SOUTH STAFFS WATER PLC (WATER ONLY) A summary of our Business Plan Submission to Ofwat - April 1999

OVERALL STRATEGY FOR THE AMP3 PERIOD AND TOP 5 STRATEGIC OBJECTIVES Subject to approval of its Business Plan by Ofwat, South Staffordshire Water proposes to continue providing its customers with value for money consistent with continuing to provide high levels of customer service. The Company's strategic objectives are to: maintain supplies without restriction maintain high levels of customer service improve levels of water quality maintain low unit costs and high efficiency manage operations with minimal Environmental impact ensure that shortfalls in the cost of capital are addressed. Customers should be aware that the Company may not be able to achieve these objectives if Ofwat set water tariffs below the Business Plan level. Our return on capital per unit of output is the lowest in the industry, almost half of the next lowest Company. The major cost drivers for the AMP3 period include: Compulsory metering of sprinkler users and non-domestic properties to moderate peak demand growth Lead communication pipe replacement to comply with EC legislation and infrastructure renewals water treatment facilities to address deteriorating raw water quality and rising peak demands impact of Government's Review of Charging, including free metering. Since Ofwat are to make free metering a notified item, which means it is likely to be subject to separate price determinations, the impact on future price limits, water bills and projected expenditure is excluded in the analysis below, however the impact of this could be significant.

PROPOSED PRICE LIMITS & EFFECT ON AVERAGE BILLS								TOP 5 QUALITY IMPROVEMENTS IN 2000-2005 PERIOD
		2000 -01	2001- 02	2002 -03	2003- 04	2004- 05		1. Enhanced treatment to deal with deteriorating raw water quality.
	Proposed Price Limit for water and sewerage services							2. Reinvigoration of mains renewal activity.
1	Proposed Price Limit (Water Service)	7.8	0.5	0.5	0.5	0.5		3. Solid start to the lead communication pipe replacement programme.
2	Average Household Bill (today's prices)	86.24	86.59	86.91	88.26	88.68		4. Continue to minimise leakage on both Company and customers' pipes.
3	Average Household Bill paid	94.41	97.17	99.96	104.06	107.16		5. Reduction of impact on the water environment in sensitive areas identified.
1	Proposed Price Limit (Sewerage Service)
2	Average Household Bill (today's prices)
3	Average Household Bill paid

 

PROJECTED EXPENDITURE NEEDS			Annual average for the AMP3 period (£/property/annum)		WHAT IS DRIVING THE CHANGES IN BILLS		£
1	Total Operating Expenditure - annual average		65.31		Average household bill in 1999-2000		81.33
2	Total Capital Maintenance Expenditure - annual average		18.75		Less	(1) Challenging targets for future	(3.66)
3	Total Capital Enhancement Expenditure - annual average		21.80		Plus	(2) Additional costs resulting from new obligations	1.23
						3) effect of past abatements and shortfall in cost of capital	4.64
RETURN CAPITAL						(4) The impact of improvements in water quality	2.77
Return on capital - (post tax) (%)						(5) Improvements in service performance	1.64
						(6) Maintaining security of supplies to all customers	0.73
						Average household bill in 2004-2005	88.68

For further information contact : Mike Swallow (Director of Corporate Affairs) Email: mikeswallow@sswholdings.com