Ofwat assessed our Plan as ‘slow track’ in their Initial Assessment of Plans announced on 31 January 2019. Our full response, which we submitted on 29 March 2019, is set out in the documents below.
Our September submission set out the Plan that we considered was the right plan for our customers, our region and the environment, for now and for the long term. Our Plan builds from our refreshed 25 year Strategic Direction Statement which we published in 2017 after extensive consultation with customers. We remain committed to our SDS ambitions, and to our Plan, but note that they cannot be delivered unless the gap between our view of the necessary costs and the position Ofwat has currently set out can be very significantly reduced.
We are pleased that Ofwat's Initial Assessment of Plans (IAP) recognised many of the strengths of our Plan. It noted the sector leading breadth and depth of our customer engagement and that this has been reflected in our Plan.
Ofwat is challenging our Plan on the basis of both scope and efficiency. The difference between us is around £1.25 billion, with a challenge of around £590 million on the enhancement elements of our Plan and around £660 million on our base operating expenditure.
However, Ofwat’s view of Anglian Water’s current position is that the company is reasonably efficient. It is hard to reconcile this with Ofwat’s view of the Plan we submitted, which was built up from that reasonably efficient baseline position, with efficiencies achieved during AMP6 baked in, and additional efficiency challenges then added.
Delivering the investment we propose is in line with the clear priorities of our customers, who support taking early action to address the resilience risks we face, rather than delay. We believe our plan also fits with the policy objectives set out in the Government’s Strategic Policy Statement, and the conclusions of the National Infrastructure Commission in its recent report “Preparing for a Drier Future”.
To enable the delivery of these outcomes, we proposed in our September Plan to increase bills by less than one percent in AMP7, after applying an additional stretch efficiency challenge to reduce the impact on customers. This increase was well below what the majority of customers considered acceptable, was in the context of restraining dividends through to 2025 resulting in a significant reduction in the company's level of debt and gearing, and against a backdrop of our having delivered the largest reduction in bills in the sector in PR14.
With the changes we can now make to our Plan, in particular as the announcement of the metaldehyde ban allows us to remove previously proposed expenditure to address the impacts of metaldehyde, customer bills will now reduce slightly during AMP7.
The next stage in the process is for Ofwat to publish our Draft Determination in July 2019 which we have 6 weeks to provide representations on before a final determination is published in December.