City Can’t Be Its Own Watchdog: Separate operator from regulation

Commentary, Environment, Joseph Quesnel, Local Government, Uncategorized

Winnipeg’s massive sewage spill into the Red River has municipal officials scrambling to avoid future problems.

This past December, the City put out calls for qualified consultants to develop an action plan to curb sewage discharges and the tender will likely be awarded in mid-2012.

The bigger picture concern, however, is that no one is discussing how the utility’s ownership structure and the perverse incentives that it creates contributes to the problem.

Consider that sewage treatment has traditionally been handled by a publicly run or government operated utility. However, the owner of the utility is essentially also the regulator of the same facility. So, the question is will the government penalize a polluting utility that it itself owns? In other words, if government is operator and regulator, is that not a serious conflict of interest?

Many people will inaccurately assume the private sector is the main polluter and also central to the problem of environmental degradation. The reality is that the public sector is frequently one of the most significant polluters in the community. The problem becomes exacerbated of course when the government owns the resource that impacts the environment negatively.

Robert Sopuck, a past Frontier Centre fellow, provides another example to illustrate the problem. Manitoba’s Conservation Department has a mandate to develop the province’s forestry resources, yet is also responsible for conserving and regulating forest use. Manitoba Conservation then is charged with conducting hearings into the granting of environmental licences. But, this dual mandate creates a conflict between forest companies and citizens and creates a conflict of interest. In another context, the federal government created a new land claims tribunal for First Nations in 2007 after parties long complained of a conflict of interest as the Canadian government judged the validity of land claims made against it.

If the government is operator and regulator of a particular utility, the logical incentive is to minimize the cost to itself if there is an infraction. So, if there is pollution, the government issues a slap on the wrist or sweeps the issue under the rug.

Now, imagine if in Winnipeg sewage treatment plants were wholly a private responsibility, but regulated by the government. If there was a sewage spill as catastrophic as occurred recently and in the past, does anyone for a second not think the government would hammer the company with millions in fines?

If the operator and the regulator were truly separate, that would be the likely scenario.

In fact this is not an academic exercise. Rewind to 2002 and recall a major malfunction at the City’s sewer and wastewater plan over three days where 437 million litres of raw sewage was discharged into the Red River.

The federal courts ended up not levying any fines on the City. Again, if this had involved a private wastewater operator, we could imagine things would have gone differently.

If citizens want their governments to watch over their natural environment, they clearly need to remove these conflicts of interests by separating ownership and operation of resources from regulatory functions.

This time the next time sewage flows into the Red, there will be real hell to pay.