Challenges should not 'delay AMP5'

The start of AMP5 next April must not be delayed even if water companies challenge Ofwat's final determination, British Water has warned.

The regulator announced last month its final determinations on the water companies' spending plans for the next five years. Ofwat increased capital expenditure to £22B, which includes an extra £250M earmarked for addressing sewer flooding. But the sum falls short of the £24.2B that water companies wanted and the cost of capital at 4.5% is below industry expectations.

The water companies have responded by saying they will examine and analyse the implications of the determinations. They have until the end of next month in which to challenge the determination through the Competition Commission.

Paul Mullord, UK director at British Water, said "it remains to be seen" if water companies take up this option.

He said: "In theory, a challenge to the determination should not delay (further) the start of AMP5. However, the way previous AMPs have been slow to start, even without serious contemplation of a challenge, leads to real concerns that any challenge(s) would have exactly that effect."

Industry bodies have criticised the final determination, which is expected to put contractors under considerable pressure to deliver innovation and reduce costs.
Water UK chief executive Pamela Taylor said: "Ofwat has made changes to the draft determinations but doubts remain about the balance they have achieved.

"Companies must ask themselves if the settlement will allow them to meet the needs of their particular customers and local environments. In the end it is the companies that take responsibility for the delivery of two of society's essential services - not the regulator."

Jonson Cox, chief executive of Anglian Water, is critical of the tough settlement imposed on the company - a 7% cut in bills only slightly improved from the 8% in the draft price review.

"This is a harsh determination from Ofwat and no one should be under any illusion that we will now have to make significant cost cuts and efficiency improvements to meet the tough financial targets we have been given," he said.

Thames Water said it had no funds to reduce leakage. "London's pipes are so old that we have to work hard even to keep leakage level. But our systematic replacement of old mains will be much slower and only sufficient to stop the situation getting worse."

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