New water plan adds the critical missing piece of the puzzle

Friday, 9 August 2024

One of the water supplies to the greater Wellington region.

Michelle McCormick is Infrastructure New Zealand’s Policy Director

OPINION: The Government’s announcement around new water service delivery models for Local Water Done Well is good news, particularly for ratepayers. It addresses the critical missing piece of the water puzzle; namely how councils and their water service organisations are going to fund the massive, and growing, deficit in Aotearoa’s water infrastructure.

Ratepayers around the country have justifiably been shocked by their first rates bills of the new financial year, with an average household rates rise of around 20%. However, councils have struggled developing long-term plans as water-related costs have sky-rocketed and the previous government’s funding assistance was removed.

Continuing to avoid this investment in our water infrastructure would simply have been irresponsible.

The small township of Tokomaru near Palmerston North has had elevated level of lead found in there water supply. The township has being told not to drink tap water

Councils need to be investing 100% of depreciation at a minimum in their ageing assets. We have only been seeing about three-quarters of this investment happening, which means we are fast going backwards. The potential exists for another catastrophic contamination event, such as that which occurred in Havelock North in 2016, a situation made clear by a recent report from the Office of the Auditor-General.

The status quo, therefore, just wasn’t an option. Both the much-maligned Three Waters and Local Water Done Well reforms recognise the need for change, the shame being that a more bipartisan approach could have saved a lot of time and money.

The Government has made the changes it was elected on, and the swiftness of its reforms must be recognised. It has also found a very neat and practical solution to achieving additional borrowing for water investment while maintaining balance sheet separation.

The ability for new local government-owned water entities to immediately borrow more through the Local Government Funding Agency (LGFA) is an important step. Water pipes and treatment facilities are long-standing community infrastructure assets, and their funding needs to be spread over the long term to ensure all uses help to pay for them and the burden isn’t front-loaded on the current generation of ratepayers.

A shop closed during the deadly gastro outbreak in Havelock North in 2016. The potential exists for another catastrophic contamination event like that one, which means councils must invest in their ageing infrastructure, Michelle McCormick says.

These increased borrowing provisions ultimately allow critical investments to be made that will improve our environment and provide safe and reliable community water services.

The new water service delivery models are a good step in the right direction, but water supply and security will be an ongoing challenge, particularly with changing weather and climactic patterns.

New Zealand is one of the world’s highest per-capita water users, meaning the disconnection between water use and paying for it needs to be addressed. Water conservation and reducing our demand for water services must be part of the mix.

A recent report from the Infrastructure Commission/Te Waihanga on volumetric charging convincingly demonstrates that direct charging for water use is a fairer and more sustainable approach to how we provide ongoing funding and manage demand. It also has the added benefit of enabling quick detection and remedying of leakages and burst pipes.

Water metering is a tried and tested technology, but overall New Zealand is a “reluctant adopter”, Michelle McCormick says.

As consumers, we pay for many other services such as electricity and telecommunications based on our usage and for most of us this directly influences our behaviour. Water metering isn’t new, it is a tried and tested technology that is over 200 years old. It is also used in several regions around New Zealand, but overall, we are a very reluctant adopter.

An Infrastructure New Zealand-led delegation recently visited Denmark where water services are provided by companies owned by the local municipalities and operating under strict economic and environmental regulation. The Danes are also facing incredibly high EU environmental standards for wastewater treatment, which is challenging with ageing infrastructure and a massive pharmaceutical and cosmetics manufacturing sector.

The Danish solution has been to embrace full cost recovery through a principle of polluter pays. A government mandate means that all customers (citizens and public and private enterprises) must have individual drinking water meters on their properties.

This direct water supply charging has been in place since 1993 and has seen a sustained decrease in Denmark’s water consumption as behaviours have changed and citizens and organisations care about water. Danish water companies are also publicly benchmarked against each other and incentivised to improve their performance, with a focus on achieving an annual 2% reduction in operating costs.

Infrastructure New Zealand’s advice to the Government is to build on the foundation laid by the new service delivery models and learn from Denmark by mandating water metering and volumetric charging in upcoming legislation. This will provide a sustainable revenue stream for the ongoing funding of our water assets that is fair and transparent for all water consumers.