Supporting Notes to Ofwat's Advice to
Ministers—December 2003
In preparation for the periodic review next
year, and to provide the information needed to guide Ministers
in considering the scope and timing of new quality enhancements,
we asked each company to submit draft business plans in August
2003. We are currently scrutinising these and providing feedback
to each company to help it to produce a final business plan next
year.
Each draft business plan comprises the following
items.
— The company's preferred strategy—including
its own view of the quality enhancements it considers are necessary
during the period.
— Reference plan A—a fully worked
up draft business plan including a defined package of quality
and environmental improvements with prescribed reference level
assumptions for the following key issues:
— the scope to reduce costs through
efficiency;
— the rate of take up of free
meters; and
— Reference plan B (for the water and
sewerage companies and Three Valleys Water the largest water only
company) including a fully worked up draft business plan but with
a larger defined package of improvements with the same reference
level assumptions.
These alternative packages of environmental
improvements were discussed with Defra, the Welsh Assembly Government
and the quality regulators.
BRIEF OVERVIEW
OF COMPANY
PREFERRED STRATEGIES
Companies have set out in their business plans
their own preferred strategies for the period 2005-10. In these
preferred strategies companies propose significant increases in
bills (on average +31%, maximum +70%—United Utilities).
See the map below. The bill increases in the water only companies'
preferred strategies vary between +3% Tendring Hundred and +36%
Three Valleys.
Some companies have chosen not to specify their
preferred cost of capital, but to use the reference level. This
was the same as that used for setting price limits in 1999. However,
the majority of these commented that this is too low. Consequently
for these companies the bill effects will be understated.
Table 1 shows the factors driving the changes
in bills as proposed in the companies' preferred strategies.
Table 1
WHAT IS DRIVING THE CHANGES IN BILLS IN ENGLAND
AND WALES? (COMPANY PREFERRED STRATEGIES)
Average household bill in 2004-05
| £234 |
| (1) past efficiency savings and outperformance
| (8) |
| Less | (2) scope for reduction through future efficiency improvements
| (10) |
| (3) maintaining base services
| 37 |
| of which (a) changes in revenue
| 3 |
| (b) changes in operating costs
| 6 |
| Plus | (c) changes in capital maintenance
| 19 |
| (d) impact of taxation
| 9 |
| (4) maintaining security of supply to all customers
| 12 |
| (5) the impact of improvements in services
| 41 |
| of which (a) drinking water quality
| 10 |
| (b) environmental improvements
| 26 |
| 1. (c) service performance
| 5 |
Average household bill in 2009-10
| £306 |
| |
|
| 
