Draft Report Fire and Rescue NSW s fees and charges December 2021.pdf

Review of Fire and Rescue NSW’s
fees and charges
Draft Report
December 2021

Tribunal Members
The Tribunal members for this review are:
Carmel Donnelly, Chair
Deborah Cope
Sandra Gamble
Enquiries regarding this document should be directed to a staff member:
Jennifer Vincent  (02) 9290 8418
Jenny Suh

(02) 9113 7775
Invitation for submissions
IPART invites comment on this document and encourages all interested
parties to provide submissions addressing the matters discussed.
Submissions are due by Tuesday, 8 February 2022
We prefer to receive them electronically via our online submission form.
You can also send comments by mail to:
Review of Fire and Rescue NSW’s fees and charges
Independent Pricing and Regulatory Tribunal
PO Box K35
Haymarket Post Shop, Sydney NSW 1240
If you require assistance to make a submission (for example, if you would
like to make a verbal submission) please contact one of the staff
members listed above.
Late submissions may not be accepted at the discretion of the Tribunal.
Our normal practice is to make submissions publicly available on our
website as soon as possible after the closing date for submissions. If you
wish to view copies of submissions but do not have access to the website,
you can make alternative arrangements by telephoning one of the staff
members listed above.
We may decide not to publish a submission, for example, if we consider it
contains offensive or potentially defamatory information. We generally do
not publish sensitive information. If your submission contains information
that you do not wish to be publicly disclosed, please let us know when
you make the submission. However, it could be disclosed under the
Government Information (Public Access) Act 2009 (NSW) or the
Independent Pricing and Regulatory Tribunal Act 1992 (NSW), or where
otherwise required by law.
If you would like further information on making a submission, IPART’s
submission policy is available on our website.
The Independent Pricing and Regulatory Tribunal (IPART)
Further information on IPART can be obtained from IPART’s website.
Acknowledgment of Country
IPART acknowledges the Traditional Custodians of the lands where we
work and live. We pay respect to Elders, past, present and emerging.
We recognise the unique cultural and spiritual relationship and celebrate
the contributions of First Nations peoples.

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Contents
1
Introduction
1
2
Draft recommendations on user charges for FRNSW’s services
2
2.1
FRNSW’s services we recommend have user charges
2
2.2  Hazmat service charges
3
2.3  Fire safety services
5
2.4
False alarm call outs
7
2.5
AFA management services
11
2.6  Other services
12
2.7
Impact of our draft recommendations
14
3
Draft recommendations on regulatory framework
15
4
How we made our draft recommendations
16
4.1
Overview of our approach
16
4.2
Develop principles for assessing which services should have user charges
17
4.3
Identify FRNSW’s services that should have user charges
19
4.4
Develop and apply a pricing methodology
22
4.5
Decide on a recommended regulatory framework for applying those charges
24
5
Have your say on our draft recommendations
28
6
List of all draft recommendations
29
A
Terms of reference
33
B
Capital allowance for FRNSW
35
B.1
An appropriate capital allowance
35
B.2  Use of margin in cost build up approach
36

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1
Introduction
IPART is reviewing Fire and Rescue NSW (FRNSW)’s fees and charges. FRNSW is the NSW
Government agency responsible for providing fire and rescue services in cities and towns across
NSW, and hazardous material (hazmat) incident and counter-terrorism responses in all parts of
the state. FRNSW is also responsible for fire prevention and safety in buildings through planning
advice, approvals and inspections, automatic fire alarm (AFA) management, training and
community education.
FRNSW does not charge for attending fires within its fire districts or for rescue operations.
Insurers of property in NSW, local councils, and NSW taxpayers fund these services via the
Emergency Services Levy (ESL). We are not reviewing the ESL.
For those services for which FRNSW currently charges, the charges have not been reviewed for
several years, with some remaining at the same level since 2006. FRNSW also provides some
other services for which it does not currently charge.
In this context, it is important to ensure FRNSW’s charges reflect the efficient cost of delivering its
services, and provide appropriate incentives for people to avoid incidents and events that require
FRNSW’s services. We have been also asked to consider any public benefit of FRNSW’s activities
which should not be charged to the service user.
This report outlines our draft recommendations and explains how we reached these decisions. It
is accompanied by a series of information papers for each of the services shown in Figure 1.1.
Each information paper sets out our draft recommendations on charges and explains how and
why we made these recommendations, including our responses to comments received on our
Issues Paper. It also presents our analysis of the efficient costs of the service in question, various
charging options we considered, and the impact of our recommended charges.
We invite your feedback on our Draft Report (see Section 5 for more information).
Figure 1.1 FRNSW’s services for which IPART recommends user charges

Hazmat
Fire safety
False alarms
Automatic
Other

fire alarm
services
management
Attending
Providing advice for
Attending

hazardous material  building and other
automatic

Any other services
incidents
advisory services  fire alarms that later
such as attending
prove to have been
Providing
events and
false alarms
connection,
monitoring, transfer,
reptile handling
maintenance and
testing services
for AFAs
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Draft recommendations on user charges for FRNSW’s services


2
Draft recommendations on user charges for
FRNSW’s services
2.1  FRNSW’s services we recommend have user charges
Draft recommendation
  1.  User charges be set out in the Fire Brigades Regulation for the following services:
–  Hazmat service
–  Fire safety services
–  False alarm call outs
–  Automatic fire alarm management services
–  Responding to requests for incident information
–  Responding to fire incidents on waters outside a fire district
We made a draft decision that the following 5 service categories should have user charges and
have charges set out in the Fire Brigades Regulation 2014 (FB Regulation).
1.  Hazmat service which includes attendance at both recovery and wires down incidents
2.  Fire safety services in the built environment with three exceptions, which we consider relate
to FRNSW’s core services and are funded through the ESL:
a.  assessing fire safety complaints relating to buildings or structures
b.  undertaking joint inspections with councils or consent authorities of the fire safety
provisions of an occupied building
c.  providing comment to consent and regulatory authorities on a fire safety matter,
development condition, compliance issue or order applying to an occupied building.
3.  False alarm call outs
4.  Automatic fire alarm (AFA) management and system services which includes connection,
monitoring, transfer, maintenance and testing of AFAs
5.  FRNSW’s other monopoly services which include attending marine fires outside a fire
district, and responding to requests for information about incidents.
Box 2.1 sets out the principles we applied in deciding which of FRNSW’s services should have
user charges and have charges set out in the FB Regulation.
We note that, currently unlike user charges for other FRNSW services that are set in the FB
Regulation, the AFA management and system service charges (including charges for false alarms
generated through those systems) are set in agreements with AFA service providers, consistent
with the requirements of the Fire and Rescue NSW Act 1989 (FRNSW Act).
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Draft recommendations on user charges for FRNSW’s services


Given AFA management is a monopoly service, we consider the fees should also be set in the FB
Regulation. Therefore, we recommend changes to the FRNSW Act to make the treatment of AFA
management charges consistent with the other user charges set out in the FB Regulation.
Box 2.1 Deciding on which FRNSW’s services should have user charges
One of the key steps in our proposed approach outlined in the Issues Paper is to
identify which FRNSW’s services should have user charges and have charges set out
in the FB Regulation.
We have reviewed all FRNSW’s services, excluding those funded through the ESL,
and established whether each service should be subject to user charges, and, if so,
whether it should have charges set out in the FB Regulation.
The key principles we have applied are:
•
Whether there is an identifiable impactor who creates the need for the service in
question. Our view is that the impactor or risk creator should pay the costs
associated with providing the service.
•
Whether the service in question is a monopoly service to decide whether it
should have charges set out in the Regulation. If FRNSW is not the monopoly
provider of the service in question, customers can choose to engage FRNSW or
other services providers in the market. In this case, charges for the service do not
need to be set out in the FB Regulation.
2.2  Hazmat service charges
Under the FRNSW Act, FRNSW is responsible for protecting the people, property and
environment of NSW from the impact of hazmat incidents. A hazmat incident is an actual or
impending land-based spillage or other escape of hazardous material that causes or threatens to
cause injury or death or damage to property.1
FRNSW responds to two types of hazmat incidents:
•
incidents involving electricity “wires down”, where services are provided to electricity
distribution and transmission network service providers
•
all other hazmat incidents, where services are provided to individuals, organisations or other
government agencies.
FRNSW currently can charge for any hazmat incident response, but has policies about not
charging in various circumstances, including when the incident is less than 2 hours (for wires
down), less than 1 hour (all other hazmat incidents), or when the hazardous material is ‘orphan
waste’. In practice, FRNSW only charges for 2-5% of incidents.
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Draft recommendations
  2.  FRNSW charge a call out fee plus hourly charges for chargeable hazmat incidents
as set out in Table 2.1.
–  Incidents less than one hour (inclusive) will incur a call out fee of $335 for
wires down incidents and $480 for other hazmat incidents.
–  Incidents more than one hour will incur a call out fee plus hourly charges
depending on the equipment used.
  3.  FRNSW apply equipment charges set out in Table 2.1 to chargeable hazmat
incidents with attendance time greater than 1 hour.
  4.  FRNSW remove the current time-based thresholds for chargeable incidents,
whereby wires down incidents under 2 hours are not charged, and other hazmat
incidents under 1 hour are not charged.
  5.  FRNSW charge all Distribution Network Service Providers for wires down incident
attendance.
  6. FRNSW further consolidate a list of consumables wherever possible, possibly by
bundling up consumables that are used together for a typical response.
  7.  FRNSW be provided with flexibility to charge for the use of equipment that is not
listed in the FB Regulation.
Table 2.1 sets out our draft recommended charges for attending hazmat incidents. Our
information paper on hazmat services provides our approach for recommending charges for
FRNSW’s hazmat services and assessment of various options we considered in recommending
the draft charges.
Overall, we recommend a call-out fee plus hourly charges for chargeable hazmat incidents.
Under our recommendation, incidents less than 1 hour (inclusive) will incur a call-out fee, and
those more than 1 hour will incur a call-out fee plus additional variable charges depending on the
equipment used.
The call-out charge is different for wires down and other hazmat incidents, but the same variable
charges will apply to both incident types. The call out fee for other hazmat incidents is $150
higher than wires down incidents because of higher administration costs associated with
administration and billing for other hazmat incidents.
Consistent with FRNSW’s current approach, we recommend half of the hourly charge apply for
each half hour of use.
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Table 2.1 Draft recommended charges for hazmat incident attendance
($2022-23, ex-GST)

  Unit
Charge
Call-out fee applicable to all incidents
Wires down

Per incident
$335
Other hazmat incidents

Per incident
$480
Variable charges applicable to incidents over 1 hour where chargeable time is total attendance time less 1 hour
Each standard pumper and hazmat
Total
Per hour
$510
pumper (4 crew)

Labour
Per hour
$470

Vehicle
Per hour
$40
Each other hazmat vehicles and
Total
Per hour
$285
Mobile Command Centre (2 crew)

Labour
Per hour
$240

Vehicle
Per hour
$45
Each special operations vehicle (1
Total
Per hour
$200
crew)

Labour
Per hour
$165

Vehicle
Per hour
$35
Other equipment

Each hazmat delta

Per hour
$285
decontamination shelter
Each boat (including a trailer and

Per hour
$285
vehicle to tow it)
Each helicopter

Per hour
$3,365
Each hose

Per hour
$65
Each fully encapsulated gas suit

Per hour
$65
Each spillage suit

Per hour
$10
Each self-contained breathing

Per hour
$65
apparatus
Each standard gas detector

Per hour
$65
Each unit of specialised detection

Per hour
$65
equipment
2.3  Fire safety services
FRNSW’s services for fire safety in the built environment are part of a regulatory regime that is
intended to manage the fire safety risks in buildings and other structures. Many of FRNSW’s fire
safety services are mandated by the Environmental Planning and Assessment Act 1979.
Development proponents and/or building certifiers must request these services at the design
and construction stages for new and modified buildings and structures. FRNSW undertakes risk
assessments to determine which requests require detailed inspection, assessment, report or
meeting. The proportion of completed services varies considerably across the individual
services.2
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FRNSW charges for some of its fire safety services. Current charges recover most of FRNSW’s
costs for the services that are specified in the FB Regulation, however individual service charges
are not cost reflective. FRNSW does not recover the costs of providing fire safety services that
are not specified in the FB Regulation.
FRNSW advised that it is insufficiently resourced to undertake all requested fire safety services. It
considers that this resourcing issue is influenced by the current charging structure and level of
charges for fire safety services, i.e., it does not recover the costs of providing these services.
FRNSW and local councils also conduct compliance and enforcement activities to ensure
ongoing fire safety compliance in the built environment.
Draft recommendations
8.

  FRNSW charge for its fire safety services in accordance with Table 2.2.
9.

  To manage the increasing demand for its fire safety services and improve its
efficiency, FRNSW:
–  implement automated risk assessment processes for high volume application
types
–  refine its application forms and templates to ensure all necessary information
is captured and can be easily identified
–  pursue opportunities for greater utilisation of the NSW Planning Portal,
including for lodgement of Annual Fire Safety Statements and Emergency
Plans and notification of radiation gauges.
Table 2.2 sets out our draft recommended charges for FRNSW’s fire safety services. These
charges would allow FRNSW to recover the costs of:
•
administration, risk assessment and service overheads for most services through an
application fee
•
providing highly variable services through a charge per hour of labour
•
providing services with a low to medium degree of variation through fixed charges
•
excess travel through an hourly charge per hour of labour
•
any fire safety service that does not otherwise have charges specified in the FB Regulation
through an hourly charge per hour of labour.

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Table 2.2 Draft recommended charges for fire safety services ($2022-23, ex-GST)
Service
Charge ($)a
Initial fire safety report (IFSR)

Application fee
270
Charge per hour of labour
160
Advisory, assessment and consultancy services

Application fee
270
Charge per hour of labour
160
Fire engineering brief

Application fee
270
Fixed service charge
1,260
Final fire safety report

Application fee
270
Fixed service charge (including 2 hours of travel time for 2 people)
2,140
Fire safety system report

Application fee
270
Fixed service charge (including 2 hours of travel time for 2 people)
2,140
Attendance at a fire safety meeting

Application fee
270
Fixed service charge (including 2 hours of travel time for 2 people)
1,745
Review of emergency plansb

Fixed service charge (no application charge)
490
General fire safety inspection or assessment (not specified above)

Charge per hour of labour
155
Travel time to provide fire safety service

Charge per hour of labour
155
Consumables

At reasonable cost
Reasonable cost
a. If a charge is on an hourly basis, the charge specified is prescribed for each hour, or part of an hour
b. Charge only applies where FRNSW reviews and provides comment on an emergency plan; no charge for lodgement only.
2.4  False alarm call outs
FRNSW must attend an alarm of fire3 and it may recover charges specified in the FB Regulation if
it is afterwards discovered that the alarm was false.4 FRNSW also has a standard agreement with
3 Automatic Fire Alarm Service Providers, and the FRNSW Act provides for FRNSW to set
charges in this agreement for attendance at false alarms generated by automatic fire alarm
systems.5
FRNSW does not currently charge for false alarms that are not generated from automatic fire
alarm systems.
Box 2.2 sets out more details about FRNSW’s current approach to false alarm call outs.
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Box 2.2 False alarm call outs
Under the FRNSW Act, FRNSW must attend an alarm of fire6 and it may recover
charges specified in the FB Regulation if it is afterwards discovered that the alarm
was false. The FB Regulation sets this charge at $1,600, to be levied unless it was a
test where prior notice was given and the test was properly conducted, or it is the
first false alarm during a 60-day period (with the second or subsequent false alarm to
be charged).
Currently, FRNSW only charges for false alarms generated by automatic fire alarm
systems, for which charges are imposed under automatic fire alarm (AFA) network
service arrangements with automatic fire alarm service providers (AFASPs). The
charges for false alarms under this agreement is also $1,600.
FRNSW attends approximately 47,000 false fire alarms from AFAs each year. In
practice, FRNSW charges for about 46% of these after applying its policies to not
charge in certain circumstances. The agreement with AFASPs provides for two
‘leniencies’:
1.  charges will only apply to the first false alarm in a 24-hour period;
2.  charges will only be imposed for the second or subsequent false alarm in any
60-day period.
In addition to the two leniencies, FRNSW may also waive false alarm charges for a
variety of reasons, including, for example if a false alarm is considered to have been
beyond the building owner’s control (e.g. due to environmental conditions like
bushfire smoke). A further 2% of charges levied are waived after the charge has been
issued.
We recommend that FRNSW continue its current practice of levying a charge for some false
alarms arising from automatic fire alarms systems (AFAs), but not for those raised through ‘triple
zero’ calls’.
We recommend an increase to the false alarm charge to $1,975 (in $2022-23) and a discounted
rate of $395 for some false alarms depending on the cause.
We also recommend changes to the way FRNSW applies leniencies for AFA false alarms,
including that FRNSW:
•
not charge the first false alarm in 90 days (existing policy is first false alarm in 60 days is not
charged)
•
exclude ‘non-chargeable’ alarm types from triggering leniencies, meaning more false alarms
will be uncharged
•
exclude alarms caused by poor building maintenance from the 90-day leniency.

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Draft recommendations
10.

  FRNSW continue to charge for attending an alarm from an automatic alarm
system that is later found to be a false alarm.
  11.  FRNSW continue its policy to not charge for attendance at false alarms that are not
generated from an automatic fire alarm system.
  12.  FRNSW consider the merits of trialling charging for false alarms from privately
monitored premises to assess its effectiveness at reducing the number of false
alarms.
Table 2.3 sets out our draft recommendations for false alarm charges. In reaching our draft
recommendations, we balanced the need to incentivise the right people to reduce the
occurrence of false alarms, equity, and the cost to FRNSW of attending false alarms.
Table 2.3 Draft recommended charges for false alarms
Amount
Charge type
($2022-23)
When it applies
Full charge
$1,975
For false alarms that do not qualify for a leniency and are not for the causes
listed for a discounted charge
Discounted
$395
When the cause of the alarm is found to be:
charge
•  Cooking fumes – toast, foodstuffs, etc
•  Incense, candles, sparklers, smoke machine, etc
•  Due to aerosol use – hair spray, insecticides, etc
•  Due to steam – shower bath sauna, steam room etc
To be an effective incentive, the charge is best levied on the party most able to make the relevant
changes to prevent false alarms. In most cases this would be the building owner (or may be an
owners’ corporation). We note however that building owners are often able to pass the charges
through to occupants (residential or non-residential) regardless of whether they are responsible
for the false alarm or able to make relevant changes. This can be based on strata by-laws or
contractual arrangements such as leases.
The discounted price helps to reduce the burden where charges are passed on and the
occupant’s actions may be responsible for the false alarm. However, we also recommend that
FRNSW work with Fair Trading NSW to develop a fact sheet for occupants and building owners
to better understand their responsibilities, rights and options to contest a charge that has been
passed on if this is done unfairly.
Draft recommendations
  13.  FRNSW continue to proactively engage with alarm owners to reduce false alarms
from automatic fire alarm systems with a risk-based approach.
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Draft recommendations on user charges for FRNSW’s services


  14.  FRNSW work with NSW Fair Trading to develop a fact sheet for occupants and
building owners to clarify responsibilities, rights and options for appeal when
building owners pass charges on to occupants
  15.  FRNSW continue its current practice of not charging for a false alarm generated
by an automatic fire alarm system where the cause is beyond the control of the
building owner.
16.

  FRNSW implement a 2-tiered charging structure where there are different
charges for attendance at false alarms generated by an automatic fire alarm
system, depending on the cause of the alarm.
17.

  FRNSW charge a discounted charge for false alarms generated by an automatic
fire alarm system where the cause is identified to be any of the following:
–  Cooking fumes – toast, foodstuffs, etc
–  Simulated conditions – incense, candles, sparklers, smoke machine, etc
–  Alarm activation due to aerosol use – hair spray, insecticides, etc
–  Alarm Activation due to steam – shower bath sauna, steam room etc
18.

  FRNSW revise the stop-code descriptor for false alarms generated by an
automatic fire alarm system ‘Alarm activation due to workers’/occupiers’ activities’
to separate workers’ and occupiers’ activities.
19.

  FRNSW take steps to help identify where there are design issues in buildings with
automatic fire alarm systems causing false alarms from normal activities such as
showering. This could include:
–  publishing information for occupants to reach out if they think that there is a
design issue and take steps to follow up
–  tracking the number of this type of alarm and engaging with the building
owner where there is a significant number of alarms
–  work with the Building Commissioner to investigate options to reduce these
happening in new buildings.
Our recommended charges aim to recover the total cost to FRNSW of attending false alarms
generated by AFAs, noting that a substantial number of these false alarms are not charged for,
due to leniencies and non-chargeable causes.
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Draft recommendations on user charges for FRNSW’s services


We found that it cost FRNSW $717 on average to attend a single false alarm incident. This
includes the incremental costs of attending firefighters, vehicles, overheads, and a portion of
standby costs, and a 10% capital allowance. Assuming 48,000 false alarm calls annually (the 10-
year median) this amounts to a cost of $34.9 million a year. Before we make our final
recommendations, we would like to better understand the impact that false alarm attendance
has on the overall capacity of FRNSW operations.
We have also made several draft recommendations about the application of leniencies. These
aim to improve equity and strengthen the incentive power of the charge to those premises that
have multiple recurring alarms. We estimate that our draft recommendations regarding
leniencies are likely to result in a small increase in the number of false alarms that are charged.
Draft recommendations
  20.  FRNSW continue to apply the ‘24-hour leniency’, so that second and subsequent
alarms in a 24-hour period are not charged; but amend its implementation to
exclude non-chargeable causes of false alarms from triggering the 24-hour period.
21.

  FRNSW not charge for attending the first false alarm from an Automatic Fire Alarm
in 90 days (current policy is 60 days) and:
–  exempt non-chargeable causes of false alarms from being the first false alarm
and triggering the 90-day period
–  exclude false alarms that are caused by poor building maintenance from
receiving this leniency.
22.

  FRNSW continue to waive the charge where adequate steps are taken to prevent
future false alarms under its current waiver policy.

  23.  The charges for attending false alarms in 2022-23 to be set in the FB Regulation:
–  $1,975 for the full charge ($2022-23)
–  $395 for the discounted charge ($2022-23).
2.5  AFA management services
FRNSW enters into arrangements with Automatic Fire Alarm Service Providers (AFASPs) for the
installation, monitoring and maintenance of fire alarm links between fire brigade premises and
other premises. These arrangements are known as AFA network service arrangements. FRNSW
charges AFASPs for the services it provides under these arrangements. There are 3 approved
AFASPs that are contracted to FRNSW. As of 30 June 2021, FRNSW had 17,055 connected AFAs
for which monitoring fees are charged monthly.
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FRNSW charges AFASPs for the following services:
•
new alarm connection by AFASP to the FRNSW AFA system
•
ongoing monitoring of an AFA
•
transfer of AFAs between AFASPs.
•
quarterly AFASP maintenance fee, and
•
AFASP communication system interface testing connection of an AFA.
Draft recommendations
  24.  Automatic fire alarm management charges be set for 2022-23 as set out in Table
2.4
Table 2.4 sets out our draft recommended charges for AFA management and system service.
Table 2.4 Draft recommended charges for AFA management services ($2022-23,
ex-GST)
Fee
Unit
Proposed charge
Connection
Per event
$755
Ongoing monitoring fee
Per AFA per month
$14.45
Transfer
Per event
$160
Application fee
Per application
At reasonable cost
Ongoing maintenance fee
Per AFA per month
85 cents
Unlike user charges for other FRNSW services that are set in the FB Regulation, the AFA
management and system service charges are currently set in the AFA network service
arrangements, consistent with the requirements of the FRNSW Act.
As AFA management is a monopoly service, we consider its fee should also be set in the
FB Regulation. We recommend FRNSW propose changes to the FRNSW Act to make the
treatment of AFA management fees consistent with the other user charges set out in the FB
Regulation.
2.6  Other services
FRNSW identified a range of ‘other services’ which include:
•
services provided to other NSW government agencies and other jurisdictions
•
services provided by FRNSW’s commercial training division, ComSafe
•
some miscellaneous other services identified by FRNSW which should be examined as part
of this review.
There are no cost-recovery arrangements for most of these ‘other services’ and, where there are
charges, these charges have not been recently reviewed or aligned with up-to-date policies.
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Draft recommendations on user charges for FRNSW’s services


Our view is that services provided by FRNSW to other agencies should be subject to cost
recovery. We consider that FRNSW should continue any existing charged arrangements and
review any services which fall into this category but are not currently charged.
Draft recommendations
25.

  FRNSW continue any existing charged arrangements with other NSW government
agencies.
  26.  FRNSW review services provided to other NSW government agencies which are
not currently charged for their suitability for cost recovery.
FRNSW could currently charge for attending fires outside a fire district, but does not do so as a
matter of policy. We consider this is appropriate for land-based fires, but we consider that the
rates for responding to fire incidents on waters outside a fire district should be the same as
hazmat charges.
FRNSW also responds to requests for information about incidents (usually for insurance
purposes), currently without charging.
Draft recommendations
  27.  FRNSW charge for attending fires on waters outside its fire district, on the same
basis as attending hazmat incidents.
  28.  FRNSW charge for requests for incident information reports, at a fixed charge
equivalent to the GIPA application fee ($30).
FRNSW also should have the flexibility to set arrangements and user charges for other services
where there are key beneficiaries and the service is contestable. These services include:
•
services provided to other agencies or jurisdictions which require resource sharing
•
services provided by Comsafe, including attendance at events
•
rescues from lifts
•
reptile handling.
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link to page 17 Draft recommendations on user charges for FRNSW’s services


2.7  Impact of our draft recommendations
Our draft recommendations on user charges will have mixed impacts on stakeholders. There will
be a combination of new charges, increased and decreased prices. This is discussed further in the
supporting information papers.
We have estimated the revenue impact from our recommendations on building safety, false
alarm charges, AFA management charges, and hazmat. We did not estimate the impact from
other services because they are generally minor and more variable (around $0.1 – 0.2 million per
year).
We estimate that our draft recommendations would result in $1.8 million less revenue in
$2022-23 annually compared with current charges and charging practices. This is a 4% fall in the
revenue collected through these services, or 0.22% of FRNSW’s total revenue.
If the fall were collected through the ESL, it would result in a 0.24% increase to the ESL.
Table 2.5 sets out the revenue impact for the 4 main services with comparisons to the total
FRNSW revenue and the ESL revenue.
Table 2.5 Expected revenue impact in 2022-23 ($2022-23, millions)
Forecast revenue
Forecast
with current
revenue under
charges
our recs
Difference
Difference

($, millions)
($, millions)
($, millions)
(%)
Fire safety
3.1
3.2
0.1
5%
False alarms
35.5
35.6
0.2
1%
AFA monitoring
11.8
3.7
-8.1
-69%
Hazmat
1.3
7.3
6.0
455%
Net change ($)
51.7
49.8
-1.8
-4%
Net change % of total FRNSW revenue

-0.22%
Net change % of ESL

.-0.24%
a. To calculate the comparison to total FRNSW revenue and the ESL, we used an estimate of total revenue and ESL revenue in 2022-23. TO
do this, we used the 5-year averages (2016-17 to 2020-21) in $2020-21 and added 2.5% annual inflation for 2 years. Numbers may not add
due to rounding.
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link to page 27 Draft recommendations on regulatory framework


3
Draft recommendations on regulatory framework
In addition to recommending charges for FRNSW’s services, we have been also asked to
recommend a regulatory framework for applying our recommended charges.
Draft recommendations
29.

  The FRNSW Act be amended to provide more flexibility for Fire and Rescue NSW
to determine charges for services that are not specified in the FB Regulation.
30.

  The FRNSW Act be amended to provide more flexibility for Fire and Rescue NSW
to charge for services that have not been requested (for example, proactive
compliance activities)
31.

  The FRNSW Act be amended to provide for charges for AFA management to be
set in the FB Regulation
32.

  The FB Regulation be amended to clarify that FRNSW may charge for specified
contestable services, but without charges being prescribed in the FB Regulation,
including:
–  services provided by Comsafe
–  attendance at events
–  rescues from lists
–  reptile handling.
33.

  The FB Regulation be amended to allow all specified charges to be indexed each
year by the Wage Price Index for public sector wages.
These draft recommendations address some of the inflexibilities and complexities of the existing
regulatory framework. We discuss our analysis of these issues and how we reached our
proposed recommendations in Section 4.5 below.
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link to page 36 link to page 20 How we made our draft recommendations


4
How we made our draft recommendations
We have developed an approach to this review to guide our decision making and ensure we take
account of all matters specified in the Terms of Reference (provided in Appendix A), and issues
raised by stakeholders in submissions and through direct consultation.
The sections below provide an overview of our approach and each of its key steps. We also
respond to stakeholder submissions on this approach.
4.1  Overview of our approach
To conduct this review, we developed an approach to making draft recommendations and
conducted public consultation and detailed analysis as outlined in Box 4.1.
Our approach comprises the following key steps,
1.  Develop principles for assessing which services should have user charges, which of those
services should have charges set out in the FB Regulation, and how those charges should be
set.
2.  Based on the principles from Step 1, identify which of FRNSW’s services should have user
charges, and assess which of those services should have charges set out in the FB
Regulation.
3.  Develop and apply a pricing methodology for these services. This involves deciding
a.  What ‘form’ of price regulation is appropriate for FRNSW’s services
b.  For how many years we will be recommending charges (or a pricing methodology) for
those services
c.  What costs FRNSW should recover from charges and what approach we should use to
estimate the efficient level of these costs
d.  Appropriate pricing structures or other pricing mechanism for FRNSW to recover the
efficient costs through its charges
e.  Recommending charges (or a price methodology) for those services from 1 September
2022
4.  Decide on a recommended regulatory framework for applying those charges, including a
methodology for reviewing and adjusting charges in future.
In Section 4.2 to 4.5, we describe how we have implemented these steps to reach our draft
recommendations.
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How we made our draft recommendations


Box 4.1 Process for this review
The process we followed in conducting this review included public consultation and
detailed analysis. As part of this process, we:
•
Released an Issues Paper in August 2021. This paper explained the terms of
reference, outlined our proposed approach for the review and invited comments
on key issues including our proposed approach.
•
Invited FRNSW to provide information for the review, including details of its costs
and activities.
•
Engaged consultants, the Centre for International Economics, to review
information provided by FRNSW and provide expert advice on efficient operating
costs of FRNSW’s services that we identified should have user charges.
We are now seeking submissions on this Draft Report and invite comment from you.
Submissions are due by 8 February 2022. We will also hold an online public forum on
the Draft Report on 31 January 2022 where you will have the opportunity to
comment or ask questions about our draft recommendations. We will consider all
submissions and comments before making our final recommendations to the NSW
Government in March 2022.
4.2  Develop principles for assessing which services should have
user charges
The first step in our approach is to develop pricing principles to help us identify which of
FRNSW’s services should be subject to user charges and how to set those user charges.
As proposed in our Issues Paper, we identified which of FRNSW’s other services should be
subject to user charges based on the following principles:
•
Equity: Where identifiable individuals create specific demand for FRNSW’s services, they
should pay for them. This includes FRNSW’s regulatory activities.
•
Efficiency: Where charging for a service ensures scarce resources are better allocated,
FRNSW should charge for it.
•
Risk mitigation: Where charging for a service provides an incentive for individuals to mitigate
risk, FRNSW should charge for it; and where FRNSW undertakes activities that better mitigate
risk, FRNSW should charge for them.
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Once we assessed which services should have user charges, then we decided whether charges
should be set out in regulations based on whether it is a monopoly service. And in recommending
charges, we assessed various options against the following principles:
•
Transparent: Key information about the charges should be readily available, such as the
authority to charge, charging rates, and, where relevant, the basis of the charges.
•
Cost-reflective: Charges should reflect the efficient cost of providing the service.
•
Equitable: Charges should be equitable and affordable.
•
Create positive incentives: Where relevant, charges should incentivise risk mitigation.
•
Simple: Charges should be straightforward, practical, easy to understand and collect.
•
Flexible: Charges should be easily applicable to any new activities that FRNSW undertakes in
future.
•
Consistent: Charges should be consistent between similar activities conducted by FRNSW
and consistent with charges for similar activities conducted by other NSW agencies.
Submissions generally supported our proposed pricing principles. LGNSW supported our pricing
principles but noted that risk mitigation may be hard to assess and risk mitigation that benefits an
individual may also benefit the broader community and be part of FRNSW’s core services.7
In our view, by applying "risk mitigation" as a principle for charging, we are effectively using price
to incentivise an impactor (or potential impactor) to reduce risk. There might be other
beneficiaries of reduced risk, but it is not relevant as they are beneficiaries only, not impactors.
Also, FRNSW submitted that the cost of providing its services should be borne by impactors. It
submitted that recovering the efficient cost of services provides scalability and flexibility - this
mitigates the transfer of risk to the community and provides response to the changing nature of
risk in the built environment.8
We agree with FRNSW that preferably the impactor or risk creator should pay. That is, those
ultimately creating the costs, or the need to incur the costs, should pay the costs. If that is not
possible, the beneficiary should pay (direct beneficiaries before indirect beneficiaries) where
users pay charges on the basis of benefiting from the service. In our view, taxpayers may be
considered as a funder of last resort where risk creators or beneficiaries have not been clearly
identified; or where it is not administratively efficient or practical to charge impactors or
beneficiaries.
LGNSW and FRNSW suggested including additional pricing principles such as transparency,
consistency and risk reduction.9 Our proposed pricing principles already included these
principles, and we have considered them in recommending draft charges.
Regarding assessment of FRNSW’s services for user charges, LGNSW submitted that for
contestable services, we need to assess whether there is a developed market and effective
competition, particularly in regional areas, It also commented that the FB Regulation should
include additional cost recovery mechanisms.10
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link to page 24 How we made our draft recommendations


FRNSW’s contestable services are provided at the request of a specific individual or organisation,
and customers can choose to engage FRNSW or other service providers in the market.. We have
seen no evidence of monopoly pricing for these services, and see no reason to regulate charges
for contestable services at this time. We support FRNSW having the maximum flexibility to vary
charges to reflect changes in costs and our draft recommendations on the regulatory framework
reflect this.
4.3  Identify FRNSW’s services that should have user charges
Our next step is to identify which FRNSW’s services should have charges set out in the
FB Regulation by assessing FRNSW’s services against our principles for applying user charges
and considering how the user charges should be set.
FRNSW’s core services - responding to fires within its designated fire districts, community safety
preparedness and engagement, and rescues - are funded through the ESL. FRNSW does not
charge for these services. They are provided on the basis that they have broad community
benefit, or are used by property owners and ratepayers who pay via the ESL. This funding model
is not part of our review.
Currently, FRNSW is able to charge users for some of its other services (“non-core” services),
including automated fire alarm services, some but not all statutory fire safety activities, and
training and consultancy services. It is able to charge for any hazmat incident, but has made the
policy decision to charge only when attendance exceeds an hour. Some of these charges are set
out in the FB Regulation, but others are not, and are set by negotiation or at market rates.
We have conducted a comprehensive review of FRNSW’s non-core services and determined
whether each service should be subject to user charges, and, if so, whether it should have
charges set out in the FB Regulation.
The key principles we have applied are:
1.  Whether there is an identifiable impactor who creates the need for the service in question.
Our view is that the impactor or risk creator should pay the costs associated with providing
the service.
2.  Whether the service in question is a monopoly service to decide whether it should have
charges set out in the FB Regulation. If FRNSW is not the monopoly provider of the service in
question, customers can choose to engage FRNSW or other services providers in the market.
In this case, charges for the service do not need to be set out in the FB Regulation.
Table 4.1 sets out our assessment of FRNSW’s non-core services based on these principles. In
conclusion, we have made a draft decision that the following services should have user charges
and have charges set out in the FB Regulation:
•
Hazmat incidents (both wires down and other hazmat incidents)
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•
All fire safety in the built environment services with three exceptions, which relate to
FRNSW’s core services and are funded through the ESL:
—  assessing fire safety complaints relating to buildings or structures
—  undertaking joint inspections with councils or consent authorities of the fire safety
provisions of an occupied building
—  providing comment to consent and regulatory authorities on a fire safety matter,
development condition, compliance issue or order applying to an occupied building.
•
Responding to a false alarm (although we support FRNSW continuing to have a policy of only
levying these charges for false alarms generated by AFA systems)
•
Automatic fire alarm management
•
FRNSW’s other services, which include:
—  Attending marine fires outside a fire district
—  Responding to requests for information about incidents, including from individuals and
insurers.
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How we made our draft recommendations


Table 4.1 Application of principles for determining which FRNSW services should have user charges
Contestable services – user charges not set in
Services with no user charges
Services with user charges set in regulation
regulation
Cost to beneficiaries – related to core services and
“Identifiable impactor” and “monopoly service”
“Identifiable impactor” but “not monopoly service”
funded through ESL
Fire safety in built environment
Contestable services
Fire safety in built environment
•  Initial fire safety report
•  ComSafe training courses
•  Assessing fire safety complaints relating to buildings or
•  Final fire safety report
•  ComSafe emergency plans and diagrams
structures
•  Fire safety system report
•  Shared services (SAP) provided to RFS and SES
•  Undertaking joint inspections with councils or consent
•  Assessment of BCA Category 2 fire safety provision
•  Call taking and dispatch services provided to RFS and
authorities of the fire safety provisions of an occupied
•
building
  Attendance at a fire safety meeting associated with
SES
development
•  Assisting with lift extractions (not related to rescue)
•  Providing comment to consent and regulatory
•
authorities on a fire safety matter, development
  Advisory, assessment or consultancy services for State
•  Assisting with reptile handling
significant infrastructure, Crown building work or other
condition, compliance issue or order applying to an
development (including fire engineering briefs)
occupied building
•  Fire safety inspection (eg, for maritime lease)
•  Services provided through another agency, e.g.
combustible cladding inspections
Hazmat
Services provided to other agencies and jurisdictions

•  Attend hazmat incident
•  Provide services to other agencies and jurisdictions, e.g.
•  Attend hazmat incident – wires down
through MoUs and service level agreements
•  Receive notifications of radiation gauges and location of
•  Use of Emergency Services Academy Facilities
radiation sources
•  Remote Piloted Aircraft Systems (drones)
•  Consult and make recommendations about emergency
plans for workplaces that handle, use or store hazardous
chemicals exceeding a certain quantity, major hazard
facilities and licensed explosives sites
Automatic fire alarms (AFAs)
Events and media productions
Events
•  Responding to a false AFA
•  Attend major and special events and media productions
•  Attend major, special and community events for purpose
•  Automatic fire alarm management
– commercial purpose
of community education and awareness
Fires outside fire districts

Fires outside fire districts
•  Attend marine fire outside fire district
•  Attend land-based fire outside fire district
Responding to requests for information

•  Responding to requests for information about incidents,
including from individuals and insurers
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How we made our draft recommendations


4.4  Develop and apply a pricing methodology
In the third step of our proposed approach, we decide what methodology we should use to
recommend charges for FRNSW’s services. We then apply this method to recommend a pricing
framework to recover the efficient costs of those services. To do this, we have considered
•
What ‘form’ of price regulation is appropriate for FRNSW’s services
•
How many years we will be setting charges for those services
•
What costs FRNSW should recover from charges and what approach we should use to
estimate the efficient level of these costs.
As required by our terms of reference, we have also assessed various options for the price
structure or pricing mechanism for FRNSW’s services.
We recommend charges for the first year and indexing thereafter
As we are reviewing FRNSW’s charges for the first time, we considered what would be the most
appropriate ‘form of regulation’ to establish charges. Once we decided on the form of regulation,
we then established the most appropriate period for which we recommend charges for FRNSW’s
services.
As proposed in the Issues Paper, we have made a draft decision to recommend charges for the
first year and recommend these charges be indexed each year. Using an indexation approach
implies FRNSW costs are likely to vary in line with the proposed index. It also allows charges to
continue to be adjusted periodically beyond the period for which we recommend charges in this
review.
We recommend charges for 5 years from 2022-23 to 2026-27. Specifically, our recommended
charges would be applicable from 1 July 2022 and indexed using the ABS WPI for public sector
wages from 1 July 2023 to 30 June 2027. We considered 5 years provide a reasonable balance
between ensuring stability and predictability in FRNSW’s charges and lowering risks associated
with inaccuracies in the forecast data used to recommend these charges.
In our Issues Paper we proposed to index charges using the Consumer Price Index (CPI).
Submissions supported annual indexation of FRNSW’s charges, but did not support the CPI as the
appropriate index. FRNSW and Local Government NSW (LGNSW) consider a wage index is more
likely to accurately reflect cost movements and recommend using a wage growth index to
update charges periodically.11 Also, LGNSW suggested we consider a composite index like the
Local Government Cost Index (LGCI).12
We agree a wage index is likely to be more reflective of the costs of providing FRNSW services
given that labour costs represent 80% of its costs. The public sector WPI is likely to be the best
reflection of FRNSW’s labour cost changes. A composite FRNSW-specific index cannot be
implemented within the existing regulatory charging framework, and in our view the potential
additional accuracy would not justify the additional complexity in any case.
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link to page 38 How we made our draft recommendations


We have used a cost build-up approach
Our Issues Paper proposed to use a ‘cost build-up’ approach to estimate total efficient costs of
providing FRNSW’s services and add an efficient capital allowance to compensate FRNSW for
committing capital investment. It proposed to look at the construction industry to estimate an
appropriate capital allowance.
Submissions broadly supported using the cost build up approach. However, FRNSW submitted
that there are strict rules around using revenue for capital expenditure, and that asset wear and
tear should be considered in cost recovery.13 LGNSW questioned basing a capital allowance on
the construction industry as it considers FRNSW does not face the same risks as construction
firms.14
Consistent with the Issues Paper, we adopted a cost build up approach. We assessed efficient
operating, maintenance and depreciation costs. We then added an appropriate capital allowance
to account for a share of the cost of purchasing capital items such as IT systems and equipment
to arrive at the total efficient costs.
To estimate the efficient operating, maintenance and depreciation costs:
•
We analysed information provided by FRNSW on its historical and projected operating costs
and activities
•
We engaged consultants, the Centre for International Economics (the CIE), to review
information provided by FRNSW and provide expert advice on efficient operating costs of
providing hazmat services.
We included only efficient operating, maintenance and depreciation costs. The allowance for
such costs reflects our view of the efficient level of costs FRNSW would incur in providing its
services over our review period, from 2022-23 to 2026-27. We also included depreciation
The efficient operating, maintenance and depreciation costs commonly included labour costs (i.e.
salaries), billing and administration costs, overheads and depreciation costs. Some of the cost
items were service-specific. For example, we accounted for pumper costs in the efficient
operating costs for false alarm call outs and hazmat charges. For some fire safety services, we
allowed for travel costs.
Once we established the efficient operating, maintenance and depreciation costs, we added a
capital allowance of 10%. This is to account for a share of the cost of purchasing capital items
such as IT systems and equipment.
We agreed with LGNSW that the construction industry is not a suitable proxy for estimating a
capital allowance. We considered alternative proxy firms in the following industries:
•
fire and security alarm installation services
•
investigation and security services
•
fire protection services and hazardous waste hauling services.
The average earnings before interest and tax (EBIT) margins of these industries ranged from 6.1%
to 13.5%. We considered the average EBIT margin across these industries of 10% provide a
reasonable estimate of capital allowance for FRNSW’s services. Appendix B provides our analysis
of capital allowance in more detail.
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How we made our draft recommendations


4.5  Decide on a recommended regulatory framework for applying
those charges
The FRNSW Act empowers FRNSW to charge for some of its activities, and the FB Regulation
further specifies what FRNSW can charge for, and what amounts it can charge. The net effect is a
somewhat complicated and inflexible charging framework.
In our view, the charging framework should provide for FRNSW to charge for its monopoly
services where appropriate, by reference to charges set out in the FB Regulation. While FRNSW
should have a clear power to charge for contestable services under the FRNSW Act, it should
have the flexibility to set the level of those charges based on commercial principles.
This section sets out the current charging framework, the issues that we have identified with it,
and our recommendations to provide a simpler, more flexible and more equitable regulatory
charging framework.
4.5.1  The current framework
Part 4 of the Fire and Rescue NSW Act 1989 (FRNSW Act)
Part 4 of the FRNSW Act empowers FRNSW to charge as follows:
•
Attending fires
FRNSW cannot charge for attending a fire unless the fire is outside a fire district. If the fire is
outside a fire district, FRNSW can recover costs up to any maximum charges prescribed in the FB
Regulation. Any charges also cannot exceed 20% of the pre-fire value of the building, vessel,
cargo and/or freight.15 FRNSW does not currently exercise the power to charge for attending fires
outside a fire district and there are no maximum charges prescribed in the FB Regulation.
•
Hazardous material incidents
FRNSW may charge up to prescribed charges for attending a hazardous material incident (but
cannot charge for fighting a fire that is the result of a hazardous material incident).16
•
Other services
FRNSW can, on request for a service, charge for:
(a)  inspecting any premises
(b)  inspecting, testing, servicing or repairing any equipment
(c)  furnishing advice or a report concerning fire prevention or protection, fire fighting equipment
or other matters
(d)  conducting a training course
(e)  responding to any alarm (if it is afterwards discovered that the alarm was false), or
(f)  performing any other service specified in the regulations,
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How we made our draft recommendations


The charge must be the charge prescribed by the regulations in respect of the service performed
or, if no amount is so prescribed, of such amount as the Commissioner thinks fit.17
However, where any of these services are performed under an automatic fire alarm network
service arrangement, these charging arrangements do not apply.18 Instead, a contract prescribes
the charges.
Part 5 and Schedules 1-3 of the Fire Brigades Regulation 2014 (FB Regulation)
Part 5 and Schedules 1-3 of the FB Regulation 2014 empower Fire and Rescue to charge as
follows:
•
Attendance at hazardous material incidents
Hazmat incident attendance charges are set out in Schedule 1, in three categories.
•
specified standard equipment to be charged at different hourly rates
•
any special items (goods, services or premises) hired or purchased for a particular hazmat
incident are to be passed through at cost
•
any consumables are to be passed through at cost + 10% handling fee.
The charges can be calculated on a half-hourly basis.19
•
Statutory fire safety services
Clause 46 sets out five different charging bases for statutory fire safety services:
•
Cl 46(1) prescribes charges for an Initial Fire Safety Report by reference to Schedule 2, which
specifies charging rates as a percentage of the estimated cost of development with a 5-part
sliding scale.
•
Cl 46(2) prescribes charges for inspecting premises for a Final Fire Safety Report, as a
specified charge for up to 2 hours (including travel time) and an additional specified hourly
charge thereafter.
•
Cl 46(3) prescribes a specified charge for each assessment of a Building Code of Australia
Category 2 fire safety provision.
•
Cl 46(4) prescribes a specified hourly charge for attendance at a fire safety meeting.
•
Cl 46(5) prescribes a specified daily charge for any other advisory, assessment or consultancy
services in respect of development (with development, including State significant
infrastructure and Crown building work, as defined by the Environmental Planning and
Assessment Act 1979).
•
Attendance at false alarms
The charge for attendance at a false alarm is $1600 and the charge only applies for the second or
subsequent charge in a 60-day period.20
•
Other services
Clause 48 prescribes charges for any other services specified in s42(1) of the FRNSW Act, where
the charge has not already been prescribed by the FB Regulation, by reference to Schedule 3.
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How we made our draft recommendations


The services are:
(a)  inspecting any premises
(b)  inspecting, testing, servicing or repairing any equipment
(c)  furnishing advice or a report concerning fire prevention or protection, fire fighting equipment
or other matters
(d)  conducting a training course
(e)  responding to any alarm (if it is afterwards discovered that the alarm was false).
Category (f) from the FRNSW Act, s42(1), “any other services specified in the regulations” is not
used.
Schedule 3:
•
specifies different hourly rates for each fire brigade rank
•
states that special items (goods, services or premises) hired or purchased for performing the
other services are to be passed through at cost
•
states that consumables are to be passed through at cost + 10% handling fee.
4.5.2  Issues identified with the current framework
FRNSW can introduce new services within existing specified categories in section 42(1) of the
FRNSW Act and charge for them, but has no flexibility to charge anything other than the catch-all
Schedule 3 rates.
FRNSW has no ability to charge for new services at all if they do not fit in to the existing specified
service categories in section 42(1), due to the interaction of s42(1)(f) and Cl 48.
FRNSW may be constrained by the requirement that it be requested to provide a service before it
can charge (s42(1)). This may be an impediment to FRNSW recovering the costs of undertaking
more proactive fire safety work programs.
Unlike user charges for other FRNSW services that are set in the FB Regulation, automatic fire
alarm management charges are set out in the automatic fire alarm network service
arrangements.21
Lastly, there is no mechanism for FRNSW to adjust charges within the existing regulatory
framework.
4.5.3  Draft recommendations for the regulatory framework
We recommend amendments to the FRNSW Act and FB Regulation to:
•
provide more flexibility to charge for categories of service that are not specified in the FB
Regulation
•
provide more flexibility to charge for services that have not been requested (for example
proactive compliance activities)
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•
provide more flexibility to develop charges for contestable services
•
bring the regulation of automatic fire alarm management service charges in line with the
regulation of charges for other monopoly services provided by FRNSW
•
include a mechanism to adjust charges annually.
To provide FRNSW with a mechanism to adjust charges annually, we recommend that the FB
Regulation be amended to allow charges to be indexed each year by the change in the Australian
Bureau of Statistics (ABS) Wage Price Index (WPI) for public sector wages based on the following
formula:
𝑊𝑃𝐼
𝑃
𝑡+1
𝑖,𝑡+1 = 𝑃𝑖,𝑡 𝑊𝑃𝐼𝑡
where
•
Pi,t+1 is charge for service i in year t+1 and Pi,t is charge for service i in year t
•
WPIt+1 is the Wage Price Index for NSW public sector total hourly rates of pay excluding
bonuses1 in the March quarter in year t+1
•
WPIt is the Wage Price Index for NSW public sector total hourly rates of pay excluding
bonuses in the March quarter in year t

1   The Australian Bureau of Statistics Series ID is A2704472W.
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link to page 31 Have your say on our draft recommendations


5
Have your say on our draft recommendations
For this review, we are conducting public consultation as well as detailed analysis. To date, we
have:
•
met with key stakeholders (see Table 5.1 for an overview of our stakeholder engagement)
•
released an Issues Paper in August 2021 which outlined our proposed approach to the review
and invited comment.
•
issued an information request to FRNSW and gathered information about operating costs and
activities.
•
commissioned a consultancy to examine the efficient costs of providing FRNSW’s services
•
considered submissions to our Issues Paper
•
undertaken analysis for our Draft Report.
Table 5.1 Overview of stakeholder engagement
Meetings with fire and rescue
Meetings with NSW
organisations in other
Submissions received
stakeholders
jurisdictions
•  Anonymous individual
•  ADT (an AFASPa)
•  Department of Fire and
•  Australian Institute of Building
•  Associate Professor Kathy
Emergency Services (WA)
Surveyors
Tannousb
•  Fire Rescue Victoria
•  FRNSW
•  City of Sydney Council
•  South Australian Metropolitan Fire
•  LGNSW
•  LGNSW
Service
•  Multiplex
•  Multiplex
•  Tasmania Fire Service
•  Property Owners’ Assoc. NSW
•  NSW Treasury
•  Shopping Centre Council of
•  Office of the NSW Building
Australia
Commissioner
•  Romteck Grid (an AFASPa)
•  Shopping Centre Council of
Australia

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recommendations in this Draft Report.
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provided on page ii at the front of this report.
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Appendices

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Terms of reference

A Terms of reference

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Terms of reference

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Capital allowance for FRNSW


B  Capital allowance for FRNSW
In this appendix we provide our analysis of an appropriate capital allowance for FRNSW and how
it is applied in our cost build up approach.
B.1  An appropriate capital allowance
Relevant FRNSW activities do not have a well-defined asset base
A large part of FRNSW’s physical plant is used to fight fires and conduct rescue operations which
are funded by the ESL. This part of the asset base would not necessarily form part of the
regulated asset base (RAB) we are required to consider in determining prices for FRNSW’s
chargeable services.
Other assets of a more general nature, including premises, computer systems and office
equipment would need to be apportioned between fire-fighting/rescue operations and
chargeable services. Also, as FRNSW is primarily funded to be “ready to respond” to incidents, a
large part of the value of the assets would be allocated to standby capacity. Given these points,
identifying the chargeable-specific RAB would be difficult.
Establishing beta and gearing for FRNSW is not feasible
In order to establish the necessary weighted average cost of capital (WACC) parameters, we
would need to identify listed companies with similar risk characteristics to FRNSW’s activities that
we have considered as part of this review. By their nature, emergency services do not lend
themselves to private sector provision. Often, the private firms that do operate in this space (for
example private ambulance services in the USA) may be small-scale and not publicly traded.
Therefore, reasonable proxies for beta and gearing may not be observable in capital markets.
EBIT margin analysis is available for proxy firms
Given the problems with establishing a relevant RAB or WACC for the services in question, we
considered whether a simpler approach to determining a risk-reflective capital allowance could
be used in our cost build up analysis. Profit margin estimates as a proxy for a risk-reflective
capital allowance are available through industry reports on a wider range of firms, including some
that are not publicly traded. We therefore used profit margin analysis for our FRNSW review.
Proxy analysis suggests a 10% EBIT margin is appropriate
The analysis section below presents the proxy analysis of EBIT margins we undertook for 4
related industries. The simple arithmetic average of these 4 EBIT margins rounds to 10%.
IBISWorld publishes reports on a range of Australian industries that include estimates of the
average profit margin of firms. IBISWorld data is not restricted to publicly listed companies, and
therefore it permits us to examine a wider variety of firm types.
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link to page 39 Capital allowance for FRNSW


These margins represent EBIT/sales revenue (excluding GST and other sales taxes). Table B.1
below summarises the EBIT margins for 4 relevant proxy industries.
Table B.1 EBIT margins for selected proxy industries
Industry
Report date
EBIT margin
Fire and security alarm installation servicesb
May 2021
8.6%
Investigation and security servicesc
June 2021
6.1%
Fire protection servicesd
Nov 2020
10.7%
Hazardous waste haulinge
June 2021
13.5%
Average EBIT margin (rounded)

10%
Source: IBISWorld
Each of these industries has some overlap with what FRNSW does in the services we are trying to
price. The overlap is imperfect for all of them. A simple average of these margins is 9.7%. We note
that FRNSW currently charges 10% handling costs on the cost of consumables as part of hazmat
charges.
We consider a capital allowance of 10% is appropriate for FRNSW’s services. It is consistent with
the available evidence. In building block terms, this margin represents gross sales revenue minus
GST, operating expenditure and depreciation. It includes return on assets (interest and equity
return) and tax allowance.
B.2  Use of margin in cost build up approach
In conventional RAB building-block terms, total costs comprise:
•
Operating and maintenance costs
•
Depreciation
•
Return on assets
•
Tax

b   Firms in this category install and repair security systems and fire protection, detection and control systems.
c   Firms in this category provide security, protection or private enquiry services other than those provided by police
forces and government security agencies. Services include guards and patrols, monitored security systems,
locksmiths, casual and permanent security staff and crowd controllers. Companies also offer ATM and cash-collection
services, and some aspects of secure document and computer data storage.
d   Firms in this category install and service fire protection systems. Industry operators also provide consultancy services.
e   Firms in this category collect and transport hazardous waste. Waste is classified as hazardous if it poses a substantial
threat to public health or the environment. 4 factors determine whether a substance is considered hazardous:
ignitability, reactivity, corrosivity and toxicity. The industry excludes councils or municipalities that provide hazardous
waste services to residents.
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Capital allowance for FRNSW


Under our cost build-up approach, we identify a per unit cost for operating, maintenance and
depreciation costs. We then add the margin to these costs which, as indicated above, adds the
return on assets and tax allowance components of the total cost.
For example, we identify the operating, maintenance and depreciation cost, in $ per hour and/or
$ per incident, for
•
employees for the different ranks such as firefighter, fires safety officer and fire safety
engineer
•
specialised equipment, such as fire engines, special response vehicles and hoses
•
overhead operating and depreciation costs, such as legal services and building maintenance
We then add the capital allowance to each of these unit costs, In turn, we use the total unit costs
(i.e. including the margin) to build up the charges.
To provide a simple mathematical example, assume we identified a pre-capital allowance cost of
$100 per hour per fire safety officer. We then add a 10% capital allowance, by applying the
following formula:
$ 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟
$100
=
= $111
1 − 𝑚𝑎𝑟𝑔𝑖𝑛
1 − 10%
In this example, the capital allowance of $11 is 10% of the total cost of $111 per hour.

1   FRNSW Act, s 3(1).
2   The CIE, Efficient Operating Costs of providing Fire and Rescue NSW’s services: Draft Report, December 2021, pp 77-78.
3   FRNSW Act, s 11(1).
4   FRNSW Act, s 42(1)(e).
5   FRNSW Act, ss 42(1) and 79A.
6   FRNSW Act, s 11(1).
7   LGNSW submission to Issues Paper, October 2021, p 5.
8   FRNSW submission to Issues Paper, October 2021, p 3.
9   LGNSW submission to Issues Paper, October 2021, p 8; FRNSW submission to Issues Paper, October 2021, p 4.
10   LGNSW submission to Issues Paper, October 2021, p 5.
11   FRNSW submission to Issues Paper, October 2021, p 9; LGNSW submission to Issues Paper, October 2021, p 11.
12   LGNSW submission to Issues Paper, October 2021, p 11.
13   FRNSW submission to Issues Paper, October 2021, p 7.
14   LGNSW submission to Issues Paper, October 2021, p 8.
15   FRNSW Act, s40(1) to s40(4).
16   FRNSW Act, s40(4A) to s40(4C).
17   FRNSW Act, s42.
18   FRNSW Act, s42(1A).
19   FB Regulation, Cl 45.
20   FB Regulation, Cl 47.
21   FRNSW Act, s42(1A).
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Capital allowance for FRNSW


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