protecting consumers, promoting value, safeguarding the future1 media briefing – final...
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Protecting consumers, promoting value, safeguarding the future 1
Media briefing – final determinations
26 November 2009
Water and environmental quality has improved – more than 100 Blue Flag beaches in England and Wales, and fish in the Thames again
Customer service is significantly better than 17 years ago – only 6,620 properties (0.03%) are now at risk of low water pressure, compared with 344,259 (1.6%) properties in 1990-91
Leakage has fallen by 35% since peak in 1994-95
Network is functioning better – more companies have stable serviceability than ever before
£85 billion has been invested (today’s prices) and the companies are more efficient – bills are 30% lower than they would have been
What has been achieved so far
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Key changes from draft determinations
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Additional capex to deliver national environment programme, for example extra investment to meet EU bathing water standards
Additional capex to deliver additional outputs, for example almost £250 million extra investment to address sewer flooding problems
Changes brought about by new information – industrial demand, business rates, pensions
Reassessment of relative efficiency
Average household bill to decrease by £3 to £340
£22.2 billion of investment in services and the environment
£34 less than the companies wanted
Our proposals deliver what customers want – safe, reliable water supplies at a reasonable cost, both now and in the future
This keeps money in customers’ pockets, but allows efficient, well-run companies to invest in the right place at the right time for the right price
Final determinations 2010-15
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Average annual price limits – weighted industry average (smoothed)
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5.6
2.32.5
1.4
0.7
2.5
-0.60.3
1.6
0.6 0.4 0.5
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2010-11 2011-12 2012-13 2013-14 2014-15 Annual average
Companies’ final business plans Our final determinations
Avera
ge a
nnual pri
ce lim
it (
%)
Factors driving change in average bills 2009-10 (£343) to 2014-15 (£340)
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-25
-20
-15
-10
-5
0
5
10
15
20
£25
Revenue Opex Capital maintenance
Improve-ments
TotalEfficiency Cost of capital
TaxSecurity of supply
-£3-£7-£13£21£9£1£7-£14-£7
Past
Future
Drinking water quality
Environment
Service levels
What the companies are investing in – some examples
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£22.1 billion
How money will be invested in 2010-15
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…and customers won’t be any worse off
£12.9 billionMaintaining and replacing assets, from pipes to treatment works
£0.9 billionDelivering big projects, like large sewers
£1.1 billionImproving service levels to customers, like reducing pressure problems and sewer flooding
£4.6 billionImproving drinking water and the environment
£2.7 billionMaking sure there is enough water, and capacity to treat sewage
£22.1 billion
Increase in operating expenditure from 2008-09 to 2014-15
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Operating expenditure arising from enhanced
service, for example running new meters 40%
Pensions 24%
Energy 4%
Rates 25%
Other -2% Traffic management act 2%
Environment Agency abstraction charges 1%
Reclassified work 6%
The ‘other’ category is negative because it includes spend to save outputs
£400 million
More than £1 billion to maintain and improve water supplies
Maintaining and improving more than 10,000 km of water mains – further than London to Cape Town
Cleaning mains pipe supplying more than 1 million people in north-west region to help reduce discoloured water
Allowed £171 million more to balance water supply and demand than at draft determination
Safe, reliable supplies
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Events like serious flooding can cause havoc with water supplies – almost 10 million people will benefit from investment to reduce the risk of extreme circumstances such as flooding interrupting supplies
In the past decade, the number of properties at risk of sewer flooding has fallen by about 75% – 20,000 fewer properties are at high risk of sewer flooding
Almost £1.1 billion of investment over next five years to further reduce the problem – up from £910 million at draft determinations
This will help resolve flooding issues for more than 6,300 more customers
Protecting consumers
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Improve 140 water treatment works and 55 sewage treatment work to maintain and improve environment and drinking water quality
More than 100 schemes to work with farmers and landowners to control pollution and reduce treatment costs
Improvements to more than 3,000 km of rivers to meet EU standards
Improve water quality in more than 55 wetlands and bathing waters
Environment
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By 2015, increasing metering, reducing leakage and meeting water efficiency targets will save more than 100 billion litres of water a year – enough to supply Liverpool, Bristol and Brighton for more than a year
Severn Trent is investing to reduce leakage by about 47 million litres a day, a 9% fall in leakage levels
Over the next five years, the companies will reduce their overall leakage levels by 3% – about 97 million litres a day or 177,025 million litres over the five-year period
Investment in renewable energy sources to generate about300 GWh of extra energy a year – enough electricity to power about 90,000 homes
Half of all households will have a meter by 2015 – 57% in water scarce areas (92% in Southern’s water-stressed region)
Saving water and using energy wisely
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Cost of capital is 4.5%
Less than the companies asked for
Should allow an efficiently-run company to secure the necessary finances to carry out its investment programme
Access to debt finance is more limited for a small company
We have included a small company cost of debt of 0.1% for the two largest water only companies and 0.4% for all others
Finance
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Regulatory tools to limit risk
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Five-yearly price review
RPI and COPI indexation
Change protocol
Logging up and down
CIS capex symmetry
Revenue correction mechanism
Interim determinations
Substantial effect clause
Notified items
Looking forward
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If is for the companies to deliver their outputs
Scope for companies to innovate
Referrals to the Competition Commission must be made by 26 January 2010 – if a company is successful, first year price limits will stand and changes will be applied to the next four years’ limits
Bills ‘on the mats’ in April 2010
Need resilient infrastructure – ageing network is 338,000 km long, equal to nearly 14 times around the equator
Rise in single households, which use more water. Need to be more water efficient
Changing climate could bring more droughts and floods
Building on flood plains increases burden on drainage systems
Growing UK population – predicted to reach72 million by 2033
The future challenge – sustainability
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