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UUW PR14 Reconciliation Update (July 2019)

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UUW PR14 Reconciliation Update (July 2019) United Utilities Water Ltd PR14 Reconciliation update July 2019 Copyright © United Utilities Water Limited 2019 1 Background and purpose of this document During 2018, all water companies, including United Utilities, published PR14 reconciliation submissions which set out: • How they had performed against the PR14 incentive regimes for the first three years of the AMP6 period and how they expected to perform in the final two years of the period • How this performance would be reflected in AMP7 revenue and the opening RCV adjustments, calculated using the relevant PR14 rulebook and applied through the PR19 process • How the precedent from performance in the AMP6 period, demonstrated the deliverability of the proposed package of AMP7 performance and expenditure. Ofwat published its initial Assessment of Plans feedback on these submissions in January 2019. The feedback on UUW’s submission is available via this link. As part of this feedback Ofwat assessed UUW as “B”, which was the highest achievable rating and stated that “Overall, United Utilities' business plan demonstrates high quality accounting for past delivery, with sufficient and convincing evidence both in support of PR14 reconciliations and on deliverability of the 2020-25 plan given past performance”. “In the round, we do not have concerns with the evidence for deliverability for the 2020-25 plan”. “There is sufficient and convincing evidence for seven out of eight PR14 reconciliation areas and insufficient evidence for ODIs. There is only a marginal difference (within 0.05% of 2019/20 revenue) between expected and proposed reconciliations. In the round we consider that this supports the accounting for past delivery test area score”. Ofwat also confirmed that in July 2019, companies should refresh all their 2018 PR14 reconciliation submissions to replace 2018/19 forecast performance with 2018/19 actual performance and that they should update the evidence for their forecast 2019/20 performance taking into account the actual 2018/19 performance. This document, which is being provided alongside our 2019 Annual Performance Report, sets out in detail how we have performed against the PR14 incentive regimes for the first four years of the AMP6 period and how we expect to perform in the final year of the period. It also sets out how this performance varies from the position we assumed in 2018 and shows how this performance would be reflected in revenue and the opening RCV adjustments in the PR19 final determination in December 2019. The document follows the same format and uses equivalent tables and models to our 2018 submission, and provides additional evidence for the areas highlighted by Ofwat in its feedback on our 2018 submission and contains the following sections: • Overview of the PR14 reconciliation – summarising the impacts of each mechanism and the impact that this would have on customer bills in the AMP7 period • Impact of the reconciliation models – detailed review of how each mechanism works and the impact of our performance against each mechanism • Appendices – providing more detail on: our performance commitments; our customer experience programme; the delivery of our outputs and environmental commitments and also providing copies of the data tables and a detailed table commentary. Our Annual Performance Report, which we have published alongside this submission, provides customers and other stakeholders with a detailed and transparent commentary on our performance in 2018/19, together with additional information setting out how we anticipate we will perform in the remaining year of the AMP6 period. Copyright © United Utilities Water Limited 2019 2 Contents Background and purpose of this document ................................................................................................................... 2 Executive summary ............................................................................................................................................... 5 1.1 Wholesale performance commitments .................................................................................................................... 6 1.2 Household Retail performance ................................................................................................................................. 6 1.3 Wholesale totex ........................................................................................................................................................ 7 1.4 Other incentive mechanisms .................................................................................................................................... 7 1.5 Application of adjustments to revenue and regulatory capital value ...................................................................... 9 1.6 Application of IFRS 16 adjustment to regulatory capital value .............................................................................. 14 1.7 Impact of the adjustments on customer bills ......................................................................................................... 15 1.8 Assurance ................................................................................................................................................................ 17 2 Impact of the reconciliation mechanisms ......................................................................................................... 20 2.1 Outcome delivery incentive (ODI) mechanisms ..................................................................................................... 27 2.2 Service Incentive Mechanism (SIM) ........................................................................................................................ 37 2.3 Totex menu reconciliation ...................................................................................................................................... 41 2.4 Wholesale revenue forecasting incentive mechanism (WRFIM) ............................................................................ 47 2.5 Household retail mechanism .................................................................................................................................. 50 2.6 Uncertainty mechanisms (Water cumulo rates) ..................................................................................................... 53 2.7 Land disposals ......................................................................................................................................................... 54 2.8 Reconciling 2010-15 performance: 2014-15 adjustments ..................................................................................... 56 2.9 CIS RCV inflation adjustment .................................................................................................................................. 58 2.10 Water trading incentives ...................................................................................................................................... 59 Appendices ......................................................................................................................................................... 60 Appendix A: Detailed review of our performance commitments ......................................................................... 61 Water Service performance commitments ............................................................................................................ 62 A.2 Wastewater Service performance commitments ................................................................................................ 102 A.3 Retail and customer service performance commitments .................................................................................... 137 Appendix B: Customer experience programme ................................................................................................. 147 B.1 Overview ............................................................................................................................................................... 148 B.2 Full delivery test – delivering in customers’ interest ............................................................................................ 150 B.3 Clarification of potential ambiguity about full delivery ........................................................................................ 151 B.4 Benefit realisation for customers ......................................................................................................................... 152 B.5 Delivery of the Programme ................................................................................................................................... 155 B.6 Proposed ODI adjustment .................................................................................................................................... 159 B.7 Assurance .............................................................................................................................................................. 161 Appendix C: Delivery of our AMP6 outputs ....................................................................................................... 163 C.1 Introduction ......................................................................................................................................................... 164 C.2 Environmental commitments .............................................................................................................................. 165 Copyright ©
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