Take Action to Protect Wellington’s Water

Wellington Should Retain Local Control of Its Three Water Assets

My name’s Tim Brown. In 2022, I was elected to Wellington City Council following a long career in infrastructure ownership and operation. Reflecting my experience, the Mayor asked me to represent the City on the Regional Water Committee which theoretically oversees the management of the region’s 3 Waters assets and activities undertaken by Wellington Water Limited (WWL). Three Waters comprise drinking water, sewerage, and storm water.

It immediately became apparent that WWL was poorly managed and directed and the regional oversight deficient. Subsequently I closely followed first the Labour and then the National-led Government’s plans to reform councils’ 3 Water services. This process is now approaching a critical stage when the Wellington City Mayor and Councillors decide on how to restructure the City’s Three Waters. But before their votes are cast, there is public consultation.

I strongly encourage Wellington residents to make a submission. This is the most long-lasting impactful decision this Mayor and Councillors will make over their three year term.

There are essentially two restructure options on the table. The “preferred” one is for the formation of a regional company involving the assets and operations of five councils. Option Two is for Wellington City to establish its own company.

Based on the evidence now presented, I believe that Option Two, a Wellington City water enterprise, will be significantly better at delivering what the residents of Wellington want and will do so at lower cost. An explanation of that assertion is set out in the following memo.

The Case For Wellington City Control & A Call To Action

You have an opportunity to influence the mayor and councillors by making a submission before the end of 21 April 2025.

The proposed changes will have long-lasting effects on the costs residents face from these services; how and if the needs of Wellingtonians and our environment are prioritised, and how costs are apportioned.

Over the last 5 years water rates have increased by 70% to an average of $2,300 per ratepayer. The “preferred” solution is forecasting that to double over the next decade.

How Council’s 3 Waters Are Financed and Managed Now

Today, WCC owns water, sewerage, and storm water assets. It meets all the associated costs via rates, levies and charges. Most of the operation and maintenance of these assets and services is contracted out to Wellington Water Limited (WWL), a joint venture with five other councils.

WWL has been a consistent failure. Wellington’s network has deteriorated and costs have risen enormously. Yet Council’s "preferred" restructure plan, which entails merging the Three Water assets of five council with WWL, will exacerbate the deficiencies.

AECOM 17 February 2025 report. “WWL unplanned water supply maintenance expenditure per km of pipe increased threefold between 2017 and 2022, with costs increasing by 73% between 2019 and 2022. Inflationary pressures between 2019 and 2022 are expected to have contributed around a third of this increase. The three-year average (2019-2022) expenditure on unplanned water supply maintenance expenditure per km of pipe is nearly three times higher than the peer council average.”

FieldForce4 December 2023 report. “Over the past 3 years the leaks repaired completed have gone down slightly while outstanding leaks have accelerated even after an additional $4.2M has been paid by WCC. At the same time the average cost to repair a leak has doubled over 3 years from $1,500 to $3,000.”

If progressed, the regional entity, Metro 3Waters, will have little accountability to Wellington City’s residents. There is no reason to anticipate that it will become more efficient and there is every reason to anticipate that Wellington City residents will end up paying more.

What’s Wrong With the “Preferred” Metro 3Waters?

A regional water company with no accountability to Wellington residents and with the right to levy users directly is going to be worse than what we have now.

In addition to drinking water and sewerage, Metro 3Waters will take over the City’s storm water assets and activities. Storm water should be retained by Council and funded out of rates not water charges, as occurs in Auckland.

The goals of the water reforms are a cleaner environment and efficient management of the operations with costs borne by users. This will result in some people paying far more than they do now (and some far less). Management of the social consequences are not part of the Metro 3Waters thinking.

Good Governance: What it looks like

Local Water Done Well legislation is intended to ring fence Council’s 3 waters activities. The challenge is to make sure that the new ring-fenced entity has excellent leadership and is accountable to Wellington’s residents and water users.

• Suitably qualified directors have to be appointed and continue to be appointed in years to come.

• The new Water Company (initially its establishment team) must define and publish the skills it needs of its directors.

• Suitable individuals must be offered attractive remuneration and vetted through an independent recruitment process.

• The final decision on appointments would be made by Wellington City Council.

• Wellington City councillors will have the final say. But the selection of eligible directors will not be in the hands of councillors. Decisions will be public and if approved directors do not have the published skills that will be obvious.

• A separate Community Oversight Group must be established. Its 4 to 6 members will be remunerated and chosen to provide both sector expertise and community awareness. This Group will provide community oversight of the operation of the Wellington Water Company. The Community Group’s charter and contract with the Water Company will define its scope of interests and powers. For instance, it could have the right to require the Water Company to publish meaningful performance information. It could have the right to review and input on investment and pricing plans.

No governance structure is perfect, but having the right people around the table and a strong independent local regulator will go a long way to fixing the problems that exist with the current arrangement and with the “preferred” Metro 3Waters plan.

The governance and accountability flaws with Metro 3Waters mean politicization of appointments and lack of accountability to residents and water users. That is intrinsic to multiple council ownership, as clearly evidenced by what we have now.

What Benefits Will Come From A Wellington City Water Company?

• Operational efficiency is the starting point. WWL has cost ratepayers millions by inefficient management. The argument that “bigger is better” is both flawed and contradicted by the evidence.

• Efficient customer management is an operational detail but illustrates the benefits of a savvy as opposed to big enterprise. Metro 3Waters advocates want the company to own and install meters and to build a customer management system. These are precisely the activities that energy distribution companies are now outsourcing. It will be less costly and risky to contract third parties to undertake these tasks on behalf of the water supplier.

• Measures to minimise social harm will be necessary when costs are met by people paying for water rather than via the rates. A cost now carried by a landlord will become the tenant’s. Owners of expensive houses will save money and vice versa. The water company is not going to be equipped to manage these social consequences. Council must take responsibility and this will be almost impossible if it involves Metro 3Waters and multiple councils each coming up with their own policies.

• Water pricing will provide the water company’s income and will encourage consumers to conserve, but it must also be fair, equitable, and give consumers choices. An electricity consumer can significant lower their costs (and sector waste) by having time-of-use meters, roof-top solar generation, and appliances which turn on/off depending on electricity price. All of this can be replicated with water…. If the supplier wants to.

• Ring fencing costs. Each of Wellington, Lower Hutt, Upper Hutt, Porirua cities have their own water liabilities and future costs. Apparently 28% of the water provided to Wellington City is lost through leaks while in the Hutt its between 35% and 41%. Wellington City is currently investing $400 million improving sewerage processing.

At some point capital investment in each cities’ pipes and sewerage treatment will ensure better outcomes for all, but who will pay? Will residents in each city have ring-fenced costs and hence water charges? Or will Wellington residents subsidise the cost of upgrading other city’s more deficient pipes and processing facilities?  Only by having a standalone water entity will Wellington residents have any prospect of benefits-costs being ring fenced.

The Flawed Case For Metro 3Waters

Bigger is better rests on lower operating costs and lower borrowing costs. Neither is supported by the facts.

All the evidence about Wellington Water Limited is that it was, and is, hopelessly inefficient. Since it was established in 2014, Wellington City’s water network has deteriorated and its costs have escalated beyond those of any other Council in New Zealand. Two authoritative reviews of Wellington Water Limited’s activities (by FieldForce4 and AECOM) were damming of its waste.

None of the economic analysis undertaken to support Metro 3Waters produced any empirical evidence that bigger means better. Notably, none of the analysis referenced Watercare (by far New Zealand’s largest water company) to show how size would deliver lower costs, presumably because it doesn’t.

A Few Facts & Figures

Wellington City ratepayers are paying 70% more for water services than they were 5 years ago. Excluding the sludge levy.

• A residential property with a $1,000,000 valuation is now paying $1,752. One with a $2,000,000 valuation is now paying $2,919. The average over all ratepayers is $2,374.

• Wellington City’s water, sewerage, and storm water assets have a replacement value approaching $8 billion.

• In FY2024, WCC spent $126.9 million on operations and $157.4 million on capital improvements and renewals. The budget for FY2025 is 18% higher.

• In FY2024 WCC’s water rates/levies were $159 million. In FY2025 that had risen to $204 million, which is 36% of total rates.

While Bigger does not mean Better, Wellington’s water assets and activities are very substantial and will have sufficient scale to attract and pay talented people as directors and managers.

Keeping Storm Water Within Council Paid-For Through Rates

At an Institute of Directors seminar on 10th March, a panel of experienced water company executives, directors, and advisers were asked “would you leave storm water with councils?” Each unequivocally said they would. When asked to explain they pointed to the complexity of storm water activities and the limited compatibility with drinking water and sewerage.

Storm water is a vastly different challenge from drinking water and sewerage. It involves land use, flood management, and environmental issues that require a different approach. Keeping storm water management within the council allows it to integrate with other essential services like urban planning and climate change adaptation. A regional water company is unlikely to prioritize these complex challenges.

• Storm water includes pipes, flood protection, land use, and the role of green space.

• Increasing “weather events” and sea-level rise means increasing costs for infrastructure and management.

• It is problematic that a commercial water company sourcing income through water charges will prioritise investment in storm water infrastructure.

• Similarly, will a water company ever get around to remedying past environmental challenges?

• Today no one has much idea of the long-term storm water costs and environmental liabilities of Wellington or the other councils in the region. It will be impossible to ring fence those costs as they arise so that only the residents and property owners who benefit have to pay.

Because of its interconnection with land use and many other council activities storm water responsibility and management should stay with Council. A commercial water company is poorly placed to allocate its limited resources to environmental causes. Water users in one area of the region should not have to pick up the tab for storm water and environmental remediation work in another part of the region.

In Wellington, Storm Water is a far smaller spend than drinking water and sewerage, comprising about 12% of the total spend forecast for the next decade.

What Wellington City Should Do

Wellington City Council should corporatise its water and sewerage activities without amalgamating them with those of other councils. Wellington City should retain storm water within Council.

Governance: Accountability, Expertise, Transparency

Wellington Water Limited is a disaster on each and every metric of good governance. Its board is lacking in people with necessary skills. The board is unaccountable to Wellington City Council and residents. It has actively sought to limit public information about its operations. All of which is a reflection of its shareholding by six councils.

Metro 3Waters will perpetuate this. The argument put forward to support more-of-the same is that the Commerce Commission and Taumata Arowai will force the new water enterprise to do the right thing. As Commerce Commission regulation of energy distribution, telecommunications, supermarkets, and airports show, regulation does not compensate for poor governance and does not magically result in good investment decisions, operational efficiency, or fair pricing.