Local Government Magazine
3 Waters

Water reform – The three big-picture issues on the table

Water New Zealand has just finished a series of workshops around the country discussing the big questions the government is facing over its plans to reform the way drinking, waste and stormwater is managed. CEO John Pfahlert outlines the pros and cons around the options.

At the Local Government New Zealand Conference in July, officials from the Department of Internal Affairs provided a briefing on the scope of the three waters review they are undertaking. The Minister of Local Government Nanaia Mahuta then set the scene for Cabinet’s upcoming review of the sector.

During August, Water New Zealand ran a series of workshops throughout the country providing an update on three waters reform to our membership. More than 500 people attended at 16 locations.

Commentary to date suggests the government will need to address three big-picture issues: the need for an independent regulator; whether to mandate the treatment of public water supplies; and whether service delivery needs to be aggregated into larger entities.

An independent regulator

Our view is that there is a need for a new independent drinking water regulator. It should have a high level of technical expertise and experience in water treatment – with expertise in water microbiology, water chemistry, hydrogeology and water treatment amongst other things – and be able to gain the respect of the industry.

In our opinion, the new regulator should also set the drinking water standards. This is perhaps an unusual proposition because best practice often sees these roles separated so the regulator doesn’t set standards to make regulation less difficult. However, mechanisms can be put in place to manage this risk.

On the other hand, retaining the standard-setting role within the Ministry of Health creates two problems. The first is that it would be necessary to duplicate the expertise held by the regulator within the standard setting body.

An organisation can’t set standards unless it has a high level of expertise in the technical aspects of the sector it is regulating. In a small country such as ours, a shortage of expertise means we do not have the luxury of such duplication.

The second problem is that retaining standard-setting with the Ministry of Health would risk continuing the poor standard of performance which has beset the industry for over a decade. The ministry has clearly demonstrated that it is either unable or unwilling to resource its standard-setting and regulatory function appropriate to the level required to discharge its functions.

The standards haven’t been amended in over a decade and there hasn’t been any legal or enforcement action taken against a water supplier – despite overwhelming evidence of non-compliance by many local authorities.

Water treatment

The second issue the government needs to grapple with is whether all publicly-reticulated water supplies should be treated. We have previously expressed our support for the Havelock North Inquiry recommendation that they should be, including a requirement for a residual disinfectant. In our view, this issue should be simply resolved by the government endorsing the inquiry’s recommendation.

Aggregation

The final, and probably biggest, issue in front of government is whether there is a need for aggregation of suppliers. The government has already decided that water assets will be retained in public ownership. Whether that means retention at a local government level, some form of CCO, a publicly-owned corporate structure or central government ownership remains to be seen.

We have yet to form a final position on the question of aggregation. Our current intention is to ensure government is provided with an industry perspective and good information about the advantages and disadvantages of the various options available. However, the evidence from overseas is that scale matters in water service delivery.

For the sake of simplicity one could posit four options with respect to aggregation:

• The status quo – leave service delivery with local government;

• Consolidate up to perhaps the regional council boundaries;

• Establish between three and six geographic entities; or

• Have one service provider for the whole country.

These options involve a progressive shift toward more centralised control and increasing loss of local involvement. Some will involve significant disruption to council operations and staffing. At Water New Zealand we haven’t sugar coated our presentations about the implications of reform. All reform is disruptive in varying degrees.

“We need a step change at both the regulatory and service delivery end
to make a difference.”

What is important is improving the sector’s performance and delivering services to ratepayers which are appropriate for an affluent, developed nation.

It is perhaps not surprising that many in local government are telling us that any decision on the aggregation of water services should not be mandatory.

But my question to local government is this. How likely are you, despite the evidence of the advantages of aggregation, to voluntarily make such a call? On the face of it, the evidence of past performance by local authorities to either amalgamate councils or water service delivery suggests the incentives are not there for this to happen.

In Scotland, a country with a similar population and geography to our country, there is only one water supplier. It is overseen by quality, environmental and economic regulation. The price to water consumers is lower today than when the supplier was established 10 years ago. The water supplied meets the EU Standards more than 99 percent of the time.

Compare this to New Zealand where there is poor regulatory oversight by the Ministry of Health, non-existent enforcement (if it is measured by the issuing of compliance orders or prosecutions), variable pricing to different communities, regular disease outbreaks and woeful performance against the drinking water standards. Nearly 70 percent of communities in New Zealand with fewer than 500 people receive water that fails to meet the current standards.

In Auckland, where we do have a large asset-owning utility, consumers pay some of the lowest water tariffs in the country. Watercare is able to recruit and retain the wide variety of skilled staff needed to design, maintain and operate its system. It is able to fund upgrades and cross-subsidise between wealthy and poor communities to pay for improvements and maintenance in areas that did not previously have such options.

A key question is now on the table. Will simply establishing a new regulator, and trusting that service delivery remaining with local government, deliver the improvements that are clearly required?

Somehow, I doubt that approach will bring the change that is needed. In most small councils there will still remain issues with affordability, funding, recruitment and retention, lack of appropriately-skilled staff, uneven compliance with standards, and having to compete for funding with other council activities.

We need a step change at both the regulatory and service delivery end to make a difference. The changes the government makes will also affect contractors and service providers and I encourage them to also contribute to the conversation. 


• John Pfahlert is CEO of Water New Zealand. ceo@waternz.org.nz


This article was first published in the September 2018 issue of NZ Local Government Magazine.

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