Southern Water has announced that it has reduced its proposed £4 billion AMP7 spend by £366 million in response to Ofwat’s initial assessment of its PR19 Business Plan.

The water company’s plan had set out a proposed expenditure of £4 billion including £800 million on improving the environment.

Southern Water’s response includes a new 5.5 per cent reduction in customer bills on top of efficiency savings.

In its initial assessment Ofwat had required that the company make major efficiency gains and provide further robust evidence of its ability to deliver what is acknowledged to be a highly ambitious plan.

The assessment also said that the company had not provided information or provided insufficient detail of the arrangements for risk sharing with customers relating to the development of large new water resource options  - specifically, the Fawley desalination plant and Havant Thicket reservoir. Ofwat said that Southern Water should develop appropriate risk sharing arrangements or provide further detail to ensure that customers are adequately protected from large scale risks. In relation to the development of Havant Thicket reservoir to facilitate new supplies to the company, it also asked the water company to explain how the proposed commercial arrangement would protect customers.

Comenting on Ofwat's initial assessment, Southern Water said:

“In our response, we have identified £366 million of expenditure reductions on the £4 billion plan - closing half of the cost challenge set us.”

“We have also provided the evidence and analysis we believe Ofwat needs to support the remaining £400 million challenge.”

“Our board and executives believe our response presents a truly significant movement in our plan and demonstrates a crystal clear commitment to continuous improvement, efficiency and long-term resilience.”

“Our transformation programme continues to bear fruit but we accept that there is still a long road to travel to become the company that our customers, our regulators and our stakeholders want and deserve.”

“To that end, we are adopting all the major expectations of 'putting the sector back in balance'. Executive pay and bonuses will be directly linked to delivery to customers and communities. Dividend policy to our shareholders will likewise reflect Ofwat's expectations.”

The water company added that the South East faces major challenges in ensuring adequate resilient water resources due to changing climate and growing population.

“We believe our revised plan - independently assured and audited - is up to the task of meeting the challenge of resources, the test of public partnership and benefit and the scrutiny of regulators,” Southern Water said.

Key programmes in the water company’s PR19 plan include:

• Improving 573 km of the region's rivers
• Replacing 330 km of water mains
• Cutting leakage by 15 per cent
• Working in partnership to improve the health of rivers, wetland and coastline

Building an intelligent network by installing 2500 water quality sensors and thousands more leak detection devices