Elizabeth Brubaker
July 15, 2010

July 15, 2010

Carol Salisbury
Senior Policy Analyst
Ministry of the Environment
Integrated Environmental Policy Division
Land and Water Policy Branch
135 St. Clair Avenue West, Floor 6
Toronto, Ontario M4V 1P5

By fax: 416 314-7200

Re: EBR Registry Number 010-9940
Bill 72: The Water Opportunities and Water Conservation Act, 2010

Dear Ms Salisbury:

The Water Opportunities Act purports to establish a framework to conserve water resources, sustain municipal water infrastructure, and support Ontario’s water industry. Unfortunately, the proposed Act overlooks the role that pricing must play in achieving all three goals. In the absence of proper pricing, the proposed Act’s provisions will be inefficient, ineffective, and even, in some cases, counterproductive.

More than any other factor, pricing drives decisions about water use and conservation. If water is priced to reflect its value and the full costs of treating and delivering it, consumers will use it wisely. Pricing is also key to sustaining municipal infrastructure. Prices that fully recover the costs of treating and delivering water will, in reducing demand, enable municipalities to better utilize existing capacity; they will also ensure that municipalities have sufficient funds to maintain and expand their infrastructure when necessary. A thriving water industry likewise depends on proper pricing. Rising prices will create consumer demand for conservation technologies and services. And if municipalities have adequate means to finance improvements, they will look to the industry for innovative solutions to their water challenges.

Conserving Water Resources

The proposed Act dodges the opportunity to require full-cost pricing for municipal water services. It requires certain municipal service providers to prepare financial plans, empowers the Environment Minister to establish performance indicators related to the financing of municipal services, and empowers the Lieutenant Governor in Council to prescribe requirements for water conservation plans – all without mentioning pricing. This is a grave omission.

Water prices communicate information about the value and scarcity of water and the costs of treating and distributing it. Proper prices provide consumers with financial incentives to monitor their water use and minimize waste. They promote investment in and maintenance of efficient water technologies and practices. The conservation mechanisms specified in the proposed Act – including aspirational targets, efficiency standards, and appliance labels – are not as effective or as efficient as full-cost pricing.

The important of full-cost pricing is widely understood. Both the Walkerton Inquiry and the Expert Panel on Water and Wastewater promoted the concept. In 2009, the C.D. Howe Institute and the Conference Board of Canada issued reports endorsing full-cost pricing, as did a coalition of prominent environmental organizations and the Canadian Water and Wastewater Association.

The provincial government has recognized a role for water prices in promoting conservation. In Towards Financially Sustainable Drinking-Water and Wastewater Systems (2007), the Ministry of the Environment put forward the principle that making users pay for water services can improve conservation. In Stewardship, Leadership, Accountability (2009), the Ministers of Environment and Natural Resources included water charges under possible actions to promote efficient use and conservation. The Appendix of that Proposal Paper noted that municipalities could be required to have a pricing structure that charges all users the full cost of providing water and wastewater services.

Sustaining Municipal Water Infrastructure

The proposed Act’s provisions for Municipal Water Sustainability Plans are inadequate. A key component of the Sustainability Plan is a Financial Plan. But the contents of that plan are not specified. At a minimum, the Financial Plan should assess the full costs of providing water and wastewater services (including the costs of source protection and infrastructure renewal and replacement) and explain how these costs will be recovered. This is the standard set in The Sustainable Water and Sewage Systems Act (SWSSA), which was passed in 2002 but is not yet in force.

Because Ontario’s municipalities have been unable or unwilling to make the tough pricing decisions required to sustain water and wastewater infrastructure, they have enormous investment needs. (The province’s best guess of $34 billion includes $25 billion for capital renewal and $9 billion to meet projected growth.) Reviewing municipalities’ plans on how best to meet these needs should be the job of an independent economic regulator, rather than the Minister of the Environment, as specified in the proposed Act. Only an independent economic regulator will have the expertise and the focus required for such a task. And only an independent economic regulator will remove the process from the political realm. Such regulation was called for by the Expert Panel on Water and Wastewater, and was included in Bill 13, The Sustainable Water and Wastewater Systems Improvement and Maintenance Act, which received first reading earlier this year.

Supporting Ontario’s Water Industry

The proposed Act would establish the Water Technology Acceleration Project to encourage the development of the water industry. The nature and extent of the support envisioned for the industry is unclear. But the assistance proposed in the Act – increasing the sector’s capacity to develop, test, demonstrate, and commercialize innovative technologies, and to expand business opportunities – should be viewed with caution. Subsidizing specific players, technologies, or industries – or choosing winners and losers – tends to be inefficient and ineffective.

Rather than artificially “accelerating” water technologies, the government could help create a sustainable market for innovative technologies and expert services in two ways. First, legislating full-cost pricing would spur demand for technologies that reduce water use and cost. Second, enforcing existing laws and regulations governing utility performance would spur demand for technologies and services that poorly performing municipalities now lack, including the expert operation and management of existing infrastructure and the development of new infrastructure. Combined, pricing and enforcement would guarantee the water sector a host of customers eager for innovative technologies and services, thereby creating strong incentives to invest in R&D and growth.

In order to encourage of the growth of the water services sector, the government should also withdraw its proposal to expand the role of the Ontario Clean Water Agency (OCWA). The proposed Act would allow OCWA to finance and promote the development, testing, demonstration, and commercialization of technologies, and to conduct business outside of Ontario. Among water services providers, OCWA is widely viewed as having an unfair competitive advantage. Indeed, OCWA’s history and its close relationship with the province led one water services provider to call the agency “the most serious impediment to the creation of a competitive environment in Ontario.” Strengthening the agency would undermine the proposed Act’s object of promoting the development of Ontario’s water and wastewater sectors.

Should you have any questions regarding our concerns or recommendations, please do not hesitate to contact me.

Sincerely,

Elizabeth Brubaker
Executive Director