New Waters: Councils' Next Steps

Thursday 13 June, 2024

The announcement early in May of the deal made between the Government and Auckland Council regarding the future arrangements for Watercare Services Ltd [WSL] to supply water services to the city was seen as a potential model for other parts of the country. While the details of the necessary legislative changes for the Auckland arrangement were awaited with interest, the proposed legislation also addresses the preliminary steps for councils elsewhere to start planning future water services delivery.

The Local Government (Water Services Preliminary Arrangements) Bill [the Bill] was introduced and had its first reading on 30 May 2024. It has been referred to the Finance and Expenditure Select Committee with a report back date of 18 July 2024. The Bill contains detailed provisions relating to the future of WSL and more general provisions for the future of water services for territorial authorities outside of Auckland.

Auckland Council and WSL

The Bill provides specific provisions that enable Auckland Council to shift its obligation to provide water supply and wastewater services to WSL, of which it is the 100% owner. Stormwater services will remain the responsibility of Auckland Council. This will achieve financial separation that will enable WSL to side-step Auckland Council’s debt ceiling and uncouple it from Council borrowing. However, WSL may not achieve the high credit rating attributed by lenders to the Council, and its borrowing costs may be higher.

Other Councils given 12 months to submit water services delivery plans

All other territorial authorities will have 12 months from the enactment of the Bill to submit a water services delivery plan to the Secretary for Local Government. Joint arrangements will be permitted, and indeed in some parts of the country talks are already underway to facilitate this. Extensions of time may be available to consult on joint arrangements or finalise negotiations. These plans must contain detailed information on the current state of each councils’ water services arrangements and set out a strategy for how they will achieve the delivery of financially sustainable water services that meet regulatory quality standards. They are expected to ensure that the delivery of water services will be financially sustainable by 30 June 2028, and have a minimum 10-year horizon starting with the 2024/25 financial year. Where joint water services delivery is proposed there is an option to leave stormwater networks out of those arrangements.

Ministerial intervention

In case the submission of a water services delivery plan within 12 months seems like a daunting prospect the Minister will have the ability to appoint a Crown facilitator to assist if they consider it would be beneficial, or on the request of the territorial authority or group of territorial authorities proposing a joint arrangement. At one step up from this, upon a request from a territorial authority or authorities, or on the recommendation of a Crown facilitator, or if no plan or a non-complying plan has been submitted and not amended, the Minister may appoint a Crown water services specialist. A Crown water services specialist may prepare a water services delivery plan or direct the territorial authority or group of authorities to adopt and/or submit a specified plan.

In case there should be any doubt, the Minister retains the various powers of intervention available under Part 10 of the Local Government Act 2002 [LGA] in the event of any failure to submit or give effect to a water services delivery plan. The territorial authority or authorities will bear the cost of any ministerial appointment.

Water services council-controlled organisations

Whether individually or jointly, many territorial authorities will look to establish water services council-controlled organisations [WSCCOs] to deliver water services and provide related goods and services. The Bill contains tailored provisions for the establishment of WSCCOs that are an optional alternative to the consultation and decision-making requirements in the LGA. When a territorial authority is deciding whether or not to establish a WSCCO it need only identify and assess the options of remaining with its existing approach for water services delivery or joining or forming the WSCCO. The consultation requirement may also be modified, and the significance and engagement policy overridden. There are also bespoke provisions for consultation where the 2024-2034 long-term plan, has been deferred or has to be amended to establish the WSCCO.

One-size fits all?

The WSCCO model is likely to find favour with many territorial authorities, particularly where joint arrangements can be made with neighbouring districts. But many authorities will struggle to find a service model that can achieve the joint requirements of providing financially sustainable water services and meeting regulatory quality standards. One wonders at the fate of smaller territorial authorities with required water services works far in excess of the financial capacity of ratepayers, and little incentive for other authorities to share that load. Some lever may yet be required to ensure those councils can comply, because if they do not or cannot, local government re-organisation might be the next step.