Water New Zealand, the industry body for the three waters sector, has this unexpectedly fascinating interactive chart. It’s big and kinda daunting – a three-tiered mass of crosses circles, squares, empty space and names of councils in charge of our water systems.
It has this seriously unsexy title: “Capital expenditure to replace existing assets as a proportion of depreciation over the last three years”.
Basically, the chart shows how much individual councils spent on upgrading their water pipes and other water-related assets between 2017-2019, compared with how much they should have spent to cover the depreciation of those assets.
The baseline is 100 percent. In theory, over time, the capital expenditure to replace existing assets should equal the depreciation over time. That should, again in theory, keep the water flowing in and the wastewater and stormwater flowing out.
It’s how it’s meant to work. By law, councils are expected to collect in each year – from rates and other sources – enough money to cover the book depreciation of their assets.
And they do.
What the chart shows, however, is the majority of councils don’t then spend anywhere near all that money on repairing and replacing their water assets. Some spend almost none of the money on water infrastructure. They spend it on other stuff.
And the under-spending has been going on for years, says Gillian Blythe, CEO of water industry body Water New Zealand.
“There’s a huge infrastructure deficit across New Zealand as a result of decades of under investment.
“Pipes and underground networks have too often been out of sight, out of mind, and it has been difficult for council staff to secure the funding needed to maintain a resilient network.”
That matters.
The impact of the mismatch between collecting the money and spending that money is already playing out on the streets of Wellington in the form of those geysers, sinkholes, and sewage pouring into the harbour.
(See Newsroom’s story about the role of depreciation in Wellington’s water chaos – it’s more interesting than you might think!)
But what the Water NZ chart tells us, is Wellington far from alone. It’s not even the worst offender. It’s way-right-of-centre in a chart where left is best. But it’s not at the end of the line.
In fact, hover over numbers for other councils on the chart (check it out here) and you see under-spending is the rule, not the exception.
Take Marlborough.
As the chart above shows, in 2017, Marlborough District Council spent just 1 percent of the amount of money it collected to cover the depreciation of its water supply and stormwater infrastructure on actually maintaining those same assets. The figure for its wastewater assets (what used to be called sewage) was 19 percent.
That makes Wellington (no figures available for 2017, but 40 percent for water; 38 percent for stormwater and; 85 percent for wastewater in 2018) look like the last of the big spenders.
By 2019, Marlborough was spending a bit more – 11 percent for stormwater, 27 percent for water supply and 80 percent for wastewater. But it was still not spending enough to cover even that year’s depreciation. And it was certainly not enough to make up for the deficits of the past.
No wonder the Marlborough District Mayor John Leggett and his councillors were looking at significant – though single digit – rates rises when they met last week to discuss the council’s 2021-2031 long term plan (LTP).
In Wellington, ratepayers could face hikes of 14 percent. Mayor Andy Foster accepts the role of underspending of depreciation income in the capital in the rates rise, saying water renewals expenditure has typically been 50-60 percent of the depreciation income in the capital, leading to the need for a major catch-up.
Leggett, however, doesn’t talk about underspending. He blames other things.
Covid, for example, and growth in his region which necessitates building more infrastructure. And the Government. He says it’s going to cost millions to meet the Government’s drinking water and water discharge standards – and ratepayers will have to foot the bill.
That’s fair – to a point. Growth requires capital expenditure and Covid meant a smaller rates take last year.
But the drinking water standards aren’t new – all that’s changed is after the 2016 Havelock North contamination disaster killed four people and made 5000 sick the Government decided to actually enforce the standards.
Moreover, the situation for Marlborough’s ratepayers would undoubtedly be easier if the city had kept up with regular maintenance over the years.
While there’s been nothing of the order of geysers and sinkholes, Marlborough has had a few water woes of its own in the past. Brown algae in the Seddon water supply in 2017, regular sewer overflows, stormwater leaking into sewage pipes and overwhelming the system, and waste water leaking into ground water.
Marlborough is one of the worst areas in the country for leaky pipes, according to the Water NZ leakage index, although council chief executive Mark Wheeler says this low ranking is also a function of the lack of water meters in the district.
Out of sight, out of mind
Newsroom isn’t singling out Marlborough because it’s the only council with problems. Under-spending on asset infrastructure is a perennial and gnarly problem all round the country.
“There’s a huge infrastructure deficit across New Zealand as a result of decades of under investment,” says Gillian Blythe, CEO of water industry body Water New Zealand.
“Pipes and underground networks have too often been out of sight, out of mind, and it has been difficult for council staff to secure the funding needed to maintain a resilient network.”
Of the 23 councils listed on the Water NZ table (not all councils choose to take part), only one – Tasman – consistently spent more on maintaining its three waters assets than it collected to cover depreciation over all three years – 2017-2019. A handful of others – Waipa, Palmerston North, Kaipara and Clutha – spent more that magic 100 percent number more often than they spent less than 100 percent.
The vast majority of the councils spent considerably less than the full depreciation every year.
The Office of the Auditor General is concerned. The OAG doesn’t split out water assets, but they are a significant part of what any council owns.
Between 2012 and 2019, the Auditor-General found, councils spent only 63-77 percent of the value of the depreciation they clocked up in actually renewing their assets – if you take the necessarily high-spending-post-earthquake Christchurch Council out of the mix.
“In our view, each council needs to consider the robustness of the renewals gap in its context and the funding implications arising, to ensure there is adequate financial provision for renewing assets in the future,” the OAG says.
I suspect that’s accountant-speak for “That’s a bit of a worry, isn’t it.”
Perhaps unsurprisingly given the relative invisibility of a lot of water assets, Water New Zealand’s overall figures show the situation is worse for water than for infrastructure as a whole. The median capital expenditure on the replacement of existing wastewater assets compared to depreciation between 2017 and 2019 was 53 percent. That’s just half of the depreciation going to replace sewers and wastewater treatment plants.
For drinking water it’s better: 70 percent. Though that’s still not replacing the depreciating assets. For storm water it’s far worse: just 15 percent.
The news just got worse
In case that isn’t depressing enough, a report commissioned by the Department of Internal Affairs from the Water Industry Commission for Scotland (WICS) as part of the three waters reform programme, has bad news. WICS, working from publicly available information, reckons the situation might be worse even than those 2017-2019 Water NZ figures suggest. “No council, except Christchurch, has invested as much as the depreciation charge over the last four years,” the report says.
“This implies: Asset condition and performance are likely to be getting worse; or risks to levels of service and quality performance are increasing; or both.”
But the evidence is also that councils have been undervaluing their water assets, the WICS report says. And that means replacing all the assets will be even more expensive than everyone thought, and the backlog from underinvestment is worse than councils thought.
“It is important to estimate asset values accurately as the need for investment in asset replacement is a function of the asset value. Under-estimating asset values could mean that even if the full depreciation allowance is committed to asset replacement, it could be insufficient to maintain the performance, condition and risk profile of the assets.
“Customers will suffer.”
“I feel sorry for my grandchildren”
One problem is there’s just so much water infrastructure. On the water supply side there’s around $10 billion-worth of pipes, valves, pumps and measuring systems, according to Water NZ data, with most of that figure being pipes. Plus there’s $2.5 billion in water treatment plants. For wastewater, the pipe/valve/pump/measuring system figure is $13 billion, plus $3.4 billion in treatment plants.
In the same way past ratepayers have benefited from lack of spending on the pipe network, so it’ll be future ratepayers left carrying the can for the massive investment that’s going to be needed to catch up.
“Absolutely bloody spot on,” wrote one senior water engineer after Newsroom’s previous story about Wellington’s water chaos.
“I feel sorry for my grandchildren.”
The Government’s cunning plan
Bruce Robertson was the assistant auditor-general for more than a decade and now works as a consultant specialising in Council Controlled Organisations (CCOs). He sits on or chairs the audit and risk committee for several local bodies.
He says the asset depreciation issue has troubled councils since 1996, when the then-government launched the first of a series of changes to local government legislation. The new rules made it mandatory for local councils to meet their ‘everyday costs’ – including the depreciation of assets – every year.
If assets were depreciating, councils had to collect money to cover that.
In theory, that should have ensured money was available to upgrade pipes and other water assets before they started leaking and breaking and overflowing.
As they were bound to.
Although our earliest pipes date from the 1800s, a good chunk of our water infrastructure was installed in the post-WWII boom. With the economic life of the average water pipe estimated to be 50-70 years, those 1950s pipes could reasonably have been expected to start to fail in the early 2000s.
Fund depreciation. Problem solved.
But in practice, that’s not what happened. Councils took the money in, but then spent a chunk of it on other things. Playgrounds, new buildings, community events or whatever.
More than a decade ago, the Auditor-General started raising the issue with councils. He is still doing that, Robertson says.
“As the auditor of their long term plans, the Auditor-General is saying renewal rates are consistently lower than the cost of the use of an asset. He is questioning, in an economic sense, whether local authorities are facing up to their responsibilities. Are they creating a deficit which should be met by the current generation, or are we forcing it onto a future generation?”
A water depreciation reserve
Marlborough District Council recovers depreciation for its assets. “It is intergenerationally fair and also financially prudent,” says chief executive Mark Wheeler.
He tells Newsroom depreciation on water assets is credited to a separate water depreciation reserve, and funds in that reserve are only spent on renewals. Chief financial officer Martin Fletcher has been with the council for 12 years and he says that’s how it’s been the whole time he’s been in the job.
But that’s not what the Water NZ figures show. Nor is it what Audit New Zealand said about the Council’s 2018-2028 long term plan.
“Over the 10 years in the long term plan, expenditure on renewals ($133 million) is at a level substantially lower than depreciation,” the report said.
“The key for the District Council is that in fully funding its operating costs including depreciation, its funding is at a level that is sufficient for long term sustainable funding of asset renewals. This is essential for maintaining levels of service in the long term.
“…At a point in the future the situation will reverse and renewals will exceed depreciation.”
Wheeler says the 2021-2031 long term plan (LTP), which was debated in council last week, is targeting $705 million for capital expenditure, a 34 percent increase on the $525 million budgeted in the previous LTP (2018-2028).
“Much of this increased planned expenditure is for three waters infrastructure,” he says.
As to why the Water NZ figures for 2019 and 2017 don’t show renewals matching depreciation, when the council says it ring fences money for water, Wheeler says renewals spend is not even.
“It’s lumpy and the need is assessed each year. The fund is there; we do the work when the pipes actually require renewal.”
Wheeler says the council’s three waters infrastructure scores highly in its residents’ satisfaction survey. For drinking water, satisfaction was 83 percent in 2020, down from 87 percent in 2019.
For sewerage, it was 79 percent, down considerably from the 92 percent satisfaction level in 2019, but still high compared with a national benchmark of 69 percent, he says.
A bright spot in the sludge: Ōpōtiki
And then suddenly, there’s the small Bay of Plenty town of Ōpōtiki. A bright spot in the water gloom, singled out for praise by the Office of the Auditor-General.
In a case study, the OAG tells how the Ōpōtiki District Council realised in the early 2000s its 50-year-old wastewater network was failing, causing regular sewage leaks and overflows when it rained heavily.
“The Council’s approach at the time – to fix it when it broke – was not working and was proving too costly to continue,” the OAG insights paper says.
“The Council did not have the information to know what the main cause of the poor performance was, which meant it did not know how to best respond to the network failure.”
Initially Ōpōtiki councillors looked at replacing the whole wastewater network, but then realised it didn’t have enough information to make an informed decision on how to do that – or even to know if it was necessary.
So it formed a wastewater subcommittee, appointed an expert engineer to that committee and in 2013 set about collecting information about the state of its sewage pipes. In particular it tried to find out how much rainwater was flowing into its sewage system when it rained – a big cause of sewage system overflows.
It increased its monitoring of groundwater, river levels, rainfall and its pump station. “From this monitoring, the council confirmed rainwater was entering its wastewater network through gully traps and illegal connections. Groundwater was also getting into the wastewater network through old broken underground pipes,” the OAG report says.
Two years later it was ready to start work. A “find and fix” trial, followed by a larger rehabilitation project found and fixed places where water leaked into the sewerage network and funded repair work on both council-owned and private pipes.
Ōpōtiki budgeted $12 million for the sewerage rehabilitation project and by 2019 had spent $5 million.
“The Ōpōtiki community is receiving a significantly better level of service,” the council told the Auditor-General. “There are fewer wastewater overflows and the wastewater treatment plant no longer reaches capacity during heavy rainfall events.”
But it hasn’t been cheap.
“The council identified an effective solution through an evidence-based decision-making process, which saved the council and its community money. However the cost was significant, because council had to quickly make up for years of under-investment,” the OAG report said.
“We encourage councils, especially those that do not have good quality information about the condition and performance of critical assets, to learn from the Ōpōtiki initiative.”
Depreciation as a dark art
There’s both an economic and a political aspect to the depreciation/renewals problem, Robertson says. Councils tend to depreciate their assets on what’s called a straight line basis – a bit every year. So often depreciation ‘revenue’ is being collected on a particular pipe over a few years before the pipe actually needs to be replaced.
It’s not financially prudent to replace a pipe before it needs it, but on the other hand, often when the time comes and water engineers are saying the pipe really needs replacing right now, before it starts causing trouble, councils often don’t have the necessary cash in the bank.
Pipes are pretty invisible, tucked away underground. So there’s a tendency to hope for the best that they won’t fail.
“Council thinks it can sneak another year out of them, and then another year,” he says.
It’s called ‘sweating the asset’ or ‘running to failure’ and it’s been a common strategy with councils.
But it doesn’t just delay the inevitable, Robertson says. Dealing with a pipe that’s burst is often considerably more expensive than replacing it before it fails. Which leads to a downwards spiral – scant resources that should have been spent on a council’s infrastructure renewal programme, instead get spent on cleaning up sewage in the streets.
Who knows what’s going on underground?
Another big problem for councils is knowing exactly what state those invisible pipes are in. Are they fine or are they stuffed? There are more than 88,000 kilometres of water supply pipes in the country, according to Water NZ figures, and Robertson says how long an individual pipe lasts depends on a raft of factors, including the type of ground it’s in, the climatic conditions, and how good the team were that laid it.
“Some pipes I’ve seen are still going strong after 150 years and could be going another 150. But equally, some pipes won’t last their economic life.”
The key, says the Office of the Auditor-General, is getting good information about the state of your pipes. That used to be pretty hard – finding out if a pipe was nearly broken basically meant digging it up. But meters, monitoring equipment, sensors, and sophisticated remote-controlled cameras has changed that. Still, fact-finding isn’t necessarily cheap to do – and councils have struggled in the past to allocate budget to checking out pipes that may or may not be broken.
But it’s important, the Auditor-General says.
“All councils need up-to-date knowledge of their critical assets, especially their condition and performance, to make well-informed decisions about maintaining and renewing those assets before they fail.”
Councils also need the information to deal with future change – change to regulations, to growth in their community or to the effect of climate change on the severity of storm events and water levels.
“Councils responding to change might need to deliver services in different ways. They will need condition and performance information to do this efficiently and effectively.”
Billions of dollars are needed
It’s a daunting task – councils making up for years of under-investment in their existing infrastructure, and dealing with the new infrastructure needed for population growth and to deal with the potential impacts of climate change.
And some of the numbers are mind-boggling.
In 2020, a Scottish water consultancy released a report into the water infrastructure needs for Auckland, one of the country’s best-performing regions in terms of its water infrastructure, according to Water NZ.
The WICS (Water Industry Commission for Scotland) report is huge and interesting and Newsroom has a copy, although neither Watercare not the Auckland Council were able to supply a link.
The report estimated Watercare needs to spend $4.7 billion on water infrastructure “enhancement and growth” between now and 2032 – a massive $1.7 billion more than the council-controlled organisation has budgeted for in its long term plan.
WICS warned even the $200 million-$280 million Watercare was anticipating spending per year on future asset replacement could be too little.
“Watercare’s assumed asset lives are relatively high,” WICS said.
Those pipes and treatment plants might fail faster than you think.
The early findings from the full-country Water Industry Commission report (above) – saying councils may have underestimated their water asset values, and therefore have also underestimated how much replacing those assets is going to cost – should be frightening reading for councils and ratepayers. But also frightening for Government, as it prepares for a major restructuring of three waters infrastructure ownership and management.
We are talking billions of dollars of here, says Water NZ CEO Gillian Blythe, even without having to bump up the value of water assets.
“We can infer from the Auckland WICS report, and the significant investment needed in our country’s best resourced water and wastewater network, that the bill for pipes in the rest of the country is likely to dwarf the [$3-4 billion] needed for water and wastewater treatment plants,”
Sewage in the streets of Remuera
In 1992, journalist David McLoughlin wrote a book called The Undeveloping Nation. It paints a picture of deteriorating infrastructure and chronic local government under-spending from thirty years ago.
Thirty years ago.
The book begins at Clonbern Road in the upmarket Auckland suburb of Remuera. “Whenever there’s heavy rain, a frequent occurrence in Auckland, stormwater surges through the city’s ancient and increasingly overloaded sewer pipes, forcing raw sewage to the surface in streets like Clonbern Road, where it pours into an open watercourse and floods people’s backyards.”
McLoughlin talks about Auckland City budgets being a third of what they should be “to make a serious dent in its deferred maintenance”, about the potential for “catastrophic pollution of the harbour” if a visibly decrepit sewer pipe collapses, and about how antiquated sewage infrastructure, some of it dating from the 1870s, is “becoming a direct cause of Auckland’s wasteful urban sprawl”.
That’s because intensification in existing parts of the city can’t go ahead without upgrading sewers and drains, and there’s not enough money for that.
Then McLoughlin moves around the country. Giardia in Oamaru; Wellington Council spending little more than half the amount needed on replacing sewers; stormwater leaking into broken wastewater pipes in Gisborne causing the whole system to overflow when it rains; 53 burst water mains during a 10-day cold snap in July 1991 in Dunedin.
The list goes on.
“The crisis has been largely caused by a steadily rising backlog of maintenance, some of it decades old, running into the worsening financial stringency of the years since 1973,” McLoughlin says.
“In all my years in journalism I have not been invited to the opening of a sewer pipe.”
“Rather than undertaking unglamorous tasks like rebuilding the sewers, our mayors and councillors have preferred to erect lavish public facilities like the Michael Fowler Centre in Wellington, the Aotea Centre in Auckland and QEII Park and the town hall in Christchurch.”
Given the choice between a new wastewater pipe and a high-visibility project with a public opening ceremonies and a plaque, local body politicians chose the latter, McLoughlin told Newsroom.
“In all my years in journalism I have not been invited to the opening of a sewer pipe.”
In 1991, when McLoughlin interviewed almost every council in the country for his book, it was already clear how much remedial work needed to be done to avoid sewage spilling into people’s backyards or the harbour, and to stop burst water mains flooding homes and streets, he says.
“And there wasn’t the money to pay for it”.
Plus ça change.
