New funding for western NSW LWU collaboration
As part of the Local Water Utility Reform Program, $650,000 funding is being provided to support 2 groups of western NSW councils to implement pilot projects. These projects will tackle key local challenges to improve long-term service reliability.
The 2 groups are:
- 13 Western Councils Water Alliance members, working with Moree Plains and Narrabri councils
- 5 south-west NSW councils: Balranald, Carrathool, Hay, Lachlan and Wentworth councils.
The pilot projects will inform ongoing investigations into alternative funding models for NSW LWUs. They will test practical ways for councils to achieve efficiencies through collaboration, such as:
- sharing specialist staff to address common strategic challenges and risks
- working together at a regional level to more efficiently coordinate critical work including asset identification
- identifying water security risk mitigation options.
Help inform the design of future funding for Local Water Utilities
The NSW Government’s response to the recommendations of the NSW Productivity and Equality Commission’s (PEC’s) Review of Funding Models for Local Water Utilities involves exploring a new funding model that is proposed to be better targeted, more efficient and predictable to replace the current project-based capital grants model for LWUs. This includes considering further a shift from project-based capital grant funding to a Community Service Obligation (CSO) funding.
Water supply security for customers has been identified as a key basic level of service that would be eligible for funding under a CSO funding model.
A water supply security stocktake will be undertaken to help inform the design and setting of appropriate basic levels of service on water supply security. The insights will also identify water supply security risks across the sector and help prioritise funding under a LWU investment framework.
LWU participation is vital to inform key aspects of the new funding model. This is an opportunity for LWUs to influence policy and funding reform.
To help develop a funding model that is as efficient and targeted as possible, we require insights from individual LWUs.
All LWUs are invited to take part and provide input by emailing your interest to regional.town.water@dpie.nsw.gov.au. You will then be contacted for workshops and discussions.
LWUs that have participated in the initial cohort of the stocktake, do not need to participate again.
LWUs in Western NSW currently participating in our program’s strategic planning gap analysis may also participate in the water security stocktake, where they see value and have the capacity to do so. However, participation is not expected at this stage from this group. LWUs in Western NSW will have an opportunity to participate in the water supply security stocktake following completion of their gap analysis.
NSW Government response to the PEC recommendations
In August 2025, the NSW Government published its response to the recommendations of the PEC’s Review of Funding Models for Local Water Utilities (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 model 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 PEC.
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 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, summarising feedback received from the LWU sector and our responses to that feedback.
Program update
The Water Group continues to progress projects outlined in the NSW Government’s response to the NSW PEC Review.
Fourteen western local water utilities have opted in to take part in a voluntary strategic planning gap analysis. The gap analysis will help Western NSW LWUs understand their current position against the strategic planning expectations set out in the Regulatory and Assurance Framework for LWUs. The findings will also inform the broader sector strategic planning stocktake as recommended by the PEC.
The Water Group is also calling for LWU to participate in the water supply security stocktake in April 2026. Findings from the water supply security stocktake will provide key inputs for the design and setting of appropriate basic levels of service on water supply security.
The NSW Government will continue to develop the funding and other reforms of the sector during a 2-year policy design phase. This will include ongoing engagement with the LWU sector and across the NSW Government, as outlined in the NSW Government response to the PEC Review.
We will continue working with western NSW LWUs to explore structural approaches that achieve expenditure efficiencies, reduce risks, and improve water and wastewater services outcomes.
Stakeholders will remain involved in the implementation of the NSW Government response through the engagement described, including stakeholder working groups and focus groups. These engagements, along with key activities of the 2-year policy design, are outlined in the webinar.
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 recommended:
- 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.
