23/07/09
Water UK provides an initial industry reaction to 'Future water and sewerage charges 2010-15 - Draft determinations'.
Since April this year Ofwat has been considering final business plans published by each water company that provides statutory water and sewerage services in England and Wales. In today's publication of draft price determinations, Ofwat invites comments from the industry and interest groups on:
• its judgements about companies' business plans and projected operating and investment costs, and
• the prices the companies should be permitted to charge customers to ensure they can cover their costs, secure financing and deliver the service customers expect.
Company business plans
Companies' final business plans are driven by what customers have told them are priorities in the biggest ever consultation - reliable, high quality services and affordable bills. The plans take into account the economic climate and pressures on customers, but also the need for investment to ensure a long-term sustainable service. This is a balance each company has to get right. The companies want Ofwat to reflect the diversity of customers, the local climate and economy, and the condition of critical assets. Companies need a continuing flow of investment at competitive rates into the sector.
Ofwat Draft Determinations
Ofwat outlines the aims of its Draft Determinations, which are to:
• build on the successes of the past
• keep bills broadly stable
• create a better environment
Questions
As they assess the Draft Determinations, water companies and their stakeholders will be asking some searching questions about Ofwat’s overall approach and its decisions on individual company plans. These are likely to include:
• The companies want to deliver greater reliability and resilience in the face of climate change expected to increase flooding and droughts. Will they be able to do this?
• Companies have produced plans to meet the circumstances in their own region and the preferences of their customers. Do the Draft Determinations reflect these regional differences or has Ofwat tried to make one size fit all?
• Most industry expenditure is driven by environmental and public health legal requirements. Has Ofwat allowed for these and future statutory requirements?
• Huge gains have been made in service reliability, drinking water quality, and the quality of the environment. Will they be lost if companies are forced to squeeze capital maintenance budgets?
• Companies have invested £80billion in improving and maintaining water and sewerage services in the last twenty years, at no cost to the taxpayer. To invest as much as this, they have had to raise money at reasonable rates every year from city – will the Draft Determinations allow this to continue?
Pamela Taylor, Chief Executive, said:
"This price review will have a big influence on the industry’s ability to meet its customers’ expectations and tough environmental standards by continuing to invest at the necessary level. It is an important milestone in the review process but there is still some way to go.
"To ensure reliable water services for the present and next generations as the climate becomes less predictable, it is vital to work to a long time horizon. Ofwat recognised this when it asked companies in 2007 to provide 25-year strategic direction statements.
"In the present economic climate we know that value for money is more important than ever, but these draft determinations make us wonder if Ofwat has lost sight of the longer term imperative. In the interests of customers, the economy and the natural environment, we should be investing at a steady pace rather than storing up problems for the future.
"We have a world-class water sector which plays a unique role in our economy, our business life, protecting our environment and safeguarding public health all for under £1 a day. But companies will continue do as much as possible to help customers and hard-pressed families on low incomes."
Process
Today's report continues the third phase of the 2009 water price review leading to release in November of final determinations of price limits for 2010 to 2015. In the last phase – January to April 2010 – companies must decide either to accept Ofwat's final determinations or appeal to the Competition Commission. They must implement the new charges with effect from April.
Ends
For more information please contact:
Water UK Communication
020 7344 1809 (out of hours 07833 450544)
