3 WATERS REFORM: AN ALTERNATE APPROACH THAT EVERYONE CAN SUPPORT - Presentation to Working Group on Accountability, Governance & Representation 28 ...
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3 WATERS REFORM: AN ALTERNATE Presentation to Working Group
on Accountability, Governance &
APPROACH THAT EVERYONE CAN SUPPORT Representation
28 January 2022
CONTENTS Introductions Membership of Communities 4 Local Democracy 3 Waters Reform – Conceptual Framework Productivity Commission Community Property Rights Approach to Regulatory Reform Regulatory Backstop Financial Assistance to Communities Critique of Government’s Policy Development Process Analysis of Competing Design Options Summary of Position Concluding Remarks
INTRODUCTIONS Mayor Helen Worboys, Manawatu District Council, Chair Mayor Dan Gordon, Waimakariri District Council, Deputy Chair Jim Harland, Chief Executive, Waimakariri District Council, Chair Road Efficiency Group Andreas Heuser, Director, Castalia, Malcolm Alexander, Project Manager We are aware of your narrow Terms of Reference but nonetheless welcome the opportunity to present our alternative approach to you
COMMUNITIES 4 LOCAL DEMOCRACY: MEMBERSHIP
PURPOSE OF TODAY’S PRESENTATION We share the Government’s policy outcomes for water quality (health and environmental) BUT Policy process has been flawed and the option selection has been poor Scant regard for community property rights Little regard for localised input Effectively expropriation of assets without compensation is being proposed Departure from traditional approaches to utility reform Government cannot prevent a future Parliament allowing for full or partial privatisation and arguably is creating the conditions for that to occur e.g. England & Wales SO We will propose an alternative policy position This will be socialised with all Parliamentary Parties and the Public in due course
CONCEPTUAL FRAMEWORK FOR ANALYSIS Productivity Commission report into Local Government Funding & Financing, Chapter 11 on 3 Waters issues (November 2019) Substantial review of the local government sector with Terms of Reference set by the Crown (under present Minister of Local Government) Eminent body of respected economists, lawyers and regulatory design experts Commission’s approach picked up by many councils in their submissions to Government (C4LD has examined every council submission)
PRODUCTIVITY COMMISSION RECOMMENDATIONS
1. The 3 Waters sector has substantial room for improved performance
2. A key contributing factor to this state of affairs is a poor regulatory framework governing
water quality (health and environmental)
3. The Government should encourage (but not direct) aggregation and improved governance over
3 Waters service delivery
4. The performance of the three-waters sector would substantially improve by using an approach
that:
i. rigorously enforces minimum performance standards
ii. is permissive about the way councils structure and operate their three-waters businesses
5. The Government should consider also having backstop arrangements to deal with councils that
fail to lift performance sufficiently to meet minimum health and environmental performance
standards
6. Financial assistance to communities will likely be needed to assist deprived communities meet
minimum health and environmental standards. The assistance needs to be designed to avoid
rewarding past inaction and instead reward action for sustainably lifting the performance of
water providers to these communitiesCOMMUNITY PROPERTY RIGHTS Councils are legal persons capable of owning and controlling property and own 3 Waters assets on behalf of their respective communities Whilst a “creature of statute” so are e.g. companies and trusts (also legal persons) Expropriation of property rights by Government carries with it a presumption of compensation (see for example: s.11A Compensation or payment relating to requisitions, COVID-19 Public Health Response Act 2020) Government’s proposal removes from current owners the key characteristics of property ownership This issue is under litigation in the High Court (Jack Hodder QC acting for litigating councils)
APPROACH TO REGULATORY REFORM Traditional approach to utility reform is for a government to specify required policy outcomes e.g. efficiency, consumer focus, competitiveness Asset owners obligations are then to manage their affairs (including structure) to ensure policy and regulatory outcomes can be met over time Crown has carried out asset reconfiguration in the past e.g. electricity gentailers, but crucially had ownership rights in those assets Crown has no ownership rights in council 3 Waters assets Government’s approach therefore is at odds with traditional approach to utility reform and with the recommendations of the Productivity Commission
REGULATORY BACKSTOP Communities 4 Local Democracy agree that a step change in 3 Waters performance is required over time But this is best achieved by a fit for purpose regulatory regime that respects community property rights To assist with creating a strong incentive on asset owners to improve outcomes, Communities 4 Local Democracy agree with the Productivity Commission’s recommendation to include in the legislative framework a “regulatory backstop” provision A regulatory backstop provision requires careful design to take account of consenting and construction timeframes BUT it would require certain outcomes to be achieved by a fixed point in the future Failure to achieve the required outcomes would justify further Crown intervention (see for example: former subpart 3 of Part 4A of Gas Act 1992)
FINANCIAL ASSISTANCE TO COMMUNITIES Recommended by Productivity Commission and supported by Communities 4 Local Democracy Two key aspects: Allocation mechanism Funding source Allocation mechanism could be built on principles used to allocate financial assistance (FAR) in transport (not suggesting that this involves Waka Kotahi in any funding allocation role) Allocation decisions should support best practice in service delivery Allocation regime should be supported by a REG/ONRC regime for 3 Waters Funding could be built on a per connection charge across the country (C4LD has had limited time to design more options but consider this an appropriate model with precedent in other regimes) This is a form of cross-subsidisation but it is transparent to consumers and the funding pool is spread nationally rather than regionally as the Government proposes
WATER EFFICIENCY GROUP
An owners organisation with a competency based board, funded by a levy on three water connections
responsible for:
1. Identifying and approving investment criteria and distribution of funding to three water delivery
agencies (identified by the criteria) as having challenges to meet regulatory standards in a suitable
timeframe or other reasons. Criteria could include:
• A high level of deprivation
• A static or declining population / commercial base which impacts on their ability to pay
• Condition of the network the timeframe needed to bring it up to a regulatory standards
• Support for tourism destinations with peak day pressures and a small number of water
connections.
• Would potentially breach borrowing debt limits (LGFA or self improved)
2. Investing in programmes continuous improvement in governance/ management and sector
performance these would include activity asset management standards, meta data, procurement,
training and development, benchmarkingPRESENTATION FROM CASTALIA Andreas Heuser, Director
SUMMARY & CLOSING REMARKS To emphasise again, we share the Government’s policy outcomes for water quality (health and environmental) But we do not agree with the Government’s proposed option and current polling indicates that 50% of the public have a similar view, with a further 25% undecided The Government has failed to bring the community with it primarily because of its focus on a centralised approach - “one size fits none” We believe that the policy process has been flawed and the option selection has been poor Little regard for community property rights Little regard for localised input into investment decision-making Effectively expropriation of assets without compensation is being proposed Prevention of privatisation is better managed locally not nationally Our alternative approach addresses these shortcomings yet will achieve the policy outcomes sought by everyone We commend it to you for serious consideration
www.communities4localdemocracy.co.nz
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