Three Waters

The Government is proposing four new, large water service delivery entities to manage our drinking, waste water and storm water. The scale of the entities means they would be able to borrow enough to fund the investment needed in water services and infrastructure over the next 30 years

Three Waters – drinking, waste and storm

Everyone agrees that more investment is needed in water infrastructure to meet the environmental and public health aspirations of our communities. The local government sector has been asking successive Governments for water reform, long before Havelock North.

Enforced standards (particularly in wastewater), growth and climate change will create unsustainable pressure on the status quo, with significant investment needed over the next 30 years. The scale of investment would be almost impossible for councils to fund on their own.  

This investment is required to meet water quality standards – and to meet our communities’ expectations. Not just in drinking water, where current standards are not being enforced, but also wastewater and stormwater.

Get quickly up to speed:

 

Dig deeper

The model and the data

The new regulatory status quo

Ownership and governance

The package agreed between LGNZ and the Government

 

 

The model and the data

The Government is proposing four new, large water service delivery entities.

Their scale means they would be able to borrow enough to fund the investment needed in water services and infrastructure over the next 30 years.

Scale also creates operating efficiencies over time, especially in terms of procurement. The larger entities would have more power in the contracting market than 67 disparate councils, and be better able to fund and demand levels of service.

The economic benefits of reform have been modelled by the Water Industry Commission of Scotland (WICS). Farrierswier reviewed the WICS methodology. Beca reviewed the relevance of the modelling to New Zealand. Deloitte analysed the effects of the proposed reform on the economy.

More evidence-base reports can be found on the DIA website.

 

The new regulatory status quo

At the moment, standards aren’t being enforced or breaches prosecuted.

The new regulator – Taumata Arowai – will enforce existing standards, with significant penalties proposed, including fines and criminal proceedings. The Water Services Bill is going through parliament right now.

An economic regulator will also be introduced. The purpose of an economic regulator is to ensure it’s no longer possible to under invest, or to charge consumers too much or to deliver poor quality service.

If a council “opts out”, it would find itself operating in a very different landscape, with large and growing proportion of expenditure and energy eaten up by three waters investment and compliance. It would be exposed to three new areas of regulatory focus:

  • Taumata Arowai ensuring stringent compliance with current drinking water safety standards. Complying with these standards may require infrastructure investment. But councils will not be able to defer crucial upgrades on the grounds of cost.
  • Taumata Arowai working alongside Regional Council regulators to provide national oversight on the performance of wastewater and stormwater networks;
  • Economic regulation to ensure fair, affordable pricing for water consumers as well as appropriate levels of investment across three waters services.

Read more about the changing regulatory environment on the DIA website

 

Ownership and governance

The water services assets remain in public ownership and aren’t being sold.  The entities would own and operate three waters infrastructure on behalf of territorial authorities – they would hold all three waters assets and associated debt. The new entities would be collectively owned by councils, on behalf of communities.

Independent, competency-based boards would govern each entity.

To choose who sits on these boards, councils and mana whenua would appoint a Regional Representative Group which would appoint the Entity Board.

The Regional Representative Group would provide the entity with a Statement of Strategic and Performance Expectations that would influence the Statement of Intent that the water entity produces and delivers to.

Each entity would also have to meaningfully engage with communities on key documents.

The Government is asking for feedback on whether its proposal includes the right mechanisms to allow community feedback. For example, should there be a water ombudsman?

This DIA A3 includes a diagram of the governance model

You can also read more detail about ownership and governance in this Cabinet paper

 

The package agreed between LGNZ and the Government

LGNZ agreed with the Government a $2.5+ billion package for councils, to wrap around the reform proposals.

This agreement puts something on the table for councils that wouldn’t otherwise have been there. It doesn’t bind individual councils in any way.

The package has three financial components:

  1. Support for local government to invest in communities’ wellbeing. This means all councils and their communities will be better off under reform. This part of the investment totals $2 billion, with $500 million being available from 1 July 2022.
  2. Targeted support to ensure no councils are financially worse off as a result of transferring their three waters assets. This is designed to protect councils from any negative financial consequences of the asset transfer.
  3. Cover of reasonable transition costs. This is intended to make sure council service delivery (including of water services) during transition isn’t compromised by the work needed to make the transition happen.

The package covers more than money. It includes commitments to partnership, both now and in the future (including on the Future for Local Government review), and to finding a way forward on aspects of the reform that concern councils.

Read the Heads of Agreement