Anglian Water has today responded to Ofwat’s initial assessment of its Business Plan for the period from 2020-2025, which it received at the end of January. The utility has restated its belief that its Plan is the right one for its customers, its region, and the environment.
Anglian Water has today responded to Ofwat’s initial assessment of its Business Plan for the period from 2020-2025, which it received at the end of January. The utility has restated its belief that its Plan is the right one for its customers, its region, and the environment.
The regulator had set out a number of required actions by companies categorised as either low-track or requiring significant scrutiny to address, the majority of which were required by 1 April 2019.
Source: Ofwat PR19 Initial Assessment of Plans
Anglian Water, together with Dŵr Cymru, Northumbrian Water, Yorkshire Water, Wessex Water, Bristol Water, Portsmouth Water, SES Water, South East Water and South Staffs Water, were given ‘slow-track’ status in Ofwat’s initial assessment of PR19 Business Plans.
All of the companies, were required to resubmit parts of their business plans and provide any additional evidence by 1 April 2019 to address Ofwat’s concerns.
Further actions Ofwat required Anglian Water to undertake by 1st April included:
- Anglian Water should propose a performance commitment relating to supporting customers that struggle to pay or who may be at risk of struggling to pay to help provide additional confidence that it will achieve its proposals. All of the companies apart from Anglian Water had proposed a performance commitment for those who are struggling to pay or are at risk of struggling to pay.
- The company should ensure that its common and bespoke performance commitments associated with operational resilience are clearly defined, sufficiently demanding for AMP7 and the long term, and supported by the right incentives.
- The company should provide a commitment that it will by 22 August 2019 prepare and provide Ofwat with an action plan to develop and implement a systems based approach to resilience in the round and ensure that the company can demonstrate in the future an integrated resilience framework that underpins the company’s operations and future plans showing a line of sight between risks to resilience, planned mitigations, package of outcomes and corporate governance framework.
- The company’s assessment of financial stress scenarios extends only to 2025. The company should commit to demonstrating that its assessment of financial resilience extends beyond 2025 in its next Long-Term Viability Statement.
- The company should provide a commitment to provide a detailed work programme by end August 2019 to assure Ofwat that the company will deliver appropriate drainage and wastewater management plans. The programme should ensure that the company can prepare and consult on its first drainage and wastewater management plan no later than the summer of 2022 to enable revised plans to be prepared in early 2023 to inform PR24 business plans.
- The company should explain how it will work together with neighbouring companies to explore strategic water resource options and knowledge sharing on demand-side measures with regional planning groups.
- There is significant investment proposed in delivering the internal interconnection programme and therefore the company is required to propose an outcome delivery incentive in order to ensure customer protection for efficient delivery. The company should provide evidence to justify the level of the performance commitment and the outcome delivery incentive (ODI) rates proposed, in line with Ofwat’s Final Methodology. Ofwat expects to receive evidence of customer support for outperformance payments, where proposed, and that the incentive rates proposed are reflective of customer valuations.
- There may be significant impacts in terms of investment or type of investment as a result of the metaldehyde ban. The company should investigate and agree with the DWI the scale and timing of any potential changes compared to its submitted plans.
- For Direct Procurement for Customers (DPC), the company is required to provide further evidence to support the decisions that determined why some schemes were not suitable for DPC.
Anglian Water – our Plan is the right one for customers, region and environment
In documents submitted to the regulator yesterday, Anglian Water has restated its belief that its Plan is the right one for its customers, its region, and the environment, alongside responding to feedback from the regulator.
The company’s response continues to propose a c.30% increase in investment over the prior period. The bulk of the investment relates to work to ensure the region is resilient to the risks of drought and flood, while continuing to make environmental improvements and support sustainable growth in what is one of the UK’s driest yet fastest growing regions.
Anglian Water said the recently announced Government ban on metaldehyde had also allowed the company to cut back on investment that previously proposed to treat water containing the pesticide. “This means the major increase in investment that is needed can be achieved whilst simultaneously delivering a small reduction in bills (-0.1%), with average household bills falling from £426 in 2020/21 to £421 in 2025/26.”, the utility said.
The Plan still proposes no dividends for Anglian Water shareholders throughout the period, unless the company outperforms the regulatory settlement.
Commenting on the response, Peter Simpson, Anglian Water’s Chief Executive, said:
“Given we are proposing to increase our total investment by roughly one third, it’s absolutely right that Ofwat provides strong scrutiny and challenge. Both we and our customers expect nothing less.
“There were many positive elements within Ofwat’s initial feedback on our Plan, not least its acknowledgement that it is built on a customer engagement process that was considered to be the best in the country. This gives us confidence that we are accurately reflecting the needs and priorities of the customers and communities we serve, whilst protecting and enhancing the natural environment. I believe our Plan has only grown in strength as a result of Ofwat’s challenge.
“We strongly believe that the investment we have proposed is essential in our water-scarce and rapidly growing part of the country. The increase in expenditure is necessary and driven by demands related to significant growth, and climate change pressures. Our customers were clear that we should take action to increase resilience to these pressures now, rather than to wait.
“It is also, we believe, the appropriate response to the clear direction that Government has set out in its various policy statements, to the National Infrastructure Commission’s conclusions in its 2018 ‘Preparing for a Drier Future’ report, and to the recent warnings from Sir James Bevan, Chief Executive of the Environment Agency, about the urgency of addressing the growing problem of water scarcity.
“That’s why we’ve redoubled our efforts to show Ofwat how our plan has been constructed, to give robust evidence to support our proposals, and to test again that our customers support the proposals we are making – which they have confirmed they do. Taking all of the issues into account, it is clear that it is essential we move ahead swiftly with this Plan which will provide the right platform for the sustainable future our region needs.”
Ofwat: Anglian Water’s plan needed to be revised – in particular because its costs are both more than 20% above Ofwat’s view of efficient and justified costs
Ofwat’s initial assessment said that Anglian Water’s plan needed to be revised – in particular because its ongoing and enhancement costs are both more than 20% above Ofwat’s view of efficient and justified costs. Commenting on cost efficiency, the assessment says:
“Overall, Anglian Water’s plan falls significantly short of required quality in this area. We do not consider the company’s projected costs for 2020 to 2025 to be efficient. Its projected costs are 32% above our view of efficient costs in wholesale water and 19% above in wastewater, even though its retail costs are close to our view of efficient costs.”
“Anglian Water’s wholesale water costs are 32% above our view of efficient costs. Its base costs are about 21% higher than our view of efficient base costs. Its costs in a number of enhancement areas where we have benchmark models, such as lead reduction, growth and metering are less efficient than its peers.”
Ofwat will now assess Anglian Water’s response and produce a Draft Determination in July, before Final Determinations are made in December 2019.
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