In August 2023, our Minister for Water the Hon Rose Jackson MLC requested the NSW Productivity Commission to undertake a
Review into the funding arrangements for Local Water Utilities across NSW. An issues paper was released in February 2024, followed by an extensive consultation and submissions process, available
here. The
Final Report was released in July 2024. A critical assumption for the review was that was to be no forced amalgamations of local councils, and councils were to continue to own their water and sewerage assets. This was subsequently reinforced in the findings and recommendations of a
NSW Parliamentary Inquiry into protecting Local Water Utilities from privatisation.This blog has been prepared to provide Local Water Utilities (LWU's) with some initial thoughts for discussion within your organisation.
Key recommendations
As a high level summary, the Productivity Commission (the PC) has made the following key recommendations for LWU sector reform:
• Adopt clear funding principles for future NSW government funding for consistency and alignment with government objectives
• Use a strategic planning led approach
• Develop a new LWU Investment Framework
• Utilise Community Service Obligation (CSO) funding
• Improve regulation and standards
What does it mean?
The PC's recommendations are intended to ensure that local councils benefit from a more predictable and stable funding environment, enabling better planning and management of water and sewerage services. The introduction of a CSO payment mechanism is intended to provide better targeted long-term support to those communities with the greatest need. I don't think that any council would disagree with any of the recommendations outright. However, two initial thoughts:
- Councils will need to avoid the perception that there are 'haves' and 'have nots' with CSO funding. Ultimately all LWU's should aspire to be self-funded with full cost recovery. Some communities will not meet this goal for a long time. Realistically if the recommendations are implemented, there aren't any council 'have nots', with targeted funding for pensioner rebates (for example) benefiting all communities. The Productivity Commission has also supported using the CSO mechanism for state wide support, such as the CSO mechanism for Water Quality and Dam Safety available in partnership with WaterNSW.
For our regulating agencies in NSW, the PC recommended that all three should be involved in a prioritisation process - DCCEEW, Health and EPA - to review their regulatory processes and their impacts on the LWU sector.
For remote councils in western NSW, Section 9 is devoted to the Provision of services in western NSW. It is important to note the PC's statement that there is no clear and obvious grouping for organising the western councils into a service delivery model, but the principle of co-design of a model is a key point. The Minister made the very same point in her address at the LGNSW Water Management Conference in Goulburn in July.
We also acknowledge an upcoming review of the NSW Safe and Secure Water Program which will be heavily influenced by the PC's recommendations.
Its early days. We will update this blog as further information comes to hand from our stakeholders. In a future update, we will review each of the 21 recommendations and actions in more detail, summarised below.
Brendan Guiney
Executive Officer | Water Directorate
Discussion - 21 Recommendations and actions
The role of NSW Government and its funding
Recommendation 1 Assess the design of any future funding approach against LWU funding principles identified by the Commission.
Recommendation 2 Use the LWU funding principles to review Safe and Secure Water Program funding that has been earmarked but not formally allocated.
Using a strategic approach to better allocate funding
Recommendation 3 Prepare a stocktake of existing strategic planning for LWU sector, including state, regional and local plans, and develop a preliminary Sector Overview outlining future challenges, expenditure, and potential funding shortfalls to support a new funding approach.
Recommendation 4 Develop a LWU Investment Framework to ensure funding to LWU sector is well targeted and minimises overall cost to NSW Government.
Recommendation 5 Prepare a draft LWU Funding Policy, with release for sector consultation prior to finalisation.
Recommendation 6 Work with LWUs and other NSW Government agencies to develop a Sector Priorities Plan
Recommendation 7 Make strategic planning for water supply and sewerage services an explicit requirement for all councils in regional NSW, with key elements of the Regulatory Assurance Framework to be incorporated into the Integrated Planning and Reporting Framework.
Establishing CSO payments
Recommendation 8 Introduce a CSO payment mechanism as a new funding approach for the
sector.
Recommendation 9 Develop a CSO Policy as part of the LWU Funding Policy in consultation with the sector over the next 12 months.
Recommendation 10 Provide a report to the NSW Productivity & Equality Commissioner on the implementation of the CSO policy after 12 and 24 months.
Service levels and minimum service standards
Recommendation 11 Ensure that implementation of minimum standards across the sector is efficient.
Recommendation 12 Review the role of regulators in planning processes undertaken prior to submission of an application for water treatment and sewage works under section 60 approval processes.
Recommendation 13 Establish an outcomes-focused standard for water security that outlines NSW-wide expectations while providing LWUs with flexibility to manage given local conditions.
Recommendation 14 Develop a voluntary customer retail service standard for LWUs.
Recommendation 15 Develop and adopt a Basic Level of Service description under its LWU Funding Policy in consultation with the LWU sector.
Provision of Services in Western NSW
Recommendation 16 Immediately establish a reform process to identify and implement the most efficient and effective structure for providing water and sewerage services in Western NSW. The reform process should ensure councils and customers retain responsibility for any decision-making pertaining to their council’s involvement. The reform process should be conducted on an opt-in basis.
Recommendation 17 Develop a Strategic Business Case (SBC) for CSO funding to Western NSW LWUs based on the output of the reform process. The Commission considers that a new Western NSW LWU entity could be the first candidate for a CSO agreement.
Pensioner rebates
Recommendation 18 Evaluate pensioner rebate on all water services before the 2025-26 Budget.
Recommendation 19 Fund any targeted concessions/rebates deemed necessary in the LWU sector via a transparent CSO.
Recommendation 20 Develop a service level agreement with OLG where a CSO is paid to all LWUs to support rebates/concessions to address hardship pressures.
Recommendation 21 Include the principles and approach to funding a CSO for hardship rebates in the LWU Funding Policy to be developed over the next 12 months.