NI Water healthy figures are buoyed by efficiency
NI Water is the largest provider in Northern Ireland of a key infrastructure service affecting every household and business.
Assessing the performance of NI Water is multi-dimensional.
The immediate 'top line' is its profitability followed critically by its major investment programme and, for the longer term, the planning for future standards of sustainability, efficiency and modern development.
In the latest financial year, to March 2017, the organisation had current revenue of £422m, up just over 2% on the previous year.
Current revenue came from direct charges to business customers, £74m, and an operating subsidy from Government, £284m, as an alternative to charges to households for their usage of water and sewerage services.
As part of current revenue, the organisation takes as a credit the transfer of installation assets initially paid for by customers of £32m.
Other revenue was raised as a charge to the Department of Infrastructure for road drainage, £21m, and connection and other charges, £11m.
The financial presentation of the results for NI Water focuses both on its overall trading profits and on the scale and financing of the capital expenditure needed to maintain its assets.
NI Water made pre-tax profits (excluding the value of transferred assets) of £70.8m, up just over £4m on the previous year. In conventional terms, this is an attractive rate of return on the balance sheet value of assets at nearly £3bn. From its retained profits, £24.7m was paid as dividends to the owner, the Department for Infrastructure, thus reducing the overall current cost to the taxpayer to nearer £259m.
The healthy trading results are partly an outcome of improving efficiency in the organisation and an ability to manage within the revenue permitted by the Regulator as part of the second year of a six year performance framework.
Spending on the latest annual capital investment programme of NI Water was £154m, nearly £20m more than in 2015-16.
With capital assets valued at nearly £3bn and an annual depreciation provision of nearly £72m, the need for and the financing of the capital programme is a major feature of the annual reporting. The £154m programme has been financed by a mixture of funds from depreciation, retained money from post-tax profits and, after dividend payments, with increased borrowing of £30m from Government.
As at the end of the financial year, the balance sheet shows that NI Water has outstanding (non-current) loans and borrowing of £1.21bn.
A £1.7bn long-term continuing capital improvement programme, to be delivered within a six year setting, was originally approved by the regulator. That programme has been adjusted, downward, in an agreement between Government, the Regulator and NI Water, to deliver £990m in a six year period.
That longer term capital programme combines both the necessary replacement of assets as they reach the end of their useful lives, as well as an anticipation of the expected increasing volumes of fresh water, waste water and sewerage that will be needed. Headline projects emerging include major waste water treatment capacity needs in Ballycastle and Dungannon.
A dramatic illustration of pending future capital investment needs is that for the Belfast area there may be a future call for nearly £750m to enhance services.
The capacity for waste water treatment will be inadequate to meet growing demand and a feasibility study is underway for what may be a £300m investment to be completed by 2027.
Company report: AES Kilroot Power
AES Kilroot Power is the large electricity generating plant close to Carrickfergus. It is a subsidiary of the American-owned parent company AES (NI) which also now owns the AES Ballylumford business which has another group of electricity generating plants in Islandmagee.
The generating plant at Kilroot was originally designed to burn oil or coal to generate electricity. Later it was converted to also use, according to market conditions, natural gas. In recent years, but subject to emissions limits, there have been periods when lower international coal prices have seen large imports of coal thought to be of south American origin.
The long-term future of the Kilroot plant is uncertain since the agreed EU-wide agreement to observe tighter emissions controls would constrain the profitability of operations within a few years.
The accounts for Kilroot Power reflect a series of factors affecting its profitability. Total revenue in 2016 fell by 1% because of lower wholesale electricity prices which emerged in the all-island Single Electricity Market (SEM).
A feature of the operating profit in each recent year has been the recording as ‘other operating income’ of a significant gain from the various hedging strategies affecting different variables, including fuel prices. In 2016, operating profits were increased by £7.2m from this source, compared to £10.2m the previous year.
A major decision in 2015 affected the operating profit in that year. In August 2015, the SEM Committee decided to reduce the payments made to generators which make capacity available by about 10%. This change, along with foreign exchange and commodity price movements, had a serious impact on revenue. This was assessed to represent an indicator of the impairment of the assets of the business.
The accounts, therefore, for 2015 showed an impairment loss of £24m which resulted in what might have been an operating profit of over £10m translating into an annual operating loss of £14.8m.
The shareholding parent company has received no dividend payment in the past two years after a dividend of over £36m in 2014.