drain TRADER

Southern Water – Allowed revenues have been agreed at £3,689.1 million against a Totex of £3,403.4 million for wholesale and £261.7 million for retail, or £3,665.1 million all-in. This offers a margin of around £24 million (£4.8 million per annum). The bill reduction target is set at 18%.

Key targets for Southern water include: • Internal sewer flooding down 33%

• £30 million to protect groundwater around Thanet • Pollution incidents down 33%

Thames Water – Allowed revenues of £10,289.9 million have been agreed with Thames Water against a Totex of £9,252.1 million for wholesale and £754 million for retail operations or £10,006.1 million over the AMP. This offers a margin of some £ 283.8 million (£56.76 million per annum). Bill reduction has been set at 7% across Thames Water’s huge area.

Key targets for the AMP for Thames Water include:

• 9% more renewable energy

• £180 million to improve resilience in water supplied to north London

• £300 million to improve water network performance in London, subject to strict controls

United Utilities – Allowed revenues for United Utilities have been set at £8,247.8 million against a Totex of £5,488.8 million for wholesale operations and £474.8 million for retail operations, or a total of some £5,963.6 million. The margin on this is therefore around £2,284.2 million over the AMP (or £456.84 million per annum). Water bill reduction has been set at 14%.

Key targets for Unite Utilities include:

• Long-term £750 million project to ensure the resilience of Manchester’s water supplies

• Improving 1,585 km of river

Wessex Water – Allowed revenues for Wessex Water have been set at £2,398.2 million whilst a Totex of £2,080.3 million has been agreed for wholesale operations and £143.1 million for retail operations or a grand total of £2,223.4 million. The margin on this is around £174.8 million across the AMP (or £34.96 million per annum). Against this has been set a water bill reduction of some 13%.

Key targets for Wessex Water include:

• £45 million to improve sewers in north Bristol • Greenhouse gas emissions down 14%

• Reinvesting 20% of net payments earned for improving services in community projects

Yorkshire Water – This company has been determined Allowed revenues totalling some £5,142.5 million against a Totex of £4,165.5 million for wholesale and £321.9 million for retail operations or a grand total of £4,487.4 million. The margin on this would therefore be some £655.1 million across the AMP (or £131.02 million per annum). Water bill reduction for Yorkshire Water has been set at 9%.

Key targets for the company include: • 30% more land enhanced

• 50% more customers on social tariffs and WaterSure • Pollution incidents down 41%

Adding up the total Totex amounts above we come to the £51,292.9 million or £51.3 billion headline amount quoted by OFWAT in its summary of the Price Review operations.


Presentation of the agreed AMP programmes in this form makes for an excellent headline with the industry apparently looking to spend in excess of £51 billion over the next five years. But what, in practice, does this really mean and what does it tell us or not about the spending involved?

The fact that the figures are presented as a spend of Total Expenditure (Totex), unless things have changed dramatically in the 40 years since I was taught what economics and accounting I have, means every cost that the company has to bear from Board of Directors remuneration down to the last paperclip in the box in the stationery cupboard (sorry if I show my age there – not even sure people still use paperclips!) and everything in between. This includes staff salaries and wages, energy costs, chemicals as used across various activities in the water industry, IT systems and software, vehicles, vehicle maintenance, fuel, stationery, office supplies and furniture as well as network activities such as repair and replacement of pipes, treatment plants etc. – you name it and it will be included in the Totex figure. So, whilst the headline is s fantastic number, and no-one disagrees that this is the amount of money that will be spent by the various water companies over the next five years, it is not perhaps a true reflection of the amount that is going to be spent on the network of storage facilities, raw water handling, water treatment plants, water distribution and delivery pipe, wastewater collection/treatment and disposal. Taking into account all the other costs that the Totex figure covers it would seem that only a fraction of the total ‘spend’ will go towards this part of the business.

8 drain TRADER | June 2020 |

There are those that will argue that without this underlying spend the networks would not be able to run anyway, this is true. But, to most people that pay water bills they will look at the headline figure and think this is the amount being spent on the systems that provide their water and take away their waste, they will not look at it in the way that perhaps they should, that is as the Totex figure we have now before us. This is perhaps where the industry is failing to understand its customer base when it comes to the question of bills. Whilst a significant part of the customer base will simply see lower bills there are many that will look at the figure given here and say what does that mean for me? They will not look at the numbers and think that means that the workforce is getting paid or that they will have their laptops or tablets to work with, they will see what they think is what is to be spent on making their water network better, more reliable, safer from bursts and other failures and less likely to be a problem to them so they can, as usual, take the system for pretty much for granted.

It would perhaps be politic to have the headline figure broken down into a series of costs that show what is to be spent where so that it becomes obvious just how much of the monies being taken in are going back into the network system. Is it that the water companies do not want to have this shown as the proportion of the overall Totex spend that goes to this part of the industry because it is perhaps small enough to cause concern amongst the customer base that so much is going to the company owners and its senior people as opposed to what they see themselves as paying for, that is the delivery of clean water and the removal of used water (and its add-ons). Furthermore, with these on-costs often making up in excess of 50% to 80% of the total spend this leaves far less than might be expected by the customer base to the works they are expecting to get.

It is clearly understood that costs do have to cover remunerations etc. but many people simply want to have it clearly displayed who is getting what out of the cost of their bills and particularly where the profits go and what that leaves to do the ‘real’ work with.

Looking at the water bill reduction programme for the next five years some significant questions also arise. Yes, it is good that OFWAT is looking at securing reductions for the customer whilst maintaining employment and infrastructure operations, safe delivery and removal of water and waste flows but the range of expected price reductions is huge!

One might expect that companies might be able to handle single digit percentage falls in their incomes, but of the seventeen companies

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