The Dunedin City Council has warned getting water for free is a concept the public "needs to get away from".
But the council is keen to reassure the public that long-term outsourcing of "this core function" to the private sector is not being seriously considered.
It also says privatisation of the assets is prohibited under the Local Government Act.
A plan to form a council-controlled company to run the city's water and waste systems has firmed as the favoured option for the future.
The plan has been mooted as $236 million of work on water and waste services in the city has been identified in the next decade.
The options for water services are identified in a report by water and waste services manager John Mackie, prepared for today's finance and strategy meeting.
He was asked by the council in January to investigate service delivery.
The report confirmed the council was looking at three options: the status quo, with water and wastewater managed by council staff; either a council-controlled company (CCO) or council-controlled trading organisation (CCTO); or outsourcing services to a private company.
A CCO would be similar in make-up to the Otago Museum or Tourism Dunedin, and would not have the same profit motive as a CCTO, which has been identified by council staff as something that "may not be palatable to the community".
Examples of CCTOs are Delta Utility Services and Aurora Energy.
Mr Mackie said in the report a CCO or CCTO was likely to contribute "significantly more" than the status quo.
After comparing the two company structures, he said: "There are potential advantages in establishing a CCO for the delivery of water and waste services".
Manakau Water had made significant savings since it was set up three years ago.
Mr Mackie said while outsourcing the management of the services was not a favoured option, that was for elected councillors to decide, not council staff.
The revenue arrangements for a company would have to be decided and could be a continuation of a targeted rate, or a charge on consumption using water meters, though the latter would be costly and not practicable in the short term.
"It is important to note that the primary driver for universal water metering is not revenue generation but the conservation of the water resource and an equitable economic tool for managing demand."
Mr Mackie said he thought public attitudes to free water had "matured".
"Most people understand it is a finite resource."
Mr Mackie said the council had not fully funded depreciation of water and wastewater assets for several years, and had ""a significant backlog of renewals to address".
Apart from the $74 million for the Tahuna plant upgrade, there are sewer renewals costing $34 million and water renewals of $18 million.
