Councils around the country will be well underway with thinking about how to implement Local Water Done Well, following the passing of the Local Government (Water Services Preliminary Arrangements) Act 2024 in September (Preliminary Act).
The key feature of the Preliminary Act is that it requires each territorial authority (Authority) to prepare and submit a water services delivery plan (WSDP) by 3 September 2025. To do that, Authorities will need to identify and consider different options for water services delivery, make initial decisions about how water services might be delivered, including whether and how to work jointly with other Authorities, and undertake community consultation. Each Authority's WSDP will also be informed by enduring requirements for water delivery systems, which will be set out in the Local Government Water Services Bill, signalled to be introduced next month (December Bill).
This update sets out a summary of some of the key decisions that need to be made by Authorities as they work on their WSDPs, and comments on what we might see in the December Bill.
Water services delivery plans
The most significant part of the Preliminary Act is the requirement that each Authority (which in some cases includes Wellington Regional Council, and includes exceptions for Auckland Council):
- Prepares a WSDP that relates to its water supply network (including drinking water and firefighting water supplies), stormwater network, and wastewater network over a ten-year period (section 8)
- Consults on proposed models or arrangements for delivering water services (section 17(2))
- Gives effect to proposals and undertakings in the WSDP, once it has been approved by the Secretary for Local Government (section 22).
The Preliminary Act sets out detailed requirements for information that must be in an Authority's WSDP (section 13), including:
- Current water services network state, including current service levels, areas where services are currently provided, and infrastructure requirements
- Compliance with regulatory requirements, including current and anticipated future regulatory requirements (and details of any non-compliance)
- Detailed financial information, including capex and opex required to deliver water services in a way that meets regulatory requirements, and financial projections, including how much needs to be borrowed to finance the delivery of water services
- Issues, including constraints and risks that impact on delivery of water services.
Much of this information will already be held by Authorities, and the Department of Internal Affairs has provided guidelines, templates and supporting materials to assist Authorities in their preparation of WSDPs. One aspect of the information requirements for WSDPs that will be of particular interest to Authorities is the requirement to include information about arrangements for water services delivery, which we discuss below.
Arrangements for water services delivery, including "joint arrangements"
Each WSDP must include information about "the anticipated or proposed model or arrangements for delivering water services" (section 13(1)(k)). That information includes whether the Authority is "likely" to enter into a joint arrangement with one or more other Authorities.
Many Authorities have been working together for some time on exploring options for "joint arrangements", and the Preliminary Act specifically provides that joint arrangements can be:
- A joint water services council-controlled organisation (WSCCO)
- A joint arrangement under section 137 of the Local Government Act 2002 (LGA); or
- Other organisations or arrangements (provided that these are consistent with the Preliminary Act).
A WSCCO could be established by two or more Authorities wanting to enter into a joint arrangement, or by a single Authority. The Preliminary Act provides that a WSCCO would be a council-controlled organisation (CCO) under the LGA. However, Cabinet papers proactively released indicate that the usual LGA accountability provisions that apply to CCOs will not apply to WSCCOs. It is expected that the December Bill will include planning and accountability provisions specific to WSCCOs.
The references in the Preliminary Act to "anticipated" and "proposed" models, and "likely" arrangements show that Authorities' WSDPs do not need to reflect final decisions on the arrangements for water services delivery. The Preliminary Act in fact expressly recognises that, for joint arrangements, details about ownership and governance structures, and control and financial rights of Authorities may not be known at the time the WSDP is submitted (section 14(2)).
However, we anticipate that Authorities will want to include in their WSDP details of arrangements they are considering (including "likely" arrangements), for the purposes of the consultation required by the Preliminary Act and possible long-term plan amendments.
What might happen next - enduring arrangements for water services legislation
One final piece of legislation is needed to fully implement the Government's Local Water Done Well policy, and this is targeted for introduction in December 2024.
However, even absent the introduction of the December Bill, Cabinet papers provide useful information on possible features of the enduring legislative framework for Local Water Done Well, which should inform Authorities' work on their WSDPs. Papers show that decisions to date (which are subject to change) include:
- Company structure: WSCCOs will need to be incorporated as companies under the Companies Act 1993. Although the LGA recognises CCOs generally can be set up through a range of vehicles, the paper states the requirement to incorporate a company is for certainty of corporate governance arrangements, and consistency with the majority of regulated utilities providers.
- Asset ownership: Authorities retain the discretion over whether to transfer assets to a WSCCO, or retain ownership and set up a WSCCO (joint or separate) to manage those assets.
- Planning and accountability: As above, WSCCOs are likely to be subject to different planning and accountability arrangements than other CCOs under the LGA; these will be specific to water services, including a statement of expectations from the owner/shareholders to water organisations (as applicable), a water services strategy to be prepared every three years, and annual reports to be prepared by water services providers.
- Consumer trust model: The establishment of consumer trusts, which are not referred to in the Preliminary Act, could be an option for the delivery of water services. Consumer trusts could be established to be a minority shareholder or to wholly own water organisations. The trust would be governed by trustees elected by local consumers to oversee performance and appoint or remove board members.
- Economic regulation: A new economic regulation regime will be introduced, including a range of options available to the Commerce Commission that can be tailored to the type of provider and type of water services. This will include information disclosure, powers to set revenue thresholds, quality regulation and/or performance requirements, and price-quality regulation. Providers will be levied to recover as much of the Commission's costs as possible.
Even once introduced, the enduring arrangements for water services will need to go through the usual, full legislative process, including public consultation and select committee consideration. Authorities, and many others, will no doubt have strong views on these enduring arrangements, which will be informed in part by Authorities' work to date in preparing their WSDPs.
Our team of Local Water Done Well experts are advising some Authorities on the Preliminary Act as they work on their WSDPs, and would be happy to talk to you about any questions you have on the implementation of Local Water Done Well.
This article was co-authored by Natasha Wilson (partner), Mark Odlin (partner) and Hugo Schwarz (solicitor).
