The Council for Infrastructure Development and Water New Zealand has released its report assessing the performance of individual drinking water and wastewater operators against criteria set for good practice in the 2011 National Infrastructure Plan (NIP). The assessment centred on a pilot group of nine water and waste operators, which collectively provide water services for half of New Zealand's serviced population.

The report shows that there is a clear correlation between an operator's size and its results, with the larger operators scoring better as increased size enables improved strategic focus, specialisation of technical staff, and purchasing power. However, operators involved in shared service arrangements were also able to achieve some of the benefits of economies of scale.

Notably, none of the operators scored well for funding or regulation. These findings verify the analysis in the NIP that governance and regulation of the sector require attention. Operators are 'takers' rather than imposers of regulation. All the operators currently suffer from a disparate regulatory environment, with regulations spread across a range of central and regional agencies, often with conflicting priorities.

The study also noted that resistance to change on the part of communities was inhibiting many operators from implementing changes to governance arrangements and funding models.

The results of the study reinforce the recommendations from the NIP in respect of the requirements for improved governance, management, and regulation of water infrastructure. These are being pursued through the Fresh Start for Fresh Water and Better Local Government reforms and work programmes.

The study concludes that fundamental change will be required to improve the performance of this sector in the short to medium term. In particular, it outlines the following areas for improvement:

  • Facilitating increased scale and improved strategic focus through amalgamation, integration, shared service arrangements and/or use of single purpose entities;
  • Building community understanding of the potential benefits of adoption of volumetric pricing as an alternative funding mechanism, demand management tool and to improve equity across water users;
  • Developing aligned national, regional and local standards in the provision of water services;
  • Benchmarking and reporting across the industry;
  • Reforming the regulatory environment to remove complexity and provide the means to monitor and enforce service standards and delivery;
  • Developing and adopting best practice in investment appraisal and procurement decision making frameworks, consistent with Treasury's Better Business Case model ; and
  • Implementing risk mitigation strategies to ensure long-term resilience of the water sector.

At a detailed principle level, the study also makes a series of recommendations to improve individual scores, including that operators should:

  • Investment Analysis - actively consider different ownership structures, implement robust demand forces processing, adopt greater consideration of asset lives during AMP appraisal processes, and better understand the value of reduced levels of service;
  • Resilience - implement comprehensive asset assessment in terms of natural hazards and vulnerabilities, undertake more work in the area of network duplication and redundancy, and formalise contingency plans for power outages;
  • Funding Mechanisms - put in place improvement programmes for the implementation of capital works budgets as outlined in annual and long term plans, review and refine the cost and revenue equations for water and wastewater, and consider the wider range of funding tools available, including volumetric metering, where it makes sense to do so;
  • Accountability and Performance - develop a focused set of KPIs to drive performance improvement, undertake robust condition assessments within the context of the asset management plan reviews, consider where appropriate other governance models for the operation of water and wastewater services, and implement a consistent reporting framework that is comparable across operators;
  • Regulation - advocate for rationalisation of the current regulatory regime through existing local government and RMA reform processes; and
  • Coordination - seek further collaboration opportunities with other infrastructure providers.

For more information and a copy of the report, please see: http://waternz.org.nz/projects.html#Pilot