It’s all about accountability. So argue the advocates of purely public water and sewage utilities. They warn that public-private partnerships (P3s) or other arrangements involving private financing or operations impede transparency, diminish accountability, and undermine government regulation.
Whenever and wherever P3s are proposed, their opponents bring out these accountability arguments. Late last year, when Sudbury announced plans for the private design, construction, funding and operations of a facility to treat sewage sludge, CUPE complained, “There’s no transparency or accountability to the public. You have a private, for-profit company running a plant on taxpayers dollars.”
CUPE’s Water Watch campaign used the same arguments the previous month in its fight against a privately financed and operated drinking water plant for Abbotsford, BC: “The advantage [of public provision] is accountability. With private operators, transparency can be an issue – they are private and they are operating for profit.”
Activists in Winnipeg likewise used these arguments against the proposed “corporatization” of Winnipeg’s water and waste utility in 2009. The Manitoba Eco-Network depicted private companies as “accountable to shareholders, not consumers…. When water services are privatized, very little can be done to ensure that the company will work in the best interest of the community.” The Canadian Centre for Policy Alternatives also objected to the proposal on the grounds that it would undermine transparency and accountability, claiming, “evidence shows that corporations are extremely adept at avoiding regulations, or that the penalties levied for non-compliance are inconsequential.”
Even the prospect of trade agreements that might encourage international investment in Canada’s financially strapped utilities calls forth the arguments that only publicly financed and operated utilities can be accountable. Earlier this year on CBC Radio’s “The Current,” the Council of Canadians criticized Canada’s refusal to prohibit foreign involvement in water utilities, explaining, “the concerns are that we lose the ability down the road to regulate in those sectors – we lose accountability down the road.”
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In fact, the labour unions and their anti-privatization allies have it backwards. Public utilities have repeatedly shown themselves to be un-transparent and un-accountable.
Even the most vigorous defenders of public utilities would have a hard time calling the public operators of Winnipeg’s sewage system transparent or accountable. Last fall, more than 1.3 billion litres of improperly treated sewage flowed from Winnipeg’s South End Water Pollution Control Plant. Although staff and plant management were aware that the plant’s bioreactor had stopped working, no one knew how to fix it. And so, every day for more than three weeks, 50-60 million litres of effluent contaminated with bacteria and ammonia flowed into the Red River and, eventually, into Lake Winnipeg, already one of Canada’s sickest lakes.
Although the discharges violated the plant’s environmental licence, no one hurried to report the problem to the mayor or to provincial regulators – despite the requirement in the licence that the province be informed within 12 hours. Indeed, it took 26 days for management to report the malfunction to Manitoba Conservation. The city learned of the problem the following day, and revealed it to the public.
What explains this appalling lack of transparency? Mike Shkolny, the water and waste department’s engineering manager and acting director, offered several rationalisations. He and his staff were focussed on fixing the problem; they hoped to do so quickly; and the risk to public health was small, since few swim in the river in October. Another explanation lay in a legalistic reading of the plant’s licence. “The way the department read the licence, our duty was to disclose a mechanical malfunction,” said Mr. Shkolny. A bacterial malfunction, in contrast, would not require reporting. Mr. Shkolny admitted, “I understand the province has a different interpretation.”
Regardless, the province made no move to hold Winnipeg’s public sewage operators accountable for either their failure to report or for the pollution itself. More than eight months after the malfunction occurred, Manitoba Conservation continued to “investigate” the incident. Selkirk-Interlake MP James Bezan wondered why regulators took no action. The pollution, he charged, violated several laws. “Where is the environmental protection?” he wondered. “Why does the province look the other way?”
Judging from the letters to the editor of the Winnipeg Free Press, the public was outraged at the absence of accountability. “Are they going to be held accountable for it?,” wondered one. “This is so ridiculous! Government can do whatever they want and even if they break laws, NOBODY is ever responsible,” commented another. Several understood the problem as one all too typical of the public sector. “If this had been done by a private entity … they would be charged on the spot, and slapped with an enormous fine…. Why hasn’t some engineer, or manager been fired over this?,” complained one, who found the situation “absolutely unacceptable.” Another agreed, noting that “if a private sector company was running our water treatment people would be getting fired and the usual suspects would be crying that the utility should be run by the government…. When government does it they blame ‘the system,’ when the private sector screws up it’s because they are greedy and profiteering.”
Comments on the CBC News web site reflected similar frustrations. “No reprimands? No apologies?” asked one reader, adding, “Of course … no one is ever directly responsible for anything at City Hall.”
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Winnipeg’s public utility is not alone in failing to report severe problems with its sewage operations. Our nation’s capital provided one of the most egregious examples in 2006. In August of that year, a “regulator gate” in an Ottawa sewer became jammed, allowing 764 million litres of raw sewage to flow directly into the Ottawa River, contaminating water and closing beaches at the height of the swimming season. It took system operators almost two weeks to discover the jammed gate – and more than eight months to report the discharges to the environment ministry, despite legal requirements that it do so. It took them another year to inform the public health department, city management, and city council of the spill.
Why this secrecy? The sewer maintenance supervisor excused his failure to report on the grounds that he believed that he was obliged only to report spills that he had initiated. An environmental manager with the city insisted that the spill was insignificant. Another manager said that the spill was “not a big deal” – and became one only “when it hit the papers.” Such a claim astonished the Environmental Commissioner of Ontario, who explained, “This is not a trivial spill by any stretch of the imagination. It represents a huge engineering failure and incompetence of the structure. Beyond that, from a risk to public health, it would have a profound effect.” The commissioner accused city sewer staff of having a “Walkerton-like attitude.”
In a scathing report, the city’s auditor general determined that managers had not “delivered the duties required of their positions.” The report called attention to “a culture of not understanding the significance of sewage spills,” adding, “It is our opinion that this represents incompetence on the part of the managers involved.” The auditor also noted that the unreported spill in August 2006 was not an isolated incident. For example, a spill that occurred in mid-June, 2008, was not reported to Council until late July of that year.
Writing about the auditor’s report, the Ottawa Citizen lambasted city staff for “treat[ing] their jobs with such disregard.” In a stinging editorial, it called elements of the sewage staff “unethical, tight-lipped and incompetent,” and asked, “Can we trust city staff?” The city apparently wondered the same thing and fired the worst offenders. For its part, the province did eventually hold the city accountable for both the discharge and its failure to report it: In 2008, the Ontario Court of justice in Ottawa fined the city $562,500.
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Unfortunately, such enforcement actions against public polluters are rare. Canada’s provincial and federal regulators routinely let municipal polluters off the hook for violations of laws and regulations governing public health and the environment. Allowed to break the law with impunity, municipal sewage treatment plants – virtually all of them publicly financed and publicly operated – have become the country’s largest sources of pollution, dumping more than 150 billion litres of raw sewage and approximately 1.35 trillion litres of only partially treated sewage into our waters every year.
Much of this pollution will continue for decades. The federal government acknowledges that 949 sewage systems need to be upgraded. But it proposes giving the worst 399 systems until 2020 to comply with new wastewater regulations. Another 403 substandard systems will be allowed to pollute until 2030 and another 147 will pollute until 2040.
Regulators are so intent on protecting municipal polluters that they even intervene in private prosecutions to prevent citizens from enforcing environmental laws themselves. In 2008, for example, the federal government took over a private prosecution against Metro Vancouver for pollution from the Iona sewage treatment plant and then stayed the charges, allowing Vancouver to continue to pollute with impunity. Environmentalists became so frustrated by the government’s refusal to prosecute Vancouver that they took their complaint to the Commission for Environmental Cooperation (CEC), the international body set up under the North American Free Trade Agreement to help ensure that countries enforce their environmental laws. The CEC has agreed to investigate.
Like municipal sewage utilities, municipal water utilities frequently violate provincial laws and regulations without raising the ire of their regulators. Although boil water advisories are common – it’s not unusual for 1,500 to be in effect across the country on a given day – those responsible are rarely held accountable. Violations of operating and reporting requirements likewise go unpunished. In Ontario, during the 2009-2010 fiscal year, inspections turned up violations at 41 percent of the province’s drinking water systems. In addition, 35 percent of the systems violated drinking water quality standards at least once. That year, regulators issued just eight orders to municipal water systems and obtained just three convictions for prosecutions of such systems.
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What explains governments’ routine failures to hold public utilities to account? Some blame it on the under-funding – and under-staffing – of enforcement agencies. But even when adequate resources are available, regulators show a marked preference for cooperation over coercion. The most persuasive explanation lies in the conflicts of interest that public regulators face when dealing with publicly owned, financed, and operated water and sewage systems. One arm of government is reluctant to punish another. Enforcement may be embarrassing. It may bring unwelcome political repercussions. It may also be costly. The department that regulates performance may be reluctant to enforce tough standards if it knows that doing so will oblige the department responsible for operator training to do a better job, or will oblige the department that oversees municipal grants to support new infrastructure.
In putting more distance between the regulator and the utility, private financing and operations help ease this regulatory paralysis. They help de-politicize regulation, freeing up regulators to regulate. In other words, contrary to their opponents’ claims, P3s enhance accountability.
Reducing conflicts of interest was one of the justifications for privatizing the water and wastewater systems in England and Wales in 1989. The gamekeeper, it was said, had to be separated from the poacher. One regulator described the separation of operations and regulation as the “most significant gain” of the British privatization of water utilities. In the decade following privatization, prosecutions for environmental offences went from being extremely rare to numbering in the hundreds, despite dramatically improved environmental compliance.
Closer to home, the separation of the operator and regulator greatly improved enforcement in Hamilton, Ontario. Following the contracting out of water and wastewater operations there, the Ontario environment ministry cracked down on poor performance that dated back more than a decade. It laid 22 charges in a year-and-a-half and issued fines in excess of $217,000, demonstrating that the ministry would hold the private operator to higher standards than those to which it had held its public predecessor.
P3s enhance accountability in other ways, as well. Municipalities themselves can hold their utility operators accountable through enforceable contracts – contracts that spell out performance requirements and penalize non-compliance. Contracts can also require transparency, which will further increase accountability. If a contract and all performance data are publicly available, environmental groups and concerned citizens can hold a poorly performing operator accountable if governments are slow to act. Other accountability mechanisms exist in the market itself. An operator that performs poorly risks harm to its reputation, lost business opportunities, reduced share prices, and the threat of bankruptcy.
Under a well-crafted P3, these diverse factors combine to create a complex web of information, feedback mechanisms, and incentives to perform well. Indeed, it’s all about accountability.