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South West Water is looking at a range of novel tariffs to mitigate bills rises across the board in AMP8.
Parent group Pennon, which also incorporates Bournemouth and Bristol Water has requested totex of £4.5 billion for 2025 to 2030 – a 53% increase on the £2.9 billion allowed for PR19.
Total capital investment is set at £2.8 billion (up from £1.3 billion for AMP7) – divided between £1.3 billion for water and £1.5 billion for wastewater.
The company is projecting that average bills in the south west and Bournemouth will increase 22% by 2030 to £620 and £167 respectively per year while in Bristol tariffs will rise 18% from 2025 to reach £242 by the end of the decade. It is investing £200 million in an affordability package.
The business plan suggests a number of possible tariff innovations, to be informed by trials starting in 2024. These include seasonal tariffs with higher rates during the summer, more targeted peak charging, rising block tariffs and special rates for partial occupancy.
The plan breaks down commitments into four challenges: water quality & resilience; storm overflows & pollution; net zero & environmental gains and affordability & delivering for customers.
Under these headings, the company is pledging to:
- Tackle 100% of storm overflows at beaches by 2030, part of a 15-year investment programme
- Upgrade one third of the water treatment works
- Reduce abstractions from environmentally sensitive rivers by 12 million litres per day
- Invest in new large reservoirs, starting with Cheddar 2 in Bristol and a water re-use plant in Poole as part of a plan to increase supply by over 50 million litres per day
- Reduce leakage by 19% across the south west and Bournemouth regions and 14% in Bristol
- Expand its Watershare scheme to allow one in every 10 households to own a stake in the parent company
The company projects incentive payments will range between a £165 million overperformance to a £180 million penalty over the AMP, excluding the potential impact of customer measures.
Pennon has told investors it expects regulated capital value (RCV) to grow by 38% nominal and 25% real over the period with return on retained earnings (RORE) expected to grow by up to 8.6%.
The report accepts that “customer trust is damaged when executive bonuses are not aligned to water company performance”, so presents a number of changes to remuneration policy. These include “expanding the remit” of its customer advisory panel to review executive pay and replacing the current long-term incentive scheme with restricted stock options, which it says should reduce overall maximum long-term incentives by 50%. The company also proposes aligning 70% of executive bonuses to four key areas – water quality & resilience; storm overflows & pollution; net zero & environmental gains and affordability & delivering for customers (30% will remain on financials).
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