On 3 July 2025 Parliament's Finance and Expenditure Committee (the Committee) delivered its report on the Local Government (Water Services) Bill (the Bill). Passing the Bill is the final step in the implementation of the Government's Local Water Done Well policy.
The Committee has recommended that Parliament pass the Bill, but has made what it describes as "extensive amendments to the Bill: more than 360". Those changes address a range of practical and technical issues that submitters raised during the select committee process. Of particular interest to councils, many of whom will be in the final stages of developing their water service delivery plans (WSDPs) and establishing new governance arrangements, will be the Committee's changes to provisions in the Bill regarding:
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Transfer agreements between councils and water organisations
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The objectives of water service providers
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The financial sustainability of water organisations
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Governance and accountability arrangements, including provisions relating to the establishment of Council-controlled Organisations (CCOs)
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Consultation and decision-making requirements under the Bill and the Local Government (Water Services Preliminary Arrangements) Act 2024 (Preliminary Arrangements Act).
Matters raised by submitters and changes to the Bill
As expected, the Committee received extensive feedback on the Bill from a range of submitters including both councils and industry/representative groups, and has sought to address some of the concerns raised.
In respect of structural, governance, and accountability arrangements for the delivery of water services (which we comment on in more detail in our April update, key changes of interest made to the Bill by the Committee include:
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Clarity of transfer arrangements: The Bill enables councils to transfer responsibility for water services to a water organisation (see for example clause 11). Some submitters considered that the transfer provisions created uncertainty about the extent of a council's responsibilities for water services post-transfer. The Committee agreed that the Bill (in particular clause 8) could be read to mean that the council remained responsible for providing water services to all landowners in its district. The Committee has made changes to clarify that a council can discharge most of its responsibilities for providing water services by entering into a transfer agreement, and to make it clear that no person can require councils or water organisations to provide them with water services. The Committee has also proposed changes to remove what it describes as "gaps" in the process for entering into transfer agreements, and to expand on the required content of transfer agreements.
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Statutory objectives of water services providers: Some submitters considered the Bill put insufficient emphasis on the importance of financial sustainability, housing growth, and urban development. The Committee has amended the Bill to provide that supporting housing growth and urban development (if applicable) are statutory objectives of water service providers. In contrast, the Bill has been amended to remove the statutory objective to provide water services that do not have adverse effects on the environment (see clause 15 for example). The Committee noted that, ultimately, it is the role of the Resource Management Act 1991 to manage the effects of the activities of water services providers, not the Bill.
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Insufficient emphasis on financial sustainability: More generally, some submitters considered that the requirements for financial sustainability did not go far enough. Unlike the Preliminary Arrangements Act, the Bill does not include a definition of financially sustainable. The Bill provides that revenue from delivering water services must be sufficient to sustain long-term investment, but some submitters considered that the Bill needed stronger protections, such as preventing water service providers from paying dividends. The Committee did not agree that dividend payments should be banned, noting it considered that, in time, the payment of dividends would provide incentives for improved efficiency. However, the Committee made some amendments "to support greater transparency and financial discipline", including to require that information about dividends must be transparent to the public and that water organisations must not pay a dividend that would compromise a water organisation's ability to act in accordance with the financial principle that revenue and funding is sufficient to sustain the provider's long-term investment in its water services.
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Governance and accountability arrangements: The CCO model for water organisations in the Bill differs substantially from the existing CCO model under the Local Government Act 2002 that councils will be familiar with. The CCO model for water organisations gives councils more influence over the work and activities of water organisations by providing for councils to issue statements of expectations, and have input into a water organisation's water services strategy. Some submitters raised concerns that water organisation CCOs would be subject to too much control by councils and have insufficient independence. The Committee noted that this was deliberate, and that "…water organisations are not intended to be like other council-controlled organisations." That said, the Committee did recommend some changes to the arrangements that arguably shift the balance somewhat. For example, strategic priorities will instead be set by the board of the water organisation – not the shareholding councils (clause 184).
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CCOs deemed to be water organisations: Clause 8 of Schedule 1 of the Bill will apply to CCOs that are providers of water services immediately before the Bill becomes law, and are intended to continue as water service providers, or were established to be water service providers once the Bill becomes law. Such CCOs will be deemed to be water organisations for six months after the commencement date, but must make changes within that six-month period to continue to be deemed a water organisation. For example, CCOs must appoint a board of directors that meet requirements for boards in clause 40 of the Bill, including having a mix of skills, knowledge and experience in relation to water services, and none of the directors can be excluded from appointment (ie, on the basis of being an elected member, or an employee of one of the relevant councils or shareholders). The Committee has made changes to the Bill to recognise that some CCOs will already meet those requirements, in which case the board can confirm compliance. Councils will then have three years after commencement to enter into transfer agreements with new or existing water organisations.
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Consultation and decision-making requirements: Some submitters commented on the provisions of the Bill that allow councils to make changes to how water services are delivered. The Preliminary Arrangements Act provides that councils are only required to identify and consult on two options for delivery water services; the status quo, or a new water services CCO or joint local government arrangement (section 61). In contrast, the Bill now requires that change proposals consider three options – the status quo, whatever change is proposed, and at least one further reasonably practicable option (clause 26). The Committee has amended the Bill to make it clearer that the requirements for consultation in the Preliminary Arrangements Act no longer apply once a WSDP is submitted (clause 25A).
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Significance and engagement: Submitters also raised concerns that water organisations were subject to less onerous consultation requirements in relation to their water services strategies than councils delivering water services in-house. The Bill previously required that a water service provider adopt a significance and engagement policy, which would apply when the provider is considering entering significant contracts with a person or body to deliver any aspect of water services on a provider's behalf. The Committee has now added clauses 30A to 30F to the Bill, which require water organisations adopt a significance and engagement policy that would be engaged in relation to all significant decisions, including entering into significant contracts, transferring ownership or control of strategic water assets, and making significant changes to service levels. Through its significance and engagement policy, a water organisation can also signal how it will undergo engagement on a draft water services strategy. Councils will need to amend their existing significance and engagement policies to meet the requirements in the Bill, whether continuing to deliver water services in-house, or transferring functions to a separate water organisation (clause 30B). Further changes will be made to the Local Government Act to avoid duplication between a council, and a water organisation's respective policies.
What's next?
We expect that the Government will be looking to progress the Bill through its final stages in the next few months. In the meantime, WSDPs are due on 3 September. Many councils have already completed consultation and made decisions about their intended arrangements for the delivery of water services and will be preparing to submit their plans.
Our team of Local Water Done Well experts would be happy to talk to you about any questions you have on the implementation of Local Water Done Well.
Co-authored by Hugo Schwarz (solicitor).
