Regulatory pressures and Three Waters Reform

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Summary
Taumata Arowai and compliance with water standards
Economic regulation (subject to further decisions)

Summary

The status quo for water service providers is changing. This Government is progressing reforms to the regulatory environment to ensure all New Zealanders have access to affordable safe drinking water and stormwater and wastewater services that meet today’s public health and environmental expectations.  

Public health, consumer and environmental protection, the enforcement of standards and the requirement to meet appropriate infrastructure investments are critical parts of the overall Three Waters Reform Programme regardless of whether councils continue to participate in the reform programme or not.

These will expose council water suppliers to three main areas of regulatory focus, will significantly raise compliance pressures and likely require substantial additional investments in infrastructure and services. These include:

  • Taumata Arowai ensuring stringent compliance with drinking water safety standards;
  • Taumata Arowai working alongside Regional Council regulators to provide national oversight on the performance of wastewater and stormwater networks;
  • Economic regulation to provide water consumers with assurance of fair and affordable pricing, and ensure transparency, efficiencies and appropriate levels of investment across three waters services. 

Taumata Arowai and compliance with water standards

Taumata Arowai became a Crown entity in March 2021 and takes over from the Ministry of Health as the dedicated new drinking water regulator when the Water Services Bill is enacted (expected later this year). Taumata Arowai will enforce current drinking water standards and, working alongside the Regional Council regulators, provide national oversight of environmental performance of wastewater and stormwater networks. 

The Water Services Bill, which is currently in select committee, will provide Taumata Arowai with a comprehensive set of regulatory tools that will be used to ensure that drinking water safety standards are achieved. 

The drinking water standards remain unchanged. However, in the new regulatory environment, suppliers will be required to meet these standards. At present many do not.  In many cases to comply with these standards may require additional infrastructure investment. Councils will not be able to defer crucial upgrades on the grounds of cost. 

Taumata Arowai will have the power to put in place directions and compliance orders to ensure that unacceptable risks to public health are resolved in a timely way. It will also be enabled to issue Infringement fees and prosecute where reckless or wilful behaviour creates risk to public health. 

These tools will be applied proportionately to the risk, scale and complexity of a supply. Details will be specified by regulations made under the Water Services Bill (when enacted).

Working alongside the Regional Council regulators, Taumata Arowai will also monitor compliance with environmental regulations at a national level and drive greater focus on the performance of wastewater and stormwater networks. “Shining a light’’ on network performance in this way is expected to increase transparency and potentially require substantial additional investment in these networks.

Economic regulation (subject to further decisions)

Economic regulation plays a critical role in protecting and enhancing the long-term interests of consumers and providing high-quality performance information.  Ministers have agreed that the three waters sector will be subject to economic regulation that will ensure there is good service quality for the consumer, the right level of investment, and drive efficiency gains – including a requirement to meet depreciation, protection against inefficiencies and the removal of opportunities for monopoly/excessive pricing. 

Economic regulation will provide greater transparency about the costs and performance of three waters services and infrastructure and strengthen accountability for performance. It is intended that price quality regulation will be introduced to ensure the new entities are operating efficiently, performing effectively, and charging a fair price to consumers.

While final decisions are yet to be taken on economic regulation, due to the need for sector and public consultation, the regime is likely to involve:

  • Individualised price quality paths – plus information disclosure requirements for the proposed new Water Service Entities and a form of information disclosure for Councils that opt out of the proposed Water Service Entities;
  • Minimum service quality standards (in addition to the standards set by Taumata Arowai); and 
  • The appointment of an independent and credible economic regulator (e.g. the Commerce Commission) to administer the regime.

A discussion paper on three waters economic regulation is due to be published later this year. Mechanisms that we anticipate will be considered through the paper include: 

  • the design of an appropriate dispute resolution process;
  • the establishment of a consumer advocacy council (or the extension of an existing body) to provide expert advocacy on behalf of consumers; 
  • options to protect consumers who are vulnerable due to their age, health, disability, or financial position;
  • an ability for a regulator to mandate service quality codes;
  • the process for setting prices, including requirements for pricing transparency. 

Economic regulation falls within the portfolio of the Minister of Commerce and Consumer Affairs. Preparation of advice will be led by the Ministry of Business, Innovation and Employment, in consultation with the Department of Internal Affairs and the Treasury. 

Contact us

If you have any queries, please email: 3waterssteeringgroup@dia.govt.nz or ThreeWaters@dia.govt.nz

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