Annual Report 2011 - Watercare

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Watercare Services Limited 2011 ANNUAL REPORT 2011 STATEMENT OF SERVICE PERFORMANCE (continued) Stakeholder relationships (a) To engage with stakeholders in a transparent and collaborative manner including the company’s Maori and environmental advisory groups. (i) To consult with all appropriate stakeholders in regard to key infrastructure projects. Regular communication occurs between Watercare and its stakeholders in relation to key infrastructure projects. Following integration Watercare has worked closely with departments of council and has communicated with local boards. The company retains its independent Maori and Environmental Advisory Groups and also engages with the local community liaison groups on relevant issues. There were five formal meetings with each advisory group, one of which was a combined meeting, and another workshop for each group. (ii) To consult with relevant stakeholders in the development of the Regional Asset Management Plan, including major projects. LNOs and key stakeholders were consulted during the development of the 2011/12 Asset Management Plan (AMP), which was also reviewed by the Auckland Council’s CCO monitoring group. Following integration, Auckland Council became the key stakeholder, and all information and meetings were open to the public. For instance, the northern strategic growth area (NorSGA) and the Kumeu, Huapai and Riverhead (KHR) developments followed a process of consultation by the two local councils and two LNOs with local residents and Watercare. Following integration, Watercare has continued with direct consultation with the Auckland Council, local residents and the Local Boards. The 2011/12 AMP was initially developed in consultation with the local councils and LNOs and discussed with the Auckland Council CCO Strategy and Review Sub-Committee on 21 April. Feedback was included in the 2011/12 SCI. (iii) To obtain annual feedback from the company’s advisory groups on the consultation process. The advisory groups meet on a quarterly basis during the year. Feedback from the groups is included in the 2011 Annual Report. (b) To provide leadership within the water industry and participate in public policy initiatives and statutory submissions. (i) To report on the number of policy initiatives and key submissions made per annum. Updates on policy submissions and progress are reported to the directors each month and to the shareholder each quarter. (c) To promote appropriate educational and recreational initiatives. (i) To continue with the Rain Forest Express, the ‘Adopt a Stream’ and other educational programmes as appropriate. Both Watercare community programmes continue to be very popular. The number of pupils who took part in the Adopt A Stream programme was 6,988 for the year end 30 June 2011. Patronage on the Rain Forest Express was strong for the year and was approximately 11% higher than the previous year. (d) To maintain sound governance and contribute to the development of a productive working relationship with the Shareholder Representative Group (SRG). (i) To hold briefings with the SRG at least once every six months and to undertake Council briefings as requested. Watercare briefed the SRG, Auckland City Council, Waitakere City Council and North Shore City Council prior to their disestablishment. Following integration, Watercare has held briefings with the Auckland Council. Customer service commitment (a) To supply high quality and reliable drinking water. (i) To maintain the public health grading of water treatment and networks of ‘Aa’. Water quality has been maintained based on the 2009/10 grading assessment carried out by the Auckland District Health Board on behalf of the Ministry of Health 1 . Metropolitan: The metropolitan treatment plants and distribution network supplying the majority of the Auckland population were ‘Aa’ graded in 2009/10. Rural: Upon integration, only two of the 14 non-metropolitan water treatment plants and networks were graded ‘Aa’ when transferred to Watercare. Nine plants and related networks were ungraded. A series of short-term actions were undertaken to address the bacteriological and protozoa compliance requirements, and plant condition and reliability issues. A long-term strategy to achieve ‘Aa’ grading of all plants by 2020 is being implemented, with the majority of plants targeted by 2015. The strategy involves replacing the water source and water treatment plants as necessary, at a total estimated cost of $100 million. A priority was replacing the water supply to Pukekohe by a 6.5km pipeline from the Waikato River at a cost of $13 million. This was initially approved in February 2011 and is due for completion in 2013. 2011 Financial Report (ii) To ensure that demand can be met in a drought with a 1% probability of occurrence with 15% residual capacity in its reservoirs. The drought standard is being achieved in the integrated network. The Waikato Water Treatment Plant upgrade that is currently underway will ensure Watercare continues to meet the required drought standard as the population of Auckland increases. This excludes Rodney and Franklin districts which are being addressed as part of the rural plant upgrades PAGE 108 1 The 2010/11 grading assessment had not been received by completion of the Annual Report. Return to Contents page
Watercare Services Limited 2011 ANNUAL REPORT 2011 STATEMENT OF SERVICE PERFORMANCE (continued) (b) To provide for the safe transportation, treatment and disposal of bulk wastewater. (i) To target no more than 15 dry-weather sewer overflows per 100km of wastewater pipe length per annum. There were 1.9 recorded dry weather sewer overflows per 100km of wastewater pipe length. Dry weather overflows exclude overflows caused by stormwater entering the network, and are normally caused by chokes or breaks in the system. (c) To be responsive to customer needs and to deliver a service meeting contractual standards. (i) To achieve 100% compliance with the customer contracts. This measure refers to the contracts with the six local network operators (LNOs) prior to integration. Full compliance was met with the LNO contracts. The United Water contract for the Papakura area is the only contract to carry on beyond integration and this continues to be complied with. Asset management (a) To develop and implement effective and efficient capital investment and maintenance programmes. (i) To ensure that capital projects have robust business cases and are delivered to plan. All Watercare capital projects are supported by robust business cases and are managed to ensure delivery to plan in a timely and costeffective manner. Project progress is reported regularly to the executive and the board. Upon project completion, post-completion reports are compiled for all projects and are reviewed to identify opportunities for improvement. Since April 2011, projects over $10 million are reviewed by the board. (ii) To continue with the implementation of the reliability centred maintenance (RCM) system on strategic assets. An RCM-based maintenance programme has been implemented for the Mangere Wastewater Treatment Plant, for the water and wastewater networks and for water treatment and head works assets. RCM models will be updated as needed. RCM has been used to assist with the development of the maintenance budgets. (b) To maintain a focus on integrated planning with customers to secure long-term wastewater solutions and manage regional wet weather overflows. (i) To facilitate a process to agree regional environmental objectives, including the setting of wastewater overflow performance targets for each of the region’s key receiving water environments, within three years. Watercare is continuing to work with the Auckland Council’s planning and stormwater teams to progress these issues. With the replacement of the LNOs, Watercare now deals directly with Auckland Council on the setting of targets and these are formally adopted through the SCI/SOI process. Progress on the SCI/SOI performance targets are reported to the Council quarterly. The process of developing the 2012-2014 SOI is due to begin in October 2011 (ii) To progress planning associated with the Central Interceptor. Watercare has presented to the Auckland Council Accountability and Performance Committee and to cluster groups of the local boards on wastewater issues including the Central Interceptor. Planning for the Central Interceptor project continues and a project manager for Watercare has been appointed. The focus on preparing material for the consenting phase continues. Economic performance (a) To ensure that financial strategies are consistent with achieving economic efficiency, intergenerational equity and an optimal cost of capital. (i) To meet the requirements of the Auckland City Council guarantee of Watercare’s debt. All requirements of the guarantee were met. (ii) To achieve a minimum funds flow from operations (FFO) to interest cover of 2.5 times before any price adjustments. Watercare exceeded this target. The FFO ratio at 30 June 2011 was 3.32. The higher-than-target ratio resulted from a combination of higher-than-budgeted funds from operations, due largely to lower operating costs, and a lower-than-budgeted gross interest expense caused by lower borrowings and a lower cost of funds. Funds from operations as the numerator in the ratio is Net Profit after Tax + Deferred Tax + Loss on disposal and provision for redundant property, plant and equipment and other restructuring costs + Depreciation + Interest Expensed in the Statement of Performance – Interest Income. Interest in the denominator is Gross Interest (i.e. includes capitalised interest) – Interest Income. PAGE 109 2011 Financial Report Return to Contents page
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