On Tuesday, the Local Government (Water Services) Bill (Bill) was introduced into Parliament. Its broad policy intent is to establish a new structure and regulatory framework for water services delivery.

In this update, we discuss several key features of the Bill, which in our view is extremely comprehensive, but will require close scrutiny of specific details before Select Committee submissions are prepared.

The Bill is the third step in the Government’s Local Water Done Well programme, following the repeal of the former government’s water services entities legislation in February 2024 and the enactment of the Local Government (Water Services Preliminary Arrangements) Act 2024 (Preliminary Arrangements Act). You can read our comments on the Preliminary Arrangements Act here.

Structure and arrangements for water service delivery 

Councils retain broad discretion to determine the structure and delivery of their water services, subject to satisfying the requirements of the Preliminary Arrangements Act, which include financial sustainability. This is consistent with the policy underpinning the Local Water Done Well programme. 

Part 2 sets out the following structural options for water service delivery: 

• directly by the council (but this must be through a business unit, given the ringfencing requirements of the Preliminary Arrangements Act); 
• through a water organisation, which must be a CCO or consumer trust unless an exemption is obtained; 
• under a contract to provide water services, on behalf of the council; 
• through a joint arrangement between water service providers; or
  some other arrangement consistent with the Bill, for example a transfer of responsibility for the provision of water services from a regional council. 

In general, councils will continue to be responsible for providing water services to their communities, except where that responsibility is the subject of a transfer agreement with a water organisation.

Core requirements and powers that apply to all providers

All water services providers, regardless of type, are subject to core requirements contained in the Bill, including: 

• a set of objectives, including the management and provision of water services in a cost-effective and financially sustainable manner; 
• compliance with financial principles, including a requirement that revenue received from the provision of water services must only be spent on those services; 
• operating within the planning and reporting framework for water services in the Bill; 
• restrictions against privatisation; and
• a prohibition on entering into franchise or concession agreements.

The Bill confers on water organisations a number of powers currently exercised by local authorities. These include powers to:

• charge customers for water services. These are statutory rather than contractual charges;
• require development contributions for growth-related capital costs. This is a modified version of the development contributions regime in the Local Government Act 2002 (LGA); and; 
• propose water services bylaws to territorial authorities.

Planning and accountability

As previously indicated, the Bill establishes a new planning and accountability framework for water services. This requires water services providers to prepare three key documents: 

1. a water services strategy, which sets out specified strategic, operational and financial matters, as well as information relating to the management of the water services provider’s infrastructure for at least 30 years. The strategy must be adopted before the first financial year to which it relates; and
2. a statement of expectations, which sets out the strategic and performance expectations that the organisation must give effect to. This statement must be prepared at least six months before the water services strategy; 
3. a water services annual report, which reports on the water services provider’s operations and performance and compares this performance with the intended activities and performance contained in their water services strategy.  Aspects of the annual report are subject to mandatory audit requirements, but the water services strategy is not, unless an audit is required by the Secretary of Local Government or the Commerce Commission.  

This new planning and accountability framework replaces the equivalent requirements in the LGA, for councils who will continue to provide water services directly, and the CCO accountability regime in the LGA, in the case of water services CCOs.  The decision-making process for councils relies on existing LGA provisions, including in relation to consultation, but the Bill does make several modifications to streamline requirements. 

What are the characteristics of the new water CCOs? 

A water services CCO must be a company incorporated under the Companies Act 1993 and wholly owned by the relevant council or councils, the trustees of one or more consumer trusts or a combination of both. A water services CCO will be governed by a board of directors, who must collectively have an appropriate mix of skills, knowledge and experience in providing water services.

The Bill limits the permitted activities of a water services CCO to: 

• providing water services in accordance with the Bill; and 
• undertaking activities related to, or necessary for, providing water services (for example, the management and maintenance of water services networks).

However, as foreshadowed in the August 2024 policy announcements, there is the ability to apply to the Secretary of Local Government for an exemption from this requirement, and the requirement that a water services CCO must be a company incorporated under the Companies Act 1993. If any councils are wanting to progress bespoke solutions, early engagement with DIA will be necessary to provide comfort that the exemption will be granted.

What is the process for establishing water CCOs?

The Bill introduces a specific process for councils that are proposing to make a change to the provision of water services in their district. A “change proposal” will include establishing water services CCOs (or joining an existing CCO), either alone or together with other councils. As discussed below, there is some uncertainty about how these requirements align with different provisions of the Preliminary Arrangements Act (already in force), which cover the same (or similar) territory, and require decisions to be made on the anticipated or proposed model that will be used for delivery.  

Under the Bill, when progressing a change proposal, a council must identify and assess a range of options, which must include: 

1. the existing approach to providing water services in the district; 
2. the proposed change (such as delivery through a new council-owned CCO); and 
3. at least one further reasonably practicable option. These other options could include different types of CCOs, including a regional or multi-council CCO, or a joint arrangement with other councils.  There must be public consultation on the proposed option before a final decision is made.   

Other changes

The Bill provides for economic regulation of water supply and wastewater services, with the flexibility to include stormwater at a later date. This new regime will give the Commerce Commission a number of tools, including information disclosure requirements and applying minimum or maximum revenue thresholds. 

Territorial authorities are required under the Bill to prepare stormwater network risk management plans to identify any hazards and risks relating to their district. 

Our comments

The Bill is extremely comprehensive, covering all aspects of the new water services delivery system and delivery entities. The provisions governing the purpose, operation, accountability and regulation of the water services entities extend to some 350 sections, plus Schedules. This compares to the 22 sections which currently govern Watercare Services Limited, which has been operating as a water services CCO for many years.  The specific details of this proposed regime will require close scrutiny before Select Committee submissions are prepared.  

The more immediate impact of the Bill (once it is enacted, and if it is unchanged) will be on the processes and requirements leading up to a council’s selection of its approach and/or structure for the provision of water services. On this point, there is a lack of clarity about the relationship between the Bill and the Preliminary Arrangements Act.

Process complexity for councils

The Preliminary Arrangements Act already provides a process for identifying and deciding on a council’s proposed water services delivery model, and if necessary establishing a CCO, as part of the adoption of a Water Services Delivery Plan (WSDP). Consultation is mandatory on that particular part of a WSDP. The process under the Preliminary Arrangements Act for establishing a CCO differs from that under the Bill: for example, the Act permits the identification of only two options (rather than the three anticipated under the Bill), when the council is considering and then consulting on its proposed option.  

Many councils are well advanced in their planning for the upcoming decision-making required under the Preliminary Arrangements Act. However, because there are now two potentially overlapping decision-making processes, if a council’s preferred delivery model has not been implemented (eg the CCO established) by the time the Bill becomes law, the more onerous requirements in the Bill will then apply (the Bill says it prevails over the Preliminary Arrangements Act if there is an inconsistency).  This may involve further consultation at that stage, after a council has already consulted under the Preliminary Arrangements Act.  

This could become a timing lottery given that WSDPs must be approved by the Secretary of Local Government, and there will only be absolute certainty about the future delivery approach at that point.

Even if this uncertainty can be remedied through the Parliamentary process, that will likely come too late to influence the decision-making processes which are already underway. It may therefore be prudent for councils to identify and consult on a third “reasonably practicable option” as part of the WSDP process, especially if there is a risk that it will not be able to establish any new water services entity before the Bill is enacted (expected to be some time in mid-2025). 

This is an example of a more general procedural tension between the two Acts. For example, the Preliminary Arrangements Act says that consultation on the establishment of a CCO is not required if there was already adequate consultation through the WSDP process. It also says that a council must give effect to its WSDP once adopted. However, the Bill requires consultation on the establishment of a CCO even if, apparently, it is part of an approved WSDP which was subject to consultation and the council is required to implement. These duplicate requirements seem illogical and hard to reconcile, and will create procedural risk and additional expense for councils. Unfortunately, any clarification is not likely to come until well after the WSDP decision-making processes are in train.

Development contributions

Another area that may warrant submissions to the select committee is the development contributions regime, which is largely a “lift and shift” from the LGA. This presents a lost opportunity to address the shortcomings in the development contribution regime (including the complexity, in practice, of applying the methodology for calculating contributions) that have limited their effectiveness as a funding tool, discussed in our earlier article.

Iwi and hapū involvement in water services

Finally, the Bill is notable for the very limited role envisaged for iwi and hapū in water services delivery. The Bill provides that a statement of expectations for a water organisation may include the shareholders’ requirements as to how the water organisation will conduct its relations with hapū, iwi and other Māori organisations, and a requirement that the water organisation must act in accordance with an obligation that a territorial authority shareholder has with hapū, iwi, or other Māori organisations. A water service provider must also act in a manner that is consistent with Treaty settlement obligations when performing and exercising functions, powers, and duties under the Act. However, unlike the now repealed Water Services Entities Act 2022, there are no “operating principles” or similar that relate to water organisations partnering or engaging with Māori.

Get in touch

We are assisting many territorial authorities to develop the decision-making pathways that they will need to follow for their WSDPs, proposed water services delivery models, and annual and long-term plans, which requires them to navigate several associated process requirements. For any questions and assistance in making a submission on the Bill, or any other matters relating to water services reform, please contact one of our experts below.

Special thanks to Liam Stevens for his assistance in writing this article.