A Governance Guide to the Victorian Water Industry

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A Governance Guide to the Victorian Water Industry

Published by the Victorian Government Melbourne, February 2011 © The State of Victoria 2011 This publication is copyright. No part may be reproduced by any process except in accordance with the provisions of the Copyright Act 1968. Authorised by the Victorian Government, 8 Nicholson Street, East Melbourne ISBN 978-1-74287-002-1 (online) For more information contact the Department of Sustainability & Environment Customer Service Centre 136 186 Disclaimer This publication may be of assistance to you but the State of Victoria and its employees do not guarantee that the publication is without flaw of any kind or is wholly appropriate for your particular purposes and therefore disclaims all liability for any error, loss or other consequence which may arise from you relying on any information in this publication. Accessibility If you would like to receive this publication in an accessible format, such as large print or audio, please telephone 138 186, 1800 122 969 (TTY), or email [email protected] This document is also available in PDF format on the Internet at www.dse.vic.gov.au

About the Guide

Contents About the Guide


Purpose of the Guide Content of the Guide Scope of the Guide The Melbourne Licensees

iii iii iv v

Part 1: Water Industry Structure


Victorian water businesses How water businesses are structured Minister for Water Department of Sustainability and Environment The Office of Water Other key reporting relationships Water Industry Associations The national approach to water

1 1 2 2 2 3 4 4

Part 2: Areas of Regulation


Central Regulation The Regulators Legislation Other regulatory instruments Key reporting requirements Corporate Plan Annual Reporting Continuous disclosure Business cases Specific areas of regulation Safe Drinking Water The Regulator Legislation Policy and Guidance notes Regular reporting to the Department of Health Incident-specific reporting requirements Water Prices & Service Standards Essential Services Commission Legislation Other government guidance/direction Reporting requirements Environmental Protection Environment Protection Authority Legislation Reporting requirements Dispute resolution scheme Energy and Water Ombudsman Legislation

7 7 7 8 9 9 10 10 10 11 14 14 14 15 15 16 17 17 17 17 18 19 19 19 19 20 20 20

Part 3: Directors’ Duties


Private vs. Public sector Directors’ Duties The Public Administration Act 2004 (Vic) Directors’ Code of Conduct Directors’ Duties under the Water Act 1989 (Vic) Targeted training for water directors Appointment & Remuneration

22 23 25 25 26 26

Appendix 1


Further references


Purpose of the Guide As one of Victoria’s essential services, water is subject to careful management and regulation. This Guide provides an overview of the governance framework surrounding the water industry and an introduction to the legislation, ministers, government departments and regulators that play a role in the management of Victorian water. Although not an alternative to reading and understanding the relevant legislation, this Guide provides a framework for navigating through the regulatory system and a useful induction tool for newcomers to the industry.

Content of the Guide In Part 1, the Guide provides an overview of the Victorian water industry, including its structure and stakeholders. It covers: • Victorian water businesses • key ministers • state government departments and regulators • the role played by the Commonwealth government. Part 2 takes a closer look at how water businesses are regulated in the areas of: • strategy and finance • pricing & service standards • safe drinking water • environmental protection • customer dispute resolution For each area, the Guide introduces the role of the various departments and agencies, the key legislation and gives an overview of the reporting requirements. In Part 3, the Guide focuses on the directors of water businesses, covering: • appointment and remuneration • key legislation • directors’ duties Finally, the Guide provides a list of further reading and links to more detailed information.

Scope of the Guide Complementary publications There are a number of publications written about public sector governance including: • Governance Guidelines for Department of Sustainability & Environment (DSE) Portfolio Statutory Authority Board Members (published by the DSE) • Good practice guide on governance for Victorian public sector entities (published by the State Services Authority) This Guide is not designed as a replacement for any existing publications but rather fills the need for a governance guide written specifically for the water industry.

Which water businesses does the Guide cover? There are 19 state-owned water businesses in Victoria, however this Guide primarily covers those 16 that are governed by the Water Act 1989 (Vic). Specifically they are: Barwon Water Central Highlands Water Coliban Water East Gippsland Water Gippsland Water Goulburn-Murray Water Goulburn Valley Water Grampians Wimmera Mallee Water Lower Murray Water Melbourne Water North East Water Southern Rural Water South Gippsland Water Wannon Water Westernport Water Western Water

The Melbourne Licensees There are three water businesses that are not covered by this Guide. They are Yarra Valley Water, City West Water and South East Water, collectively known as the (“Licensees”). They supply retail water and sewerage services to the Melbourne metropolitan area.

What are the key differences? The Licensees are established under the Corporations Act 2001 (Cth) whereas the remaining water businesses are established under the Water Act 1989 (Vic). In addition to this, the Licensees’ key reporting relationship is to the Treasurer whereas the remaining water businesses report primarily to the Minister for Water. Despite these differences, other key aspects of the governance framework covering drinking water quality, environment protection, price regulation and customer protection are the same.

Why does the Guide not cover the Licensees? The Guide does not specifically cover the governance framework of the Licensees as the government is currently taking steps to bring them under the same framework as the rest of the water businesses.

Disclaimer This Guide provides introductory information only. It is not to be taken as professional advice and should not be used as a replacement for formal legal advice where it is required.

Part 1: Water Industry Structure In Australia, water is managed on a state-by-state basis. Although there is a national approach to some issues, each state retains ownership of its own water industry.

Victorian water businesses In Victoria, water is managed by 19 state owned businesses that report to the Victorian government. Each supplies water and/or sewerage services to customers within its service area. A complete list is set out in Appendix 1. An additional entity, the Northern Victoria Irrigation Renewal Project (NVIRP) has been created to deliver a $2 billion irrigation upgrade to the Goulburn Murray irrigation system. Irrigation modernisation will improve water delivery management and irrigation services and recover much of the water now being lost.

Catchment Management Authorities In addition to these businesses, there are 10 Catchment Management Authorities (CMAs) established under the Catchment and Land Protection Act 1994 (Vic). The CMAs are responsible for coordinated catchment management in their region. In addition, the CMAs (together with Melbourne Water) effectively undertake the role of ‘caretaker of river health’ for their region. They have responsibility for a range of functions that focus on the maintenance and improvement of river health and the minimisation of flood risks and costs whilst preserving natural features of the floodplain. CMAs are provided with regional waterway, floodplain, drainage and environmental water reserve management powers under the Water Act 1989 (Vic). Their responsibilities are also articulated in Statements of Obligations issued by the Minister for Water.

How water businesses are structured Although owned by the government, water businesses act as stand-alone entities and are responsible for their own management and performance. Each water business has a Chairperson and a Board of directors. The Board has a range of responsibilities including: • steering the entity • setting objectives and performance targets • ensuring compliance with legislation and government policy Each Board appoints a Managing Director who is responsible for the day-to-day management of the water business under delegation from the Board. Each Managing Director sits on the Board and is the primary link between the Board and the water business staff – communicating Board priorities and policies to the staff and presenting reports, submissions and budgets to the Board.

Minister for Water Under the state’s laws, the Board of each water business reports to the Minister for Water via the Department of Sustainability and Environment. In turn, the Minister is responsible for reporting to Parliament on the performance of each water business. The relationship between the Minister and water businesses is established by the Water Act 1989 (Vic) under which the Minister has the power to: • regulate aspects of water management • request regular reports and information • make policy • issue Ministerial Directions • set standards and obligations In addition to complying with the legislative provisions, water businesses need to ensure that they maintain a good relationship with the Minister, keeping him well-informed of all critical issues.

Department of Sustainability and Environment To assist with the management of the water industry, the Minister is supported by the Office of Water within the Department of Sustainability and Environment. The Office of Water supports the Minister in a number of ways including: • providing advice on policy, performance and compliance • as a liaison between the Minister and each business • reviewing annual reports, corporate plans and other key documents • implementing government policies The DSE is headed by the Secretary who plays an important role in the liaison between the Minister and the Office of Water.

The Office of Water The Minister communicates with the Office of Water through the DSE Secretary and the General Manager. The Office of Water is divided into a number of divisions that operate as follows: Figure 1: The Office of Water Management Structure

Sustainable Water, Environment & Innovation Division The Sustainable Water, Environment and Innovation Division is responsible for the management of the policy and investment framework to achieve the Government’s target of a significant improvement in the health of Victoria’s rivers, floodplains and estuaries. The Division is also responsible for the establishment of the Government’s Environmental Water Reserve, river health investment, strategic communication and engagement, water resource assessment and research, environmental water reserve management, recycling and environmental flows.

Water Entitlements and Strategies Division The Water Entitlements and Strategies Division is responsible for water resource policy issues including improving the water allocation framework, consumption and entitlements, licensing and agreements, building the Water Register and Irrigation programs.

Policy Division The Policy Division develops comprehensive water policy for Victoria, and contributes to the development of national policy. It has operational responsibilities including industry and market analysis, trading, pricing and industry regulation.

Water Industry Division The Water Industry Division is responsible for developing and managing appropriate operational and governance frameworks, institutional protocols and funding mechanisms to guide and support the implementation of policies, strategies and programs by the water industry. The Division undertakes industry development, industry regulation, industry performance oversight, water corporation governance, stakeholder engagement, program implementation and monitoring.

Intergovernmental The Intergovernmental group is responsible for co-ordinating the conduct of the water sector intergovernmental policy and program obligations assigned to the Minister and Secretary under the MurrayDarling Basin Agreement, Council of Australian Governments (CoAG)’s National Water Initiative & MurrayDarling Basin Intergovernmental Agreements and the Snowy Water Agreement.

Other key reporting relationships As well as reporting directly to the Minister for Water, each water business has a responsibility to report to the following entities: Government entity

Area of regulation

Treasurer (Department of Treasury and Finance)

Financial management

Secretary to the Department of Health

Safe drinking water

Essential Services Commission

Pricing & Performance

Environment Protection Agency

Environmental protection

Energy and Water Ombudsman (Victoria)

Dispute resolution scheme

Part 2 of the Guide will look at each of these in further detail.

Water Industry Associations There are a number of independent state and national industry associations that represent the interests of water businesses.

Victorian Water Industry Association (Vic Water) VicWater is the peak industry association for water businesses in Victoria. VicWater plays an important role in the Victorian water industry in: • influencing government policy • providing forums for industry discussions on priority issues • disseminating news and information on current issues to stakeholders • identifying training needs • producing performance reports and industry guides • providing training for water corporation directors www.vicwater.org.au

Australian Water Association (AWA) AWA provides leadership in the water sector through collaboration, advocacy and professional development. AWA provides a link to the international water industry, providing both local and global networks, developing strong relationships and leading discussions. www.awa.asn.au

Water Standards Association of Australia (WSAA) WSAA was formed in 1995 to provide a forum for debate on issues of importance to the urban water industry and to be a focal point for communicating the industry’s views. WSAA promotes knowledge sharing, networking and cooperation amongst members. It identifies emerging issues and develops industry-wide responses and acts as the voice of the urban water industry, speaking to government, the broader water sector and the Australian community. www.wsaa.asn.au

The national approach to water For some issues, the states have agreed to take a national approach to water management. The regulation of the Murray-Darling Basin, which crosses a number of state borders, is a good example. This national approach was formalised in 2004 when the state governments, the local government authorities and the Commonwealth government signed an inter-governmental agreement through the Council of Australian governments (CoAG) that created a national forum for dealing with water issues through the establishment of the National Water Initiative. The National Water Initiative (NWI) is described as, ‘Australia’s enduring blueprint for water reform’ and represents a shared commitment by governments to increase the efficiency of Australia’s water use, leading to greater water productivity and greater certainty for investment for rural and urban communities and the environment.

Under the NWI, governments have made commitments to: • prepare water plans with provision for the environment • deal with over-allocated or stressed water systems • introduce registers of water rights and standards for water accounting • expand the trade in water • improve pricing for water storage and delivery • meet and manage urban water demands. The overall objective of the National Water Initiative is to achieve a nationally compatible market, regulatory and planning based system of managing surface and groundwater resources for rural and urban use that optimises economic, social and environmental outcomes. The National Water Commission (NWC) is responsible for the administration of the National Water Initiative. Established under the National Water Commission Act 2004 (Cth), the NWC advises CoAG and the Australian Government on national water issues and the progress of the National Water Initiative. The NWC is an independent statutory authority within the federal Environment, Water, Heritage and the Arts portfolio and reports directly to the Commonwealth’s Minister for Climate Change and Water.

Australian Consumer and Competition Commission (ACCC) The ACCC promotes competition and fair trade and its primary responsibility is to ensure that individuals and businesses comply with the Commonwealth competition, fair trading and consumer protection laws. It also regulates national infrastructure services. The Water Act 2007 (Cth) was enacted to enable the Australian government to better manage the Murray Darling Basin water resources. Under this legislation, the ACCC is responsible for: • providing advice to the Minister for Climate Change and Water on water market rules and water charge rules • monitoring compliance with and enforcing the water market rules and water charge rules; and • providing advice to the Murray-Darling Basin Authority on water trading rules for inclusion in the Basin Plan. www.accc.gov.au

Murray-Darling Basin Authority The Murray-Darling Basin Authority is responsible for the integrated management of the Murray-Darling Basin and reports to the federal Minister for Climate Change and Water. Key functions of the authority include: • preparing the Basin Plan for adoption by the Minister for Climate Change and Water, including setting sustainable limits on water that can be taken from surface and groundwater systems across the Basin • advising the Minister on the accreditation of state water resource plans • developing a water rights information service which facilitates water trading across the Murray-Darling Basin • measuring and monitoring water resources in the Basin • gathering information and undertaking research • engaging the community in the management of the Basin’s resources. www.mdba.gov.au

Part 2: Areas of Regulation Central Regulation The Regulators As discussed in Part 1, the Minister for Water is ultimately responsible for the performance of each water business. To ensure that ministerial responsibilities are met, the Minister plays a central role in regulating Victoria’s water businesses including: • setting the strategic direction of each water business • ensuring that the provisions of the Water Act are met • reviewing annual reports, corporate plans and business cases

Financial reporting The Treasurer plays a key role in the regulation of the financial operation of water businesses. The Treasurer and the Department of Treasury and Finance are responsible for setting financial reporting guidelines and reviewing annual reports, corporate plans and business cases alongside the Minister for Water. In practice, the Treasurer works very closely with the Minister in this role so financial regulation has been included as part of this ‘central regulation’ section.

Legislation The Water Act 1989 (Vic) The Water Act 1989 (Vic) is the central legislation for the Victorian water industry. Its objects include: • promoting the orderly, equitable and efficient use of water resources • making sure that water resources are conserved and properly managed for sustainable use for the benefit of all Victorians • to maximise community involvement in the making and implementation of arrangements relating to the use, conservation or management of water resources. The framework of the Act includes: • providing the framework for the allocation and management of the State’s water resources • the functions, rights and obligations of the majority of the state’s water businesses.

Sustainability management principles Section 93 of the Water Act 1989 (Vic), added in 2006, requires water businesses to have regard to sustainable management principles in the exercise of their powers and performance of their functions. These sustainable management principles incorporate internationally recognised environmental concepts and include the need to ensure that water resources are conserved and properly managed for sustainable use and for the benefit of present and future generations.

Business objectives for water corporations Section 94 of the Act states that each water corporation, in performing its functions, exercising its powers and carrying out its duties has the objective that the water corporation must act as efficiently as possible consistent with commercial practice. Balancing the obligations of the sustainable management principles and the business objectives of a water corporation is a key task for each water corporation and its Board.

The Water Industry Act 1994 (Vic) The Water Industry Act 1994 (Vic) was introduced to establish the framework under which the three Melbourne water retailers are regulated. It provides the framework for regulating water process and service standards and establishes the Essential Services Commission as the water industry price regulator. It also allows the Minister to issue Statements of Obligations to each water business.

Financial Management Act 1994 (Vic) The Financial Management Act 1994 (Vic) aims to: • improve financial administration of the public sector • make better provision for the accountability of the public sector • provide for annual reporting to the Parliament by departments and public sector bodies The Act also allows the Treasurer to issue financial reporting guidelines to public sector bodies including water businesses.

Other regulatory instruments Statement of Obligations Section 4I of the Water Industry Act 1994 (Vic) states that the Minister for Water (after consultation with the Treasurer and the ESC) has the right to issue a Statement of Obligations to a water business. Each water business has a Statement of Obligations (SOO) that specifies a number of requirements for water businesses to follow. SOOs are based on a combination of water legislation requirements and government policy.

Ministerial directions A Ministerial direction is written instruction from the Minister to a Board of directors of a water business, requesting it to take specified actions. Under s 307 (1) of the Water Act 1989 (Vic), the Minister, after consulting with the Treasurer, may give a written direction to water businesses addressing the performance of any of its functions. Directions may be given to a group of water businesses or to an individual water business. In practice, Ministerial directions are rare and there are certain disclosure requirements that accompany a Ministerial direction. Where a direction is given, the Minister must: • give a water business 14 days’ notice of the direction • publish the direction in the Government Gazette; and • publish the direction in the DSE Annual Report

Key reporting requirements As part of their regular reporting cycle, water businesses are required to submit a number of key documents

for review by the Minister and the Treasurer.

Annual reporting An annual report must be submitted for each financial year and audited by the Auditor-General before being tabled in Parliament.

Corporate plans Each water business must submit an annual corporate plan that provides a statement of corporate intent, expected activities and a financial forecast for the following five years. To ensure that the Minister and Treasurer are kept up to date with the activities of each water business, quarterly and half-yearly ‘progress’ reports are also required.

Water Plan Water Plans are required every five years and include details about the proposed revenue requirements, tariff and pricing structures. Water Plans are managed by the Essential Services Commission and covered in more detail in that chapter.

Corporate Plan Part 13 of the Water Act 1989 (Vic) sets out the annual requirement for Corporate Plans which must be submitted on or before a date specified by the Minister, usually 30 April.

Contents of the Corporate Plan Corporate Plans are prepared annually and have a five year planning horizon. They contain a statement of corporate intent detailing: • business objectives and main undertakings • the nature and scope of activities • performance targets • details of major initiatives and capital projects • financial forecasts Any further content guidelines may be issued jointly by the Minister and the Treasurer.

The review process In reviewing a business’s Corporate Plan, the Minister for Water will examine its alignment with the water policy objectives of Government. The Treasurer will look at the plan’s potential for financial risk and its implications for the State’s overall financial position. After the Corporate Plan is submitted for approval, the Minister for Water has two months to provide comments, after which it is deemed to be approved. If the Minister does have comments these will be provided in writing to the relevant water business.

Quarterly performance reports Each quarter, water businesses must provide ‘updates’ to the Minister and Treasurer on how their corporate plans are being implemented. On receipt of these reports, they are reviewed by each of the relevant departments. As part of these reviews, the Minister and Treasurer will review how a business is progressing with its strategic direction and proposed activities against its most recent Corporate Plan.

Annual Reporting Annual Reports are required under s 45 of the Financial Management Act 1994 (Vic). The Minister for Finance may issue Standing Directions setting out requirements for annual reports. The Minister for Water may also issue Ministerial Directions as to the contents of the Annual Report under s 51 of the Financial Management Act 1994 (Vic). Annual Reports must be audited by the Auditor-General and tabled in Parliament by the Minister for Water by a set date each year.

Continuous disclosure The Minster and the Treasurer must be notified in quarterly performance reports if a board of directors believes that they are not going to achieve an objective of its corporate plan. The board must also submit their reasons. Reporting requirements are designed to ensure a regular flow of information between a water business and relevant government departments. Water businesses must ensure that they provide regular updates about any major changes or problems that a water business is facing.

Business cases Water businesses are required to submit business case proposals for capital investment proposals over a specified value. Threshold values have been set at $10, $20 or $50 million depending on the size of the water business. Regardless of value, water businesses may also be required to submit a business case where a project is of particular interest to the Minister or Treasurer. The Department of Treasury & Finance publishes a comprehensive guide to business case requirements called Investment Lifecycle Guidelines: business cases which is available on the DTF website.

Business case review Business cases need to be reviewed and approved by both the Treasurer and the Minister for Water. The Treasurer will be concerned with the financial viability of capital investment proposals and the Minister for Water will be looking at the overall strategic direction of the proposal and alignment with the government’s water policy.

Specific areas of regulation In addition to the business-wide reporting set out above, some of the key areas that are regulated by the Minister for Water are discussed in more detail below.

Terrorism Risk Management In 2002, following terrorist attacks in the US and Bali, the Commonwealth and state governments in Australia agreed to review their existing legislation and counter-terrorism measures.

Terrorism (Community Protection) Act 2003 (Vic) Following this review, the Victorian government passed the Terrorism (Community Protection) Act 2003 (Vic) introducing important new powers and obligations to ensure that there is an adequate framework to prevent and respond to a terrorist act. On 24 July 2007, it was declared that Part 6 of the Act applied to the essential services of water and sewerage. Therefore, water businesses now have a number of provisions to comply with under the legislation:

Risk management plans Part 6 of the Act states that each water business must create a risk management plan that aims to prevent and manage any terrorist attacks. The plan can be part of a larger risk management plan.

Auditing The plans must be audited each year, updated if necessary and made available to the Minister for Water upon request.

Training exercises Each water business must develop and participate in a training exercise at least once a year to test the operation of the risk management plan. As required by the legislation, the training exercises will be supervised by: • a senior manager from the Office of Water (on behalf of the Minister) and • the Counter Terrorism Coordinating Unit (on behalf of the Police Commissioner)

Dam safety reporting Under its Statement of Obligations, a water business must comply with a number of dam safety requirements. Having regard to the Australian National Committee on Large Dams (ANCOLD) guidelines these requirements include: • developing dam safety monitoring programs • conducting necessary dam safety works • implementing risk reduction measures In addition, a water business must submit an annual report to the Secretary of the DSE by 30 June that includes: • a prioritised list of dam safety works • a summary of the risk profile for its dams As a tool for benchmarking and promoting continual improvement of dam safety, the DSE now produces an annual statewide dam safety report that is shared with each water business.

Blue-green algae reporting Blue-green algae are a common seasonal occurrence in Victoria and a natural component of most waterways. Significant numbers of blue-green algae can result from low water levels and high temperatures and can be very toxic. The DSE is responsible for the statewide management of blue-green algae outbreaks and produces a monthly blue-green algae update which is published as part of its monthly water report. Water businesses must monitor blue-green algae levels and comply with the DSE’s reporting framework as explained in the annual blue-green algae circular.

Safe Drinking Water Where blue-green algae blooms affect the state’s drinking water, additional reports may be required by the Department of Health under the Safe Drinking Water Act 2004 (Vic).

Groundwater management Groundwater is a complex resource. The unseen nature of groundwater makes it difficult to quantify and careful monitoring and management is necessary to prevent over-extraction. The Crown co-ordinates and delegates authority to government departments and water corporations to develop and manage the groundwater resource in an integrated and planned manner. In Victoria, groundwater is managed by the Minister, the DSE and the rural water authorities – Southern Rural Water, Grampians Wimmera Mallee Water and Goulburn-Murray Water. These rural water corporations play a major role in groundwater management. In addition to undertaking research, investigations and groundwater monitoring, they also issue licences for bore construction and groundwater extraction.

Groundwater licences Under s 51 of the Water Act 1989 (Vic), the Minister is responsible for issuing licences for the use of groundwater. However, under an instrument of delegation, the Minister has delegated this power to the three rural water authorities who are responsible for issuing groundwater licences and administering the relevant Water Act provisions. Figure 2: Administration of groundwater licences

The Minister and the DSE (the Groundwater and Licensing Branch) continue to provide Ministerial Guidelines and informal advice to the rural water authorities on the management of groundwater licences.

Bulk entitlements Bulk entitlements determine how much water an entity can take from a particular source and under what conditions and are covered by Part 4 of the Water Act 1989 (Vic). Under sections 43 and 47 of the Act, bulk allocations of water are made under Bulk Entitlement Conversion Orders. These Orders set out a number of conditions about the use, management and supply of the allocated water including: • providing for the supply of water to irrigation licence holders • ensuring minimum flows in specified waterways Orders include comprehensive reporting requirements setting out what needs to be reported directly to the Minister and what needs to be reported in a water business’s annual report.

Safe Drinking Water The Regulator The provision of safe drinking water in Victoria is regulated by the Safe Drinking Water Regulatory Section, which sits within the Public Health Branch of the Department of Health (DoH). The Secretary to DoH has a number of powers and responsibilities including: • protecting public health in relation to the supply of drinking water • ensuring compliance with the drinking water legislation • reporting on the performance of water businesses including producing an annual report on drinking water quality for Parliament

Legislation Purpose With a view to protecting and improving the drinking water in Victoria, safe drinking water legislation came into effect in July 2004.

Safe Drinking Water Act 2003 (Vic) The Safe Drinking Water Act 2003 (Vic) provides a comprehensive, state-wide regulatory framework that covers drinking water supplied by the state-owned water businesses around Victoria. It also covers drinking water supplies at alpine resorts and supplies managed by Parks Victoria. The Act requires water businesses to: • develop and implement an integrated risk management structure • comply with standards for drinking water • communicate effectively with stakeholders • publicly disclose relevant water quality information

Risk management Addressing past concerns about risk management, Part 2 of the Act requires water businesses to have integrated risk management frameworks for drinking water. Risk management plans are regularly audited by the DoH and the results published in annual safe drinking water reports.

Safe Drinking Water Regulations 2005 The Safe Drinking Water Regulations 2005 set out the required contents of risk management plans and also give more detail on required water quality standards.

Policy and Guidance notes In addition to the core legislation, each water business must comply with any safe drinking water policy decisions or guidance that is issued by the Safe Drinking Water Regulatory section. Policy and guidance material is made available to industry through the department’s drinking water website: www.health.vic.gov.au/environment/water/drinking To support water businesses in their application of safe drinking water legislation, the DoH produces Guidance notes that are distributed in a number of ways: • a hard copy delivered to Managing Directors of water businesses • emailed via a regular stakeholder newsletter • published on the DoH website http://www.health.vic.gov.au/environment/water/d-guidelines.htm

Regular reporting to the Department of Health 1. Water quality testing results Water businesses must submit monthly water quality reports to the DoH (Regulation 13 of the Safe Drinking Water Regulations 2005) Required contents: These reports must detail how the water businesses performed against the water quality standards detailed in Schedule 2 of the Regulations. Delivery: Information is submitted electronically and stored in a central DoH-administered database.

2. Annual Drinking Water Quality Reports Each water business must produce and supply to the Secretary to the Department of Health an annual report, under s 26 of the Safe Drinking Water Act 2003 (Vic), on issues relating to quality of drinking water and regulated water. Required contents: Regulation 15 of the Safe Drinking Water Regulations 2005 sets out the required contents of the annual report. Annual Guidance Notes are also issued by the Secretary to DoH. Delivery of report: The report must be submitted to the Secretary to DoH by 31 October each year.

Incident-specific reporting requirements Water quality problems Water businesses must notify the Secretary to the DoH where there is any known or suspected contamination of drinking water (s 22) and if there are any breaches of water quality standards (s 18).

What happens if there is a breach in drinking water standards? The Secretary to the DoH can: enter into undertakings with water suppliers to achieve specified requirements provide directions to a water business if they believe that the drinking water may pose a public risk request information from water businesses Practical example: In the 2007–08 reporting period, 11 water businesses were audited. Two water storage managers were found to be non-compliant because of the lack of integration between their risk management plans and the plans of the water suppliers with which they interact.

Figure 3: Safe Drinking Water regulatory framework

Water Prices & Service Standards Essential Services Commission The Essential Services Commission is the independent economic regulator of the water industry and is responsible for regulating the prices and service standards of water businesses in Victoria.

Legislation In relation to the water industry, the Commission gets its regulatory power from three sources: • Essential Services Commission Act 2001 (Vic) • Part 1A of the Water Industry Act 1994 (Vic) • Water Industry Regulatory Order 2003 The Water Industry Regulatory Order 2003 is made by the Governor in Council under s 4D(1)(a) of the Water Act 1989 (Vic). The purpose of this Order is to provide a framework for economic regulation by the Essential Services Commission for services provided by the regulated water industry.

Other government guidance/direction The Commission publishes price reviews, performance reports, codes of conduct and other directives that are adopted by water businesses: Customer service codes: The Commission publishes approved customer service codes for urban and rural water businesses and each must comply with the applicable code including the creation of a customer service charter. Decisions & Determinations: The Commission publishes decisions and determinations outlining the prices that businesses can charge for water services. Performance reports: The Commission reports publicly the performance of Victoria’s water businesses providing urban services with the aim of stimulating competition by comparison and to inform customers about the service levels they receive. The reports focus on key issues of quality, reliability and the affordability of water and sewerage services. Tariff Approvals: Each year the Commission approves tariffs for each business consistent with the adjustment process set out in the price determination.

Reporting requirements Water Plan As part of complying with its Statement of Obligations each water business must submit a Water Plan to the Commission before the start of each set pricing regulatory period. The current regulatory period is 2008– 2013. Objective: The key objective of a water plan is to outline the service standards that a water business intends to deliver and to detail the revenue required to meet these standards. Consultation process: A water business must consult extensively with a range of stakeholders during the preparation of its water plan including its customers. A draft water plan must be made available to the public, the Minister for Water, the Treasurer, the ESC, the EPA and the Department of Health. Final submission: Once the consultation is complete, a water business must deliver its final water plan to the ESC. The current 2008–2013 water plans were delivered to the ESC in October 2007 and commenced on 1 July 2008.

Environmental Protection Environment Protection Authority The Environment Protection Authority’s purpose is to care for and protect the environment. Within the water industry, the EPA plays an important role in the regulation of the discharge of wastewater. The EPA is an independent statutory authority with an independent Chairman. There is also an Advisory Board which is appointed by the Governor-in-Council and comprises three members with scientific, community and business expertise. This Board provides an overview of the administration and policies of the Authority, without direct management responsibility or a regulatory role. It also provides advice to the Chairman and the Minister for Environment and Climate Change on EPA administration, functions, policies, strategic direction, corporate planning and on national and international trends in environment protection.

Legislation The Environment Protection Act 1970 (Vic) was introduced to provide a legal framework for the protection of the environment and established the EPA. Each water business must have a licence with the EPA to cover the discharge of wastewater into the environment.

Corporate licences Under its new ‘corporate licence’ program, each water business will have a single licence with the EPA to cover all of its wastewater facilities. Previously, a separate licence was required for each wastewater facility. The corporate licence sets out a number of requirements covering: • a joint, public commitment by the EPA and the water business to increase sustainability of the water business • performance requirements for the water business to meet

Reporting requirements Under the licence provisions, water businesses must regularly sample and monitor wastewater and alert the EPA after specified incidents or non-compliance. A corporate licence also includes a requirement to submit an Annual Performance Statement to the EPA.

Water Plan A water business must send a copy of its draft Water Plan (as discussed more fully above) to the EPA during the consultation period.

Dispute resolution scheme Energy and Water Ombudsman The Energy and Water Ombudsman (Victoria) is an industry-based external dispute resolution scheme that deals with conflicts between water businesses and their customers. EWOV is independent from the government and does not report to the Minister.

Legislation Under section 122ZG of the Water Act 1989 (Vic) each water business must participate in EWOV. Under the Customer Service Codes issued by the Essential Services Commission, a water business must have a complaint escalation process that provides its customers with information about referral to EWOV. Figure 4: Requirement to participate in EWOV’s dispute resolution scheme

Ombudsman Victoria The Ombudsman is a constitutional independent officer of the Victorian Parliament and seeks to ensure the highest possible standards of public sector service delivery to all Victorians. He/she enquires into or investigates administrative actions taken by a Government department or public statutory body or by any member of staff of a municipal council.

Part 3: Directors’ Duties Directors of water businesses are subject to a number of statutory and common law duties.

Private vs. Public sector Directors’ Duties There are some important differences between public and private sector directors’ duties. Public sector directors must comply with the statutory directors’ duties from the following sources: • the Public Administration Act 2004 (Vic) • Directors’ Code of Conduct • Common law directors’ duties In addition to these, directors of water businesses must also comply with requirements as set out in the Water Act 1989 (Vic). Private sector directors, on the other hand, are subject to the directors’ duties set out in the Corporations Act 2001 (Cth) and like public sector directors are also subject to common law directors’ duties. Figure 5: The source of water directors’ duties compared with the source of private sector directors’ duties.

The Public Administration Act 2004 (Vic) The Public Administration Act 2004 (Vic) sets out the expected standards of behaviour across the public service and applies to directors of water businesses. The Act is administered by the State Services Authority which aims to foster the development of an efficient, integrated and responsive public sector. Its key functions include: • promoting high standards of integrity and conduct in the public sector • promoting high standards of governance, accountability and performance for public entities. Section 7 of the Act sets out the values that have been identified to ensure good governance across the Victorian public sector. They are: Responsiveness






Human Rights

In applying these principles, water industry directors must: • ensure any statement of corporate values is consistent with these public sector values • model the values and ensure staff are informed of them

Requirements for public sector directors Section 79 of the Act states that a director of a public entity must at all times in the exercise of the functions of his or her office act: (a) honestly; and (b) in good faith in the best interests of the public entity; and (c) with integrity; and (d) in a financially responsible manner; and (e) with a reasonable degree of care, diligence and skill; and (f) in compliance with the Act or subordinate instrument or other document under which the public entity is established. Section 79 also states that a director of a public entity must not improperly use his or her position or any information acquired by him or her by reason of his or her position,to: • gain an advantage for himself or herself or another person; or • cause detriment to the public entity.

Requirements for Boards of public entities Section 81 of the Act sets out behavioural standards for Boards of public entities and states that a board must ensure that: • they act consistently with the functions and objectives of the entity • they keep Ministers abreast of risk management procedures and risks to effective operation of the entity • they respond to requests for information from the Minister • there is a code of conduct in place for directors • there is a procedure in place to deal with conflicts of interest • there are procedures in place for proper conduct of board meetings • there is an adequate gifts policy for directors in place • there are procedures in place for monitoring directors’ performance

Accountability provisions Section 85 of the Act states that a board of a public entity is accountable to the responsible Minister and that the Minister responsible for a public entity is responsible to the Parliament in respect of: • the exercise by the public entity of its functions • the exercise by the Minister of his or her powers in relation to the public entity including: – the power to appoint directors or remove them from office, or – the power to recommend the appointment or removal from office of directors; – the power to give directions to the public entity or request information from it; – the power to control or affect its operations; – the power to initiate a review of the public entity’s management systems, structures or processes.

Directors’ Code of Conduct In addition to public sector values, the Public Sector Standards Commissioner, a senior member of the State Services Authority, has issued a Directors’ Code of Conduct that is binding on all public sector directors. The Code states that directors must: • act with honesty and integrity • act in good faith in the best interests of the public entity • act fairly and impartially • use information appropriately • use their positions appropriately • act in a financially responsible manner • exercise due care, diligence and skill • comply with the establishing legislation • demonstrate leadership and stewardship.

Assistance with interpreting the Code To assist directors in their interpretation of the Code, the State Services Authority (SSA) publishes guidance notes which further explains each duty and provides some practical examples. The SSA also produces more detailed guides to public sector governance including: • Welcome to the Board • The Good Practice Guide on governance for Victorian public sector entities

Directors’ Duties under the Water Act 1989 (Vic) Part 6 of the Water Act 1989 (Vic) sets out some specific requirements for water directors.

Use of information Section 108 states that a director of a water business must not make improper use of information to create pecuniary advantage or with intent to damage the water business.

Pecuniary interests Section 109 onwards sets out some rules that apply to directors who have a pecuniary interest in any matter in which the water business is concerned. Provisions cover: • Disclosure of pecuniary interests • Definition of pecuniary interests • Voting rights • Offences relating to pecuniary interests

Targeted training for water directors Training for directors of water businesses is co-ordinated by the Victorian Water Industry Association (VicWater) and provides directors with a two-day training and networking program. Held in conjunction with the Office of Water, training gives new directors the opportunity to: • Gain a good understanding of water governance framework • Gain a deeper understanding of directors’ duties • Have the opportunity to work through real life practical examples • Network with other directors and senior DSE staff

Appointment & Remuneration Appointment process Under s 97 of the Water Act 1989 (Vic) the Minister for Water is responsible for appointing board members for each of the water businesses. In the case of Melbourne Water, this responsibility is shared with the Treasurer. The recruitment is co-ordinated by the Office of Water with the assistance of senior representatives from the DTF and the water industry. All appointments must be endorsed by Cabinet under government guidelines.

Directors’ remuneration Under s 98 of the Act, Directors’ remuneration is set by the Minister for Water and for the Melbourne Water Corporation this function is shared with the Treasurer. Protocols for public sector executive remuneration are established by government and managed by the Government Sector Executive Remuneration Panel (GSERP) which is supported by the State Services Authority. As statutory authorities, water businesses are required to report on their remuneration practices to GSERP.

Reporting requirements Under the Statement of Obligations, a water business must annually review and report to the Minister of Water and the Treasurer on the performance of the Board of the water business.

Appendix 1 Victoria’s 19 state-owned water businesses Melbourne




Melbourne Water

Gippsland Water

Lower Murray Water

Grampians Wimmera Mallee Water

South East Water

East Gippsland Water

North East Water

Wannon Water

Yarra Valley Water

South Gippsland Water

Goulburn-Murray Water

Barwon Water

City West Water

Westernport Water

Coliban Water

Central Highlands Water

Goulburn Valley Water

Western Water

Southern Rural Water

Further references 1. Welcome to the Board: your introduction to the good practice guide on governance for Victorian public sector entities, State Services Authority. 2. The good practice guide on governance for Victorian public sector entities, State Services Authority. 3. Directors Code of Conduct and guidance notes, State Services Authority 4. Governance Guidelines for DSE Portfolio Statutory Authority Board Members, Department of Sustainability and Environment. 5. Legal Compliance and Information Manual Victorian Water Industry, VicWater, May 2008.

Sources of legal requirements Source of legal requirement


Blue-green algae annual circular

Reporting requirements for blue-green algae

Environment Protection Act 1970

Corporate licensing provisions

Financial Management Act 1994

Requirements for the Annual Report

Investment Lifecycle Guidelines

Business case requirements

Public Administration Act 2004

Governs the standards of public sector employees including water business directors

Safe Drinking Water Act

Sets requirement for providing safe drinking water

Safe Drinking Water Regulations 2003

Sets standards for drinking water quality

Statement of Obligations

Additional requirements that each water business must meet

Water Act 1989

The main framework for the water industry

Water Industry Act 1994

Provides for the operation of 3 metropolitan retailers

Water Industry Regulatory Order (WIRO) 2003

Gives regulatory powers to the ESC

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