Northumbrian Water plans to double total investment to just over £6 billion between 2025 and 2030, including £1.7 billion to improve the environment.
However, the company warned that in order for its plan to be financeable Ofwat would have to adopt a new approach to the cost of equity.
Bills in the region are set to rise between 12% and 20%, with the latter figure representing a rise from £393 per year in 2025 to £470 by 2030 for the average household. The company pointed out that average bills in the north east are below the industry average and it expects this to remain the case under any scenario. It is also proposing an affordability package of around £170 million and wants to double the number of households supported by a social tariff to 300,000.
The company pledged to “eliminate serious pollution events” and deliver a c30% reduction in all pollutions.
While the company stressed its performance on pollution is already above the sector average, it will still spend £947 million on reducing the use of storm overflows and improving bathing water quality.
The company will plough £38 million into catchment management and nature-based solutions to improving water quality.
It plans to reduce leakage by c8% in Essex & Suffolk and 10% in the north east, along with a 19% reduction in supply interruptions and 25% in external flooding. Some £370 million will be invested in new water supplies, with a focus on Essex & Suffolk, with c£125 million to be spent on smart metering.
Northumbrian will trial a water-saving tariff alongside its smart metering programme next year to reward customers who reduce their consumption.
The company had set one of the most ambitious targets for hitting net zero for operational emissions, going ahead of the wider sector by plumping for 2027. While the company stressed it had cut operational greenhouse gas levels by more than 90% on 2008 levels, emissions from treatment processes have proved to be higher than originally estimated.
The company said: “We therefore no longer consider that our ambition to reach net zero operational emissions by 2027 is deliverable but will still seek to reduce our operating emissions by the same amount or more than we had estimated when we set the target.”
The business plan is based on Ofwat’s early view of 6.22% return on equity, however the company has also provided an “alternative view” of 7.44%, in recognition of the “prodigious increase in the amount of private capital that will be needed in the business”.
The summary of the plan published by the company includes statement from shareholders, who have said they are willing to invest £400 million of new equity investment. However, the statement says Ofwat’s eventual decisions on returns to shareholders and incentive payments “will play an important role in how the investment committees of each shareholder will evaluate any such PR24 equity investment proposal”.
It adds: “As global investors, the shareholders are not limited to investing only in the UK, nor just the water sector and have respective fiduciary duties to their ultimate investors with respect to return and yield which will be considered for any new commitment of equity.”
For more on companies’ views on returns for AMP8, see our analysis.