16th Dec 2019 09:16
(Alliance News) - Water regulator Ofwat said Monday it has completed its price review for the period from 2020 to 2025, unveiling a GBP51 billion investment programme by UK utilities for the improvement of services and the environment.
Ofwat said that of that GBP51 billion spending plan for the next five years, GBP13 billion will go towards providing more resilient services and an improved effect on the environment, in the face of climate change and growing population.
The GBP13 billion also will be used to construct a new reservoir in Hampshire and a pipeline connecting water supplies from North Lincolnshire to Essex.
There will also be a reduction in average bills by around GBP50 per year before inflation, achieved by achieving greater efficiency through lower financing costs.
In addition, Ofwat has allowed Thames Water to bid for up to an additional GBP480 million to deliver improved service resilience. However, to access this, the London water utility will be required to pass several tests while its investors provide substantial additional funding.
Looking at companies, Ofwat said it has set new levels of service standards for the next five years, including the cutting of leakage by 16%, reducing pollution into rivers and streams by almost a third.
Also, water companies are to provide GBP450 million to explore new water resources or move water to places where there is less, in preparation for drier weather.
FTSE 100-listed United Utilities Group PLC said that Ofwat had published its final determination for its subsidiary United Utilities Water covering the five-year period.
The group said the final determination contains a significant amount of detail, which would take time to review thoroughly. United Utilities now has two months to accept the final determination.
Peer Severn Trent PLC also noted the regulator's final determination for both its units Severn Trent Water and Hafren Dyfrdwy.
Severn Trent Water's total expenditure allowance has increased by GBP91 million for the five-year period; however the unit's wholesale weighted average cost of capital was reduced by 16 basis points.
There will also be a reduction in the regulatory capital value run-off, which combined with all other adjustments is expected to lead to an overall reduction of GBP50 million in revenue for AMP7, the asset management period to 2025.
The RCV run-off is a measure of the annual depreciation of regulatory capital value to reflect the long-term nature of the benefit to customers of the previous investment a company has made in its assets.
For Welsh water works Hafren Dyfrdwy, revenue is set to increase by GBP3.6 million over the period.
Meanwhile, FTSE 250-listed Pennon Group PLC received the final determination of its South West Water subsidiary.
Key elements of the determination includes a post-tax real cost of capital for the industry of 1.9% on an retail prices index basis, and a total expenditure of GBP2 billion, consistent with South West Water's draft determination in April.
Like United Utilities and Severn Trent, Pennon now has two months until February 15 to respond.
"Today we're firing the starting gun on the transformation of the water industry backed by a major investment programme to deliver new, improved services for customers and the environment and resilience for generations to come. Now water companies need to crack on, turn this into a reality and transform their performance for everyone," said Ofwat Chief Executive Rachel Fletcher.
Shares in United Utilities - which is headquartered in Warrington - were down 0.1% at 905.00 pence on Monday in London. Coventry-based Severn Trent was down 0.3% at 2,413.60p, while Exeter-based Pennon Group were up 0.7% at 991.29p.
By Dayo Laniyan; [email protected]
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