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 we 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.