November 27, 2001
The Canadian Council for Public-Private Partnerships’s Ninth Annual Conference, Toronto
The program for today’s session asks whether and how the Walkerton tragedy will affect the market for water services. The tragedy is bound to have a profound impact. It shone a spotlight on public water systems all across the country, forcing governments and citizens to look at them more closely. They did not like what they saw.
Here in Ontario, the tragedy prompted the environment ministry to inspect all 659 water treatment plants, some of which had not been inspected for years. The ministry discovered that 367 of the plants failed to comply with provincial laws and regulations. The most common problem was inadequate sampling; other problems involved disinfection, treatment, and the certification of operators.
The tragedy also forced medical officers of health to pay attention to water quality. They began to issue boil-water advisories before people became ill from drinking foul water. In the nine months following the Walkerton tragedy, there were 246 advisories issued in Ontario affecting 70 municipal water supplies.
Other provinces likewise took notice. The Quebec government identified 90 systems that urgently needed repairs and advised consumers served by them to boil their water. In Newfoundland, the government decided that it would be "prudent and responsible" to issue boil-water advisories for 188 communities with inadequate or no chlorination.
These are not new problems. Our water systems have been in trouble for years. We have long known about their enormous capital requirements. We have known about their vulnerability to cryptosporidium and the threats posed by trihalomethanes. But we have treated these problems as theoretical. The Walkerton tragedy reminded us that these are not abstract issues. It reminded us that some combination of contaminated water sources, unskilled operators, inadequate treatment, aging infrastructure, insufficient financing, or lax regulation can kill people. It forced us to heed the warnings that we had hitherto been inclined to ignore.
Those, then, are the problems that the Walkerton tragedy exposed. But what about the solutions? Although the tragedy itself offered no solutions, the inquiry into the tragedy did teach us a great deal in that area. I lived and breathed the Walkerton Inquiry for 14 months. My foundation had standing at the inquiry. We were given access to hundreds of thousands of government documents. We had the opportunity to cross examine politicians and bureaucrats. We participated in countless meetings. We came away from the process with a better understanding of what has been going on in this province.
One thing that we learned at the inquiry was that, early in its term, the Harris government grasped many of the problems facing our water systems. At least on paper, it had a fairly respectable plan to correct them. Its plan revolved around private financing and operations; it also involved phasing-out government subsidies and encouraging full-cost pricing.
One of the documents that surfaced at the inquiry was a confidential minute from a 1996 Cabinet meeting. In that minute, Cabinet agreed that "opportunities for private sector participation in financing and delivering water and sewage services should be enhanced." A briefing note of that time referred to increased private sector involvement as "a key provincial objective." The policy was quickly embraced by the environment ministry, which vowed to "encourage, facilitate and support new approaches and partnerships."
Unfortunately, this government policy was kept secret, and was never implemented. When we cross examined Norm Sterling, the former environment minister, we asked him if enhancing opportunities for private sector participation remained a goal during his tenure. He replied, "Well, nothing happened really in that area." When we asked, "was there any encouragement of any private sector involvement?" he said, "Not that I’m aware of."
The inquiry also illuminated the government’s approach to regulation. We learned that the environment ministry has, ever since its beginning, consciously pursued a cooperative relationship with water providers. It has emphasized trust over enforcement. It has relied on voluntary compliance with regulations. It has steadfastly refused to prosecute non-compliant municipalities.
The Walkerton tragedy made it clear that trust is not enough. As the government wrote in one understated submission to the inquiry, "The voluntary approach to compliance no longer appears adequate." The province endorsed mandatory compliance. It replaced mere guidelines with legally enforceable regulations. It scheduled annual inspections of water plants.
It all sounded promising . . . until a tiny news item appeared in the Globe and Mail last month. The environment ministry had released the results of its inspections of 218 waterworks. One- hundred-and-seven of those – almost 50 percent – did not meet standards. A year-and-a-half has passed since the Walkerton tragedy, and we are still seeing the same shoddy performance.
It is particularly troubling that many of the same problems were identified at the same plants in last year’s inspections. Many were even the subject of orders requiring the operators to comply. That raises serious questions about the province’s so-called new approach to regulation. Why hasn’t it prosecuted non-compliant municipalities? What are we supposed to make of its talk of stringent, legally enforceable standards and tough penalties? Is it all just vain posturing?
The government’s failure to enforce the law – even after the Walkerton tragedy – exposes an inherent flaw in the system. The government simply cannot properly regulate a system that it also finances and, in some cases, operates. These different roles inevitably conflict with one another.
First, there is a financial conflict. Compliance can be expensive. The government understands that, if it requires compliance, it may have to foot the bill. Through various grant programs over the years, it has paid up to 92.5 percent of the cost of capital improvements. The threat of financial responsibility is bound to have made it think twice before enforcing the law. Indeed, a former official from the environment ministry told the Walkerton Inquiry that before making demands, the government has always taken costs into consideration.
An operational conflict of interest also impedes enforcement. The government operates 161 plants through OCWA, the Ontario Clean Water Agency. Approximately one-third of OCWA’s plants do not meet provincial standards. In other words, if the government prosecutes a violator, it may well be prosecuting itself. On a personal level, the prosecutors would likely be going after former colleagues – a situation that they would doubtless find uncomfortable.
Even when the violator is a municipality, it is still just another level of government. Municipalities are not independent of the province. Their relationship is very close. They are thought of as "children of the province." What regulator could be impartial in such a situation? How could there not be a built-in bias against enforcement?
The Walkerton Inquiry commissioned a paper on organizational behaviour that touched on these issues. It posed the questions: Why do well-intentioned organizations make bad decisions? How can the people in them see that a catastrophe is likely to happen, and do nothing to stop it? Its answer was: People and organizations act defensively. They want to avoid embarrassment. They want to cover up mistakes – not expose them. That is common sense. Any government would want to ward off criticism of its public services. Such criticism becomes criticism of its policies, its appointees, its very self. Our current system thus creates incentives for defensive behaviour. The only way to remove those incentives and to eliminate the conflicts of interest is to get all levels of government out of the business of financing and operating water systems. The solution, in short, is to privatize. Privatization will enable the government to focus on its core responsibility: regulating our systems.
This is a point I cannot stress enough. People often associate privatization with deregulation. But the privatization of water utilities does not in any way imply deregulation. On the contrary, it goes hand-in-hand with a new focus on regulation.
Norm Sterling confirmed this at the Walkerton Inquiry. He said that privatization would mean better enforcement of regulations. He explained, "It’s easier for the government to actually regulate the private rather than the public in some ways because – because you don’t have any … political infighting taking place …in terms of that regulation. You have a private sector operator over there and then … you’re not going to get any interference from the local municipal politicians." We then asked, "So there’s no potential conflict of interest and no potential reluctance to prosecute or be involved in enforcement, is that what you mean? … You would be more willing to deal with them as the situation dictates, rather than for political reasons?" And he answered, "That’s right."
Ontario’s limited experience with privatization confirms this. In Hamilton, enforcement has gotten much tougher since privatization. Hamilton’s sewage treatment plants have a long history of violations. They made eight appearances on non-compliance lists in the eight years before privatization. They were not prosecuted once. Hamilton contracted out operations in 1995. The plants continued to experience problems, but there was a sea change in people’s attitudes towards those problems. The union became extremely critical, and pressured the ministry to enforce environmental laws. Eventually, the ministry acted: It has laid 22 charges. It is undeniable that both the union and the ministry are holding the private operator to higher standards than those to which they held its public predecessor.
The same thing has happened in other jurisdictions, most notably in England and Wales. Before privatization, the government understood that it was in a conflict of interest that prevented it from enforcing tough standards. In its words, it was both the poacher and the gamekeeper. Privatization changed that. It separated the operator from the regulator. One regulator identified this separation as the "most significant gain" of privatization.
Since privatization, the system of water regulation in the UK has become one of the toughest in the world. Drinking water quality has improved steadily. The regulator attributes the progress in part to its strict enforcement policy emphasizing investigations and prosecutions – a product of privatization.
Those, then, are some of the lessons learned from Walkerton. We have learned that our water systems are in disarray. They desperately need capital, expertise, and a commitment to obeying the law. We have learned that our regulatory system is grossly inadequate. Regulators must monitor water providers and hold them accountable when they break the law. We have also learned that this is unlikely to happen as long as the government finances, operates, and regulates water systems. When the government takes on all of those jobs, conflicts prevent it from doing any of them well.
The private sector has indicated that it can finance and operate our systems. Greater private involvement will bring expertise and efficiencies. Perhaps most important, it will free up the government to regulate. If the Walkerton Inquiry learns this lesson, and endorses private sector involvement, it will have provided a great service to the province and to the country.