Local Government (Water Services Preliminary Arrangements) Bill

Members, we start with the Local Government (Water Services Preliminary Arrangements) Bill. When we were last considering the bill, we were debating Part 2. This is the debate on clauses 8 to 46B, “Water services delivery plans and foundational information disclosure requirements”. Once again, the question is that Part 2 stand part.

Thank you, Madam Chair. It’s been 10 or 12 days since we were last looking at this bill, so I just want to remind the Chair and also other members in the Chamber of the process we were working through with respect to Part 2 of the bill.

CHAIRPERSON (Maureen Pugh): I have that information in front of me.

Thank you. Part 2 of the bill, of course, has three subparts, and we’d worked through subpart by subpart. We were just transitioning from Subpart 2 to Subpart 3. We’ve really just begun the debate on Subpart 3, and there are a number of questions that I want to dig into on Subpart 3, some of which, I think, are just around drafting—where I think that some things are a little confusing because of it—and some of which are substantive questions where I’m hoping for some information from the Minister. Looking at Subpart 3, it is about the “information disclosure requirements”. Now, the drafters have the word “Foundational” in there. I can’t quite work out why. I guess they thought it was pretty, but it is just the basic information that needs to be disclosed on requirement.

As I understand it, the way it’s going to work out is that the Commerce Commission is, in effect, going to be the regulator here, and it is going to be regulating water services entities in various ways. This particular part of the bill is setting out the sorts of information that can be required from water services entities, but sitting within that, then, are some rather interesting questions, not just on what sorts of information. By requesting or specifying that sort of information, it betrays something about the nature of the bill overall and the nature of these water services reforms.

I want to draw the committee’s attention to Subpart 3, clause 32, subclause (2)(c)—so clause 32(2)(c). There’s a couple of sets of words in here that I want to sort of dig into. The first one is saying, if we look at that subclause (2)(c), the first thing is that water services entities or providers of water services “are limited in their ability to extract excessive profits.” It’s kind of interesting just in itself, because it implies that water services entities will have a profit motive. Now, that’s quite interesting because, up to now, water services have been provided in this country by local authorities, by regional authorities in some cases—in Auckland, it’s provided by Watercare. We do have some very localised little schemes around the place, which are pretty interesting, but they’re not profit-making entities. This phrase, “ability to extract excessive profits”, is quite a telling phrase, because the implication is that the whole purpose of this scheme, the whole purpose of this legislation, is not just to ensure that New Zealanders have access to good drinking water, that the waste water is appropriately treated, and that stormwater systems are set up so that people aren’t affected by stormwater, but it implies that there is a profit motive. Now, I think the Government needs to justify this quite singular shift.

It’s not just the words “excessive profits”, but it’s that they can extract profits at all. Now, I guess there’d be some reassurance around this if we could be sure that any profits that were generated by a water services entity were going to continue to be held within that particular water services entity and used only for the purpose of ensuring the future of that water services entity and ensuring it would continue to supply the water services that were required. But I think we need some reassurance, perhaps from the officials, that in fact is going to be the case. I’d like to know for sure that a future Government wasn’t going to be able to somehow change these rules around and suddenly start extracting profits from water. After all, if we look overseas to the United Kingdom—[Time expired]

I move, That debate on this question now close.

Thank you. I do want to continue this—it’s actually a very serious point. If we look at what has happened in the United Kingdom with Thames Water, there’s been the most appalling extraction of profits and the most appalling water pollution. That’s happened in part because of the profit motive. So I want some pretty strong reassurance around a profit motive at all and also around the term “excessive profit”.

There’s a set of questions around excessive profit as well. First up, there’s the profit motive, but the second one is: what is meant by excessive profit? Now, that implies that a water services entity may make a “reasonable profit” but not an “excessive profit”. So I want to know who is going to be making that judgment about what is an excessive profit as opposed to a reasonable profit and what that judgment is going to be based on. Is it going to be based on the number of rateable households? Is it going to be based on the number of people using the water supply? Is it a return on investment? Is it some kind of relationship to assets? Is it related to future revenue streams? There’s a whole lot of questions in there as to what a reasonable profit might look like, as opposed to an excessive profit.

We might think those two little words didn’t really mean very much at all, but there’s actually some pretty substantial issues sitting in there and I would appreciate the Minister giving us some reassurance around them.

Thank you, Madam Chair, and I join my colleague the Hon Dr Deborah Russell in seeking some clarity from the Minister on that and on whether there is any thought as to putting within the bill any definition of what “excessive profits” are. But I just want to speak within this Part 2 to Subpart 3 specifically to clauses 32, 39, and 40.

Now, my colleague talked about clause 32(2)(c), but I want to talk about clause 32(2)(a)(i), and that is the incentives that are going to be put in place for various things. One of these is to “innovate and to invest in water services, including in replacement, upgraded, and new assets;”. First of all, I’d like to know from the Minister in the chair what incentives are going to be put in place for the entities in terms of the investment. I’d also like to know more what is meant in clause 32(2)(a)(i) in terms of innovation. What are we talking about here? Are we talking about technological innovation, are we talking about different business models—and this relates very much to the questions that my colleague the Hon Dr Deborah Russell has just been asking in terms of introducing within the same clause the term “extract excessive profits.”

Are we talking about innovation in business models, which leads us on to a question which we really see threaded right through many of the clauses in this bill, and we want some certainty from the Minister in the chair around what protections are in place to stop the privatisation of these assets, to ensure that these do stay public assets and that these are things that will continue to be owned by the people that have built them up over many, many, many generations. So I’d like to know how that incentive, innovation—what they mean and what the Government and the Minister in the chair are envisioning through those things, and maybe have some examples of the kinds of things that we could expect to see.

I do have some very specific questions just on some detail going through. If we go now to clause 39, “Charge for providing copies to public”, it states that “(1) A specified entity that is required, by a determination made under section 35, to provide copies of statements and information to the public on request may charge for providing those copies. (2) The charge must be no more than is reasonably required to recover the costs of providing those copies.”

Now, of course, the Official Information Act (OIA) also intersects here as well, and I want to know if the purpose of this clause 39 is to supersede the Official Information Act and the ability to charge for official information or the Local Government Official Information and Meetings Act (LGOIMA), as may be the case in this, rather than the OIA. How does the Minister see that clause of this bill interacting with either LGOIMA or the OIA legislation, and I ask whether she sees there being any difference in the operation of those.

Then, we go on to clause 40 under Subpart 3 in Part 2, which is the “Additional monitoring and investigation powers based on subpart 8 of Part 4 of Commerce Act 1986”. If we have a look at clause 40(1)(c), there are powers given to “examine, consider, or investigate any activity, cost, revenue, transfer, asset valuation, circumstance, or event that is occurring or that has occurred during the previous 7 years:”, I’d just like to know from the Minister why “7 years” was chosen. Why is seven years the significant period of time we need to have that retrospective power given in terms of those monitoring powers for the Commerce Commission? Why not five years? Why not 10 years? Why is it that “7 years” has been deemed by the Minister, in drafting this legislation, as the optimum period of retrospective ability to go back and have a look?

Now, obviously, as we go through this clause by clause under Subpart 3 within Part 2, there’ll be many more specific questions like that. But just to summarise for the Minister: what is meant by incentives and what is meant by innovation in clause 32(2)(a)? Then there are the business models and how that intersects with the ability with the expectation around profits that my colleague has spoken about, then there is the intersection of clause 39 with the OIA and LGOIMA, and then, in terms of “7 years”, why that number was chosen.

Thank you, Madam Chair. With Part 2, Subpart 3 on foundational information disclosure requirements, there are actually quite a few different elements to this subpart and it’s really important for us to be able to unpack each of the elements here.

I have a number of questions, but in terms of the first question, I’m going to kind of draw on the cost element to this. So, to start with, I am looking at clause 40A “Levy”. Now, this is a new addition to this particular version of the bill we have in front of us. It says that “(1) Every person who provides water services must pay to the Minister”, and to refresh our memory, I think this actually goes back to the comments of one of our Labour colleagues—Rachel Brooking—previously in our last session, around the potential risk of a bottom-up effect when we’re looking at what sort of costs and what sort of charges we are going to be producing and the unintentional consequences around this.

For this particular one, I would really like to get one very specific clarification from the Minister. This is around the concern of what is on page 11 of the commentary on the bill. On page 11, under the section “Commerce Commission may make determination”, it says, “We recommend inserting clause 40A into the bill, a levy-making power to recover the costs of the Commerce Commission’s regulatory work under subpart 3 of Part 2.” I just want to get the specific idea, because we have seen in a previous bill around waste management that once we started charging levies for the work of a commission, we are straddling a very dangerous territory between what is considered a levy and what is considered a tax.

So, for this bit, I would really like some confirmation and some confidence from the Minister that the levy that is going to be charged and is going to be payable by every person or persons who provides water services can be tracked and will be accountable specifically to Part 2 of Subpart 3, and no broader than that. Then, what we might see, and what we don’t want to see, is that our water service providers are paying for the work that is done by the Commerce Commission for other purposes not relevant to this.

Also, in that regard, it would be really good to get some confidence and clarification from the Minister on exactly how those kinds of charges will be incurred and the mechanisms that would likely be sent to these water services providers. Is it that every water service provider will have to pay a standard levy based on the service they provide or is a pay-as-you-go kind of service required from the Commerce Commission? So that is the first point that I would like some clarification on. Thank you.

Thank you, Madam Chair, and I thank the members from across the Chamber for their questions thus far. I just wanted to touch on a couple that have come from members of the Labour Party in particular.

Dr Deborah Russell has raised the issue of the foundational information disclosure. I’m sure the member, like many members in this Chamber, will know that information disclosure is a very common economic regulation tool. She’s spoken specifically to clause 32(2)(c) about the excessive profits. I’d just caution the member against misrepresenting that particular language, and I would go so far as to say possibly scaremongering. As most members will know, this phrase is a typical safeguard used and found often in the Commerce Act to protect consumers in industries where there is monopoly characteristics. In this scenario, people won’t be able to choose to go to a different water services provider, so this clause will ensure consumers are being charged a fair price. Again, I just want to reiterate this is a very common safeguard in the Commerce Act.

Turning to some of the questions raised by the Hon Dr Megan Woods, she asked specifically about what incentives there are to innovate and to invest. Well, isn’t it wonderful that we do have this opportunity in this Chamber to rewrite this piece of legislation because we believe that transparency is a real opportunity to innovate around. Transparency to consumers on what they are being charged and how those charges will be used—this is a real opportunity for councils to be able to do that. As the saying goes, sunlight is the best disinfectant. So information disclosure makes councils act transparently, particularly about the state of the assets, how efficient they are, and their plans to upgrade and replace those assets.

Dr Woods has further asked around protections against privatisation. Well, these are already provided for in the Local Government Act 2002. Nothing in this bill changes those provisions. This bill only relates to local government water service providers. So the Local Government Act provisions apply as a matter of course.

Thank you, Madam Chair. I thank the Minister in the chair, the Hon Nicola Grigg, for taking the time just then to answer some questions. I would very much like the Minister to also answer the questions that were asked in the last session—I’ve got a new point as well—and those related, particularly in my contribution, to clauses 32 and 33 and the interaction between those two.

This isn’t a greatly political point that I’m making here; it’s simply a drafting one, which I’m sure the Minister and the officials will want to answer. It is related to clause 32, “Purposes of this subpart”. At clause 32(3), it says, “This subpart—(a) relates only to”—and it references some other sections, which are about the framework and disclosing information, and then there’s an “and”. But then you turn over the page to clause 33 and it’s “Application of this subpart”. How does the application of the subpart in clause 33 relate to what is, presumably, what clause 32(3) should be doing? It’s just a drafting question—a simple one there—which I think it would be useful to have an answer to. It might be a mistake; it might be able to be rectified.

My more substantive questions before we closed up shop the last Thursday, I think it was, we were sitting—it seems a lifetime ago—were on clause 40A, about the levy. The Minister for this bill had been explaining to us in answers that this bill is going to be good for councils; it’s going to be bottom-up rather than top-down. I don’t understand, then, why there needs to be a levy at clause 40A. I do note that the Finance and Expenditure Committee, in its report, did talk about how this is for Commerce Commission work. But it would, again, be useful to understand how this piece of legislation is helping councils, because it very much looks like it is doing exactly the opposite and is putting a whole lot of centralised requirements on to councils whilst the Minister tells us it’s doing exactly the opposite. You can imagine that that is quite frustrating for us members asking questions about this bill.

Related to that levy and “Why do you need this levy?”—and it is a new point that the officials won’t have heard from me—if we go over a couple of pages, the subheading just before clause 42 says, “Pecuniary penalty orders”, and there is a whole scheme here whereby the High Court can make such an order. This relates to not disclosing information; so we’re talking about these reports and disclosing information. At clause 43, we see the maximum amount of a pecuniary penalty. For an individual, it’s $500,000, but for an organisation, it’s $5 million. Presumably, the organisations would be the councils or the council-controlled organisations that are part of this bill. And $5 million for not providing information seems like a very high amount. I’d like to know why it’s so high and if it does just relate to those information disclosures, and how that compares to other legislation where there are these penalty clauses for not disclosing information.

I understand that there may be circumstances where councils have not disclosed information that’s important and that there perhaps should be a penalty, although that would make more sense if you were saying that the whole scheme of this legislation is to make councils do things to do with water infrastructure. The Minister keeps telling us it’s not about that; it’s bottom-up, not top-down. This all seems, to me, to be very top-down. So, again, it would be useful to have some answers on that point.

Thank you, Madam Chair. The genesis of New Zealand’s change in the management of water arose from the drinking-water problems that we had at Havelock North, where under-investment by the then council for many years led to thousands of people becoming ill from contaminated water, and some of them dying. Through the evolution of the regulatory response to that failure at local government level, and, actually, failures within the Ministry of Health, decisions have been made by successive Governments not just to consider drinking water but also to be looking at the disposal of foul water or sewage. My question relates to how clause 37 of the bill deals with some of the complexities around that.

Clause 37 of the bill says that a determination can be made by the commission, as I understand it, as to information that has to be disclosed to the commission, and the contents of the determinations are set out in clause 37 of the bill. And under clause 37(3)(i) the “quality performance measures and statistics” and (j) the “assumptions, policies, and methodologies used or applied in the delivery of water services” are things that have to be disclosed if the commission asks them to be.

My question relates to the interaction between that and how a water services entity gets a consent for their discharge of sewage and the standards that might be applied to that. There is a discussion in later parts of this legislation as to the overriding of the existing National Policy Statement for Freshwater Management, and we’ll come to those questions under that part. But am I correct in my understanding that the level of treatment, if you like, that is required for a sewage discharge will somehow be set by a regional council, probably? It’s the quality parameter that it might be set and that resource consent that will be required to be reported to in these disclosure obligations so that the commission can take account of what the costs are of proper treatment, for example, of sewage in accordance with their monitoring role as to what is an appropriate level of cost to be charged for the delivery of that service.

Now, I’m not making a comment here as to what ought to be the standard of treatment. That’s obviously up to the consent authority. But am I correct in my understanding that the commission has to, effectively, await that coming from the water services entity, who gets it from a regional council before they can make a determination as to what’s an appropriate fee?

Thank you, Madam Chair. Just before that, I would like to still get a clarification from the Minister in the chair, the Hon Nicola Grigg, regarding the question I asked. Just also on the topic of when we’re looking at the cause of some of these areas, there’s one tiny thing I would like to ask the Minister, clause 39(2), which is that when you’re looking at copies to the public, it mentions that a specified entity can have charges for these copies, but they can only be used for the recovery of those copies. A very short question: can I just check with the Minister if that applies to e-copies, which may not come at any additional cost to the specified entity?

However, I know that I’m going to jump a little bit—I do have questions for earlier clauses, but then there is this one particular section that I think is incredibly concerning that I would like to address right now, and that is sort of the dichotomy that’s being created between clauses 42 and 45. Clauses 42 and 45 talk about what happens when a person, in this case, does not comply with the obligation to disclose information. The concern I have here is that subclause 42(1)(a) talks about it in the context of the person both knowingly and actively contravening an obligation to disclose information. Now, under criminal law, we see that fulfils a requirement of both mens rea and actus reus—both the mental component and the physical component. However, in subclause 42(2), it talks of a person being considered involved in a contravention—i.e., what is considered in 42(1)(e)—if the person, per subclause 42(2)(a), “has aided, abetted, counselled, or procured”.

Now, the language that they use here is akin to, or is parallel to, section 66 of the Crimes Act which is around party liability. This, however, is incredibly concerning because this doesn’t necessarily have the same level of mens rea that is required. The issue we have here is the penalty amount—for everything that is considered under clause 42(1) and (2)—can hold a maximum penalty of $500,000 in the terms of individuals, or $5 million in any other cases, per clause 43(1). However, if we see the offence under clause 45(1)(a), where a person commits an offence—not necessarily a pecuniary penalty—if “the person, knowing that water services are subject to an obligation to disclose information” and “intentionally contravenes”—again, we’re looking at both the physical and the mental components, the actus reus and the mens rea. However, in clause 45, when a person knowingly and actively decides not to disclose, the fine is only $200,000 for an individual, or $1 million in any other case, which means that under clause 45 an individual who then decided not to disclose the information would get a lower penalty than someone who may have just aided or abetted someone under clause 42(2), which has a chance of getting a much higher penalty.

I would like some clarification from the Minister regarding why these particular sections were laid out like this, and under what circumstances would one trigger clause 42(2)(a) and clause 45(1)(a), and is there a rationale why a person who may be a party liable may potentially get a much higher penalty than someone who actively, both mentally and physically, decided not to provide the information? Thank you.

CHAIRPERSON (Maureen Pugh): The Hon Dr Deborah Russell.

💬 Hon Nicola Grigg: Madam Chair?

CHAIRPERSON (Maureen Pugh): Oh, I’m sorry. I’m sorry, but I had given the call to Deborah Russell.

Oh, OK, thank you, Madam Chair. I want a brief follow-up on a number of issues. The questions I was asking earlier were around the phrase “excessive profits” and the Minister in the chair gave me the explanation that it’s just a pretty standard term used in this sort of field of law, this regulatory area. It might be a standard term, but it doesn’t actually answer the substantive issue as to why we’re making profits in this space at all. Explaining that it’s a common term is interesting. I get that it’s a common phrase, but not then the substantive issue there. So I do want the Minister to come back to that and explain why these water services entities are making profits at all.

I want to raise a further point on the discussion around the levy in clause 40A, and we’ve already had a bit of discussion about this from some of my colleagues. Everyone has to pay a levy and it’s determined in a particular way. I’m just looking at clause 40A(2)(d) “providing different levies for different classes of providers of water services”. I’m interested in what those different classes of water services might be, because my first thought when seeing this discussion around the levy was the concern that some water services entities are much larger than others. Some of them come off a much larger rating base than others. Some of them are going to be in a much better position to pay a levy than others, so I’d like some discussion from the Minister as to how we might set up those different classes of water services entities or what’s going to be taken into account.

I guess as someone who is always in favour of progressive taxation and progressive levies, I’m rather hoping that there is a progressive scheme in mind here so that the cost weighs proportionately, I guess, so we’ll look for an answer on that. Those are just follow-ups on some of the questions that some of my colleagues have already asked, just elucidating a little bit more information there.

The question I am particularly interested in that I wanted to do some untangling on is in clauses 36 and 37. If we go to 36(1)(b), the Commerce Commission has made a determination, the water services entity has to provide the specified information, and then it says it has to provide a copy of all the information; it has to be supplied to the commission, who is going to be making the decisions disclosed in accordance with the determination within five working days after the specified entity first publicly discloses the information. That felt a little curious to me, because ordinarily I thought it might have gone the other way around, that the information was disclosed to the commission and then it was made available publicly a few days later, so I was thinking, “Why on earth are we doing it in this particular order?”

If we go to clause 37—I must have left a number out when I was writing this out. Clause 37(1)(c): any determination has to specify the time frames that must be complied with. So that’s kind of interesting. It just seems to me a little bit in reverse order there. I would ordinarily expect to see a time frame—that’s fine—but then it says it’s a time frame for public disclosure of information, but the person who’s wanting the information is actually the commission, and so it just seems to be a little odd. I would have thought that the way to structure this would have been to say that under clause 37(1)(c), you can set a time frame and that is the time frame to respond to the commission. Then I would have expected to see in clause 36(1)(b), you’ve got to supply to the commission a copy of all the information, and then I would expect that you would have to publicly disclose it within five days of having supplied all the information to the commission.

Because it’s the other way around from what would be expected, there must be a reason for doing it that way. I would hope it’s not just a convenience reason but a substantive reason as to why we would want that information to be public before it went to the commission. There might be some good that is obtained by doing it that way, and I would like to hear the Minister explain a little bit as to why it’s been framed in that particular way.

Thank you very much, Madam Chair. The member expresses a hope that some good may be obtained. I hope not to disappoint her. Covering a number of different questions that have been raised by various members around the Chamber, in the committee, I start with, I think, the same member’s question around the levy and observe that different classes of providers could include distinguishing between providers by population size, but that is detail that yet could be provided in the regulation. In that sense, of course, the purpose of passing this primary legislation isn’t the last word, so I think that’s commendable that she raised it. That’s an important detail that needs to be worked through in a secondary legislation kind of way.

As to the Hon David Parker’s question around what might be described as mixing up the role of regulators, the Resource Management Act will continue to set regulatory standards for waste-water discharges, whereas the economic regulator will consider the quality standards that councils must adhere to when looking at revenue sufficiency and investment choices, so giving them those mechanisms to be able to provide appropriate settings from an economic point of view. And, of course, there’s a link between the environment and the economy, when we’re talking about water usage, to the extent that, of course, we want to minimise water wastage so leaks can be found most efficiently. One efficient mechanism for that is by having people charged for the use of water and, thus, incentivised to notice when there are shortfalls in the pipeline infrastructure and so on.

As to questions around pecuniary penalties and offences, I’m advised—and I’m sure rightly—that this approach is consistent with that taken in the Commerce Act.

As for the questions around levy making, a subject dear to the heart of everyone who is currently in or has previously been a member of the Regulations Review Committee, what’s in the bill—

💬 Ryan Hamilton: Great committee.

It is a great committee. Thank you, Mr Hamilton of Hamilton. I sound like I’ve got a stutter, don’t I? I just had to give you that shout-out. So what’s in the bill is a standard approach to regulations that relate to levy making. They would be developed, of course, through standard Order in Council process, and the details of those would need to be developed and set out as part of that process and be, of course, consistent with the general rules around levy making such that they, for want of a better phrase, need to relate to the work that’s been undertaken for the benefit of those levied in that particular way on a narrow set of guidelines and not by way of a general revenue raising or slush fund.

The member Rachel Brooking, the Hon Rachel Brooking, asked, I understand—I think, prior to my time in this particular position—a question around the subject of how the piece of legislation is helping councils. I would simply point out, relying on the handwriting of someone who’s got much better handwriting than me happily, economic regulation is critical to supporting councils to become more efficient and invest in their infrastructure. This will include information disclosure, and I heard some comments on that in my time in the Chamber as part of this committee, helping councils to be more transparent about how much revenue is required to cover costs and investment choices.

Of course, in the context of paying for water infrastructure that is obviously needed, ratepayers need to understand that that is important work that should be undertaken by their council. They will have the ability to fund that in a transparent way, rather than having those costs buried in a more general rating burden. Of course, the effect of not highlighting the costs associated with providing water infrastructure, I think historically has been that many local councils and territorial authorities have probably avoided making such investments, because they’re perhaps not as interesting politically as other types of infrastructure on which a ribbon can be cut and so forth. So that’s my very comprehensive answer to that question.

As for pecuniary penalties, again, this is consistent with the approach taken in the Commerce Act.

As for that difference between clauses 32 and 33, they are separated into the purpose of the subpart and who it applies to—clause 32 being the purpose and clause 33 to whom it applies.

Can I, before I take the next call, just say we are starting to see a bit of repetition, so I’m just looking for new material.

Thank you, Madam Chair. I do apologise for sort of jumping around a little bit in terms of Subpart 3. There is one particular part in clause 32 that I would like to address that my colleagues have not previously addressed. I also want to, first, apologise to the Hon Rachel Brooking; I forgot to use your honorifics before. This is to do with clause 32(2), and I want to specifically focus on the words “produced in competitive markets”. Also, thank you to the Minister in the chair for your clear and concise responses to the questions before.

Now, clause 32(2)(c) has been mentioned, but subclause (2) itself has not been, in the context of “competitive markets”, as well as when you are reading it in line with subclause (1)(a), which is “to promote the long-term benefit of consumers”. I want to check with the Minister, who, obviously, has been providing clear and concise answers: what is, then, prioritised here? Would being “consistent with outcomes produced in competitive markets” take priority over the benefit to consumers?

The reason I mention this is because when we’re looking at subclause (2), although it’s in reference to subclause (1)(a)—and you list additional subclauses beyond this—but the fact that “competitive markets” has been put into a higher prioritised clause implies that it takes priority over other areas, such as what is mentioned in (a) to (c). If “outcomes produced in competitive markets” takes priority over any subsequent clauses—i.e., particularly around the “benefits to consumers”—then, what would the compromise be when a water service provider, when the entity, would then go, “Look, due to competitive markets, we need to increase in terms of prices, as opposed to lowering, as in subclause (2)(b).”

So I wanted to check, with “competitive markets”, can they then say, “Due to that, we can’t do this.”—as in, “We can’t provide cleaner water, we can’t provide sufficient water because we are in a competitive market.” I’m just really curious as to why that is in there in the first place. Thank you.

Thank you, Madam Chair. We don’t see the principles of establishing a “competitive market” and “benefit to consumers” as being mutually exclusive. Because they’re consistent, we think it’s a moot point as to which would prevail in the event of a conflict, and, therefore, the relative priority is an interesting sort of academic question, but, with all due respect, I don’t think there’s any undermining of either of those priorities or tasks within the legislation.

Thank you, Madam Chair. Honorific included as well, thank you for that. We spent a bit of time on 32 and on 32(3)— 

💬 Catherine Wedd: Repetition! Very repetitive.

💬 Hon Dr Deborah Russell: Lots of subparts.

There are lots of different words in these clauses. One of these different words is that it relates to competition of water services. One of the water services is defined as stormwater, so the question is: how does competition relate to stormwater? I’m interested in the Minister’s answer. I see that he is nodding there, and I thank the Minister for answering the questions—it’s very helpful, of course, for the Hansard. So thank you for doing that.

I wonder, in his previous answer to the question about the pecuniary penalties being $5 million for a council saying that it comes from the commerce legislation, has there been thought about the fact that this will only apply to councils or council-controlled organisations? So is that right to shift over from commerce legislation for giant companies—$5 million might be an appropriate penalty, but a council is a public entity; it’s ratepayer money. How is $5 million appropriate for that? If he could give an answer on that, that would be useful as well.

Finally, I just note that the Minister is answering questions, which is very good, so I’ll be very short. The Hon Dr Duncan Webb asked a question that has not been answered yet, and that was a point on councils that are not contiguous to each other. What happens to those councils? This was more in Subpart 2, but I would be very interested to hear an answer on that. I know that the officials were here when that question was asked. Thank you.

Thank you, Madam Chair. This is my first opportunity to take a call on this part. As the Opposition spokesperson for commerce and consumer affairs, I am delighted to open up a new line of inquiry with the Minister about the Commerce Commission’s powers that are set out in this part. I’ll just draw the committee’s attention to the first of those clauses which gives effect to the Commerce Act 1986, which is clause 40 in this part. I want to ask the Minister, first, the advice that the Minister received in granting the Commerce Commission these extra powers—extra to those that it would otherwise have under the Commerce Act.

The second question in line with that is really about the role of the Commerce Commission here, because at various stages which this law has been progressing through this House, there has been consideration given, in Parliament and in the Beehive and out in the wider infrastructure sector, about whether the Commerce Commission is the correct regulator for infrastructure. In various sectors of our infrastructure builds, we have a mix of public ownership and private ownership. In some situations, the Commerce Commission is the regulator of infrastructure providers who have a weighted assets return ratio on their infrastructure, and that’s how they are primarily regulated in their law—say, for example, the three regulated airports which come under the Commerce Commission’s purview.

I’m asking because under clause 40 of this part, the Minister is introducing new powers for the Commerce Commission to, essentially, investigate situations where it does not have enough information to perform a regulatory role, but those powers are different to the way that it regulates, say, the regulated airports of which it is the infrastructure regulator. So those are the two questions that I’ll open up this line of questions with the Minister for.

I move, That debate on this question now close.

I am still getting new material, so I will go back to the Hon Ginny Andersen.

I’ve got a question for the Minister in relation to new section 38A which specifically relates to commercially sensitive information. This is a particularly sensitive issue because many of our councils around New Zealand probably don’t know the full extent of some of the investment required to get water infrastructure up to the standard needed to even last over the next few years. So, of course, there’s going to be numerous instances where there is potentially quite commercially sensitive information.

I’m quite interested in understanding how that balance is made between enabling ratepayers to have all of the information they need to know what’s happening balanced with whatever is perceived as being commercially sensitive. Councils have made numerous decisions over the years and some of those have been incredibly difficult. When I think back in my own area in the Hutt Valley, you know, significant money was spent on a new event centre and redoing the town hall, and even subsidising a local business owner to build a hotel in the centre of Lower Hutt. People could argue that those ratepayers’ funds probably could have been better spent in securing that we didn’t have sewage pouring up in people’s backyards and that we had adequate infrastructure in place to serve the new builds that were going on across the Hutt Valley.

So, when we go into this and open up the books, my question is: how will we determine what is commercially sensitive? Some of that might just be politically sensitive, and ratepayers might have a very good cause and reason to understand how those decisions were made. Because this is a new section and the commission has the power to exempt disclosure of commercially sensitive information, it would be very useful to understand how that weighing up of interests occurs and also if the commission—which also has the power to revoke that exemption. So, if a determination has been made that information is commercially sensitive and not made available, what is the cause for a local interest group or other group of people who are lobbying to then go to the commission and request for that exemption to be revoked? I’d be really interested to hear the Minister’s views on that.

Thank you Madam Chair. Taking the last point first from the Hon Ginny Andersen, the question around commercially sensitive information, I think the member identifies what is always a weighing exercise between the imperatives of commercially sensitive information being protected in the interests of encouraging enterprise in a way that’s appropriate while, at the same time, recognising the public interest in the disclosure of information. To argue against an exemption or to appeal against it—I imagine that usual avenues would be available for that purpose.

As for the question of stormwater and competition asked by the Hon Rachel Brooking, it seems to me that with the exercise of information disclosure, we have the opportunity to have maximum transparency, including for the purpose of ensuring that the efficient systems are in place, which include, you know, therefore, incentivising the innovation and investment in the improving of efficiency of delivery of stormwater services—so competition in a pretty broad sense, I suppose, but nevertheless one that leads inexorably to the most efficient outcome in the way that we understand competition well in some manner of market.

As for the powers of the Commerce Commission, combining points made by Arena Williams, but also again the Hon Rachel Brooking, I point out that Rachel Brooking has identified a maximum penalty. It wouldn’t be necessarily that the full weight of that dollar amount would be brought to bear against a territorial authority, having not met its obligations. We think that that maximum amount is set at the appropriate level because, of course, the penalties go to conduct. It’s their relevance to incentivise right behaviour, perhaps in more of a stick than a carrot kind of way, but nevertheless incentivising the behaviour of the entity, rather than the nature of the entity being public or private that is relevant.

In terms of whether those powers are additional to those in the Commerce Act, as Arena Williams notes, they are, and we think that’s appropriate, because we want to provide maximum ability for the mechanisms in the Act to be enforceable, and we think it’s appropriate for the provision of water services on behalf of the ratepayers and citizens of the country.

Thank you, Madam Chair. I would just like to ask about clause 38. I’d like to know about the actual provision that relates to the Commerce Commission itself in terms of that information. Under subclause (3), it says that it’s specified that the “entity provides goods or services that are not incidental to or related to delivering water services”. Can the Minister tell me when that would be something that the Commerce Commission would want to do and why they would want to look at that information? Also, whether that information might be looked at even if it is commercially sensitive, because, from what I understand under this clause, it’s being used by the commission itself for its own purpose, rather than simply to pass on to somebody in terms of disclosure. Will they be looking at information that is perhaps commercially sensitive because they’re a trusted entity to do that? What sort of information beyond that related to water services would be relevant to the inquiries that they’ve made? Thank you.

Thank you, Mr Chair. We’re still working our way through Subpart 3 of Part 2, and I’ve just noticed, really, that we’ve done a lot of talking around the Commerce Commission’s powers and levies and so on, but we haven’t really talked about the actual information that has to be supplied. We haven’t paid a lot of—in fact, we’ve paid no—attention to clause 37 at all and the actual information that a water services entity can be required—

💬 Hon Rachel Brooking: Are you going to fix that problem?

—to hand over to the Commerce Commission. And, yes, thank you, the Hon Rachel Brooking, I am going to fix that problem. I looked through the list of information that’s going to be required. It looks pretty standard, but there is some stuff that I would like to clarify. It should only take one call or maybe a little bit of a second one. We’ll see how we go.

Look, the first one for the Minister is clause 37(3)(a) where, obviously, it says, well, “financial statements”. The obvious question here is: are these audited financial statements? I’m assuming that there would have been some audit process and perhaps that—it would be interesting to know if they are going to be audited financial statements. That might be quite relevant when it comes to the projected financial statements as well, because it’s not just financial statements that are required but also projected financial statements. Now, they would need to be subject to some kind of testing, some kind of review, to ensure that they are fair and accurate financial statements. I’d be interested to know if that’s sufficiently well specified, just by saying “financial statements” and “projected financial statements”, or whether that particular phrasing gives sufficient scope to the Commerce Commission to say, “Actually, they need to be audited financials.” I’m sure that’s a very straightforward question, but maybe it does need to be specified in the legislation itself. Yes, I could do that too, Minister. So that was the first question I wanted a little bit of clarification on.

Now, running down the list, some of those things will just be subject again to audited statements like asset values and valuation reports, or the asset values would again come through financials valuation reports, so there’ll be registered values and so on. Some of those are quite straightforward. But then, going to subclause (3)(e), “transactions with related parties:”—now, that’s a fairly obvious one that we’d want disclosure on. What would be interesting to know there is which standard are we using for measuring those related parties? We know there are lots of different related party rules through lots of legislation. There will be a specific set of rules that apply to this definition of “related parties”. It would just be good to get an understanding, for a determination or something like that, of whether it’s some particular standard that’s being referred to there for the related parties and what entities that might entail. I can imagine, for a water services entity, it might be something like the relevant regional council or the relevant territorial authority, but what other related parties might be involved there as well—and, of course, the transactions with them?

This one I want to talk about a little bit is something which I’m sure will appeal to the Minister in the chair, knowing as I do that he does enjoy words and appalling puns, really. That was a compliment, Minister, a compliment.

💬 Hon Rachel Brooking: Dad jokes.

Dad jokes, the “Minister of Dad Jokes”.

CHAIRPERSON (Greg O’Connor): That’s not disorderly!

Clause 37(3)(i): the word “quality” is puzzling me. It says, “quality performance measures and statistics:” Now, as someone who plays around with ambiguity and words myself, does this mean “measures of performance quality and statistics”, or does it mean “performance measures that are quality performance measures, because they are high quality, and statistics of high quality”?

Frankly, if I was writing this piece of legislation, I would just clarify that a little, because in the phrase “quality performance measures”, that adjective “quality” could apply to the “performance measures”.

💬 Hon Chris Penk: Yeah.

Yeah, the Minister gets it. I knew that the Minister would get the particular little wrinkle there, but I want to hear his response on this. And if he can work in a pun or two, that would be interesting. I think there is a simple solution there, and perhaps I might actually put it in an Amendment Paper, but I have to write it very quickly, of course, but “statistics and quality performance measures” or—[Bell rung]

💬 Hon Members: Mr Chair! Mr Chair!

Mr Chair, I have one more point, and it will be brief.

CHAIRPERSON (Greg O’Connor): One more point. Hon Deborah Russell, you may continue while the Minister the Hon Simeon Brown settles down.

I will. I’ll leave that “quality performance measures and statistics” alone now. I do want to go to just one other subclause in clause 37. That’s subclause (5), and it says, “A determination may … (a) require disclosed information, … to be verified by statutory declaration:”.

Now, that’s quite interesting. That’s quite a high level of affirming that information is correct. I guess it’s a little bit akin to having audited financial statements or so on. It’s presumably something which the Commerce Commission uses reasonably regularly, saying that some information has to be verified by a statutory declaration. That caught my eye, and I wondered why it requires a statutory declaration for information that is to be disclosed by a water services entity. It seems like quite a high standard of verification, but I’m sure there will be a reason for that.

So that is a series of questions around the actual content of the determinations, and I’m sure that the Minister will have some answers for them.

I’m just considering at the moment, all members that are standing up. I’ve been watching this debate for some time. There will need to be some quite new information and new lines of questioning here. It has been going for some time, this Part 2.

Thank you, Mr Chair. The new question that I put to the Minister in the chair previously is: should the Commerce Commission have these new powers introduced by clause 40? That was not answered by the Minister. The question is: given that the Government has said—and we accept this on our side; it’s not what we would have done—that a regulator other than the new regulator which Labour have proposed was required and it’s giving it new powers in clause 40, why isn’t that regulator the Infrastructure Commission?

Mr Chair, this is a brand new line of questions, which I was trying to get to with the Minister, because where the Government has proposed new powers, in clause 40, unlike powers which have been given to the Commerce Commission before, these are more like powers which would be appropriate with an infrastructure regulator. I gave the Minister the example of the regulated airports which do not fit within the Commerce Commission’s model easily, and we have now 20 years to look back at how that has been applied by the Commerce Commission, and has been criticised and has been recently very roundly criticised by the two parties which are subject to that regulation.

I want to give the Minister some context around this, because what is, essentially, being proposed here in clause 40 (d) to (f) are new powers for the commission to get an external consultant or an external body to tell the Commerce Commission what regulation is required. So instead of giving an infrastructure expert the power to regulate directly—like the Infrastructure Commission—the Commerce Commission is being granted powers here, particularly at (d)(ii) and (e)(ii), to ask a water services provider to get an engineer to tell the Commerce Commission what it needs to know.

What I’m putting to the Minister here is: what advice has he received that the Commerce Commission is the right regulator here when he has other options? The Infrastructure Commission itself said, in its recent report about water services, that waste-water, water, and stormwater sectors should be reformed by, including, (a) implementing performance-based economic regulation and water quality regulation to ensure that water providers are incentivised to drive efficiency and deliver excellent customer service; and (b) ensure there is a clear link between the cost of providing water services and the prices that are charged to users. This is core business for the Infrastructure Commission.

What I’m asking here is: what has the Minister had, in terms of expert advice, about why the Commerce Commission is the better regulator here than that kind of body, which has been active in providing advice for the public about what sort of regulation is required? Particularly, I draw the committee’s attention to the new powers at clause 40(1)(f), where it provides for, in legislation, a requirement that a water services provider would ascertain the expert opinion of a third party, because that acknowledges that the Commerce Commission does not have this kind of advice-giving power in its core remit and would be dependent on infrastructure experts, because that is not what the Commerce Commission currently does.

Just in the time available to me, I’d also like to raise a question around clause 35(8), which is related to that part in terms of the new powers of clause 40, because determinations made by the commission will be, essentially, secondary legislation. It’s also an unusual power for the commission to have when it is giving determinations about the kinds of advice that it will receive. If you look at clause 35(2) and (3), that determination can also relate to all of the entities at once, which would be a more normal power under secondary legislation, or one particular entity, and that would be to elevate that opinion as if it were binding to one particular entity, and this is an unusual secondary legislative power. It might be compared, say, to the IRD’s power to make binding recommendations, but those are not instruments of secondary legislation.

So I want the Minister to confirm for the committee that that’s the intention here, which would be unusual, and whether he can provide us with some comfort about whether there are any other examples of regulators like the Commerce Commission having that kind of power.

Thank you, Mr Chair. I’ll just make this really short, because the previous Minister has been very concise in terms of their responses. This is in relation to clause 35(2), specifically—which hasn’t been mentioned—in relation to clause 37.

Looking at “The Commission must consult interested parties”, when we’re looking at the content under clause 37 and we’re looking at subclause (3)(f), “financial and non-financial performance measures”—and particularly non-financial performance measures—could I just get clarification from the Minister that that means the interested party would also include members of the public? The reason I mention that is because non-financial measures specifically may affect or may be of interest to members of the public. To give a few examples: things like water quality, water security—I’m not an expert on this, but, potentially, stormwater drainage speed.

So just a very short response from the Minister on whether interested parties would include the public. Thank you.

Mr Chair, we have done a lot of work on this section. I do just want to draw to the Minister’s attention one final sort of set of issues here and it’s to do with the penalties that can be imposed. Now, they are quite significant if water services entities fail to supply the information that’s required, and so on. We’re talking up to $5 million. We’ve already had quite a discussion about the extent to which water services entities perhaps—well, we know that we’re going to be looking for alternative sources of funding. These are not rich entities at the moment.

I’m wondering, and it’s something I’ve had in mind ever since we started working through this bill, in terms of monitoring the public’s knowledge of what is going on, we’ve got the penalties that can be imposed by the Commerce Commission, but there’s a whole lot of information that can be disclosed and that the commission can have a look at. If we look at clause 40(1)(b), the commission can investigate water services entities, including “(i) how effectively and efficiently a provider of water services is delivering water services:”, and so on. Now, what we’ve already seen was the way that the Commerce Commission does a lot of work. We’ve just seen with the banking report that’s come out today, that a chunk of it is more or less, I suppose, what we’d call a name and shame strategy. We’re just revealing the practices that are going on.

I guess what I’m interested in, Minister, is the extent to which we are relying on water services entities being held to account by the Commerce Commission. There’s sort of been a sliding scale, if you like, of ways for which water services entities can be held to account, and whether the first level of a water service entity being held to account is based around information that is disclosed so that the public understand what is going on. Now, we know an issue right across the country is getting people to engage with local councils and understand what local councils are doing. Nevertheless, Minister, isn’t this really part of what we’re trying to do here—is to get a little bit more clarity, a little bit more transparency, and a little bit more capacity for ordinary members of the public to shame a water service entity into doing its job properly? Thank you.

A brief call for the Minister to close off that line of questioning around whether the Commerce Commission is the right regulator. I am disappointed that the Minister hasn’t engaged with those points, but I want to ask him whether clause 40 is the clause which is intended to clarify the interface between water services entities and the developer finance water infrastructure provided under the Infrastructure Funding and Financing Act, which is an intent which has been stated around giving these extra powers to the Commerce Commission. Is that to be found in clause 40(1)(d) or (e)?

There’s been a number of questions in relation to these things. The Hon Deborah Russell has been repeating the question around penalties that’s already been addressed. Penalties represent an upper limit.

In relation to determinations being secondary legislation, I’m advised this is consistent with the commissioner’s powers in other regulated sectors.

In relation to the member Arena Williams’ question around the Commerce Commission, the Commerce Commission is well practised in using these tools and the Infrastructure Commission does not have the experience in economic regulation.

In relation to the question of clause 37(3)—is it broad enough?—this is a list similar to requirements under the Commerce Act.

I move, That debate on this question now close.

The question is that the Minister’s amendments to Part 2 set out on Amendment Paper 65 be agreed to.

The question is that Lan Pham’s amendments to clause 8 set out on Amendment Paper 70 be agreed to.

The question is that Lan Pham’s amendments to clause 8A set out on Amendment Paper 66 be agreed to.

The question is that Rachel Boyack’s tabled amendment to clause 11 be agreed to.

The question is that Lan Pham’s amendments to clauses 11 and 13 set out on Amendment Paper 68 be agreed to.

The question is that Lan Pham’s amendment to clause 16 set out on Amendment Paper 67 be agreed to.