Opinion: Kāpiti Coast District Council chief executive Wayne Maxwell on the proposed Three Waters Reform
There's a lot of change being proposed by the Government.
Fundamentally, they're considering shifting responsibility for our Three Waters – water supply, wastewater, and stormwater – from local government into four large entities known as water supply entities.
What are the Three Waters?
Councils tend to talk about the Three Waters as a package deal; water supply – the water provided to your house for drinking, showers, etc; wastewater – we treat the water you use and take away from your house; and stormwater – the surface water (mainly from rainfall) we take away and disperse to avoid flooding.
These are three significant networks, including pipes, pump stations and treatment plants. In Kāpiti we have 1161.4km of pipes, 175 pump stations, and seven treatment plants. Their combined replacement value is around $548 million. On average they have an economic life of 68 years, with 40 of those years remaining. Across Aotearoa, the replacement value of Three Waters infrastructure is estimated to be around $54 billion.
A BECA report from 2018 noted that councils owned 569 plants across the country, serving around 3.8 million people – that's about 75 per cent of our population. Smaller private supplies, including households that collect their own rainwater, make up the rest.
Why the change?
The proposed Three Waters Reform Programme harks back to the Havelock North water contamination event in 2016, when an estimated 5500 people became sick from campylobacter. Forty-five people were hospitalised, and sadly four people died.
A subsequent government inquiry resulted in a raft of recommendations, one of which was to create a dedicated, aggregated drinking water supplier.
Review process to date
In June 2017 the Government committed to a review of Three Waters services, led by the Department of Internal Affairs (DIA), and reporting to the Minister of Local Government.
While the driver for change was the Havelock North water supply contamination, the review was expanded to cover all Three Waters. This acknowledges the inter-relationships between the three networks, but also adds a significant layer of complexity to the review.
The review covered three areas: funding and financing; asset management performance; and compliance and monitoring. By 2018 a decision was made to establish a drinking water regulator to address regulatory standards and compliance. The business case was approved in 2019 and Taumata Arowai was formally put in place on March 1, 2021.
In terms of water service delivery, including asset management and funding, councils had to respond to a significant Request for Information between November 2020 and February 2021. This was consolidated and evaluated by the Government, with assistance from Water Industry Commission for Scotland.
Case for change
In making the case for change, a key focus for the Government has been the significant costs to come over the next 30 years, and the limited ability of councils to borrow more. Cost estimates have grown steadily during the review, as WICS has undertaken its work.
The Government now believes that costs of between $120 billion and $185b will be required – between $4 and $6b per year on average. To put this in perspective, most councils have committed to significant increases in spending during the latest round of long-term plans – around $2.7b a year over the next 10 years.
At an individual council level, the costs per household of delivering Three Waters services were assessed to be higher than if they were delivered by a larger entity. This is largely down to the ability of much larger water supply entities to borrow more, with government backing.
Expected efficiency gains from operating at scale are another factor in this equation. It's on this basis that the Government has concluded that four entities, aggregating all the water services across the country, offer the best and quickest opportunity to achieve the desired improvements to the three-waters networks.
Sweetening the deal
The Government is keen to progress these reforms quickly, and has put $2.5b on the table for those councils that opt into the reforms. This fund is separate to the transfer of assets and is in two parts: a 'no worse off' fund of $500m, and a 'better off' fund of $2b.
For Kāpiti, if we were to opt in, the latter fund would deliver $21m to be used on specified activity to benefit our community, with most of it to be provided after the water supply entities are established in 2024/25.
Other details, such as the transfer of assets, have not yet been provided. It's expected that councils will be reimbursed for the debt that they have against their Three Waters assets. Collectively, this debt is estimated to be around $7.7b – it's not small change.
A range of views
Councils across the country are expressing a range of views, largely driven by their own circumstances. Some councils – large and small – see looming costs that may be beyond their ability to pay if they go it alone. They can see benefits from sharing the load more widely. Others believe that they have their infrastructure in good condition, and their costs are manageable.
Some councils worry that their ratepayers will be asked to subsidise others, or that their assets may be somewhat neglected as priority is given to the areas with the most urgent issues.
As this debate plays out nationally, it may appear confusing as there are diverging views, and no single voice. This simply reflects the complex nature of the issues being considered, and the varying individual circumstances.
NZ Inc, or Kāpiti Inc?
In and amongst this debate we also need to consider both what's best for Kāpiti and our community, and what the impact is for 'NZ Inc'. The Government has recognised that a nationwide solution might see some areas disadvantaged, even though the country benefits. They have committed to ensure that no council is any worse off, and have set aside some funding for this purpose.
A Kāpiti perspective
The Kāpiti Coast has been recognised for its strategic approach to water over many years. We've focused on spending money on our core infrastructure and putting in place the many elements that contribute to managing our water efficiently, such as water meters, a river recharge system, grey water tanks, and upgrades to our water treatment plants. We're currently advancing significant projects in both wastewater and stormwater to deliver improved environmental outcomes.
However, we're aware of the increasing expectations too, particularly in improving the freshwater environment across the country. The new regulator can be expected to place much more emphasis on these outcomes, but over what timeframe is unclear.
We have over $500m in capital expenditure budgeted over the next 20 years for Three Waters, but the future is unclear. It's possible we'll need to spend more if standards are increased. Equally, we may need to invest in our infrastructure earlier than planned, putting pressure on our community and its ability to pay.
We need to take time as a council to evaluate the Government's proposal. While the proposal has taken some 18 months to develop, we've been given an eight-week window to evaluate the Water Industry Commission for Scotland analysis and provide feedback. That's not long.
It's too early to ask the community
We understand our community has a vested interest in how our district's Three Waters services are delivered in the future, and we're committed to sharing information with you as we receive it.
We're not yet being asked to get your steer on whether we opt out of the proposal. That's likely to come later this year.
Our eight-week window runs out at the end of September, and over the next few weeks councillors, as your elected representatives, will be working to form an initial view to feedback to the Government. This feedback will also highlight what questions and concerns we may have identified.
The Government has indicated that once it's heard back from all councils, it will decide on the next steps. We have little control over this, but it should be noted that under our standing orders any move to alienate our assets and management of our water requires a referendum and a 75 per cent vote around the council table.