CCG 28th April

Small water company – benefits to

customers

Background

• Small company financing issues add £1.70 to

customer bills

• Ofwat asking if customers benefit from small

companies. Customer support is needed.

• This presentation focuses on these benefits,

not the embedded cost of debt arguments.

Slide 2

Small Company Premium • Equivalent to income of £1.6m a year. Bill impact

is £1.70 (1.4%).

• Oxera report for 6 smallest wocs

• Our own evidence

• Benefits case is based on:

– Low bills (n.b. Ofwat clear this is insufficient evidence only to support SCP)

– Low returns

– Efficiency (inc. others)

– High service beyond SIM, delivered locally

• Legal duty to finance functions – extra costs of

small companies. Regulatory precedent

Slide 3

South Staffs

60

75

90

80 180 280

SIM

tw

o-y

ear

av

era

ge

Average Household Water Bill in 2013/14

Best Value for Money Provider -

Evidenced by SIM and Bills

Analysis

Slide 4

Our low spend leads to a low RCV. In turn this

provides low relative returns. Figures here

include SCP allowed in current bills at PR09

0

10

20

30

40

50

60

70

SRN YKY SWT WSX WSH NES UU ANH SVT TMS SEW SBW SES AFW BRL DVW SST PRT

Wa

ter a

llo

we

d re

turn

pe

r p

rop

ert

y b

ille

d, £

(b

ase

d o

n

ave

rag

e 2

01

0-1

1 R

CV

)

0

10

20

30

40

50

60

South Staffs Typical WASC

£ p

er

cu

sto

mer

Allowed Water Returns Per Customer (not %)

SCP

WACC

Slide 5

Our SCP is small.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

SBW BRL DVW PRT SEW SST SES AFW

SC

P p

er p

roe

prt

y b

ille

d, £

(b

ase

d o

n a

ve

rag

e

20

10

-11 y

ea

r R

CV

)

SSC bill impact is low (£1.70)

Slide 6

Do customers benefit?

• 1st on SIM and high customer satisfaction.

• SST bill is £32 lower than SVT

• CAM bill is £67 lower than ANG

• 3rd most efficiency (out of 18) from CEPA reports

and evidence of diseconomies of scale

• 2nd lowest on future totex costs in AMP6

• Our small size can yield financial gains:

– Power contracts – 5 year deal

– Avoid management layers

Slide 7

Do customers benefit? (cont’d)

• Hosepipe bans avoided in Cambridge, when

others in this region imposed restrictions

• Joint billing is done by WOC not the WASC

due to efficiency

• Local community employment opportunities –

employees, suppliers

• Local community activity and engagement

• Premium allows income to finance

discretionary activities that our customers and

stakeholders value

Slide 8

Costs Benefit Analysis

• Costs are £1.70 per customer

• Benefits can be derived from our customer’s

WTP values.

• Taking a basket of 5 measures: leakage;

water quality; hosepipe bans; SIM; supply

interruptions (selected based on customer

importance, not all in our favour)

• £12.65 benefit for service > WASC

• £4.00 benefit for service > industry average

• Hence CBA positive by factor of 7 or 3

Slide 9

Customer Support evidence

• Ofwat will review CCG comments.

• Specific customer research is also needed.

• Current customer bills finance the SCP. We

consider benefits outweigh the cost of this.

• Our revised plan with continue to include the

SCP.

• Likely to be added to Acceptability Research

questions.

Slide 10