Water companies responding to regulatory challenges, report says

Water companies are continuing to make the new investments necessary to deliver environmental and water quality improvements, according to a new report published Aug. 21 by Ofwat.

Aug. 27, 2003 -- Water companies are continuing to make the new investments necessary to deliver environmental and water quality improvements, according to a new report published Aug. 21 by Ofwat.

http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/AttachmentsByTitle/fp_report2002-03.pdf/$FILE/fp_report2002-03.pdf gives details of the companies' financial position. It provides a comparison between their actual performance over the last financial year and Ofwat's expectations when the current price limits were set.

At industry level capital expenditure for the period was £3.45 billion. This is £0.4 billion (13%) higher than in 2001-02. Capital expenditure for the first three years of the period was £9.3 billion, significantly lower than the £11.2 billion projected in price limits.

Companies have reported that around half of the difference is due to capital efficiency, with most of the remainder due to rephasing work on the quality programme. This has left companies with a large part of the environmental improvement programme to complete in the next two years.

Capital maintenance investment increased by 12% compared to 2001-02 and is at its highest level in the current regulatory period. For the first three years of the period, capital maintenance investment was close to the amount assumed in price limits.

Commenting on the report, Philip Fletcher, Director General of Water Services, said:

"The overall financial performance of the water companies shows that they are responding to the challenges set for them at the last price review. They are continuing to make real efficiency savings as they deliver further improvements to the quality of drinking water and the environment.

"Capital investment is rising. But the companies face a challenge in terms of the number of schemes still to be delivered by 2005. Ofwat and the Environment Agency will be seeking assurances from the water companies that the full five-year National Environment Programme will be delivered on time."

The report includes an assessment of each company's water and sewerage network system. At industry level water service asset systems, such as water mains and water treatment works, remain 'stable'. The number of properties subject to low pressure continues to fall. The previous year's rise in unplanned supply interruptions, albeit from a relatively low level, has been reversed.

The sewer system has improved to 'stable' from our 'marginal' assessment last year. However, above ground waste water assets moved from 'stable' to 'marginal' since some sewage treatment works have failed the effluent treatment standards set by the Environment Agency.

Ofwat will continue to monitor companies' performance and expects each company to demonstrate that it has action plans in place to address any serviceability shortfalls by 2005.

Other key results for 2002-03 at industry level were:

* Total operating expenditure was £2.7 billion. This is slightly higher than in 2001-02, but marginally lower in real terms than assumed when the price limits were set in 1999 by £33 million (1%); and

* The industry's net debt at 31 March 2003 amounted to £18.8 billion. This is nearly 60% higher than net debt at 31 March 1999.


Ofwat publications and press notices can be found on Ofwat's web site at: www.ofwat.gov.uk.


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