This discussion paper explores a range of management options available to Councils to assist them in managing their STEDS in an economically and environmentally sustainable manner.
In July 2005 the South Australian Region of Councils (SAROC) resolved that a discussion paper be prepared on the potential for an aggregated approach to the Management and Operation of STEDS (and/or Waste Management) on a State wide or Regional basis.
This report confines itself to STEDS issues, however many of the issues, benefits, constraints and advantages/disadvantages could be extrapolated to Waste Management.
The discussion paper represents part of the final phase of the STEDS Advisory Committee’s STEDS Reform Program which commenced in October 2004 and has included the following elements.
Awareness phase (October 2004 – February 2005)
‘STEDS Alert’ document issued to all Councils.
Presentations to each Regional Local Government Association (LGA)
on STEDS Reform matters.
Subsidised audit of one STEDS in each Council.
Information phase (March 2005 – June 2005)
Preparation and issue of the ‘STEDS Information Pack’.
A STEDS Forum held in each Regional LGA.
Development of Operation and Maintenance guidelines.
Audit of all STEDS in SA.
STEDS aggregation and a Public Private Partnership (PPP) study in the Central Local Government Region (CLGR).
Implementation phase (July 2005 – June 2006)
Establishment of a STEDS operator user group (email).
Preparation of a STEDS Management discussion paper.
Preparation of generic management plans and maintenance specifications (proposed).
Conduct Operation and maintenance workshops (proposed).
The STEDS Information Pack – April 2005 issued to Councils in April/May 2005, contains essential background reading to this paper.
The Information Pack is available on the Local Government Association web site at www.lga.sa.gov.au/goto/steds.
2. Essential STEDS reform matters. In conjunction with the consideration of the options for the management of STEDS, Councils need to consider the following STEDS reform matters.
Pricing reform is a key element to the whole reform program. Without the adoption of an adequate revenue base all the other necessary reform activities cannot be properly undertaken and it is unlikely that any external grant funding will be made available to those Councils who are seen to ignore the need to levy sufficient charges for their STEDS to become sustainable.
Councils must give consideration to raising sufficient revenue to meet the total cost of:
Depreciation of the gross capital cost of the STEDS asset over its design life;
Operation and maintenance of the scheme and
Management, supervision and administration.
Typically these costs per connection for an average scheme of 500 connections with a capital value of $5 Million are in the order of;
Operation & maintenance $120
Management $ 20
The recent 2005 audits of all STEDS in SA have revealed that the sustainable charge for existing STEDS varies between;
The SA Water country sewer rate for 2005/06 is $0.001876 on the capital value of the property with a minimum rate of $269 for a property valued at $143,390 (or less). The average SA Water country sewer rate is $390.
Councils must seriously reconsider their pricing policies for STEDS and at least adopt a plan to work towards a sustainable pricing regime over a suitable period of time.
Prices should be aimed at either:
The sustainable price for the particular scheme or
The SA Water equivalent charge.
which ever is the lower.
Where the SA Water equivalent charge is lower than the sustainable charge for the scheme then Councils will have a funding gap when replacement of the scheme is necessary however this creates a sound argument for Councils to seek State Government subsidy for the gap at that time.
The STEDS Advisory Committee considers that sustainable pricing is of prime importance and must be implemented by Councils if they wish to secure the longer term sustainability of their STEDS.
The principle of charging the same fee for the same service should be seriously considered.
The provision of Effluent Waste Services should be seen no differently than all other utility services provided by Councils or the State Government. Aggregation of prices/charges across the Council, Region or State for the provision of the same or similar services should be implemented (cf water, electricity, State provided sewer).
The STEDS Advisory Committee considers that aggregation of schemes (pricing and reserve accounts) within Council must be implemented so that Council can focus its attention on the asset class, provide the flexibility to utilise its STEDS reserves on any of the schemes and to treat all users equally. 4
2.3 Management Plans
Management plans that are reviewed annually are a requirement of EPA licensing conditions and should be in place for all STEDS to ensure that:
Operation and maintenance activities are planned and not re-active and
Intellectual knowledge of the scheme is retained.
Management plans should incorporate and address all of the following.
Operational & maintenance manual
Environmental monitoring plan
Irrigation management plan
Emergency & contingency plan.
The STEDS Advisory Committee urges all Councils to develop or update Management Plans then to review them annually in order that operation and maintenance can be successfully undertaken.
2.4 STEDS Management
STEDS is one of Councils most important assets - particularly from a risk management perspective and is often not considered highly in the raft of other responsibilities of Council’s Works Manager or Health Officer. Because of the potential risk to public health, the environment and financial sustainability, STEDS should be managed by a STEDS expert as a sole function.
This discussion paper explores some of the opportunities available to Councils to improve the management of their STEDS.
3. STEDS Management Options
The first STEDS was constructed in 1962 at Pinnaroo. There are now 160 schemes in 42 Councils throughout South Australia.
The majority of schemes are operated as single entities (charges and reserve accounts) however in recent times some Councils have recognised that improved management is essential.
Of note is the following.
6 Councils are charging at the sustainable rate for their STEDS
STEDS charges across the State have risen by 25% over the last 2 years
50% of Councils increased their charges by more than !0% for the current year against 2004/05.
8 Councils have aggregated charges within their area where there are multiple schemes
2 Councils have entered into a PPP with a waste water provider and several other Councils are in discussion on the arrangement
Several Councils are exploring resource sharing.
The 2004/2005 Audits of all STEDS found that, generally:
Maintenance is re-active rather than planned;
Management plans are either out of date or non existent;
Six management options are presented in this discussion paper for the purpose of generating serious debate on the future management of STEDS in SA.
Each scheme managed as a single entity, ie the status quo.
Aggregation of schemes within a Council.
Resource sharing between Councils.
A State Management Service Authority.
A Regional LGA Entity.
A State LGA Entity.
g) Other models (Public Private Partnership) – mentioned only.
A survey of Chief Executive Officers was conducted in December 2005 seeking their preliminary views (interest in) the above options.
23 (55%) of the 42 Chief Executive Officers (CEO’s) responded to the survey and indicated the following.
Option Not interested Interested Very interested
a) Single scheme 9 7 6
b) Aggregation 4 9 10
c) Resource sharing 5 14 4
d) State LGA Authority 9 8 6
e) Regional LGA Entity 8 12 3
f ) State LGA Entity 9 11 3
g) Public Private Partnership Not surveyed
It is pleasing to note that most CEO’s have shown an interest in seeking information beyond the current arrangements of managing STEDS as a single entity.
3.2 Management options
STEDS management by Council as single schemes (generally the status quo)
Issues The majority of STED schemes in South Australia are managed as a single entity even in those Councils where more than one scheme exists.
Management of STEDS is one of the many functions allocated to either the Works Manager or the Environmental Health Officer.
In some Councils more than one officer has “responsibility” for STEDS management, eg Works Manager – maintenance, Health Officer – monitoring and reporting, Finance Manager – revenue, accounting etc, with no single person assuming overall responsibility.
Given that STEDS maintenance does not require the regular (daily or weekly) attention that most of the other activities undertaken by these officers do, then STEDS is easily relegated to the “when I have time” basket. The lack of a regular maintenance requirement generally leads to the ignoring of management issues.
Information gathered during the 2004/2005 Audit of STEDS strongly indicates that most maintenance activities are re-active and most management plans are out of date or in some cases do not exist.
STEDS can be successfully managed as a single entity by Council provided that:
The potential risks associated with public health and environmental harm are recognised;
Asset maintenance is given a reasonable priority by Council;
A qualified senior officer is responsible for management of the scheme and ensuring regulatory compliance;
Management plans are in place and updated annually;
Maintenance is planned and not re-active;
Monitoring and reporting is carried out regularly;
Sustainable pricing policies are in place and
The potential legal liability for the environment and public health is recognised.
It is unlikely that single schemes can be operated and managed effectively and efficiently by Councils unless appropriate STEDS skilled resources are utilised.
Advantages The advantages of maintaining existing arrangements are:
Aggregation will provide management and operational efficiencies for Council and is more likely to create a focus onto the waste water service rather than individual schemes.
Separate ward accounting was discontinued by Local Government decades ago and a similar argument could be used for the management of STEDS.
Councils need to consider STEDS as an asset class in the same way as for the road or stormwater network.
A common user charge and a single reserve fund for multiple STED schemes within a Council are permitted under the Local Government Act 1999.
Advantages The advantages of aggregating charges and reserve funds for multiple STEDS are:
Same charge and/or rate to all users in the council area for receiving the same service;
One reserve fund provides Council with more flexibility to spend the money where it is most urgently required;
Financial management and forecasting is more likely to focus on the asset class rather than individual schemes;
Should encourage the bringing together Management and Operational plans;
Modern computer and accounting systems allow easy identification of individual expenditure and
Allows STEDS to be managed in the same way as other asset classes.
Disadvantages The disadvantage of aggregation of STEDS is:
Equalisation of charges for multiple schemes may seem “unfair” for users of lower cost schemes.
Issues Councils could enter into an agreement to share the services and cost of employing a dedicated expert STEDS person to provide management, reporting and programming skills.
A simple “Memorandum of Understanding” document between Councils would suffice to set out the operating conditions, role and responsibilities of the STEDS expert and his/her employment by one of the Councils with all signatory Councils contributing to the costs.
5,000 live connections would provide $100,000 * for management, administration and supervision – sufficient to employ a full time STEDS expert and allow for supervisory and financial/accounting assistance by the Councils.
* based on 5% (an acceptable percentage for project management/administration/supervision costs) of total revenue at the SA Water average country sewer rate.
Cost sharing for the STEDS Manager could be distributed in proportion to the number of connections in each Council or by some other mutually agreed arrangement.
Advantages The advantages of sharing a STEDS expert to manage STEDS are:
Issues This option involves the setting up of an LGA body to provide STEDS Councils with a range of services to help them manage their STEDS on a fee for service contract which could include:
Management of the scheme, including preparation and annual updating of all management plans (asset register, operation and maintenance plans, environmental monitoring plan, irrigation management plan, contingency plan);
Providing a monitoring service and reporting function to Council and the EPA;
Providing project co-ordination services for the design and construction of upgrades of existing schemes or installation of new schemes;
Council would retain.
Supervision and day to day maintenance activities
Decision making on upgrading, price setting;
Council membership to the LGA Service Authority would be voluntary however sufficient critical mass would be required to justify the setting up of the minimum staffing levels needed for the Authority to be able to operate effectively and efficiently;
Governance and legal arrangements to set up a Management Service Authority have not been fully explored. An overview of these issues appears later in this paper and
Structural requirements will vary depending on the number of members/STED schemes involved. Minimum staffing levels for the Authority are likely to be.
Manager (and STEDS expert)
A more formalised expansion of the current LGA STEDS Program which manages the new STEDS construction program would be feasible.
To justify the cost of operating the Management Service Authority, about 20,000 connections (about 50 STEDS) would be required. This would provide $300,000 based on 4% of total revenue or $15 per connection (an acceptable management and administrative cost) at SA Water average charges.
Advantages The advantages of a state LGA Management Service Authority for STEDS are:
The Service Authority would have a more effective and authoritative voice dealing with the Federal and State Government and their departments on STEDS related issues on behalf of Local Government;
Skilled STEDS personnel (asset management, technical and financial) fully focussed on STEDS would provide effective and efficient management;
Duplication of management tasks across the member Councils would be eliminated;
Potential economic, environmental and public health risks to individual Councils would be significantly reduced (transferred to the Authority) however Councils would still retain operational risks;
A Service Authority could more quickly and positively respond to funding opportunities offered by State/Federal Governments (eg the recent Federal Govt’s National Water Initiative);
Consistently managed and compliant STEDS operation across the State would result;
Dealings with and reporting to the E PA and DH would be simplified both for Local Government and the Departments;
Through the Service Authority Councils will be better informed and equipped to keep up with changing technology and regulatory requirements;
Training for Councils STEDS supervisors and operators would be available together with providing a central reference point and information base for advice and assistance;
Bulk tendering for some of the major maintenance activities (septic tank pump outs, pump maintenance, water quality monitoring etc) has the potential to reduce the current aggregated costs for these services and
The collective cost of consultancy advice presently obtained by Councils could be reduced.
Disadvantages The disadvantages of an LGA Management Service Authority would include:
Councils will lose some of the direct decision making power in relation to management plans and systems although ‘imposed’ requirements would not exceed those required by legislation for compliance and
Additional costs to Councils will be incurred.
The authority would require Councils to operate STEDS compliantly
A management fee would be imposed for the service and could be in the order of $15 per connection.
However these costs could be offset by cost reductions from bulk tendering for major maintenance activities, the potential to reduce STEDS insurance costs when risk management programs are in place and the ability of Councils to redirect existing staff engaged on STEDS work to other tasks.
A Regional LGA Entity
This option involves setting up a STEDS entity (or subsidiary) at a Regional level to manage, operate and maintain the STEDS on behalf of Councils.
The management and operation of the STEDS would be at arms length to Councils and the entity (or subsidiary) governed by a Board with membership drawn from constituent Councils and external experts.
A number of examples of such bodies already exist in Local Government, for example;
Eastwaste (regional waste collection and disposal)
Eastern Health Authority (regional health and food inspection)
Two studies undertaken in the Central Local Government Region (CLGR) by United
Utilities/Tonkin Consulting and Copa Water in 2005 examined the benefits to be gained from aggregating the schemes in the Region and the involvement of the Private sector.
A copy of the CLGR reports is available on the LGA web site at www.lga.sa.gov.au/goto/steds The reports analyse the issues for the establishment of a Regional entity with:
A management team and
A second model is also included which seeks to replace operational staff by contracting out the operation and maintenance component to a private enterprise waste water provider (This model is not discussed in this paper).
The CLGR study found that sufficient critical mass (approximately 50 schemes with 20,000 connections) existed in the region to gain benefits over the current operations, namely:
A reduction in the total Regional cost of about 10% could be achieved and up to 20% if both operational and maintenance services were contracted out;
STEDS would all be operated in accordance with legislative requirements (not the case at present);
Consistency of management and maintenance would occur across the Region and
Councils risks would be decreased.
Reduced benefit (particularly cost savings) would occur with a lesser number of schemes and the viability of such an entity becomes questionable.
Councils could retain ownership of their STEDS asset however equity for entry into the Regional Entity will be a significant matter to address.
Governance and structural arrangements have not been fully explored but are overviewed later in this report.
Advantages Advantages of establishing a Regional entity (where critical mass criteria are satisfied) are as follows.
Individual Councils at arms length to their STED schemes and the entity
A specialist STEDS entity will have single focus on the job in hand
Will bring consistency to the Region for waste water treatment
Existing operational staff could be transferred to the entity
Costs will reduce through economies of scale for management, operations and bulk tendering for some maintenance services
Specialist knowledge will be held in the Region
Strong body and a single voice within the Region to negotiate with Governments, EPA and DH
Asset ownership can remain with Councils.
Disadvantages The disadvantages to Councils becoming involved in a Regional entity are:
Councils will lose direct decision making power over the management and operation of STEDS in their area;
Whilst the entity would determine pricing policy, it would be a strong recommendation from the STEDS Advisory Committee that schemes be aggregated and the same pricing policy be adopted across the region
Management may appear remote from some communities and
Equity and legal issues may be difficult to resolve.
A State LGA Entity
This model is an expansion of the preceding Regional entity by combining the Regions into a single entity and the arrangements would be identical to those set out above.
Membership by Councils would be voluntary with the minimum critical mass being that outlined for a Regional model (50 schemes, 20,000 connections)
If the creation of entities were to become the preferred model for future STEDS management, then an single LGA entity would be more desirable as there is insufficient critical mass in some of the present country Regions to set up a viable entity unless several Regions join together for STEDS purposes.
Similar advantages and disadvantages apply to this model as to that of the Regional entity, however the opportunity for increased cost saving and a more specialist management expertise are real.
Asset ownership could remain with Councils.
Other opportunities involving the private sector also exist for the management or operation or both for STEDS. Significant benefits could result from these partnerships as the private sector waste water industry will bring tried and proven
management systems and experienced and skilled waste water operators into the partnership.
Costs however are likely to increase as any reputable waste water provider will insist on operating the system to meet all regulatory requirements and underperforming capital components of the scheme will have to be upgraded in the early days of the partnership.
The CLGR study previously mentioned details possible arrangements for Public Private Partnerships (PPP) on a Regional basis and is good background reading for any Councils contemplating such an arrangement.
Two Councils (Onkaparinga and Berri Barmera) have entered into long term contracts with private waste water providers for the provision of the operation and maintenance of their STEDS services.
h) Summary To manage and operate a STED scheme that meets the required regulatory standards, minimises the risks including public health, environmental harm and occupational health and safety requires skilled staff focussed on the STEDS activity and robust business systems which include management, maintenance, monitoring and reporting functions.
Regulatory Agencies have been indicating for some time that Local Government will be required to implement environmental and other reforms to ensure the same level of compliance as for the private and public sector waste water providers.
Most small Councils or those managing one or two STEDS will be unlikely to have the in house resources or skills to manage STEDS effectively and efficiently in accordance with today’s regulatory requirements.
The STEDS Advisory Committee is of the view that:
If current STEDS management practices remain in place the facility is unlikely to be sustainable in the longer term and many Councils will be exposing themselves to avoidable financial, environmental and public health risks.
Aggregation of schemes (pricing and reserve accounts) must be considered so that Council can focus its attention on the asset class, have the flexibility to utilise its STEDS reserves on any of the schemes and to treat all users equally.
Resource sharing between Councils in order to justify the full time employment of a STEDS expert to provide management, technical and operational advice as the minimum management option for STEDS.
An LGA STEDS Management Service Authority would ensure that STEDS services could be provided in a consistent and compliant manner for Councils and their residents and it strongly supports this option.
The establishment of a Regional or State Entity (a specialist waste water authority) would be a significant step on from the current ad hoc arrangements and is a goal that the Local Government STEDS sector should aspire to. The SAC considers that a State wide entity would be preferable over several Regional entities.
The provisions of waste water services through a Public Private Partnership has many benefits and would provide significant skill and waste water experience to the sector but acknowledges that the Local Government is not generally ready to accept this model.
4. Governance arrangements When one or two options are to be seriously considered then legal advice will be sought to examine all the governance and legal requirements of the proposed model(s).
Some of the likely issues are as follows;
a) STEDS management by Council as single schemes (status quo)
Risk issues significant – financial, environmental and public health
Could attract the attention of the Environment Protection Authority and the Mutual Liability Scheme.
b) Aggregation within a Council
Already permitted under the Local Government Act 1999
Public consultation on a uniform pricing policy required.
c) Resource sharing between Councils
Memorandum of Understanding required between Councils regarding role and costs
Employment contract for STEDS officer with one Council
5. Conclusions The current arrangements for the operational management of STEDS must change to ensure the longer term sustainability of the asset.
The regulatory standards and community expectations today cannot be met unless Councils dedicate skilled resources to the management and operation of the schemes and also implement pricing policies to recover the whole of life cost (gross capital depreciation, operation & maintenance and administration).
Aggregation of schemes within Council, across the Region or across the State together with sustainable pricing will bring the Local Government waste water sector (10% of the States population) to a parity with SA Water customers (90% of the States population) thereby treating waste water users across the State equally.
A number of aggregation models have been presented in this paper which allow (and justify) the engagement of full time waste water experts to manage and operate aggregated STED schemes in a compliant and sustainable manner.
Local Government is strongly encouraged to enter into serious debate on the future management of STEDS in South Australia.
The STEDS Advisory Committee (SAC) recommends that:
The STEDS discussion paper on Operational Management Options for STEDS be received.
The LGA Committees (SAROC and State Executive) acknowledge that pricing and management reform is essential for the longer term sustainability for STEDS.
The options of:
A State LGA STEDS Management Service Authority and
A Regional or State LGA STEDS Entity
be further examined including governance, membership, legal, structural and financial arrangements.
A Working party of up to 4 members from SAROC together with the LGA’s Director of Legislation, Infrastructure & Environment, the Project Co-ordinator of STEDS Reform and an Industry expert be established to oversee the further work.
5. The Working Party report back to SAROC and SAC within 3 months of establishment.