United Utilities Group PLC
2 December 2013
UNITED UTILITIES BUSINESS PLAN 2015-20
United Utilities Water PLC has today submitted to Ofwat its business plan
covering the 2015-20 period.
Balanced plan
Our business plan for the next five-year period means that customers would
benefit from below inflation average household bills for the decade to 2020. We
have sought the views of over 27,000 customers, as well as consulting with our
regulators, to deliver a plan which we believe strikes the right balance for
all our stakeholders. This includes a substantial capital investment programme
to meet our environmental obligations and which will provide a significant
contribution to the North West economy. Our plan reflects the views of
customers on service and affordability, it delivers a paced environmental
programme and it provides an appropriate return for investors.
Customer bills
Extensive stakeholder engagement has highlighted that the principal concern for
customers is affordability. Customers are generally satisfied with the current
high levels of water and wastewater services being provided and are only
prepared to pay for specific targeted areas of improvement, with 86% of
household customers supportive of bill rises no higher than inflation. This has
been a key driver in the formulation of our plan and we are proposing an
average real terms bill decrease of 1.7% for household customers across the
five-year period (excluding the impact of the previously announced special
customer discount of c£20 million to be applied to 2014/15 bills).
For non-household customers, we are proposing an average real terms bill
decrease of 0.5% in 2015/16 with a total real terms increase of 2.5% by 2019/
20. We have tested this proposal with non-household customers and 76% are
supportive and we will work hard to help them reduce their overall spend.
Total expenditure
Our plan includes total expenditure of £6.6 billion (2012/13 prices). This
comprises capital investment (capex), including infrastructure renewals
expenditure, of £3.8 billion and operating expenditure (opex) of £2.8 billion.
This mix of opex and capex has been derived from the optimal cost assessment
over the life of our assets. We have reflected this mix in setting the
wholesale business `pay as you go'1 ratio of 50%, which would result in real
growth in the regulatory capital value of around £800 million over the 2015-20
period.
Operating expenditure
Our plan includes initiatives designed to save around £66 million per annum of
opex by 2019/20, relative to 2012/13. This will largely offset the unavoidable
cost increases in areas such as rates and power, alongside the addition of
private pumping stations and enhancement programme costs.
Capital expenditure
Our proposed £3.8 billion capital investment programme (net of grants and
contributions) comprises £1.3 billion for the water service, £2.4 billion for
the wastewater service and £0.1 billion for the retail service. Investment to
meet tighter regulatory quality standards, enhance service to customers and
maintain the supply/demand balance is forecast at around £1.5 billion, with the
remainder relating to maintenance. We have kept capex constrained at £3.8
billion by meeting new environmental obligations via a phased approach,
supported by the Environment Agency and the Drinking Water Inspectorate.
Company specific adjustments
Reflecting the impact of the extreme levels of deprivation in the North West on
our costs, we are seeking an adjustment to the household retail average cost to
serve of around £25 million per annum. We have provided robust evidence to
Ofwat in support of this approach.
We have worked hard with the Environment Agency to constrain and balance our
expenditure programme. Nonetheless, similar to previous regulatory periods, our
wastewater spend includes a significant environmental programme. In view of our
regional differences, we believe it is necessary to assess this programme
outside of Ofwat's totex modelling methodology.
Return on capital
In deriving the weighted average cost of capital (WACC) in our business plan,
we have carefully considered both financeability and customer affordability. In
light of this, we have adopted a real, vanilla WACC2 of 4.1% for our wholesale
business. When adding in our proposed non-household retail margin of 4%, this
translates to an overall appointed business WACC of 4.3%.
Next steps
Ofwat is expected to publish draft determinations by August 2014, with final
determinations due by December 2014.
United Utilities' contacts
For further information on the day, please contact:
Gaynor Kenyon - Corporate Affairs Director +44 (0) 7753 622282
Darren Jameson - Head of Investor Relations +44 (0) 7733 127707
Peter Hewer / Michelle Clarke - Tulchan +44 (0) 20 7353 4200
Communications
This announcement and a summary of the business plan will be available on the
day at: http://corporate.unitedutilities.com/investors.aspx
1 `Pay as you go' ratio is the proportion of wholesale total expenditure
recovered directly through wholesale revenues
2 Vanilla WACC is derived from pre-tax debt and post-tax
equity