Council-owned mixed-use rural water schemes

What are mixed-use rural water schemes/supplies?

Mixed-use rural water schemes (supplies) provide drinking water as well as water for farming-related purposes, such as stock water, irrigation or horticulture. Across the country there are approximately 90 such schemes owned by local councils and generally managed in close collaboration with the users of the schemes.

These mixed-use rural water schemes were often originally established as stock water schemes in the 1970s and 1980s with support from Government funding. Over time, the schemes have expanded to provide drinking water to households, townships, and community facilities, including halls, schools and churches.

These mixed-use schemes often have unique community governance, operating and/or funding arrangements. While owned by councils, their operation and management often involve the local expertise, support and contributions of the farming communities who receive the supply.

One of the outcomes of water services reform will be to shift the ownership and operation of these council-owned mixed-use rural water schemes to the new Water Services Entities. It does not impact privately owned rural water schemes.

Community ownership option

While these council-owned mixed-use rural water schemes will transfer to the new Water Services Entities, the Government has agreed to a recommendation from the Rural Supplies Technical Working Group that users of qualifying schemes may seek to take user community ownership and operation of them separate to the new Water Services Entities. This option is provided for in the Water Services Legislation Bill introduced in December 2022 and can only be taken once the Water Services Entity is established and not before.

To qualify for the option of community ownership, the following criteria must be met:

• 85% or more of the total volume of water supplied by the scheme must be for agricultural or horticultural purposes; and
• 1,000 or fewer dwellings/households rely on the service for drinking water supply and other domestic household purposes. Farm buildings for agricultural or horticultural purposes (i.e. barns, shearing sheds, storage or temporary housing for contractors) do not count as dwellings.

Communities connected to these schemes have from the time of establishment of the Water Services Entity until 1 July 2034 to transfer to community ownership.

The Government agreed that users can seek ownership of a mixed-use scheme on the basis of independent cost, benefit and risk assessments, together with a 75% majority agreement amongst users of a scheme.

The decision recognises that these supplies are critical to agriculture or horticulture and often have unique community governance, operating and/or funding arrangements, with a strong sense of community ‘ownership’ that has been in place for many years. It also recognises that these schemes can be relatively complex and expensive to operate, and that decisions to put them in community ownership need to be informed by a thorough understanding of the financial, regulatory and other implications for the community.

Clutha Mixed-Use Rural Water Schemes report

During 2022-23, the Department of Internal Affairs worked with farmers of the Clutha District’s mixed-use rural water supplies and the Clutha District Council to consider the various benefits, issues and risks of the two ownership and operation models: Water Services Entity, or direct community ownership and operation by the users of the schemes.

The Clutha District was selected for this work because of the large number of mixed-use rural water schemes in the area, and interest from the farmers and council to assess potential options for ownership and operation.

Independent management consulting firm Morrison Low was commissioned to undertake the assessment, overseen by a steering committee made up of Clutha farmers, council members, and Department of Internal Affairs representatives.

Clutha Rural Water - Summary Report - January 2023

Clutha Mixed Use Rural Water Schemes – Assessment Report – January 2023

The report was completed before changes to the reform were announced in April 2023. The summary below provides a snapshot of key issues, risks and benefits of the two ownership and operation options that were considered at that time.

Under Community Ownership, there was greater local knowledge and control by users, however costs would significantly increase, individual liability is high, and operational challenges will be difficult to meet at this smaller scale.

Under Water Services Entity ownership, the scale allows for greater operational capability and capacity, greater ability to access sufficient capital to meet future investment needs, and economic regulation and consumer protection. However, at the time of publishing of the report, there was a potential loss of scheme-user influence and uncertainty around future pricing and service levels under a Water Services Entity.

Whist the report did not make recommendations on a preferred ownership and operation model, it is intended to help support decision making by users of such schemes.

The report findings then informed the Government regarding changes to details in the Water Services Entities Act 2022 and the Water Services Legislation Bill, related to governance and operation arrangements of schemes under Water Services Entities, including the addition of Rural Supply Plans.

Rural Supply Plans

Under the Water Services Legislation Bill, a Water Services Entity must prepare a Rural Supply Plan for each small mixed-use rural water scheme/supply in its service area, in consultation with interested persons (i.e., farmers and other scheme users).

The purpose of a Rural Supply Plan is to set out the roles and responsibilities relating to the small mixed-use rural water scheme and provide transparency to consumers about how the Water Services Entity will operate the scheme.

A Rural Supply Plan will:

• Define the geographic area of the scheme
• Set out how the Water Services Entity will operate the supply with users of the supply, including the arrangements where the infrastructure relating to the scheme is on land owned by its users
• Set out any details relating to ongoing maintenance or upgrade of the scheme arrangements
• Set out any committee or other arrangements for making decisions about the operation of the scheme by the Water Services Entity and representatives of users of the scheme
• Set out the roles and responsibilities under the drinking water safety plan for the scheme.

The Water Services Entity must give appropriate notice of the proposed Rural Supply Plan, allow for adequate time for consultation with interested persons, and give appropriate consideration for the feedback received.

The Chief Executive of the Water Services Entity must then:

• Give effect to the Rural Supply Plan when performing or exercising any functions or powers
• Take the Rural Supply Plan into account when making or reviewing its asset management plan, funding and pricing plan, or infrastructure strategy.

The Water Services Entity must review its Rural Supply Plan at least every 3 years.

Mixed-use rural water scheme flow chart