KEY POINTS:
If the royal commission into Auckland governance is looking for a textbook example of the fractured state of regional affairs, water would be a great place to start.
In June, the regional water and wastewater provider, Watercare, plans to raise wholesale water prices by 12 per cent and wastewater charges by 17 per cent.
It is also signalling similar price rises annually for the next seven years to fund much-needed infrastructure improvements.
The only solution the shareholder councils can come up with is to plug Watercare into Auckland City's line of credit. It appears that the city council - with an endless ability to tax its citizens until they drop - can borrow at a more advantageous rate of interest than Watercare.
The cheaper credit will reduce the wholesale price rise of water from 12 per cent to 7 per cent, which is very commendable and should be backed by the six shareholding councils with open arms. But it is a sticking plaster solution that lets the bureaucrats and politicians keep muddling along in their little parochial empires, avoiding the obvious cost-saving answer.
That is to follow the advice of at least 11 reports since 1995 and enjoy the huge savings that creating an integrated regional water company would deliver. At present Watercare delivers water to each of the six territorial councils, and they then deliver the water on to household and business consumers.
The majority view of the numerous reports appears to be that integration would lead to a 10 per cent to 20 per cent reduction in industry-wide costs if a single regional service provider replaced the current fragmented industry.
The first of the reports, commissioned by Auckland Regional Services Trust from LEK Consulting in 1995, said such vertical integration would achieve estimated annual operational efficiencies of around $13 million against new annual costs of $1 million. A mixture of parochialism and ideological angst within councils meant the report was shelved.
Further reports came and went and were similarly ignored. As recently as 2002, the various councils took part in the Auckland Region Water, Wastewater and Stormwater Review. It concluded that just by working more closely together, without any structural or governance changes, savings of 5 per cent were possible. However, if a single regional water company was set up to replace Watercare and the individual council retail organisations, extra savings of up to 15 per cent were possible. It also proposed an individual stormwater utility, funded, perhaps, by road-user charges and an impervious-surface charge for property owners.
The review team said the "one geographical business" model would bring expected savings of $8.2 million to $9.7 million. An independent regional regulator would be established to ensure disclosure of information and to monitor performance. This option was a clear winner with the public.
But the politicians were having none of it, and quickly buried the report. It soon became clear why they didn't want to let Watercare escape their clutches.
In 2004 and 2005, the shareholding councils together extracted $25 million of so-called surpluses out of the water company and shared it among themselves for non-water activities. This despite legislation forbidding Watercare to pay a dividend. Last year, with Watercare squeezed dry, Auckland City councillors tried to milk the council-owned retail company Metrowater in a similar fashion. Once the planned raid on funds was exposed, it resulted in the downfall of deputy mayor and City Vision leader, Bruce Hucker.
Ratepayers might also wonder why the retail price of water varies so greatly across the region. Watercare sells it to council-owned companies for 45c for 1000 litres. Manukau residents get it for $1.199 for 1000 litres. On the North Shore it's marked up to $1.29, in Papakura, $1.38, Auckland City, $1.405 and Waitakere, $1.48.
True, the region faces major costs in maintaining and improving its water and wastewater infrastructure. But offering Watercare a slightly cheaper line of credit, while a sensible stop-gap gesture, is just tinkering. Expert report after report has indicated the way to make real savings for ratepayers is through restructuring the industry.
Bringing the constituent companies into one umbrella organisation would not be a problem. The stumbling block is local bureaucrats who can only think small. Roll on the royal commission.
