South West Water has published its draft £868 million AMP6 Business Plans submitted to Ofwat today – representing a 19% increase on its AMP5 spend of £730 million.
This is around £138m more than in AMP5 reflecting increases in expenditure to address bathing and shellfish water improvements. The increased level of investment will continue into the AMP7 period (2020-25) as a result of further envisaged legislation (adoption of customer supply pipes) and other investments the utility has chosen to defer to AMP7 including the duplication of strategic water mains and investment to reduce leakage levels.
The draft Plan consists of:
- Capital investment to maintain stable serviceability £570m
- Bathing and shellfish waters £73m
- North Plymouth Water Treatment Works £54m
- Metering £31m
- Advanced Anaerobic digestion £30m
- Transferred sewers & pumping stations £29m
- Drinking water quality programme £25m
- Upstream Thinking £14m
- Water mains rehabilitation & conditioning £12m
- PUROS and iOps £11m
- Resilience £10m
- Downstream Thinking £9m
Total - £868m
The key areas of efficiency delivery in the business plan are focused in the following areas:
- targeted innovative investment- new water treatment works planned for North Plymouth –cutting edge technology - Upstream and Downstream Thinking projects
- operational ways of working and an extension of the innovative Phased Utilisation of Remote Operating Systems PUROS initiative implemented during 2010-15
- energy procurement and usage through targeted investment in energy efficiency and renewable energy generation schemes.
The £54m North Plymouth water treatment works will be a strategically important investment – a new drinking water treatment facility at Roborough has been evaluated many times historically. The utility is now go-ahead on the basis that the case has been transformed economically by following the assessment of a twenty-first century treatment process, characterised by lower whole life costs.
The Plan says the proposed solution will deliver an efficient treatment process with low energy requirements, very low chemical and waste production as well as a much reduced embedded and operational carbon cost. The investment will also liberate a large area of developable land in a heavily constrained site in Plymouth.
The spend of £73m on bathing and shellfish waters is the single biggest area of increased investment compared with AMP5 resulting from the Statement of Obligations and National Environment Programme requirements which have been translated into a programme of improvement works and agreed with both the Environment Agency and Natural England.
Other key elements of the Plan include a customer tariff freeze in 2014/15 and “revenue smoothing” into AMP6 (2015-20) and average bills set to be below inflation up to 2020.
However, water industry regulator Ofwat could take issue with South West Water’s proposed wholesale weighted average cost of capital (WACC) of 4.1%. In a recent call by Ofwat for water bills to fall in the upcoming Price Review, Chief Regulation Officer Sonia Brown indicated the level Ofwat would like to see for the weighted average cost of capital for AMP6, saying that “the number should start with 3.”
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