Three Waters: Officials warn water bills could increase ‘significantly’ without regulation

Auckland-style water bills are possibly on the way for many New Zealand households, with a bill regulating how and what the Government’s four new massive water entities can charge people and companies introduced to Parliament last week.

The four new three waters entities will be able to directly bill households for their water use, in a way not dissimilar to how Aucklanders currently receive bills from Watercare. Those entities will be able to decide what those charges are and how they are calculated, within limits set out in this bill. Cabinet is likely to decide that existing arrangements for who pays for water services will remain in place: property owners would pay the bill, but landlords can pass on some charges to tenants.

The legislation also allows the entities to bill ratepayers for another service: stormwater, and to set growth charges for expanding their networks.

Officials, in a regulatory impact statement, warned some of these charges may be passed on to tenants in the form of higher rents, and that the rate of underinvestment could see prices rise substantially in the next few years - although the bill contains a provision to limit steep price increases in the first three years of operation.

Officials also warned that in the absence of tough regulation there was a “substantial risk” that “some prices could increase significantly … particularly given the extent of past underinvestment”.

There are fears that the investment required will lump households with massive bills, so officials recommended that in the first three years, those bills be frozen to help households get used to the bills.

“We recommend the legislation include a regulation-making power to freeze tariff structures and limit price increases in the first three years of water services entities’ operations. The economic regulator would need to be consulted on the making of these regulation,” officials said.

Local Government Minister Nanaia Mahuta said the legislation was “an important step in addressing a fundamental cost of living issue that will affect all New Zealanders for decades to come if left unfixed”.

“Independent research shows households are looking at water costs increasing to as much as $9,000 per year and the failure of basic water services if we do not act quickly,” Mahuta said.

The statement hints at a looming conflict between big business and Government.

The legislation will automatically cancel the pricing and charging provisions of contracts currently in place between councils and businesses for commercial use within five years of the new water entities coming into force.

Officials believe these large commercial users have been given cheap access to water at the expense of households. As the water entities look at ways of sending households separate water bills, the Government wants household water users to be insulated from price hikes, at the expense of commercial water users.

Overall, the legislation paves the way for “cost-based pricing” so that the fees households and businesses pay for water services reflects the cost of delivering those services.

“It is particularly important that businesses which use larger quantities of water face cost-based pricing, to incentivise businesses to use water efficiently.

“We are concerned some territorial authorities may have offered large commercial water users “sweetheart deals” with low water prices as a hidden subsidy to locate in their district,” officials warn.

If this issue wasn’t addressed, officials said, “other consumers, particularly household consumers, would bear the impact of those preferential pricing contracts”.

The new water entities will have the ability to set charges by themselves, in line with principles set out in the legislation.

Watercare uses 100 per cent volumetric charging, meaning people are billed for what they use. Officials said the new water entities will likely use a different pricing model which includes a mixture of fixed and volumetric charges. They said these charges were more equitable as poorer, larger households tended to use more water, adding cost.

The assessment warned that using an entirely volume-based pricing system would see charges passed on almost entirely to tenants by landlords, although they warned data on this was poor.

“If a water services provider recovers costs through a very high proportion of variable charges, then almost all those charges will be passed on directly to tenants rather than being paid by landlords,” officials warned.

This means the entities are likely to charge using a mixture of charges, some based on how much water people use, and some not.

The water entities will be required to set out annual charges in a tariff list. The entities will also be allowed to use geographic averaging, meaning that water users in different parts of an entity’s rohe can be charged roughly the same despite the cost of delivering water services being higher for someone rurally compared with someone in a city.

The bill also provides for stormwater charges, which will be billed to ratepayers for the cost of New Zealand’s stormwater systems which are currently managed by councils.

The four new entities will be required to come up with a funding and pricing plan every three years and present these plans to the regional representative group, this is the co-governed group equally representing councils and mana whenua.

It will plan just how much the entity will need to raise from households and businesses to fund water investment.