John Robertson: Three Waters - the debt is in the detail

In a most unusual step, the same week that Parliament passed the Water Services Entities 2022 Act before rising for Christmas, the Government introduced another Bill to amend it.

The Bill goes by the name of the Water Services Legislation Bill and it is as long as the Act it seeks to amend.

This is another sign of Three Waters reform package being poorly planned and developed piecemeal.

The Government’s Three Waters reform agenda has been deficient from the time it tabled the business case in mid-2021. The assumptions behind the case are highly subjective and rightly have been challenged by most leaders from the local government sector.

This latest Water Services Legislation Bill addresses three key questions that have been unanswered since 2021.

Firstly, given the massive amount of debt that each of the four water services entities will take on, there has been a question as to what security would be offered to lenders.

The Bill proposes that lenders will secure their debt through a property rating mechanism. Should a water entity get into financial difficulty and a receiver be appointed, the receiver would be able to bill local authority ratepayers a uniform charge to recover the entity’s debt.

By shifting the risk to property owners in this way, the Crown avoids the need to offer a guarantee to lenders.

Secondly, the way water services will be priced also is addressed in this Bill.

Charging principles are spelt out. Pricing decisions are left to the water services entities to make. The Bill directs them to promote “the efficient use of resources” and to charge groups of consumers differently only if “the costs of providing services to those groups is different”.

These provisions should leave the entities in no doubt that their pricing of water services to consumers should be on a beneficiary pays basis. This direction is then followed by an average price enabling provision, a clause stating that the entities “may” charge geographically averaged prices for water services.

The Minister has always promised that Three Waters reform would deliver improved “equity” for consumers.

Rural New Zealand has taken this to mean that publicly provided drinking and wastewater services would be extended out to towns and villages that do not have them, and that to deal with issues of cost and affordability, cross-subsidisation would occur. Effectively this means that those in the larger towns and cities where economies of scale for water services can be secured will pay more to cover the higher costs of service provision in smaller communities.

Under this Bill, cross-subsidisation is not a given.

Small towns and villages may not secure the assistance that they thought they were being promised.

Cross-subsidisation will be up to the whim of a Minister providing directions through a Government Policy Statement, or up to the discretion of the entity’s decision-makers.

Finally, this Bill clarifies how the new entities will collect revenue from consumers.

The Bill enables water service entities to have local authorities to collect their charges – at least until 2029.

This transition process will not surprise local authorities but they and their constituents will be interested in what is considered in the Bill “reasonable compensation” for providing this service.

If an agreement is not reached on compensation between local authorities and the water service entities, the Bill provides for the Minister to step in and determine the matter. This is a less-than-satisfactory process.

Local authority ratepayers should not be left on the hook subsidising the administration costs of these water service entities.

But of much more concern is the first point I have raised.

The Bill proposes passing the security for water entity debt on to ratepayers. Surely ratepayers who have no ownership interest in these very large water services entities, do not elect their governing body, and have no sway over the business decisions that they make, should not be exposed to debt recovery by receivers.

The Water Services Legislation Bill is out for submissions until February 12.

John Robertson, QSO, is the Mayor of Waitomo and a former Chair of Commissioners with Kaipara District Council. This article is posted with the kind permission of the author and was first published HERE. Submissions on the Bill can be made HERE.