In an announcement released on Monday, Local Government minister Simeon Brown confirmed that the Government will soon pass a bill to repeal Labour’s Three Waters legislation.

The Water Services Acts Repeal Bill, which was promised as part of the coalition’s 100-day plan, will be passed by 23 February 2024.  Specifically, the Bill will repeal the Water Services Entities Act 2022, Water Services Legislation Act 2023, and Water Services Economic Efficiency and Consumer Protection Act 2023, with other water legislation (the Water Services Act 2021 and Taumata Arowai–the Water Services Regulator Act 2020) to remain in place for the time-being.

The Government will then set about implementing its new plan, branded ‘Local Water Done Well’ (‘LWDW’), which will retain council ownership and control of water services, as well as the responsibility for delivery. In contrast, Labour’s ‘Affordable Water’ plan (originally ‘Three Waters’) would have passed the responsibility of managing and financing three waters infrastructure onto 10 council-owned entities. You can read more about the previous government’s plan in our Newsflash here. 

The LWDW Bills

Local Water Done Well will be implemented by progressing two bills through Parliament.

The first bill is intended to be passed by the middle of this year, and will set out provisions relating to council service delivery plans and transitional economic regulation. Minister Brown states that it “will also provide streamlined requirements for establishing council-controlled organisations under the Local Government Act 2002, enabling councils to start shifting the delivery of water services into more financially sustainable configurations should they wish to do so.”

In a nutshell, this gives councils the option to separate out their water services into council-controlled organisations (‘CCOs’) if they want to. Some local councils already have CCOs set up, such as Wellington Water and Watercare in Auckland, so in these regions the future entities could be cosmetically similar but with different funding structures (including access to long term debt funding). 

The second bill, to be introduced in December 2024 and passed by the middle of 2025, will provide for the long-term replacement regime. Minister Brown says this bill will set out provisions relating to long-term requirements for financial sustainability, provide for a complete economic regulation regime, and a new range of structural and financing tools, including “a new type of financially independent council-controlled organisation.”  That last point is significant, as one of the concerns surrounding the LWDW proposals (including from Mayor Brown in Auckland) has been that they would not achieve true ‘balance sheet separation’ – which was touted as a key benefit of Labour’s reforms.  

‘Regulatory backstop powers’ will also be built into the legislation, to be used when required to ensure effective delivery of financially sustainable or safe water services. While few details are currently available (and the plans are likely still in development), this appears to allow central government to step in if local councils (or CCOs) are not fulfilling their requirements. 

Technical advisory group role

Minister Brown also announced the establishment of a new Technical Advisory Group (‘TAG’) to advise the Government on the implementation of the new legislation. “The TAG will be focussed on providing advice and assurance on policy and legislative settings that will enable local councils to appropriately recover costs and access the long-term debt needed to fund the required investment in water infrastructure”, Minister Brown says. 

The TAG will be chaired by Andreas Heuser, managing director at Castalia. The other experts on the panel have experience in finance, infrastructure, and local government. 

Opposition response, and implications 

In response to the Government’s announcement, Labour’s local government spokesperson, Kieran McAnulty, issued a statement warning that the Government’s plan may not protect ratepayers from cost increases: “The government’s confirmation today it will repeal the affordable water reforms will see higher rates for every ratepayer – up to 90% in some individual councils – in 30 years.” McAnulty also commented that "You can't have direct council control and balance sheet separation, they were going to have to pick one. Now they know that in the future it's going to be councils and mayors that cop it when they increase rates. But actually, when ratepayers look at their bill, and they see an increase, that's because the council had no choice."

Prime Minister Christopher Luxon has confirmed that there was no guarantee under LWDW that ratepayers would not face higher costs, this being a decision for local councils. Rate hikes (or potentially, direct water charges) seem likely since local councils will have to fork out to set up CCOs, pay to upgrade the infrastructure, and pay back any loans, as central government is not intending to provide funding or underwrite any new borrowing.  The extent of savings associated with the previous Affordable Water plan is of course a matter of dispute. 

Another lingering question is whether, given the voluntary nature of the scheme, some smaller councils (with less money and more leaky pipes) will be left out in the cold, and unable to join a CCO set up by bigger, financially better off councils.  Minister Brown indicated that this aspect of the policy is still being worked through, but such situations could potentially be a candidate for the Government to step in. 

All going well, the legislation required for LWDW is expected to be passed by mid-2025, just ahead of the local government elections in October 2025.   That is perhaps later than expected, particularly given the reform process began in 2020 under the previous government.  It will extend uncertainty at a time when several regions are facing significant challenges with their water infrastructure.  On the other hand, there may also be wisdom in taking the time to get it right and seeking the input from the TAG, to ensure the new settings are fit for purpose and not at risk of being reversed by a future government.