The Government’s Three Waters Reform agenda reached a significant milestone yesterday with the introduction to the House of the first Water Services Entities Bill. The Bill establishes four publicly-owned water services entities that will deliver water services in place of local authorities (and water services CCOs) from 1 July 2024. We summarise some of the Bill’s key features below.

The four new entities

The service areas of the four new water services entities are set out in Schedule 2 of the Bill. There are no surprises in the service areas, which are based on existing territorial authority (and indirectly regional council) boundaries, with the exception of the Southern Water Services Entity whose service area is the takiwā of Ngāi Tahu as described in section 5 of the Te Runanga o Ngai Tahu Act 1996.

Functions of entities

The primary function of each water services entity is to provide safe, reliable, and efficient water services in its area. A more significant change from the status quo is the stated objectives of each water services entity, namely to:

1. deliver water services and related infrastructure in an efficient and financially sustainable manner;

2. protect and promote public health and the environment;

3. support and enable housing and urban development;

4. operate in accordance with best commercial and business practices;

5. act in the best interests of present and future consumers and communities;

6. deliver water services in a sustainable and resilient manner that seeks to mitigate the effects of climate change and natural hazards.

These objectives are significantly broader than any equivalent provisions in either the Local Government Act 2002, the now repealed provisions in Part 2A of the Health Act 1956, or Part 5 of the Local Government (Auckland Council) Act 2009 which applies to Watercare.

Operating principles

The Bill lists the following “operating principles” for the water services entities:

• developing and sharing capability and technical expertise with other water services entities and across the water services sector;

• being innovative in the design and delivery of water services and infrastructure;

• being open and transparent, including in relation to calculation and setting of prices, determining levels of service delivery to consumers and communities, and reporting on performance;

• partnering and engaging early and meaningfully with Maori, including to inform how the water services entity can give effect to Te Mana o te Wai, and understand, support, and engage the exercise of mātauranga, tikanga, and kaitiakitanga;

• giving effect to Treaty settlement obligations, to the extent that the obligations apply to the duties and functions of an entity;

• partnering and engaging early and meaningfully with territorial authorities and their communities; and

• co-operating with, and supporting other water services entities, infrastructure providers, local authorities, and the transport sector.

Like the principles in section 14 of the Local Government Act 2002 that apply to local authorities when performing their role, these operating principles are unlikely to be directly enforceable in the courts. Nevertheless, the principles set clear expectations as to how the new entities will operate day to day. The Bill specifies that the board of a water services entity must ensure that the entity acts in a manner consistent with these operating principles, as well as the entity’s statutory objectives and functions and its current statement of intent.

Te Tiriti o Waitangi and Te Mana o te Wai

The Bill requires all persons exercising duties, functions, or powers under it (most obviously the water services entities themselves) to give effect to:

• the principles of te Tiriti o Waitangi/the Treaty of Waitangi; and

• Te Mana o te Wai, to the extent that Te Mana o te Wai applies to those duties, functions, or powers.

The explanatory note to the Bill records that obligations in relation to Te Mana o te Wai are consistent with the approach in the Taumata Arowai – the Water Services Regulator Act 2020, and on those who perform or exercise functions, powers, and duties under the Water Services Act 2021.

However, the Bill also provides for local expressions of Te Mana o te Wai, by allowing mana whenua whose rohe or takiwā includes a freshwater body in the service area of an entity to make a Te Mana o te Wai statement for water services. The board of a water services entity must respond to the statement within 2 years, and the response must include a plan for how the entity intends to perform its duty to give effect to Te Mana o te Wai.

Governance

Water services entities will have a 2-tier governance arrangement comprising:

• a regional representative group (discussed further below), which provides joint oversight of an entity by an equal number of representatives of the territorial authority owners and mana whenua from within the entity’s service area; and

• corporate governance by an independent, competency-based, professional board of between 6 and 10 members, appointed by the regional representative group’s appointments committee.

Protection from privatisation

The Bill provides that a water services entity is co-owned, by the territorial authorities in its service area, in shares allocated and reallocated over time on a population basis.

The Bill sets what the explanatory note describes as “strong safeguards” against privatisation or loss of control of water services and significant infrastructure. In particular, the Bill provides for:

• collective territorial authority ownership of entities to ensure appropriate oversight and influence on behalf of the communities;

• joint oversight of entities by mana whenua; and

• protections against loss of ownership or control based on provisions in the Local Government Act 2002, which are that an entity must not use water services assets as security for any purpose, divest its ownership in a water service, or sell or lose control of significant infrastructure.

Central government direction

The Bill enables the Minister to make a Government policy statement setting out the Government’s overall direction and priorities for water services, to inform and guide agencies involved in, and the activities necessary and desirable for, water services. A water services entity must give effect to the statement when performing its functions.

Changes since the Bill’s exposure draft

In her press release announcing the introduction of the Bill, Local Government Minister Nanaia Mahuta emphasised the extent to which the Bill incorporates the recommendations of the Working Group on Representation, Governance and Accountability (Working Group).

Perhaps the most significant of these recommendations was that the legislation should entrench ownership of the entities by councils. The Bill does that by providing that local authorities co-own the entities, with shares being allocated on a population basis. The Bill includes safeguards against divestment, including that there is unanimous support by the co-owning local authorities, and that there is support from at least 75% of both the relevant regional representative group and electors in the relevant entity’s service area.

The Government, in its response to the recommendations, stated that it would seek cross-party support to entrench provisions requiring 75% of Parliament to vote in favour of amending or repealing provisions of the Bill where repeal or amendment of that provision would be necessary to allow the privatisation of an entity. However, the Bill as introduced does not include provision of this nature, which likely reflects that there is no cross-party support for provisions entrenching any aspects of the new regime. We expect this will be one of the issues the Select Committee will be required to consider.

The Working Group’s recommendations also sought to clarify the role and composition of the regional representation groups. The Bill provides that each entity will have a regional representative group, comprising an equal number of representatives of the territorial authority owners and mana whenua from within the entity’s service area. Each entities’ constitution will be required to set out the composition and internal procedures of its regional representative group, including how it will perform or exercise its functions, duties, and powers. Those powers include:

• appointing and removing board members;

• participating in the setting of the relevant entity’s strategic direction and performance expectations. This includes issuing a statement of strategic and performance expectations which must set out how the entity should meet its objectives, perform or exercise its duties, functions and powers, and comply with its operating principles, including how the entity will give effect to Te Mana o te Wai; and

• annually reviewing how the entity’s board has performed in giving effect to the statement of strategic and performance expectations.

Additionally, and as provided for in the Working Group’s recommendations, the Bill provides that an entity’s constitution may establish regional advisory panels. The role of a regional advisory panel is to provide advice, in respect of a particular sub-regional geographic area, to the regional representative group regarding:

• how the entity should perform or exercise its duties, functions, and powers;

• the entity’s performance of its duties, functions, and powers.

The purpose of these provisions, according to the Minister’s press release, is to ensure “a stronger community voice in the new entities”.

Notwithstanding these opportunities for greater community input into decision-making by the board of the new entities, the Bill clearly states that water services entities are to be independent, and free from specific direction by the Minister, territorial authority co-owners, regional representatives, or the regional representative group.

It remains to be seen how directive the regional representative groups in particular, will be in the statement of strategic performance expectations and in their comments on the draft statement of intent prepared by the board of the water services entity.

New Bill just the start

The Bill is the first of at least three pieces of legislation that will reform water services that are currently provided by local authorities. Further legislation will provide for—

• detailed implementation arrangements for the entities and services delivery, including provisions relating to the transfer of assets, liabilities, and other matters from local authorities to new water services entities:

• specific powers, functions, and responsibilities of the new water services entities, and pricing and charging arrangements:

• economic regulation and consumer protection regimes relating to the new water services system:

• changes to Treaty settlement legislation that are required to ensure that settlement obligations are carried forward from territorial authorities to the new water services entities:

• detailed changes to the Local Government Act 2002, the Water Services Act 2021, and other legislation to transfer service delivery arrangements to the new water services entities.

The Government expects to introduce the next Bill later in 2022, with a further Bill covering regulation and consumer protection, with the aim of ensuring water services are reasonable and affordable, likely to be introduced in 2023.

This Bill is likely to have its first reading next week, after which it will be referred to Select Committee for submissions.

For further information please contact one of our experts.

Special thanks to Chris Ryan for his assistance in writing this article.