Three waters reform

In 2020 the government announced it was looking at a move away from councils managing and operating the three water services, and having separate entities in charge of delivering this key lifeline.

A large amount of analysis about how things could be improved has been undertaken based on information provided by councils across the country. Modelling suggested that between one and four entities will provide the most efficiencies to deliver three water services. It says the reforms could result in an additional 5,800 to 9,300 jobs and GDP increasing by up to $23 billion dollars.

The reforms provide opportunities for a step change in the way iwi/Māori rights and interests are recognised. These are woven throughout the new system with statutory recognition of the Treaty of Waitangi and Te Mana o te Wai, and creating a mana whenua group in the governance of each entity with equal rights to local government.

The proposed changes are wide-ranging:

• Establish four, publicly-owned water services entities to provide safe, reliable and efficient three waters services, with protections against future privatisation
• The entities will own and operate three waters infrastructure on behalf of territorial authorities, including transferring ownership of three waters assets
• Independent, competency-based boards to govern each entity
• A suite of mechanisms to protect and promote iwi/Māori rights and interests
• An economic regulatory regime to protect consumer interests and provide strong incentives for performance
• Stewardship arrangements for the new system to ensure it adapts to shifts in national objectives and priorities and remains fit for purpose
• The new entities would officially begin life on 1 July 2024. Local authorities would remain responsible for these services to that point.

These are high-level decisions about the number of entities, the boundaries, their organisation form and their governance. A lot of the more operational aspects are still being worked through and will be resolved as legislation is developed over the next year.

The government has agreed to preferred options for the boundaries of these four entities. It considered shapes and sizes, sufficient asset and customer base to be financially sustainable, have economically efficient scale, and deliver services at an affordable price to operate effectively in relation to water catchments and achieve environmental outcomes to engage meaningfully with iwi/Māori.

This map shows the preferred entity locations; the areas numbered 1, 2 and 3 are still subject to continuing discussions with local government and iwi on which entity they should fall in. The monetary value next to each entity is what the household cost would be in 2051 with reforms, or without reforms.

It's proposed that local authorities will own the entity on behalf of their communities and mana whenua will have a joint oversight role. Legislation will protect against future privatisation. Local authorities and mana whenua will appoint representatives to their Regional Representative Group via a nomination and voting process.

The entities will still be required to consult on strategic direction, investment plans, prices/charges etc.

We’re really proud of the service we deliver to our residents. Our predecessors had the foresight to build the Turitea Dams which supply two-thirds of our city’s water, and our consecutive councils have consistently invested in new bores and water infrastructure. Like many councils around the country, most of our underground pipes are in reasonable condition, but over decades could have done with a bit more investment.

Our consents for our wastewater treatment and discharge are expiring in 2028 and we’re currently in the process of applying for new ones. You can read more about this project, called Nature Calls, on our website.

The timing of our new consents has fallen at a time where there’s been significant technological developments, far stricter environmental requirements, greater cultural awareness, and more societal pressure to look after our environment – while also keeping costs down. Our Nature Calls project is expected to cost around $500 million dollars, and we simply don’t have the funds available to make it happen. This project is the single greatest challenge to the long-term financial sustainability of our organisation. We simply wouldn’t be able to fund this as we wouldn’t be able to borrow the money to do so. There’s a lot more detail about this in the Finance section of this report on page 57. This means that the Three Waters Reform could be seen as somewhat of a saving grace for our city.

This means that the Three Waters Reform  could be seen as somewhat of a saving grace for our city.

All councils were asked to provide feedback to the government about the proposals by the end of September.

In September 2021, a report was prepared by Council officers about the proposal.

The report can be read here: Agenda of Council - Wednesday, 1 September 2021 (infocouncil.biz)

The minutes of the public meeting on 1 September 2021 can be read here: Minutes of the Council Meeting Public, held via an Audio Visual Meeting on 01 September 2021 (infocouncil.biz)

Before the Council discussion, Local Government New Zealand (LGNZ) President Stuart Crosby and Chief Executive Susan Freeman-Greene spoke to Council about LGNZ's stance on the reforms.

Bill Bayfield, the Chief Executive of the new water regulator Taumata Arowai also gave an update to Council.

Then Council discussed the report.

This Council meeting occurred virtually because Palmerston North, alongside most of the country, was in Covid-19 Alert Level 3.

As of 29 August 2022.

• Compliance will be managed by a new agency known as Taumata Arowai.
• There will be four operational entities with Palmerston North being in Entity C.
• The new entities would officially begin life on 1 July 2024. Local authorities would remain responsible for these services to that point.
• The new entities will own and operate three waters infrastructure on behalf of territorial authorities, including transferring ownership of three waters assets.
• They will take responsibility for wastewater, drinking water and stormwater.
• Independent, competency-based boards will govern each entity.
• There’ll be a suite of mechanisms to protect and promote iwi/Māori rights and interests.
• An economic regulatory regime will protect consumer interests and provide strong incentives for performance.
• The entities will still be required to consult on strategic direction, investment plans, prices and charges etc.
• It’s proposed that local authorities will own the entity on behalf of their communities and mana whenua will have a joint oversight role. Local authorities and mana whenua will appoint representatives to their Regional Representative Group via a nomination and voting process. We expect Palmy to have two shares of entity C. These are based on population. Shares do not have revenue or dividends attached to them; but are there to protect against privatisation.
• The Government has announced a programme called ‘Better off Funding’ which will grant councils funding over the transition phase. In the 22/23 year Palmy is expecting to receive $8.1 million dollars. The spending has a set criterion, which includes iwi being involved in the decision and that funds should be used on projects or programmes already in our 10-Year Plan.
• A second block of funding totalling $24.5 million is expected to be available from 1 July 2024.

As of 29 August 2022.

• No chief executives have been appointed for the entities yet, and we don’t know where the headquarters will be based. The transition agency has said there will continue to be local people on the ground in each area.
• We’re assuming most of our current staff will remain with us until the new entities begin life on 1 July 2024, but recognise some could go earlier, or they could potentially stay with us longer if there’s a phased approach to the transition.
• The Government has said everyone working mainly in water will have a job.
• We don’t know if the entities will also request staff or require secondments during the transition for continuity of work. For example, engineers, asset planning, human resources and communication and engagement support.
• We don’t know if they will want to ‘take’ key projects or staff early or potentially phase some large projects (like Nature Calls) in over time.
• We expect that when the entity wants to do construction, they would be applying for access like other utility providers which requires them to reinstate our roads to a good condition.
• We don’t know whether Palmy will continue to get the great water services they currently are. We have said it is essential that communities maintain their existing level of service. The problem the entity has is that this changes significantly council to council.
• Stormwater (essentially heavy rain) is likely going to be the hardest transition. We mitigate flooding by utilising underground pipes and also large areas of land to absorb the rain, including backyards and parks. This water eventually ends up in our streams and then the river. There’s been an indication that we will have to look at these assets and determine if their primary purpose is stormwater or natural amenity/ recreation and that would then determine which organisation looks after it. We’re also uncertain as to who has responsibility when flooding occurs.
• Our other big concern with stormwater is that it’s one of the most significant factors in how we plan our city’s growth and developing land for housing or business. That work, the costs involved and the prioritisation between growth by a council and water by a separate entity could have some significant flow on effects for us.

There's been some confusion about whether councils have been asked to opt in or opt out of these reforms. At this stage, the government has not asked councils this question.

Some councils have sought community feedback on the reforms to feed into their advice. LGNZ sought legal advice for all councils on whether to do that, and the advice was that councils do not have enough information at this stage to consult on the implications.

As more information becomes known about the government's plans we will update this page, and our Facebook page. If the government chooses to complete a public consultation, we will let you know. Alternatively, if we are asked to consult our communities - you can rest assured we will be asking for your feedback.

We know how much you value the clean, safe and reliable services we provide you. You are at the forefront of all these discussions, and we are committed to acting in the best interests of our residents, ratepayers and our city.

The best place to get regular updates on the proposed changes is Three Waters Review - dia.govt.nz.