Part 2: Levy design
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Levies specified for classes of additional regulatory costs (preferred option)
The Commerce Act provides that different levies may be specified for different classes of suppliers, or goods or services (section 53ZE(2)(d)).
The Government has agreed to a risk-based and staged approach to the economic regulation of water services. The Commission will be empowered with a flexible set of regulatory tools so that it may target specific problems present for any or all classes of regulated suppliers or water services. The Government has also agreed that regulated suppliers can be brought into the economic regulatory regime in a staged approach, with the Commission having flexibility to determine which tools apply to particular regulated suppliers, and when.[1]
We propose that this flexible approach should also be reflected in the levy design. Where practicable, the Commission’s costs related to a particular regulatory tool should be recoverable from those regulated suppliers subject to that regulatory tool at that time. This is consistent with good cost recovery principles.
Proposed levies for different classes of suppliers
We propose that the levy regulation should specify levies to recover the Commission’s costs for different regulatory tools or activities as discussed in the following table:
| Activities for which levy payable | Discussion | Regulated suppliers who must pay levy |
| Core regulation of water services | Information disclosure regulation is intended to apply to all regulated suppliers. The Commission will incur costs of maintaining the information disclosure requirements, including setting rules on core metrics such as asset valuation and cost allocation, performance monitoring and reporting, and compliance investigations. The costs of other regulatory tools, including revenue thresholds, monitoring the financial ringfence and preparatory costs for additional regulation, are also included. We propose that these costs should be recoverable from all regulated suppliers. | All regulated suppliers |
| Performance requirements | Performance requirements may apply to any regulated supplier following designation from 1 January 2026. | Only regulated suppliers subject to performance requirements |
| Quality only regulation | Quality only regulation may apply to any regulated supplier following designation from 1 January 2026. | Only regulated suppliers subject to quality only regulation |
| Price-quality regulation | Price-quality regulation may apply to any regulated supplier following designation. The Commission will incur costs relating to setting and administering price-quality regulation. This form of regulation could be imposed from 1 July 2026. | Only regulated suppliers subject to price-quality regulation |
| Consumer protection measures[2] | The Bill will enable consumer protection measures to be introduced by regulation, if required. The Commission may also have a role in relation to service quality codes. If regulations relating to consumer protection measures are made, we anticipate that the Commission’s costs will be separately identified and recovered from regulated suppliers at that time. | Only regulated suppliers subject to consumer protection measures |
| Class of waters (stormwater) | Economic regulation will initially apply to water supply (drinking water) and wastewater services only. If stormwater services are subsequently designated as subject to the economic regulation regime, we anticipate that the Commission will develop and apply tailored regulatory tools (eg information disclosure requirements) for regulated suppliers of stormwater services. These costs may be recovered from those regulated suppliers at that time. | Only regulated suppliers of stormwater services |
Creating levies to reflect that regulated suppliers may be subject to different regulatory tools is intended to reduce the potential for cross subsidisation and support transparency.
Indicative estimate of Commission’s costs
A forecast of Commission costs by activity for the first five years of the economic regulatory regime is as follows:
| Activities for which levy payable |
2025/26 ($000) |
2026/27 ($000) |
2027/28 ($000) |
2028/29 ($000) |
2029/30 ($000) |
Total ($000) |
| Core regulation of water services | 6,500 | 6,500 | 6,500 | 6,500 | 6,500 | 32,500 |
| Performance requirements | 0 | 0 | 0 | 0 | 0 | 0 |
| Quality only regulation | 0 | 0 | 0 | 0 | 0 | 0 |
| Price-quality regulation | 0 | 0 | 1,000 | 500 | 500 | 2,000 |
| Consumer protection measures | 0 | 0 | 0 | 0 | 0 | 0 |
| Stormwater regulation | 0 | 0 | 0 | 0 | 0 | 0 |
| Forecast cost ($000) | 6,500 | 6,500 | 7,500 | 7,000 | 7,000 | 34,500 |
Ministers have agreed that the Commission’s expenditure for core regulation of water services should be capped at no more than $6.5 million per year, unless otherwise agreed following a review. Within core regulation, the Commission is expected to:
- In 2025/26, set initial information disclosure requirements, with summary and analysis beginning from 2026/27. The costs of administering these core information disclosure regulations continues in outyears.
- In 2026/27, carry out preparatory work for setting a price-quality path for Watercare. From 2026/27, the Commission may also develop methods and approaches to determine revenue thresholds and develop rules on core metrics such as asset valuation and cost allocation (in advance of input methodologies).
In relation to other additional activities, these forecast costs are based on the following assumptions:
- Stormwater is not designated during this period.
- No consumer protection measures are introduced in this period.
- From 1 July 2028, Watercare will become subject to a price-quality path under the Bill. A year before Watercare’s price-quality path under the Bill comes into effect (i.e. 2027/28) the direct costs incurred in preparing Watercare’s price-quality path is allocated to Watercare. Once price quality paths are in place, ongoing monitoring costs will be incurred.
- Quality only and Performance requirements regulations are not designated during this period.
It is expected that any regulated supplier would only incur the additional activities’ costs, after the regulated supplier (or service, in the case of stormwater) is designated as subject to the additional tool (discussed above). These costs are subject to change.
Other options considered
Alternatives to the proposed option include:
- Further itemising classes of costs – sub levies could be created with greater specificity further reflecting different characteristics of classes of regulated suppliers and the risks they pose. We consider that imposing specific levies on classes of suppliers who are subject to additional regulatory tools is risk-based, as additional regulation is likely to be imposed on those regulated suppliers with greater risk. Any further specificity would create complexity in administration of the levy.
- One levy for all activities – charging all regulated suppliers a share of the Commission’s total costs for its functions under the Bill would be administratively simpler but would result in cross-subsidisation.
- Apportioning general preparatory costs of additional regulation to regulated suppliers prior to that regulation taking effect – for example, the Commission will incur preparatory costs for price-quality regulation for Watercare that will have benefit for regulated suppliers that subsequently become subject to that regulation before those price-quality paths commence. If first water service suppliers to be regulated under these additional tools paid for all preparatory work, this could result in a disproportionately higher share of the costs, from which other regulated suppliers that may subsequently be subject to the same regulation may also benefit.
Questions on this section
2. What are your views on the proposed levy design?
3. How would the proposed levy design impact on your organisation (whether now or in the future)? Please provide your assessment of the nature and extent of these impacts.
4. Do you have any comments on how the levy design could be improved? Please provide reasons.
[1] Cabinet Committee Paper and Minute of Decision. Local Water Done Well Stage 3: Water Services Regulatory System, ECO-24-MIN-0107 [PDF, 1.5MB](external link) — Department of Internal Affairs
[2] Cabinet Paper and Minute of Decision. Local Water Done Well Stage 3: Further Decisions, CAB-24-MIN-0277.03 [PDF, 2.1MB](external link) — Department of Internal Affairs