Water Services Provisions in the UK England - - PowerPoint PPT Presentation

Water Services Provisions in the UK

England Private Companies Wales Not-For-Profit Company Scotland Public Company Northern Ireland Public Company

Development of Water Services 1

1970 Statutory Water Companies 33 Local Authorities 64 Joint Boards 101 Total 198 1393 Sewerage Undertakers in 1970 29 River Authorities

Development of Water Services 2

Water Act 1973 10 Regional Water Authorities Provider and Regulator Cost recovery Capital from Borrowings from

Central Government

Separate Bills for Water

Services

50% of Board Members Local

Authorities

Development of Water Services 3

Water Act 1983 Reduction in Role of Local

Authorities

Chief Executives from Private

Sector

Operation More Like Private

Companies

Could Raise Capital from

Open Market not Widely Used

Development of Water Services 4

Regional Water Authorities Limited

Success

Regulatory Functions (DSS) Weak

compared to Operations

Approximately 20% of Staff Regulatory and

80% Operation

Government Finances Under Strain

Development of Water Services 6

Water Act 1989 Privatisation of the

Water Services

Formation of the

National Rivers Authority which in 1995 became the Environment Agency

Creation of Ofwat Creation of Drinking

Water Inspectorate

Reasons for Privatisation

• Government Policy at the Time
• Large Investment Requirements

(DWD, Bathing Water Directive, proposed UWWTD)

• Freedom from Government Borrowing

(under strain at the time)

• Chief Executives from Private Sector
• Independence from Government

To Make the Companies Attractive for Privatisation

£5 Billion Debt Written Off £1.5 Billion Subsidy for Urgent

Improvements In turn

£5.225 Billion Raised from Investors £1.673 Billion Withdrawn by Labour

Government in 1997 - Windfall Tax

Structure of Water Companies in 1989

Water Holding Company Thames Plc Regulated Water Services Company Thames Water Ltd Non-Regulated Other Subsidiaries e.g Plumbing Services

Ownership of Water Services Companies

Taken over by Electricity Supplier -

Southern Water

Taken over by Private Company -

Yorkshire Water by Kelda Plc

Several Private Companies -Wessex by

Enron and Malaysian Company

Taken over by Private Company -Re-floated

• n Stock Exchange - Northumbrian Water

Example of Current Water Company Structure

Various Macquaire Funds 47.65%

Various EU,CN,AU Funds 52.35% Kemble Water Holding Ltd 100% Intermediate Holding Comp 100% Thames Water Holding 100% Thames Water PLC 100% Thames Water Services 100%

Changes to Welsh Water

Take over by Western Power USA Sold to Glas Cymru - Not-For Profit

Company Financed by Bond Issue

Operated as if Registered on Stock

Exchange but no Dividend/Profits

Customers not Liable for Losses Operations - North West Customer Services - Thames water

Water-Only Companies

Numbers Reduced from 29 to 11 through

Mergers

3 Owned by French Company Veolia 2 Owned by other Water Services

Companies

Even if Owned by Other Companies the 11

Need to be Ring-Fenced from other Activities - Ofwat - Comparative Efficiency

New Companies

Ofwat Duty to Encourage Competition Competition so far Restricted to Industrial

Supplies >50ML/d

One Company has Applied to Provide the

Water Services to a New Development.

If Approved Company would be Regulated

by Ofwat as the Other Water Companies

Total 12 WSCs and 14 WoCs

Water Services System 1

Mature System

– 99% Connected to Water Supply – 98% Connected to Sewerage System

System is Quite Old

– 50% of Sewers before 1944 – 25% of Sewers before 1918

In London 1/2 of Water Mains

>100 years and 1/3 >150 years

Water Services System 2

High Leakage

– 5112 ML/d (30%) in 1994/95 which has been

Reduced to 3291ML/d in 2008/09, a 35 % reduction

Approximately a Third of Properties have

Lead Supply and Communication Pipes

Lead Drinking Water Standard Complied

with through Water Treatment

Water Services System 3

Only 20% of Properties had Water Meters

in 2000, this has Increased to 35% in 2009

One Company Applied for Water Scarcity

Status - Compulsory Installation of Meters - 64% of Properties Currently Metered

Highest Meter Penetration - 69% Tendring

Hundred Water Company

Lowest Northumbrian Water -23%

Provision of Sewerage Services

1997 2008 Population connected to sewer % 96 98 Primary or less Treatment % 19 0.1 Secondary Treatment % 61 54.4 Tertiary Treatment % 18 44.9 Other 2 0.6

Regulatory System in E+W

Environment

Agency (EA)

Office of Water

Services (Ofwat)

Drinking Water

Inspectorate (DWI)

Water Resources Permitting+Enforcement Economic Regulations of

Water Companies

Level of Service Consumer Interests Auditing of Companies

in Meeting Drinking Water Regulations

Setting of Price Limits 1

Ofwat to Balance between Quality

Improvements and Affordability

EA and DWI Lay down Quality

Improvements Required and Desired

Ofwat Considers Impact on Water Prices In Case of Conflict Defra Gives Advice Based on Outcome Water Companies have

to Prepare Business Plans

Setting of Price Limits 2

Business Plans Contain Information on the

Investment needs and Operating Costs to Meet Quality Improvements

Ofwat Uses the Business Plans, which have

to be Prepared every 5 Years, to Assess Investment Needs, Operating Costs and Efficiency Improvements Based on the Annual “July Returns” of the Companies

This is called “Yard Stick” Regulation

Setting of Price Limits 3

Ofwat Publishes Draft Determinations of

the Price Limits

Water Companies Prepare Responses Ofwat Issues Final Determinations Right of Companies to Refer the Price

Limits to Competition Commission

Final Price Limits

Setting of Price Limits 4

Prices are based on the Performance of the

Best Group of Companies for Investment and Operating Costs

Price Limits Include a Maintenance

Allowance for Underground Assets

Depreciation for above Ground Assets

Setting of Price Limits 5

Price Limits are Set for a Basket of Charges

• Metered and Un-metered Water and

Sewage and Trade Effluent

Price limit P (%) for each company

P = RPI +K

RPI = Retail Price Index K = Price increase above RPI

Drivers For Change In Prices 2004/05 to 2009/10

Average Household Bill 2004/05 £249 Past and Future Efficiency Savings -£3/-£13 Maintaining Basic Services £18 Maintaining Security Of Supply £11 Improvement Drinking Water, Environment, Service Performance £33 Average Household Bill in 2009/10 £295 Change 2004-05 to 2009-10 £46

Drivers For Change in Bills 2004/05 to 2009/10

Maintaining Basic Services £18

• Changes in Revenue
• £6
• Changes in Operating Costs

£10

• Changes in Capital Maintenance

£7

• Changes in Impact of Taxation

£5

• Financing

2

Annual Price Limit K %

05/06 06/07 07/08 08/09 09/10 Ave WSC * 9.4 4.0 3.4 2.7 2.2 4.3 WoC * 12.4 1.9 1.5 0.4

• 0.3

3.1 Indus try * 9.6 3.6 3.2 2.5 2.0 4.2 * Weighted Average, Ave equal Geometric Average

Setting of Price Limits 6

Price Limits Tend to be Highest in First

Year to Take into Account Any Unforeseen Price Increases during the previous Five Year Period

Interim Determinations can be Made if

there are Significant Changes i.e. If Companies have to Install more Water Meters than Predicted

Final Price Limits vs Business Plans for 2004/05-2009/10

Price Limits 05/06 06/07 07/08 08/09 09/10 AVE

BP 13.4 7.1 4.6 3.4 2.9 6.2 FD 9.6 3.9 3.2 2.5 2.0 4.2 BP – Industry Business Plans, FD – Final Determination by Ofwat

Water Prices in E+W

50 100 150 200 250 300 350 8 9 / 9 9 / 9 1 9 2 / 9 3 9 3 / 9 4 9 4 / 9 5 9 5 / 9 6 9 6 / 9 7 9 7 / 9 8 9 8 / 9 9 9 9 / / 1 1 / 2 . 2 / 3 . 3 / 4 . 4 / 5 . 5 / 6 . 6 / 7 . 7 / 8 .

Water Price Development

Water Prices Increased in Real Terms since

1989 by 42% equal to 1.8% per year

35% Households with Water Meters Rateable Value of the Property Used to

charge for Non-metered Services

Metered Charge - Standing and Volumetric

Charge

Water and Sewerage Charges in 2009-10 (£)

Metered Sewage Un- metered Sewage Metered Water Un- metered Water

Lowest 104

Thames

123

Thames

102

Northum

131

Southern

Highest 225

South W

417

South W

171

South W 280 South W

Lowest WoC Portsmouth £89/93

Investments

Since 1989 the Industry Invested £85 billion

Capital for New and the Maintenance of Existing Assets

The debts of the Companies Increased from

near Zero to £35 Billion moderating the Increase in Prices

Gearing of the Companies Increased from

near Zero in 1989 to 71% in 2008/09.

Water Mains Improvements 1999/00 to 2008/09

Water Mains Total % Relined (Km) 16 361 338051 4.8 Replaced (km) 28 245 8.2 Total Improved (km) 44 606 13 Communication Pipes Replaced (million) 1.4 24 6

Water Mains Improvements

To Prioritise Investments Water Mains

Graded in 5 Categories Depending on their Likelihood to Burst

Number of Annual Burst Mains reduced by

20% in the last 15 Years

Sewer Improvements 1999/00 to 2008/09

KM Total KM % Length Critical Sewers Improved 1 616 86851 1.9 Length of Non-Critical Sewers Improved 1604 222 225 0.35

Improvements in Level of Service from 90/91 To 08/09

Description 90/91 % 05/06 % 08/09 %

DG2 Properties at risk of low Pressure

1.85 0.02 0.03

DG3 Properties at risk of supply Interruptions >12 h

0.42 0.08 0.08 DG4 Population Subject to hosepipe bans 0.05 0.02 0.02 DG5 Properties at risk of sewer flooding once 10y

• 0.02

0.01

Improvements in Level of Service from 90/91 To 08/09

Description 90/91 05/06 08/09

DG5 Properties at Risk of Sewer Flooding Twice in10y

• 0.01

0.01

DG6 Billing Contacts not Responded with 5 wd

31.18 4.44 1.08

DG 7 Written Complaints not responded within 10 wd

31.09 3.08 0.38

DG8 Bills not Based on Meter Readings

3.67 0.52 0.21

Improvements in Level of Service from 90/91 To 08/09

Description 90/91 05/06 08/09 DG9 Telephone Calls not Answered within 10 sec 26.97

• DG9 Telephone Call

Handling

• Calls Abandoned
• All Lines Busy
• Call Handling Satisfaction
• 6.74

3.91 4.53 7.03 0.45 4.6

Payments to Customers 08/09

Number Million £

Guaranteed Standard Scheme (GSS) 78 819 4.3 Voluntary Enhanced GSS scheme 20 733 0.26 Voluntary Company Payments 57 784 2.44

Sewerage Performance

95/96 % 08/09 %

Breach of UK Consent

3 0.7

Breach of UWWTD Consent

• Unsatisfactory Sewer Overflows

29 3

Bathing Water Non- Compliance

11 3 Successful Prosecutions 39 52

Pollution Incidents in 2008

No Comment Category 1 9 Third best year since 1995 (Best 8 incidents) Category 2 46 Reduction of >30% compared to 2007 Category 3 1815 Reduction of 40% since 1995

Drinking Water Performance

Compliance with Drinking Water Standards

Increased from 99% in 1990 to 99.96% in 2008

River Water Quality Improvements

1990 % 2008 %

Chemical Good and Very Good

55 74

Chemical Very Bad

9

Biological Good and Very Good

55 72

Water Use

Unmetered 153 ltr/head/day Metered 129 ltr/head/day Average 146 ltr/head/day Water Companies have a Legal

Requirement to Improve Water Efficiency

Affordability of Water Services

Payment by Rateable Value - Poorer

Families in Cheaper Houses

Capped Tariffs >3 children, medical needs 6000 in 02/03 24 121 in 07/08 10.7% of Household > 3% of Disposal

Income

No VAT

Affordability of Water Services

Water Services Act 1999 Outlawed the

Disconnection of Water Services

4.3 Million Households in Debt vs 1.1 Million

Electricity and 0.8 Million Gas

20% of Debtors owe 70% of Debt 47% of Debtors in Highest Credit Risk 34% Rented Accommodation 23% of Debt is Leaver Debt

Household Debt (million £)

06/07 07/08 % Debt Outstanding >3 months 968 1071 11 Debt Outstanding > 10 months 599 674 12 Debt Written Off 2007/08 104 Industry Spent for Debt Recovery 2007/08 72 Impact on Household Bills £11/h

Conclusions 1

Water Industry is Highly Regulated Still Extensive Political Influence Prices have Increased significantly (46% in

real terms since 1989)

Sufficient Funds Available for Investments £85 billion Invested since 1989 £35 Billion Funded by Company Debt

Conclusions 2

Level of Leakage and Compliance with

Standards Significantly Improved

Improvements in Level of Service Non-payment of Water Bills Increasing

Problem

Competition Limited so far to Large Users

Conclusions 3

Is the System Sustainable? Already 10.7 % of

Households Paying > 3% of their Disposable Income for Water Services but only Approximately 2% of the Sewer System has been Renovated in the last 10 Years as the Emphasis has been on Water Mains Renovation?

Real Increases in Charges above Inflation will

Probably be Required for many Years to Make the Required Improvements to Underground Assets