United Utilities Water PLC has submitted to Ofwat its AMP6 Business Plan covering the 2015-20 period – with a total expenditure of £6.6 billion made up of £3.8 billion on capital investment and £2.8 billion on operating expenditure.
The Plan includes below inflation average household bills for the decade to 2020. United Utilities is proposing an average real terms bill decrease of 1.7% for household customers across the five-year period (excluding the impact of the previously announced special customer discount of c£20 million to be applied to 2014/15 bills).
For non-household customers, the firm has proposed an average real terms bill decrease of 0.5% in 2015/16 with a total real terms increase of 2.5% by 2019/20.
United Utilities proposed Weighted Average Cost of capital (WACC) is 4.1%.
The firm’s plan includes initiatives designed to save around £66 million per annum of operating expenditure by 2019/20, relative to 2012/13. United Utilities said this would “largely offset the unavoidable cost increases in areas such as rates and power, alongside the addition of private pumping stations and enhancement programme costs.”
The proposed £3.8 billion capital investment programme comprises £1.3 billion for the water service, £2.4 billion for the wastewater service and £0.1 billion for the retail service. Investment to meet tighter regulatory quality standards, enhance service to customers and maintain the supply/demand balance is forecast at around £1.5 billion, with the remainder relating to maintenance. United Utilities said it had kept capex constrained at £3.8 billion by meeting new environmental obligations via a phased approach, supported by the Environment Agency and the Drinking Water Inspectorate.
The firm said although it has worked hard with the Environment Agency to constrain and balance its expenditure programme, similar to previous regulatory periods, its wastewater spend includes a significant environmental programme. United Utilities said that in view of regional differences, it believes it is "necessary to assess this programme outside of Ofwat’s totex modelling methodology." The firm said the challenge arising out of new environmental legislation is huge for the region and that a legacy of "underinvested wastewater assets" and the implications of ever more demanding river and bathing water standards would, unconstrained, cause unacceptable increases in customer bills in AMP6. Instead the firm intends to create a progressive contribution to the region’s compliance with legislation over several regulatory cycles.
The introduction of the revised Bathing Waters Directive in 2015 presents new challenges and obligations – meaning UU has a large programme of investment in AMP6 to deliver the specific environmental improvements set out by the Environment Agency – including large strategic schemes such as on the Fylde coast and Blackburn treatment works. Other wasterwater treatment works will also be upgraded. United Utilities said it is delivering “only the most cost effective Water Framework Directive schemes in AMP6."
The main capital scheme proposed in the AMP6 plan is the the development of a new treatment works near Thirlmere, and with this, connection of the West Cumbrian supply network to United Utilities' integrated supply zone. This will enable the closure of five existing works that would otherwise require extensive refurbishment in the 2020 to 2025 period. Key features of our plan include that we will:
The Plan also includes the widespread introduction of Automated Meter Reading – by 2020 82% of meters will be AMR-enabled