Community information on Local Water Done Well Reforms

Council is required to consult with the community on options for its Water Services Delivery Plan, which is due to be submitted to the Department of Internal Affairs and the Minister for Local Government by September 3 2025 for their approval.

Council will be consulting on four options. An in-house business unit, a stand-alone CCO, and a joint Council owned CCO either with the Southern Water Done Well group, or potentially with three South Canterbury Councils.

We will be sharing all of the modelling done to develop these options, and in fact have already published it – here.

An In-House Business Unit will not be a status quo option, as the Government reform legislation implements increased regulation, transparency and scrutiny from both the Commerce Commission and the Water Services Authority.

All proposed CCO options would see Council as either single-shareholder, or as equal shareholder with other Councils under the joint model. Councils would be able to direct the CCO intentions, with a Statement of Expectations setting out expectations, priorities, and strategic direction for the water organisation. This will inform and guide the decisions and actions of the organisation’s board.

The legislation requires Council to consult on an In-House Business Unit, even if the modelling for that indicates Council would likely be unable to meet legislative requirements regarding debt-limits when doing so.

The legislation also requires Council to select a preferred option, and the option selected is the one which sees the smallest rise in water charges between now and 2034 and ensures Council does not breach its legal debt limit.

The Local Water Done Well reforms are designed to bridge the infrastructure gap which has emerged in New Zealand after decades of underinvestment in water services.

Council would remain sole, or equal shareholding partner, in either form of CCO which is proposed.

The investment in water infrastructure Council has made since 2020 was in anticipation of the previous Government’s “Three Waters” reforms but were still required under the Water Services Authority regulations. This would have been transferred to a new entity in 2024, had the reforms not been repealed.

The Local Water Done Well reforms have a financial model designed to bridge the infrastructure gap through increased borrowing capacity of up to 500% of revenue for any CCO. That would include taking on Council’s current water infrastructure debt, along with the assets and responsibility for those assets.

Should a CCO be approved by the Department of Internal Affairs, Council’s overall revenue would drop by around 30% and it would have a smaller assets base.

While the removal of waters related debt would reduce Councils total debt, the loss of 30% of revenue would also reduce Council’s overall debt ceiling as a total figure.

It would remain at 175% of revenue, as it is now, but that revenue would be reduced by 30%, meaning a smaller ability to borrow.

The Governments Local Water Done Well reforms consists of three bills – the Water Services Act Repeal Act 2024, the Water Services (Preliminary Arrangements) Act 2024 and the Local Government (Water Services) Bill, due to be passed by June 2025.

The legislation directs Councils to undertake their own modelling of in-house, and external, delivery of water services and present a Water Services Delivery Plan to the Department of Internal Affairs by September 3 2025.

The DIA will then approve, or decline, these plans – and has the powers to direct Councils how to deliver their water services, which includes amalgamation with other Councils water services.

The reforms also empower by the Commerce Commission and the Water Services Authority, and the Minister for Local Government, to intervene directly in either Council’s internal, or CCO, or joint-CCO water services.

This will occur if they are not raising appropriate revenue through water charges to sustain their infrastructure spend, to meet the requirements of drinking, waste and storm water regulations.

To be blunt, the ability to set water rates will be determined by the infrastructure required to meet regulatory requirements, and not by local politicians responding to ratepayers. This is all spelled out extremely clearly in the Government’s Local Water Done Well legislation.

While Waitaki District Council has invested in its water infrastructure in the past decade, it does not meet all the requirements for Government regulations. There are significant upgrades to water and wastewater treatment plants due soon, either in the current Draft Long Term Plan, or not long past 2034.

The Water Services (Preliminary Arrangements) Act 2024 directed all Councils to present a Water Services Delivery Plan to the Department of Internal Affairs by September 3 2025.

The Government’s water reforms place the burden and cost of modelling and negotiating joint arrangements on Councils themselves.

This means that in 2024, Council approached every other Council in Otago, Southland and South Canterbury regarding a joint-partnership – as it made sense to ensure we explored all potential options, as we were required to. That led to the Otago and Southland modelling in October 2024(PDF, 4MB) .

Each Council has their own decision to make, based on the modelling that they have, about their assets. Many of those who have preferred an ‘In House’ option are still consulting on an external CCO (Council Controlled Company) or join CCO option – as they are required to consult on multiple options.

It’s important to recognise that there is no one-size-fits-all for Councils under these reforms. Invercargill, for example, has 360km of drinking water pipeline, Manawatu has 165km, Gisborne has 250km.

Waitaki has 1,626km, just for drinking water. It also has a wider range of assets than other Councils. That has a big impact on future maintenance, upgrades and renewal costs.

In fact, all Councils who are consulting on multiple options indicate that their Water Services Delivery Plan is not necessarily a fixed choice. There are future options for cooperation, or DIA direction, to work together.

However, Council must consult and make a choice on what their Water Services Delivery Plan includes so it can be submitted to the DIA by 3 September 2025.

Whether In-House Business Unit, Council Owned CCO or Joint CCO water charges will increase under each model over the next nine years. There is no avoiding this. Water charges will increase.

Council’s preferred option is the one which results in the lowest rise in charges by 2033/34.

The Morrison Low report from December 2024 (page 122 onwards), showed the potential impact of in-house, a Waitaki CCO, as well as CCO’s for the Otago-Southland region – including all areas, excluding Invercargill and Queenstown, and excluding urban Councils (like Dunedin).

The joint-CCOs modelled there are not our current preferred option joint-CCO.

Once the Otago-Southland options were no longer viable, our Council cooperated with others to find a partnership that was. This led to the Southern Water Done Well partnership.

The Morrison Low report from March is the fourth version, having been refined through discussions between Councils around things like price harmonization, which would not take place initially – meaning Councils would not subsidise each other.

Waitaki District Council Agenda, 4 April 2025, Page 60

The graph above and the table below outlines the modelled savings of around $100 per year in the 2027/28 first year of operation, rising to around $200 per year by 2033/34. 

Waitaki District Council Agenda, 4 April 2025, Page 61

While there are costs at setting up a Joint-CCO, the modelling shows the result is lower water charges for users when compared to other options.

Keeping waters in-house is not status quo. Council would be required to financially separate out all of its waters operations, administration, and reporting – to meet both Commerce Commission and Water Services Authority transparency and accountability standards. Our water charges, and infrastructure programme, would be subject to the regulation and intervention of these regulatory bodies.

A good example of this is Invercargill, whose Annual Plan Consultation predicts 20.46% increases in water charges this year (or 7% on rates in total). This is because they will have to ringfence all waters charges and fees, as well as transfer $2.3 million of administration costs. They will also have to pay levies to the Commerce Commission and the Water Services Authority. They will also have to increase depreciation funding on assets. Funding will also need to be found to allow for the implementation and audit of this approach.

A new CCO would be placing Council’s existing assets and water team in a new organisation, with its own board of directors and management. This would cost a quarter of the estimated cost of setting up a joint CCO, but with fewer benefits of scale and efficiency and higher water charges.

A joint CCO would have increased power for contracting and purchasing compared to individual Councils. The proposed Southern Waters Done Well CCO would be the largest in the South Island. An independent review of the Morrison Low report by Concept, also publicly available, indicates that Morrison Low’s projected efficiencies are conservative – with greater ones available.

The financial realities of the Governments Water Reform model are that, once implemented, every Council – either In-House, or CCO, or Joint CCO – will be borrowing more over the next decade and increasing water charges to pay for it.

Debt-funding is the clearly stated financial model of borrowing for the Government water reforms, outlined in the legislation. Local control of water assets would be rigidly guided by both the Commerce Commission and the Water Services Regulator, who would have the power to intervene or direct Councils to set water charges.

Waitaki District Council has repeatedly heard the community call for a lowering of the debt it holds.

1. Waitaki District Council has a debt limit of 175% of its revenue.
2. It would be possible for this to expand to 250%, should Council get a credit rating from an authorised agency.
3. Waitaki District Council’s debt should reach $70 million by 30 June 2025. $50 million of that is water debt. $20 million is other projects.
4. Morrison Low’s modelling shows Council breaching its current 175% debt ceiling in 2027/28 with waters in-house, or should it get a credit rating, having over 205% debt to revenue by 2033/34 – and staying at around or over 200% debt to revenue for a decade.
5. This is because infrastructure upgrades, and the funding for that, would be more rigidly regulated by the Commerce Commission and the Water Services Authority
6. Council would also need to increase depreciation funding on its assets.

Waitaki District Council Agenda, 4 April 2025, Page 60 – with 175% debt ceiling added.

Being over our 175% debt limit would be a legislative breach and prompt Government intervention.

Hovering under the 250% limit for an extended period (like the decade modelled in the below graph), due to water infrastructure debt, would severely restrict the ability of Waitaki District Council to deliver anything else.

Waitaki District Council Agenda, 17 December 2024, Page 125

Water would be more scrutinised and regulated than any other part of Council, and other services would need to be drastically reduced to account for water charges increases.

The truth is that water customers are going to have to pay for upgrades and maintenance for water infrastructure. Water charges are already calculated that way, they are charges not rates (except for stormwater, although that will change under all options consulted on.)

The new Government water reforms mean that the Commerce Commission will regulate any Water Services Organisation in the same way it regulates power, gas and airport companies. The new powers granted to the Water Services Authority will ensure they regulate the delivery of infrastructure to meet the standards set by the Water Services Authority.

This means that should elected officials, or a CCO board, decide to delay and defer infrastructure upgrades – both regulators will have the authority to intervene. The Commerce Commission will also be involved in ensuring that water charges are both fair to the consumer, and sufficient to meet the infrastructure requirements.

There will no longer be the option of keeping rates low by deferring and delaying water infrastructure maintenance/upgrades, which is one of the underlying causes of the infrastructure gap and the reasons the last two Governments have implemented reforms.

The status quo does not exist under Local Water Done Well legislation. The new regulators, and the Minister of Local Government, have far larger and stronger intervention powers under these reforms.

Council has the option of In-House, External CCO or Joint CCO. The modelling we have indicates the Joint CCO will deliver lower household water charge rises than any of the other options. There is no option to reduce water charges, they will be increasing.

It is also not up to Council whether the Water Services Delivery plan is approved. That is the Minister of Local Government’s role.

If our plan is not financially sustainable, and does not deliver the infrastructure required, it will be rejected. In that case, the Department of Internal Affairs will likely make the decision about the future of water services in Waitaki and it will be out of our hands.

The preferred option, and the other options, will be presented for consultation with the community on May 9 2025.