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What will companies provide with the extra money they receive?
We have allowed the companies to raise funds to make improvements as well as to continue the efficient day-to-day running of the business.
The companies need to cover the costs of providing basic services – delivering safe, clean drinking water to homes and taking away and treating waste water. This day-to-day cost is just under £3 billion a year (around £130 per property) for all the companies.
They also need to make quality and service improvements. The total capital investment programme is almost £17 billion (around £730 per property in England and Wales) over the five years. Customers pay for the cost of raising the money to carry out this work so that the cost is shared across all customers who benefit from it.
Investment falls into the following four key areas:
- Maintaining services and assets
Companies spend most money on the day-to-day costs of providing water and sewerage services and maintaining the water and sewerage networks.
We have assumed £8.4 billion to ensure pipes, sewers and treatment works are maintained over the next five years including over 22,000km of water mains to be laid, renewed or relined.
We expect companies to maintain the current level of service they provide and would see any deterioration in service levels as a failure to meet their obligations.
- Quality and environmental programmes
Environment ministers provided guidance to us and the companies on the improvements needed during the review period. Many of these are essential to meet new standards under existing and new European directives.
Our price limits include, either in full or in part, most of the quality and environmental schemes included in companies' business plans, which received ministerial support. This amounts to a £5.5 billion programme of work to be completed by 2010 including improving standards at sewage treatment works, which will improve rivers and coastal waters.
There are further projects that may be included during the review period and we estimate these may cost another £1.5 billion. If these projects are added, bills would have to increase further. This could be done at the next price review in 2009 or, in some cases, by interim price reviews for individual companies before then.
- Ensuring supply meets demand
We work with the Environment Agency and the companies to ensure there are sufficient water supplies and sewerage facilities to meet future demand. We have assumed in our price limits that almost one million new properties will be connected to the water and sewerage service by 2010.
The costs of developing new supplies have only been included in price limits where we are satisfied that leakage is at an economic level and demand is properly managed. Our price limits assume leakage will reduce by 8.5 per cent over the next five years.
The Water Industry Act 1999 allows customers to have a meter installed free of charge. In setting price limits we assumed around 1.2 million customers will opt for a meter between 2005 and 2010.
The standard of water and sewerage services offered by the companies has continued to rise. Our surveys show that customers are broadly satisfied with the level of service they receive. But there are more improvements we expect companies to make, especially in the area of sewer flooding, one of the problems customers tell us causes them the most distress and inconvenience. We expect companies to resolve or alleviate internal flooding from overloaded sewers for all high-risk properties identified by companies.
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