1. To the Lord Mayor and Members of Dublin City Council Report
No. 404/2013 Report of the Dublin City Manager Briefing on
Transition on to Irish Water 1. Overview The purpose of this report
is to brief Members on the current position in relation to the
transition of responsibility for water and waste water services
from local authorities to Irish Water. It is important to bear in
mind that the arrangements for the transition are not determined
yet. The required legislation has not been enacted and the proposed
Service Level Agreement (SLA), under which Dublin City Council will
provide services for Irish Water has not been finalised. From the
Members perspective there are a number of elements of the
transition that will be of interest. They are as follows: DCC
Objectives Relating to the Transition, The Legislative Framework,
The Regulatory Framework, The Irish Water Consultative Forum, The
draft SLA including Annual Service Plans/Five Year Plans, Irish
Water Protocols and Memoranda of Understanding, Other Risks to DCC
and Service to Customer and Councillors. These issues are covered
in Sections 2 to 8 below. Conclusions are presented in Section 9.
Mr John Tierney, Managing Director of Irish Water and Mr Phil Hogan
T.D., Minister for the Environment, Community & Local
Government were requested to attend the Special Meeting of the City
Council or to send a representative/representatives. John Tierney
responded by e-mail on 10 December drawing attention to a letter
dated 22 November 2013 (copy attached) and stating that it was
Irish Waters intention to arrange regional briefings for Elected
Member in early 2014. The Department replied by letter dated 13
December 2013 that they were not in a position to send a
representative to the meeting due to pressure of work associated
with the transition. 1
2. 2. DCC Objectives Relating to the Transition The following
two key objectives have informed the City Council executives
approach to all negotiations related to the transition: the City
Council and its and ratepayers should not be negatively impacted by
the transition of responsibility for water services to Irish Water.
In particular the City Councils capacity to deliver non Irish Water
services should not be adversely affected and as far as possible
the SLA should follow the basic principles of a commercial
agreement in which both parties are willing participants. In terms
of protecting the interests of businesses the Councils position was
that the financial arrangements associated with the transition
should be such that at least the City Council would be able to
compensate businesses for any increase in non domestic water
charges as a consequence of a move to a uniform national water
tariff. Net expenditure on water and waste water services by DCC in
2014 is forecast at 49.5m. This value is based on the total spend
and income forecast for 2014, adjusted by the value of services
retained by DCC. To date, this net funding has been provided by a
combination of funding from the Local Government Fund allocation
and commercial rates. Based on previous years funding profiles the
element of funding from commercial rates represented in the net
funding of water services of 49.5m is 40m. In an ideal world once
responsibility for water and waste water services has been removed
from the Council it would not be expected to continue to subsidise
the provision of these services. While it was always acknowledged
that this was unrealistic in the current fiscal climate there is a
strong argument that part of the subsidy should be retained by DCC
to enable it to compensate businesses in the City Council area for
any increase in non domestic water charges in the event of the
introduction a higher uniform national water tariff. 3. Legislative
Framework Three pieces of legislation provide the framework for the
transition as follows: Water Services (No. 1) Act, 2013 This was
enacted in March 2013. It established Irish Water as a legal
entity, it removed the prohibition on charging for domestic water
and it gave the Commission for Energy Regulation (CER) the
regulatory function in relation to Irish Water. Local Government
Reform Bill, 2013 This Bill is currently going through the
Oireachtas. Section 69 of the Bill amends Section 6 of the Local
Government Act, 1998 relating to the Local Government Fund and
makes provision for the Minister to make payments to Irish Water in
respect of water services functions transferred to it from local
authorities. 2
3. Water Service (No. 2) Bill, 2013 This Bill is currently
going through the Oireachtas. It provides for the transfer of water
service functions from 34 local authorities to Irish Water. A
detailed note on the contents of this legislation prepared by John
OShee Assistant Law Agent is attached. 4. Regulatory Framework In
October 2013 the Commission for Energy Regulation published an
Information Note entitled The CER and Water Regulation in Ireland
and a Consultation Paper entitled Economic regulatory framework for
the public Irish water services sector, in which it set out its
proposals for the economic regulation of Irish Water. These papers
are available on the Commissions web site. 5. Irish Water
Consultative Forum The Irish Water Consultative Forum was set up
under the Labour Relations Commission as a forum for national
union/management negotiations relating to the transition. A
recommendation was issued in June 2013 by the Chairman of the
Forum, Mr Kevin Foley that provides for SLAs between individual
local authorities and Irish Water to endure for a minimum period of
12 years with reviews after 2 years and after 7 years. This
recommendation also provides that if a SLA comes to an end, the
staff covered by the agreement will transfer to Irish Water and
their terms and conditions of employment and superannuation
arrangements will be guaranteed by legislation. 6. Draft Service
Level Agreement (SLA) There have been intensive discussions in
relation to the SLA over the past 10 months involving local
authorities, the Water Services Transition Office (WSTO)
representing the local government sector and Irish Water. The
initial plan was that there would be an overall framework agreement
and individual SLAs would be negotiated between each local
authority and Irish Water. However, what is now proposed is a
national generic SLA which the Manager of each authority will be
expected to sign with Irish Water. A copy of the latest version of
the draft SLA (dated 5 December 2013) is attached for the
information of Members. Based of the latest draft SLA there are a
number of areas of concern which I feel I should bring to the
attention of Members as follows: Pension Liability There have been
extensive discussions between Irish Water, the local authorities,
WSTO and the Department of the Environment, Community & Local
Government in relation to this matter. The Department has stated
that at the end of the SLA 3
4. period (i.e. 12 years) individual local authorities may be
responsible for legacy pensions (i.e. pensions of existing retired
water services staff or any water services staff who retire over
the course of the SLA). In the normal course of events one would
expect that when a function transfers from one public service
agency to another public service agency responsibility for legacy
pensions associated with the function would also transfer. DCC will
be transferring approximately 2bn worth of assets to Irish Water
without any compensation. A proportion of the funding for these
assets came from commercial ratepayers. It seems unreasonable that
a major liability relating to these assets will remain with the
Council notwithstanding the fact that the assets have transferred
to Irish Water. The pension liability is directly related to the
underlying water assets and was incurred in developing and
maintaining those assets. The actuarial legacy pension liability in
respect of DCC staff who were or are engaged in the provision of
services under the SLA has been estimated by PwC at 330m. While
this will reduce over the expected 12 year period of the SLA it
will still constitute a potential major liability for the Council.
Debtors An agreement still needs to be put in place in relation to
the transfer of all existing DCC water service related debtors to
Irish Water at a fair value. Recoupment by DCC of Full Costs
Incurred under SLA As part of the Annual Service Plan a headcount
plan and budget for 2014 were provided by DCC to Irish Water. Irish
Water has confirmed that it will recoup DCC 1.7m less than the
total costs it will incur. This would leave the City Council with a
deficit of 1.7m in respect of the services it will provide to Irish
Water in 2014. While the reduction of 1.7m on an overall
operational SLA budget of 106.3m is relatively modest (it
represents a cut of just over 1.5%), especially in the context of
the current budgetary situation, it still represent a violation of
the principle that the City Council should be recouped in full for
the costs it incurs under the SLA. The Managed Cost protocol
defines the mechanism through which a local authority invoices
Irish Water. This protocol places the financial risk on the local
authority by stating that additional costs over and above the
agreed budget will only be recoupable if savings are made
elsewhere. Given the nature of the service being provided and the
acknowledged lack of investment in the infrastructure required to
deliver the service, it is to be expected that additional costs
will be incurred from time to time. Local authorities should not be
in a position where they are providing services on behalf of Irish
Water for which they will not be fully reimbursed. Role of the
Local Government Management Association (LGMA) in Agreeing Changes
to the SLA The draft SLA provides (Section 8.3.2) that changes to
the SLA conditions, to any schedule, to protocols and material
changes to the structure and format of the Annual Service Plan can
be agreed between the Managing Director of Irish Water and the
LGMA. 4
5. The LGMA is not a party to the SLA and therefore should not
be in a position to agree changes at national level in relation to
the SLA conditions, to any schedule, to protocols and material
changes to the structure and format of the Annual Service Plan. The
SLA is a legal agreement between the individual local authority and
Irish Water and any subsequent changes should be agreed by these
two parties. Suspension and Exit Arrangements There is no provision
in the draft SLA for a local authority to exit the SLA within the
specified 12 year period no matter how unfavourable its experience
with the operation of the SLA is. Dispute Resolution Process A
mechanism is defined in the SLA in relation to dispute avoidance
and resolution. However, it is confined to commercial disputes. The
definition of commercial disputes is limited to the following: a.
an issue as to the amount to be paid by one party to the other
under the agreement, b. whether or not an event constitutes force
majeure, c. whether or not an instruction from Irish Water requires
a local authority to act in breach of statutory requirements and d.
whether or not there has been a significant failure giving rise to
the need to terminate the SLA. There is a further provision in
relation to technical disputes which states that ultimately, the
resolution of technical issues will be the responsibility of Irish
Water, whose decision shall be final and binding and not subject to
review by conciliation or arbitration. A technical dispute is
defined as follows: Any dispute or differences between the parties
(including where this agreement provides for the parties to reach
agreement on any matter and the parties have not been able to do
so) other than a commercial issue. The only issues which the local
authority can bring to arbitration are limited cases defined as
commercial disputes. In all other disputes the decision of Irish
Water is final. Central Management Charge (CMC)/Support Services
While recoupment of CMC charges is provided for, Section 10 of the
draft SLA contains a provision which will allow Irish Water take
over a support service function. Should this arise, a mechanism
needs to be put in place to allow local authorities to be
compensated for CMC costs stranded with the local authority. No
such mechanism is currently in place. 5
6. 7. Other Potential Risks to DCC There are a number of other
risks to DCC as follows: Key Documentation not Complete The draft
SLA makes reference to a Termination protocol and to Information
and Records protocol which have yet to be developed. DCC was one of
five pilot sites in relation to the validation of protocols. A
significant number of risks and issues were documented as part of
the process. The final versions of these protocols have not as yet
been issued. Memoranda of Understanding In relation to functions
which will remain with the local authority but in respect on which
Irish Water will have an input, it is proposed to develop a series
of Memoranda of Understanding. However, these are not available as
yet. Important areas to be covered by MOUs include: Surface Water
Drainage and Flood Management, River Basin Management and Major
Emergency Management. Planning & Development Control The draft
SLA states that Irish Water will undertake the role of statutory
consultee in the planning process with respect to water service
functions (Section 14.1.2). As the availability of water and waste
water services are critical to proper planning and development,
there was an expectation that the Water Services (No. 2) Bill, 2013
would define the role of Irish Water in relation to both the
development control and the land use planning process. However, the
Bill gives Irish Water no role and it is our understanding that
this will be dealt with by Regulation prior to the actual
transition. Uniform National Tariff It seems likely that a uniform
national water tariff will be applied by Irish Water. Non domestic
water charges are generally lower in Dublin than elsewhere in the
State. This reflects the economies of scale which the regional
operations of the Dublin local authorities have brought to the
water network and also the investment in operational and capital
aspects of the service over successive decades. Dublin is the
engine for the national economy and water services are essential to
the future development of the Dublin economy. At this stage it
appears that there will be near full recoupment for the costs
incurred by DCC in 2014 in supplying services to Irish Water under
the SLA. The Council has been advised that its Local Government
Fund allocation will be reduced from 52.6m in 2013 to 2.67m in
2014. This reduction exceeds the forecasted 2014 net expenditure by
DCC on water and waste water services covered by the SLA. This
means that the Council will be unable to compensate businesses for
any increase in water charges in the event of the introduction a
higher uniform national water tariff. 6
7. 8. Service to Customers and Councillors DCC will continue to
deal with all customer queries and provide customer information via
its website and social media accounts until April 2014. From April
customers will contact Abtran, working on behalf of Irish Water and
the Irish Water website will provide country wide information. As
outlined in John Tierneys letter (copy attached) Irish Water is
developing a programme of engagement with Councillors and the
letter outlines some of the options they are considering. I am
confident that customers and Councillors will continue to receive
the high level of service to which they have become accustomed
following the transition. 9. Conclusions Even allowing for the fact
that the arrangements for the transition of responsibility for
water and waste water services from local authorities to Irish
Water still have to be finalised and matters that are currently
unresolved may be determined in the City Councils favour prior to
the actual transfer deadline it seems clear, based on the above
analysis, that the likely outcome of the transition will involve
very significant financial and operational risks to the City
Council. The outcome will also fall well short of meeting the
legitimate objectives set by the Councils executive. However, it is
important to acknowledge that all parties have acted in good faith
in seeking to negotiate arrangements for the transition. The City
Council must recognise that the State is sovereign. The transition
to Irish Water is also being undertaken at a time of continuing
austerity and reduced resources. The reality is that individual
local authorities, Irish Water and the Department had little room
for manoeuvre. Against this background the City Councils legitimate
aspirations to emerge unscathed from the transition process, while
entirely reasonable, were always unrealistic. I am satisfied that
the draft SLA, while it will undoubtedly involve very serious
financial and operational risks and challenges for the Council also
probably represents the best deal that can be negotiated given all
the circumstances. Owen P Keegan Dublin City Manager 7