Option 2: Joining a new water services organisation

Under this option, the average residential ratepayer could pay….Up to $4,230 per annum within 10 years, depending on the mix of councils involved, compared with around $2,254 today.

However, this option is expected to be cheaper in the long-term.

Option 2

Overview

This option would see Ōpōtiki District Council and other participating councils form a new water services organisation. This organisation would handle water services across all participating areas and take on each council’s water-related debt and assets.

A professional board of directors appointed by the shareholding councils, would govern the organisation and appoint a chief executive. While we could guide the board through a Statement of Expectations and retain some key decisions, we wouldn’t control every aspect of its work.

Council’s preference is to deliver water services via a standalone internal (water services) business unit while we continue to explore establishing a joint water services organisation. If this work showed we have willing partners and a joint water services organisation would provide clear benefits to the Ōpōtiki region, Council could look to pursue this option in several years.


Overview of key elements

Ownership

Jointly owned by Ōpōtiki District Council and other participating councils

Governance arrangements

Governed by a board comprising independent, professional directors.

Board members would be appointed by a shareholder council, with members of the shareholder council appointed by shareholding councils

Decision making

The board and management of the joint water services organisation makes decisions, and must give effect to the Statement of Expectations issued by the Shareholder Council.

Accountability

The Board would report to owners quarterly, prepare an audited annual report, and act consistently with statutory objectives.

Community involvement in decision making

No direct involvement. However, Councils can appoint and remove directors to the Board and issue the Statement of Expectations.

Approach to allocation of costs, revenues and efficiencies

Joint water services organisation would charge users

Organisation could borrow up to the equivalent of approximately 500% of revenue from the Local Government Funding Agency.[1]

Tangata whenua involvement

Mechanisms for this would need to be confirmed.Each council will define the requirements for iwi engagement that the joint water services organisation will need to meet.

Legal compliance

Meets legal requirements but will be subject to new ringfencing requirements and economic regulation.


Who would we partner with?

If we decide to move forward with a new water services organisation, we’d join forces with one or more other participating councils.

We have been exploring options with a sub-regional grouping of councils in the East Bay of Plenty, including Rotorua Lakes Council, Kawerau District Council, and Whakatāne District Council.

The largest benefits are likely to come from working with a larger council (such as Rotorua Lakes Council). However, the inclusion of a larger partner may make it harder for a joint water services organisation to prioritise our District’s interests. This could be exacerbated if there are a large number of councils involved. This may also make it harder to determine common goals and resolve differences.

Regardless of the councils we could work with, we will attempt to negotiate the best arrangement for the Ōpōtiki District. If we were to work with other councils, our goal would be to draw on shared expertise and economies of scale, while still reflecting each area’s local priorities. This would include seeking a commitment from partner councils and the new entity to ensure it follows through on the planned investment in our 10-year plan, to ensure Ōpōtiki District gets a fair deal for our communities.

We’d work alongside partner councils to make a plan for delivering water services that benefits all participating communities in the long run.

Within our region, we share common challenges with our other councils, including challenges meeting drinking water quality and environmental standards, improving resilience of our low lying and coastal communities in the face of climate change, and providing for growth. Working collectively to address these challenges often makes more sense than trying to solve these problems alone.

The Local Government Funding Agency has indicated it will lend at between 8% to 12% of funds from operations to debt. This is a different metric to debt to revenue, but for many councils it will equate to approximately 500% debt to revenue.


Summary of key advantages, risks and disadvantages

Key advantages

Key risks and disadvantages
  • Lower prices: Analysis indicates that this option would likely be cheaper than if we continued to deliver water services on our own. Customers could potentially save hundreds of dollars per year by 2034 with savings expected to increase over time.
  • Specialist oversight: A professional, expert board can make informed decisions and respond quickly to service needs.
  • Greater capacity: A larger combined organisation can hire more specialised staff and manage assets and new projects more effectively.
  • Continuity of investment plans: The organisation would likely adopt the Council’s investment plans in relation to water, noting the programme of investment in the long-term plan has been updated through this process to meet legislative requirements.
  • Long-term savings: By combining resources (such as maintenance services) across multiple councils, the organisation can drive down costs over time.
  • Efficient borrowing: The organisation can borrow at similar rates to councils but takes a different financing approach that makes it easier to invest in infrastructure and maintain quality standards affordably.
  • Greater financial flexibility for our Council: With water debt removed from its books, we will have increased flexibility to use our available financial capacity to invest in other priorities as needed.
  • Less local control: We would share decision-making and control with other councils. Decision-making may feel distant to residents in smaller communities.
  • Transition challenges: Establishing the organisation is a large task, and coordinating the transition of water services, staff and debt may be complex. We would also need to manage any impact on other council activities.
  • Stranded costs: Some costs that are currently shared with water services may not be able to be transferred to the organisation meaning the Council could be left with some ongoing obligations, depending on what transition arrangements we agree with the water services organisation.
  • Uncertainty: There is uncertainty around who we would partner with. We would need to negotiate how the organisation is established and how our District’s needs are met.

Summary of key metrics

How the option will impact Ōpōtiki District Council…

Rates

Over time, council rates will decrease as the new joint water services organisation charges separately for water services. If we pursue this option, it will take some time to transfer billing for water services to the new entity.

Debt

This option provides Council with more financial flexibility, including lower council debt and a greater ability to borrow to invest in non-water activities.

Levels of service

We expect levels of service to improve under this option but the focus over the next ten years is on achieving compliance with regulatory requirements.

Charges for water services

Charges for water services are likely to be lower in the long run under this option compared to option 1.