Severn Trent Water has accepted Ofwat’s Final Determination for the AMP7 2020-2025 investment period, according to its latest trading update for 1 October 2019 to 28 January 2020
Following a detailed review, the Board of Severn Trent Water Ltd said it has decided to accept the Final Determination for the period 2020-2025, published by the regulator on 16 December 2019.
The Board’s decision takes into consideration:
- The 'in the round' approach taken by Ofwat;
- A totex allowance for the next five years of £6.8 billion - in line with the utility’s PR19 business plan;
- Stretching but achievable suite of customer ODIs, such as a 15% reduction in leakage, 5% reduction in blockages, and helping 200,000 customers a year to pay their bill by 2025; and
- An expected RCV real growth rate of 3.8%, creating long-term value for shareholders.
New dividend policy for next five years
The Board has also announced that the dividend policy for AMP7 will be growth of at least CPIH -the Consumer Prices Index including owner occupiers' housing costs.
Based on the FY19/20 dividend of 100.08p, the dividend for FY20/21 is therefore expected to be 101.58p, using a CPIH of 1.50%.
The water company said it is continuing to benefit from the efficiencies it has delivered in AMP6, putting it on the right cost run rates for AMP7. The AMP6 capital programme is now in its final stages with the Birmingham Resilience Programme due to complete construction in March.
Overall, Severn Trent remains on track to deliver at least £25 million in customer ODI net outperformance payments for the year. This will take the total amount deferred to AMP7 revenue to at least £177 million in nominal prices.
However, the company warned that the significantly more stretching targets agreed with Ofwat for flooding measures had been challenging – it expects penalties on some of these to partially offset outperformance in other areas.
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