NSW Government response to the PEC recommendations
The NSW Government has published its response to the recommendations of the NSW Productivity and Equality Commission’s (PEC) Review of Funding Models for Local Water Utilities (LWUs).
The NSW Government is taking meaningful steps to overhaul the funding framework for LWUs to ensure they can continue to deliver safe, secure, sustainable and affordable water supply and sewerage service to communities well into the future. The NSW Government response represents a new plan to develop LWU reforms by 2027, responding to and building on recommendations from the PEC. This involves exploring a new, better targeted, more efficient and predictable funding model to replace the current project-based capital grants model for LWUs.
The NSW Government supports in principle adopting the PEC’s recommended funding principles for LWU funding and supporting improvement to LWU regulation and strategic planning, including effective targeting of funding to need, long-term predictability and stability of funding streams, and linking funding to measurable performance improvements. These principles will be used to develop a recommended LWU Investment Framework to strategically approach funding and support needs of the LWU sector.
In response to the PEC recommendations, during a 2-year policy design phase, the NSW Government will:
- Consider further a shift from project-based capital grant funding to a Community Service Obligation funding model as the main mechanism to address funding needs – that is, a model that funds the gap between a LWU’s efficient expenditure needs to provide basic levels of service (including capital and operational expenditure) and the revenue that can be reasonably raised from the LWU’s customers and developers - subject to financial decision making, further analysis and parallel reforms.
- Review how to improve the setting and applying of efficient minimum regulatory standards (for water quality, water security, and environmental impacts) to enable the setting of effective and efficient basic levels of service for funding purposes.
- Develop a package of parallel reforms to improve sector performance, efficiency, strategic planning effectiveness, and own source revenue raising.
- Review customer affordability support schemes, including pensioner rebates and hardship schemes, across regional and metropolitan NSW.
- Continue exploring reform approaches, including structural improvements, in Western NSW that achieve expenditure efficiencies, reduce risks, and deliver better water and wastewater services. This will include a pilot program to be co-designed with willing Western NSW councils, focussing on addressing strategic planning gaps.
Report
The NSW Government has released a response to the recommendations of the NSW Productivity and Equality Commission.
Download the NSW Government response report (PDF. 1,700KB)Webinar
Who: Water Group’s LWU Reform Team
When: Thursday 25 September 2025
Time: 10:30am – 11:30am
The NSW Government, in its response to the recommendations of the Joint Select Committee on Protecting Local Water Utilities from Privatisation, has stated its support for public ownership of regional water supply and sewerage assets. The NSW Government is committed to not privatising or selling-off councils’ water supply and sewerage assets, or forcibly amalgamating councils’ local water utilities. The NSW Government response to the PEC recommendations considers this.
Developing the NSW Government response to the PEC Review
The Minister for Water committed to comprehensive LWU sector stakeholder consultation in addressing the PEC’s findings and recommendations, including the development of the NSW Government response.
To inform its response, the NSW Government:
- consulted with the LWU sector to identify stakeholders’ views and issues on the PEC’s recommendations
- issued a Discussion Paper (PDF, 412.28 KB) to seek feedback from the LWU sector on the PEC’s recommendations.
- held an online briefing session and workshops for LWU sector stakeholders on the Discussion Paper
- formed a key agency reference panel to support the development of the response. The panel included NSW Health, the NSW Environment Protection Authority, the NSW Office of Local Government and NSW Treasury.
We have issued a What we heard report (PDF, 655.65 KB), summarising feedback received from the LWU sector and our responses to that feedback.
What will we do next
The NSW Government will continue to develop funding and other reforms of the sector during a 2-year policy design phase, including engagement with the LWU sector and across the NSW Government.
In addition, we will continue working with western NSW LWUs to explore structural approaches that achieve expenditure efficiencies, reduce risks, and deliver better water and wastewater services.
The Minister for Water has committed to comprehensive LWU sector stakeholder engagement in addressing the PEC’s findings and recommendations, including the development of the NSW Government response. Stakeholders will continue to be involved in the subsequent implementation of the NSW Government response.
Background
In November 2023 the Minister for Water requested a review by the NSW Productivity and Equality Commission (PEC) to identify sustainable, efficient, and equitable approaches for reforming state funding for Local Water Utilities (LWUs).
The PEC report was released in July 2024 and contained a set of recommendations for the NSW Government to consider. The findings and recommendations were informed by 42 public submissions, and a series of roundtables and targeted consultations on the PEC’s Issue Paper.
The PEC emphasises the need to improve the targeting and predictability of NSW Government funding for LWUs, compared to the current capital/project-focused funding model. This is to ensure the sector adequately addresses the current challenges in delivering safe, secure, and affordable services, now and in the future.
The PEC recommends significant changes to how LWUs are funded and associated improvements to regulation and strategic planning. It recommends:
- Developing a LWU Funding Policy, including a Community Service Obligation (CSO) funding mechanism to support delivery of basic levels of service for LWUs that cannot recover the cost of efficiently delivering such services from revenue that can be reasonably raised from its customers (based on their ability to pay), developers or other own source revenue.
- Making improvements to regulatory standards and strategic planning requirements and coordination to facilitate the setting of efficient basic levels of service and the identification of efficient solutions to deliver them, resulting in efficient and well-targeted funding support.
- Establishing a Sector Priorities Plan, setting out the NSW Government’s funding priorities for the LWU sector over the short to medium-term (2 to 4 years) based on well-coordinated strategic planning across the LWUs, regional and state level.
- Reviewing delivery and structural models for water supply and wastewater service provision in western NSW.
- Reviewing support schemes to address customer affordability, hardship and financial emergencies, including current pensioner rebates in regional and metropolitan areas, with a view to establish targeted schemes that are fully funded by government.
Report
View the NSW Productivity and Equality Commission’s (PEC) Review of Alternative Funding Models for Local Water Utilities.
Download the PEC's final report (PDF. 2,079KB)