Steve Mogford, Chief Executive Officer at United Utilities has said that the upcoming AMP6 regulatory period will place more emphasis on operational performance.

Mr. Mogford was commenting on United Utilities' half year results for the six months ended 30 September 2014 which were published this morning - the water comany has reported increased revenues and profits. 

Revenues rose 1.6% to £859.4m (2013: £845.7m), while  underlying operating profit also increased from £339.8m to £343.1m after a £13m one-off special customer discount payment.

Regulatory capital expenditure also rose to £419m (2013: £407m) including £75 million of infrastructure renewals expenditure. The utility flagged up continued high levels of capital investment – United Utilities is expecting to invest a total of c£850m in 2014/15. The firm has invested around £3.3 billion since April 2010.

United Utilities said the significant improvements made in AMP5 on Ofwat's SIM measure had been recognised in the regulator’s draft determination with no penalty relating to SIM, averting the risk of a possible c£80 million revenue penalty had performance not improved. Over the three years to 2013/14, the company has moved up from last position to ninth place, out of the 18 water companies, on Ofwat’s combined SIM measure and achieved an above average score in 2013/14.

The water company is reinvesting around £280m of outperformance which includes a reinvestment of around £40 million of financing outperformance in private sewers costs which were not reflected in price limits for the current period.

The business is targeting total operating expenditure outperformance over the 2010-15 period of at least £50 million, or approximately 2%, compared with the regulatory allowance. This is in addition to the base operating expenditure efficiency targets set by Ofwat, which equate to a total of approximately £150 million over the five years. United Utilities said it was ahead of schedule and expected to deliver cumulative operating expenditure outperformance of over £50 million across the 2010-15 period.

Debt collection an ongoing issue

Debt collection continues to be an issue for United Utilities- in May 2014 the firm highlighted that debt collection was likely to become more challenging, particularly as the region suffers from high levels of income deprivation which is the principal driver of its higher than average cost to serve. Ofwat’s draft determination recognised the impact of deprivation on retail costs by making an adjustment of £19 million per annum. In the first half of this year, bad debt expense has increased by £5 million, from 2.2% to 2.7% of regulated revenue.

Further growth in retail business market

The firm also reported on its further growth in its Business Retail division – United Utilities said it has been extending its presence in the retail water market for business customers and building its capability to ensure it is in a strong position as the competitive business retail market evolves.  

Describing itself as “very active in this expanding market”,  since gaining a Scottish water supply licence in 2012, the firm has grown quickly to become the most successful new entrant and the second largest water retailer in Scotland. Expansion has continued in 2014/15 – United Utilities has now won over 200 customers, covering over 2,600 sites and representing future annual revenue of c£14 million. The firm said it also has a significant pipeline of opportunities and is continuing to offer and develop its range of value-added services.

Operational performance and environment are top priorities

The firm said that improving operational performance and delivering benefits for customers and the environment remain its top priorities  and it is confident of delivering and outperforming on its regulatory contract.

The company is reporting strong operational performance –as measured in Ofwat’s latest (2013/14) key performance indicators report. Of the fifteen assessments, United Utilities was rated ‘Green’ for thirteen and ‘Amber’ for two, with no areas assessed as ‘Red’ on the traffic light reporting matrix. The balance of ratings represented an upper quartile performance, in respect of the ten water and sewerage companies. The Environment Agency’s latest assessment also indicates that United Utilities is an upper quartile company – the firm achieved the lowest number of serious pollution incidents, by length of sewer, in England.

Commenting on sewer flooding, United Utilities said it has continued to invest heavily in schemes designed to mitigate the risk of flooding of customers’ homes, including incidence based targeting on areas more likely to experience flooding and defect identification through CCTV sewer surveys. The business  plan for the 2015-20 period includes a target of reducing sewer flooding incidents by at least 40%, in line with customers’ affordability preferences.

The utility said its wastewater network will continue to benefit from significant investment going forward as it adapts to weather patterns likely to result from climate change.

On leakage, United Utilities has either met or outperformed its regulatory leakage target in each of the last eight years and is  on track to meet the target again this year.

Notable achievements in corporate responsibility

The results also highlight United Utilities’ notable achievements in terms of corporate responsibility – the firm retained a ‘World Class’ rating in the Dow Jones Sustainability Index for the seventh consecutive year, achieving industry leading performance status in the multiutility/water sector in the most recent assessment. It also has the highest ‘Platinum Big Tick’ ranking in Business in the Community’s Corporate Responsibility Index and holds membership of the FTSE 350 Carbon Disclosure Leadership Index. The utility is one of only four FTSE 100 companies to hold all three accolades.

Carbon reduction and renewable energy generation are key targets

In terms of achieving the lowest sustainable cost, United Utilities’ asset optimisation programme is continuing to provide the benefits of increased and more effective use of operational site management to optimise power and chemical use and the development of more combined heat and power assets to generate renewable energy.

The firm is also implementing a more proactive approach to asset and network management, with the aim of improving modelling and forecasting to enable it  to address more asset and network problems before they affect customers, thereby reducing the level of reactive work and improving efficiency.

On carbon footprint and renewable energy generation performance, in 2013/14, United Utilities’ carbon footprint totalled 449,042 tonnes of carbon dioxide equivalent, a reduction of 11% compared with the previous year. The firm has set a target of achieving at least a 21% reduction in carbon emissions by 2015, measured from a 2005/06 baseline – and its performance in 2013/14 which was 23% below the baseline. The firm also achieved its highest ever renewable energy production in 2013/14 of 133 GWh, which represented around 17% of total electricity consumption, up from 13% in the previous year. The utility is beginning to implement plans to further increase renewable energy production over the next few years.

AMP6 will place more emphasis on operational performance

Commenting on the results, Chief Executive Officer Steve Mogford said:

"We are approaching the end of the 2010-15 regulatory period and we are pleased with the progress we have made over the last few years.  We are now a leading operational performer in our sector, having delivered or exceeded our outperformance targets, and are one of the most improved water companies for customer satisfaction. “

"This strong performance has given us the capacity to reinvest around £280 million, for the benefit of all our stakeholders. In addition, our customers are set to benefit from below inflation growth in average household bills for the decade to 2020.

"The next regulatory period will place more emphasis on operational performance. Our significant improvements and the foundations we have built provide a solid platform for the future."