresubject to internal policies that are not always readily available to either the customeror their advocates. It is proposed that a working group be established withcustomers, regulators and representatives from industry to develop a water industrycode. The Customer Service Code will set out reasonable minimum standards forthe supply of water services to protect customers in relation to matters such ascomplaints handling, meter reading, billing and financial transactions.

Promoting Complaints Conciliation

In 2002/2003, OWR proposes to promote its Complaint Conciliation Service throughadvertising in newspapers, the provision of information on water services’ bills andother avenues. The aim is to increase public awareness of the assistance OWR canprovide in investigating, mediating and conciliating disputes between members of thepublic and water service providers.

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REPORT ON OPERATIONS

Under the Water Services Coordination Act 1995, the Office of Water Regulationperforms the following legislative functions:

• establishing and continuing the administration of a water services licensingscheme;

• coordinating and providing advice on water services policy, and• performing a number of other functions under written law relating to the provision

of water services.

Achievements made in relation to legislative functions, and contributions towardsprogressing Government strategic objectives, are provided in this report. Alsoprovided are compliance and financial statements in line with the reportingrequirements outlined for Public Sector agencies by the Department of Premier andCabinet and those required under the Financial Administration and Audit Act 1985.

Licensing Water Service Providers

Licence Changes and Audits

During the financial year the South West Irrigation Management Cooperative(SWIMCO) had its licence compliance audited and the effectiveness of its assetmanagement systems reviewed. The audits are a requirement of all operatinglicences. Audits examine licensees’ performance regarding the way they handledcomplaints, developed asset management plans and reported performance. Thelicensee pays the audit costs.

The auditors reported that SWIMCO achieved a high level of compliance with thelicence requirements and had established an effective asset management system,which had resulted in a low level of complaints and an excellent level of response.

Work commenced in planning the third operational audit of the Water Corporationwith a scope for the audit issued and tenders for the audit assessed. The auditor willbe appointed in July 2002.

Two licences, those issued to the Fremantle Port Authority for water supply and theDepartment of Environmental Protection for sewerage services, were revoked duringthe year at the request of those organisations. The Fremantle Port Authoritytransferred its water supply works to the Water Corporation in June 2002 andaccordingly the licence was no longer required. The Department of EnvironmentalProtection licence for sewerage services was revoked following a review of its wastetreatment operations and confirmation that its services did not require a licence underthe Water Services Coordination Act 1995.

The most recent licence issued by OWR was granted to Hamersley Iron in June2001. This company provides water supply and sewerage services to the towns ofTom Price, Paraburdoo and Dampier and commenced providing performance reportsduring the year.

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Following the issue of the licence to Hamersley Iron, the Water Corporationsuccessfully appealed to the Minister against the inclusion of a lot near Dampier inthe water supply operating area. An independent arbitrator heard the Appeal andfound in favour of the Water Corporation. The operating area was amended toremove the lot.

During the year, OWR received requests from the Water Corporation for extensionsto its existing water supply operating areas at Moora, Arrowsmith, and Dalyellup.These applications were assessed and approved.

In early 2001/2002, Aqwest and the Water Corporation applied for adjustment to theircommon operating area boundaries, involving the exchange of responsibility forserving a small number of customers. This request was approved.

In the first six months of 2002, OWR conducted a review of the sewerage licencesissued to 19 Local Governments. The review proposed a number of amendments tothe licences, including extending the term of licence to 25 years, simplifying theformat of the licences and requiring a single annual report by licensees as opposedto the current twice yearly reporting. Most licensees welcomed these changes andproposed supporting amendments. Amended licences were issued in June 2002.

At the end of the financial year, there were 29 water service providers licensed byOWR.

Wastewater Services at Hopetoun

In April 2002, in response to a request from the Office of Major Projects andLandcorp, OWR called for Expressions of Interest to design, build, own and operatewastewater services for the town of Hopetoun.

The service is required to support residential development and expected growthassociated with the proposed BHP Billiton Ravensthorpe Nickel Project and generalpopulation growth over the next 25 years.

It is estimated that about 320 new residential lots will be required to meet expectedlong-term demand. The development of a sewerage system for Hopetoun isproposed, to cater for future development and also enable provision of a reticulatedsewerage system for the existing townsite (approximately 200 lots).

Initial assessment of applications received will determine technical and financialcapability. The next phase will be a more detailed assessment of formal tenders.

Development of Licensing Criteria

The National Competition Policy (NCP) review of the Water Services Co-ordinationAct (1995) recommended defining the circumstances when water services may needa licence. These conditions will replace the existing system of controlled areas.

A review was conducted by the Office, which found that licensing should be used forsuppliers when there were:

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• conditions of market failure such as monopolies (which are likely to be the case inWestern Australia) together with either;

• a demonstrable need to protect consumers within a commercial relationship witha service provider, or

• the number or diversity of service provider’s means that consumers needassistance with the selection of a service provider and the loss to the communityfrom an inappropriate selection is considerable.

Additionally, licensing should occur only when it provides net public benefits or wherethere is a government commitment to provide a more equitable service to consumersthan expected from a service provider.

This list of conditions will be approved as policy together with an appeals process forsituations where a service provider believes that he/she should not have to obtain alicence because the situation falls outside the criteria.

The NCP Review recommended the cessation of controlled areas as being anti-competitive. Controlled areas define the parts of the State where a licence isrequired to provide a water service. Operating areas are the areas within acontrolled area to which a specific licence applies. Customers and licensees do notgenerally understand the distinction between the two.

A further recommendation was the inclusion of definitions for the kind of serviceprovided, for example, potable and non-potable water, wastewater and drainage. Forpotable and non-potable water the definitions used by the relevant national bodieswill be adopted. For wastewater, the terms used by the Water Services Associationof Australia, which is the industry body, will be adopted. Wastewater is now acommonly used replacement term for sewerage

Drainage services for the purpose of the Act will be defined as the removal of run-offsurface water from land and buildings.

Irrigation services will be defined as the storage, transport and drainage of water forplant production.

Protecting the Interests of Customers

The delivery of quality customer service is critical for Western Australia’s waterservice providers. The Office of Water Regulation uses its central position to linkservice providers and encourage a whole of industry approach toward achievingexcellence in customer service through a range of strategies.

Embedded in the licensing framework are provisions relating to levels of service, withthe aim of establishing a mechanism for ensuring consistent service and meetingcustomers’ needs. This produces significant outcomes, with licence holders

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developing customer service charters, customer feedback mechanisms andcomplaint handling processes, as part of their licence obligations.

The Office also has a role as a complaint investigator and mediator. It conciliatescomplaints made by customers who have been unable to resolve their concerns withtheir service provider. Licence holders are required to attempt resolution of customercomplaints within 21 days. Where customers are not satisfied with the responsefrom their service provider, the Office of Water Regulation can investigate thecircumstances relevant to the complaint and assist the parties in achievingconciliation.

Smaller service providers contact OWR for assistance with their own in-housecustomer satisfaction surveys. The Office has developed a standard survey, whichcan be customised to meet the needs of most small and medium service providers inthe water industry. The methodology is based on independent research, whichidentified a range of factors, which customers consider important in the delivery oftheir water and sewerage services.

OWR conducts an annual survey to obtain an industry-wide monitor of communityperceptions of water and sewerage services. The data collected measures theimportance of, and satisfaction with, various aspects of supply.

Complaints Handling

During 2001-02, OWR’s Customer Services group mediated 205 complaints. Sincethe creation of OWR, more than 1,000 complaints have been investigated resulting inreturned funds to customers exceeding $200,000. Consumption, debt managementand billing policy/service charge disputes remained the issues most frequentlyreferred to OWR.

Resolution analysis of complaints received in the past year indicates that 33% ofcases were resolved in favour (or partly in favour) of customers, 17% in favour ofservice providers, and in the majority of cases (43%), the provision of informationfinalised the matter being questioned.

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Figure 1

Customer Service Charters

This year the Office of Water Regulation reviewed the Customer service charters ofHamersley Iron and Busselton and assisted Hamersley Iron to develop complaintprotocol procedures.

Submissions regarding third party dispute conciliation for water, gas and electricitywere prepared for the Economic Regulation Implementation Committee (ERIC), theDeputy Premier’s Office, Treasury and the Electricity Reform Task Force.

Customer complaints 2000/01

81

49

27

23

17

9

9

8

7

7

3

2

2

2

1

1

1

0 20 40 60 80 100

Consumption dispute

Debt management

Service charges

Billing policy

Land development

Pensioner rebate

Property damage

Infill program

Planning issue

Water Quality

Service quality

Access to water

Development charges

Interruption to supply

NA

Pressure

Sewerage Overflow

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Performance Reporting

Developing Consistent and Objective Criteria for Selecting Appropriate WaterIndustry Performance Indicators

A unique project currently being undertaken by OWR is the development ofguidelines and criteria for choosing the best possible indicators by which theperformance of water industry service providers can be reliably evaluated and clearlyunderstood. A potential related benefit for water service providers will be the absoluteminimisation of their data reporting requirements to the OWR.

With literally hundreds of Performance Indicators in use worldwide to measure waterindustry performance, the project aims to determine which indicators are pertinent inthe Western Australian context, by developing and then applying a specific set ofselection criteria.

In general, the most appropriate Performance Indicators for this State will be thosethat best help measure the extent to which OWR’s objectives in evaluating theperformance of water service providers are being achieved. The overarchingobjectives of OWR in this context are to:

• Ensure quality of service to consumers/stakeholders is adequate;• Ensure reliability of service to consumers/stakeholders is adequate;• Provide useful drivers for business performance/process changes;• Promote economic efficiency via competition by comparison;• Evaluate compliance with licensing conditions and standards;• Use information to set (new) performance targets and standards;• Protect consumers from ($) effects of natural monopolies or abuses of market

power;• Ensure long-term planning, maintenance and management of the water industry;• Provide OWR with a broad indication of how well it is regulating service providers.

A number of approaches to developing the indicator selection criteria are beingexamined, including:

• ‘Must’ criteria followed by a set of ‘should’ principles• Small list of generic criteria, followed by category specific criteria – Reliability of

Service, Quality of Service Delivery, Customer Service Quality,Financial/Affordability

Minimally, performance indicators should address matters of substance that arepractical and of relevance to stakeholders (customers; providers and regulators). Anexample of how these considerations might impact on the selection (or rejection) ofan actual performance indicator is summarised below.

Complaint telephone calls answered within 20 seconds. Whether or not this is anappropriate indicator, it is certainly deficient to the extent that it does not tell us:

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• Whether the call was answered by a person;• If the caller was placed in a queue;• If the complaint was resolved;• If the complaint was resolved satisfactorily, or• How quickly the complaint was resolved.

Given OWR objectives in relation to ensuring/evaluating quality of service tostakeholders, the above ‘assessment’ suggests that more specific complaintresolution (ie appropriate) indicators may be warranted. On the other hand, it shouldbe recognised that the assessment criterion used in the example is only one ofpossibly 5-10 selection criteria that are currently being developed by OWR.

Equally important, the OWR considers that the availability and/or validity of data inrelation to a particular performance indicator is not a criteria that can be applied todetermine the indicator’s appropriateness. A lack of valid/rigorous data is not areason to exclude a PI – the twisted Precautionary Principle.

OWR expects to complete an initial draft of its proposed criteria/ guidelines forselecting water industry performance indicators this year. Enquiries to OWR’sManager Performance Reporting, John Hannan.

Policy Advice

State Water Conservation Strategy

OWR worked with the Water and Rivers Commission and the Water Corporation todevelop the State Water Conservation Strategy. The Strategy emphasises the use ofeconomic instruments to ensure optimal investment in water conservation. Theseinclude integrated resource planning which is the process whereby the water serviceprovider examines a series of water supply options and calculates which option will,at the lowest total cost, provide their customers with the water related services theyneed rather than with the water itself.

Customers want clean clothes, showers, sanitation and so on rather than a preciseamount of water. Meeting the same needs with less water can result in significantsavings.

For example the provision of an incentive for the use of water efficient showerheadsthat provide the same service while using less water, results in water savings now,and contributes to deferral of the cost of providing new sources and the future use ofthat source. Further savings result from reduced energy costs incurred in pumpingthe water. Pumping costs are one of the main costs of water supply to consumers.The Water Corporation is one of Western Power’s largest customers with the energyused to pump water around the metropolitan area and the Goldfields and AgriculturalWater Supply Scheme.

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This Office will play a part in implementation of the strategy by:

• Participating in the proposed grants scheme;• Undertaking research on water consumer behaviour, particularly with regard to

water restrictions, water reuse and household bores in conjunction with CSIRO;• Introducing water conservation measures into operating licences, and• Developing pricing measures, which will act to conserve water.

Water Industry Development

Legislative Review

During the past 12 months, work has continued on the National Competition Policylegislation reviews. The recommended changes resulting from the 24 legislativereviews, previously completed by OWR as part of the State’s National CompetitionPolicy Agreement, are now being drafted by Parliamentary Counsel. Theseamendments will form part of the Acts Amendment and Repeal (Competition Policy)Bill 2002. OWR is involved in settling the legislative amendments with ParliamentaryCounsel in accordance with the National Competition Policy Reviews.

OWR has also been involved in the preparation of the Economic Regulation AuthorityBill 2002. This proposed legislation would establish the Economic RegulationAuthority in accordance with Government Policy.

A major legislative review currently being undertaken is that of the Water ServicesCoordination Act (1995), OWR’s governing legislation. This significant review is arequirement under the provisions of the Act itself.

Tariff Reform

Industry reform in recent years has been focused on the State’s obligations to theCouncil of Australian Governments (COAG) agreement. State Treasury has overallresponsibility for reporting on progress made towards meeting the State’s obligations,with OWR and the Department of Environment, Water and Catchment Protection(Water and Rivers Commission) sharing responsibility for reporting on water industryreforms.

The Government established a working group to examine the appropriate structure ofsewerage and drainage charges, taking into account the Government’s social equityobjectives and the State’s National Competition Policy obligations. OWR is acontributing member of the working group, which will report to Government later inthe year. The key issue for the group to consider is whether the process of movingfrom a Gross Rental Value based sewerage and drainage charge towards other fixedor consumption based charges will lead to undesirable outcomes in terms of socialequity.

Social equity considerations must be balanced against possible penalties that mayarise from National Competition Policy objectives not being reached. A further issue

25

for the working party to consider is whether there are alternative methods of meetingsocial policy objectives other than the tariff structure of water services.

Other activities for the reporting year include the Office providing advice on the WaterCorporation’s pricing submission for 2002/03 and Water Corporation’s Alignment andSimplification strategy for Concessional charges. OWR has worked closely withAqwest on their commercial tariff reform process and has set prices for Nilgin andHamersley Iron’s water supply and sewerage services in the Pilbara.

Goldfields Water Supply Strategy

The Draft Goldfields Water Supply Strategy will be released for public comment inthe next financial year. OWR has contributed significantly to the strategy, sitting onboth working groups and the Steering Committee.

The region has been supplied by the Mundaring – Kalgoorlie pipeline as part of theGoldfields and Agricultural Water Scheme. Groundwater from local sources has alsosupplied the mining industry. However, concerns have been raised regarding theavailability and sustainability of local groundwater use in the mining industry. Therehas been a local perception that the price of domestic water and restrictions aregreater than in the Perth Metropolitan area.

From a State Government perspective, a less costly water supply to the region wouldbe in Western Australia’s interest and could allow the Mundaring Weir to supplementPerth’s water supply.

In view of these proposals and concerns, the Government recently called forExpressions of Interest to assist with the provision of a sustainable water supply tothe Goldfields-Esperance region. Cabinet considered the assessment of the EOIresponses on 17 September 2001, and endorsed the drafting of a water supplystrategy for the Goldfields Esperance region.

State Sustainability Strategy

In the reporting year, a submission was put forward to the State SustainabilityStrategy. Sustainability was defined for the Strategy as ‘the simultaneousachievement of environmental, economic and social goals’.

Perth has a Mediterranean climate where water provides an essential component ofan outdoor lifestyle. Inland, aspirations are similar and water is subsidised in theinterest of equity as well as to provide comparable quality of life and access to theservice.

In Perth there is steady public support for careful use of water with 30% of Perthconsumers who can be labelled ‘conservation minded’. Nevertheless about a quarterof the population, including those who live outside Perth, regard water as a servicethat should be provided like other utilities, 20% are indifferent to water issues andabout the same number consider it important to lifestyle.

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The very dry 2001 winter highlighted continuity of water supplies in the South West ofthe State. Over the last few years, the Water Corporation has accelerated itsinvestment plan for water supply development in Western Australia, boosting watersupply to Perth and other areas supplied by some 76% over a nine-year period.However the drought has raised questions about the sustainability of producing anever-increasing volume of water at a relatively low price.

The marginal price for a Perth consumer for an annual demand for water of 290kilolitres is approximately $0.48/kilolitre, which is the second lowest of 13 Australianwater service providers in 1999/2000. Water consumers in Perth are thereforeunlikely to be receiving a price signal appropriately reflecting its marginal cost. It isestimated that the cost of water from the next immediately available source is$0.80/kilolitre.

Users in Kalgoorlie pay $0.80-90/kilolitre for the first 550 kilolitre each year; the costof provision is variously estimated at between $3.70- 4.45/kilolitre.

Clearly the provision of quality water at low prices is socially and economically soundso long as there is a lot of water. But is it environmentally sound? The argumentwould be that as long as the resource regulator is performing effectively andproviding for environmental flows and sustainable allocation, then it should be, on thebasis that low rainfall and climate perturbation can be offset by increased use ofaquifers. A further source would be the sale of water allocated for rural irrigation tourban users.

Why bother with water conservation then? Integrated resource planning for waterconservation is a process where water conservation is viewed as a resource and thecosts and benefits of investment of water conservation are compared directly with thecosts and benefits of investment in supplying water from new and existing sources. Itmakes good economic sense independent of the weather. The price of suppliedwater is central to the comparison of demand alternatives.

In New South Wales, IPART's predecessor, the NSW Government Pricing Tribunal,made recommendations on the application of far reaching conservation measuresincluding least cost planning options for use by water suppliers. Subsequently, in1996 the Tribunal requested that water agencies report on which, if any, demandmeasures they found to be cost effective and how and when these measures wouldbe implemented. IPART requires integrated resource planning a part of the licensingrequirements for both Sydney Water Corporation and Hunter Water Corporation.

In Victoria a fifty-year plan has been developed for Melbourne with demandmanagement as a central plank. Initiatives such as AAAA washing machines will bephased in over ten years when they will be compulsory. Summer peak pricing willalso be phased in if the plan is adopted. The aim is to reduce water consumption tothe point where there is need for only limited augmentation of the Melbourne supplyfor the next fifty years. After initial community input and consultation, the draft planhas gone out for a second round of comment the results of which are awaited withinterest.

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Plumbers Licensing Board

Administrative support for the Plumbers Licensing Board transferred from the Officeof Water Regulation to the Department of Consumer and Employment Protection on5 March 2002. Responsibility for the administration of Part 5A of the Water ServicesCoordination Act 1995 was transferred to the Minister for Consumer and EmploymentProtection on 16 April 2002.

The Office of Water Regulation’s involvement with the regulation of plumbingactivities has continued, with OWR Executive Director Paul Kelly representingWestern Australia on the National Plumbing Regulators Forum (NPRF). The NPRFis the national policy advisory body for regulation of on-site plumbing.

The following notes provide an overview of the operations of the Plumbers LicensingBoard between 1 July 2001 and 28 February 2002:

• The Water Services Coordination (Plumbers Licensing) AmendmentRegulations (No. 2) 2001 came into effect on 31 July 2001, establishing atemporary permit to enable plumbing industry members who do not meet thecurrent requirement for a tradesperson’s licence, to work in the industry whileundertaking training.

• The Plumbers Licensing Board met 7 times during the reporting period. TheBoard issued 2,971 licences as at 28 February 2002, 381 new licences and 66temporary permits.

• As part of its commitment to foster an environment of continuousimprovement, and to ensure the maintenance of competency standards withinthe plumbing industry, the Board commenced a review of the post-tradetraining required to obtain a plumbers licence.

• The Board progressed the development of a proposed structure for an auditinspection regime under its management. The proposed regime will bring theconduct of compliance inspections and the investigation of customercomplaints under the management of the Board.

• During August 2001, the Board commenced a one-off tradespersons licenceassessment program. A total of 72 applications were received; 12 applicantshad passed the full assessment of which 6 had obtained tradesperson’slicences. All applicants who pass the assessment are eligible to obtain atradespersons licence.

• The Board conducted 12 disciplinary inquiries in accordance withregulation 29 of the Water Services Coordination (Plumbers Licensing)Regulations 2000.

• The Board initiated 5 prosecutions for breaches of the Water ServicesCoordination (Plumbers Licensing) Regulations 2000.

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COMPLIANCE REPORT

Declaration of Interests

Staff are required to declare an interest where such could be perceived as causing aconflict of interests with the role of the Office. No such interests were declaredduring the year.

Enabling Legislation

OWR is constituted under the Water Services Coordination Act (1995). The Act cameinto operation at the same time as the Water Agencies Restructure (Transitional andConsequential Provisions) Act 1995.

The Office of Water Regulation is responsible to the Minister for the Environment andHeritage.

The Coordinator of Water Services is the Chief Executive of the Office of WaterRegulation and is appointed under Part 3 of the Public Sector Management Act 1994.

Under the Water Services Coordination Act 1995, the Office has the authority toadminister licensing arrangements for providers of water services, and to plan thefuture development of the water industry. It also has a responsibility to advise theMinister on a range of matters, most notable of which are industry efficiency,competition policy, prices and charges, and the effectiveness of the legislationgoverning the water industry.

The written laws governing the activities of the water industry, and therefore affectingthe activities of the Office of Water Regulation are:

• Water Services Coordination Act 1995• Country Areas Water Supply Act 1947• Country Towns Sewerage Act 1948• Health Act 1911• Interpretation Act 1984• Land Administration Act 1997• Land Drainage Act 1925• Metropolitan Water Supply, Sewerage and Drainage Act 1909• Public Works Act 1902• Rights in Water and Irrigation Act 1914• Town Planning and Development Act 1928• Rates and Charges (Rebates and Deferments) Act 1992• Environmental Protection Act 1986• Water Agencies (Powers) Act 1984• Water Agencies Restructure (Transitional and Consequential Provisions) Act 1995• Water Boards Act 1904• Water Corporation Act 1995• Water and Rivers Commission Act 1995• Water Supply, Sewerage and Drainage Act 1912

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Other Relevant Legislation

In the performance of its functions the Office complies with the following relevantwritten laws:

• Disability Services Act 1993• Equal Opportunity Act 1984• Financial Administration and Audit Act 1985• Freedom of Information Act 1992• Government Employees Superannuation Act 1987• Industrial Relations Act 1979• Minimum Conditions of Employment Act 1993• Occupational Health, Safety and Welfare Act 1984• Public and Bank Holidays Act 1972• Public Sector Management Act 1994• State Supply Commission Act 1991• Workers’ Compensation and Assistance Act 1993• Workplace Agreements Act 1993

Customer Outcomes

Equal Employment Opportunity Outcomes

OWR recognises that Equal Employment Opportunity principles are an importantfeature of sound management practice and result in greater organisational efficiencythrough greater utilisation and development of human resources.

The Office is committed to the principles of Equal Opportunity in employment for allpersons regardless of sex, marital status, race, age, pregnancy, impairment, religiousor political convictions and family responsibility or family status. It is the responsibilityof all employees to accept their personal involvement in the practical application ofthis policy.

The Office’s Equal Opportunity and Diversity Plan was developed during 1998 andprovided for a range of actions intended to ensure that the Office’s commitmentswere implemented.

The plan will be reviewed during the forthcoming reporting period.The Office participates in the Plan for Women through its Equal EmploymentOpportunity Plan, family friendly work practices, and recruitment and selectionprocesses that promote an equal employment opportunity ethos.

In December 2001-January 2002 the Office of Water Regulation undertook acompliance review of its Human Resources Standards, Code of Conduct, Code ofEthics and all related policies and procedures pertinent to the Office’s compliancerequirements. The Office of Water Regulation’s human resources practices andprocedures were found to comply with the Public Sector Standards.

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In 2001/2002:

• No public sector employees employed by OWR were found to have committed adisciplinary breach during the 2001/2002 financial year;

• There were no breaches of Standards claims lodged with the Office of WaterRegulation under the Public Sector Management (Examination and ReviewProcedures) Regulations 2001;

• There were no breaches that were not referred for examination where the claimwas withdrawn because it was resolved.

Disability Services Plan

The staff and the Office are committed to ensuring people with disabilities, theirfamilies and their carers, are able to fully access the range of services and facilitiesprovided. To ensure maximum accessibility, the office is flexible in the delivery ofservices and endeavours to provide solutions acceptable to all clients.

The Disability Services Plan was developed three years ago and a full review of thePlan has been conducted to align strategies to the five outcomes of the DisabilitiesService Plan.

Strategies currently being developed to achieve outcomes aligned to the DisabilityServices Plan include:

• options that can improve accessibility to information on OWR services to groupsthat may include the visually impaired;

• adoption of the checklist approach outlined in the Disability Services Commissionpublication “Creating Accessible Events” to ensure accessibility for people withdisabilities to OWR events, such as the Review of Service Standards (an OWRpublic consultation forum held in February 2002), and the Western AustralianWater Industry Awards ceremony, scheduled for 25 October 2002.

Language Service Outcomes

OWR has one major area of operations, which features a high level of public contact.Staff in Customer Services who mediate and conciliate disputes between membersof the public and their water service providers are particularly aware of the need toensure that language barriers do not prevent customers from accessing this service.Guidance provided by the Language Services Policy published by the Citizenshipand Multicultural Interests is applied to assist people with language barriers throughaccess to interpreter services or other avenues of support.

Subsequent Events

There were no subsequent events at the time of writing that impact on the contents ofthis report, or on the Office.

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Evaluations

There is a growing awareness of the importance of risk management, as an integralpart of business planning and best practice for organisations. For OWR, thisawareness extends to regulatory activities in essential service industries such aswater and wastewater. In 2001/2002, OWR reviewed and evaluated risks to itsoperating environment and developed a Risk Management Strategy for incorporationinto the OWR business planning process, regulatory activities and operations.

Accountability Outcomes

Administrative and Staffing Matters

Staffing levels at OWR decreased to 22 Full Time Equivalent (FTE) at 30 June 2002,from 25.5 last reporting year. Plumber Licensing Board and Rural Water Planningstaff moved to other agencies with the transfer of operations. At OWR, two newpositions and a supernumerary position were created in 2000/2001 in the areas ofIndustry Development (Economics and Pricing) and Public Consultation. The actualnumber of staff employed at 30 June was 24, with an actual FTE of 22. Figures 2and 3 provide graphics of OWR’s staffing profile, by classification and by gender.

Figure 2

Staffing profile by Classification Level

0 1 2 3 4 5 6

Level 1

Level 3

Level 5

Level 7

Level 9

Special 2

Cla

ssif

icat

ion

leve

l

Number of staff

01/02 Male FTE

00/01 Male FTE

99/00 Male FTE

01/02 Female FTE

00/01 Female FTE

99/00 Female FTE

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Figure 3

Occupational Health & Safety

To support a safe, healthy, work environment, OWR’s Executive has adopted a policy of beingpro-active rather than reactive. Staff feedback and discussion in all matters pertaining tooccupational health and safety is actively encouraged through weekly staff briefing sessions.Staff are vigilant in their activities and mindful of conditions which could cause potential injury.The Office is please to report that there have been no lost days this financial year to work injury.

Chief Executive Officer

Dr Brian Martin, the Coordinator of Water Services, is appointed under the Public SectorManagement Act 1994. His current term of appointment expires on 3 April 2005.

Staffing Policies

All OWR Staffing Policies are available through the Office’s Intranet facility and are reviewedand amended to reflect changing circumstances within the Public Sector as required.

Service Level Agreement

In 2001/2002 the Office entered into a Service Level Agreement with the Department ofEnvironment, Water and Catchment Protection (Water and Rivers Commission) for theprovision of financial and human resource management, information systems and informationtechnology services. A small number of administrative staff provide direct support serviceswithin OWR.

Total Staff by Gender

0

5

10

15

20

25

99/00 00/01 01/02

Female

Male

Total

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OWR Organisation Structure 30 June 2002

Coordinator ofWater Services

Manager Corporate ServicesLevel 7

Executive DirectorClass 1

Management Services OfficerLevel 4

Information ManagementOfficer

Administration and ResearchOfficer

Administration and ResearchOfficer

Administrative SecretaryLevel 2

Manager Regulatory ServicesLevel 7

Manager Economics & PricingLevel 7

Manager Policy DevelopmentLevel 7

Policy and Research OfficerLevel 5

Policy and Research OfficerLevel 5

Policy and Research OfficerLevel 5

Manager Land & ServicesPlanningLevel 7

Graduate EconomistLevel 3

Manager PerformanceReporting

Research AnalystLevel 6

Manager Customer ServicesLevel 7

Customer Services OfficerLevel 4

Research Economist Level 6 Legal Officer

Level 7 (Contract)

Administrative Assistant Level 2 (Contract)

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Industrial Relations

OWR’s Enterprise Bargaining Agreement 2000 continued to be the employment instrumentutilised in 2001/2002.

The Office is currently reviewing the conditions contained within the Enterprise BargainingAgreement 2000, which will not be retained after 1 January 2003 through the introduction of theconditions of the Public Service Collective Agreement 2002. Subsequent to this process,negotiations will be commenced for an Agency Specific Agreement if considered necessary.

Some staff within the Agency are still covered by the Office of Water Regulation’s WorkplaceAgreement 2000, four staff chose to withdraw from this arrangement during 2001/2002 andrevert to the Office’s Enterprise Bargaining Agreement 2000.

Publications and Research

The following publications are available from the Office of Water Regulation:

• 2001 Customer Services Standards Review• 2000/2001 Annual Report• Customer Services Information Brochure• Statistical Profile and Performance Benchmarking of Water Supply Services in 32 Major

Western Australian Towns 1999/2000• 1999/2000 Annual Report• Waterline (OWR Newsletter) May 2002• 1998/1999 Annual Report.

World-Wide-Web

OWR maintains an ongoing commitment to provide easily accessible information in relation toour activities, functions and performance, through our web-site. The Internet has become aneffective medium for community contact permitting access to a number of informativepublications together with the opportunity for comment and feedback.

Relocation of the Rural Water Planning branch and the Plumbers Licensing Board to externalagencies has necessitated a redesign of the site. Whilst still maintaining an attractive user-friendly profile, minor changes have been implemented to meet the Government’s common-badging policies.

Maintenance of the site is initiated and coordinated by OWR with assistance from webdesigners Pretzel Logic and the Webmaster, Information Services, at the Department ofEnvironment, Water and Catchment Protection (Water and Rivers Commission).

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Advertising and Sponsorship

In accordance with Section 175ZE of the Electoral Act 1907 the Office of Water Regulationreports incurred expenditure in relation to:

Category Company Cost

Advertising agencies Marketforce Productions• Including $3,803.85 Industry-

sponsored advertising for theWestern Australian Water IndustryAwards 2002

$23,521

Department of Minerals & Energy• Advertising component for the

Goldfields Esperance WaterSupply.

$20,000

Total by Advertising Agencies $43,521

The Office of Water Regulation has not incurred or had incurred on its behalf, any expenditurein relation to:

• market research organisations;• polling organisations;• direct mail organisations, and• media advertising organisations.

Information Statement

The Office’s Information Statement ensures that information concerning its operations and thedocuments it holds is kept up-to-date and available to the public. The Information Statementprovides members of the public with the procedures and locations for the lodgement ofFreedom of Information access applications with the Office.

The table below details the Freedom of Information applications received during the year:

Type of access No. of applications

Full access 1

Waste Paper Recycling

OWR maintained a recycling scheme throughout the reporting year. Staff are fully committed tothe scheme which ensures that services and facilities are in place for the collection of bothgeneral wastepaper and security-sensitive paper.

Overall, the Government’s Waste Paper Recycling Proposal has seen a reduction in theamount of non-recyclable general wastepaper.

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PERFORMANCE AND FINANCIAL STATEMENTS

Output Measures

Output 1 - Water Service Operating Licences

Output Description: Water service operating licences through which the Office sets standardsfor the efficient and effective delivery of water services and monitors the performance of waterservice licensees.

2001- 02Target

2001- 02Actual

QuantityPerformance Reports reviewed 88 85Licences reviewed and updated 31 21Audits specified and outcomes reviewed 3 1#

Customer complaints mediated 250 205

QualityCustomers receiving water supply servicesmeeting standards specified in the operatinglicence

90% 89%

Customers receiving sewerage servicesmeeting standards specified in the operatinglicence

95% 100%

Customer complaints dealt with in accordancewith standards set in the OWR CustomerService Charter

95%* 87%

TimelinessAverage time taken to examine and respond torecurring performance reports from the waterservice licensees

30 days 17 days

Average time taken to examine and respond toaudit reports.

30 days 6 days#

Customer Complaints responded to within 5days**

95% 96%

CostAverage cost per Performance Report reviewed $5,419 $4,836Average cost per Licence reviewed or updated $8,268 $10,556Average cost per Audit specified and reviewed $49,791 $129,224#

Average cost per customer complaint mediated $1,631 $1,717

* The estimate for 2001/2002 was actually 75% however this was reported in the budget estimates as 95%.** Calendar days not working days# Only one audit was conducted during the year as the two other Licences due for review were revoked at

the Licensee’s request.

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Output 2- Water Industry Development

Output Description: The Office provides policy advice to the Minister to promote thedevelopment of the water industry to meet the needs of the State and provides opportunities forcompetition and efficiency in the water services industry.

2001- 02Target

2001- 02Actual

QuantityBriefing notes and advice provided tothe Minister

300 318

Principal acts, regulations and by-lawsreviewed and submitted forimplementation in the NationalCompetition Policy Legislation Review

25 25

Proposed new water services assessed 2 1Industry Grants payments made 4 2

QualityBriefing notes accepted without changeto the recommendation by the Minister

98% 100%

Act reviews endorsed by the Ministerand accepted by the GovernmentManagement Sub-Committee of Cabinet

100% 100%

New water service assessmentsundertaken consistent with policy

100% 100%

Grants allocated according to specifiedconditions

100% 100%

TimelinessBriefing notes submitted on or beforethe specified deadline

98% 96%

Acts reviewed and implemented by thespecified deadline

90% 75%

New service proposals assessed withinspecified timeframe

80% 85%

Grants paid by specified deadlines 100% 100%

CostAverage cost per briefing note $3,114 $2,851Average cost per Act reviewed andimplemented

$10,588 $10,275

Average cost per new water serviceproposal assessed

$179,055 $347,530

Average value per grant payment $77,500 $52,000

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Output 3 – Plumber’s Licensing

Output Description: The Office issues licences to plumbing industry operatives to ensure theprotection of public safety and health, and the environment in the delivery of essential wastedisposal and water supply systems.

2001- 02Target

2001- 02Actual

QuantityNew licence applications processed anddetermined

300 381

Licences issued 4,000 3,105

QualityFormal complaints received from licenceapplicants relating to the applicationprocess

5% 0%

TimelinessRenewal notices issued by 15 Juneeach year

100% 100%

Licence applications processed withintarget time

100% 94%

CostAverage administrative cost per newlicence application processed

$201 $113

Average administrative cost per licenceissued

$112 $101

Note: All information provided above is as at the 28 February 2002, the last four months of the2001/2002 financial year will be reported by the Department of Consumer and EmploymentProtection for this Output.

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OPINION OF THE AUDITOR GENERAL

To the Parliament of Western Australia

OFFICE OF WATER REGULATIONPERFORMANCE INDICATORS FOR THE YEAR ENDED JUNE 30, 2002

ScopeI have audited the key effectiveness and efficiency performance indicators of the Officeof Water Regulation for the year ended June 30, 2002 under the provisions of theFinancial Administration and Audit Act 1985.

The Coordinator of Water Services is responsible for developing and maintainingproper records and systems for preparing and presenting performance indicators. Ihave conducted an audit of the key performance indicators in order to express anopinion on them to the Parliament as required by the Act. No opinion is expressed onthe output measures ofquantity, quality, timeliness and cost.

My audit was performed in accordance with section 79 of the Act to form an opinionbased on a reasonable level of assurance. The audit procedures included examining,on a test basis, evidence supporting the amounts and other disclosures in theperformance indicators, and assessing the relevance and appropriateness of theperformance indicators in assistingusers to assess the Office’s performance. These procedures have been undertaken toform an opinion as to whether, in all material respects, the performance indicators arerelevant and appropriate having regard to their purpose and fairly represent theindicated performance.

The audit opinion expressed below has been formed on the above basis.

Audit Opinion

In my opinion, the key effectiveness and efficiency performance indicators of the Officeof Water Regulation are relevant and appropriate for assisting users to assess theOffice’s performance and fairly represent the indicated performance for the year endedJune 30, 2002.

D D R PEARSONAUDITOR GENERALOctober 14, 2002

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41

REPORT ON PERFORMANCE INDICATORS

The Office of Water Regulation (OWR) has one outcome for Government: an efficientand competitive water industry, which provides a fair deal for customers andproviders. OWR’s two outputs are:

1. Water service operating licences through which the OWR sets standards forthe efficient and effective delivery of water services and monitors the performanceof water service licensees; and

2. Water industry development through which the OWR promotes thedevelopment of the water industry to meet the needs of the State and providesopportunities for competition and efficiency in the water services industry.

Corresponding indicators have been prepared for these outputs.

1. Water Service Operating licences

The Office of Water Regulation is responsible for administering a scheme forlicensing water service providers. The licensing framework is based on a system ofcontrolled areas. Within each of these a licence from the OWR is required to providedrainage, water supply, sewerage or irrigation services. A single licence may covermultiple operating areas. Each licence issued by the OWR specifies operating areaswithin which the licence holder is authorised to provide water services.

The licensing system helps to achieve the objective of a fair deal for customersthrough setting standards for service delivery which licence holders are obliged tomeet. These include pressure and flow, continuity and water quality standards.Licence holders are required to report to the OWR against these standards on aregular basis. The licences also require the establishment of customer charters,complaint resolution processes and customer consultation mechanisms.

1.1 Effectiveness indicator:

Percentage of residential customers receiving water and sewerage servicesfrom licensed providers

This indicator shows the extent to which the current operating licences account for allpotential residential water and sewerage service customers. It is related to theprogram objective of improving services for customers.

Water services customers benefit by having access to customer charters, complaintresolution processes and the services they receive meeting standards specified inthe operating licences.

The indicator is derived by dividing the current number of residential customersserviced by licensed water and sewerage service providers, by the total number ofpotential water and sewerage customers. The result is then expressed as apercentage.

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Total number of potentialresidential water supply service

customers (expressed as the totalnumber of residential dwelling units)

Number of residential customers receivingwater supply services from licensed

suppliers (expressed as connections toresidential dwelling units)

97/98 98/99 99/00 00/01 01/02 97/98 98/99 99/00 00/01 01/02

698,295dwellings

698,295dwellings

698,295dwellings

698,295dwellings

698,295dwellings

589,781connections

602,683connections

618,678connections

635,444connections

636,712connections

Source: Australian Bureau of Statistics 1996 Census datacatalogue no. 2015.5 (B14)

Source: Licensed water service provider databases

Percentage of residential customersreceiving water supply services

from licensed suppliers

97/98 98/99 99/00 00/01 01/02

84.4% 86.3% 88.60% 91.0% 91.2%

Total number of potential residentialsewerage service customers (expressed

as the total number of residentialdwelling units)

Number of residential customers receivingsewerage services from licensed suppliers(expressed as connections to residential

dwelling units)

97/98 98/99 99/00 00/01 01/02 97/98 98/99 99/00 00/01 01/02

698,295dwellings

698,295dwellings

698,295dwellings

698,295dwellings

698,295dwellings

Data notavailable*

521,942connections

544,394connections

568,858connections

576,940connections

Source: Australian Bureau of Statistics 1996 Census datacatalogue no. 2015.5 (B14)

Source: Licensed sewerage service provider databases

Percentage of residential customersreceiving sewerage services from

licensed suppliers

97/98 98/99 99/00 00/01 01/02

Data notavailable*

74.7% 77.96% 81.5% 82.6%

* Data not available for 1997/98 as the systems for its collection were still being established.

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1.2 Effectiveness indicator

1.2.1 Percentage of customers of drinking water services affected by the non-availability of a drinking water service

One measure of the effectiveness of the licensing system is the availability ofdrinking water services to customers. If the service provider’s water supply networkis not properly maintained the service may be unavailable to customers. If the qualityof the water provided does not meet standards monitored by the Health Departmentof Western Australia, the water supply may be suspended.

Total number of potable water supply servicecustomers (expressed as the total number of

connections [services])

Number of potable water supply servicesexperiencing a water supply interruption

longer than 1 hour

97/98 98/99 99/00 00/01 01/02 97/98 98/99 99/00 00/01 01/02

673,979connections

691,576connections

706,306connections

715,296connections

722,136connections

Data notavailable*

50,199interruptions

54,016interruptions

70,496interruptions

82,412interruptions

Source: Australian Bureau of Statistics 1996 Census datacatalogue no. 2015.5 (B14)

Source: Licensed sewerage service provider databases

* Data not available for 1997/98 as the systems for its collection were still being established.

Percentage of potable water supplyservices experiencing a water supplyinterruption longer than 1 hour

97/98 98/99 99/00 00/01 01/02

Data notavailable*

7.26% 7.74% 9.8% 11.41%

* Data not available for 1997/98 as the systems for its collection were still being established.

1.2.2 Percentage of total customers of licensed sewerage service providers who receive servicesthat do not comply with the licence standard in regard to service availability

A measure of the effectiveness of the licensing system, in regard to compliance withlicence performance standards, is the availability of sewerage services to customers.

If the licensed operator’s sewerage plant does not operate properly, or there is a burst oroverflow in a sewer, there may be an interruption in the service.

A major concern for customers in this regard is flooding of properties. This is taken as akey indicator of performance.

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Total number of customers of licensedsewerage service providers (expressed as

total number of connections [services])

Number of services impacted byflooding of the sewerage service

(expressed as the number ofproperties affected)

97/98 98/99 99/00 00/01 01/02 97/98 98/99 99/00 00/01 01/02

Data notavailable*

608,064connections

628,576connections

651,675connections

722,136connections

Data notavailable*

712services

977services

937services

762services

Source: Australian Bureau of Statistics 1996 Census datacatalogue no. 2015.5 (B14)

Source: Licensed sewerage service providerdatabases

Percentage of total customers oflicensed sewerage service providers

who receive services that do notcomply with the licence standard in

regard to service availability

97/98 98/99 99/00 00/01 01/02

Data notavailable*

0.12% 0.16% 0.14% 0.12%

* Data not available for 1997/98 as the systems for its collection were still being established.

1.2 Efficiency Indicator:

Administrative cost per operating licence

The administrative cost per licence provides an indication of the efficiency of the OWR inadministering the licensing scheme. The administrative costs include those costs incurredin negotiating and amending licences and monitoring compliance with licence conditions.This indicator has been derived by dividing the total cost of producing this output by thenumber of operating licences.

45

Total number of water service operatinglicences at:

Total cost

30June1998

30June1999

30June2000

30June2001

01/02 97/98 98/99 99/00 00/01 01/02

26licences

31licences

30licences

31licences

29licences

$1,038,000 $917,000 $1,236,000 $1,391,000 $1,115,000

Source: Australian Bureau of Statistics 1996 Census datacatalogue no. 2015.5 (B14)

Source: Licensed sewerage service provider databases

Cost per operating licence

97/98 98/99 99/00 00/01 01/02

$39,923 $29,581 $41,200 $45,742(1) $38,448

1. The increased cost per operating licence reflects the full year cost of the operations of the Plumbers LicensingBoard, which was a new activity for the Office of Water Regulation.

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2. Water Industry Development

Water and wastewater services play a vital role in Western Australia’seconomic development in terms of attracting and retaining businesses andproviding essential services to communities that grow around developingindustries. A sustainable, reliable and competitive water industry isfundamental to maintaining the State’s attractive business and investmentenvironment and meeting the needs of the community.

The Office promotes development of the State’s water industry by providingrelated policy advice to the Minister and through the identification and pursuitof initiatives for increased industry competition and efficiency. In this regard,perhaps the two most significant undertakings by the Office are; advising theMinister on water and wastewater prices and tariffs and, publishing reports onindustry/provider performance so as to encourage ‘competition bycomparison’. Nevertheless, there are inherent limitations to the effectivenessachievable from either endeavour in the current industry environment.

Firstly, almost all of Western Australia’s water services are delivered bynatural monopoly providers, of which the largest by far is the WaterCorporation. Consequently, to the extent that natural monopolies areessentially immune from competition, the efficient pricing of water servicescan neither be absolutely determined nor guaranteed by the Office of WaterRegulation. Compounding this uncertainty is the problem of informationasymmetry whereby the Office’s access to financial information of thenecessary quality and quantity from water service providers can be less thanoptimal. The shortcoming also impacts on the Office’s capacity to compareand report provider performance (both financial and non-financial) to improveindustry efficiency.

Secondly, while the Water Corporation in particular has a significantcompetitive advantage as a natural monopoly, it also enjoys what could beconsidered a business monopoly due to its exclusive provider status and/or 25year operating licenses for most areas in which it currently provides waterand/or sewerage services. Consolidating the Corporation’s monopoly status isthe fact that annually it provides the Government with a dividend thatpresumably would become uncertain, eroded or difficult to attain if theCorporation were not to maintain its natural/business monopoly at or nearcurrent levels. As a consequence, the effect of performance reports about theCorporation intended to stimulate ‘competition by comparison’ would probablybe greater in the absence of the Corporation’s monopoly characteristics.

Despite these limitations, the Office has effectively guided and influencedwater industry development over the past year and has done so cognisant ofthe known and emerging attributes of the industry environment anticipatedafter the establishment of an Economic Regulation Authority.

The key industry developments in which the OWR has played a significantrole during 2001/2002 are detailed below.

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2.1 Effectiveness Indicators - Real Cost of Water Services Over Time

Although the Water Corporation is a service provider (ie a single entity, albeitthe largest) within the Western Australian water industry, the real cost of theCorporation’s water and wastewater services over time has been set as anappropriate indicator of the Office’s effectiveness in influencing the efficiencyof the water services industry as a whole.

The relationship between efficient water service costs and the OWR’s pricingeffectiveness could be understood with greater clarity were it possible toquantify the impact the Office actually has on the prices consumers arecharged by water service providers. Unfortunately the published price of awater service cannot be compared with what it might otherwise have been ifnot for the influence of the Office of Water Regulation.

As an expression of the Office’s effectiveness in efficiently pricing waterservices, the real cost of water services over time has a qualitative dimension.In addition, pricing efficiency may not necessarily mean cheap, or over timeprogressively cheaper, prices relative to the Consumer Price Index. Given therange of factors that are weighed and balanced by the Office in assessingpricing submissions, a real increase (even a large one) over time in the cost ofwater services could well be the result of efficient pricing. These factorsinclude:

• the level and efficiency of operating costs, both direct and indirect;• the need for future renewal of assets to maintain required levels of service;• the achievement of appropriate rates of return;• inflationary impacts on costs in the water industry;• growth in non-output related activities such as increased environmental

health standards;• productivity growth;• consistency with or support for the Government’s relevant social,

environmental and economic policy objectives.

Regarding the last factor, it can readily be seen that Government policyobjectives and priorities have the potential to have a profound effect on waterservices pricing and may even override the pure business considerations of aprovider in determining an appropriate price for its services. A final constrainton the Office’s pricing efficiency is the concept of uniform pricing. In practicethis also tends to counteract the pricing of water services on the basis ofefficiency considerations alone and is not something over which the OWR canexercise direct influence.

In the final analysis it must also be recognised that the Minister, in her/hisabsolute discretion, can choose to accept or reject any aspect of the OWR’srecommendations on pricing submissions and may also consider advice fromother interested agencies such as the Department of Finance and Treasury.

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Notwithstanding the circumstances outlined above, over the past 5 years theOffice has generally agreed that the Corporation’s annual applications forprice increases have been justified, but we have frequently disagreed with thequantum of the increases proposed and accordingly advised the Minister. Theoutcomes of this process are quantified in the following performanceindicators.

2.1.1 Real Cost of Residential Water over time

Performance Indicator – Real movement in residential water price over timeexpressed as the total price paid by metropolitan residential customers for anassumed annual consumption of 350 kilolitres of potable water.

Real Price of Residential Water1997/98, 1998/99, 1999/00, 2000/01, 2001/02

Assumed Annual Consumption of 350 kl

$338.16 $338.20$340.19

$325.87 $325.700.05%

Decrease

$333.62

$315

$320

$325

$330

$335

$340

$345

1997/98 1998/99 1999/00 2000/01 2001/02 5 YEARAVERAGE

1. The residential water price is based on a standard service charge per property and avariable water usage tariff, charged by the Water Corporation.

2. In 1999/00 the first tier minimum for volumetric charging reverted to 150kl from 165klwhich was applied in 1998/99.

3. 2001/02 is the fifth year in which data has been used to display pricing trends over a5year period. 1997/98 was previously agreed as the base (or first) year of the 5 yearperiod.

4. The source of the current pricing data is the Water Agencies (Charges) Amendment By-Laws (No. 2) 2001 [Water Agencies (Powers) Act 1984] published in the WesternAustralian Gazette on 29 June 2001.

5. Prices for all years are expressed in equivalent 2001/02 terms.

2.1.2 Real Cost of Non-Residential Water over time - based on a sample ofthree (3) different meter sizes and assumed `average’ waterconsumption for each of the different meter sizes

The Water Corporation charges for metropolitan non-residential (business)customers and country commercial and industrial customers based on thesize of the water meter servicing the property. Both the Bunbury andBusselton Water Boards continue to use a Gross Rental Value (GRV) tariff

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structure. However, these Boards are continuing their assessment of changesto tariffs based on meter size. Until this exercise is completed the formulationand/or reporting of price indicators for these two Water Boards remainsmeaningless.

For the Water Corporation, the minimum charge to business is based on 15and 20 mm meter sizes. The meter-based charge increases according to thesize of the meter. Customers are then billed a volumetric charge based onconsumption. A sample of three meter sizes (20, 50 and 100 mm) has beenutilised to construct price movement indicators for non-residential water.

2.1.2.1 Performance Indicator – Real movement in business water pricesover time expressed as the total price for average waterconsumption utilising a 20mm water meter.

Real Price of Business Water1997/98, 1998/99, 1999/00, 2000/01, 2001/02

Based on Service Charge for 20mm Water MeterAssumed Annual Consumption of 370 kl

$681.35$689.15

$685.46

$656.50

$673.79

$656.49

No Change$630

$640

$650

$660

$670

$680

$690

1997/98 1998/99 1999/00 2000/01 2001/02 5 YEARAVERAGE

1. The business water price is based on a standard service charge per property according tothe 20mm meter size and a variable water usage tariff charged by the Water Corporationfor 370kl.

2. 2001/02 is the fifth year in which data has been made available to display pricing trendsover a 5 year period. 1997/98 was previously agreed as the base (or first) year of the 5year period.

3. The source of the current pricing data is the Water Agencies (Charges) Amendment By-Laws (No. 2) 2001 [Water Agencies (Powers) Act 1984] published in the WesternAustralian Gazette on 29 June 2001.

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2.1.2.2 Performance Indicator – Real movement in business water pricesover time expressed as the total price for average waterconsumption utilising 50mm water meter

Real Price of Business Water1997/98, 1998/99, 1999/00, 2000/01, 2001/02

Based on Service Charge for 50mm Water MeterAssumed Annual Consumption of 9,400 kl

$9,744

$9,856$9,809

$9,642

$9,4010.03%

Increase

$9,399

$9,200

$9,300

$9,400

$9,500

$9,600

$9,700

$9,800

$9,900

1997/98 1998/99 1999/00 2000/01 2001/02 5 YEARAVERAGE

1. The business water price is based on a standard service charge per property according tothe 50mm meter size and a variable water usage tariff charged by the Water Corporationfor 9,400 kl.

2. 2001/02 is the fifth year in which data has been made available to display pricing trendsover a 5 year period. 1997/98 was previously agreed as the base (or first) year of the 5year period.

3. The source of the current pricing data is the Water Agencies (Charges) Amendment By-Laws (No. 2) 2001 [Water Agencies (Powers) Act 1984] published in the WesternAustralian Gazette on 29 June 2001.

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2.1.2.3 Performance Indicator – Real movement in business water pricesover time expressed as the total price for average water consumptionutilising 100mm water meter

Real Price of Business Water1997/98, 1998/99, 1999/00, 2000/01, 2001/02

Based on Service Charge for 100mm Water MeterAssumed Annual Consumption of 25,300 kl

$29,829

$30,173$30,027

$29,515

$28,7790.03%

Increase

$28,770

$28,250

$28,450

$28,650

$28,850

$29,050

$29,250

$29,450

$29,650

$29,850

$30,050

$30,250

1997/98 1998/99 1999/00 2000/01 2001/02 5 YEARAVERAGE

1. The business water price is based on a standard service charge per property according tothe 100mm meter size and a variable water usage tariff charged by the Water Corporationfor consumption of 25,300kl.

2. 2001/02 is the fifth year in which data has been made available to display pricing trendsover a 5 year period. 1997/98 was previously agreed as the base (or first) year of the 5year period.

3. The source of the current pricing data is the Water Agencies (Charges) Amendment By-Laws (No. 2) 2001 [Water Agencies (Powers) Act 1984] published in the WesternAustralian Gazette on 29 June 2001.

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2.1.3 Real Cost of Non-Residential Sewerage Service over time based on asample of fixture-based charges with average volume of wastewater forthat number of fixtures

Residential sewerage charges are currently based on Gross Rental Value(GRV). The Water Corporation is continuing its evaluation of supply chargesbased on the number of fixtures. The GRV tariff structure is not amenable tothe monitoring of price movements over time since both the GRV and the rateper dollar applied to it generally change each year. It is expected that anindicator for residential sewerage charges will be developed once ongoingreforms to the existing tariff structure are complete.

Related tariff developments with which the Office has been involved duringthe 2001/2002 year are discussed later in this report under Tariff Reform.

Charges for non-residential (business customers) and State governmentproperties are based on the number of major fixtures and, for major industries,the volume of wastewater returned to the sewerage system. The fixture-basedsystem is being phased in to replace the earlier GRV-based system. Thisphasing-in continued throughout 2001/02.

2.1.3.1 Performance Indicator – Real movement in business sewerage pricesover time expressed as the total price for a business with one majorfixture and an average volume of wastewater

Real Price of Business Sewerage1997/98, 1998/99, 1999/00, 2000/01, 2001/02

Based on Service Charge for One (1) Major FixtureAssumed Annual Consumption of 175 kl

$418.96

$423.64$421.40

$414.27

$403.70

.01%Increase

$403.65

$385

$390

$395

$400

$405

$410

$415

$420

$425

1997/98 1998/99 1999/00 2000/01 2001/02 5 YEARAVERAGE

1. The business sewerage price is based on a standard service charge per property and aconsumption-based charge.

2. 2001/02 is the fifth year in which data has been made available to display pricing trendsover a 5 year period.

3. The source of the current pricing data is the Water Agencies (Charges) Amendment By-Laws (No. 2) 2001 [Water Agencies (Powers) Act 1984] published in the WesternAustralian Gazette on 29 June 2001.

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2.1.3.2 Performance Indicator – Real movement in business seweragecharges over time expressed as the total price for a business withten (10) major fixtures and an average volume of wastewater

Real Price of Business Sewerage1997/1998, 1998/1999, 1999/2000, 2000/2001

Based on Service Charge for Ten (10) Major FixturesAssumed Average Consumption of 1827 kl

$4,551$4,602 $4,578

$4,501

$4,387

0.01%Decrease

$4,388

$3,700

$3,800

$3,900

$4,000

$4,100

$4,200

$4,300

$4,400

$4,500

$4,600

$4,700

1997/98 1998/99 1999/00 2000/01 2001/02 5 YEARAVERAGE

1. The business sewerage price is based on a standard service charge per property and aconsumption-based charge.

2. 2001/02 is the fifth year in which data has been made available to display pricing trendsover a 5 year period.

3. The source of the current pricing data is the Water Agencies (Charges) Amendment By-Laws (No. 2) 2001 [Water Agencies (Powers) Act 1984] published in the WesternAustralian Gazette on 29 June 2001.

2.2 Tariff Reform

Continuing industry (i.e. provider) activity in the area of water services pricinghas been evident throughout the year. The WA water industry continues itslong, gradual reform to most of its tariff structures that have traditionallyfocused on an inefficient Gross Rental Value of properties (GRV) basis ofcharging.

The reforms are aimed at establishing administratively simpler pricing systemsand more efficient pricing of services based on supply fees, numbers offixtures, meter sizes and consumption based charges (ie. charges that relateto the service provided and the costs incurred in providing it). In addition, theState’s commitment to the concept of Competitive Neutrality under NationalCompetition Policy has contributed to further (but by no means completed)changes to water services pricing.

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A new development in 2001/2002 has been an increased interest in thepotential for simplified tariff structures and revised step charges to reduce theState’s water consumption as a response to continuing drought conditions anddiminishing water levels in storage dams. These issues are likely to be raisedin the context of the Government’s Draft State Water Conservation Strategy,currently scheduled for release in August 2002. OWR is represented on theSteering Committee that is drafting the strategy.

Tariff review and reform to drainage and sewerage service charges has alsobeen the focus of significant consideration during the year. The Governmentestablished a working group to examine the appropriate structure of sewerageand drainage charges, taking into account the Government’s social equityobjectives and the State’s National Competition obligations. The OWR is acontributing member of the working group, which will report to Governmentlater in the 2002.

The key issue under review is whether the process of moving from a GrossRental based sewerage and drainage charge towards other fixed orconsumption based charges will lead to undesirable social and economicoutcomes. In this endeavour, the Government’s social equity concerns arealso to be balanced against National Competition Policy objectives.

2.3 Performance Reporting and Benchmarking

During the year responses to the OWR’s milestone report Statistical Profileand Performance Benchmarking of Water Supply Services in 32 MajorWestern Australian Towns 1999/2000 were received from local, nationaland international water industry experts, water service providers and peakwater organisations. The Office was particularly encouraged by thecompliments it received from highly respected and credible globalorganisations (including the World Bank and the International WaterAssociation).

The World Bank and Public Utility Research Centre (PURC) Economics alsosought the permission of the Office to include the report on the Reference CDmade available to attendees of the World Bank/PURC International TrainingProgram on Utility Regulation and Strategy. Additionally, the Office acceptedan invitation from the World Bank to partner in an international water industrybenchmarking project and to establish Western Australia as a node on theirinternational benchmarking network.

Building on growing national and significant international interest in the OWR’sperformance reporting activities, the Office set about developing guidelinesand criteria by which relevant water industry performance indicators andbenchmarks can be reliably selected and effectively evaluated. It isanticipated that these guidelines will be published in the second half of 2002.

The Office has also commenced work on two important longitudinalbenchmarking reports, one for sewerage services and another for water

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services. The sewerage services report was substantially completed in the2001/2002 year and is expected to be published in September.

During the year, the OWR continued its efforts to achieve a higher level ofuniformity between its local benchmarking approach and the approachesbeing pursued by leading national and international benchmarkingorganisations and partnerships. In doing so, the OWR signalled itscommitment both to contributing to international benchmarking projects andestablishing national benchmarking initiatives/partnerships with water industryregulators elsewhere in Australia. Potential benefits of this commitment for thedevelopment of the Western Australian water industry include:

• access to external synergies, expertise, methods and information toimprove the standard of industry performance and the credibility ofperformance reports;

• publication of reports that more reliably/expertly identify and evaluatesignificant aspects of WA water and wastewater service providerperformance;

• enhancement of ‘competition by comparison’ by benchmarking local utilityperformance with that of best practice utilities in Australia and elsewhere inthe world.

Significant external (particularly international) benchmarking initiativesfollowed closely by the OWR during the year included:

• The World Bank – International Benchmarking Water and SanitationUtilities Project

• Performance Benchmarking Network (PBN) – Watermarque Online• WRC in the U.K. – International Benchmarking Reviews• Office of the Regulator General (Victorian Essential Service Commission)• IPART (New South Wales)• Asian Development Bank’s Performance Benchmarking for Pacific Power

and Water Utilities Project• Flemish Water Study and Co-operation Centre• Danish National Benchmarking Project – Danish Water & Wastewater

Association (DANVA)• International Water Association (Performance Indicators for Water Supply

Services Manual of Best Practice)• AFNOR – French Standards Association proposal to the ISO for

“Standardisation of Service Activities Relating to Drinking water Supplyand Sewerage – Quality Criteria of the Service and PerformanceIndicators”

• Water Utilities Partnership for Capacity Building in Africa – ServiceProviders’ Performance Indicators and Benchmarking Network (SPBNET)

• South African Association of Water Utilities (SAAWU), the Water ResearchCommission South Africa and OLAP Solutions - metric benchmarkingcomparing financial/production performance measures between utilities

• Baltic Utilities Benchmarking Indicators (BUBI) Water Utility Website

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• Benchmark Clearing House in the U.S. - run through Qualserveestablished by the Water Environment Federation (WEF) and theAmerican Water Works Association (AWWA)

• Australian Quality Council (AQC) which maintains the AustralianBenchmarking Edge

• European Union – “Benchmarking in Europe” website• University of Valencia (Spain) – Sigma Lite and Sigma Professional metric

benchmarking software for water services

These initiatives to develop benchmarking methods and practices, universalor standardised indicators of performance and related definitions have provenextremely valuable for the Office as it seeks to improve and align its industrybenchmarking and performance reporting protocols with the ‘world’s best’ andimprove service provider and industry efficiency.

2.4 Efficiency Indicator

Ministerial Advice and Legislative Review

Two indicators are provided to measure efficiency under this Output. One isthe average cost for providing advice to the Minister. The second measure isfor the number of Acts and Regulations reviewed under the State’s NationalCompetition Policy commitments.

Both indicators were created in 2000/2001. Data for historical comparisonprior to 1999/2000 are unavailable.

Briefing Notes and Advice Provided to the Minister

Total Cost of Briefing Notes Quantity Audited Key PerformanceIndicator

Average Cost

99/00 00/01 01/02 99/00 00/01 01/02 99/00 00/01 01/02

$237,590 $304,980 $906,600 494 423 318 $481 $721 $2,8511

1 The average cost per briefing note is derived by dividing the total cost of briefing notes bythe annual quantity. The proportion of costs allocated to providing advice to the Ministerremained constant during 1999-2000 and 2000-2001, however it was amended in 2001-2002 to include new transitional responsibilities relating to the formation of the EconomicRegulation Authority and related strategic projects identified in the Office of WaterRegulation’s Business Plan. New measures have been created for 2002-2003 to accountfor these activities. The percentage allocated to this measure in 2001-2002 was 60% asopposed to 23% in previous years. The average cost per briefing note would have been$1,093 had the other activities not been allocated to this measure in 2001-2002.

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Principal Acts, Regulations and By-Laws Reviewed and Submitted for Implementation inthe National Competition Policy Legislation Review

Total Cost of Legislation Reviews Quantity Audited Key PerformanceIndicator

Average Cost

99/00 00/01 01/02 99/00 00/01 01/02 99/00 00/01 01/02

$485,510 $755,820 $256,870 20 25 25 $24,276 $30,233 $10,2752

2 The average cost per Legislation Review is derived by dividing the total cost of LegislationReviews by the annual quantity. The proportion of output costs allocated to LegislationReviews increased from 47% in 1999-2000 to 57% in 2000-2001. In 2001-2002 thepercentage of costs allocated to this function reduced to 17% this reflects the reduction inactivity relating to the reviews in 2001-2002.

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OPINION OF THE AUDITOR GENERAL

To the Parliament of Western Australia

OFFICE OF WATER REGULATIONFINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2002

ScopeI have audited the accounts and financial statements of the Office of WaterRegulation for the year ended June 30, 2002 under the provisions of the FinancialAdministration and Audit Act 1985.

The Coordinator of Water Services is responsible for keeping proper accounts andmaintaining adequate systems of internal control, preparing and presenting thefinancial statements, and complying with the Act and other relevant written law. Theprimary responsibility for the detection, investigation and prevention of irregularitiesrests with the Coordinator of Water Services.

My audit was performed in accordance with section 79 of the Act to form an opinionbased on a reasonable level of assurance. The audit procedures included examining,on a test basis, the controls exercised by the Office to ensure financial regularity inaccordance with legislative provisions, evidence to provide reasonable assurancethat the amounts and otherdisclosures in the financial statements are free of material misstatement and theevaluation of accounting policies and significant accounting estimates. Theseprocedures have been undertaken to form an opinion as to whether, in all materialrespects, the financial statements are presented fairly in accordance withAccounting Standards and other mandatory professional reporting requirements inAustralia and the Treasurer’s Instructions so as to present a view which isconsistent with my understanding of the Office’s financial position, its financialperformance and its cash flows.

The audit opinion expressed below has been formed on the above basis.In my opinion,(i) the controls exercised by the Office of Water Regulation provide reasonable

assurance that the receipt and expenditure of moneys and the acquisitionand disposal of property and the incurring of liabilities have been inaccordance with legislative provisions; and

(ii) the Statement of Financial Performance, Statement of Financial Position,Statement of Cash Flows, Output Schedule of Expenses and Revenues andSummary of Consolidated Fund Appropriations and Revenue Estimates andthe Notes to and forming part of the financial statements are based on properaccounts and present fairly in accordance with applicable AccountingStandards and other mandatory professional reporting requirements inAustralia and the Treasurer’s Instructions, the financial position of the Officeat June 30, 2002 and its financial performance and its cash flows for the

year then ended.D D R PEARSONAUDITOR GENERAL

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October 14, 2002

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