THE WAIKATO WATER PIPELINE - Uneconomic Unsustainable Unhealthy
Prepared by: Joel Cayford - 2nd October 1999 -
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Following the water shortage of 1994, and the decision by Auckland region councils to agree to Watercare Services 1995 recommendation to increase the water supply drought standard from a 1 in 50 year drought standard to a 1 in 200 year drought standard, Watercare Services Ltd (WSL) commenced its Long Term Future Water Source investigation. That process indicated that a pipeline to the Waikato River, some thirty miles to the South of the city, best met the objectives investigated.

Currently, the fresh water needs of the one million inhabitants of the City of Auckland New Zealand, are met from fresh water storage lakes nestled into the native bush catchments of two mountainous areas immediately adjacent. By contrast the Waikato River is the biggest river in New Zealand. Its catchment is the home of some 500,000 diary cows, and a similar number of people whose sewage effluent discharges directly into the Waikato River.

In 1998 Watercare obtained the necessary resource consents for the project after a controversial appeal process. At this stage of the project independent opinion surveys commissioned by WSL show that the majority of the population oppose the project, instead preferring further storage.

Neither the hearings process nor the Environment Court hearing, considered regionwide issues relating to alternatives, the drought standard, project timing, staging, or demand management. Legal advice indicated that these issues were not relevant under the Resource Management Act but could be considered by Auckland Territorial Authorities (TLAs).

Watercare proposes to let contracts for the construction of the Waikato Pipeline in October 1999.

It is my considered opinion that the project should not proceed at this time because:

    Smaller - more cost effective - supply augmentation options exist
    There is no demand management system in operation in the region
    Existing waste water treatment facilities are almost at operating capacity
    WSL is obligated by law to investigate and implement beneficial reuse, but has not
    The region has yet to even partially consider appropriate tariffs
    Treated Waikato water carries health risks from catchment pollutants
    The 1:200 year drought standard should be reviewed
1. Background
The structure of the water industry in Auckland, New Zealand, includes a publicly owned bulk water and waste water services provider - Watercare Services Ltd (WSL) - and seven District and City Councils which bulk buy these services, are responsible for local reticulation, and sell the services to ratepayers within their boundaries. WSL owns and operates several dams, a water treatment plant, the Mangere waste water treatment plant, and the water and sewer mains which connect to the local infrastructure owned and operated by Councils.

Watercare is set up as a LATE - a Local Authority Trading Enterprise. Its purpose is defined in statutue to act "commercially, in the best interests of the citizens of Auckland". Watercare has a Board of Directors who are accountable through a "Statement of Corporate Intent" to its owners - who are the same Councils it sells its monopoly services to.

For the past few years Watercare has developed a very independent management style, and has consistently maintained an arms length relationship with its owners. This has not always led to easy working relationships, and some of Watercare's actions have been controversial.

Following the water shortage of 1994, and the decision by Auckland region councils to agree to Watercare Services 1995 recommendation to increase the water supply drought standard from a 1 in 50 year drought standard to a 1 in 200 year drought standard, Watercare Services Ltd (WSL) commenced its Long Term Future Water Source investigation.

WSL have advised that a Long Term Future Water Source is needed to:

    Reduce the risk of a future shortage
    Meet the needs of future population growth
Daily bulk water consumption from WSL is in the vicinity of 325,000 cubic metres each day on average. The long term criterion adopted by WSL (the source needed to meet demand out to 2020), combined with the 1 in 200 year drought standard (effectively requiring an extra 20,000 cubic metre/day yield), suggested an appropriate new source needed to deliver a further supply of more than 80,000 cubic metres/day.

These criteria narrowed the choice from more than 90 options, down to just a few including several Waikato Pipeline alternatives and the Riverhead Ararimu dam alternative.

The long term filter ruled out relatively cheap augmentation options such as the Wairoa River take and lower Mangatawhiri dam, because they could not deliver such large volumes. However both of these options were either within or very close to existing dams and catchments, and could be developed relatively cheaply.

Further analysis by consultants, including that the source deliver treated water for less than 50 cents/cubic metre, indicated to WSL that a pipeline to the Waikato River best met the objectives investigated.

Through 1997 and 1998 resource consent hearings were conducted by Environment Waikato and the Auckland Regional Council. Waitakere City Council strongly objected to the project. It was very critical of WSL's water demand forecasts, and raised concerns about the absence of an effective demand management strategy. Waitakere City Council advocated water minimisation strategies similar to those now being considered by North Shore City Council.

The regional councils granted the necessary consents, however they were appealed to the Environment Court by various parties including Waitakere City Council. In fact Waitakere City Council withdrew its appeal before the hearing. Publicity at the time indicated that WSL would use its best endeavours to ensure that West Aucklanders never drank water sourced from the Waikato river.

In 1998 Watercare obtained the necessary resource consents for the project.

Neither the hearings process nor the Environment Court hearing, considered regionwide issues relating to incremental alternatives, the drought standard, project timing, staging, or demand management.

2. Incremental Development & Economic Efficiency
Big projects designed for long term needs cost big money up front, with consequent interest costs. But money spent servicing a big project loan could be better spent on smaller, innovative projects that meet present needs, and which can be added to as needs grow and as technology advances. Motorways and bridges are typical big transport projects. The water and wastewater industry has them too. For example the proposed Waikato Pipeline project which is budgeted at $150 million NZ.

The high cost of capital today is one of the major differences since the last harbour crossing was built and since much of Auckland's existing water and waste water infrastructure was established. So what does the cost of capital mean for infrastructure projects today?

The telecommunications industry is an illustrative example because its networks have undergone the sort of technological transformations which are beginning to happen in New Zealand water and transport networks.
Before bringing any competing cellular service, internet access service, or fibre-optic connection service to market, a robust business case would be developed within a telecommunications company. It would address:

    establishment and operating costs
    fees and charges to recoup capital and costs
    the lifetime of the service
    market size and revenue forecasts
    opportunities for incremental development
This is a simplification of a proper asset management plan, but illustrates three crucial points.

The first is that any business case must be for "the lifetime of the service". Recent and rapid developments in telecommunications technology have well and truly broken the traditional telephone industry based on copper wires. Even such technologies as fax machines that have been introduced quite recently are on the way out now because of email.
It would be foolish for any telecommunications company to establish at great cost a service or network which could be rendered obsolete short of its planned lifetime, by a reasonably foreseeable innovation. This analysis requires consideration of alternative, and possibly cheaper, technologies which might deliver the same benefit but which have yet to be fully developed and implemented.
Like telecommunications, water and transportation industries are changing rapidly as technological advances are used to meet sophisticated environmental quality expectations in growing cities. I believe the likely decision to defer building a second Auckland harbour crossing, and instead build incremental improvements using existing transport corridors, is a sign that this sort of thinking - common in other countries - is being recognised in New Zealand.
If the Waikato Pipeline is built too soon it risks being an expensive, traditional, long-term engineered project constructed without due regard for what the future is heralding in water technology. In contrast Sydney has established suburbs which recycle water and reuse highly treated wastewater at local level to avoid un-necessary use of drinking water, defer the capital costs of new supply, and reduce waste discharge effects. California uses water metering and pricing which discourages excessive water use during summer, again to defer the need to bring on new supply. Inexpensive yet sophisticated rainwater collection technologies exist for toilets and washing machines during winter which would allow existing dams to fill more quickly, and help control stormwater.
In summary, traditional big projects incur large debt burden costs which might be avoided through smart technology and lateral thinking. And big projects oppose innovations that could save money and resources.

My second point relates to opportunities for incremental development. There is considerable financial benefit in incremental or staged construction and meeting demands as they actually occur. It means new services are brought on stream in parts, where each increment is fully operational, generating a return and providing a service. It means completed stages can operate, even if the full implementation needs to be halted because unexpected developments cause a rethink. In my view estimating water demands 7 to 10 years ahead and building for those needs is reasonable, 15 years ahead is a guess and anything from 25 to 50 years ahead is an unacceptable risk.
The reasons are twofold and are best illustrated with reference to the Waikato Pipeline project which was the fruit of a long-term 25 year "Long Term" planning strategy.
Virtually the whole of this project will have to be built and paid for before any drinking quality water is provided. Apart from pumping and treatment capacity, it cannot be built in stages. This means the Auckland community will be burdened with associated loan and debt servicing costs for a full 25 years before the full capacity of the project is presently forecast to be needed. Yet smaller scale, incremental augmentation such as the proposed Wairoa River take or Mangatawhiri dam could be built for a fraction of the cost to meet needs forecast over the next 10 years.

To add insult to injury, the particular characteristics of the Waikato Pipeline require it to operate at 10-25% capacity all the time - even if the existing dams are full - imposting further significant operating costs on the region. The public will not take kindly to spilling water from the dams, in order to take water from a significantly more compromised source!
Secondly, if the rate of innovation in water efficiency technologies to date is anything to go by, it is highly likely there will be developments enabling more efficient use of existing upland water resources, which risk making the proposed pipeline investment un-necessary.

I believe the 25 year project lifetime assumption is flawed because of the faith it puts in large scale long-term engineering, because it did not anticipate the amount of technological change apparent in the water industry now and which we can all benefit from, and because it did not have regard to the avoidable economic impacts on ratepayers of long term capital loans.

3. Give Demand Management a chance to work
All Councils in the Auckland region buy water from Watercare Services and sell it to residential and business customers. For the 1998/1999 year Councils have a tariff agreement with Watercare under which they buy water for between 40 and 30 cents per cubic metre.
The extraordinary aspect of the agreement is that when the Auckland Region as a whole has used enough water for Watercare to cover its budgetted costs for the year, water will suddenly becomes available at a 93% discount. The price of less than 3 cents per cubic metre covers the costs of treatment chemicals and electricity - all other plant and staff costs for the year having been covered. It is forecast this point will be reached in June with two or three weeks of the financial year to run.

So what's the problem? The message in this practice is that the more water consumed, the cheaper it becomes - exactly the opposite of the water efficiency and environmental objectives behind demand management strategies adopted in other Western countries. For example the Sydney Water Corporation is required by the terms of its licence to "give equal weight to demand side management as the basis for planning the future provision of water..." and to reduce per capita consumption of water by "at least 35% between 1990 and 2010".
Water is a renewable resource but it is available in finite quantities, and at a cost. Drawing gravity fed, low contaminant water from the reservoir lakes in the Hunuas and Waitekeres is undoubtedly cheap. But the next bulk supply source for Auckland will come at a very high price in comparison.

The first drop of water from the Waikato Pipeline will be available from that project after around $100,000,000 is spent.
Assuming a 6% cost of capital gives an annual operating cost of $10,000,000 - excluding treatment, staff and electricity costs. This means the cost of the water delivered by the pipeline for the first few years will be at least $3.00 per cubic metre.
There is clearly an enormous difference in cost between the current figure adopted for the marginal cost of extra water of just 3 cents/cubic metre, and the likely cost of the first water from the Waikato pipeline of $3.00/cubic metre. Yet there is no driver in Auckland's water pricing motivating reduced consumption to avoid or to defer such costs. If anything the message is the opposite - water is cheap use as much as you like.
But the most significant impact of consuming more water is the increased volume of waste water that has to be treated. The $360,000,000 Mangere treatment plant upgrade includes a capped discharge permit. Strict volume discharge controls apply to control adverse effects of Auckland's treated effluent on the Manukau Harbour receiving waters. Present rates of water consumption suggest that cap will be reached five year from now. After that time other alternatives for handling waste water will need to be operating. It costs far more to dispose of wastewater, than to bring on new supply. Yet these costs are not being put in front of the ratepayer.
Consuming more and more cheap water actually comes at a very high price indeed, yet no demand management strategy is seriously being considered for the Auckland Region.

In my view Watercare is not entirely to blame for this situation. Watercare is a LATE (Local Authority Trading Enterprise) and LATEs are required by law "to act commercially".The various Local Government Acts are silent about efficient water use, as is the Resource Management Act. There is no requirement for Watercare to adopt a demand management strategy.
Watercare's Statement of Corporate Intent does include environmental targets which are approved annually by its owners, yet experience suggests these priorities come second to the need to act commercially. As a director of the publicly owned Northern Disposal Systems rubbish company I had direct experience of LATE priorities when I advocated an increase in the price per tonne for rubbish dumping. My aim was to motivate rubbish reduction and thus lengthen the lives of existing landfill sites - a strategy adopted in New South Wales. However my fellow directors suggested such a strategy would not be commercial because it could lead to reduced revenues - given the competition - and would be ultra vires because the company was a LATE.
Interestingly, one of the Councils in the region has been able to achieve some degree of water use reduction through its adoption of separate wastewater charges. It has done this by putting its retail water and wastewater services into a LATE. The new organisation is charging homeowners and businesses for wastewater services on the assumption that 80% of the water used (which is metered) is returned to the sewer for treatment. This is a tangible example of how water use can be reduced through appropriate pricing. I am advised there could be room for water use reductions in the vicinity of 20% given the right price signals. Unfortunately, unlike LATEs, Councils cannot charge for waste water by volume. The careful single occupier of a $70,000 home pays the same wastewater charge in other parts of Auckland City, as the family with three toilets in a $750,000 home.

Even without water reform Auckland Councils and Watercare could be doing more now to implement demand management strategies. Councils can charge customers for water using fixed charges (for maintenance of the meter), and variable volume charges. Varying rates per cubic metre are possible, enabling large users - for example homes with swimming pools - to be charged more per cubic metre for extra water used.
Cooperation would be required across the region's Councils, and an agreement with Watercare on progressive tariffs, the cost of capital, and appropriate trigger points for new project startups - all driven by water demand.

All local government bodies need to be required to adopt water demand management strategies with specific water consumption reduction targets. Such strategies would "identify conservation measures currently adopted and being practised... describe plans for water reclamation and incentives to alter water use practices... evaluate these plans in terms of their cost and contrast with the cost of expanding water storages..." (From Sydney Water licence).

Councils need to be enabled to charge for waste water on a usage basis without having to go to the expense of establishing a LATE. And New Zealand's LATE legislation needs to be broadened to require accountability across commercial, natural resource sustainability, and consumer priorities. Despite Sydney's cryptosporidium outbreak, we can learn from the example of Sydney Water Corporation's principal objectives which were enacted to be "of equal importance". These include to "be a successful business...", "conduct its operations in compliance with the principles of ecologically sustainable development...", and "protect public health by supplying safe drinking water..."

4. Beneficial Reuse - Give it a go
There are an increasing number of beneficial reuse applications in New Zealand communities now. The City of Tauranga has installed a tertiary treatment plant and reticulates water to local golf courses. Rotorua reticulates treated effluent to local pine forests. Oamaru has combined silage production and forestry with its tertiary treatment plant.

However the largest city - Auckland - has yet to adopt the technology.

North Shore - which houses 20% of Auckland's population of 1,000,000, has conducted studies which show that almost a third of its treated effluent could be used in the summer months to irrigate local parks, golf courses and motorway berms. This would be at a time of year - low rainfall in summer - when it is most useful to conserve the resources stored in lakes and reservoirs.

Interestingly, the local Maori people have been most responsible for bringing beneficial reuse to New Zealand. It is their cultural view that sewage effluent should be passed through land and soil before being admitted to natural waters and seawater. Irrigation achieves this objective. Local maori become very involved in the permitting process for the large Mangere wastewater treatment plant which discharges into inshore marine waters. Maori argued that Watercare should be investigating benefical reuse as a means of reducing discharge volumes. In fact the permit to discharge imposes duties on Watercare to fully investigate this technology's feasibility. As yet Watercare have not - preferring instead to push ahead with the Waikato Pipeline.

5. Paying for new infrastructure needed for growth
This brings me to my final point from the telecommunications business case introduced eralier in this article. It assumes that the full costs of a service are properly allocated - normally to those who benefit from the service and pay for it. The benefits of transparency seem obvious. The users of the service better understand what they are paying for, and the service managers can manage and allocate costs fairly. However this sort of clarity is sometimes hard to achieve where water and transport services are managed in the public sector.

Several City Councils in the Auckland region have been criticised because the cost of infrastructure needed for new subdivisions and infill housing is largely being met by established ratepayers. They argue they have already paid once for roads, water and sewage systems when they bought their home. They are prepared to pay for maintenance and to meet new standards imposed by environmental law, but quite reasonably object to paying for someone else's infrastructure.

The North Shore City Council has recognised these concerns and updated its asset management plans to the point where a "fair and reasonable" sewage treatment development levy of $1,320 will now be charged on every new property. This levy is a new property owner's marginal contribution to the cost of expanding the local sewage treatment plant. Further levies are being prepared for water, stormwater and sewage network services.

Several major water and wastewater projects are on the regional drawing board including the Waikato Pipeline (estimated all up cost: $155 million and designed to service the water needs of around 100,000 new households), and Project West sewage treatment plant (proposed budget: $40 million for wastewater needs of around 10,000 new households). These figures suggest potential regional development levies of $1,500 for water and $4,000 for wastewater services.

Regional development levies of this type could be an appropriate way of allocating the capital costs of such projects. Simply increasing water and waste water charges uniformly to cover increased loan costs would be unfair. What telecommunications company would stay in business if it made existing users pay for other customers to get connected?

6. Public Health comes first
The Waikato River drinking water project is the first that I am aware of in New Zealand where a large river with significant upstream contaminant discharges, is proposed as a drinking water source. This goes against the grain of New Zealand and Maori culture which does not accept there is a need to treat wastewater and then to drink it. There are better sources.
International water wisdom also suggests that "best available source" for "highest need" is an appropriate principle to apply when selected a drinking water source.

The Waikato river catchment is home to some 500,000 diary cows and other farm animals. Its banks are home to several large towns and the city of Hamilton - all of which discharge their treated sewage effluent into the Waikato River.
Sure it is a big river in volume terms - with the project proposing to extract around 1% of flow. However dilution does not appear to be the solution to pollution when it comes to residual biotoxics which appear to be concentrated over time by human tissue.

The public aversion to the prospect of adding wastewater to their supply, no matter how well treated, is a major reason people are opposed to the Waikato Pipeline. The "yuk" factor is very real. This, combined with the health risks involved based on the uncertainties of removing the known pathogens and the many emerging pathogens plus the uncertainties about the ingestion of trace organics, especially by pregnant women, continues to cast public doubt on the project.
In my opinion the many pharmaceutical chemicals in municipal wastewaters and the many new, and the thousands of synthetic organic chemicals not yet developed, that will be found in urban wastewaters constitute unnecessary health risks. This is especially true for Auckland, where our current supply is so well protected. The presence of disease in Hamilton and the Waikato watershed is one indication - there is over 40x the incidence of cryptosporidiosis recorded by Waikato Health Care compared to its Auckland counterpart.
Watercare has done its best to commit to a multi-barriered treatment process - including disinfection, activated carbon and membrane technology. However it is necessarily targetting the contaminants defined in the New Zealand Drinking Water Standards and these will always lag behind industry's ability to invent and bring to market and consumption new chemicals with untested effects.

Watercare has not demonstrated that the technology will be capable of eliminating these additional risks, which need not be taken in the first place.

7. Lessons to be learned
It may be that the Waikato Pipeline is too advanced as a project to stop. It will be a tragedy for many years to come if the need to pay for it triggers a period when ratepayers are told to use as much water as they can - just to extract maximum revenue.

The cost of associated waste water treatment plants - to handle the additional wastewater that will be produced as a consequence of bringing in new water from the Waikato River - has yet to be considered by the community.

I am hopeful - whatever happens - that a better understanding of the whole water cycle will emerge from this process, and an awareness that an appropriate demand management strategy is essential for the region, for the environment and for future generations.