United Utilities Group PLC is the UK’s largest listed water business. The group owns and manages the regulated water and wastewater network in the North West of England, through its subsidiary United Utilities Water PLC (UUW), which is responsible for the vast majority of the group’s assets and profit. The group also applies its utility skills to manage and operate other utility infrastructure.
United Utilities reports through three business segments:
- Regulated activities;
- Non-regulated activities; and
- All other segments.
Regulated activities
Key facts
- 100 water treatment works
- Over 42,000 kilometres of water pipes
- 57,000 hectares of catchment land
- 575 wastewater treatment works
- Over 43,000 kilometres of sewers
- Serving a population of seven million people
Water and wastewater operations
UUW holds licences to provide water and wastewater services to a population of approximately seven million people in the North West of England.
Almost 2,000 million litres of water is supplied every day to approximately 3.2 million homes and businesses. Water is collected from catchment land and other sources and stored in reservoirs before being treated and then delivered via a network of pipes to homes and industry. A large proportion of the water supplied flows freely by gravity and does not need to be pumped.
Wastewater is collected using a network of sewers and treated before being returned safely to the environment. A by-product of the treatment of wastewater is sewage sludge, which is treated further to produce an end product suitable for recycling.
UUW’s water and wastewater service currently costs households approximately £1 per day on average. Over the next five years, the average annual household bill will fall by £9 in real terms. The group believes this represents excellent value for money, providing customers with high quality drinking water to meet all their daily needs and for environmentally responsible wastewater collection and treatment.
Since privatisation in 1990:
- Water quality in the North West has improved from 99.6 per cent to 99.9 per cent;
- Compliance with bathing water standards across the North West has risen from just over 30 per cent to more than 90 per cent;
- Leakage from the network has halved, supported by ongoing investment in replacing ageing water pipes; and
- UUW has invested more than £4,000 for every household in the North West, some £750 above the national average.
In the 2005-10 period, UUW invested more than £3 billion to improve the water and wastewater infrastructure and the environment across the North West. Further developments in the regulatory regime are expected to take effect in the next few years, in particular as a result of European Union environmental initiatives (including the Water Framework Directive and the revised Drinking Water Directive).
Consistent with the group’s approach to longer-term planning, UUW’s water resources management plan, published in September 2009, considers the water supply/demand balance in the North West of England, including the potential impacts of climate change out to 2035.
UUW’s strategic direction statement, which was updated in April 2010, sets out the company’s plans for the new price review period (2010-15) in a longer-term context. The key elements identified in the strategic direction statement are:
- Responsible stewardship of water and wastewater networks;
- Listening to customers and other stakeholders;
- Ensuring water resources are more sustainable and resilient;
- An integrated approach to drainage to reduce the threat of flooding;
- Reducing significantly the carbon impact of activities; and
- Bills to rise, on average, no faster than incomes.
Regulatory environment
Environmental regulation is the responsibility of the Secretary of State for Environment, Food and Rural Affairs together with the Environment Agency, the Drinking Water Inspectorate and Natural England.
Economic regulation is the responsibility of an independent body, Ofwat, which sets price limits every five years for the water sector in England and Wales. Price cap regulation in the UK is performance based and companies are incentivised to be efficient in terms of their operating costs, capital programmes and financing. Regulated revenue is set by reference to inflation as measured by the retail prices index (RPI) plus an adjustment factor known as ‘K’.
On 26 November 2009 Ofwat published its final determination of price limits for the period 1 April 2010 to 31 March 2015. UUW’s profile of price limits for the five years is set out below.
| Year |
2010/11 |
2011/12 |
2012/13 |
2013/14 |
2014/15 |
| K factor |
-4.3% |
-0.2% |
+0.6% |
+1.0% |
+1.2% |
Ofwat’s final determination of price limits for UUW was based upon:
- a £3.6 billion capital investment programme (2007/08 prices);
- 12 per cent, or approximately £900 million, real growth in the regulatory capital value (RCV) over the five years; an average annual underlying operating efficiency of 1.2 per cent for the water service and 2.4 per cent for the wastewater service; and
- a return on capital of 4.5 per cent (post-tax, real).
The RCV is the capital base on which water companies earn a return. It is increased by capital expenditure and inflation, and reduced by depreciation and clawback of past efficiencies.
Non-regulated activities
As well as owning and managing the substantial water and wastewater network in the North West of England, United Utilities also applies its utility skills through outsourced utility contracts and investments.
As part of its strategy of focusing on core activities, United Utilities disposed of its investments in Northern Gas Networks and Manila Water during the second half of 2009/10, crystallising approximately £132 million for the group. In May 2010, the group also agreed the disposal of its Australian business for approximately £135 million.
United Utilities is continuing to evaluate the expressions of interest it has received for its remaining non-regulated businesses.
