INTRODUCTION 1 Background - HIGH COMPLIANCE

EXECUTIVE SUMMARY

HIGH COMPLIANCE

1. INTRODUCTION 1 Background

WorleyParsons Services Pty Ltd (WorleyParsons) has been engaged by the Independent Pricing and Regulatory Tribunal (IPART) to complete an audit of the asset management practices of the Sydney Catchment Authority (SCA). For the purposes of this audit, compliance has been assessed against the following clauses of SCA’s Operating Licence:

• 7.1 - Asset Management Obligation, and

• 7.2 - Reporting on the management system of the Assets

The scope of the assignment is described in Schedule 3 of the agreement between IPART and WorleyParsons, which is attached in Appendix 1.

1.2 S ydney Catchment Authority

SCA is a NSW state owned corporation. It is responsible for the supply of bulk raw water for the Greater Sydney, Illawarra, Blue Mountains and the Southern Highlands regions of NSW.

SCA’s role is derived from the Sydney Water Catchment Management Act 1998 (SWCM Act – ‘the Act’) and the Operating Licence issued to SCA. Under Part 7.3 of the Operating Licence, IPART may undertake an audit of SCA’s performance against the asset management requirements of its Licence. IPART reports the findings to the NSW Water Minister.

The asset base reviewed comprises storage dams, delivery pipeline systems, water pumping stations and online monitoring systems.

1 . 2. 1 S C A ’ s Pur p o s e

The SWCM Act defines the roles, purpose and objectives of SCA. Its role is to manage and protect the catchment areas and infrastructure works, supply raw water and bulk water to its customers; and to regulate specified activities within the catchment area. SCA’s has the responsibility to protect the 16,000 square kilometres of drinking water catchment, manage dams, pipelines and other

infrastructure and to supply raw water of the required quality to its customers. SCA’s customers include Sydney Water, two local councils and approximately 60 other retail customers that are directly supplied from SCA’s infrastructure.

INDEPENDENT PRICING AND REGULATORY TRIBUNAL (IPART)

AUDIT OF SYDNEY CATCHMENT AUTHORITY'S ASSET MANAGEMENT SYSTEM

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1.2.2 Regulatory Framew ork

The regulatory framework applicable to SCA consists of a combination of operating licence, government department directives, water management planning and other legislation and various other guidelines and regulations. The framework is comprised of aspects of:

1. Regulatory authority requirements 2. Catchment protection

3. Environmental planning

4. Water supply (meeting Bulk Water Supply Agreements)

5. Implementation of the 2006 NSW Metropolitan Water Plan (MWP) The specific regulatory aspects considered for this asset management audit are:

• SCA’s Operating Licence

• The MWP (asset investment versus asset maintenance) • The NSW Treasury Total Asset Management (TAM) Guidelines

• Raw water quality protection to comply with the Australian Drinking Water Guidelines (ADWG) and Section 36 of the SCWM Act

• NSW Dam Safety Committee Guidelines

• Miscellaneous supporting legislation, guidelines, Standards and regulations, which may impact Asset Management practices or investment costs. Examples include the Dangerous Goods Act, OH&S Act and boiler and pressure vessel regulations.

1.3 Asset Management Issues Identified in Previous

Review s/Audits

A number of previous reviews of SCA’s asset management performance have been assessed to identify common themes or outstanding issues that might potentially impact service delivery. These reviews include:

• Cardno-Atkins 2005 Review of the SCA Operational and Capital Expenditure and Asset Management

• SCA’s Submission to IPART’s Review of Prices, September 2008 • The IPART 2008 Issues Paper

• The Water Services Association Australia (WSAA) - Asset Management Benchmarking 2008 report (confidential to the SCA at the time of audit)

INDEPENDENT PRICING AND REGULATORY TRIBUNAL (IPART)

AUDIT OF SYDNEY CATCHMENT AUTHORITY'S ASSET MANAGEMENT SYSTEM

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A discussion of the key issues arising out of these reviews is detailed in Section 4.2.5 of this report.

1.4 Approach to this Asset Management Audit

Discussion of approach to the Asset Management audit

In assessing the compliance of SCA’s asset management practices against Clauses 7.1 and 7.2 of its Operating Licence, WorleyParsons audited:

1. SCA’s asset management systems to ensure that SCA is managing its assets consistent with Clause 7.1 (a) – (e) of the Operating Licence

2. SCA’s State of the Assets Reporting - Clause 7.2

A project inception meeting was held between IPART and WorleyParsons to establish a shared understanding of the scope, approach, processes and outputs of the asset management audit. WorleyParsons then visited SCA’s Penrith office to gain an understanding of asset management practices and systems and gather documentation of the system and evidence of SCA’s performance in the area of asset management. Where the WorleyParsons audit team was not able to draw adequate conclusions from the initial data obtained, clarification requests were raised and further information sought.

To maximise the efficiency of the audit and minimise the time required to review and finalise the draft, key issues identified were included in fortnightly project management reports, which were circulated to SCA.

The audit concentrated on identifying the asset management systems and practices and the value they provided in SCA’s compliance with its Operating Licence, the degree to which the systems were utilised and proof of the delivery of the expected value from the systems. The last two were assessed by reviewing the asset management of a number of specific assets, selected at random from SCA’s high criticality assets.

Reference Documents for Audit

The reference documents obtained from SCA to enable WorleyParsons to establish the degree of compliance with Clauses 7.1 and 7.2 of the Operating Licence are detailed in Section 3 of this report. Key requirements and corresponding documents for the audit are presented in Table 1-1.

WorleyParsons has acted in an independent, third party, audit role in carrying out this assessment. WorleyParsons has sought to draw conclusions on the basis of facts and supporting documentary evidence demonstrating, SCA Asset Management compliance with the Operating Licence clauses. Compliance has been assessed against WorleyParsons’ interpretation and understanding of the requirements of the Operating Licence. This assessment does not comment on the suitability of the Operating Licence clauses nor on any aspects of SCA’s Asset Management falling outside the Licence clauses.

INDEPENDENT PRICING AND REGULATORY TRIBUNAL (IPART)

AUDIT OF SYDNEY CATCHMENT AUTHORITY'S ASSET MANAGEMENT SYSTEM

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Table 1-1 Key Requirements

Assessment Requirement Description Key Reference Document(s)

Operating Licence Clause 7.1 Meeting SCA Asset Management Obligations

SCA Asset Strategy

Operating Licence Clause 7.2 Reporting on the Management System of the Assets

SCA Asset Management Framework, Corporate risk assessment, Service Delivery Strategy

1.5 Scope of Services of this Audit

Schedule 3 of the IPART agreement with WorleyParsons sets out the scope of services and the deliverables for this audit. Schedule 3 is included in Appendix 1 for reference.

INDEPENDENT PRICING AND REGULATORY TRIBUNAL (IPART)

AUDIT OF SYDNEY CATCHMENT AUTHORITY'S ASSET MANAGEMENT SYSTEM

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2. METHODOLOGY

In document Audit of Sydney Catchment Authority s Asset Management System (Page 31-35)