Swift summary of draft determination

PUBLISHED LAST WEEK AS A SPECIAL BULLETIN FOR SUBSCRIBERS

Here is a quick summary of Ofwat's PR19 draft determinations for slow track and significant scrutiny water companies. For a fuller briefing, see the July edition of THE WATER REPORT. Overview • 12% real terms fall in average bills. Reductions for combined water and sewerage services range from £7 for Hafren Dyfrdwy to £110 for Northumbrian Water, in 2017-18 prices. • £49bn of spending (incorporating £12bn for new and improved services) Cost of capital of 3.19% in CPIH terms, down from December 2017 view of 3.4%

Cost efficiency • Totex cost efficiency gap 11.3% • Base cost gap 4.3% • Ofwat’s view of efficient wholesale enhancement stands at £7,636m v companies’ £11,441m. • Efficiency challenge on WINEP (environment programme) - Ofwat allows £4.65bn v the sector’s £5.28bn. • Some changes to Ofwat’s cost assessment approach including expanding the definition of base costs to include costs that are driven primarily by population growth; assessing enhancement activities on a totex basis rather than a capex basis as at the IAP; and a real price effects adjustment for labour costs.

Headline service commitments • 34% cut in pollution incidents • 40% reduction in internal sewer flooding • 64% drop in supply interruptions • 17% reduction in leakage on average (with tougher targets for some, including Thames which has been prescribed a 25% cut). • Sewer collapses down 19% and mains bursts down 18% • 13% less water use per person by 2025 • Nearly 1.5m customers getting help with bills through social tariffs and WaterSure • 1,209 catchment management schemes included • 12,067 of river improvements funded.

Strategic infrastructure • Increase in the £360m funded in the IAP for companies to develop strategic water resource infrastructure, to £450m. Spread to involve eight companies and 15 potential solutions. Back in balance • Default gearing outperformance sharing mechanism imposed on Thames Water and South Staffs. • Companies asked for further detail on how they will justify dividends and performance related pay. • Wessex Water and Welsh Water to share outperformance payments with their customers and local communities. Direct procurement • Two schemes (Welsh Water and Anglian Water) earmarked for DPC on top of the scheme United Utilities volunteered back in September. Potential scope for two further projects (Southern Water and Thames). • Portsmouth Water’s Havant Thicket reservoir has not been earmarked for DPC. Ofwat has proposed a new 10-year price control allowing £120m for the development to enable Portsmouth to supply Southern, benefiting customers across the south of England. Timetable • 30 August 2019 - deadline for making representations on the DDs of the slow track and significant scrutiny firms. • 11 December 2019 - final determinations for all companies. • 11 February 2020 - deadline for firms to decide whether to accept their final determination or request an appeal to the Competition and Markets Authority.