Regulatory Accounts and Annual Performance Review 2013-14

15.07.2014

Northumbrian Water Limited has today published its Regulatory Accounts and Annual Performance Review for the year ended 31 March 2014.

Chief Executive Officer, Heidi Mottram, said “I am delighted to report improved performance in a number of key areas. This includes our best-ever customer satisfaction scores, a continuation of our industry-leading performance for interruptions to supply and sewage treatment, a reduction in sewer flooding incidents and our best-ever microbiological performance at our service reservoirs. We continue to be recognised as industry leaders in leakage control and water efficiency and the completion of the major project to expand Abberton Reservoir has secured supplies to Essex for the next 25 years.”

Performance review

Our Annual Performance Report, which is published on our websites today, describes our performance in the year against a wide range of measures. We are pleased to report continued strong operational and financial performance for 2013-14 with improvements to service in a number of areas.

We continue to focus upon delivering even better customer service and have demonstrated further improvements in the year, as measured by Ofwat’s Service Incentive Mechanism and by a further reduction in water supply interruptions. Construction of the Abberton Reservoir scheme, which will secure future water supplies to more than 1.5 million people in Essex for the next 25 years, was completed successfully in the year and we have made further progress on a major programme to clean over 200km of large diameter pipelines supplying 0.5 million customers in Newcastle, in order to reduce discoloured water contacts.

The health (serviceability) of our assets was satisfactory and we achieved our leakage targets in both Essex & Suffolk and Northumbrian Water for the third consecutive year. We are the industry leader in sewage treatment operations with a sixth consecutive year of full compliance with consent standards. We continue to have a very strong focus on improving our sewer flooding performance and the total numbers of properties suffering internal flooding reduced significantly in 2013-14.

To process water treatment sludge in a sustainable way, we have constructed a sludge treatment reed bed system at Hanningfield Reservoir in Essex, which is the first reed bed system of its kind in the world for treating sludge from the drinking water treatment process. Our two advanced anaerobic digestion plants, which convert all of our sewage sludge to renewable energy, have been fully commissioned and optimised. These innovative approaches have supported a reduction in our greenhouse gas emissions for the sixth successive year.

Alongside all these improvements, we are very proud of the external recognition we have received in the last year for our commitment to providing the best service possible for our customers. We achieved numerous awards in 2013 including winning five of the seven categories of the Utility Week Achievement Awards 2013, including Utility of the Year.

Furthermore, we have been awarded the Queen’s Award for Enterprise (sustainable development), for a second time. The judges’ comments specifically mention the work done to generate 20% of our energy from renewable sources, our innovative use of reed beds and increasing the capacity of Abberton Reservoir. They also praised the way we work with the communities we serve and our ‘Just an hour’ employees’ volunteering programme.

Financial performance

Turnover increased to £776.4m (2013: £755.0m), reflecting the application of 3% RPI on water and sewerage charges. However, both average demand for measured supplies to household customers and total volumes supplied to non-household customers declined, primarily as a result of the difficult prevailing economic conditions in the UK.

Operating costs increased to £446.5m (2013: £427.6m), reflecting increases in manpower costs, power prices, contractor costs and depreciation charges plus some restructuring costs and general inflationary increases, partially offset by the benefits of our efficiency programme.

Net interest payable increased to £120.3m (2013: £116.6m), reflecting the non-recurrence of a one-off benefit in the prior period arising from the transfer of a finance lease to a new counterparty on improved terms, partially offset by lower indexation on index linked bonds.

Capital investment in the regulated business, net of contributions, for the year was £212.5m under regulatory accounting guidelines (2013: £220.1m), primarily to ensure the continued provision of sustainable water and waste water services in the areas we serve. Construction of the Abberton Reservoir scheme was completed successfully in the year. In addition to maintaining our asset base at stable serviceability, we continued our significant investment programmes to address sewer flooding and acceptability of water in the north east of England.

In April 2013, we drew the third £50m tranche of a £150m facility from the European Investment Bank (EIB) at a fixed rate of 2.896%. We subsequently signed a further £100m facility with the EIB, the first £50m tranche of which was drawn in January 2014 on an index linked basis with a coupon of 0.34%. The remaining £50m was drawn after the balance sheet date in April 2014 on an index linked basis with a coupon of 0.38%. We had undrawn bank committed facilities of £450m at 31 March 2014.

Regulatory and legislative developments

A key focus for 2013-14 has been business planning for the medium and longer term. In December 2013, we published our business plan for 2015-20 which, based on extensive customer consultation, set out the outcomes we aim to deliver, the total expenditure required and what this means for customer bills. An important part of the process we used to develop our plan was the challenge and scrutiny provided by our stakeholder challenge groups. This helped us to maintain a strong customer focus and achieve a balanced plan recognising the views of a wide range of stakeholders. Our plan achieved strong customer support.

After receiving further guidance from Ofwat, particularly in respect of their expectations on the balance of risk and reward, we resubmitted some elements of our plan in early May 2014. We have put forward a challenging plan that delivers on our customers’ priorities and we believe represents great value for customers. Average bills from 2015-20 would rise by slightly less than inflation.

In late May 2014 we received our draft determination of prices, which would result in customer bills reducing by around 2% in real terms. Ofwat commented that our business plan was high quality in many areas, with a limited number of adjustments made. We responded to the draft determination and have continued to engage with Ofwat. We will receive our final determination of prices in December 2014.

The Water Act 2014 was passed into legislation in May 2014. The most significant development is the establishment of a competitive market for retail water and sewerage services for all non-households with a target date for market opening of 2017. We look forward to successfully competing in this new retail market and are heavily engaged in the Open Water programme which is driving the establishment of the new market arrangements. Our aim is to provide excellent customer service at a competitive price to make us the retailer of choice for business customers.

Outlook

This has been a successful year across many aspects of our business. The focus on our vision, values and business plan will continue in the coming year and we are confident of further success and achieving our vision of becoming the national leader in the provision of sustainable water and waste water services.

With funding and liquidity in place to meet our operational and capital investment requirements for at least the next two years, we are well positioned to maintain a strong financial performance.

We use cookies on our website. By continuing to browse our website, you are agreeing to use our cookies. Terms and Conditions