United Utilities Regulatory News (UU.)

United Utilities Group PLC 2 December 2013 UNITED UTILITIES BUSINESS PLAN 2015-20 United Utilities Water PLC has today submitted to Ofwat its business plancovering the 2015-20 period. Balanced plan Our business plan for the next five-year period means that customers wouldbenefit from below inflation average household bills for the decade to 2020. Wehave sought the views of over 27,000 customers, as well as consulting with ourregulators, to deliver a plan which we believe strikes the right balance forall our stakeholders. This includes a substantial capital investment programmeto meet our environmental obligations and which will provide a significantcontribution to the North West economy. Our plan reflects the views ofcustomers on service and affordability, it delivers a paced environmentalprogramme and it provides an appropriate return for investors. Customer bills Extensive stakeholder engagement has highlighted that the principal concern forcustomers is affordability. Customers are generally satisfied with the currenthigh levels of water and wastewater services being provided and are onlyprepared to pay for specific targeted areas of improvement, with 86% ofhousehold customers supportive of bill rises no higher than inflation. This hasbeen a key driver in the formulation of our plan and we are proposing anaverage real terms bill decrease of 1.7% for household customers across thefive-year period (excluding the impact of the previously announced specialcustomer discount of c£20 million to be applied to 2014/15 bills). For non-household customers, we are proposing an average real terms billdecrease 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% aresupportive 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). Thiscomprises capital investment (capex), including infrastructure renewalsexpenditure, 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 assessmentover the life of our assets. We have reflected this mix in setting thewholesale business `pay as you go'1 ratio of 50%, which would result in realgrowth in the regulatory capital value of around £800 million over the 2015-20period. Operating expenditure Our plan includes initiatives designed to save around £66 million per annum ofopex by 2019/20, relative to 2012/13. This will largely offset the unavoidablecost increases in areas such as rates and power, alongside the addition ofprivate pumping stations and enhancement programme costs. Capital expenditure Our proposed £3.8 billion capital investment programme (net of grants andcontributions) comprises £1.3 billion for the water service, £2.4 billion forthe wastewater service and £0.1 billion for the retail service. Investment tomeet tighter regulatory quality standards, enhance service to customers andmaintain the supply/demand balance is forecast at around £1.5 billion, with theremainder relating to maintenance. We have kept capex constrained at £3.8billion 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 onour costs, we are seeking an adjustment to the household retail average cost toserve of around £25 million per annum. We have provided robust evidence toOfwat in support of this approach. We have worked hard with the Environment Agency to constrain and balance ourexpenditure programme. Nonetheless, similar to previous regulatory periods, ourwastewater spend includes a significant environmental programme. In view of ourregional differences, we believe it is necessary to assess this programmeoutside 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. Inlight of this, we have adopted a real, vanilla WACC2 of 4.1% for our wholesalebusiness. When adding in our proposed non-household retail margin of 4%, thistranslates to an overall appointed business WACC of 4.3%. Next steps Ofwat is expected to publish draft determinations by August 2014, with finaldeterminations 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 4200Communications This announcement and a summary of the business plan will be available on theday at: http://corporate.unitedutilities.com/investors.aspx 1 `Pay as you go' ratio is the proportion of wholesale total expenditurerecovered directly through wholesale revenues

2 Vanilla WACC is derived from pre-tax debt and post-tax equity