Severn Trent has become the first company to announce its acceptance of Ofwat’s final determination amid sector-wide speculation over which companies may seek a referral to the Competition and Markets Authority.
The company said it accepted the PR19 determination based on the “in the round” approach taken by Ofwat; the totex allowance for the next five years being in-line with Severn Trent’s own business plan; and added that the expected regulatory capital value real growth rate of 3.8 per cent created long-term value for the company’s shareholders.
It accepted the flooding measures outlined by Ofwat, which it said are “significantly more stretching” than it proposed and likely to result in penalties.
In its Q3 trading update the company said, for the three months to 28 January 2020: “We continue to benefit from the efficiencies we have delivered in AMP6, putting us on the right cost run rates for AMP7. Our capital programme is now in its final stages with the Birmingham Resilience Programme due to complete construction in March.”
Looking ahead, ST said its dividend policy during AMP7 will be “growth of at least” consumer price index (CPIH) with the expected dividend for the full-year 2020/21 to be 101.58p, using CPIH of 1.50 per cent.
ST said it is on track to deliver at least £25 million in customer outcome delivery incentives (ODI) net outperformance payments for the year and it will take the total amount deferred to AMP7 revenue to at least £177 million in nominal prices.
“We continue to deliver improvements in our operational water measures and the work we are doing to enhance our local environment through the Water Framework Directive is progressing well. As anticipated, the significantly more stretching targets we agreed with Ofwat for our flooding measures have been challenging and we expect penalties on some of these to partially offset outperformance in other areas,” the trading update said.
The update comes a week earlier than expected for the company and replaces the scheduled February trading update.
Ofwat’s final determination included average bills over the next five years down by 8.9 per cent – to £313, a larger drop than the company proposed.
Total allowed revenues were reduced from £7.9 billion at the draft determination to £7.77 billion at final determination. Severn Trent had originally asked for £8 billion.