Local Water Done Well (LWDW) requires all councils to prepare a Water Services Delivery Plan by September 2025. But first, as part of forming the Plan, we need to identify a proposed water services delivery model.
What water services delivery models are we consulting on?
We have considered several potential water services delivery models to make sure we end up choosing one that is right for Ōtepoti Dunedin.
Two models have emerged as being potentially suitable:
- Option One - In-house model (our proposal) – the DCC continues to own water infrastructure and be responsible for the delivery of water services, with some changes to ensure we meet new regulatory and financial requirements.
OR
- Option Two - Water Services Council-Controlled Organisation model (CCO) – the DCC sets up a new company to own water infrastructure and be responsible for the delivery of water services. The DCC would be the sole shareholder in the company.
There are a range of outcomes regardless of which model we choose
These are:
- The amount you pay for water services is expected to increase over the next 9 years.
- Service levels (day-to-day supply of water services at the tap and drain) will stay the same or be improved under both models.
- High-quality, reliable, and efficient water services can be achieved.
- Delivery of water services will be financially sustainable by 30 June 2028. This will include ringfencing of water services to ensure revenue collected for water services is spent on water services and will be enforced by the Commerce Commission.
- Change will be required as there are new legislative requirements and standards, such as those set by Taumata Arowai - Water Services Regulator and the Commerce Commission. Even if water services remain in-house, there will need to be new ways of working and certain rules that we will need to comply with.
- As part of the new ways of working, there may be opportunities to further enhance the effectiveness, efficiency, and community responsiveness of water services. No matter which model is chosen, we will be looking to implement any potential efficiencies.
- Reform does not mean privatisation. Even if the water assets are transferred to a CCO, the DCC would be the CCO’s sole shareholder, therefore the assets remain in public ownership. This could only be changed by an Act of Parliament.
Costs to customers
Under both models, the amount you pay for water services will rise. The cost could perhaps even double over the next 9 years, no matter which model we go with.
We don’t know if the way we charge now will be the same in coming years (e.g., if government regulators require change).
When using a per connection charge (which includes all connections for households, businesses and other properties), the annual water services charge over the next 9 years is forecast to:
- increase from $2024 to $4280 under the in-house model
- increase from $2024 to $4202 under the CCO model.
Note that this calculation does not reflect the current method of charging.
However, if the way we charge remains the same then:
- for households, the annual water services charge over the next 9 years is forecast to increase from $1366 to $2814 under the in-house model and to $2765 under the CCO model.
Financial modelling contains uncertainties and requires certain assumptions. The figures quoted above are therefore subject to change. They do, however, provide an indication of the level of expected cost increases.
Financial modelling also indicates that the revenue from customers in the next 9 years is lower under the CCO model than under the in-house model. This is because the CCO would be charging customers less by taking on more debt. The total forecast savings across all customers over the next 9 years is $114 million. The additional CCO debt is forecast to be $157 million over the same period.
It is unclear which model will be cheaper in the long term. Although the modelling indicates lower charges under the CCO model until 2034, the gap between the two models narrows at the end of the 9-year period. Costs are likely to increase over time for the CCO because it is expected to take on more debt (approximately $157 million by 2034), meaning that it would have higher interest costs.
Your water services charges
At the moment, all customers are charged for their water services through rates, and some organisations are charged a metered component based on the volume of drinking water used (e.g., businesses and schools). Under both models, there may be a change to the method used to charge you for water services.
The Local Government (Water Services) Bill requires that CCOs transition to charging that is not based on property valuation within 5 years of establishment, although allows flexibility for the CCO to collect charges via DCC rates.
Comparing both models
There are also differences for each model. Each has its benefits:
- The in-house model keeps governance and decision-making directly within the DCC, ensuring strong local accountability through the DCC’s decision-making processes and better alignment with community priorities.
- The CCO model would introduce a separate governance structure and a professional board. DCC oversight would remain at a strategic level through governance arrangements and key accountability documents, which could impact how local concerns are addressed and prioritised.
For both the in-house and the CCO models, it is likely that from 1 July 2027 most of the planning information relating to water services that you currently see in the DCC’s Long Term Plan and Annual Plan will start to be in different documents. These new documents will be called the ‘Water Services Strategy’ and the ‘Water Services Annual Budget’. Apart from that, there are a few factors that are different for each model.
Under the in-house model:
- DCC ownership and responsibility –DCC owns and manages around $4 billion of water assets. DCC would retain ownership of these assets and continue to be responsible for the delivery of water services.
- integrated management – the delivery of water services would be financially ringfenced and managed alongside other DCC functions, ensuring consistency and alignment with other functions (e.g., urban planning and transport). It would be easier to co-ordinate water services with other DCC services.
- control and accountability – the DCC (through its elected members) would continue to have direct control over water services, and direct community involvement and accountability.
- debt limit of 280% – the DCC would have less access to debt than a CCO. The CCO could borrow up to 500% of its revenue, compared to DCC’s current borrowing limit of 280% of revenue.
- less debt and interest costs – based on the same amount of work being done under each model, the in-house model is forecast to require less debt over the next 9 years than the CCO model ($157 million less) because DCC would be charging more to customers over the next 9 years. Under the in-house model, interest costs are forecast to be $35 million less than under the CCO model over the next 9 years.
Under the CCO model:
- ownership and responsibility – water assets would be transferred to the CCO, and the CCO would be responsible for the delivery of water services.DCC would still be the indirect owner of the assets being the sole shareholder.
- integrated management –the CCO would solely provide the delivery of water services. There would need to be careful management to ensure that the CCO’s delivery of water services aligns with DCC’s other functions (e.g., urban planning and transport).
- control and accountability – the DCC would not have direct control over water services, but it would have indirect control as the sole shareholder in the CCO. The CCO would be accountable to DCC as its shareholder.
- debt limit of 500% – the CCO would have greater access to debt at 500% of revenue compared to the DCC’s current limit of 280% of revenue.
- more debt and interest costs – based on the same amount of work being done under each model, the CCO model is forecast to require more debt over the next 9 years than the in-house model ($157 million more). Interest costs are forecast to be $35 million more over the next 9 years.
Both the in-house and the CCO models have been evaluated against various financial and non-financial considerations. The following tables a more detailed comparison between both models for the non-financial considerations. More details about the financial considerations are shown in Financial Assessment information.
Ownership of Water Services Assets
This table evaluates the ownership of water services assets.
| In-house | CCO | Summary |
|---|---|---|
| The DCC continues to own the water services assets directly. | A new company set up as a water services CCO owns the water services assets. The DCC would be the sole shareholder of the company, so it would still indirectly own the water services assets. | The in-house model gives DCC direct ownership of the water services assets. The CCO model gives DCC indirect ownership of the water services assets as the sole shareholder of the CCO. Under both models the water services assets remain in public ownership. |
Integrated management
This table evaluates the integration of water services with other DCC functions, such as urban planning and transport.
| In-house | CCO | Summary |
|---|---|---|
Aligned service delivery supports coordination with other DCC functions. Potential competing demands across other DCC functions. | Separation from other DCC functions may create coordination challenges with DCC services unless effectively managed. DCC services unless effectively managed. | The in-house model provides better integrated service delivery. The CCO model would need effective management to ensure integration with other DCC functions is coordinated. |
Governance, control, and accountability
This table examines the level of oversight, control, and accountability under the two models.
| In-house | CCO | Summary |
|---|---|---|
Retains full local control, enabling better alignment with strategic goals and community priorities. Direct DCC oversight ensures democratically elected accountability and transparency through local government decision-making processes. Political cycles and influences may pose risks to long-term consistency. Supports community involvement in decision-making through local government decision-making processes (e.g., public consultation). DCC has potential mechanisms to ensure specialist skills at a governance level e.g., use of a specific water committee within the Council. | The CCO would have independent governance and management. Separate company potentially makes decision-making easier without the local government layers. Reduced DCC oversight may risk misalignment with DCC priorities. Strong governance and accountability mechanisms are required to minimise this. Professional and competency-based board. | The in-house model provides the highest level of DCC control. The CCO model decentralises oversight, but strong accountability measures can be put in place to give DCC further oversight. The CCO would have independent governance and management. |
Regulatory compliance
This table assesses the ability to meet existing and future water quality, environmental, and economic regulations.
| In-house | CCO | Summary |
|---|---|---|
Established governance frameworks facilitate strong compliance with regulations. Alignment with other DCC services supports a coordinated approach. However, future regulatory requirements may require new ways of working. | A separate company could make it easier to respond to regulation because it only deals with water services. Setting up new compliance systems introduces risk during the transitional period and requires strong collaboration with the DCC. | Both models are capable of meeting known regulatory requirements. It could be that the CCO may find it easier to respond to regulatory requests because of its defined separate status. |
Implementation feasibility
This table considers the complexity, cost, and risks associated with transitioning to each model.
| In-house | CCO | Summary |
|---|---|---|
Lower transition costs and minimal disruption to existing services. However, increased costs and changes will be necessary to meet new regulatory requirements. | Higher initial set-up costs and complexity due to establishing a new company and governance changes. Longer implementation timeline compared to the in-house model. | The in-house model offers the simplest and most cost- effective implementation. The CCO model has initial setup costs, short-term disruption and complexity. |