Dunedin City Council is dumping plans to have the water system run by a subsidiary company.
A council working party has spent 18 months investigating the idea of putting Dunedin's $1.6 billion water and waste system into a council-controlled organisation.
It was believed the shift could save the city more than $10 million over a decade.
A second plan was to have an existing council company, Delta, run the system commercially.
But the working group has rejected both ideas, saying the risks are considerable and the savings unproven.
The group's chair, Andrew Noone, says the plans would have cost at least $500,000 a year to run, and provoked a divisive public debate about water privatisation.