We note that, during our consideration of the bill, the Minister of Local Government announced his intention to propose legislative changes to the water services entities model, including a proposal for the model to provide for 10 publicly owned entities instead of four. The Minister also signalled that the entities’ commencement would be staggered, starting from 1 July 2024, and ending no later than 1 July 2026.

It is our understanding that these proposed changes fall outside the scope and content of this bill, as this bill would give the entities their functions and powers required to operate and deliver water services. Amendments to the number of entities, the date of the establishment of those entities, and a range of consequential matters may be dealt with by separate legislation at a later date. Our report therefore does not discuss any potential changes to the reforms related to the Minister’s announcement.

Clause 22 introduces a replacement section 200 of the Act which gives WSEs the power to carry out work on land. We note that the section as introduced refers to carrying out this work “on or under land”. In our opinion, this wording could be interpreted to exclude infrastructure above land, such as on a bridge. Given that the clause is intended to also apply to include all water services infrastructure regardless of its location, we propose amending new section 200 to make it explicit that the provision applies to water infrastructure services “on, over, or under” land.

Before WSEs would be able to carry out infrastructure work under new section 200, new section 201 of the Act would require them to notify the landowner or occupier of its intention to do that work. We consider it inevitable that, between the time a notification was sent to the owner and the work began, WSEs might need to change the date or time at which they entered a property to carry out work.

To avoid WSEs having to restart the notification process, we recommend inserting section 201(1)(b). Our amendment would enable the entity to update the owner or occupier if there were any changes to the specified date and time of the proposed entry following issue of a notice of the WSE’s intention to enter land and carry out work.

The bill would allow for a WSE to apply to the District Court for an order authorising it to work on someone’s land, if the entity had not obtained consent from the owner, or had received consent with unreasonable conditions. New section 204 as introduced sets out the requirements for the court order. To improve this provision’s workability, and its consistency with the Public Works Act 1981, we recommend:

• amending proposed section 204(2)(c) to delete the wording “and determined the route to be preferable”

• amending proposed section 204(3)(c) so it states that any compensation relates to the payment of compensation under the provisions of the Public Works Act 1981

• inserting section 204(4) to require the Court before making an order to have regard to the particulars of any applicable conditions in a resource consent or building consent.

The bill contains special requirements for carrying out work in relation to water services infrastructure when it is on or under Māori land. New section 207 would specifically set out requirements for work on land that has a marae or urupā, or is a Māori reservation.

Submitters noted that there may be no permanent occupier of these arrangements, but the owners might have an interest in knowing that works are being undertaken on their land. We therefore recommend amending section 207(2)(b) to require notice to be provided to any occupier of the land, in addition to the owner.

In the bill, new section 209 of the Act would set out specific requirements for carrying out work on water services infrastructure in relation to Māori land with more than 10 owners.

One submitter maintained that, to carry out work under new section 209, consent should be obtained from the affected landowners. This is because maintenance works can be significant, and because the act of obtaining consent acknowledges the status and importance of Māori land.

We consider it appropriate to require landowners’ consent, and therefore recommend amending proposed section 209 by inserting subsection (2)(aaa) to this effect. Our amendment would provide consistency within the bill in relation to requiring consent to access Māori land to undertake water services work. For example, it would be consistent with the access arrangements in new section 208.

If the entities needed to carry out work on or under land bestowed upon councils or post-settlement governance entities² (PSGEs), they would need to give that council or PSGE notice of their intention under new section 210.

We consider that this provision is unclear about whether a WSE must notify a council and PSGE instead of, or in addition to, the consent requirements in new section 200(2)–(3). We note that it is intended that the latter apply, and therefore recommend amending section 210(4) to clarify that notification requirements in section 210(2) apply, in addition to the consent requirements set out in section 200.

Subpart 3 of new Part 6 of the Act would grant WSEs rights of entry in relation to level crossings,³ so that water services could be built or maintained along, over, across, or under the level crossing. For example, the provision would enable a WSE to build or maintain a stormwater culvert under a rail road crossing. Similar rights of entry are granted to gas and electricity network operators under the Gas Act 1992 and the Electricity Act 1992.

We consider that new section 214 should align with the relevant position of these two Acts, and therefore recommend amending the provision to:

• require a WSE to give at least 15 working days’ notice to the owner or occupier of the level crossing (new section 214(2))

• remove the reference to “with the owner of the level crossing” (new section 214(1)(b))

• remove the reference to “with the owner of the land (new section 214(4)(b)).

We recommend that a new set of provisions be inserted into Part 8 of the Act to strengthen the bill’s provisions on small mixed-use rural water supplies, and to enable better engagement with the communities they would affect. Our recommendation would require WSEs to have a rural supply plan, where a water supply is a “small mixed-use rural water supply” within the meaning of our proposed clause 5. We propose inserting new section 235 to require that the rural supply plan must define the geographic area of the supply, and set out:

• how the WSE will operate the supply with its users, including arrangements where the infrastructure is on land owned by its users

• any details for ongoing maintenance or upgrades of the supply arrangements

• any committee or other arrangements for making decisions about the operation of the supply by the entity and representatives of its users

• the roles and responsibilities under the drinking water safety plan for the supply.

In addition, we propose that the rural supply plan be reviewed at least every 3 years (new section 238), and that the bill require:

• the entity to engage with interested persons before a rural supply plan is made or when it is reviewed (new section 236)

• the chief executive of a WSE to give effect to the plan (new section 237(a))

• the chief executive to have regard to the plan when making or reviewing the WSE’s asset management plan, funding and pricing plan, or infrastructure strategy (new section 237(b)).

We have proposed moving new Part 8 of the bill as introduced to the transitional provisions in new Schedule 6 of the Act, given that those provisions are transitional in nature. We note this for readers of our amendments to assist them in navigating this change. We have also recommended certain amendments to that part, adding new requirements for small mixed-use rural water supply operations. These are covered above under the heading “Strengthening engagement on small mixed-use rural water supplies”, but appear in our revision tracked amendments in new part 8. We record this to avoid confusion for our readers.

In addition to moving Part 8 as introduced to new Schedule 6 of the Act, we also recommend amendments to this part, so that:

• costs of transferring all assets, liabilities, and interests relating to a small mixed-use rural water supply must be shared equally between the alternative operator from the local community and the water services entity (clause 2(2) of new Schedule 6)

• the transfer would be subject to a binding referendum conducted under the Local Electoral Act 2001 (clause 2(1)(d) of new Schedule 6)

• the cost of polling arrangements would be shared equally between the alternative operator from the local community and the water services entities, if the referendum was successful (clause 12 of new Schedule 6).

The bill would insert new Part 9 into the Act, setting out WSEs’ obligations for assessing people’s access to drinking water supply, wastewater, and urban stormwater services. In subpart 1, new section 245 would require that, through assessments, WSE boards know what access each community and population has to water services within its service area.

We consider that the bill should provide communities with equitable access to water services—particularly communities that lack access to water services currently. We therefore recommend amending proposed section 245(2)(i) so that a water services assessment would need to consider communities or populations that might have deficient or no water services. It must also have regard to the entity’s asset management plan and infrastructure strategy to ensure that the assessment is well aligned with the WSE’s long term plans.

We also propose amending new section 245 so that references to drinking water supplies, and wastewater and urban stormwater services, are aligned with the terms defined in the bill, as well as changing “assessments” to “water services assessments”.

We recommend amending proposed section 246 in subpart 1 of new Part 9. Our proposal would require the first water services assessments to be conducted 5 years after the entities’ establishment date (instead of 3 years), so that other activity could be prioritised in the first years following establishment. This would still enable the first assessment to feed into the entities’ second asset management plan.

Proposed new section 248 would require that, before finalising an assessment of water services, the board of a WSE must provide its regional representative group (RRG) with a copy of the water services assessment. The group would then have 30 working days to review and comment on it, before the board finalised the assessment.

We recommend extending the 30 working day review period, instead giving the RRG 2 months to undertake its review. Our proposal aligns with the timeframe that RRGs are given to review and comment on asset management plans, funding and pricing plans, and infrastructure strategies, under Schedule 3 of the Act.

It is our view that the recent extreme weather events have highlighted the importance of adequate maintenance of watercourses that are part of the stormwater network.

The current regulatory regime across most of New Zealand, apart from Auckland, appears to be focused on how changes to stormwater assets may or may not be made, but does not set out clearly the duty of care and maintenance in respect of stormwater assets. Stormwater arrangements are subject to the requirements in the applicable regional and district plans made under the RMA. The making of plans under the RMA is a function of territorial authorities and regional councils as applicable. Practically, the large number of different plans by different authorities that address stormwater, means there is a large range of obligations and standards in place regarding stormwater. Plans may include objectives such as minimising the effect of flooding or erosion. They may also include rules to closely control diversion of water, dams, or earthworks near watercourses. The Local Government Act 2002 requires that local government agencies “continue to provide water services and maintain its capacity to meet its obligations”, but that does not necessarily require specific maintenance or renewal obligations. Different local authorities have implemented those requirements in different ways, many—but not all—of them choosing to be proactive. Auckland is the outlier with no such explicit or inferred obligation, by virtue of its use of a bylaw; that is, it manages stormwater under the Auckland Stormwater Bylaw 2015.

We see the bill as an opportunity to improve the relevant policy settings, and to strike a better balance between the respective maintenance responsibilities of the WSEs and the owners of private land, with the objective of reducing flooding risks through achieving better maintenance of watercourses.

The responsibilities for maintaining watercourses for stormwater purposes is currently regulated by a patchwork of bylaws and approaches by regional councils and territorial local authorities. While there a range of approaches we observe:

• Auckland Council is the only council that requires private landowners to maintain rural watercourses. It is the responsibility of regional councils everywhere else.

• Open watercourses in urban areas are mostly an issue in parts of our cities developed since the 1980s. Prior to that waterways were piped and underground. Almost all of Wellington’s watercourses are piped. Christchurch has 187km of open watercourses.

• Territorial authorities take a range of approaches. For example, Christchurch maintains its urban waterways and does not require private landowners to maintain them. Auckland uses its bylaw to require private landowners to maintain watercourses that run through or next to their land.

We think that the bill is an opportunity to put in place policy settings that would be uniform across the country. We consider that this would calibrate a better balance of responsibilities between the WSEs and private landowners.

Our proposals would not amount to a great deal of change, other than in Auckland where the council has a large network of watercourses, and has used a bylaw to say that private landowners are responsible for maintaining their watercourses. We consider that the latter has created two problems.

First, particularly for urban homeowners, it is impractical and financially prohibitive for them to maintain the streams when large amounts of debris are washed downstream onto their property. As a result, the maintenance simply does not get done, and it is our observation that Auckland very rarely ever uses its compliance powers.

Second, an urban stream can run through dozens of properties. All it takes is one property owner to leave a blockage and entire neighbourhoods can experience catastrophic flooding as a result.

For the above reasons, we are proposing a change to the bill as introduced. This change is to give the WSEs primary responsibility for managing and maintaining watercourses with a stormwater management function that they do not own. We are not, however, proposing to remove the responsibilities of private landowners for issues caused by impairments or alterations without consent that the owner causes to watercourses on the land they own. To achieve this balance, our proposed amendments to the stormwater provisions would do the following:

• Clearly state that WSEs are responsible for managing and maintaining the water services infrastructure in their service area (new section 220(1AAA) and 220(1AAB)).

• Introduce new section 222B to require landowners to notify WSEs before undertaking any work that might affect water services infrastructure. WSEs may then impose reasonable conditions in relation to the work undertaken by a landowner.

• Provide that, where a landowner has interfered with a watercourse without consent or has breached a stormwater network rule, that owner is responsible for either eliminating impairments to the stormwater network on their land in a timely fashion and to an acceptable standard, or meeting the costs of the WSEs doing so (new section 220(3)(a) and (b)).

We consider that clearly demarcating the financial responsibility for maintenance of private landowners would help to incentivise them to act appropriately.

• However, a private landowner would not be responsible for an impairment or alteration of a stormwater network if that impairment or alteration was caused by the act or omission of another person (new section 220(2A)).

We consider it important to provide for situations where a landowner’s failure to properly deal with debris from their property causes a watercourse impairment on another person’s property.

• The WSEs would be empowered under new section 200 to undertake work on private land (following a notice period) to eliminate impairments and remediate unauthorised alterations to the stormwater network.

• Where an owner undertakes remedial work, and if the WSE determined that work had not been completed to the necessary standards or in compliance with the requirement specified in stormwater network rules, the WSE would be required to carry out the remedial work necessary to comply with those standards and requirements itself (new section 220A(1)).

• If a WSE undertakes the remedial action rather than the private land owner, the private land owner would be liable for paying for the work on their property (new section 220A(2)).

We recommend adding new section 220B to capture our intent that sections 220 and 220A will not apply to infrastructure that is: owned and operated by entities other than WSEs; or watercourses that are not recognised as having a stormwater network function.

We are aware that our changes do not specifically address the civil regime regarding stormwater. It may therefore be the case that a landowner would not liable for failure to maintain stormwater infrastructure on their land under the Water Services Entities Act, but would be liable in a civil claim in nuisance. However, this type of anomaly between civil and other regimes is commonplace in our view, and is not problematic as would seldom be used.

We have sought to strike a balance between the responsibility of private landowners and the WSEs in our proposed approach. It is not viable, in our view, to have all responsibility sit with either private landowners, or the WSEs. If only private landowners were responsible, we consider there would remain a significant risk that the improvements to planning, risk management, and the setting of rules would not lead to sufficient maintenance of these key assets. If only the WSEs had responsibility for maintenance of stormwater-related watercourses on private land, private landowners’ incentive to avoid and remediate problems they are responsible for (which may in some cases be quite expensive) would be significantly undercut. In addition, having sole responsibility would be a significant operational challenge for WSEs.

Even with the balance of responsibilities proposed, our amendments would be a significant addition to WSEs’ operational responsibilities. In practical terms, this is principally about addressing the maintenance of stormwater infrastructure in Auckland, which has been the outlier.

We think that the WSEs should support, enable, and be responsive to planning processes and growth, the construction of additional housing, and urban development in their areas. We consider that, in the past, existing water service providers have not always been responsive to requests from developers in a manner that would support these aims. At the same time, we acknowledge that WSEs would need to pursue these objectives in a way that is consistent with their role as water service providers, and with relevant local authority plans.

We consider that the way to balance these objectives and obligations is to require each entity to create a development code. The codes would likely need to be authored in conjunction with technical experts on relevant matters, due to the unique circumstances of each entity. For this reason, we think that each WSE should be required to draft its own code.

Nevertheless, we think that the Commerce Commission should be responsible for approving each code, after it has assessed that the code complies with the bill. We think that enforcement of the code should also sit with the Commerce Commission. This would ensure that developers have a way to resolve disputes with WSEs that exceed the minimum value for disputes addressed by the consumer dispute resolution service. (That service is provided for under the Water Services Economic Efficiency and Consumer Protection Bill, which we are considering alongside this bill). This would give developers an alternative to seeking redress through the courts, which can be costly and time-consuming for all parties.

We therefore suggest amendments to these provisions, proposing that new Part 10 of the bill be amended to:

• introduce new section 293A, which would require WSEs to draft and implement a Development Code

• set out the process for formulating and adopting a Development Code (new section 294A–294C)

• require that a Development Code must be drafted consistently with a set of principles, including that WSEs support, enable, and are responsive to planning processes and growth for additional housing and urban development

• require the Development Code to provide for a range of operational considerations, including the form of applications, applicable engineering design standards, and necessary criteria a connection application must satisfy

• require that a Development Code must specify how disputes are to be resolved in relation to infrastructure connections or disconnections, with a requirement for the dispute resolution mechanism to provide for independent, timely, practical, and cost-effective resolution of disputes.

Proposed new section 322 of the Act sets out who would be liable to pay water services charges in respect of Māori land. We note that it is common for the occupier to be the user of water services, as opposed to the owner. However, we consider that the bill as introduced does not provide effectively for these kinds of informal arrangements made between Māori landowners and the occupier of their land.

We recommend inserting new section 322(3A) into the Act. Our amendment would provide that, where Māori land that is owned by multiple people is occupied through an arrangement other than a lease, the occupier is liable to pay water services charges, unless the arrangement specifies otherwise.

If a water services charge is not paid, the bill would allow consequences to be imposed on the person responsible for the payment. New section 325(1) states that, if a debt remains unpaid to a WSE, it “increases at a rate determined by the Commission in the service quality code”. The Water Services Economic Efficiency and Consumer Protection Bill—which we are currently considering alongside this bill—sets out the service quality code referenced in the new section. Clause 70 of that bill outlines the contents of the code.

We consider that proposed new section 325(1) of the Act is inconsistent with clause 70(c) of that bill, as it states that the service quality would need to “specify a penalty rate for unpaid debt owed to regulated water services providers by consumers, or a method of calculating the penalty due, or both”.

To align new section 325 with clause 70(c) of that bill, we propose amending section 325(1) to indicate that the Commerce Commission would be enabled to specify a method of calculating the penalty due on the unpaid debt. To give effect to our recommendation, we also suggest deleting proposed section 325(2) and (6).

We note that our proposed amendment to new section 363 of the bill as introduced (discussed below under the heading “Entities must supply a sufficient quantity of water”) would make it clear that WSEs must supply a sufficient quantity of water, even if a person fails to pay fees or charges under the Act.

New section 330 of the bill as introduced provides a framework for setting water services charges. It would lay out what the board of a WSE could set charges for, and would set the requirements for how charges are to be set, paid, or collected.

We consider that some form of consultation should be required when setting water services charges. We note that section 155 of the Water Services Entities Act requires that an entity must have a funding and pricing plan (FPP), outlining its intended approach to pricing its services and charging customers. The FPP would then be given to the regional representative group, which would publish a report on how the plan considered consumer feedback and incorporated it into the plan.

We recommend inserting subsection (3) into new section 330 so that charges set out under the section must be consistent with the FPP.

Proposed new section 331 of the Act would require the board of a WSE to consider a set of principles outlined in the bill when setting charges for water services. The principles are intended to be non-exhaustive, and other factors could be taken into account, such as an entity’s broader operating principles (outlined in section 14 of the Water Services Entities Act). To make clear that the factors listed under proposed section 331(1) are not exhaustive, we recommend inserting section (1A) to the provision.

We recommend amending new section 331 by inserting subsection (4A). Our amendment would confirm that the charging principles would not limit the powers in new section 334, in turn enabling WSEs to charge geographically averaged prices for water services (adjusting charges based on where consumers live, so that costs are averaged out). We discuss new section 334, and our suggested amendments, later in this report.

To remove potential uncertainty about when new section 331 would expire, we recommend deleting “or later date” from section 331(5)(b).

The board of a WSE would be required to review and publish the charges that apply to its annual billing period, under proposed new section 332 of the Act.

We understand that it is intended under the bill that the WSEs be required to set out those charges in an annual tariff list. We recommend reflecting this position explicitly in the bill, amending new section 332 so that:

• the heading states “Obligation to publish tariff lists”

• the board would be obliged to publish a tariff list, and to update it if the board made any changes to it (new section 332(1))

• it includes a definition of “tariff list”, referring to water services charges set under new section 330.

The bill would insert new section 333 into the Act, allowing the chief executive of a water services entity to discount charges for water services. We would like to see more transparency and consistency provided for in the bill regarding the chief executive’s considerations when deciding on discounts.

To achieve this, we recommend inserting new section 332A and amending new section 333(2). Our recommendations would require the board of a WSE to create and publish a policy on discounting, so that decisions a chief executive makes about discount charges align with that policy.

A key purpose in reforming New Zealand’s water services is to address affordability issues relating to water services provision, particularly for some of the country’s smaller communities. New section 334 would enable WSE boards to charge geographically averaged prices for water services, so that efficiency gains can be realised by sharing costs across communities. Geographic averaging under the bill could occur at different scales for different types of services and different classes of communities; that is, it need not be applied universally across New Zealand.

To improve transparency in the provision’s application, we recommend amending proposed section 334 so that the pricing method must be included in the funding and pricing plan, under sections 154–156 of the Water Services Entities Act. In addition, we recommend inserting section 334(2A)(b) so that the Commerce Commission could not override geographic price averaging decisions by the water services entity. Geographic averaging decisions would remain subject to judicial review proceedings.

Clause 22 would insert new sections 336–337 in the Act to set transitional arrangements for collecting water services charges while the provision of water services transferred from territorial authorities to WSEs. As introduced, it would provide that a WSE chief executive could authorise the local authority or authorities in its service area to collect charges on behalf of the entity. This would enable some local authorities to use existing systems and processes to collect charges on behalf of entities, giving flexibility and reducing risk when delivering water services from “day 1”. Under new section 337, the arrangement would expire on 30 June 2029 (if it was still in use by that date), unless the parties involved agreed to extend it.

We consider that the expiry date in new section 337 should be shortened, instead expiring on 30 June 2027 (new clause 65B(2) in Schedule 1). We think this would be enough time for WSEs to set up their billing systems. It would not prevent them from negotiating directly with local authorities after that date if needed—although local authorities would not be obliged to provide the billing service.

Similarly, we propose bringing forward the date in new section 338(3) as introduced. Our recommendation would mean that local authorities would only be compelled to collect charges until 1 July 2027, not 1 July 2029 (new clause 65C(3) of Schedule 1).

Lastly, the proposed provisions on pass-through billing are all transitional arrangements, helping to transition water services from being provided by territorial authorities to being provided instead by the entities. We therefore recommend moving new sections 336–338 of the Act to Schedule 1 of the bill, becoming new clauses 65A–65C of that schedule, where other transitional arrangements are placed.

New section 340 sets out requirements that would be placed on WSEs when they charge for stormwater services. We consider that changes are needed to make clear which property owners would be liable for stormwater charges.

We consider that, as introduced, the bill provides insufficient guidance to WSEs for using “geographical zones” as a basis for stormwater pricing. Currently that term is undefined in the bill, but we think it should be. We also consider that stormwater management plans should be required to show geographical zones and identify properties that benefit from stormwater services although they are not directly connected to them. For example, geographical zones could identify properties upstream from a stormwater service that benefit from the service in times of heavy rain. Properties that receive no benefit should not be included in a geographical zone. We consider that entities should have to take account of these geographical zones when setting stormwater charges as part of a funding and pricing plan. To give effect to these considerations, we recommend:

• amending the date in new section 340(4)(b) so that new section 340 applied from 1 July 2024 (or after the Commerce Commission had put in place relevant input methodologies, if earlier)

• amending new section 340(2)(b)(ii) so that the provision refers to the geographical zone specified in WSEs’ stormwater management plans under new section 256(1)(b)

• including in proposed section 252C reference to the funding and pricing plan, requiring WSEs to take their stormwater management plan (which would include geographical zones) into account when making or reviewing funding and pricing plans

• amending proposed section 256(1) by adding new paragraph (b) to specify that stormwater management plans must include geographical zones, indicating the properties that benefit from water services entities’ stormwater services.

In the bill as introduced, new section 348 of the Act would exempt the Crown from paying water infrastructure contributions, in the same manner as the Crown is exempt currently from development contributions under the Local Government Act. We note that Kāinga Ora is liable to pay development contributions under the Local Government Act. Therefore, we consider that the agency should also be liable for water infrastructure contributions, and recommend making this explicit through proposed section 348(2).

Proposed new section 350(2) states that nothing in that section would affect Kāinga Ora’s ability to use development contributions for the development of water services infrastructure, under the Urban Development Act 2020. We do not consider this provision necessary, given that we are recommending consequential amendments to the Urban Development Act. Territorial authorities would no longer be able to use development contributions for water supply, wastewater, and urban stormwater services. This would make the exclusion of Kāinga Ora redundant, so we recommend deleting proposed section 350(2).

Water services entities would have requirements about when they could invoice for water infrastructure contribution charges (new section 349). Several submitters told us about their concerns in relation to this provision, including that they felt it does not clearly outline the procedure for charging water infrastructure contribution charges.

We propose various amendments to make the application of new section 349 clear, and to improve its workability. Our recommendations would amend relevant provisions, modelled on the development contributions regime under the Local Government Act. Our notable recommendations in relation to this section include, but are not limited to:

• empowering the entities to refuse a property’s connection to water services if the owner had not paid their water infrastructure contribution, or had not agreed to an instalment plan (new section 349(2A))

• clarifying under new section 349(1B) that an entity could only require the water infrastructure contribution charge as provided for in a water infrastructure contribution charges policy, adopted under new section 346.

The bill would enable water services entities to appoint compliance officers whose purpose would be to carry out activities such as investigating serious risks to water services. Under proposed new section 360 of the Water Services Entities Act, a compliance officer would be subject to directions by the Director of Compliance and Enforcement, but not to the directions of the board or chief executive of a WSE.

We consider that it would be inappropriate for the board or chief executive of a WSE to direct compliance officers in relation to the officers carrying out their functions and duties. Therefore, we recommend explicitly prohibiting this by inserting new section 360(4).

Through new section 363 of the Act, the bill would grant WSEs the power to restrict water supply to land, a building, or a person, if a compliance officer deemed it necessary under section 362 of the Act. Several submitters raised various concerns about this power, including that the entities should not be able to disconnect people’s drinking water in the event that a household does not pay charges set by an entity.

We note that, under section 25 of the Water Services Act 2021, drinking water suppliers are required to provide a “sufficient quantity of drinking water” to every point of water supply. The supply may be restricted or interrupted, but notice provisions apply when doing so under that Act. Section 25 also states that a supplier may restrict water supply for unpaid accounts, but it must continue to provide a sufficient quality of water.

To address some of our submitters’ concerns, we recommend inserting new section 363(2) to clarify the relationship of the provision with section 25(1) of the Water Services Act. We also recommend inserting new section 25(9) into that Act, through clause 188 of the bill, to avoid doubt that a compliance officer has the power to restrict water supply to land or a building under the Water Services Entities Act 2022.

Under the bill’s clause 22, new subpart 4 of Part 12 would cover offences relating to matters like water supply and wastewater networks. Whilst we consider the provisions in that part appropriate, we recommend the following amendments to improve the bill.

For the offences set out in new sections 391, 393, 396, and 402 of that subpart, we propose changing the word “knowingly” to “intentionally”. The mental element of these sections (a person knowing what they are doing or have done) is intended to apply to both the person’s conduct and the risk it creates. However, by using the word “knowing”, a person could avoid being charged under those sections if they committed an act but were unaware of the risk associated with it. We therefore consider that the word “intentionally” would more clearly assert that a person has committed an offence if they are aware of the act and its risks.

New sections 391AAA, 409–411, and 414 would insert further criminal offences into the Act. We want to avoid criminalising relatively minor consumer behaviours under the bill. We therefore propose amending these new sections so that an offence is committed if someone has knowingly failed to comply with the relevant duty, as well as knowing that non-compliance with the duty causes a “specified serious risk”. We think this would ensure that offences only relate to significant conduct, and we note that low-level actions could still be addressed by infringement fines or civil compliance powers elsewhere in the bill.

We also recommend amending the wording of the above new sections to better set out what behavioural elements would be considered as constituting an offence.

Lastly, we recommend amending proposed section 408(1)(b). Our recommendation would make it an offence to breach a prohibition, restriction, or requirement of a permit issued under proposed section 232A.

We note that, in proposed new Part 12 of the Water Services Entities Act, subparts 5–7 and 10 variously refer to the “Director of Compliance and Enforcement”, as well as the “chief executive of a water services entity”. For example, proposed new section 429 refers to the director in that section’s heading, but refers to the chief executive in the subsections of the provision. To correct these errors, we recommend amending subparts 5–7 and 10 of Part 12 so that references to the “chief executive” are replaced with the “Director of Compliance and Enforcement”.

Proposed new section 436 sets out offences that would apply in prosecutions for strict liability offences under specified sections of the Act. We note that some of the offences listed in the table in subsection (1) include a mental element and cannot be described as strict liability offences. We therefore recommend amending proposed section 436(1) to delete some of the sections specified in that table.

We also recommend amending proposed section 436(3)(a) so that it relates to an action or event that was necessary for the purposes of preventing, avoiding, or mitigating a specified serious risk.

The bill as introduced empowers the Court to make restriction and prohibition orders, which apply to people in relation to the delivery of water services, under proposed new section 445 of the Act. We consider that the section should refer to an offender rather than a person. This would enable a greater range of sentencing options, extending beyond a fine or custodial sentence.

The Water Services Act also provides for these orders, so referring to an “offender” in the bill, and enabling more sentencing options, could be useful in circumstances where a person is engaging in repeat offending (for example, poisoning a watercourse or dumping waste in it). We therefore recommend amending proposed section 445 of the Act to this effect.

Proposed subpart 11 of new Part 12 of the Water Services Entities Act would provide for internal reviews and appeals in respect of specific decisions made under the Act. New section 446, in that new subpart, would enable those decisions to be reviewed and subject to:

• directions issued by a WSE’s compliance officer

• decisions relating to a permit for a controlled catchment area

• decisions relating to a trade waste permit

We consider that the reference to “a permit for a controlled catchment area” is unclear. The empowering section for a controlled drinking water catchment management plan refers to permits (new Part 7 of the Act). However, there is no empowering provision to enable a WSE to issue a permit relating to activities in a controlled drinking water catchment.

We therefore recommend amending new Part 7 to enable a WSE’s chief executive to issue permits relating to activities that may be undertaken in a controlled drinking water catchment, including any conditions on activities or related requirements.

Clause 22 in new Part 13 sets out miscellaneous provisions. Most notably, new section 461 would insert engagement requirements into the Act, outlining how engagement should occur in relation to a number of specific functions and powers. We consider that the requirements need amending, as they are inconsistent with the operating principles in section 14 of the Act. We recommend that the bill require that engagement under the statutory instruments listed in new section 461 must include:

• adequate and appropriate notice of the content of the proposed instrument, and a reasonable opportunity for people to make submissions on it (new section 461(6)(a)–(b))

• appropriate consideration of any submissions received (new section 461(6)(c))

• a provision stating that engagement is not required where an instrument needs to be amended urgently, and not where dealing with minor or technical changes (new section 461(7))

Our proposed amendments would be similar to other legislation, such as section 53 of the Water Services Act.

We note that all persons performing or exercising duties, functions, or powers under the Act are required to give effect to the principles of te Tiriti o Waitangi/the Treaty of Waitangi and to Te Mana o te Wai, to the extent that the latter is relevant to the context. The bill as introduced would also make partnering and engaging with mana whenua one of a WSE’s functions (new section 13 in clause 7 of the bill as introduced).

In submissions, some iwi expressed a need for the bill to better reflect the relationships between water services legislation and water bodies. Although we recommend inserting clause 77A into Schedule 1 (which covers transitional provisions and is discussed later in this report) as a commitment to amend other Acts that may be affected by the bill, a few iwi specifically recommended amendments to the Acts that are relevant to them. We therefore recommend amending:

• Schedule 2 of Te Awa Tupua (Whanganui Claims Settlement) Act 2017, requiring persons exercising or performing functions, duties, and powers under Taumata Arowai—the Water Services Regulator Act 2020, the Water Services Act 2021, and the Water Services Entities Act 2022 to recognise and provide for the Whanganui River’s status as Te Awa Tupua (Part 2, new subpart 24B, clauses 163C and 163D)

• the Waikato-Tainui Raupatu Claims (Waikato River) Settlement Act 2010, requiring a person performing functions or powers under Taumata Arowai—the Water Services Regulator Act 2020, the Water Services Act 2021, and the Water Services Entities Act 2022 to have regard to the vision and strategy under that settlement legislation (Part 2, new subpart 27A, clauses 184A and 184B)

• section 18 of the Ngati Tuwharetoa, Raukawa, and Te Arawa River Iwi Waikato River Act 2010, in the same way as above (Part 2, new subpart 16A, clauses 138A and 138B).

We wish to note that the Department of Internal Affairs (which we appointed to advise us on the bill) engaged directly with the relevant iwi on these amendments. We understand that, for each Act, the department engaged with multiple iwi, and worked to ensure consensus.

We note that a number of councils are concerned that WSEs would not be liable for rates under the bill as introduced. We understand it was intended that land transferred to the entities would be rateable, and WSEs will be liable to pay those rates. To reflect this intention, we recommend deleting clause 137 of the bill, which would have amended Schedule 1 of the Local Government (Rating) Act 2002.

We note that New Zealand has several local Acts relating to the delivery of water services that are no longer fit for purpose or necessary, and therefore should be repealed. Clause 203 of the bill as introduced would repeal two local Acts, but we note that there are more which should be added to the list. We recommend amending clause 203 to add a further 15 Acts to the list of local Acts that would be repealed by the bill.

We also recommend inserting a new clause into the bill to provide that, where any conflict arises between a local Act and the Water Services Entities Act, the latter Act prevails. We consider that this would avoid ambiguity between the legislation and local Acts—particularly given that many local Acts are no longer fit for purpose.

The Department of Internal Affairs has advised us that it has consulted with the relevant territorial authorities and confirmed these Acts are appropriate for repeal.

As introduced, clause 40 of Schedule 1 would require an establishment chief executive of a WSE to submit a draft allocation schedule to the Minister of Local Government for approval.

We note that some submitters were concerned that the Minister would be granted too much power, as the Minister could amend an allocation schedule at the final approval stage, and councils would have no right to respond. Given the significant nature of councils’ interests in the restructuring arrangements, we consider that they should have an opportunity to comment on any changes to the allocation schedule, other than minor or technical changes.

We therefore recommend that the Minister be required to inform affected councils in writing of any decision to amend the allocation schedule, provide reasons for any changes, and give those councils a reasonable opportunity to comment on the amendments. Our recommendations would be inserted into the bill under Schedule 1, clause 40(3).

Under the bill as introduced, all local government organisations’ service delivery and infrastructure arrangements relating to drinking water and wastewater would transfer to WSEs. This would include the services and assets held by, or managed on behalf of, territorial authorities, such as through council-controlled organisations (CCOs).

Submitters raised concerns about this, given that many CCOs are “mixed-purpose” organisations.⁵ We agree. We also acknowledge that, for mixed-purpose CCOs, the transfer process in the bill as introduced would likely be disruptive, create uncertainty, and would have unintended financial and commercial implications.

We recommend amending Schedule 1 by inserting clause 40A to state that, for CCOs and subsidiaries, the transfer arrangements in clauses 42 to 47 would only apply to CCOs whose predominant purpose is to provide services to territorial authorities to support their delivery of water services.

To determine a CCO’s predominant purpose, we recommend inserting new clause 40A(5). Our recommendation would mean that, if 85% or more of a CCO’s revenue comes from the sale of water-related services to customers of territorial authorities, then the transfer provisions would apply. We consider that requiring the threshold to sit at 85% would make it clear that, at that point, a CCO’s purpose is largely about providing water services. Under our recommendation, this test would apply to clauses 5, 22–29, 30–33, and 42–47 in Schedule 1 of the Water Services Entities Act.

However, we note that the above recommendation would capture Citycare, as its predominant purpose is to support local authorities throughout New Zealand in operating water services. This would mean that Citycare’s staff and assets would transfer to WSEs. We received a letter from the Minister of Local Government during our consideration of bill, in which the Minister asked us to consider this issue. We consider that transferring Citycare’s staff and assets to WSEs would result in unacceptable risks to water services continuity across the country. We therefore recommend that new clause 40A make explicit that the provisions listed in new clause 40A(1)(a)–(e) do not apply to Citycare.

We also note that, while efforts have been made to identify all CCOs in our consideration of the bill, it may be possible that some were not captured. We therefore consider that the bill should provide some flexibility for the Minister of Local Government to specify what CCOs are excluded from the application of the specified provisions (new clause 40A(2)).

The Water Services Entities Act currently provides high-level protections to support the integrity, intent, and effect of settlement legislation relating to te Tiriti o Waitangi–Treaty of Waitangi. In Schedule 1 of the bill, clauses 77 and 78 set out obligations under the bill for Treaty settlement. Some iwi that submitted on the bill, including the Freshwater Iwi Leaders Advisory Group, wanted greater certainty that their settlement legislation would be upheld as a result of the water services reform.

In light of this, we recommend aligning the bill’s approach to Treaty settlement legislation with the proposed protections in the Natural and Built Environment Bill. We consider that this would protect the relationship between Crown and Māori, and would provide confidence to post-settlement governance entities⁶ (PSGEs) that the Crown intends to act in good faith and introduce legislation as soon as it can to uphold Treaty settlements. We also consider that it would provide confidence to both parties about the steps that need to be taken, lowering the risk of legal challenges to the process.

We understand that advisers from the Department of Internal Affairs engaged with other departments, including Te Arawhiti, and that these provisions reflect a consistent Crown position for Treaty settlements that is also incorporated in the Natural and Built Environment Bill and the Spatial Planning Bill.

We are aware of ongoing discussions between the Crown and iwi relating to any changes required to Treaty settlements, surrounding agreements, and arrangements to ensure they are upheld in light of water services reform. We are supportive of these discussions and recognise that the amendments we are recommending can be considered as a “holding pattern” while the Crown and iwi discuss the changes required to their Treaty settlements and surrounding agreements in greater depth to ensure they are upheld in light of water services reform.

We recommend inserting clause 77A and replacing clause 78 in Schedule 1, so that the bill has procedural protections relating to Treaty settlement legislation, preserving the integrity, intent, and effect of Treaty settlements. Departmental advisers engaged with Te Arawhiti on the proposed approach, consulted the Freshwater Iwi Leaders Advisory Group on the proposed drafting, and advised that the amendments are acceptable to each.

New clause 77A would be based on the approach in clause 4, Schedule 2 of the Natural and Built Environment Bill. Our proposed amendment incorporates feedback from the Freshwater Iwi Leaders Advisory Group. The group proposed that the bill make clear the obligation on the Crown if there is a need to amend legislation to give effect to an agreement relating to Treaty settlement obligations in the context of the water services reforms. The Department of Internal Affairs advised that the obligation on the Crown should be to take necessary steps to introduce a bill to the House that amends the post-settlement governance entity’s Treaty settlement Act or any other Act. These italicised words that came from the iwi group are to make clear that new clause 77A(4) does not intend that only Treaty settlement Acts may need to be amended in future in order to uphold Treaty settlement obligations—water services Acts may need amending, too.

We also recommend that the bill be amended so that, by the establishment date, or as soon as practicable after it, the establishment chief executive must:

• identify the agreements, arrangements, and understandings between local authorities and mana whenua relating to water services that would not be subject to the process in clause 77A (new clause 78(2) of Schedule 1)

• work together with these parties to prepare the assumption by the WSE of any responsibility set out in the agreements, arrangements, and understandings under 78(1) (new clause 78(2) of Schedule 1).

In Schedule 2 of the bill as introduced, which would replace Schedule 5 of the Water Services Entities Act, WSEs would be enabled to establish, own, or operate subsidiaries. To influence or limit subsidiaries’ activities, the bill provides for public accountability mechanisms. They include requiring a statement of intent and performance reporting, as well as imposing specific obligations on them.

Several submitters expressed concern about the enablement of subsidiaries in the bill. Some questioned the purpose of subsidiaries, their accountability and oversight arrangements, and whether they are even needed. Although we do not consider that subsidiaries would reduce the entities’ public accountability, we propose amendments to new Schedule 5 to help to remove doubt about the protection of public accountability in the event that WSEs establish subsidiaries.

We recommend amending clause 20 to require subsidiaries to provide any information required by a WSE that would enable entities to prepare their planning and performance obligations, and to meet any information requests made by Taumata Arowai. We also recommend amendments to ensure that subsidiaries would be required to have annual reports.

In addition, we recommend extending the engagement requirements to apply to subsidiaries in clause 8 of Schedule 2. This would mean that, if a subsidiary was performing a function of a WSE that required engagement (set out in new sections 461 and 462 of the Act), the subsidiary would be required to comply with any engagement requirements of the parent WSE. We believe this would promote stronger transparency and accountability at the community level, and therefore recommend amending clause 8 of Schedule 2 to this effect.