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:
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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 Water’s 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.
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2. 2.
DCC Objectives Relating to the Transition
The following two key objectives have informed the City Council executive’s approach to
all negotiations related to the transition:
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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 Council’s 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 Council’s 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.
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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 O’Shee 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 Commission’s 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
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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.
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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.
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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:
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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.
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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 Tierney’s 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
Council’s 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 Council’s 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 Council’s 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
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