Implications as at 2 September 2021

Other Government Reform Initiatives that will have impact on 3 Waters

NOTE: A full list of linked references is available at the bottom of the page.

In addition to the three waters reforms discussed above, the Government has also announced further wide-ranging reforms of freshwater, resource management, climate change and zero carbon, all of which have potential to have significant impacts on the delivery of 3 Waters services. These impacts have regulatory, operations and cost impacts:

RMA reform
National Built Environments Act.
Strategic Planning Act (30yr spatial plans a required output – big picture, long term planning view).
Managed Retreat and Climate Change Adaptation Act.
NPS Fresh Water (including Te Mana o te Wai)
NPS Urban development
NPS Coastal
NES Sources of Human Drinking Water
Review of the Future of Local Government 2021 https://www.dia.govt.nz/Future-for-Local-Government-Review
Zero Carbon Act and Climate Change Commission initiatives
Climate Change adaptation initiatives
Water Economic Regulator is being discussed and planned
National Environmental Regulator is being discussed (see Infrastructure Commission ‘Water Reform in NZ’ report)
Possible nationally mandated consumer protection oversight provisions in relation to the provision of three waters services.

Summary of Government Reform Initiatives

The Government has announced and is working through wide ranging reform processes across areas of New Zealand society. The government has initiated sustained and wide-ranging reform which is currently in process in 2021. These reforms (like current reforms of other sectors – Health, Education) have common features:

Centralising of services and decision making
Maori governance and decision-making roles, inclusion and involvement
Broad inclusion of Te Tiriti o te Waitangi requirements.

Three waters reform is well advanced. Other water resources reforms – rma, nps, zero carbon etc. Have been commenced. The impacts of these reforms on new zealand, council and three waters service provision will be profound. Unfortunately, there is no known system-wide view of the totality of the reforms and the impacts on our community and the council.

Further Implications

Implications Common to any Option

The environmental regulator taumata arowai and legislation will require a higher level and standard of compliance, including personal accountability, and this will translate also into a higher level of service, increased investment, and an increase in costs to the end-user. Council’s forecasting is based on what is currently known, and for example if standards dictate that there will be no more wastewater discharges to fresh water (as an example) then substantial investment increases and costs can be expected given 99% discharge into that environment currently.

The water services bill is currently grappling with private supplies and the latest health select committee report has kept the requirement for private supplies to be covered but has extended timeframes. The question of addressing private supplies in this new regulatory environment is a substantial risk for any option.

The increased investment requirement will have implications for the supply chain, more construction is required, and more jobs are forecast. If the workforce and supply chain demands aren’t met, then necessary investment and compliance are delayed. We are already aware that taumata arowai’s focus initially will be on drinking water standards, so it is unknown what is expected in wastewater and stormwater compliance.

Implications if Council stood alone

Implication	Discussion	Mitigation
Loss of local decision making	Water quality regulator, Water economic regulator and regionally based resource management requirements may lead to an effective loss or major constraint of local decision making	Continued engagement with regulators, Ngāi Tahu, regional councils, DIA and other government departments to ensure local decision making is included where possible within the constraints of national regulations and standards
Service Delivery Cost	All current multi-regional entity models, analysis and reports show significantly higher costs associated with meeting increased service levels and compliance requirements.	When the increased costs reach the Community is unknown. It may be decades before the combinations of cost factors are felt and the Government’s case is based on demonstrating household average charges in 2051. There are a lot of uncertainties forecasting for 2051.
Major increase in debt to pay for service level changes	The increased service levels required by water reform may require significant additional debt to spread the costs over a longer period, and assist with intergenerational equity with the use of the assets.	CDC currently has very low debt, and room to increase debt as required to meet any anticipated new requirements, subject to any future economic regulation requirements Council debt ceils could be extended and underwritten by central government if it decided to do so. Current debt limits are because of underlying government policy decisions that aren’t being applied to the new Entities.
Loss of local staff	NZ is facing a sustained engineering and water supply operations staff skills shortage. This will be made worse over the next decade by the expected wave of retirements from the industry. The proposed water industry reforms have potential to see loss of skilled staff to the proposed large multi-regional water entities, and large contract and consulting organisations that will support these entities.	Local staff recruitment and retention policies implemented Industry competitive remuneration and conditions Support and engagement agreements / partnerships with external service providers (consultants, contractors) Structured use of internal / external resources to maintain expertise and resource availability Structured succession and staff risk management planning
Maintaining enough resources to meet new requirements Maintaining sufficiently qualified local resources to meet new requirements	Water reform will create multiple new workstreams in compliance, auditing, reporting, water treatment, quality monitoring, freshwater resource use and compliance etc. Concern has been expressed in a resource short industry how small rural authorities will maintain enough resources to sustainably meet the new requirements	This is not a new issue or problem for CDC although it will add cost. Council has addressed resource shortages by: Hiring local based staff Training and skill development of staff over the medium to long term Involvement in industry training, conferences, and skill development Use of skilled external resources where required for specialist support, or one-off projects Joined up procurement where appropriate
Ability to deliver increased capital programmes	The proposed water quality reforms will require increased capital expenditure programmes over the next 30 years to deliver increased quality and environmental standards. Industry wide concerns have been raised	CDC has increased capacity in the Capital Delivery Team to achieve high percentages of project completion for the existing Capital Work Programme. This will have to be expanded again to cover for any increased investment programme. CDC will also be subject to any necessary industry capacity reforms which will be needed whether the reforms proceed.
Iwi, Hapu, Marae engagement to meet new statutory requirements	The new legislation and regulations for three waters and fresh water all require extensive engagement and consultation with Iwi/Maori. This engagement is far more wide ranging than current requirements, and will require time, resources and good will from both parties to be effective. It is likely that Iwi/Maori representation in decision-making will result.	Council can continue to retain very good relationships with Ngāi Tahu. Additional resources applied to ongoing Ngāi Tahu relationships. Representation on decision-making bodies.
Large amount of new sector legislation and regulation expected	Additional RMA, NPS, Climate Change (zero carbon), Water quality regulation, Water economic regulation, Regional planning, environmental protection, climate adaptation, and Te Mana o te Wai adaptation will be required of the 3W sector over the next 10-20 years. This will challenge a small rural Council.	Industry guidance and compliance templates can be expected to assist in standardising approaches, methods and processes. Council can engage additional resources to meet new sector legislation and regulation requirements. The cost of these resources and duplication of efforts completed by larger entities may be a concern.
Affordability of ongoing regulatory change	There is potential that a small council like CDC may be overwhelmed by the amount and pace of the proposed regulatory changes. The amount and pace of change also has affordability concerns, particularly as a wide range of external resources have to be engaged to assist meeting new requirements.	CDC has successfully managed regulatory change before. Whilst the pace of proposed change currently seems very high, the ability of government departments to sustain this pace has yet to be tested. Many of the proposed changes are likely to generate significant public consultation prior to implementation The implementation period for many of these changes will stretch to decades due to industry and social capacity, which allows CDC time to adapt to meet the new requirements.
Changing district demographic – more retired population	The broad demographic changes have been a NZ wide issue that has been recognised for the past two decades. The ability of an increasingly retired population to afford the projected big cost increases associated with three waters reform has yet to be tested.	Clutha district is attracting a range of working families drawn to the district by the affordability of housing and a broad range of employment opportunities. Current demographic modelling may be lagging facts on the ground Service affordability for retired citizens is a society-wide issue that will require government planning and intervention to adequately resolve.
Water and wastewater pipe infrastructure nearing end of life	Pipe renewal costs increase significantly over next 30 years. Community ability to pay for these cost increases	Issue well developed in CDC LTP and Infrastructure Strategy. Currently the community has the ability to pay. Use of debt to spread cost impact over a longer period. CDC currently has a conservative low debt position.
Tranche 2 funding is at risk.	The government has signalled additional funding to those Council’s opting in and CDC’s share is just over $13M. This would be at risk.	There seems to be no mitigation in this event.

Implications if Council Opted-In

Implication	Discussion	Mitigation
Service Delivery Cost	All current multi-regional entity models, analysis and reports show significantly higher costs associated with meeting increased service levels and compliance requirements	There is an assumption based on some evidence that centralisation of services, planning, asset management and compliance activities will provide efficiencies, in addition to higher debt levels, to offset projected additional costs. Whilst there is debate about how much this will be, it is evident that it is more affordable than if CDC went alone.
Efficiency gains not realised	The proposed 30-40% efficiency gains may not be realised with the multi-regional entities, leading to further cost increases to achieve new regulations and service levels. The efficiency gains are a core assumption based on UK/Scottish Water experience. This assumption has yet to be fully tested. DIA have ongoing work streams around this. These assumptions are particularly at risk in smaller regional and rural populations such as CDC due to the different land area size and population distribution patterns between Scotland and NZ.	Additional debt capacity available to offset costs Government funding during the transition period is assumed to be in the order of $1B, however, it is likely to require more. Further DIA analysis to test assumption of UK data-based econometric analysis models that use UK 2003-04 data as a source.
Loss of local decision making	CDC is a very small part – land area, population, and assets of the proposed multi-regional entity. However decision making is decided, CDC will have a very small % of shares, votes, board selection, or perhaps no share at all. This also impacts on Rural Water Schemes that have a voice through Rural Water Scheme Committees.	Strong local advocacy by Council, Rate Payers, ex-Rural Water Scheme Committees, and farming groups / Land Users. Council statements of service intent may be included in proposed multi-regional entity governance structures. This would provide a pathway for local decision input. There is a requirement that the Entity engages with communities and Council’s planning and budgeting documents such as the LTP, but it is unknown at this time what form this will take and what influence CDC will have.
Questions Council being a sustainable entity without 3 waters.	This assumes that without 3 waters Council will be significantly impacted as an organisation such that it may not be sustainable as an organisation on its own.	Council’s financial position would be stronger as a result of opting in, so the risk is not a financial risk. The Future of Local Government Review is also intended to address issues of sustainability for Councils although what will be the eventual outcome is not known.
Major increase in debt to pay for service level changes	Industry papers indicate a major increase in debt to pay for increased service levels and associated capital works, and to keep the service charges more affordable. This can be as much as 800% compared to CDC’s 250% debt limit. The ability of small and rural communities to pay for their share of this debt long term is an issue	NZ Government may release further tranches of funding to facilitate major capital expenditure. This would need to be funded in central government budgets.
Loss of local staff	Centralisation of services and opportunities may lead to loss of local expertise and skills.	Local staff recruitment and retention policies implemented Industry competitive remuneration and conditions Support and engagement agreements / partnerships with external service providers (consultants, contractors) Structured use of internal / external resources to maintain expertise and resource availability Structured succession and staff risk management planning. CDC would still intend to be a competitive employer of choice.
Large bureaucratic entity created	Whilst this is not proposed in the multi-regional entity structure, NZ actual practice with large single purpose authorities has been mixed both in results, delivery, and size/staffing of organisations	Statement of service intent may assist to offset this risk. The economic regulator will check on pricing and it is expected that a consumer advocate such as an Ombudsman will be created.
Larger urban issues dominate new authority	Model design, analysis (WICS) and issues discussion have been around larger urban area requirements and issues. These are expected to continue to dominate, and this may be at the expense of small urban area and rural water systems.	Statement of service intent and the engagement requirements may assist to offset this risk.
Large amount of new sector legislation and regulation expected	Additional RMA, NPS, Climate Change (zero carbon), Water quality regulation, Water economic regulation, Regional planning, environmental protection, climate adaptation, and Te Mana o te Wai adaptation will be required of the 3W sector over the next 10-20 years. A larger multi-regional entity will be able to deploy resources to manage these changes	Significant legislative and regulatory change can be managed by the deployment of additional resources in a multi-regional entity. Pooling of resources in a multi-regional entity may increase efficiency and ability in meeting new requirements.
Local resilience during emergencies	With climate change research and a better understanding of probable seismic events (AF8) there is an increased awareness of probable increases in the number, size and severity of natural events and emergencies over the next 30 years. The ability of a small local authority to effectively respond to a major event may be tested with the loss of one third of our technical staff, and there would be challenges coordinating with contractors who are not contracted to Council.	Good emergency management planning and scenario analysis Community wide resilience planning and implementation Mutual aid agreements with neighbouring authorities, network service providers and the government Insurance cover for events