The final determination delivers value for all of our stakeholders
The final determination for our 2015–20 price controls was published by Ofwat on 12 December 2014 and, after careful consideration, we accepted these proposals on 27 January 2015.
The final determination delivers value for all of our stakeholders, with a strong focus on customer benefits, including reduced bills in 2015/16, alongside continued high levels of investment which will provide further environmental benefits and a significant contribution to the regional economy. Household customers are also set to benefit from below inflation growth in average bills for the decade through to 2020.
We aim to maintain efficient access to debt capital markets throughout the economic cycle and believe that it is appropriate to keep gearing, measured as net debt to regulatory capital value, within our existing target range of 55 per cent to 65 per cent. This is supported by our aim to maintain, as minimum, our existing UUW credit ratings of A3 with Moody’s and BBB+ with Standard & Poor’s. We are targeting growth in the dividend per share, from 2014/15 base, of at least RPI inflation each year through to 2019/20. This target reflects detailed analysis and assessment of the final determination, including the lower allowed regulatory return for 2015-20.
The key features of the delivery plans for each of the four price controls are set out below.
The North West benefits from one of the youngest water networks in the country, with over 50 per cent of our network constructed or renewed in the last 30 years. This is a consequence of significant investment over previous regulatory cycles to improve water quality. We benefit from historic investment in the integration of our networks to create a core ‘integrated supply zone.’ The most recent addition to this was the West–East pipeline running approximately 50 kilometres between Liverpool and Manchester. As a consequence, we are able to provide one of the most efficient and flexible water services in the sector.
Customers told us they want to retain their current level of water services, but do not want to pay for water service improvements. This has driven our proposals for the next five years, where our core focus is to continue ongoing maintenance of the existing service to keep it working reliably now and in the future, managing costs carefully and reducing the number of customer contacts.
Key features of our plan mean that we aim to:
- maintain existing high levels of reliability in the delivery of day-to-day water services, making better use of technology to monitor remotely and control more of our source-to-tap assets;
- maintain existing high levels of water quality as measured at customers’ taps and our water treatment works;
- reduce the number of contacts from customers regarding water quality;
- maintain leakage at or below the sustainable economic level;
- limit the impact on customers of increases in operating costs, such as chemicals and rates, by making cost savings elsewhere through the continuous improvement in the efficiency of our operations; and
- commence work to link 150,000 customers in West Cumbria to Thirlmere reservoir to ensure a long-term, reliable supply of drinking water and to support the sensitive ecology in that area (see business insight below).
Securing a sustainable water supply for Cumbria
Our 25-year Water Resources Management Plan forecast that the vast majority of our region (covering 97 per cent of our customer base and including our large integrated supply zone) will be in water surplus, despite expected increases in population and the impact of climate change.
The only exception was West Cumbria, where we predicted a supply/demand deficit. This was driven by the Environment Agency’s determination that, in future, we will have to extract less water from Ennerdale lake in West Cumbria, in order to protect England’s largest population of freshwater mussels in the River Ehen.
With the support of the EA and other stakeholders, our plan is to use surplus water from our integrated resource zone to supply West Cumbria to ensure its population has a long-term sustainable, secure supply of water. We will build over 90km of pipeline from Thirlmere reservoir to supply West Cumbria as shown in the diagram below. A new water treatment works is planned to be built in Keswick to replace five existing water treatment works and avoid significant future maintenance at these sites. We received funding of around £200 million for this project over 2015–20, making it our largest capital scheme.
We are expanding our options for assistance to hard-pressed customers
The region’s geography and weather, the legacy of the Industrial Revolution, population growth and long-term under investment in the region’s wastewater infrastructure mean that new European environmental legislation has a significant impact on our plans for the next five years and beyond. Furthermore, the North West has one of the country’s largest combined waste and surface water infrastructures and this has significant implications for river and bathing water quality in the heavy rainfall events anticipated under climate change. These are significant new challenges for our wastewater service and will drive high levels of capital expenditure in meeting statutory obligations.
We are increasing our production of renewable energy from waste to protect customers from rising energy costs and reduce our carbon footprint
Against this backdrop, customers told us that for the most part they wanted their wastewater services to remain stable. Whilst they want to see progress in reducing sewer flooding and in improving the environment, they are concerned about the impact that service improvements will have on their bills. We have responded to this by devising a balanced programme of work over the 2015–20 period and beyond that will progressively deliver our contribution to the UK Government’s compliance with European legislation. This also takes account of customers’ views on the acceptable level of future bill increases.
In the next five-year period we aim to:
- build on the customer satisfaction improvements we have already delivered. We will continue to improve the way we operate our wastewater business, making better use of technology, automation and control to drive better customer service at reduced cost;
- reduce the number of our customers’ properties exposed to sewer flooding by over 40 per cent, seeking opportunities to work in partnership with others to deliver schemes cost-effectively and promote the use of more sustainable drainage systems;
- improve the region’s bathing waters, in light of tougher regulatory standards;
- work with other organisations to support them in delivering improvements to our region’s beaches;
- improve the water quality in the North West’s rivers and lakes through investment in our treatment works and at overflows, reducing pollution. We are engaging with stakeholders to explore innovative catchment management techniques to control diffuse pollution in our catchments;
- increase our production of renewable energy from waste to help protect customers from rising energy costs and reduce our carbon footprint; and
- constrain costs associated with taking responsibility for all private sewers and private pumping stations across the region, through improvements to our operating model and efficient delivery of our programme.
Our focus for the current regulatory period has been, and continues to be, to improve the customer experience. This involves being more proactive with customers, anticipating problems before they materialise and improving our communication channels so that we are easier to do business with. We aim to reduce further the number of complaints and to resolve them whenever we can, avoiding the need for complaints to be referred to the Consumer Council for Water.
We aim to reduce the debt burden on the company and its customers by engaging with those who are struggling to pay, helping them to return to sustained payment behaviour. We are extending our options for assistance to hard-pressed customers by developing a social tariff that secures a high level of acceptability from customers. We remain committed to contributing annually to the United Utilities Trust Fund, which has proven effective in helping customers in difficulty return to regular payment.
Our domestic retail plan also sees us continuing our efforts to reduce the costs to serve our customers through systems and process improvement. This is particularly important under the new price control methodology which uses an industry average retail cost to serve to determine part of customer bills.
We welcome the opportunity offered through the opening of the English non-household retail market to competition. Over the last three years we have recruited a management team with other sector experience to lead our business retail area, and separated this team from our domestic retail and wholesale business areas. This team has embarked on a transformation programme focused on getting the basics right against core customer needs, creating the culture of a business-to-business retailer.
Our early progress has been encouraging and our success in growing our United Utilities Scotland business has allowed us to learn about the propositions, processes and systems required to win, serve and retain non-household customers. Research has highlighted a need for a broader range of services targeted to different segments. We are developing these in our non-appointed business, ensuring that they are only paid for by customers who want these services.
Non-household customers tell us that the three most important things they look to their water supplier to deliver are: value for money; a reliable supply; and great customer service. With this in mind, through the course of the 2015–20 period we aim to:
- install meters in all business customer premises that give automated meter reads (AMR) to facilitate billing for actual consumption;
- build stronger relationships with customers to develop tailored plans to meet their needs;
- give customers greater choice in how they contact and transact with us; and
- increase first point resolution and case ownership, reducing cost to serve and improving customer satisfaction.