Water firms asked to invest £6m a day during PR19

Water companies will be expected to invest an additional £6 million per day over the next five years on protecting the environment and services for their customers, while cutting bills by £50 before inflation.

This is the headline proposal of Ofwat’s draft determinations for the 14 out of 17 water companies asked to resubmit their PR19 business plans.

Ofwat’s proposal allows companies £49 billion for both ‘business as usual’ services and new investment – plus the extra £12 billion announced this morning.

The announcement also sets out a more ambitious target on leakage – now asking water companies to achieve a 17 per cent drop across the five years, up from 15 per cent. It is also asking for  pollution incidents to be cut by more than a third and supply interruptions to fall by 64 per cent.

The plan also sets out a requirement to help almost 1.5 million customers who are struggling to pay. Water companies have committed to help customers use up to 13 per cent less water per person by 2025 but Ofwat said it was stepping in to require eight companies to adopt more stretching targets for AMP7.

The £12 billion of extra funding set out in the draft determinations is aimed at improving services for future generations, Ofwat said. This includes building reservoirs, moving water to where it is needed most, and protecting the environment.

Funding of up to £450 million will be injected into identifying the right projects to solve the drought resilience problems in the south east. There will also be £350 million for Anglian, Southern, South East and Dŵr Cymru to connect more of their own network together, so that water in their regions can be moved to where it is needed more easily.

There will be £780 million of funding to reduce the impact on customers and the environment if water supply and wastewater treatment infrastructure should fail.

By 2025, Ofwat expects at least 7 per cent of customers to be on the priority services register – two million more than are currently registered.

The regulator acknowledged that in order to make the extra investments required, the sector would need to access capital markets and that it was proposing the lowest allowed cost of capitalisation  since the sector was privatised. In December 2017, Ofwat suggested that the likely allowed cost of capital would be 3.4 per cent in CPIH terms. It has now revised that figure to 3.19 per cent for the whole business and 3.08 per cent for wholesale controls.

Ofwat has previously set out a mechanism for sharing the benefits of high gearing with customers. It said most companies had committed to apply the mechanism and several had plans to reduce gearing, however Ofwat has stepped in to impose the default mechanism on Thames and South Staffs.

The draft determinations document also sets out the regulator’s expectations that executive pay is aligned to the responsibility to deliver services for customers. It said that all of the companies judged as slow track or in significant scrutiny had taken steps to demonstrate a commitment in this area, but not all had fully addressed Ofwat’s concerns.

Ofwat chief executive Rachel Fletcher said:  “The package we are unveiling today signals a brighter future for customers, with better services, a healthier natural environment and lower bills.

“To get there we are calling for extra investment of £6 million each and every day to improve the environment and provide services for a growing population. At the same time we expect to see customers’ bills cut by an average of £50.

“These are seriously stretching goals for the sector, but we know they can be achieved. We have seen three water companies leading the way and we now want the rest to show the ambition and drive to deliver this new era for customers and the environment.”

Key commitments for individual companies:

Affinity Water

• 12 per cent reduction in bills before inflation between 2020 and 2025
• Leakage down by 20 per cent
•  Water use down 13 per cent – the biggest drop in England and Wales
• Supply interruptions to fall by 50 per cent

Anglian Water

• Bills to reduce by 12 per cent
• £729 million to improve the environment
• £25 million funding to help share water in the region
• 73 per cent reduction in supply interruptions

Bristol Water

• 16 per cent cut in bills
• Help customers reduce water use by 6 per cent
• Water supply interruptions down 75 per cent
• 85 per cent of customers to be satisfied with the help they receive

Dŵr Cymru

• 14 per cent fall in bills
• Replace five times as many lead pipes
• £59 million to improve water quality
• 30 per cent reduction in internal sewer flooding incidents

Hafen Dyfrdwy

• Bills to fall by 2 per cent
• Pollution incidents to reduce 39 per cent
• 74 per cent reduction in supply interruptions

Northumbrian Water

• 26 per cent cut in bills
• 28 per cent reduction in greenhouse gases
• Install more than 450,000 smart meters

Portsmouth Water

• Bills down 12 per cent
• Leakage down by 20 per cent
• 74 per cent reduction in customers with low pressure

SES Water

• Bills to fall 15 per cent
• Help customers to reduce their bills by 7 per cent
• £1.7 million to reduce lead pipes

South East Water

• 10 per cent reduction in bills
• £67 million to improve the environment
• Helping customers reduce their consumption by 8 per cent
• Supply interruptions down 70 per cent

Southern Water

• 14 per cent drop in bills
• Halving water supply interruptions
• £257 million funding to make sure there is enough water where it is needed
• 41 per cent reduction in pollution incidents

South Staffs Water

• 17 per cent reduction in bills
• 23 per cent cut in leakage
• Supply interruptions to fall 57 per cent

Thames Water

• Bills down 10 per cent
• Leakage down 25 per cent
• 72 per cent reduction in supply interruptions
• £448 million to improve the environment

Yorkshire Water

• Bills to fall 10 per cent
•  767 km of river improvements
• 50 per cent increase in customers receiving social tariffs and WaterSure
• Pollution incidents down by 41 per cent

Wessex Water

• 15 per cent fall in bills
• £453 million investment in improving service, resilience and the environment
•  76 per cent reduction in supply interruptions

Ofwat will publish final determinations for all companies on 11 December. Water companies then have until 11 February 2020 to decide whether to accept their final determination or request an appeal to the Competition and Markets Authority.