Economic regulation and consumer protection regime for three waters services

About the three waters reform

The Three Waters Reforms will shift water service delivery from 67 local authorities to 4 new publicly owned water service entities.

The Government is committed to significantly improving the safety, quality, resilience, and performance of 3 waters services (drinking water, wastewater, and stormwater). The Three Waters Reforms aim to ensure that three waters infrastructure and services are planned, maintained, and delivered so that these critical services are fit for purpose.

Economic regulation and consumer protection regime

The reform process revealed a range of problems that relate to the natural monopoly characteristics of the three waters sector. This includes quality of service that does not reflect consumer demands, and systemic long-term underinvestment.

Following public consultation in 2021, the Government has now agreed to implement an economic regulation and consumer protection regime for the reformed three waters sector, and for the Commerce Commission to oversee it. Economic regulation safeguards will focus on protecting consumers from problems that can occur when businesses have a lot of market power. For example, it will aim to drive efficient expenditure and pricing practices and provide greater transparency about the performance of the new water services entities.

The economic regulation safeguards will require the water service entities to disclose certain information, directly govern service quality and set a strong efficiency challenge. From 2030, the Commerce Commission will also have the power to impose a revenue cap, allowing it to drive efficient expenditure and smooth price shocks over time.

Consumer protection safeguards will give consumers a strong voice on how water services are delivered and make water services entities accountable for delivering on community expectations, including meeting minimum service levels.

The Commerce Commission has been chosen to oversee this new economic regulation and consumer protection regime because it has a strong track record of implementing similar regimes in other utility sectors. The role of Water Services Commissioner will be incorporated into the Commission’s governance structure to reflect the unique nature of the water sector and the importance of Te Mana o te Wai. This will also provide the water industry with a figurehead to look to as it navigates this significant reform.  

The Government has also decided that the scope of the Consumer Advocacy Council will be broadened so that it can advocate on behalf of water consumers, and a consumer disputes resolution scheme will be established to resolve disputes between consumers and water suppliers. This regulatory regime will complement the wider Three Waters Reform by promoting consumer interests and ensuring the new system is efficient, effective and responsive.

Water Services Economic Efficiency and Consumer Protection Bill

The Water Services Economic Efficiency and Consumer Protection Bill will implement Cabinet’s agreement to establish an economic regulation and consumer protection regime as part of the Three Waters Reform.

Key elements of the Bill are that:

• The Commerce Commission (the Commission) will be the agency responsible for implementing and enforcing the new regime.
• The position of Water Services Commissioner will be established on the Commission’s board to reflect the unique nature of the water sector and the importance of Te Mana o te Wai.
• The entities will be subject to economic regulation from 1 July 2027, with the necessary flexibility to adapt this regulation for different entities and services, such as stormwater.
• There is a presumption that information disclosure and quality-only regulation will apply to the entities from the first regulatory period (1 July 2027). However, there is flexibility for information disclosure regulation to apply earlier.
• There is a presumption that price-quality regulation will apply to the entities from the second regulatory period (1 July 2030). However, there is flexibility for price-quality regulation to apply in the first regulatory period in respect of one provider, namely Northern Water Services Entity, the entity that will serve the Auckland and Northland areas.
• The Commission will be required to set and enforce a service quality code, to improve the quality of water services to reflect the demands of consumers.
• A comprehensive, independent consumer dispute resolution scheme will be established for the three waters sector and will be subject to regular reviews by the Commission. This will replace the existing dispute resolution scheme in the Water Services Act, which was limited to drinking water providers.

The Bill also provides that:

• the regime will be funded via levies on regulated suppliers on behalf of consumers, and
• a range of remedies and enforcement mechanisms are available for breaches of regulatory obligations, including pecuniary penalties, enforceable undertakings, injunctions, fines, and compensation.

Cabinet decisions and related papers

The Government’s decisions on three waters regulation are set out in the following documents:

Consultation

In October 2021 MBIE released a discussion document for consultation, seeking feedback on how an economic regulation and consumer protection regime for three waters should be designed. Consultation on the discussion document closed on 20 December 2021, and 53 submissions were received.

Three Waters discussion document and submissions

Further information

In July 2020, the Government launched the Three Waters Reform Programme – a three-year programme to reform local government three waters service delivery arrangements. More information is available on the Department of Internal Affairs website.

About the Reform Programme(external link) — Department of Internal Affairs

Next steps

The Water Services Economic Efficiency and Consumer Protection Bill has been introduced to Parliament. You can follow the Bill, including when submissions are open for the Select Committee process, by visiting the Parliament website here:

Water Services Economic Efficiency and Consumer Protection Bill(external link) — New Zealand Parliament Pāremata Aotearoa