18 May, 1998

Auckland City Council

Dear Councilors,

I am a resident of Auckland City and a property owner in respect of two properties within the City. My submission is in respect of Metro Water.

My submission is that the LATE structure should be retained.

My experience which leads me to this conclusion is:

• Being the manager of Watercare Services while it operated as an uncorporatised business unit for about 6 months.
• Being the chief executive of Watercare Services Ltd once it was corporatised as a LATE.
• Forming the water and sewerage operations of Brisbane City Council into a uncorporatised business unit, Brisbane Water, preparatory for corporatisation and operating it in that form for a year.
• Observing the relative performance of corporatised and uncorporatised water business units in Australia through an industry benchmarking system and otherwise.

There is no question that a corporatised form is preferable if material gains in efficiency are to be made. With Watercare progress became much faster once it was corporatised. The Australian experience is that the corporatised units lead the others in efficiency and are making ongoing gains at a faster rate then the non-corporatised units.

The efficiency gains are not a one time exercise which can be achieved in a short spurt and then retained no matter what structure is then used. A local example is Watercare, which reduced its expenses by 14% in 1995/96 and a further 6% in 1996/97 (1996/97 Annual Report). This shows ongoing benefits several years after the initial burst on corporatisation.

The reasons why this happens are:

• Having Accountable Directors in a LATE. Advisors assisting an advisory board come committee do not have the same motivation.
• Accountable Management. With a business unit structure there are two lines of management accountability - to the council chief executive and to the committee, loosing a one to one accountability.
• Focus. Operating within a Council with structure as part of it is a process of daily diversion of attention, daily involvement in workings of Council with little direct relevance, frequent compromises over systems, practices and policies which are not optimised to the business. The diversion of management attention has the most serious consequence. The lost opportunities are to steadily improve the business by concentrating on the detail of the operation and by making the very best big decisions on capital expenditure so that the long term costs and benefits of investments are optimised. From my experience there is no doubt which organisational form is preferable. Some Council literature suggests a business unit can make the same achievements as a LATE in efficiency. This is not the case.

Council can achieve its objectives through a LATE. Council has a vital role as owner in regulating the business through its Statement of Corporate Intent. It has the ability to control the business in respect of standards and price levels. It can seek social outcomes if it wishes and purchase these outcomes from the business. It can act as a customer representative as well as an owner. It can make this role clear to the business through the statement of corporate intent if it chooses to use this for that purpose. A LATE form is not an impediment to a proper role for Council and Councilors. It is an advantage because the cost of social outcomes the Council requires will be very clear.

I urge you to resist the pleas that water is special. It is another utility service and one which is very cheap in comparison to most of the others Other utility services have just as great a degree of being vital to our society. Water and sewerage charges are a poor vehicle for the redistribution or wealth. That should be done much more directly so that the recipients have real choice over shat they spend on, rather than a subsidised service which they may not need to any great extent at all.

The issue of the continuation of Metrowater has become focused on some issues other than the above. Some have been self-generated and are correctable.

User Pays: Undoubtedly a system which links payment for a service to property values has little rationality. However payment for sewerage on water volume has been over-sold. So much of the system costs are fixed ones, that a substantial connection charge component is justified. This has not been well marketed to the customers.

Linkage of Sewerage Volume Charges to Corporate Form: This is an aberration of the Law as it is at the moment that should be changeable and may well be changed. The present form of the Law is not a good basis on which to be making this decision.

Focus on the Immediate Effect on Individuals of Moving from Rates to Charges and Vice Versa: This is directing focus away from the long term benefit of a corporatised form.

Expenditure on Launch Publicity: Undoubtedly mis-conceived but it is history now.

The Part Rates Charge For The Current Year: This has caused confusion but it is not a continuing feature.

In my view what Council should do is:

• Retain Metro Water as a LATE.
• Use the Statement of Corporate Intent process to better effect as to the outcomes it requires of Metro Water.
• Require Metro Water to give sewerage customers more contract options over sewerage services.
• Require Metro Water to offer a payment option to its customers where it uses the Council as a collection agent and Council thereby bundles its rates bill and water services bill together as a combined bill.

While I work as a consultant in water engineering and management I have no business connection with Metro Water.

I wish to be heard in respect of this submission.

Yours faithfully

Garry Law