The options

We've got three options for you to consider. Learn more about each one, including the potential pros and cons.

Some important things to know before you read the options

Borrowing is different based on the option we choose

The government's Local Water Done Well legislation has clear rules for borrowing money. These depend on whether councils keep their water services in-house, or join up to form a multi-council water organisation.

If water is managed under jointly owned organisations (Options 1 and 2)

The legislation allows new water organisations to borrow more money to fund infrastructure projects than what councils can now. Currently we can borrow 2.8 times our revenue (or up to 280% debt to revenue ratio). Our council has chosen a lower limit of 250%. Water organisations will be able to borrow up to five times their revenue (up to 500% debt to revenue ratio) for water construction projects.

If water remains in-house (Option 3)

This option is not financially sustainable. This means it doesn’t meet legal requirements.

The government requires any assets, revenue, expenses and debt associated with water services to be kept separate or ‘ring-fenced’ from other Council services. Customers connected to (or able to be connected to) water services will pay for the services. We will not be able to increase our current self-imposed funding cap for investing in water projects.

We’ve modelled a range of different scenarios to determine potential costs

The legislation requires us to have a water services delivery plan. The plan will include the option we adopt following public consultation.

As part of our plan we will need to be able to prove that the model we choose is financially sustainable and provide transparent modelling that demonstrates long-term affordability and resilience. This includes clear projections of revenue and expenditure, plans for maintaining infrastructure, and mechanisms to manage debt and responded to emergencies.

Modelling for the next 10 years is likely to be more accurate because it is based on long-term plans (also known as 10-year plans). Thirty years is more difficult to forecast due to changing needs/legislation/population etc. We have conducted a range of different modelling scenarios, which is how we’ve been able to tell you potential costs for the options.

Read the independent modelling report for Option 1(PDF, 706KB)

Read the independent modelling report for Option 2(PDF, 487KB)

Read the independent modelling report for scenarios for water CCOs in Manawatū-Whanganui(PDF, 624KB)

To be able to model potential costs we have had to make a range of assumptions. These include things like projects after 2034, interest rates, the size of the organisation, revenue etc. You can read the assumptions in the independent modelling report as well. It’s important to note that the costs we refer to are very high level because of those assumptions.

Pricing over time

Right now, different communities pay different amounts for water. Under Option 1 or 2, a new water organisation may decide to make water charges the same for everyone in the future. This is known as ‘price harmonisation'. It hasn’t yet been decided when this would happen. The Department of Internal Affairs indicates that councils involved in a new water organisation could agree on this as part of their setup arrangements. This agreement would mean councils could have some influence over that decision.

For us to be able to give you potential costs for Options 1 and 2, we’ve had to assume when price harmonisation would occur. For ease, we’ve given you the costs as if it were to happen in the first year of the water organisation operating.

Our long-term resource consents for treating and discharging wastewater (all the water that goes down a drain inside your home and business) will be expiring in the next few years. Legally we need to apply for new consents for the future treatment and discharge of wastewater.

Projects of this scale only come up every few decades, and when they do, they’re expensive.

People sometimes think this project is occurring because we’re doing something wrong, or we haven’t taken good care of our city’s wastewater. That’s not the case. Our consents are expiring soon, which means it’s affecting us now. But every community has resource consents for their wastewater treatment and discharge, and when it’s their turn to renew consents they will also face large costs.

Did you know that across New Zealand, 70% of wastewater treatment plants need to be reconsented in the next decade? Fifteen per cent are still operating despite their consents already being expired.

Other communities are anticipating large projects for drinking water. This is where more people paying for water helps because we can all help each other.

During our long-term plan consultation, our community told us that the cost we’d projected for Nature Calls was too much. Our elected members agreed and asked staff to take another look at the options for treatment and discharge in the future to see if there are more affordable options. We’re doing that now.

The proposed cost in our long-term plan is $480 million, excluding inflation. This will be externally financed through the IFF Act. The costs are still high level, and you can be assured that we have affordability in mind as we continue to look at potential options over the coming year.

We’re also awaiting new government guidance on wastewater standards. The Department of Internal Affairs has stated this will bring costs down. We’ll be keeping you updated as we continue to work on this, and we will get more feedback from you before we consider any changes to our currently proposed option.

The audit of our long-term plan identified a concern about what would happen if we didn’t get external finance, and the impact this could have on other council services. You can be assured we take this seriously. We understand the risk and we’re having conversations with external financiers to ensure that doesn’t happen.

Nature Calls is included in all the options we’re consulting on

When you read about all the options, you can be assured that the cost of Nature Calls is included. In fact, all water projects councils have in their long-term plans are included in the costings, as all of them could move to another organisation if we proceed with Option 1 or 2.

While Nature Calls is a big project for Palmerston North, in the future other councils will also have big projects that will need to be funded. These projects will all be part of the work of any future joint water organisation if we proceed with Option 1 or 2. This would be able to happen more easily in Option 1 and 2 due to scale and combined ability to increase borrowing limits.

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