With all eyes on Budget 2024, the coalition Government's much-anticipated second bill in the Local Water Done Well programme was introduced with little fanfare. The Local Government (Water Services Preliminary Arrangements) Bill (Bill) lays the foundations for councils to move to the next stage of water reform. In the next year, all councils will need to produce plans showing how they will deliver financially sustainable water services.
For all territorial authorities, the Bill provides for the following for water services – that is water supply, stormwater, and wastewater:
- requirements to develop water services delivery plans;
- foundation "economic regulation" through information disclosure requirements; and
- the ability to choose a new category of water services council-controlled organisations to deliver services (among other options).
The Bill also includes an Auckland-specific solution which relates to Watercare Services Limited.
The House is currently sitting under urgency with the First Reading of the Bill and referral to Select Committee expected after Parliament considers the Budget legislation (possibly today, if time allows). We will provide a further update when the select committee and submission deadlines become clear.
Water services delivery plans
The Bill requires territorial authorities, either on their own or jointly, to submit water services delivery plans (WSDPs) within 12 months of the Bill's enactment. A WSDP must include the following:
- a description of the current state of its water services, current levels of water services provided, and the areas serviced;
- compliance with regulatory requirements;
- required capital and operational expenditure;
- financial projections for the next 10 years;
- the asset management approach being used;
- any issues, risks or constraints;
- an explanation of how revenue from water services will be separated from the Council's other functions and activities; and
- a proposal to ensure that delivery of water services will be financially sustainable by 30 June 2028.
There are additional requirements for joint WSDPs which may be made between territorial authorities to deliver water services. A joint plan must contain information on the likely form of the joint arrangement, including whether it would be:
- a joint water services council controlled organisation (CCO);
- a joint arrangement under section 137 of the Local Government Act 2002 (LGA); or
- another organisation or arrangement.
Overall, the Bill is silent on potential private sector involvement in new arrangements, but by referring to section 137 of the LGA and potential other arrangements that are not CCOs it has left the door open for the private sector to be involved.
The Secretary of Local Government (that is, the Secretary of the Department of Internal Affairs (DIA)) may also make additional rules for WSDPs.
After adopting its WSDP, a territorial authority must submit the WSDP to DIA for approval. If the WSDP complies with the legislation, DIA can accept it. DIA may require a territorial authority to amend its WSDP.
If a territorial authority struggles to comply with the requirement for a WSDP, the Bill provides for two new roles:
- Crown facilitators, who may work with Councils to assist, advise, or amend draft WSDPs; and
- Crown water services specialists, who may prepare, direct, or adopt a WSDP in accordance with their notice of appointment.
WSDPs lay the foundation for information disclosure as part of a future comprehensive economic regulation regime. Further provisions in the Bill allow additional information disclosure regulation to be imposed on specific entities by Order in Council - the Commerce Commission would then have powers to determine the details of public disclosures. There will clearly be a grace period for Councils before any Commission involvement is anticipated. Notably, Budget 2024 allocated zero budget for the transition to, and implementation and operations of, water economic regulation regime by the Commission for the 2024/2025 financial year in Vote: Business, Science and Innovation.
Establishing water services CCOs
The Bill allows territorial authorities to elect to use a simplified decision-making process when establishing, joining, or amending a water services CCO. For example, a territorial authority could identify and consult on only two options for the delivery of water services, one being the status quo and the other being the joining, forming or amending of a CCO. This represents a more simplified decision-making process than usual under the LGA.
Auckland and Watercare Services Limited
The Bill also creates an Auckland-specific solution, building on a joint announcement by the Prime Minister and Mayor of Auckland on 5 May 2024. The Auckland-specific solution moves the obligation to provide water services in Auckland to Watercare (in place of Auckland Council) and makes other changes necessary to achieve balance sheet separation between Auckland Council and Watercare.
Next steps
We expect the Government to introduce a third Bill on Local Water Done Well in December 2024.
Bill 3 will create a more detailed water services regulatory set up, including:
- long-term requirements for financial stability;
- further details about the powers, functions, and duties of a water services entity;
- further details about any other water services delivery model;
- accountability, planning and reporting regimes for water services;
- comprehensive economic regulation;
- amendments to the regulatory settings for Taumata Arowai, the Water Services Regulator;
establishing a regulatory backstop power; and - further changes to the LGA 2002 and other legislation to strengthen the delivery of water services.
An overview of the anticipated process is set out in a diagram at the link below. The diagram is simply a hypothetical set of actions a territorial authority, or a group of territorial authorities, might follow. The indicative dates could also vary depending on the time of legislation and decisions by territorial authorities.