PC21 price control determination 4 page summary
| Year | 2021 |
| Published date | 17 May 2021 |
| Energy Sector | Water |
PC21 final determination: Key point summary
The PC21 price control determines NI Water’s price limits and outputs for the six-year period from April 2021 to March 2027. The price control protects the interest of Northern Ireland consumers by challenging NI Water to deliver high quality, value for money water and sewerage services.
Much of NI Water’s business plan and the PC21 price control reflects the on-going operation and maintenance of water and sewerage systems However, three strategic issues focussed on within this price control will define the development of water and sewerage services over the medium to longer term. These are:
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Development constraints. During PC21, NI Water will only begin to address the current development constraints and lack of capacity in sewerage networks and wastewater treatment works. Additional investment will be required in future price controls to deal with further development constraints and future needs. This presents a wider challenge on how economic development can be supported while the necessary investment is delivered.
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Increasing capital investment. NI Water plans to deliver outputs requiring investment of £2.08bn in nominal terms, an increase of 87% in real terms compared to the previous price control, PC15. This will place further pressure on public expenditure budgets. However without this investment, NI Water will continue to breach statutory environmental obligations and will fail to alleviate development constraints. The increase in investment allowed over this six-year price control will need to be matched by a corresponding funding commitment to ensure all the benefits are fully realised.
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Long-term tariff stability. To ensure greater stability in tariffs over the medium term, taking account of long-term capital investment needs, we have set an overall price limit of zero (excluding inflation) for the remaining years of this price control period. We will continue to engage with both NI Water and the Department for Infrastructure (DfI) on long-term sustainable funding for NI Water.
Summary of key price control decisions
Operational expenditure
Between PC15, the previous price control, and now, NI Water has reduced their efficiency gap with similar companies in England and Wales from 22% to 6%. PC21 requires NI Water to close the remaining efficiency gap to similar companies in England and Wales by the end of 2025-26. Operational efficiency improvements in PC21 will save consumers £62m over the price control period.
Figure 1 shows the profile of operational costs since our first price control, PC10. Additional increases at the start of PC21 (such as increased business rates) means NI Water’s costs will rise in the first year of PC21, before levelling out due to efficiency improvements over the price control period.
Figure 1: Actual and determined expenditure for PC10 to PC21.
Capital expenditure
This price control includes capital investment of £2,086m in nominal terms (£1,820m in 2018-19 prices). This includes investment of £529m (in nominal terms) of as part of the Living with Water Programme. Our determination for capital expenditure is 5.5% lower than the company’s updated proposals for PC21.
Over the PC21 price control period, £816m (45%) of capital investment (in nominal terms) will be required to maintain the existing assets and the service NI Water currently delivers. The remainder will enhance capacity and service including addressing development constraints.
Development work will also be necessary to confirm efficient costs for investment for parts of the capital programme at the PC21 Mid-term Review.
Revenue and bills
We have determined a cost of capital of 2.0% (average) over PC21. This is lower than the company’s business plan and will save consumers £135m in revenue (nominal).
The increase in capital investment in PC21 is financed through debt and equity that will be paid for by all consumers over the long term. To ensure that today’s consumers make a balanced contribution towards the repayment of this investment, we have included additional revenue of £128m in PC21.
Final determined revenue for PC21 of £2.7bn is £0.1bn lower than the company’s business plan and our draft determination mainly due to lower inflation...
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