Enhancement Expenditure: WINEP - Phosphorus and Sanitary Determinants Chapter 7: Supplementary Document
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Enhancement expenditure: WINEP - Phosphorus and sanitary determinants Chapter 7: Supplementary document Document Reference: S6027 This document sets out the service enhancement expenditure and activity that we will undertake, through our 2020-2025 business plan, to improve or add phosphorus control to treatment works as well as improving BOD and ammonia performance in order to meet more onerous Environmental Permit requirements set out in the Water Industry National Environment Programme (WINEP). United Utilities Water Limited Chapter 7: Supplementary Document - S6027 unitedutilties.com Enhancement summary form Name of enhancement area WINEP - Phosphorus and sanitary determinants Price control(s) the enhancement relates to Wastewater Network+ Total value of enhancement for AMP7 £445.093m Total opex of enhancement for AMP7 £20.156m (Note: Table WwS2 includes £28.243m of AMP6 Opex carried forward) Total capex of enhancement for AMP7 £424.937m Remaining capex required after 31 March 2025 to complete £0m construction Is the enhancement likely to feature a Direct Procurement for Yes No Customers (DPC) scheme? (please tick) X Brief summary of evidence to support enhancement requirements Page Need for Our base cost only covers the cost of meeting current Environmental Permit requirements. The 8 investment/ expenditure covered by this document is to meet needs included as either green or amber certainty in the expenditure WINEP. This sets out where the Environment Agency require us to enhance service standards in order to deliver environmental benefits which they will enforce through by varying our Environmental Permits. This enhancement investment is driven by the following statutory drivers: • Water Framework Directive • Urban Wastewater Treatment Directive Outside We have worked closer than ever before with the Environment Agency to challenge and shape the 5 management content of the Water Industry National Environment Plan 3 (WINEP3) for the North West in order to control ensure it will deliver significant environmental improvements as efficiently as possible. The engagement process with the Environment Agency that was used to develop the WINEP has three key elements – water quality planning, solution development and economic appraisal All measures included in our plan are classed as either green or amber on the WINEP and therefore there is a high degree of confidence that they must be addressed in AMP7. Best option for We have undertaken a significant exercise to identify the most cost effective way of meeting the future 9 customers permit requirements we are required to comply with. Copyright © United Utilities Water Limited 2018 2 Chapter 7: Supplementary Document - S6027 unitedutilties.com Robustness and As set out in Chapter 7 of our PR19 business plan, we have undertaken significant improvements in our 20 efficiency of costs delivery of efficient totex solutions: • We have embraced the totex and outcomes approach, delivering significant improvements from innovative approaches and technologies; • Through our Market Engagement Methodology (MEM), we have improved the sophistication with which we engage with markets to deliver more efficient solutions and services; and • We have improved our approach to totex, by better challenging both needs and solutions. The introduction of a risk and value (R&V) assessment across all our major projects has supported better challenge of our expenditure requirements, including enhancements. This ensures that when we decide projects are necessary, we only do what we need to do, that our decisions are based on strong evidence, and the value of both business and customers is clear. The process ensures that we keep challenging and validating both the need for our projects and the way we deliver them. Customer Customers are protected from non-delivery through the following ODIs: 21 protection Improving river quality ODI – If we are late in delivering Water Framework Directive improvement schemes (WFD_IMPg and WFD_IMPm) we will incur an under performance payment through this ODI. Treatment works compliance ODI - If we fail to deliver improvements to our discharges on time we would expect the Environment Agency to issue the revised permit which we would be at high risk of failing to achieve. WINEP cost adjustment mechanism – All WINEP schemes are included in this mechanism so customers will be compensated if a need is not required. Additional consequences of non-delivery include: • Prosecution and fines due to non compliance with permits • Reputational impact of losing 4* Environmental Performance • Loss of trust with customers and stakeholders • Loss of trust with the Environment Agency leading to less support for innovative approaches to delivering environmental improvement Affordability Through research customers have shown a strong preference to protect the environment from 22 deterioration and 60% surveyed also support improvements in service to enhance river quality, the highest of any service area in our choice experiment (Willingness to Pay June 2017). Also, 82% of customers considered that our overall proposed package of service improvements and bills Board assurance The development of the cost proposals within our United Utilities business plan 2020-2025, including 22 enhancement expenditure, has been subject to robust ‘three lines of defence’ assurance as defined within the UUW PR19 Assurance Framework (see section 10.3 of our business plan). Copyright © United Utilities Water Limited 2018 3 Chapter 7: Supplementary Document - S6027 unitedutilties.com Wastewater Network Plus – WINEP phosphorus and sanitary determinants at Wastewater treatment works Table and line no(s): WwS2 lines 18, 19, 20, 33, 65, 66, 67 and 80. For a detailed breakdown of the projects underpinning these lines see supplementary document S6004 AMP7 Totex enhancement project list and in Table 11 in Appendix 2 of this document. Executive Summary • This document summarises the investment required to improve or add phosphorus control to treatment works serving a population equivalent (PE) of 3.6 million. Additionally the business plan includes investment relating to the need to improve BOD and ammonia performance at treatment works serving 778,000 PE in order to meet more onerous permit requirements set out in the Water Industry National Environment Programme (WINEP). A detailed list of the requirements included in this enhancement programme is included in the appendix. • The business plan includes a gross totex of £445.093m to meet these requirements. • The need for investment is predominately driven by the Water Framework Directive with a smaller element driven by the Urban Wastewater Treatment Directive. In line with guidance we have included WINEP drivers within our plan which have either green or amber certainty ratings (see appendix for Environment Agency definition of WINEP certainty ratings) • We have worked closer than ever before with the Environment Agency to not only review and agree the most appropriate permit standards to meet the environmental need but also to review and update the cost benefit analysis which underpins the ministerial decision on Water Framework Directive requirements which is due to happen in 2021. This gives us a high degree of confidence that the needs will receive ministerial approval. • We have taken a number of steps to ensure that we are delivering maximum value to customers through the use of markets which we have set out in our Market Engagement Methodology (MEM). Due to the scale of expenditure on phosphorus removal, we undertook proactive market testing in this area that focused on challenging internal knowledge and assumptions, as well as listening to the market place on issues such as best practice and innovation. • Through multiple pieces of research customers have shown a strong preference to protect the environment from deterioration and 60% surveyed also support improvements in service to enhance river quality, the highest of any service area in our choice experiment (Willingness to Pay June 2017). Also, 82% of customers considered that our overall proposed package of service improvements and bills is acceptable. • All our Wastewater Network+ WINEP driven enhancement expenditure is included in our WINEP cost adjustment mechanism (see S3001 Performance commitments technical document, C07-CF) so money can be returned to customers if schemes are subsequently not required. Introduction This enhancement supplementary document sets out the scope of enhancements required to meet more onerous Environmental Permit requirements for phosphorus and sanitary determinants as a result of needs included within the third version of the Water Industry National Environment Programme (WINEP3). It also covers why these requirements are outside of management control, our approach to solution development Copyright © United Utilities Water Limited 2018 4 Chapter 7: Supplementary Document - S6027 unitedutilties.com and how we have ensured that costs are robust. A total of 75 wastewater treatment works require upgrade to meet new or more onerous phosphorus limits. Additionally, 19 of these wastewater treatment works also require upgrade to meet more onerous sanitary determinants. Our cost estimate for this programme in AMP7 is a gross totex value of £445.093m. The new requirements associated with the expenditure set out in WwS2 lines 18, 19 and 20 are listed in the appendix to this document. Of the 113 individual drivers, 46 relate to the need to meet phosphorus limits below 1mg/l which requires