Explaining the latest water reform policy
Local Government Minister Simeon Brown has laid down the challenge to councils with the release of his Local Water Done Well policy, process and timeline.
Prove you can sustainably fund and operate your water, waste water and stormwater networks over the next 10 years or expect ministerial intervention.
The Commerce Commission will preside over council asset management plans and require councils to provide baseline information about their water services operations, assets, revenue, expenditure, pricing, and projected capital expenditure, as well as necessary financing arrangements by June 2025.
If a council fails to submit a plan by the statutory deadline, the minister will be able to appoint someone to prepare a plan on that council’s behalf.
The minister also holds the power to direct the council to adopt and submit the plan with any expenses associated with this appointee and the preparation of the plan to be funded by the council.
So what does all this mean for New Zealand households and businesses?
Well, Kiwis can expect to find out how much water services are going to cost them each year for the next decade.
In New Plymouth, households with water and wastewater connections pay around $1200 a year and this charge also covers the cost of stormwater. By 2033, costs are forecast to be $2700 a household. For many communities, the numbers will be much higher and in some rural communities costs simply won’t be affordable.
The last government tried to accelerate the reform transition with its four large water companies designed to gain scale and use cross-subsidies to soften price shocks.
The new model Local Water Done Well (LWDW) is designed to facilitate more organic change. Smaller regional water entities will emerge. The theory is these will likely aggregate over time in much the same way dairy co-operatives have done in the past, but do so willingly without the requirement to burn political capital.
Councils across the country are coming together to discuss who they want to join forces with to go through this next stage of reform.
Expect three or four water CCOS to be announced over the next 15 months, maybe more. But some councils will be left out in the cold. We call them the orphans. We really don’t know what will happen to them.
Another issue we aren’t clear on, is any special provision for Watercare.
Auckland mayor Wayne Brown has demanded government take on the role of guarantor of last resort for New Zealand’s largest water company.
Brown knows a government guarantee would give Watercare access to the government’s credit rating and hence lower its cost of borrowing, saving Aucklanders millions a year.
Treasury has consistently dismissed the idea of a government guarantee although there is a precedent that contradicts their advice. Labour’s 3W reform model included a $500 million government guarantee. The half billion was proposed on the basis it would help the four mega entities lift their credit ratings, a proposal developed with input from Credit Rating Agency S&P.
Without a Crown guarantee expect water entities’ credit ratings to track towards a BBB, increasing their costs of borrowing.
So what are the other big unanswered questions that we can expect to see worked through over the next 15 months?
What we don’t yet know is how many councils will be unable to meet the June 2025 deadline for information and how big the cost variations will be for water services across the country.
There was a lot of criticism of the 3W financial modelling undertaken by the Water Industry Commission of Scotland as part of the old 3W reform information disclosure. It showed some councils’ water costs would likely increase to more than $9000 a property a year in some locations over the next 30 years. The numbers were challenged along with the assumptions.
What we are going to get in 15 months are detailed financial forecasts that councils won’t be able to argue with because they will be their own numbers.
Everyone will get to see them and many people will be shocked.
We will start to get a feel for which councils will be left behind, unwilling or unable to develop collaborations with their peers.
We will also find out what councils plan to do about stormwater.
So what can we take from this week’s announcements?
Surrounded by the evidence of neglect, New Zealanders seem ready to start the long hard journey towards asset management maturity. Transparency is the first step as we look to find a sustainable way of delivering public water, waste water and stormwater networks.
A critical success factor in Local Water Done Well will be the level to which five of our key ministers can collaborate.
Minister Brown has laid out the plan. Infrastructure Minister Chris Bishop is driving resource management reform which will materially influence costs and efficiency in the system.
Regulation Minister David Seymour has a role to place downward pressure on ballooning compliance costs.
Commerce Minister Andrew Bayly will be tasked with overseeing the development of the regulatory system required to drive performance in the water sector overtime.
If the four ministers can come together with precision and foresight they have the potential to drag the sector out of crisis.
And sitting in the fullback position will be Finance Minister Nicola Willis, looking to minimise the Government’s financial exposure to our national three waters crisis, whilst understanding she is the one who has to cover the costs of any Government guarantees and the potentially more vexing challenge of mopping up failed orphans.
– Neil Holdom is the mayor of the New Plymouth district.