Late last week, on the same day as the Budget, the Local Government (Water Services Preliminary Arrangements) Bill was introduced into Parliament. The Bill is the second step in the Government’s Local Water Done Well programme, following repeal of the previous Government’s water services entity model in February 2024.

A third Bill will be introduced in December 2024 which contains the choice of options, tools and models open to councils for the delivery of water services, as well as new funding and financing arrangements.

In this article we discuss the key features of the Bill and how we think it will play out over the next 12 months and beyond.

Councils to prepare and submit water services delivery plans

Territorial authorities must submit Water Services Delivery Plans (WSDPs) to the Secretary for Local Government within 12 months of the new Act (which, if there is rapid progress, could be passed in August this year). The Minister of Local Government can give a time extension in limited circumstances.

In broad terms, a WSDP must identify the current state of the council’s water services, and show how the council will deliver those services in a way that:

• Meets relevant regulatory quality standards for stormwater, wastewater and water supply networks;
• Is financially sustainable;
• Ensures compliance with drinking water quality standards; and
• Supports the council’s housing growth and urban development objectives.

Like a long-term plan (LTP) under the Local Government Act 2002, a WSDP must cover at least 10 financial years, with more detailed information for the first three financial years.

Significantly, a council may decide to prepare a joint WSDP with other councils. Joint arrangements must cover all water supply and wastewater services of the participating councils, but a council can choose to retain for itself delivery of some or all of its stormwater services, if it wishes.

In terms of the process, the Bill clarifies that a council resolution to adopt a WSDP will be required. This will engage the usual decision-making provisions in the Local Government Act 2002, with the likelihood that a proposed WSDP may require some form of consultation with communities, especially where a change in service delivery or approach is proposed.

A key decision for councils when preparing a WSDP will therefore be whether to continue delivering services alone, or enter into a joint arrangement with other councils, whether that be via a water services council-controlled organisation (WSCCO) or some other arrangement (for example, shared services). If a WSCCO is preferred, there is a streamlined consultation process, which we outline below.

Statutory backstop

The Secretary for Local Government may only accept a WSDP if satisfied that it complies with the Act. The Secretary may consult with the Commerce Commission, Taumata Arowai and Crown Infrastructure Partners Limited, to help with this decision. If not satisfied that the WSDP complies, the Secretary can ask the council (or joint arrangement) to amend the plan and resubmit it by a specified date.

Given the detailed and extensive content requirements for a WSDP, it is possible that some councils may be unable to meet the requirements, and be asked by the Secretary to provide further information, or to amend and resubmit their plans.

For those councils that decided to defer their LTP adoption to June 2025, a difficult timing issue could arise, as the WSDPs will need to be adopted within a few months of that date. As there will need to be a high level of content alignment between a WSDP and LTP, it would seem practical to adopt the WSDP first, with the LTP to follow - which may place pressure on those councils.

If a council is unlikely to submit a WSDP or is having difficulty agreeing on the terms of a joint plan, the Minister may appoint a Crown facilitator. The Crown facilitator’s role includes helping with the preparation of the WSDP and facilitating any negotiations between joint parties to an arrangement.

The Minister may also appoint a Crown water services specialist to prepare WSDPs on behalf of a council, or to direct a council to adopt a WSDP that the specialist has prepared (which could effectively remove the council’s lead role in the process).

Additional information: disclosure requirements

The Bill provides for the Commerce Commission to require a council or WSCCO to publicly disclose a wide range of information such as financial statements, asset values and valuation reports, pricing information, contracts, related party transactions, financial and non-financial performance measures, asset management plans, and quality performance measures and statistics. The Commission may also require disclosure of information about how an entity is supporting and enabling planning processes, growth, and housing and urban development and the entity’s level of responsiveness in relation to those issues.

The Bill’s explanatory note states that “foundational information disclosure” will be provided through WSDPs “to lay the groundwork for comprehensive economic regulation”, while additional information disclosure for councils WSCCOs (presumably as required by the Commerce Commission) “promotes the long-term benefit of consumers and supports efficiency, innovation, and investment”.

A person who contravenes an obligation to disclose information can be fined up to $500,000 or, in the case of an entity, $5 million.

Alternative consultation and decision-making process for Water Services Council-Controlled Organisations

When establishing, joining, or amending a WSCCO, the Bill provides for an alternative consultation and decision-making process (modifying the existing processes in the Local Government Act 2002).

The important features of these alternative arrangements are:

• Councils do not have to consider “all reasonably practicable options”. They may identify two options only - being the status quo and the proposed new arrangement;
• Councils are only required to consult once, and do not have to consult on any amendments to the LTP that are required as a result of a decision relating to a WSCCO;
• Councils may conditionally approve an LTP plan amendment subject to the agreement by other parties to a joint arrangement;
• Councils may (but are not required to) consider the impact of a joint WSCCO on communities in the areas covered by the joint arrangement (not just their own districts);
• Councils will be temporarily exempt from having to consider the cost-effectiveness of current arrangements for meeting the community’s needs, under section 17A of the Local Government Act 2002;
• For those councils that opted to defer their LTPs, they can combine consultation on a WSCCO and their LTPs for 2025-2034.

Watercare’s financial independence from Auckland Council

The Bill provides for the new model for Watercare Services Limited recently agreed between Auckland Council and the Government, described in the explanatory note as a “new financially sustainable model for Watercare”. The statutory obligation to provide water services in Auckland will shift from Auckland Council to Watercare. Watercare will then have to operate financially independent of the Council. In particular, Auckland Council will be prohibited from giving financial support to Watercare, in any situation or under any conditions.

The Crown will provide interim economic regulation of Watercare until further legislation establishes a long-term economic regulatory framework. As part of this, a Crown monitor can be appointed who may make a Watercare charter that includes minimum service quality standards, financial performance objectives, a customer compensation scheme and a “price-quality path”. The price-quality path can cover a large range of matters, including pricing or revenue requirements (minimum or maximum), service quality standards, performance targets, and numerous performance objectives and requirements which Watercare must comply with. Watercare must also submit a business plan to the Crown monitor within four months of the Watercare charter being made.

If a significant problem arises, the Minister of Local Government may appoint a Crown review team, Crown monitor or Crown manager to Watercare. During an emergency, the Crown may reimburse Watercare’s expenses. These provisions will commence on 1 July 2025 at the latest.

Our comment

There is nothing entirely unexpected in the Bill, as the new requirement to develop WSDPs, and the streamlining of consultation processes, has been foreshadowed for months through Ministerial announcements.

The clarification of the content of WSDPs will be welcomed by councils, as they now look to start developing these plans in earnest, alongside discussions with other councils about joint arrangements (which the Bill appears to encourage). As part of that exercise, we would expect councils to seek additional guidance, or even request template WSDPs, from the Government, to avoid any delays when submitting to the Secretary for acceptance.

For some councils the simplified consultation requirements that apply to establishing, joining, or amending a WSCCO will be welcome, but the CCO model may not be preferred by all councils. While the Bill dangles a few process-related carrots, including simplified engagement requirements and narrower assessment requirements, options will need to be tested before a WSCCO can be held up as the best model for any council, or group of councils.

Identifying the most suitable delivery model will need to occur first, as part of developing the WSDP. Given the timeframes involved, the complexity and importance of the task, and potential for consultation under the LGA, that process should start now - and in advance of the next Bill.

The big question mark is what the future looks like 12 months after the Bill becomes law, by which time councils will have to submit their WSDPs. The potential prospect of having to resubmit WSDPs, or worse still, having WSDPs prepared for them by Crown appointees, are clearly designed to ensure councils invest the necessary time and resources into this important task.  

The Bill has been referred to the Finance and Expenditure Committee, with submissions due by 11:59pm on Thursday, 13 June 2024. Beyond that point, the Committee will report back on 18 July 2024, so the Bill will be progressed at pace.

Get in touch

We are already assisting several councils in the preparation of their WSDP. For any questions, please contact one of our experts below. 

Special thanks to Lydia Chai for her assistance in writing this article.