Senior officials from Northern Ireland Water said they had prepared a “consequence document” which detailed shutting down its wastewater services across the region if extra funding had not been received.
Stormont’s Infrastructure Committee heard concerns that the public company was funded on a “piecemeal basis” and that the arrangements were “not fit for purpose”.
NI Water is government-owned and funded by the block grant provided to Stormont by the Treasury.
The firm’s chief executive Sara Venning and director of finance and regulation Ronan Larkin explained the funding pressures the company was facing during an appearance before MLAs on Wednesday.
Mr Larkin said that since the last annual budget was set in April, energy costs and inflation had risen sharply.
He said: “Since then we have seen high inflation. The regulator assumed inflation of 2.7% almost a year ago.
“We know that inflation is running at about 7.5% and possibly rising.
“On top of that there is increased energy costs which is likely to continue.
“At one point in December, prices for gas-based electricity were running at about nine to 10 times what they had been a year ago.
“Today, they are four to five times higher than they were a year ago. That is the difference we have to pay.”
Mr Larkin told MLAs that, at the time of the October monitoring round, NI Water was facing a shortfall of £19.7 million in its annual budget.
He said the company was given an allocation of £1.5 million in the monitoring round and then received further additional funding of £2.8 million from the budget of the Department for Infrastructure.
He added that NI Water generated savings of £1.6 million and was given emergency funding of £1.8 million in January by the Department of Finance.
It then received an additional £12 million in the monitoring round on January 20 to cover the period to the end of the current financial year.
He said: “We tend to look at Northern Ireland Water as a public health facility here in Northern Ireland, it is government-owned and it is very difficult to continue to operate it on a piecemeal basis, particularly as funding looks like it might not cover the issues.
“That is one of the things we have to look at, are the funding arrangements around Northern Ireland Water fit for purpose today?
“Are they able to underpin what is a public health utility?”
Ms Venning: “It is very clear that we are in a period of upward inflation and that energy price increases are very significant in terms of overall budgets.
“That means there is a need for additional resource and these increases are inescapable.
“That does bring conflicts when bids for additional funding are not met. Starving the business of investment leads to service disruption and service degradation.
“Our experience between the October and January monitoring round was a stark example of that.”
Committee vice chairman David Hilditch asked about the accuracy of information the committee had received before Christmas, that schools and hospitals would have to close unless additional funding was supplied to cover the NI Water shortfall in the financial year.
Ms Venning said: “We prepared a consequence document and, if you recall the gap between the October monitoring rounds was in the region of £19 million.
“The question that was put to us was what would happen if you don’t get the £19 million and you must live within the RDEL (Resource Departmental Expenditure Limits) budget?
“We examined our costs and set out a series of consequences. It was all around wastewater. We said we would prioritise drinking water.
“It was a ridiculous exercise because the amount of money that was short, we would have had to shut down the entire wastewater part of our business and even then we wouldn’t have saved the full amount of money.
“In shutting down the entire wastewater part of our business, that waste is flowing in pipes, there are no pumps to pump it on, it would have escaped.
“Of course schools would have had to have closed, if they can’t flush their toilets, and they can’t remove waste and they have no hygiene facilities.
“It is hard to imagine any part of society that doesn’t have an impact.”
UUP MLA Roy Beggs said: “Essentially you have been operating on fumes.
“There was a bid in for October monitoring, which I understand was not successful.
“You were potentially going bust. The Department for Infrastructure scrambled around to find what they could find, yourselves did the same.