ORGANISATIONAL STRUCTURE MODEL OPTIONS
Following the Minister’s announcement establishing the Inquiry, the Local Government and Shires Associations commissioned the Institute for Sustainable Futures, University of Technology, Sydney, to develop an options paper for organisational structure models that could be applied to the provision of urban water supply and sewerage in non-metropolitan New South Wales16.
The Institute for Sustainable Futures’ paper identifies nine organisational structure model options. The options are:
Model 1 - Mandatory (or Binding) alliance
“Mandatory alliance” refers to an arrangement between participating councils to establish a body that has responsibility for certain functions such as strategic planning. The extent of the body’s functions, autonomy and powers are matters for participating councils to determine.
The responsibilities of both the new body and the participating councils could be specified in a performance agreement. Participating local councils would generally continue to own their water supply and sewerage assets and would continue to be responsible for maintaining and operating these assets. The councils would also be responsible for customer interface including billing and complaints handling.
“Mandatory alliances” are referred to as “binding alliances” in the remainder of this report.
The alliance is made a binding alliance by legislation that compels certain councils to be members of a specified alliance. There are no binding alliances in existence at this time.
There are currently voluntary alliances in place between councils. These alliances have the primary purpose of sharing resources, generally on an informal basis.
Two binding alliances have been proposed to the Inquiry. The proposed alliances differ considerably and are further discussed in Chapter 6.
Model 2 - County Council (Service Provision Only)
County councils are established by proclamation under the Local Government Act 1993.
In the case of a “service provision only” county council, the proclamation would transfer a function, in this case water supply and sewerage services, from the councils specified in the proclamation to the county council. Councils specified in the proclamation are not permitted to duplicate any function assigned to the county council.
Under this model the provision of water supply and sewerage services is the responsibility of the county council. Operation and maintenance of water supply and sewerage assets
services would also be the responsibility of the county council. However, the ownership of assets remains with the individual local councils.
The individual councils are represented on the county council’s board of management.
16 “Options paper on the inquiry into secure and sustainable urban water supply and sewerage services for non-metropolitan NSW”, Institute of Sustainable Futures, University of Technology,
Model 3 - County Council (Asset Ownership)
Under this model the proclamation establishing the county council would transfer both the function and the related assets from nominated councils to the county councils.
Model 4 - Council-Owned Regional Water Corporation
This model is similar to the model proposed in the Central Coast Water Corporation Act 2006. The corporation would own water supply and sewerage assets and provide water supply and sewerage services. It would be managed by a board of directors appointed by the shareholders. The shareholders are local councils.
Model 5 - State-Owned Regional Water Corporation
This is similar to Model 4. However, the state would own the water supply and sewerage assets and would provide the water supply and sewerage services. The state would be the shareholder. Local councils would have no role in providing water supply and sewerage services in the corporation’s area of operations.
Model 6 - Regional Council Aligned to Catchment or Sub-Catchment
This model involves the amalgamation of councils with boundaries for the resulting new regional council approximating water catchment or sub-catchment boundaries.
All water supply and sewerage assets of the former councils would be transferred to the regional council. The regional council would be responsible for the delivery of all water supply and sewerage services.
Model 7 - Single Regional NSW-Wide Corporation
A single state-owned corporation would provide water supply and sewerage services
outside the areas serviced by Sydney Water, Hunter Water, Gosford City Council and Wyong Shire Council. All water supply and sewerage assets in the single regional corporation’s area of operations would be owned by the corporation
Model 8 - Disaggregated Model – Bulk Supply, Distribution and Retail
This model involves separating the water supply and sewerage function into three distinct new functions:
Bulk
Treatment and distribution
Reticulation and retail
A broadly similar model operates in Melbourne where there is no local government
involvement of any form. Such a model is also proposed for south east Queensland where local government is only involved in the reticulation and retail component.
Model 9 - Status Quo
As the title suggests, this model retains the current approach to water supply and sewerage service delivery.
ORGANISATIONAL STRUCTURE MODELS EXCLUDED FROM FURTHER CONSIDERATION
Model 3 – the county council (service provision only) model has not been nominated in the Inquiry process by any stakeholder as an option. Consequently it is ruled out for further consideration.
Concerns have been raised by some stakeholders that the Government’s local water utility reform agenda could include State takeover of local government assets and possibly privatisation. The Minister has ruled out these options. Consequently, Model 5 – State Owned Regional Corporation and Model 7 – Single Regional NSW-Wide Corporation are ruled out for further consideration.
Model 6 - Regional Council Aligned to Catchment or Sub-Catchment, involves the amalgamation of councils. This is a significant policy issue for Government and falls outside the Terms of Reference for the Inquiry. Consequently Model 6 is ruled out for further consideration.
Model 8 – The Disaggregated Model is also excluded from further evaluation. It has little support in the submissions received by the Inquiry and is ruled out for further consideration.
ORGANISATIONAL STRUCTURE OPTIONS FOR EVALUATION This leaves the following models, which are evaluated in Chapter 6:
Model 1 - Binding alliance model
Model 3 - County council (asset ownership)
Model 4 - Council-owned regional water corporation
Model 9 - Status quo
SUBMISSIONS TO THE INQUIRY
Local government submissions to the Inquiry strongly support the continued ownership of water supply and sewerage assets by local government. More specifically, many councils that currently own and operate water supply and sewerage assets are strongly opposed to the transfer of those assets to another entity. In addition many councils also support the continuing local government responsibility for the operation and management of water supply and sewerage services. Consequently many councils have opted for the status quo or an alliance model, usually as a second choice.
“…Wakool Council does not support any of the models, where ownership of the assets and delivery of water and sewerage services are transferred to another body. The community has paid for the assets and expects continued local ownership” (Wakool Shire Council).
“…Cabonne Council’s preference for the long-term provision of water and sewerage services for Cabonne is for Council to remain as the local utility provider. Council’s alternative model is the County Council model” (Cabonne Council).
“The advantages of increased regional cooperation can be achieved without institutional arrangements that involve the transfer of water and sewerage assets and operations from a local water utility like Byron Shire Council.” (Byron Shire Council).
“Council has the view that the sewerage service operating within Local Government boundaries is not a service that can more efficiently be controlled by an amalgamated authority. It is unique to that town and authority” (Coolamon Shire Council).
“In summary, it is considered that both sewerage and effluent schemes should remain with Council. This will not necessarily mean that there will be no further improvements as Council will always be seeking better and cheaper options for its services to the community. In the outcome of this inquiry Council urges you to look at individual councils that are giving their ratepayers value for money and not to disadvantage these by amalgamating them into bigger entities.” (Temora Shire Council).
“Deniliquin Council, whilst preferring to remain as a stand alone local water utility and retain the status quo, would be willing to participate in a local alliance based on the RIVROC and Murray ROC submission, provided, however, that Council’s sewerage network and treatment plant is brought up to date to current standards in the immediate future. Should this occur, costs to local consumers would be reduced in the future and there would be sufficient incentive for this community to participate in a larger organisation and share its expertise with the smaller local government areas that have been unable to take advantage of the best practice guidelines.”(Deniliquin Shire Council).
“Whilst Council would no doubt prefer the status quo option its only other preferred option is a “Regional Alliance” based on the Riverina and Murray Organisation of Councils (RAMROC)…”(Balranald Shire Council).
“Council will explore the RAMROC initiative and supports this proposal being
presented to you. It has all the elements we are looking for as a long term structure to support and enhance the provision of these services to our community. Should this model be unacceptable then Council position is that we continue with the status quo”.
(Jerilderie Shire Council).
“Whilst this Council’s first option is clearly to stand alone for reasons outlined above, the RAMROC model is a clear second option. This model will preserve many of the benefits of the stand-alone approach and will provide additional expertise, particularly at the strategic planning level.” (Wentworth Shire Council).
However, other councils seek change and nominate an alternative organisational structure model as a first choice:
“It is considered that this rapidly growing coastal area would be well served by a dynamic Council owned Corporation with shareholders by the eight local government authorities concerned…with the ability to return dividends to these members”.
(Great Lakes Council).
“Council urges the inquiry to consider regional alliances as the most effective means of providing sustainable urban water supply and sewerage services for
non-metropolitan NSW as it believes that such an option is capable of satisfying the terms of reference of the inquiry” (Lithgow City Council).
There is also recognition that a “one size fits all” model will not suffice.
“One size will not fit all. Apart from the reality of isolation and a limited population base, communities such as Forbes are diverse in their expectations and needs.”
(Forbes Shire Council).
“More than one model will be required for the delivery of water and wastewater services in NSW.” (Tenterfield Shire Council).
Table 3. Organisational Structure Models Indicated in Submissions to the Inquiry Organisational Structure Model Number of local water utilities that
nominate as preferred model
Status Quo 49
Binding alliance 23
Other Alliance 10
Council-Owned Regional Water
Corporation 3
County Council 3
Regional Water Authority 3
Other 5
Maps 9 and 10 show councils first and second preferences respectively for future
organisational structures. Approximately 48% of councils have advocated for some
form of change, while the remainder prefer to stay as they are.
Table 4: Explanation of codes used in Maps 9 and 10 Overall
Category Preferred Model Code Explanation of code based on preference in submission Alliance Alliance
Submission states that an Alliance is preferred, but the powers and responsibilities of the proposed alliance are not known.
Alliance - Binding
Prefers the formation of an alliance which would be binding for the member councils.
Alliance - Binding (Corporation)
Prefers the formation of a binding alliance with corporation structure.
Alliance - Voluntary
Recommends the formation of an alliance where the members would voluntary elect to be part of it, and decisions made by the alliance would not be binding.
County
Council County Council A new County Council model is preferred.
County Council -
expanded The existing county council in the area should be expanded.
County Council + sewerage status quo
Prefers a county council for water services but prefers the status quo for sewerage services, that is, council provision of sewerage services and ownership of related assets.
Regional Water Authority
Regional Water Authority
Supports the formation of a regional water authority which would amalgamate all the water and sewerage functions of utilities within a large, catchment based region.
Status Quo Status Quo
Prefers the status quo - does not support any change for provision of water supply and sewerage services.
Status Quo - county council
Supportive of the status quo which is a county council model for that region.
Status Quo + expansion
Supportive of the current local water utility managing water and sewerage services, but advocates expanding the utility’s geographical reach.
Status Quo + licensing
Supportive of the status quo, but sees benefit in the introduction of operating licences.
Status Quo + voluntary regional partnerships
Prefers status quo, but the formation of voluntary regional partnerships is accepted.
Other Expansion Recommends geographical expansion of the existing utility/entity.
Local Government Corporation
Prefers the formation of a Council-owned regional water corporation.
Not Applicable or unknown
The council/utility is not subject to the Inquiry, or has not provided input into Inquiry. Council has been contacted by phone/email to seek their views.
Performance Standards
Recommends that the existing model be maintained, but performance standards be mandated.
Pro amalgamation of local water utilities
Is supportive of local government remaining in control of water and sewerage, but have also stated that utilities should be merged to achieve improvements.
The most common reasons proposed by councils for continued ownership of water supply and sewerage assets by local government relate to:
planning integration;
economies of scope;
employment; and
impacts on local communities.
Planning Integration
A number of submissions contend that the full benefits of integrated planning will be lost if the water supply and sewerage function is excised from local councils.
“Integrated water cycle management is critical to the development of our regional communities and can best be delivered on the ground by local government.
Integrated water cycle management is best delivered locally as local government manages land use, planning and regulation and delivers the desired local mix of engineering and community services to the community. Having water and waste water services in the stewardship of local government has a proven track record and is integral to good and sound land management practices. Envisaged break up would lead to difficulties in delivering the sustainability challenges in the future.” (Roger Norton, Mayor, Cooma Monaro Shire Council, address to Inquiry Hearing, Cooma).
“Maintaining the integration of water supply and sewerage functions with other general purpose functions of councils ensures that strategic planning for water supply and sewerage operations and infrastructure is part of such an integrated planning framework and that objectives specifically related to water supply and sewerage are determined within the broader context of ecological, social and economic sustainability.” (Local Government and Shires Associations of NSW).
The Australian Water Association favours the establishment of statutory authorities for water supply and sewerage service provision. In this context the Association notes that planning processes will need to be managed.
“The process should be driven by an independent agency (although the water utility would play a major role) and it should recognise that water services planning and delivery may need to extend beyond even the boundaries of the amalgamated LWU.
Planning also needs strategic direction and the involvement of the State Agencies who administer: planning; development approval; water resource planning; public health; and environmental protection will be important. Assuming no associated amalgamation of councils is pursued, it will follow that the several interactions on planning, development approval and water management matters between local governments and the amalgamated LWUs [local water utilities] will need to be managed.” (Australian Water Association).
Full integration of local planning is a desirable outcome and this can arguably be best
delivered through local government. However, most of Australia’s urban water and sewerage customers are supplied by utilities that are not local council owned and this has required water utilities and local councils to plan co-operatively. The connection between the delivery of urban water services and local government does not appear to be demonstrably superior from a planning point of view.
Economies of Scope
The economies of scope concept is an economic theory that states that the average total cost of production decreases as a result of increasing the number of different goods produced.
General purpose councils perform many functions and these councils are able to allocate planning, managerial, operational and administrative staff to these functions on a shared basis at a cost lower than if these functions had to be individually resourced.
Councils have sought to exploit these economies and consequently water supply and
sewerage operations are deeply intertwined, in terms of resourcing, with other functions such as roads, communications, waste management or recreational services. Almost all councils have indicated that the loss of water supply and sewerage functions will have significant adverse impacts not only on the cost of services provided from the general fund but also on the local communities serviced by the councils.
The following excerpts from submissions and hearing transcripts elucidates the views of many councils.
“Council runs about a $7 million water business; $2 million sewer business;
$20 million general business. So 30 per cent of our business essentially is water and sewer. To remove that from our council would really be a coup de grâce.
It would be a very major impact on our council, for sure. And what would be left would potentially be dysfunctional and I think that's something that's really got to be considered: the wider impact of any changes that may occur”. (Kent Boyd, Director of Infrastructure, Parkes Shire Council, presentation to the Inquiry Hearing, Forbes).
“The effects of alternate service delivery models upon the council and those
alternative models that move away from in-house ownership and operation of water and sewer services will have a significant cost, employment and local level of service implications for the council.
Council estimates initially that any dislocation of the present services…will result in the equivalent of either an ordinary rate increase of about 20 per cent per annum, or the loss of at least six staff and some additional service reductions to make up the difference between the loss of those six staff and the 20 per cent cost increase required.” (Geoff Lewis, Manager Water and Sewerage, Corowa Shire Council presentation to the Inquiry Hearing, Albury).
“Break up of water services will stifle economic growth, if water and waste water services were delivered on a regional basis, council believes there would be a negative impact on population growth within the shire and the region resulting in a loss of professional teachers, specialised trade workers, health workers and other professionals in addition to council management staff”. (Roger Norton, Mayor, Cooma Monaro Shire Council, presentation to the Inquiry Hearing, Cooma).
“Council has a high level of integration between water and sewer and general
operations and utilises multi-skilled personnel. Council is concerned that a separation of these functions would heavily impact on our existing communities, reduce local control of our assets, reduce the efficiency of combined operations, and result in a decline in service levels”. (John Bell, General Manager Upper Lachlan Shire Council, presentation to the Inquiry Hearing, Forbes).
“Should Council lose its water and sewerage functions the financial impact on
“Should Council lose its water and sewerage functions the financial impact on