The Government has revealed further details on how its Local Water Done Well policy intends to support councils to deliver high-quality, financially sustainable water services.
Local Government Minister Simeon Brown and Commerce and Consumer Affairs Minister Andrew Bayly announced last week the approval by Cabinet of immediate improved access to finance for water council-controlled organisations (CCOs), and new water services delivery models, that intend to drive critical water infrastructure investment.
Increased borrowing capacity available for CCOs and new economic regulation
The New Zealand Local Government Funding Agency Limited (LGFA) can now immediately begin lending to water CCOs that are financially supported by their parent council(s). Subject to water CCOs meeting prudent credit criteria, the new model will enable the LGFA to support leverage for water CCOs to a level equivalent to 500% of operating revenues, about twice that of councils.
The Government is also exploring further options, including whether the LGFA could lend to water CCOs that are not financially supported by their parent council – such as the model that has been agreed for Auckland Council and Watercare. Access to funding is likely to be one of the key drivers in the delivery model a council decides to adopt.
The Government’s expectation is that councils will use this certainty and additional borrowing capacity to reduce pressure on ratepayers while investing in critical water infrastructure. Rather than requiring large rate increases, the model aims to facilitate investment in essential infrastructure, and long-term growth, by using debt to spread the costs of long-term assets over time.
Minister Bayley also outlined the new economic regulation regime to apply to water services. The Commerce Commission will oversee the economic regulation and will have a range of regulatory tools, including mandatory information disclosure. Additionally, changes will ensure water revenues are ring fenced for water services and aren’t used for other council priorities or projects.
A range of delivery models to choose from
The Government is proposing a range of water service delivery models to be available for councils to choose from. These models are intended to have the flexibility to be financially independent from their parent council(s) from a credit rating perspective and include:
- Internal business unit or division: Status quo for many councils.
- Single council owned water organisation: New company established, 100% owned by the council.
- Multi-council owned water organisation: New company established with multi-council ownership.
- Mixed council/consumer trust owned: Consumer trust established to own majority of shares with one or more councils owning minority of shares.
- Consumer Trust owned: Consumer trust owned organisation.
Irrespective of the model chosen, minimum requirements will be set in legislation that apply to all water service providers including to be financially sustainable, subject to regulatory standards, and restrictions against privatisation.
A key takeaway from these new models is that councils have the option to join together and create regional water organisations to provide water services across their collective communities.
Further guidance on these delivery models are available on the DIA’s website.
Next steps
The legislation to implement the new water services delivery models and other enduring settings for Local Water Done Well is expected to be introduced in December 2024 and passed by mid-2025. This will be the third Bill in the Government’s suite of Local Water Done Well Legislation.
The second Bill (the Local Government (Water Services Preliminary Arrangements) Bill) is currently before the House and sets out preliminary arrangements such as details on water services delivery plans, as well as details specific to Auckland and Watercare Services Limited. This Bill is expected to be passed this month. We discuss this further in our previous alert describing the Government’s broader plan for Local Water Done Well.
The 12-month timeframe for submitting water services delivery plans will commence when the second Bill passes (unless an extension is granted). Councils may want to start thinking about preparing their water services delivery plans including their proposed model for delivering water services. Please reach out to one of our experts if you would like to discuss what this means for your council.
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