Affordability the key concern when setting water prices for 2021

Waikato pipeline upgrade to increase volume of water taken from the river
Photo: Work on the Waikato pipeline was carried out in late-December 2020 to increase the volume of water that can flow through the pipeline to 225MLD.

The average Auckland household will pay $1.50 more per week for water and wastewater services from 1 July 2021, based on a conservative price path signed off by our board of directors at a meeting in late December 2020.
  Board chair Margaret Devlin says that over the past 12 months, the business has been developing a comprehensive asset management plan that identifies what the company needs to spend over the next 10 years in order to service growth, satisfy consent requirements, renew assets, improve resiliency and respond effectively to climate change.

“Before Covid-19 was on our global radar, we decided to take a bottom-up approach to developing the next asset management plan – one without price or debt constraints – to fully understand the business’s capital requirements,” says Devlin.

“This process identified a need to invest $8.959 billion over the next 10 years. While this is more than we identified in our 2018 plan, we believe it would be money well spent in terms of the value and security it would deliver for Aucklanders.”

Our operations and capital investment programme is funded using revenue from customer service and infrastructure growth charges as well as borrowings. While we do not receive funding from property rates, the balance sheet sits within the Auckland Council group.

Devlin says the severe impact of Covid-19 on Auckland Council group’s revenue means we cannot deliver our preferred asset management plan without significant and unaffordable price rises.

“We are very conscious that many Aucklanders are facing financial hardship as a result of Covid-19,” says Devlin. “Therefore, we have been working to scale back our capital works programme to deliver a price path that is affordable for most households. This means that from 1 July 2021, most households will pay around $1.50 more per week for water and wastewater services. Our infrastructure growth charges will also go up – by 12 per cent.”

The reduced asset management plan will see projects that are underway or contracted continue, such as the Central Interceptor wastewater tunnelling project and the Hūnua 4 watermain project. However, other significant projects will be postponed, such as the Huia Water Treatment Plant replacement project and the Rosedale Wastewater Treatment Plant upgrade. In addition, the renewals programme will be cut by half.

“We are very aware of the implications of our decision,” says Devlin. “By delivering an affordable price path in the short term, we will find it harder to service growth and to improve environmental outcomes, which we’re both passionate about and legally obliged to do.”

We are working with Auckland Council and Government to find an interim measure to address the balance sheet issue until the water industry is reformed. Government will possibly underwrite the company’s debt, enabling it to borrow more without affecting the council group’s credit rating.

“We have a strong balance sheet with a debt-to-asset ratio that is far lower than most utilities,” says Devlin. “This means that if we were free of our current financial constraints, we could comfortably fund our preferred asset management plan without higher-than-normal price rises.”

Earlier this year, we received the findings of a review carried out by the Water Industry Commission for Scotland (WICS) on performance relative to other water providers in New Zealand and the UK. Devlin says Watercare’s preferred asset management plan would address most of the recommendations in the report.

“Scottish Water’s ‘spend to save’ approach was critical in kick-starting what became a huge leap forward in performance. We would benefit from a similar approach,” says Devlin. “WICS also recommended we invest much more year-on-year in renewing and improving assets. This investment will ultimately reduce unplanned maintenance and operational costs.

“Therefore, our focus is on finding a way around our current financial constraints in order to benefit Aucklanders in the short and long term.”
Auckland Council
Watercare’s price increase and capital expenditure programme will be included in Auckland Council’s 10-year budget 2021-2031 (Long Term Plan). You can have your say on the budget from 22 February 2021. Visit Auckland Council’s website for details.