United Utilities Regulatory News (UU.)

7 Apr 2009 07:00

United Utilities Group PLC

7 April 2009

UNITED UTILITIES WATER PLC FINAL BUSINESS PLAN 2010-15

United Utilities Water PLC (UUW) has submitted its final water and wastewater business plan covering the 2010-15 period to Ofwat, as part of the 2009 water price review process.

Capital investment

The proposed 2010-15 capital investment programme aims to meet existing standards of service, address higher quality standards and make provision for the challenge of climate change, whilst maintaining the affordability of customer bills.

The total proposed capital investment programme contained within the plan, including infrastructure renewals expenditure, is approximately £3.7 billion (2007/08 prices), comprising approximately £1.3 billion for the water service and approximately £2.4 billion for the wastewater service.

Of the proposed £3.7 billion capital programme, investment to meet tighter regulatory quality standards, enhance service to customers and maintain the supply/demand balance is forecast at around £1.8 billion. The remainder of the investment relates to maintenance of the company's substantial water and wastewater assets and infrastructure.

Efficiency

UUW expects to improve its efficiency across the 2010-15 period. The company is aiming for an annual improvement of 1.5% in its underlying operating efficiency, although operating expenditure is likely to increase overall due to cost pressures in areas such as property rates. UUW is also targeting an improvement in efficiency of between 4% and 8%, across the five-year period, in respect of its capital investment programme.

Return on capital

UUW estimates that to finance this plan an average real, fully post-tax return of 4.85% is required, which it believes would support an A3 credit rating. This compares with a cost of capital of 5.1% assumed by Ofwat at the last price review in 2004, reflecting the reduction in the cost of debt finance available to the water sector during the early part of the 2005-10 period. However, this return represents an increase of approximately 0.2% compared with the required return in the draft business plan, following the company's reassessment of its financing costs in light of recent financial market conditions.

This reassessment is supported by NERA's recently updated independent research* which has concluded that a higher cost of capital in the range of 4.6% to 5.1% (fully post-tax, real) would be appropriate for the UK water industry. NERA intends to reassess this cost of capital range later in the year.

Customer prices

To deliver this plan, UUW proposes an average annual real price increase of 1.8% across the five-year period. However, households are expected to see average bills increase at a lower rate of approximately 1.4% in real terms on average each year reflecting an expected increase in the number of connected properties and the proportion of metered customers.

UUW's service currently costs households just under £1 per day on average. With this plan, average household bills would increase to just over £1 per day in real terms by 2015.

Next steps

The next stage of the price review process is publication of the draft determination by Ofwat, expected in July 2009, with the final determination due in November 2009.

This announcement and a summary of the final business plan can be viewed on United Utilities' website at www.unitedutilities.com.

United Utilities' contacts

For further information please contact:

Philip Green, Chief Executive +44 (0) 1925 237000 Tim Weller, Chief Financial Officer +44 (0) 1925 237000 Gaynor Kenyon, Communications Director +44 (0) 7753 622282 Darren Jameson, Head of Investor Relations +44 (0) 1925 237033

David Trenchard / Tom Murray, Tulchan Communications +44 (0) 20 7353 4200

Notes

* NERA Economic Consulting: "Cost of Capital for PR09 - A Final Report for Water UK", January 2009.