Utility Week

18 | 20TH - 26TH SEPTEMBER 2019 | UTILITY WEEK Policy & Regulation 1,209 catchment management schemes 12,067km of river improvements 12% fall in bills before Leakage down by 17% Pollution incidents down by 34% Supply interruptions down by 64% £12 billion extra to increase resilience and protect the environment Nearly 1.5 million customers getting help with water bills costs with 3.19% cost of capital in CPIH terms WHAT OFWAT WANTS TO SEE IN THE NEXT AMP PERIOD It therefore provided further evidence and documentation to justify its position. South Staffs Water Category: slow track South Staffs, incorporating Cambridge Water, expressed fears about financeability. It said its credit quality would be so badly affected that it would lose access to capi- tal markets and questioned the legality of Ofwat's approach. "As the dra€ determination stands, the board does not consider that Ofwat has ful- filled its legal duties to allow us, as an effi- cient company, to finance our functions. It follows that the board is unwilling to certify that it considers the business to be finance- able. But we hope for constructive engage- ment with Ofwat over the autumn so as to avoid the necessity of an appeal to the CMA." Southern Water Category: significant scrutiny Southern said it had made changes to meet the targets laid out by Ofwat and had "shi€ed substantially" its level of cost effi- ciency, as well as accepting a further stretch in target performance. However, it said it had squeezed costs as much as it could. The company said: "Taking all of this into account, we believe that a further shi€ in our cost allowances would put undue pressure on our ability to effectively execute our plan." Having accepted a £42 million cost reduc- tion, it is challenging the remaining £262 million in the total £304 million cost gap and submitted strengthened evidence in support. Sutton & East Surrey Water Category: slow track SES reduced its total expenditure to £287 million – a drop of £8.8 million from its April submission – and argued that its total requested spend was necessary to deliver on its stretching performance commitments. It accepted many of the interventions in Ofwat's dra€ determinations but said it was unable to accept aspects that "fail to take into account or to recognise" specific aspects of the company. SES said its determination "does not reflect the priorities of our custom- ers within the overall objectives publicised and pursued by Ofwat". The total expenditure allowance was 18.3 per cent lower than SES requested, a gap of £54 million. The company said the allowance would not let it deliver its planned outcomes for customers and that the board of SES was "unable to accept the feasibility" of the plan. Thames Water Category: significant scrutiny Thames said its dra€ determination was "undeliverable and therefore unfinance- able" and, if made final, "would have serious adverse consequences for [our] customers and the environment". The company was ordered to cut its total expenditure by £800 million between 2020- 25, which it is rejecting because it said it would result in overspending and penalties. It argues that Ofwat's plans do not recognise the costs associated with population growth, and that targets to reduce service interrup- tions by 72 per cent over five years are not achievable on the budget allowed. Despite strongly opposing the terms of the dra€ determination, interim executive chairman Ian Marchant said the company wanted to avoid the time and cost associated with a CMA referral. He said the company was "willing to engage fully with Ofwat and sincerely hope that we can identify a way forward" to avoid that measure. Thames has submitted fur- ther evidence to Ofwat to explain the gap between its plan and the determination. Wessex Water Category: slow track Wessex said its dra€ determination was "not acceptable". It proposed changes that it said were needed to ensure it could finance its functions, and other changes that were about ensuring it had "stretching but realis- tic" targets. "The board of Wessex Water is profoundly concerned that the dra€ determination puts in jeopardy the financeability of the business and will not allow it to meet its legal obliga- tions nor its broader responsibilities to the region's economy, the environment and the customers and communities it serves." It proposed additional cost allowances that would close the gap of £238 million. Yorkshire Water Category: slow track Yorkshire said it was "surprised and disap- pointed at the difference between [our] own and Ofwat's view of efficient costs" and called Ofwat's benchmark "unattainable" as a measure of efficiency. Like Northumbrian, it brought in an independent economist firm to support its view on the benchmark, which concluded "…the efficiency step change is not sup- ported by theory or evidence – meaning that the notionally efficient firm is likely not financeable". Yorkshire said it wanted to find a "work- able compromise to avoid an impasse which would not benefit customers" and to focus on achievable targets. It removed £300 mil- lion from its expenditure and called its submission the "best compromise possible in the current circumstance". Regulator's response Ofwat commented: "We will consider the representations we have received, including where companies provide new evidence that better enables them to deliver for custom- ers and the environment, before making our final determinations on 11 December 2019." continued from previous page source: Ofwat

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