Regulator green lights Severn Trent Water’s business plan

Ofwat has fast-tracked Severn Trent Water’s business plans for 2020 -2025, which set out how it will reduce bills for customers.

Severn Trent Water, which shared the good news with South West Water and United Utilities Group, said its business plan includes additional spend of £160m to address supply, environmental and water trading opportunities, and targets which demonstrate ambition to deliver further improvements for customers.

The regulator said the three companies set out how they will cut bills by up to £70 in real terms while “significantly improving support for vulnerable customers and deliver real change in the areas that matter most to customers, like cutting leakage”.

Severn Trent Water pledged to cut average water bills by £18, United Utilities by £43 and South West Water by £73.

In its assessment, the regulator said: “Severn Trent Water’s plan is high quality across a range of areas including securing cost efficiency, engaging customers, addressing affordability and vulnerability, embedding innovation, accounting for past delivery and securing confidence and assurance.…. We also commend Severn Trent for its ‘pathfinding social purpose company’ thinking, and for their initiative with the Purposeful Company Taskforce.”

Liv Garfield, chief executive of Severn Trent, said: “We’re truly delighted that Severn Trent has been selected as one of only three Fast Track companies by Ofwat in its assessment of the PR19 plans submitted for 2020-2025. It means we have real clarity on what challenges and opportunities lie in front of us.”

Meanwhile, the regulator said in the coming months, the remaining water companies will have to strengthen their plans, with Affinity Water, Hafren Dyfrdwy, Thames Water Utilities and Southern Water having the most work to do.

Hafren Dyfrdwy, which was established by Severn Trent last year, said it will continue dialogue on aspects of the plan in the coming months “to get to the right outcome for customers”.

Reacting to the news, Russ Mould, AJ Bell investment director, said: “It may come as a surprise to many investors, given pressure from customers and the regulator, not to mention the perceived threat of a Labour Government and its renationalisation plans, but the water utilities have performed relatively well over the past year and today’s initial pricing review from Ofwat for 2020-2025 could give Severn Trent, United Utilities and Pennon a further boost.”

“This (fast track status) means they can now begin to put financing in place for their spending plans and prepare to implement their new pricing proposals. This also means analysts can make forecasts for profits, cash flow and above all dividends with greater certainty.”

Mould said Ofwat is “clearly determined” to drive outperformance from the utilities, to the particular benefit of the consumer and also the environment, with water providers asked to reflect financing gains in their pricing plans and ensure that executive pay and shareholder dividends reflect the service and results offered to customers.

He added: “The rapid affirmation of the big three quoted utilities’ plans could also bring benefits for their suppliers and equipment and services, who will be helping them to implement the spending plans approved by the regulator for 2020-2025 under AMP7 (asset management programme). These include companies such as equipment hire specialist VP and also infrastructure services group Renew Holdings.”