Water firms seek £96bn across AMP8

By Utility Week

Key figures from the business plans:

All England & Wales’ water and sewerage companies have submitted their PR24 business plans to Ofwat and either published the full document or a summary on their website.

Utility Week‘s team has compiled a summary of these publications below. Analysis of the plans submitted by water only companies will follow.

Northumbrian Water plans to double total investment to just over £6 billion between 2025 and 2030, including £1.7 billion to improve the environment.

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 pledges to “eliminate serious pollution events” and deliver a c30% reduction in all pollutions. 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 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”.

Anglian Water has proposed to spend a total of more than £9 billion between 2025 and 2030, with expenditure on the environment doubling to around £4 billion.

Excluding inflation, average bills would initially rise by £40 when compared to current levels to £535 per year but eventually grow by almost £77 in total to around £571 per year. Anglian said it would have the capacity to provide financial support to 300,000 customers, including providing a 50% bill discount to 230,000.

The company said it would spend £517 million tackling storm overflows and increasing wastewater treatment capacity to cut spills from overflows by 17%. It said it would also spend £210 million improving water quality and £308 million on enhancing resilience.

Anglian said it is aiming to cut pollution incidents by 41% over the period, and to this end, the company said it plans to invest £264 million in monitoring. It also proposed to spend £638 million on nutrient removal and sanitary parameters.

To deliver its Water Resources Management Plan, Anglian said it intends to spend £534 million on interconnectors, £233 on strategic regional options and £256 million on other supply-side improvements. This expenditure would include planning for two new reservoirs.

It also plans to spend £137 million on metering, £35 million to reduce leakage by 8% and £22 million on other demand-side improvements as it seeks to cut per capita consumption by 6% to 124 litres per day.

The company said investments to accommodate the region’s growing population would total £476 million.

Anglian said it would additionally spend £153 million on decarbonisation and £199 million on achieving a circular economy.

Thames Water has forecast bill rises for combined services to £611 to allow it to invest £18.7 billion – almost double what was approved by Ofwat at PR19. This is by far the most significant total expenditure and coincides with the organisation updating its turnaround plan after a change of leadership.

Bills are set to rise 40% compared to 2024/25 to £611 annually, or a monthly increase of £14.55 by the end of the period. The company has proposed two approaches to how bills may rise over the five years to cushion against spikes.

Spending will include £6.6 billion to improve the environment, of which £885 million will be dedicated to lowering the risks of harm from CSOs as it targets a 30% drop in pollution incidents.

Its plan commits to:

London’s super sewer the Thames Tideway is due to be commissioned within the period, completing more than a decade of work that has been reflected in customer bills.

Southern Water has set out how it will almost double its spending from £4 billion to £7.8 billion in the five years to 2030, which will add up to 64% to household bills.

By the end of 2030 the average forecast bill is forecast rise to £674 with water services increases charges by 69% and sewerage by 27%.

This will allow the company to spend 90% more on water services to £3.4 billion, and 29% extra on wastewater to £4.1 billion.

Southern will invest £682 million to reduce the use of storm overflows by 40% by 2030 at 179 priority locations; it plans to cut overall pollution incidents by half and eliminate serious events by installing new mains and increasing power resilience at pumping stations as well as adding monitoring across wastewater networks. The plan specifies spending £600 million on upgrading 38 sewage works to meet statutory nutrient requirements.

On the supply side, investment will be directed at lowering abstraction by 10%; modernising four treatment works that serve two-thirds of the customer base and delivering 189 megalitres of additional resource capacity by 2035 with new recycling plants and pipelines. The company also plans to roll out more than one million smart water meters as part of the Target 100 programme and has pledged to lower leakage rates from 17% to 13% by 2030 with an investment of £517 million during AMP8.

Southern said spending on the water industry national investment programme (WINEP) will be phased over eight years instead of five, to balance affordability and avoid an additional £100 per household being added to bills during AMP8.

Despite having the largest project bill at the end of the decade, Southern insisted it had avoided a possible £192 on top of this through mitigating action. These mitigations include moving £1.3 billion of possible spend into direct procurement.

They also include the introduction of “more cost-reflective” surface water drainage charges, which Southern thinks could reduce average wastewater bills by 7%. The company also wants to phase out discounts some large users currently receive and introduce seasonal or rising block tariffs.

Wessex Water has sought £3.5 billion of capital expenditure over AMP8 – more than double the “traditional” level of £1.5 billion over a five-year period.

The company said this increased expenditure would contribute to an average bill increase of 29% – or at least £150 per year – before inflation. Elsewhere, the firm said nominal average annual bills would jump from £402 over PR19 to £631 over PR24.

Wessex said no households should be spending more than 5% of their disposable income on water bills and it therefore plans to increase the number receiving financial assistance from more than 55,000 currently to around 140,000.

The proposed capital expenditure of £3.5 billion includes around £900 million to reduce nutrients in treated wastewater discharges and £400 million to reduce spills from storm overflows by 80.

The company said it would also spend £1.1 billion maintaining asset resilience to “make up for previous under-funding” by the regulator and £100 million increasing wastewater treatment capacity.

Furthermore, the company said it would spend £150 million on WINEP improvements and investigations and £120 million on tackling pollution and sewer flooding. It said it would also spend £120 million rolling out smart meters to 40% of all customers, reducing average daily per capita consumption from 145 to 135 litres, and cutting leakage by 5% when compared to current levels.

Yorkshire Water is proposing a totex spend of £7.8 billion to 2030, while bills are set to rise by 18% for 2025-26, taking them from £438.12 in 2024-25 to £518.76 with small increases planned for subsequent years.

The total spend planned for PR24 is a step-up from the £4.3 billion allowed in PR19, which included an extra £158 million awarded by the Competition and Markets Authority after Yorkshire Water challenged the regulator’s final determination.

Yorkshire has submitted its largest ever environmental investment plans, totalling £4.3 billion, including £1.9 billion to reduce the use of storm overflows and £1.8 billion to maintain and improve wastewater collection and treatment.

The rest of its £3.1 billion planned spend will be divided between:

Yorkshire has planned £446 million to improve customer service and ensure new developments in the region can quickly and easily connect to the network.

This will include £250 million to support customers financially across the five-year period, which it says is an increase of 25% over PR19. This will support 500,000 customers and give direct help with water bills for 280,000 customers.

Welsh Water has proposed a £5.1 billion investment programme, up from just under £3 billion of spending for AMP7.

Wholesale spend of £4.8 billion will include spending 84% more on the environment than the current period at £1.9 billion (up from £1 billion at AMP7) to substantially reduce phosphorous discharges from wastewater plants and addressing the 2,300 combined sewer overflows (CSOs) in its region.

Bills will be impacted to the tune of an extra £360 annually by 2030, this 26% rise was deemed acceptable to majority (84%) of its customers, the company said.  Affordability support worth £65 million will be made available for struggling householders.

Of the total expenditure, £1.9 billion will be dedicated to wastewater investment – almost doubled from AMP7. The company said spending would be focused on “where it can make the biggest difference in terms of environmental benefit”. This includes prioritising CSOs with highest potential to cause harm.

It will accelerate its metering programme, without making it compulsory for households to have one fitted. The company aims for 78% of properties to be metered by the end of AMP8, up from 51% forecast to have a meter by 2025.

Performance commitments include:

Pennon Group, comprising South West, Bournemouth and Bristol Water has requested totex of £4.5 billion – a 53% increase on the £2.9 billion allowed for PR19. Total capital investment is set at £2.8 billion (up from £1.3 billion for AMP7) – divided between £1.3 billion for water and £1.5 billion for wastewater.

The company is projecting that average bills in the south west and Bournemouth will increase 22% by 2030 to £620 and £167 respectively per year while in Bristol tariffs will rise 18% from 2025 to reach £242 by the end of the decade. It is investing £200 million in an affordability package.

The business plan suggests a number of possible tariff innovations, to be informed by trials starting in 2024. These include seasonal tariffs with higher rates during the summer, more targeted peak charging, rising block tariffs and special rates for partial occupancy.

The plan breaks down commitments into four challenges: water quality & resilience; storm overflows & pollution; net zero & environmental gains and affordability & delivering for customers.

Under these headings, the company is pledging to:

The company projects incentive payments will range between a £165 million overperformance to a £180 million penalty over the AMP, excluding the potential impact of customer measures.

Pennon has told investors it expects regulated capital value (RCV) to grow by 38% nominal and 25% real over the period with return on retained earnings (RORE) expected to grow by up to 8.6%.

The report accepts that “customer trust is damaged when executive bonuses are not aligned to water company performance”, so presents a number of changes to remuneration policy. These include “expanding the remit” of its customer advisory panel to review executive pay and replacing the current long-term incentive scheme with restricted stock options, which it says should reduce overall maximum long-term incentives by 50%. The company also proposes aligning 70% of executive bonuses to four key areas – water quality & resilience; storm overflows & pollution; net zero & environmental gains and affordability & delivering for customers (30% will remain on financials).

United Utilities (UU) has laid out total expenditure of £13.7 billion over the five years to 2030 with bills to jump 14% from £455 to £518. To ensure billpayers are supported, the company will dedicate £525 million to customers who are financially struggling. This will encompass one in six households, the company said.

UU’s totex spend is dominated by environmental programmes, specifically the water industry national investment programme (WINEP) with the company saying it will need to spend £5.7 billion to meet statutory requirements. At the previous price review, the company’s final determination stipulated a spend of £5.5 billion, including £663 million on the WINEP.

Within the WINEP, there will be £3.1 billion dedicated to addressing storm overflows.

The company said its plan will drive significant RCV growth at 8.7% per annum, which equates to over 50% nominal across the period. UU is currently geared at 58%, which it said offers flexibility to finance the full plan over the AMP with 65% gearing – based on Ofwat’s weighted average cost of capital assumptions and without assuming any new equity.

The company’s proposed performance commitments include:

The company’s spend breakdown proposes £350 million on novel water resources and protecting existing supplies as well as £1 billion on network resilience and replacing 950km of aging pipes.

Building on work undertaken in the current asset management period (AMP7), UU will continue to utilise direct procurement for customers (DPC) to fund larger projects such as the Hawethorne Aqueduct scheme. Across AMP 8 and 9 it will spend £613 million through DPC in addition to the aqueduct.

Resilience spending will be £975 million including to separate rainwater from sewers for flooding resilience and £280 million through the advanced WINEP on managing surface water, which was highlighted as a priority by the National Infrastructure Commission (NIC) as a significant threat to be managed.

‘Essential investment’

Water UK confirmed that total investment requested by all water companies across England & Wales in their PR24 business plans amounts to £96 billion.

As a result of this almost doubling of spend from the £51 billion in the current five-year period, average bills are set to rise by £156 a year by 2030.

The trade body said the plans, if approved outright by Ofwat, would see more than a doubling of households receiving support with their bills – to 3.2 million. There are also pledges to create over 30,000 new jobs and 4,000 new apprenticeships – a 50% increase in workforce.

Among the key investment areas identified by Water UK from the combined business plans are:

Water UK chief executive, David Henderson said: “These record-breaking investment proposals will secure our water supply as we deal with a changing climate and a growing population.

“While increasing bills is never welcome, this investment in our country’s infrastructure is essential to ensure the security of our water supply. Water companies are seeking regulatory approval to reduce overflow spills into rivers and seas as fast as possible and to doubling the number of households receiving support to pay their bills.

“Ofwat now needs to back these plans that are both ambitious and vital. Approving the plans is necessary so that we can provide the highest quality drinking water for a growing population, ensure the security of our water supply in the future and reduce the use of storm overflows as much as possible.”

Ofwat sets a high bar

In a statement issued before business plans were submitted, Ofwat called on companies to show ambition in cutting pollution, improving the environment and delivering more for customers, while keeping bills affordable.

The regulator said it wanted to see transformational performance for consumers and the environment and stressed it would put an incentive regime in place to reward performance or penalise failings.

David Black, chief executive at Ofwat, said the sector is expected to deliver a step change in investment and performance to clean up waterways, while meeting the challenges of climate change.

He explained: “Company business plans are an important first step in the price review process. Ofwat’s role is to forensically scrutinise their proposals, to ensure any increase in bills is justified, efficient and delivers significant improvements in river and bathing water quality. We will assess how companies are helping customers to afford any bill increase.”

After today, stakeholder engagement will take place in October and November ahead of Ofwat publishing its draft determinations by June 2024. This will be followed by a consultation period ahead of the final determinations in December 2024. From April 2025, the plans and any bill adjustments will come into effect.

Severn Trent led the pack by revealing highlights of its investment plan of an eye-watering £12.9 billion with funding plans including equity raising and 37% bill hikes.

Reporting by Ruth Williams, Lucinda Dann, Tom Grimwood and James Wallin