INTRODUCTION
The previous chapter identified two essential structural attributes that must be present in the composition of local water utilities to meet the challenges identified in that chapter. The attributes are business sophistication and adequate operating scale.
This chapter examines two options for increasing the operating scale of local water utilities.
One option is based on suggestions for local water utility aggregations contained in councils’
submissions to the Inquiry. The second option for aggregation is based on river catchments and also draws on suggestions made by stakeholders to the Inquiry.
The following chapter, Chapter 5, will deal with organisational structure options that could bring about and support increased business sophistication of local water utilities.
SUBMISSIONS TO THE INQUIRY
Almost every council affected by the Inquiry made a submission or presentation to it. At least seventeen groupings of councils’ local water utilities were proposed in the submissions.
The benefits of aggregating local water utilities, as put forward in submissions are summarised as being:
increased expertise within local water utilities by having larger organisations to attract and retain skilled staff;
increased ability of organizations to effectively plan for, and manage challenges due to increased financial capacity, and larger skill base to draw from;
increased ability to coordinate integrated water cycle management across whole catchments; and
ability to achieve economies of scale in procurement, administration, and training.
Some risks of aggregating local water utilities, as put forward in submissions include:
loss of economies of scope – where water and sewerage is disaggregated from general purpose council activities;
loss of local employment opportunities and local knowledge if jobs move to large towns; and
reduced integration between stormwater and water and sewerage services – if water, stormwater and sewerage are not coordinated well by separate agencies.
diseconomies of scale.
The following three maps show seventeen different aggregations or groupings of local water utilities suggested by councils.
Map 2 shows eight groups proposed by councils in submissions to the Inquiry. The groups of councils’ local water utilities shown in this map are:
1. Barwon Darling Alliance comprising Central Darling, Bourke, Brewarrina, Walgett and Coonamble.
2. Goulburn Mulwaree Council proposal comprising Goulburn Mulwaree, Wingecarribee, Upper Lachlan, Boorowa, Yass Valley and Palerang.
3. Tumut, Tumbarumba and Gundagai grouping proposed by Tumut and Tumbarumba Councils comprising Gundagai, Tumut and Tumbarumba.
4. Lismore Council’s regional water authority proposal comprising Tweed, Kyogle, Byron, Lismore, Ballina and Richmond Valley.
5. Lower Macquarie Valley Water Utilities Alliance comprising Cobar, Bogan, Warren, Narromine, Dubbo and Wellington.
6. New England Strategic Alliance comprising Guyra, Armidale Dumaresq, Walcha and Uralla.
7. Port Macquarie Hastings regional water corporation proposal comprising Coffs Harbour, Bellingen, Nambucca, Kempsey, Port Macquarie-Hastings, Gloucester, Greater Taree and Great Lakes.
8. Riverina and Murray ROC (RAMROC) binding alliance proposal comprising Albury, Greater Hume, Corowa, Urana, Narrandera, Leeton, Griffith, Murrumbidgee,
Jerilderie, Berrigan, Murray, Deniliquin, Conargo, Murrumbidgee, Carrathool, Hay, Wakool, Balranald and Wentworth.
Map 3 shows six groups proposed in submissions to the Inquiry. The groups of councils’
local water utilities shown in this map are:
1. Northern Rivers (NOROC) binding alliance proposal comprising Tweed, Kyogle, Byron, Lismore, Ballina, Richmond Valley and Clarence Valley Councils.
2. Bellingen and Coffs Harbour Alliance comprising Bellingen and Coffs Harbour 3. Mid Coast Water County Council proposal comprising Kempsey, Port
Macquarie-Hastings, Greater Taree, Gloucester and Great Lakes.
4. Coonamble-Gilgandra-Warrumbungle proposed alliance comprising Coonamble, Warrumbungle and Gilgandra.
5. Bathurst and Oberon proposed alliance comprising Bathurst Regional and Oberon.
6. Palerang proposal comprising Palerang, Yass Valley and Queanbeyan.
Map 4 shows three groups proposed by local water utilities in their submissions. The groups of councils’ local water utilities shown in this map are:
1. Kempsey Regional Water Corporation proposal comprising Clarence Valley, Coffs Harbour, Bellingen, Nambucca, Kempsey, Port Macquarie-Hastings, Gloucester, Greater Taree and Great Lakes.
2. Orange Council’s Regional Water Authority proposal comprising Cobar, Bogan, Carrathool, Warren, Lachlan, Bland, Young, Weddin, Forbes, Parkes, Narromine, Dubbo, Cabonne, Orange, Blayney, Cowra, Boorowa, Bathurst Regional, Wellington, Mid-Western Regional, City of Lithgow, Oberon and Upper Lachlan.
3. Cootamundra Council’s Local Government Owned Corporation proposal comprising Bland, Narrandera, Urana, Greater Hume, Lockhart, Wagga Wagga, Coolamon, Temora, Young, Harden, Cootamundra, Junee, Gundagai, Tumut and Tumbarumba.
It should be noted that the majority of groups nominated by councils, as shown in the maps above, have not been agreed to by all the councils within them.
Only the Riverina and Murray ROC (RAMROC) Binding alliance proposal and the Lower Macquarie Valley proposal have the in-principle agreement of the constituent councils. The councils in the New England Alliance (Armidale Dumaresq, Guyra, Uralla and Walcha) have already established a collaborative working relationship, and have suggested deepening and extending the alliance. Port-Macquarie Hastings, Kempsey and Nambucca councils have individually advocated forming a council-owned regional water corporation involving the local water utilities of each of the councils14. This consensus for a grouping or aggregation and organisational structure encompasses 31 local water utilities or 29% of the State’s local water utilities.
AGGREGATION OPTIONS
The two aggregation options considered in this Chapter are:
1. Regional Aggregation
This aggregation option draws largely on suggested aggregations in council submissions to the Inquiry, insight provided by the Inquiry secretariat (the
Department of Water and Energy) based on experience gained from regulating local water utilities and the Inquiry Panel’s (Dr Colin Gellatly and the Hon Ian Armstrong) knowledge acquired from information provided by councils during the Inquiry process and extensive experience in rural affairs.
This option results in 32 aggregations or groupings of local water utilities.
2. Catchment Aggregation
The catchment aggregation option draws on submissions made by Mid Coast Water County Council, Port Macquarie-Hastings Council and Orange City Council. The Councils propose that catchments be the basis for establishing larger regional water utilities.
This option results in 15 aggregations or groupings of local water utilities.
AGGREGATION CRITERIA
The Inquiry Panel, in determining the size and composition of the aggregations in both options were guided by six criteria. The criteria are:
Number of connected properties – aggregations of local water utilities should have at least 10,000 connected properties. This figure is selected because non-metropolitan local water utilities above this size in NSW generally demonstrate superior
performance. In addition, it is the minimum size for inclusion in reporting under the National Water Initiative’s National Performance Framework.
Annual revenue – aggregations of local water utilities should have annual revenue of at least $10 million. Properly managed local water utilities with such revenues are financially resilient, readily able to raise capital and service debt and attract skilled staff. All the NSW local water utilities with over 10,000 connected properties, which
14 It should be noted that while all three local water utilities have expressed their preference for forming a local government corporation, the boundaries of this corporation differ between them. Also, Nambucca has stated its
provide both water and sewerage services generally have an annual revenue of over
$10 million.
Sensitivity to catchment boundaries - environmental catchments create natural boundaries around water sources and receiving bodies. The use of catchment boundaries to define local water utilities assists with the integrated management of water sources (supply) and discharge of wastewater into the environment across a catchment.
Building on existing alliances - submissions to the Inquiry identified existing alliances between local water utilities and many stated a preference for building upon these alliances. An example of an existing alliance is a Regional Organisation of Councils grouping. There are 12 such groupings in non-metropolitan NSW.
Locating a major regional centre within each regional or catchment aggregation - Major regional centres have the size/scale to attract a greater number, and broader range of skills and services. These centres would provide an economic critical mass for regional or catchment aggregations.
Consistency with submissions made to the Inquiry – this ensures that as far as possible the aggregations reflect the suggestions provided in submissions and
presentations to the Inquiry. This is consistent with the Minister for Water’s statement that the ideas regarding reform of the non-metropolitan water sector are to come from the sector itself – from the ‘ground up’.
Option 1 – Regional Aggregations
This option is informed by submissions received from local water utilities and makes recommendations for areas where consensus was not reached by the utilities themselves.
The groups take into account the financial position, customer base, catchment and identity of each local water utility.
In developing this option, careful consideration was given to the potential financial position, customer base, geographic region and identity of each of the member councils within an expanded entity.
Under this option, eight councils’ local water utilities remain as stand-alone entities. The councils are Tweed Shire Council, Wingecarribee Shire Council, Shoalhaven City Council, Eurobodalla Shire Council, Bega Valley Shire Council, Queanbeyan City Council, Tamworth Regional Council and Clarence Valley Shire Council.
Tweed Shire Council, Wingecarribee Shire Council, Shoalhaven City Council, Eurobodalla Shire Council, Bega Valley Shire Council and Clarence Valley Council have viable and commercialised water supply and sewerage businesses that are capable of meeting the challenges identified in Chapter 3.
Tamworth Regional Council was recently subject to council amalgamation and therefore its water supply and sewerage business is not considered for further aggregation.
Queanbeyan City Council’s water supply is inextricably linked to the Australian Capital Territory system and is not considered for aggregation with other NSW water utilities.
Both Tamworth Regional Council and Queanbeyan City Council have viable water supply and sewerage businesses that are capable of meeting the challenges identified in Chapter 3.
Other councils’ local water utilities have the financial strength to stand alone. However, these utilities are recommended to form a grouping with one or more neighbouring local water utilities. This is because the councils either:
proposed in their submission that they would be open to forming an alliance with neighbouring councils, or
their involvement in a grouping is deemed necessary for that grouping to function effectively. For example Orange City Council, Dubbo City Council and Mid-Coast Water have a relatively large customer base and operate well managed water supply and sewerage businesses. These councils are in close proximity to councils with substantially smaller-scale water supply and sewerage businesses and would provide the critical mass necessary to meet the aforementioned criteria.
Drawing on submissions to the Inquiry, Option 1 contains:
Four groups recommended by local water utilities. These are Riverina-Murray (RAMROC); Lower Macquarie Valley Utilities Alliance; Coffs Harbour and Bellingen Councils; and the New England Alliance.
Eight stand-alone entities recommended by local water utilities: Tweed Shire Council;
Tamworth Regional Council; Wingecarribee Shire Council; Shoalhaven City Council;
Eurobodalla Shire Council; Bega Valley Shire Council; Queanbeyan City Council; and Clarence Valley Council.
Eleven groups adapted from local water utility recommendations. In this case, a submission, or number of submissions in a particular area were assessed against the aforementioned criteria, and adaptations of these recommendations have been made. These include: Northern rivers; Mid North Coast; Northern Plains; MidCoast;
Bathurst Region; Central Tablelands; Goldenfields; Riverina; Western Ranges;
North-West; and Southern Tablelands.
Four groups devised according to the abovementioned criteria. These are: Northern Highlands; Border Rivers; Upper Hunter; Snowy Monaro.
It should be noted that the United Services Union’s submission suggests that diseconomies of scale may be generated by “regionalisation”. Research into the relative efficiency of NSW and Victorian water utilities referred to in Chapter 3 indicates that while the Victorian water utilities tend to be more technically efficient, the efficiency gap is reduced by the
diseconomies of scale affecting the Victorian water utilities. That is, there are additional costs to being “too big”.
The 13 Victorian non-metropolitan water utilities serve an average 46,000 connected properties (range 14,000 to 127,000 properties). The size of groups proposed in Option 1 would vary between approximately 8,300 – 60,000 connected properties.
Map 5 depicts the 32 regional groups that are formed under this option using the aggregation criteria and the submissions received by the Inquiry.
A majority of the 32 proposed groups satisfy the aggregation criteria, however, not all do:
The two local water utility groupings of Yass Valley, Gundagai, Tumut and
Tumbarumba and Cooma-Monaro, Snowy River and Bombala each have combined connection numbers of slightly less than 10,000 connected properties.
The Cooma-Monaro, Snowy River and Bombala grouping has an annual combined revenue of about $9 million.
17 of the 32 groupings have a major regional centre
23 of the 32 groups have been based on, or are exactly defined by LWU submissions to the Inquiry
Existing county councils and Country Water
Five county councils (Rous Water, Mid Coast Water, Central Tablelands Water, Goldenfields Water and Riverina Water) provide either water or water and sewerage services in NSW.
Mid Coast Water provides both water supply and sewerage services. The other four county councils provide water supply services only. Sewerage services are provided by the
individual general purpose councils.
Some of the larger existing county councils have the revenue and client base required to continue to operate on a stand-alone basis. However, for smaller county councils, one or both of the water supply and sewerage services may be better delivered through aggregation with neighbouring utilities. For full details, see Appendix 1.
Option 2 – Catchment Aggregation
The second option is informed largely by the catchment-based proposals put forward by Port Macquarie-Hastings, MidCoast Water and Orange City Council’s in their submissions to the Inquiry. A brief explanation of each of the local water utility’s proposals follows.
Port Macquarie-Hastings Council model
The submission provided by Port-Macquarie Hastings Council would see the creation of five regional water corporations across NSW. The aggregations arrived at and presented as part of this submission are based upon a combination of meeting the Minister’s criteria,
catchment boundaries (not able to be followed in all instances), historical regional groups and areas of common interest.
Additionally, Port Macquarie Hastings Council based the size of the proposed new entities on the 2006/07 aggregated operating statement and balance sheet for these five proposed corporations. The size of each new entity is comparable with the proposed Central Coast Water Corporation combining the water and sewerage services of Gosford City and Wyong Shire Councils.
Port Macquarie-Hastings Council, in proposing its model, emphasises the importance of financial sustainability.
“The single most critical issue affecting the long term sustainability of water utilities is financial sustainability. Whilst governance and regulatory impediments may frustrate and delay advances, without an adequate source of funds, real change and
advancement will be illusory.”
“It is the PMHC submission that on a State wide basis, financial sustainability of water utilities, will only be achieved through the establishment of commercially focused water corporations who are able to provide the necessary professional and technical staff to meet the challenges.”
MidCoast Water model
MidCoast Water has recommended that the number of local water utilities be reduced to between 14 -16 new county councils across NSW.
MidCoast Water bases its proposal on the assertion that it will not only help to achieve sustainable water and sewerage organisations able to fulfil environmental and health requirements, but would:
align with regional catchment based planning processes in place;
assist to align local water utilities with Catchment Management Authorities and catchment management overall;
serve to align catchment management activities and expenditure on programs;
increase transparency in decision making about development if councils local environment plans were aligned to utility servicing strategies; and
reduce State Government expenditure for regulatory and administration functions because of a reduced number of entities to regulate.
Orange City Council Catchment Model
The catchment-based proposal put forward by Orange City Council (as the second preference) includes 22 local water utilities of the Lachlan and Macquarie catchments in the central west of NSW. The proposed model:
“recognises the need to maintain regional control of water and sewerage services at a size and scale which offers to deliver significant economies of scale. As well it
supports regional development by retaining operational staff within individual communities as well as addressing the skills shortage, particularly in the technical professional areas, by offering challenging and varied work within a large, well resourced organisation.”
Map 6 depicts the 15 regional groupings that are formed under Option 2 using the aggregation criteria and submissions received by the Inquiry.
As with Option 1, a majority of groups satisfy the aggregation criteria, however, not all do:
The local water utility groupings of Cooma-Monaro, Snowy River and Bombala have combined connection numbers of slightly less than 10,000 connected properties.
The Cooma-Monaro, Snowy River and Bombala grouping has an annual combined revenue of about $9 million.
In a number of cases existing alliances are not catchment based.
The catchment criteria tends to conflict with a number of submissions proposing aggregations with neighbouring local water utilities.
Maps 7 and 8 depict the number of connected properties and revenue for each suggested grouping within option 1 and option 2.
OPTIONS ANALYSIS
Within each new entity (both in Option 1 and 2), poorly and well performing local water utilities have been combined to enable well performing local water utilities to support those that are not compliant with best practice management guidelines, and not demonstrating high performance in key criteria.
Both Option 1 and 2 are sensitive to environmental catchments, with Option 2 explicitly being formed around catchments. Integrated water cycle management can be conducted within a sub-catchment, or catchment basis, but integration across a whole catchment is desirable.
Catchment-based entities could serve to assist coordination of all water resources (from
‘catchment to tap’) across the catchment, as well as ensuring that the relationships between water sources (such as surface water and ground water) are sustainably managed.
Option 1 takes into account historical and political factors when making recommendations about boundaries. Existing alliances and relationships between local water utilities have been maintained wherever possible. Option 2, however, does not take into account the political-cultural context of NSW local water utilities, as it is primarily based on
environmental catchments.
Option 2 ensures that a major regional centre/town is located within each potential catchment based utility. Option 1 does not have a major town in each potential aggregation, but does ensure that each potential utility would be approximately 10,000 connected properties or more, and managing at least $10 million in annual revenue from fees and charges.
Both options have been informed by submissions to the Inquiry from local water utilities, although Option 1 is more closely aligned to council preferences for groups than Option 2.
As put forward by an independent report commissioned by the United Services Union 15 very large utilities can become susceptible to diseconomies of scale. Based on this report, it could be argued that Option 2, with almost half the number of aggregations over the same
geographical area, could therefore be more susceptible to diseconomies of scale than Option 1.
CONCLUSION
Approximately 47% of councils are supportive of some kind of change by way of working with, or combining with, neighbouring local water utilities.
Two options have been examined in this chapter. Both options are based on submissions made to the Inquiry. However, Option 1 is more aligned to submissions received from local
Two options have been examined in this chapter. Both options are based on submissions made to the Inquiry. However, Option 1 is more aligned to submissions received from local