In the short term, COVID-19 and Auckland’s prolonged drought continues to present dual challenges to our finances.
We began 2020/21 by focusing on bringing forward planned investment to augment our water supply – with an injection of $224 million. This investment was directed towards building three new water treatment plants and upgrading three existing ones, collectively boosting our supply capacity by more than 100MLD. (See the natural environment section for these project details.)
The drought has reinforced that diversifying our water sources is critical to long-term supply security. While we responded to these immediate challenges, we have also been focused on developing a long-term investment plan – our 2021–2041 Asset Management Plan (AMP). This AMP outlines how we will invest $18.5 billion over the next 20 years, delivering new water sources and infrastructure to cater for Auckland’s growing population, renewing many of our ageing assets and expanding the wastewater network, ultimately improving the environment.
Impacts of COVID-19 have resulted in substantial loss of revenue to the Auckland Council group, forecast to exceed $1 billion over the next three years. This has shaped the way we will fund our AMP as our borrowing is tied to Auckland Council Group.
Projects outlined in the AMP are financed for using a combination of water and wastewater service charges and Infrastructure Growth Charges. Watercare's debt is consolidated into the overall Auckland Council debt
The 10 year pricing profile reflects the impact of the current constraints on Auckland Council's debt headroom.
A significant rise is not one we take lightly. Auckland’s population is expected to grow by almost half a million people over the next 20 years, so we have a huge responsibility to ensure we can continue to provide top-quality drinking water to all of our customers and safely treat our region’s wastewater while adapting to the changing climate. And while our population grows, industry does too. Auckland is already home to two-thirds of the country’s food and beverage manufacturers – two sectors for which water is vital. Ensuring we can support growth in these industries with a secure water supply is important for the wider economy.
We are working with Auckland Council and the Government to find an interim solution to address the funding challenge.
In spite of the challenges we have faced as a result of the global impact of COVID-19 and the local effects of the drought, we continued to deliver on our mission to be a financially stable business that delivers value to its customers and communities.
Affordability of services remains a fundamental consideration for our operations. In 2020/21, an average Auckland household (comprising three people) spent less than 1% (0.84%) of its monthly income on water and wastewater charges; this reflects the value for money that our services provide.
In addition, 2020/21 has seen our highest-ever investment in capital works, with a total spend of $767 million. This represents funding brought forward towards our drought response alongside planned projects like the Central Interceptor Wastewater Tunnel and Hūnua 4 Watermain – the former will reduce wastewater overflows and help keep Auckland’s beaches clean while the latter will ensure security of supply and cater for growth.
Our total revenue was $802.6 million in 2020/21 and compared favourably to $752.3 million in 2019/20.
Slight changes to revenue streams reflect the current operating context. There was a 4.4% decrease in water and wastewater revenues (compared to 2019/20); this represents the region’s reduction in water consumption as a result of our strong public messaging and close work with stakeholders in response to the drought. Meanwhile, revenue from Infrastructure Growth Charges totalled $196.9 million compared with $109.8 million in 2019/20, reflecting the unprecedented growth in housing development across the Auckland region. While helpful to an extent, these Infrastructure Growth Charges still only recovered 40.4% of our $486.4 million capital expenditure on growth projects for the year.
Although we are spending more on capital investment, our operational costs increased 8.6% in 2020/21 compared to 2019/20 and have grown an average of 8.3% per annum over the past four years. The increase in maintenance costs is due to unplanned maintenance, following the pattern from 2019/20 when we undertook more reactive maintenance to address issues like burst water pipes and wastewater blockages.
Next year will see us keeping a close eye on the Government’s Three Waters Reform as more information comes to light, while we will continue to support the Department of Internal Affairs in its work on the reform with our experience as New Zealand’s largest water utility.
On 1 July 2021 we launched our future-focused 20-year asset management plant (AMP).
Over the next 20 years, the city is expected to grow by another 476,000 people, with further growth of industry.
Our AMP details how we plan to accommodate this growth, continue to deliver reliable services and respond to a changing climate.
The 2021–2041 Asset Management Plan sets out how we intend to invest $18.5 billion ($2.5 million each day on average) over the next 20 years to enable the region to grow sustainably in the face of a changing climate, without a decrease in service reliability or quality.
This plan will be paid for using a combination of water and wastewater service charges, Infrastructure Growth Charges and borrowings.
Setting a clear and fair price path is important to us and essential to enable us to build and retain trust in our customers. Therefore, every dollar collected for water and wastewater services is used to deliver these services, safely and reliably.
Out of every dollar collected from customers:
We acknowledge that our existing customers do not want to pay for growth-related infrastructure. Consequently, we are working to fully recover the cost of servicing growth through our Infrastructure Growth Charges, which will progressively rise over the next four years until we achieve a full recovery in 2025.