On 15 August 2007, the (then) NSW Minister for Water Utilities, Nathan Rees, announced an Inquiry into the Secure and Sustainable Urban Water Supply and Sewerage Services for Non-Metropolitan NSW. The ambit of the Inquiry lay in the 104 water utilities which provide urban water supply and sewerage in rural and regional NSW, with Sydney Water, Hunter Water, the Gosford City Council water supply authority and the Wyong Shire Council water supply authority deliberately excluded from the Inquiry.

In December 2008 the Inquiry’s Final Report argued that the 104 local water utilities presently operating in non-metropolitan NSW should be ‘aggregated’ into ‘32 regional groups’. Moreover, it recommended that ‘three organisational structure options should be considered’ for the proposed regional groups; the ‘binding alliance’ model ‘for planning and technical functions’, the ‘council-owned regional water corporation’ model, and the ‘status quo for some large general purpose councils and county councils’.

The Inquiry observed that both ‘the “binding alliance” and “status quo” options allow councils to retain ownership and management of water supply and sewerage assets and to continue providing customer services’. However, it noted that the ‘council-owned regional water corporation’ model involved ‘the transfer of water supply and sewerage assets, related staff and service delivery responsibilities from councils to the corporation’ and added the stipulation that those ‘councils that are the beneficiaries of the corporation’s services would be the only shareholders of the corporation’.

The two main recommendations in the Final Report followed from its analysis of the ‘challenges facing the non-metropolitan urban water supply and sewerage industry’. From this analysis, the Final Report drew the following general conclusions: Observed performance levels measured against indicators listed in the 2006/07 NSW Water Supply and Sewerage Performance Monitoring Report, for both the water and sewerage services, showed that ‘levels of performance are variable and that, in particular, small water utilities do not perform well compared to large water utilities in the implementation of the Best Practice Management of Water Supply and Sewerage Guidelines’. Moreover, ‘the adoption of these guidelines is fundamental to long-term business sustainability’. The Final Report then identified ‘business sophistication’ and ‘operating scale’ as the ‘two major attributes for future sustainability’ for the industry.

The Final Report (2008: 29) explicitly acknowledged that ‘economies of scale are not evident in water and wastewater services’. It observed further that ‘in regard to operating scale there are conflicting views regarding the desirability of increasing the size of water supply and sewerage service providers’. On the one hand, ‘those not supportive of “regionalising” or increasing the size of individual utilities are of the view that regionalisation and larger utilities will impact detrimentally on local council viability, employment and small communities’. On the other hand, ‘there are elements of local water-utility performance that are related to utilities’ size’ which derive from ‘the fact that many smaller utilities do not have the resources or expertise to perform at a level of competence displayed by some of the larger water utilities’. While sympathetic to the latter view, the Inquiry (2008: 29) nonetheless recognised that if the presumption that utility size was indeed related to superior observed performance, then this could be addressed through either ‘resource sharing among councils’ or ‘organisational restructuring’ as ‘some of the options that need to be examined’.

These conclusions led the Final Report to examine in detail the various policy options for ‘aggregating’ or ‘regionalising’ existing council operations, as well as ‘business structure options’ that would ‘drive efficiency improvements while ensuring that the impacts on local council viability, employment and local communities are minimal’. We will consider critically its deliberations on these two questions separately below.