Ofwat is planning to allow £83.33m additional totex to enable Anglian Water to deliver components of its Direct Procurement for Customers Elsham Transfer and Treatment project in-house.
The regulator has now launched a consultation on its draft determination for Anglian Water’s application to change the price control for the project.
At the 2019 Price Review, the water company requested funding for the Elsham Transfer and Treatment scheme, which will comprise of a large transfer pipe, a conditioning plant, and a water treatment works (including storage reservoirs).
Ofwat accepted the need for the scheme and determined that it was suitable to be delivered via the Direct Procurement for Customers (DPC) route. It therefore did not provide an allowance for the company to deliver the scheme itself, but instead required the company to put the project out to competitive tender for a third party to design, build, finance, operate and maintain the scheme. The regulator allowed £9.4m for Anglian Water to design the project and put it out to tender under a DPC arrangement.
Following the PR19 final determinations in December 2019, Anglian Water subsequently said that it considered delivery by DPC would not allow it to meet its statutory environmental obligations by March 2025 and asked that it be permitted to deliver the transfer pipe and conditioning plant components of the project in-house instead.
After discussions with the Environment Agency and Anglian Water, Ofwat has agreed there is a material risk of late delivery if delivered via DPC and accepted Anglian Water’s request to reduce the scope of the DPC project.
Anglian Water has now applied to Ofwat for an interim adjustment to the level of price controls in AMP7 in relation to the Elsham scheme, together with a consequential proposed change to one of its performance commitments.
Table: Source Ofwat
Anglian asked Ofwat on 22 June to increase the level of the price controls that the CMA determined for the period 2020-2025. The company has applied for an interim determination and is requesting additional totex funding of £83.534m (net) to enable it deliver the transfer pipe and conditioning plant components in-house. Anglian has also asked for a consequential change to one of its performance commitments in order to recognise that part of the Elsham Transfer and Treatment scheme will be delivered in-house.
Ofwat’s initial view is that the majority of its requested costs within the application are appropriate and efficient and has agreed additional funding of £83.334m (net). The regulator is also proposing to accept the amendment to the performance commitment on 'Internal interconnection delivery' to reflect that the utility is now delivering the transfer pipeline and conditioning plant itself.
The application would result in an increase to customer bills of £0.84 by the end of AMP7 - Anglian Water estimates this to be less than 0.25% increase on the total bill for an average Anglian Water customer.
The consultation is seeking responses by close of business on 7 July 2021 in order to meet Ofwat’s timetable to reach its final decisions and publish the final determination on 26 July 2021.
Click here to download the consultation paper Draft Determination of Anglian Water’s interim determination application.
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