Auditor- General! Please reconsider your refusal to inquire into the Metrowater CCO model

5 May 2009

OPEN LETTER

Auditor-General

Kevin Brady

Dear Kevin,

Regarding my request on 6 April 2009, for you  to inquire into the cost-effectiveness of the Metrowater CCO model and your refusal to so do on 24 April 2009:

As a matter of some urgency, can you please provide a copy of whatever written (or other) evidence upon which you are relying, to substantiate your comment:

” Legislation is currently being prepared for consideration by Parliament. The question of the cost-effectiveness of the CCO model is a part of that policy debate.”

This is news to me.

The placing of over $28 BILLION worth of public assets into Council Controlled Organisations (CCOs), is absolutely pivotal to the proposed Auckland ‘Supercity’ model.

: “All Auckland Auckland Council’s major commercial trading and infrastructure activities should be undertaken through CCOs”

[Recommendation 21 A of the Report of the Royal Commission on Auckland Governance]

The CCO model, (as you know), has not yet been subject to ANY ‘cost-benefit’ analysis by any body, including your Office – the Office of the Auditor-General.

Commonsense would suggest that even if you are correct in your above-mentioned claim,

“The question of the cost-effectiveness of the CCO model is a part of that policy debate,” then, if that ‘policy debate’ is to be meaningful – there still needs to be factual evidence which supports the ‘cost-effectiveness’ of the CCO model.

Which there is not.

I have taken legal advice from a prominent QC on this matter and am informed that your decision,

“I therefore do not intend to carry out an inquiry into this issue“,  is judicially reviewable.

Rather than embark on that judicial process, I respectfully request that you reconsider your decision.

It would be very much appreciated if you could give me your response by this Friday 8 May 2009.

There is $28 billion worth of public assets at stake here – this is a matter of significant urgency and public interest.

Yours sincerely,

Penny Bright

Media Spokesperson

Water Pressure Group

Judicially recognised ‘Public Watchdog’ on Metrowater, water and Auckland regional governance matters.

Ph (09) 846 9825

021 211 4 127

_________________________________________________________________________________

On Fri, Apr 24, 2009 at 11:46 AM, Kevin Brady <Kevin.Brady@oag.govt.nz> wrote:

Dear Penny

Thank you for your email of 6 April, copied to a range of others, in which you asked me to inquire into the cost-effectiveness of the Metrowater CCO model.

The Public Audit Act gives the Auditor-General a discretion on whether to inquire into matters that are raised with us. We receive many requests every year, and carefully consider the appropriate response in each case.

As you note in your letter to me, the future of Metrowater is a policy matter that is the subject of current political consideration. The Royal Commission has made specific proposals on this issue, and the government has now made policy decisions in response. Legislation is currently being prepared for consideration by Parliament. The question of the cost-effectiveness of the CCO model is a part of that policy debate. The Auditor-General is not a policy agency. It would be inappropriate for me to inquire into what are essentially policy matters, particularly while they are being debated at a political level and through the parliamentary process. I therefore do not intend to carry out an inquiry into this issue. You will have an opportunity to raise your concerns with the select committee that considers the legislation.

Yours sincerely

Kevin Brady

Kevin Brady
Controller and Auditor-General
Office of the Controller and Auditor-General, Tumuaki o te Mana Arotake
Level 5, 48 Mulgrave Street, Thorndon, Wellington
Private Box 3928, Wellington
Ph: + 64 4 917 1500  |  DDI: + 64 4 917 1502  |  Fax: + 64 4 917 1509
Email:  kevin.brady@oag.govt.nz

—–Original Message—–
From: Kevin Brady
Sent: Friday, 24 April 2009 11:36 a.m.
To: Serena Boyer
Subject: FW: Auditor- General! An URGENT inquiry into the ‘cost-effectiveness’ of the CCO Metrowater is required NOW!

—–Original Message—–
From: Penny Bright [mailto:waterpressure@gmail.com]
Sent: Monday, 6 April 2009 01:21pm
To: Kevin Brady
Cc: Penny Bright; Bernard.Orsman@nzherald.co.nz; brian.rudman@nzherald.co.nz; Brian Gaynor; edward.rooney@theaucklander.co.nz; editor; Ian Wishart; ian sinclair; news@nzpa.co.nz; news@radiolive.co.nz; news@theindependent.co.nz; news@radionz.co.nz; news@newstalkzb.co.nz; news@tvnz.co.nz; MIGRANT NEWS; newsdesk@nzherald.co.nz; news@star-times.co.nz; news@niufm.com; newsed@nzpa.co.nz; news@95bfm.co.nz; cosdesk@tv3.co.nz; hunter.wells@tvnz.co.nz; phill.prendeville@tvnz.co.nz; phil kitchin; philt@times.co.nz; crcl@snl.co.nz; tinz@paradise.net.nz; leo.donnelly@ombudsman.parliament.govt.nz; mark.holman; Boris van Beusekom; Mark Thornton; jamiemelbourne@gmail.com; sophie@captimes.co.nz
Subject: Auditor- General! An URGENT inquiry into the ‘cost-effectiveness’ of the CCO Metrowater is required NOW!
__________________________________________________________________________________
6 April 2009

OPEN LETTER TO THE AUDITOR-GENERAL, KEVIN BRADY, CALLING FOR AN URGENT INQUIRY INTO THE ‘COST-EFFECTIVENESS’ OF THE METROWATER ‘CCO’ (COUNCIL CONTROLLED ORGANISATION) MODEL, FOR THE MAJORITY OF AUCKLAND CITY CITIZENS AND RATESPAYERS.

Dear Auditor-General,

Please be reminded of the ability of citizens to request an inquiry into any matter concerning a public entity’s use of its resources:

“Public Audit Act 2001

18  Inquiries by Auditor-General
(1) The Auditor-General may inquire, either on request or on the Auditor-General’s own initiative, into any matter concerning a public entity’s use of its resources.”

As Media Spokesperson for the Water Pressure Group, and a judically recognised ‘Public Watchdog’ for Metrowater, water and Auckland Regional Governance matters, I make this urgent request for the following reasons:

1) Since the Metrowater ‘commercialised’ (profit-making) model for water services was established in 1997, and ‘user-charges’ were introduced for wastewater services, there has never been a ‘cost-benefit’ analysis of that model, first as a LATE (Local Authority Trading Enterprise) and now as a CCO (Council Controlled Organisation).

2) The public were told that the following benefits would accrue from this ‘more efficient’ Metrowater model:
a) Metrowater would be more ‘efficient’.
b) ‘User-charges’ would be ‘fairer’.
c) ‘User-charges’ would encourage water conservation.

3) The FACTS to date, are:
a) There has never been any form of ‘cost-benefit’ analysis which proves that the ‘contracting out’ of water services maintenance and operation has been more ‘cost-effective’ for the citizen and ratepaying majority, compared with the former provision of those services being provided ‘in house’, through the former Auckland City Council ‘Works Department.

b) Metrowater’s ‘user-charges’ for water services (currently $1.47  m3 for water and $3.53m3 for wastewater), cost families of 8 over $500 every 3 months – over $2000 per year, on top of property rates.
All households, rich or poor, pay the same amount for the same quantity of water (upon which the wastewater charge is ‘guesstimated’) used.

This is NOT ‘fairer’.
It is a clear breach of the International Human Right to Water.
New Zealand as a ‘State Party’ is supposed to be progressively implementing the International Human Right to Water – not working to progressively UNDERMINE and VIOLATE it!

“UNITED NATIONS COMMITTEE ON ECONOMIC, SOCIAL AND CULTURAL RIGHTS General Comment No. 15 (2002) The right to water (Articles 11 and 12 of the International Covenant on Economic,Social and Cultural Rights)
26 November 2002.

1.Water is a limited natural resource and a public good fundamental for life and health. The human right to water is indispensable for leading a life in human dignity. It is a prerequisite for the realization of other human rights.

11.The elements of the right to water must be adequate for human dignity, life and health, in accordance with Articles 11(1) and 12.
The adequacy of water should not be interpreted narrowly, by mere reference to volumetric quantities and technologies. Water should be treated as a social and cultural good, and not primarily as an economic good.

27…. Any payment for water services has to be based on the principle of equity, ensuring that these services, whether privately or publicly provided, are affordable for all, including socially disadvantaged groups. Equity demands that poorer households should not be disproportionately burdened with water expenses as compared to richer households.”

If there is a ‘GIANT’ Metrowater set up for the Auckland region, with ‘user-charges’ introduced for wastewater – the Metrowater experience is that means there will be a huge rates reduction for high-valued properties (20% rates reduction across the board in Auckland City in 1997), with huge Metrowater bills for average to large families living in low-valued properties.

What will $2000 per year water services bills mean for those large poorer families living in Manukau, Waitakere and the North Shore?

c) The experience of the Metrowater ‘user-pays’ model has NOT led to water conservation, mainly because Metrowater, has lost/wasted more water than when they were established in 1997.
(The amount of ‘unaccounted for’ water lost or wasted by Metrowater
was        13.65% in 1997-1998.
The amount of ‘unaccounted for’ water lost or wasted by Metrowater peaked at 17.7% in 2007 -2008.

4) The ‘commercialised’ (profit-making) Metrowater model, has been proven to be diametrically opposed to encouraging genuine water conservation and genuine environmental ‘sustainability’.
If citizens and ratepayers use less water, (ie: ‘demand’ is down), Metrowater makes less profit.
That is why, unlike Waitakere City’s EcoWater, Metrowater are not genuinely interested in encouraging the use of water tanks, (eg: by giving rates rebates), or encouraging more efficient use of the 65% of household water that does not need to be drining water quality, to flush toilets, wash clothes, water gardens etc. Metrowater’s ‘encouragement’ of water conservation is, in my considered view, merely ‘greenwash tokenism’.

5) CCO, in the case of Metrowater, has stood for Ca$h Cow Organisation.
Auckland City Council had been using Metrowater price increases to subsidise rates through the mechanism of ‘Charitable Payments’ – which the Local Government and Environment Select Committee ruled was ‘unacceptable’.
(As you know, it was a Water Pressure Group petition which triggered this Local Government and Environment Select Committee Inquiry.)

6) It has taken 22 arrests over a four year period, in defending the right of the public to ‘open, transparent and democratically accountable’ local government, for Metrowater matters to be no longer hidden from the public under the ‘CONFIDENTIAL’ agenda at Auckland City Council meetings.

7) Under the CCO model, the operation and management is taken out from under direct Council control.
Those on the Board of Metrowater’s Directors, are appointees, over whom the public have no control.
CCO meetings are not open to the public.
The ‘Council Control’ over the CCO model, is limited mainly to approving a ‘Statement of Intent’, into which there is no process for direct involvement of the public.
There is effectively NO participatory democracy for the public majority under the CCO model.

THE NEED FOR URGENCY IN THE CONDUCT OF SUCH AN INQUIRY IS BECAUSE THE ROYAL COMMISSION FOR AUCKLAND REGIONAL GOVERNANCE, IS EFFECTIVELY RECOMMENDING A ‘GIANT’ METROWATER CCO FOR THE WHOLE AUCKLAND REGION:

“CHAPTER 21 : COUNCIL ORGANISATIONS AND COUNCIL-CONTROLLED ORGANISATIONS:

21 A All Auckland Council’s major commercial trading and infrastructure activities should be undertaken through CCOs

21 B Larger commercial and infrastructure CCOs of the Auckland Council should have an obligation to operate as a successful business as required under the State-Owned Enterprises Act with a clear set of financial targets and objectives.

21 C Statements of intent should be agreed three-yearly (matching the electoral cycle) between the boards of CCOs and the Auckland Council and be subject to quarterly reporting and annual performance review.
…”

“CHAPTER 26: THE THREE WATERS

26 A The Auckland Council should have overall responsibility for setting policy in relation to the three waters.

26 B Subject to Recommendations 26 C and 26 D, Watercare Services Limited should assume statutory respnsibility for all water and wastewater services within the Auckland Council area.
The water and wastwater operations of (including assets and relevant
staff) of all abolished local authorities should be transferred to Watercare Services Limited on the establishment date. This includes the water and wastewater operations of Rodney District Council, North Shore City Council, Waitakere City Council, Papakura District Council, Franklin District Council, Metrowater and Manukau Water Limited.

26 C In urban areas, all drinking water and wastewater services should be supplied by one council-controlled organisation (Watercare Services
Limited) owned by the Auckland Council. (This is subject to existing contractual arrangements in Papakura.)

26 D  The Auckland Council should determine whether and/or the extent to which Watercare Services Limited will supply retail water and wastewater services in rural areas such as Franklin and Rodney.

26 E  No compensation should be payable for the transfer of water-related assets from the existing territorial authorities to the Auckland Council.

26 F  All assets relating to Auckland’s water services should remain in public ownership.

26 G The Auckland Council should determine the extent to which responsibilities for the delivery of stormwater services are shared between local councils and Watercare Services Limited.

26 H The current obligation on Watercare Services Limited to maintain prices for water and wastewater at minimum levels (subject to obligations be an effective business and maintain its assets in the long term) should continue.
So too should the prohibition on paying a dividend.

26 I Watercare Services Limited should be required by legislation to promote demand management.

26 J Both water and wastewater charges should be calculated on a volumetric (or notionally volumetric) basis.

26 K Uniform charges for water and wastewater should apply across the region.

26 L The “public good” protections in Watercare Services Limited’s current governance model should continue.
These protections relate, amongst other things to efficient management of the business, pricing and maintaining asset integrity.

26 M  Watercare Services Limited should be required to prepare a stormwater action plan.

Transition

26 N  The Establishment Board will have an oversight role in relation to the integration of local water network operations into Water Services Limited.  this integration will be undertaken by Watercare Servcies Limited.  Watercare Services Limited should consult with the Establishment Board on the development of a draft statement of intent, and agree on appropriate efficiency targets for the integration.”

Please be reminded that the ‘Rates Inquiry’ headed by David Shand, equally, without checking cost-benefit analyis of the Metrowater model (despite my best efforts at the two Auckland meetings) recommended the introduction of water meters and spreading of volumetric charging for water and wastewater services throughout NZ.

Please be advised that I have had confirmed from the following persons, that there has not been any ‘cost-benefit’ of the CCO model, not just for water, but for ANY CCO model!

You, yourself as Auditor-General, confirmed this in a telephone conversation on Tuesday 31 March 2009.

Nobody from the  Department of Internal Affairs Manager, has yet confirmed that there had been any ‘cost-benefit’ analysis of the CCO model.

Peter McKinley from the AUT Local Government Study Centre, confirmed by telephone on Friday 3 April 2009, that to his knowledge he didn’t think ‘that anyone would have done one’.

Prof Ken Palmer confirmed by email on 3 April 2009 that to his knowledge there had been no cost-benefit analysis of the CCO model.

SO – WHO HAS DONE A ‘COST-BENEFIT’ ANALYSIS OF THIS PROPOSED CCO MODEL?

UPON WHAT FACTS AND EVIDENCE OF THE ‘COST-EFFECTIVENESS’ OF THE CCO MODEL, HAVE THE ROYAL COMMISSIONERS MADE THESE RECOMMENDATIONS?

HOW WILL THIS BE ‘PRUDENT STEWARDSHIP’ OF RATEPAYER RESOURCES – GUTTING COUNCILS OF WHAT REMAINS OF OUR SIGNIFICANT PUBLIC ASSETS AND INFRASTRUCTURE AND PLACING THEM UNDER A MODEL THAT HAS YET TO BE TESTED FOR ‘COST-EFFECTIVENESS’?

The time for an inquiry into the CCO Metrowater model is NOW.

In order to be of assistance, please be reminded of the following provisions of the Public Audit Act 2001:

“4  Interpretation
In this Act, unless the context otherwise requires,- Crown-
(a) means Her Majesty the Queen in right of New Zealand; and
(b) includes all Ministers of the Crown and all departments; but
(c) does not include-
(i) an Office of Parliament; or
(ii) a Crown entity; or
(iii) a State enterprise named in Schedule 1 of the State-Owned Enterprises Act 1986”

“5   Meaning of public entity
(1) In this Act, public entity means each of the following entities:
(a) the Crown:”

“6 Act to bind the Crown”

“9. Duty to act independently
The Auditor-General must act independently in the exercise and performance of the Auditor-General’s functions, duties, and powers”

“Schedule 3
Provisions applying in respect of Auditor-General, Deputy Auditor-General, and employees of Auditor-General”

3 Oath of office
(1) The Auditor-General and Deputy Auditor-General must each, before undertaking any duties as such, take an oath of office that he or she will honestly and impartially perform the duties of his or her office.
(2) The oath must be administered by the Speaker of the House of Representatives or the Clerk of the House of Representatives.”

Looking forward to your prompt acknowledgement of this request, and confirmation that the Office of the Auditor-General will commence an INQUIRY INTO THE ‘COST-EFFECTIVENESS’ OF THE METROWATER ‘CCO’ (COUNCIL CONTROLLED ORGANISATION) MODEL, FOR THE MAJORITY OF AUCKLAND CITY CITIZENS AND RATESPAYERS. at your earliest opportunity.

Yours sincerely,

Penny Bright
Media Spokesperson
Water Pressure Group
Judicially recognised ‘Public Watchdog’ for Metrowater, water and Auckland Regional Governance matters.

Ph (09) 846 9825
021 211 4 127