What is a water services CCO?

The Water Services Bill provides that a water services CCO must (subject to certain exemptions):

  • Be owned by a council(s) and/or consumer trust.
  • Be a company (and therefore covered by the Companies Act).
  • Have an independent, competency-based board, which can’t include people who are elected members or employees of a council that is a shareholder in the organisation.
The objectives of a water services CCO are set out in the Water Services Bill and its permitted activities (unless it has an exemption) is limited to:
  • Providing water services in accordance with the Bill; and
  • Undertaking activities related to, or necessary for, providing water services (for example, the management and maintenance of water services networks)

The Bill sets out a new planning and accountability framework for water services. The Council as shareholder would be required to prepare a statement of expectations and the water services CCO must prepare a water services strategy and annual report.

A water services CCO is required to give effect to the Council’s statement of expectations. The Council also has the ability to decide what level of involvement it wants to have into the formation of the Water Services Strategy. It can provide comments, and has the ability to require the CCO to amend the draft strategy and can also require that it approve the final strategy.

Although not its proposal, if the Council were to pursue either the Three Waters CCO or Two Waters CCO model, we would ensure robust accountability measures are in place to protect community interests and provide continued oversight.

Under these models, day-to-day water service responsibilities would be transferred to the new organisation. However, the Council would put measures in place to maintain effective monitoring, performance reporting and alignment with strategic objectives in such situations.

Here are some of the key accountability arrangements the Council would put in place:

  • Responsibilities of the CCO as specified in the transfer agreement.
  • Rules and governance arrangements set out within the CCO’s constitution.
  • A Statement of Expectations.
  • the CCO producing a water service Strategy and Annual Budget.
  • An Asset Management Plan prepared by the CCO and reviewed by the Council to ensure sound long-term management of water infrastructure.
  • Regular performance reporting from the CCO to the

    • Council on finances, service levels and major projects, including through its water services annual report.

  • Protections to ensure strategic assets continue serving

    • community needs.Council input on key CCO governance appointments

  • The ability for the Council to initiate strategic reviews of the CCO’s performance.
  • Ongoing partnership between the Council and CCO to

    • maintain strategic alignment.

    We would develop and formalise these measures through the transition process to maximise the Council’s ability to fulfil our duties to the community within the CCO framework and consistent with legislative requirements.

    Transfer of water services asset

    Although not its proposal, if the Council were to pursue either the Three Waters CCO or Two Waters CCO model it would need to make decisions around the transfer of assets to the CCO. This would include deciding on whether it transfers the infrastructure and related assets for providing water services (for example, its wastewater treatment plant and water supply pump stations) or whether the Council would continue to retain the infrastructure and assets and the CCO manages the assets on its behalf (or it could do a mixture of both depending upon the nature of specific assets).

    As the water services infrastructure involves strategic assets, transfer to the CCO would require an amendment to the Council’s Long Term Plan.

    Three Waters CCO:

    If we transferred the assets needed for a Three Waters CCO, assets valued at $9.916 billion would be transferred to the CCO, along with approximately $1.266 billion of debt associated with the assets.

    Two Waters CCO:

    If we transferred the assets needed for a Two Waters CCO, assets valued at $6.979 billion would be transferred to the CCO, along with approximately $921.8 million of debt associated with the assets.

    Transferring water services assets to a water services CCO:

    Benefits:

    • The CCO would have full management of all water services assets it needs to run as independently from the Council as possible within the legislation. It would be able to deal with all matters around contracting, maintenance, repair, replacement of assets/infrastructure without having to ask The Council to undertake these works. This would generate greater efficiencies in things like time/ cost/processes/delivery as the CCO would own all the assets needed for the running of the business.
    • Our capacity to borrow from the Local Government Funding Agency would be almost twice as much as if the infrastructure assets stayed with the Council.
      Note: this would lead to the CCO having higher debt levels which would have to be serviced by the CCO.

    Negatives:

    • There may also be resistance to the idea of moving away from public control of essential infrastructure, potentially eroding public trust.
    • The process of transferring assets to a CCO could involve upfront costs, including legal, administrative, and operational costs to implement the transition.

    Not transferring water services assets to a water services CCO:

    Benefits:

    • The Council retains ownership of essential water services assets/infrastructure.

    Negatives:

    • Loss of all benefits noted above which will ultimately impact on the success of the CCO.
    • When it is set up, the Council will be required to transfer the revenue gathering/charging aspect of water services to the CCO. Because this would be a significant portion of Council’s income, it is connected to Council’s debt levels. When Council (effectively) transfers this part of its revenue generating base to the CCO it will also transfer a related level of debt. At the outset, unless it also owns the infrastructure assets, the CCO would not have sufficient assets to offset the transferred debt on its balance sheet, and it would be immediately insolvent.
    • Borrowing capacity provided by the Local Government Funding Agency would be almost half that available to the CCO if the CCO owned the infrastructure assets.