Yahoo Finance Water companies unveil plans to invest £50bn and slash bills
Water companies have unveiled plans to invest more than £50bn over five years in the processing plants and pipelines that supply homes across England and Wales by 2025, while charging customers less.
The utility companies handed their business plans to the regulator yesterday detailing their proposals for investment, customer service and cleaning up rivers which run 5,000 miles through the country. The £50bn deluge, which is set to pour into the sector in first half of the 2020s, is 13pc higher than the investment over the previous five years. Meanwhile, household water bills are predicted to fall by an average of 4pc in real terms.
The industry’s looming financial squeeze has emerged in response to rising regulatory pressure to provide better service while charging customers less. Water bosses need to keep their heads above water while appeasing their investors and contending with increasingly extreme weather. Each regulated company is expected to hand over a business plan every five years which spells out how much they will invest, what they propose to charge their customers and how they will keep water flowing in the face of extreme weather.
Ofwat will spend the next four months reviewing the plans before giving a greenlight to those companies which meet its strict expectations, or tougher standards for those which don’t.
Ofwat senior director John Russell, said that where plans aren’t sufficiently ambitious or stretching, “we’ll step in to protect customers and the environment”.
The focus is on four key areas: customer service, affordable bills, resilience against drought or floods and new innovation.
Opening the investment floodgates
Thames Water, which has been heavily criticised in recent years, said it would pour a record investment of £11.7bn to improve its service and efficiency.
Under new ownership, the company is hoping to turn a new leaf after years of criticism for its rising debt, bumper shareholder payouts and some of the worst leakage rates in the country. More than 20pc of UK’s water is lost through leaky pipes en route to homes and companies, a statistic which has barely budged in the last 18 years even as rising population density threatens water shortages.
Severn Trent is gearing up to spend £6.6bn, Anglian Water plans to spend £6.5bn and Yorkshire Water will spend £5.2bn.
Liv Garfield, chief executive of FTSE 100 giant Severn Trent, told The Daily Telegraph that the company has already started grilling prospective contractors which are lining up in the hope of securing multi-million pound contracts. The tendering process includes a series of “behavioural workshops” to check that efficiency is core. For the first time Severn Trent will also conduct the majority of its engineering design in-house. The move to self-sufficiency will include hiring over 150 engineers in the Midlands and a £10m investment in a technical training centre.
It forms part of the company’s push to become “socially purposeful”.
Draining customer bills
Overall, water bills across the regional monopolies will fall by an average of 4pc. “There is definitely a sense that all utilities can do more for customers,” Ms Garfield said, adding that while this has always been a focus the group is “going up a gear”.
Steve Robertson, chief executive of Thames Water, added that his company’s largest ever investment plan would roll out with no real term increase bills. The largest drains on water bills will be for customers of Northumbrian Water, which could see a 12pc cut, and United Utilities which plans to sap 10.5pc from bills in real terms.
For customers living in the Midlands, water bills could drop by as much as 5pc under plans put forward by Severn Trent where bills are already the lowest in the country.
The pressure to keep a cap on rising bills is endemic across the utilities industry. Water companies in particular are under pressure to pay penance in the wake of financial controversy, flooding, widespread pipeline bursts and the threat of supply shortages.
“This price review could define the future of the water industry in England and Wales. Reputationally, there is a huge amount at stake,” said Tony Smith, boss of the Consumer Council for Water.
The cuts are not without consequence. Shares in Severn Trent fell by 1.5pc after its ambitions plans were laid bare before the market, but analysts have said its proposals are the most positive of the listed water companies. United Utilities, which serves customers in the North West, said it would slash bills by more than 10pc. Its share price slumped by 2pc.
Pennon, which owns South West Water, fell by 1.8pc after it published plans to cut leakage by 15pc while keeping bills lower by 2025 than they were in 2010.
Expecting the unexpected
In the last six months alone freezing conditions ripped through water pipeline network, and the hottest summer sapped water reservoirs.
Any sympathy from the regulator or environment minister Michael Gove has run dry too.
‘Resilience’ is a key industry buzzword as water companies learn to expect the unexpected. Key to toughening up defenses is tackling dire leakage rates across the country.
Water UK’s manifesto, which summarises the plans of the industry, has called for leakage to fall by 16pc between 2020 and 2025.
“This is the biggest leakage programme for 20 years, and would save the equivalent of 184 Olympic-size swimming pools of water every day by 2025,” it said.
Water UK chief executive Michael Roberts said the industry’s record over the 30 years “has been good” but the new manifesto underpinned by the plans will “take it to another level”.
Susan Davy CFO of Pennon, which owns South West Water, said investing in innovation can help to bolster defences against leaks, and short supply. The company’s investment in Plymouth in the last spending cycle is a case in point. It uses membrane technology, rather than chemicals, to strip impurities from raw water. This is quicker, cheaper and more environmentally friendly.
“We’ve been tested, as all companies have, this summer but we have coped. There are lessons for us to learn and we’ve threaded this into our new plans,” she said.
Water companies will be hoping that Ofwat agrees.
