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Protecting consumers, promoting value, safeguarding the future 1

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  1. Media briefing – final determinations 26 November 2009 Protecting consumers, promoting value, safeguarding the future 1

  2. What has been achieved so far Leakage has fallen by 35% since peak in 1994-95 £85 billion has been invested (today’s prices) and the companies are more efficient – bills are 30% lower than they would have been Network is functioning better – more companies have stable serviceability than ever before 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 Protecting consumers, promoting value, safeguarding the future 2

  3. Key changes from draft determinations 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 Protecting consumers, promoting value, safeguarding the future 3

  4. Final determinations 2010-15 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 Protecting consumers, promoting value, safeguarding the future 4

  5. Average annual price limits – weighted industry average (smoothed) 7.0 6.0 5.6 5.0 4.0 3.0 2.5 2.5 2.3 2.0 Average annual price limit (%) 1.6 1.4 0.7 1.0 0.6 0.5 0.4 0.3 -0.6 0.0 2010-11 2011-12 2012-13 2013-14 2014-15 Annual average -1.0 -2.0 -3.0 Our final determinations Companies’ final business plans Protecting consumers, promoting value, safeguarding the future 5

  6. Factors driving change in average bills 2009-10 (£343) to 2014-15 (£340) £25 Service levels 20 15 Environment 10 5 Drinking water quality Past 0 Future -5 -10 -15 -20 -£7 -£14 £7 £1 £9 £21 -£13 -£7 -£3 -25 Efficiency Revenue Opex Capital maintenance Security of supply Improve -ments Cost of capital Tax Total Protecting consumers, promoting value, safeguarding the future 6

  7. What the companies are investing in – some examples £22.1 billion Protecting consumers, promoting value, safeguarding the future 7

  8. How money will be invested in 2010-15 £12.9 billion Maintaining and replacing assets, from pipes to treatment works £0.9 billion Delivering big projects, like large sewers £1.1 billion Improving service levels to customers, like reducing pressure problems and sewer flooding £4.6 billion Improving drinking water and the environment £22.1 billion £2.7 billion Making sure there is enough water, and capacity to treat sewage …and customers won’t be any worse off Protecting consumers, promoting value, safeguarding the future 8

  9. Increase in operating expenditure from 2008-09 to 2014-15 Operating expenditure arising from enhanced service, for example running new meters 40% Pensions 24% Energy 4% Rates 25% Reclassified work 6% Traffic management act 2% Other -2% Environment Agency abstraction charges 1% The ‘other’ category is negative because it includes spend to save outputs £400 million Protecting consumers, promoting value, safeguarding the future 9

  10. Safe, reliable supplies 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 Protecting consumers, promoting value, safeguarding the future 10

  11. Protecting consumers 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, promoting value, safeguarding the future 11

  12. Environment 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 Protecting consumers, promoting value, safeguarding the future 12

  13. Saving water and using energy wisely 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) Protecting consumers, promoting value, safeguarding the future 13

  14. Finance 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 Protecting consumers, promoting value, safeguarding the future 14

  15. Regulatory tools to limit risk 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 Protecting consumers, promoting value, safeguarding the future 15

  16. Looking forward 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 Protecting consumers, promoting value, safeguarding the future 16

  17. The future challenge – sustainability Growing UK population – predicted to reach 72 million by 2033 Changing climate could bring more droughts and floods Building on flood plains increases burden on drainage systems 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 Protecting consumers, promoting value, safeguarding the future 17