Local water utility dividend requirements
The department is reviewing the eligibility criteria, calculation methods and other requirements (‘dividend requirements’) that apply to dividend payments by local water utilities under the guidelines of section 4 of the regulatory and assurance framework for local water utilities as gazetted under section 409 of the Local Government Act. The review will identify opportunities to improve local water utility dividend requirements to ensure they receive an appropriate return on investment, can cover their costs and provide value-for-money services to customers.
The department sought sector-wide feedback on the Local water utility dividend criteria, methods and other requirements consultation paper in December 2022. 10 written submissions were received and stakeholders representing Local Government NSW, the Water Directorate, Office of Local Government and the program’s focus group attended an online workshop.
The consultation paper sought stakeholder views on what dividend requirements (including dividend eligibility criteria, calculation methods, caps and related requirements) should be in place for local water utilities. The paper outlines the contextual information and current criteria, methods and requirements that are under review and open to submission.
A final report on the outcomes of the review and recommended changes to section 4 of the regulatory and assurance framework is due to be published in 2023, with the recommended changes expected to be approved to apply from the 2023/24 financial year.
Why are we reviewing dividend requirements?
Under section 409(5) of the Local Government Act 1993 (NSW), a council may pay an annual dividend from its water supply and sewerage business surplus to its council as a return on investment paid to the ‘shareholder’. This allows the council to manage and invest in the local water utility’s water supply and sewerage functions. Dividends may be paid at the end of the financial year after meeting the guidelines of section 4 of the regulatory and assurance framework for local water utilities (see section 409(7)(a) of the Local Government Act).
During the development of the regulatory and assurance framework for local water utilities, various stakeholders commented on the dividend requirements and the need to review them. While expressing broad support for the department setting requirements and restrictions for dividend payments, several stakeholders noted that only 9 of 89 council-owned local water utilities have paid a dividend in the last 6 reporting years. Respondents proposed that the cap on dividends and meeting the eligibility requirements may be a disincentive to paying a dividend.
The review is not intended to compel local water utilities to pay dividends nor specify the level of dividends that should be paid. It aims to remove any unnecessary regulatory impediments to paying dividends, while seeking to ensure that local water utility dividend payments do not come at the expense of efficient pricing or service levels to customers.