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Pennon positive on its final determinations

by Verity Mitchell

Pennon issued a positive statement following the publication of its final determinations on 19 December. Chief executive, Susan Davy, confirmed that the £3.2bn investment will see further improvements across main customer priorities – securing safe, clean drinking water; reducing the use of storm overflows; and protecting the environment.


She pointed out that bills for customers across Pennon’s areas of activity – the South West, Bristol, Bournemouth, and Sutton and East Surrey – are forecast to increase for water services by £4 per month, and for sewerage services by £5 per month, one of the lowest increases across the sector. Pennon (excluding recently-acquired SES, which was ranked ‘standard’) will benefit from an additional 30bps reward for achieving an ‘outstanding' grade for its PR24 business plans, above the allowed cost of capital of 4.03%. 


Ofwat highlighted the significant changes from its draft decision for South West Water as: an increase in day-to-day expenditure allowances by £181m to £2.3bn for the South West area and by £43m to £573m for the Bristol area, for energy costs, business rates, bioresources growth and network reinforcement; and an increase in allowances for new infrastructure and resources of £106m for the South West area and £17m for the Bristol area. This mainly reflects better evidence provided by the company and increased regulatory requirements. For both areas, Ofwat increased allowances for preventing raw water deterioration and in the South West for investing in water interconnectors to improve resilience.


In terms of performance metrics, Ofwat increased targets for water quality contacts in the South West as it said that the company is currently a relatively poor performer on this measure.


SES Water has seen its day-to-day expenditure allowances increase by £19m for base expenditure and £7m for enhancement expenditure. Ofwat has increased its Regulatory Capital Value run-off rate to 4.50%, from 4.17%, partly in response to an alternative funding approach for infrastructure renewal expenses, proposed by the company. 


Pennon’s share price has fallen 7% over the previous six months.

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