Comparing the two models
Council commissioned Morrison Low to undertake modelling to compare the impacts of the options on service quality, water charges, or rates, and debt. The modelling considers expenditure on water services over the next decade based on upcoming capital investment needs and meeting new regulations from LWDW. The assessment builds on the base case from the LTP 2024-34, adding an extra 25% to capital expenditure investment to cover potential upgrades, remedial actions, or network expansions expected over the next decade. The graph shows projected water services expenditure over the next ten years.
The service you receive
Water services have strict environmental and performance regulations, set by Environment Canterbury and Taumata Arowai. Soon, they will also have to meet new economic regulations which will be set and monitored by the Commerce Commission.
No matter which model is selected, we’ll need to keep investing in our water services so we can meet these standards (such as drinking water compliance), and ensure that the current service levels you enjoy will be maintained or improved.
Under the SABU model, it’s possible that increased investment in water services could affect other services provided by Council due to less borrowing capacity.
The price of water services
Currently, you pay for water services through rates, with specific targeted rates for drinking water and wastewater.
If the Stand-Alone Business Unit (SABU) model is chosen, this system will likely continue in the short term. In the future, the Council might explore alternative charging methods, like fixed charges or charging based on water usage, to ensure fairness and affordability.
If the Water Services Council Controlled Organisation (WSCCO) model is selected, you would eventually pay water services charges directly to the WSCCO. Within five years, the WSCCO is required to transition to a direct charging system, like a fixed charge or usage-based system, changing how costs are distributed amongst users. This change would likely result in a reduction to your current rates bill but you would still receive a separate invoice from the WSCCO.
The LTP 2024-34 forecasts an increase in water services charges over the next ten years. Whatever model is chosen, there will be higher costs to delivering these services, both to meet the increased costs of a new regulatory environment and to deliver the expected capital investment.
Based on the modelling completed for using the likely scenario i.e. building on the base case from the LTP 2024-34, adding and extra 25% to capital investment, average household charges for water services for the two models are summarised below.
The table presents the average charges for water services over three distinct periods: 10, 20, and 30 years.
| Average over 10 years |
Average over 20 years | Average over 30 years | |
|---|---|---|---|
| SABU | $2,076 | $2,322 | $2,593 |
| WSCCO | $2,261 | $2,536 | $2,776 |
Based on our modelling, the graph below compares the charges for each water services delivery model, annually over the next 30 years.
How is debt affected?
How debt is treated under each model is a key difference, shown by the table below:
SABU
- Debt is managed at the total Council level.
- Uses a consolidated net debt to revenue (DTR) limit of 250%.
- This limit applies to the entire Council, not individual activities.
WSCCO
- Can borrow up to 500% of total WSCCO revenue.
- Must maintain a Funds from Operations (FFO) to debt ratio of 8-12%.
Under the SABU model, the Council’s strong debt position allows more use of debt for water services expenditure while staying within the net Debt to Revenue 250% limit. We also maintain debt headroom to fund other activities of Council. However, this could limit the Council’s ability to borrow in emergencies. The graph outlines the projected net debt to operating revenue and available debt headroom of this model.
Under the WSCCO model, all existing water services debt would transfer to the WSCCO. The ability to raise debt is more limited, as the WSCCO is only able to borrow against its own revenue. This transfer, which is only supported by waters revenue, means the WSCCO is likely to have to raise household water charges to raise sufficient revenue and stay within its debt limits.
The graph shows the WSCCO operating within a 500% debt limit and includes its expected work programme and operating costs of the WSCCO. The model assumes what’s needed for financial sustainability and additional regulatory and operating costs. If the WSCCO was selected as the service delivery model, it would set its own capital programme and operating model, so actual cost may vary from the model.
