B11. Capital Expenditure Incentive Scheme

Transcription

1 B11 Capital Expenditure Incentive Scheme Page 1 of 38

2 Contents 1 Introduction Summary Clean water maintenance infrastructure Clean maintenance non infrastructure Clean water supply demand Clean water quality Clean water enhanced services Sewerage maintenance infrastructure Sewerage maintenance non infrastructure Sewerage supply demand Sewerage quality Sewerage enhanced services Overall balance in the Final Business Plan Contribution of projects to our long term strategy Page 2 of 38

3 1 Introduction This section of the Business plan explains the how the Final Business Plan Capital Investment requirements relate to the Draft Business Plan and the draft Capital Incentive Scheme (CIS) Baseline. It is designed to provide an overview of the evidence supporting changes from the Draft Business Plan, responding to points made in the draft CIS baseline. From the detailed summary, references are made to the specific case made in the rest of the business plan. 2 Summary The overall summary and explanation of the strategic decisions taken by South West Water in preparing the plan are shown below. For both water and sewerage we believe that the final business plan should represent a baseline position of 100. We explain the adjustments we have made in the course of preparing our Final Business Plan that lead us to this conclusion. The final baseline assessment made by Ofwat may be above or below 100, depending on the final cost base analysis and factors such as how the AMA score is applied to the capital maintenance programme. The key factors we have considered in preparing our final business plan and in response to the CIS baseline are: Customer sensitivity to existing bill levels customers are sensitive to historic bill levels and we have reflected this in our Final Business Plan. Further cost and revenue pressures (such as business rates) have emerged since our Draft Business Plan and as a result we have done everything possible to constrain the discretionary parts of our plan. We applied a strict cost benefit test for the Final Business Plan to any service enhancements. This is set out in section C8. We also applied capex constraints to our overall capital programme in order to prevent cost pressures resulting in it being higher than our Draft Business Plan. This led us to postpone some cost beneficial proposals until AMP6 and AMP7. As a result South West Water will be carrying a greater burden of risk, where there were uncertainties affecting future maintenance needs, such as the impact of climate change on sewerage assets. Customer priorities Other than bills, customer priorities are for reducing drinking water taste and odour issues, fixing visible leaks quickly, avoiding severe supply interruptions, reducing avoidable service failures and maintaining the system to prevent flooding and pollutions. Together with the tariff and water efficiency strategy and catchment management plans, these priorities reflect the key elements of our business strategy as described in our Strategic Direction Statement. The Final Business Plan has been prepared to meet these long term expectations. Stakeholder views and feedback Stakeholders generally supported our Draft Business Plan proposals. They particularly supported our catchment management proposals, investment in integrated urban drainage pilots, a targeted mains rehabilitation programme focussed on reducing discoloured water and taste contacts, our approach to carbon management and climate change resilience and our approach to affordability through our WaterCare and water efficiency. Although we have reduced our integrated urban drainage plans due to price constraints, and assumed a local authority contribution in response to Ofwat s draft CIS baseline, we have reflected stakeholder views by maintaining our approaches in the Final Business Plan. Page 3 of 38

4 Changes to the Quality programme The final Quality programme supported by the Quality Regulators has been included in the Final Business Plan. All of these schemes will deliver reasonable benefits compared to the costs, or represent low cost investigations, where the long term benefits and costs could be better quantified following their completion. National joint PR09 research We set out our views of this research in part C1. The results are largely consistent with our own research, in particular the reluctance on the part of consumers to delay drinking water quality improvements or accept additional leakage in return for a reduced price increase. The way the research was carried out limited its relevance to our Final Business Plan, in particular the presentation of the impact of K smoothing in as part of our base sewerage maintenance costs. Our explanation of this is set out in section C1. Ofwat CIS baseline We have reflected on Ofwat comments in the draft baseline and taken a number of actions whilst preparing our Final Business Plan. Discussions with Ofwat focussed around: How we could better present our plan to assist the AMA assessment Taking into account the Ofwat views on allocation between cost categories in our FBP How the CIS baseline process could take account of the constraints we had already applied to our capital programme due to customer price sensitivity, and how it could take into account the size of the past quality programme on our sewerage noninfrastructure investment needs. Providing additional information on supply demand contributions in our Final Business Plan and demonstrating why the contributions received by SWW (and new development capital expenditure) are lower than the industry average. In the course of these discussions a minor error in the draft baseline was identified (sewerage baseline of [Excised]. For ease of comparison, the numbers referred to in this commentary are based on those published in the CIS baseline document, rather than those corrected for this issue. Identified exceptional items of capital maintenance and explained why these costs aren t reflected in historic averages, suggested the necessary outputs for monitoring their delivery and explained why they are not suitable for an AMA / stable serviceability assessment as appropriate. Avoiding double counted adjustments such as adjusting specific unit costs such as metering, when the cost base efficiency adjustment already takes into account cost differences in setting the baseline. Updated evidence and validation We reviewed and reanalysed the whole of our capital expenditure programme following the Draft Business Plan to take account of: Known issues identified by South West Water and mentioned as areas we would review in the Draft Business Plan Updated costs to be consistent with the Final Cost Base submission that accompanies this plan rather than the Draft Cost Base Submission from April Issues raised and agreed with our Reporter to be updated and audited for the Final Business Plan Ofwat feedback on our Draft Business Plan Scope for capital efficiencies We have analysed our capital programme and identified scope for capital efficiencies, that the business has challenged itself to deliver between 2010 and Our awareness of the sensitivity of customers to bill levels has encouraged us to challenge ourselves as to the scope of efficiencies, without accepting excessive risks to the effective delivery of service levels. Further details on capital efficiencies are given in section B2. These efficiencies are derived from a combination of: Page 4 of 38

5 The mix and scope potential of our capital programme The evidence provided by the Draft Cost Base submissions Future improvements in capital efficiency that can be expected in the industry as a whole The remaining challenge in our plans from the AMA assessment where we cannot directly demonstrate that the draft CIS gap has been closed as a result of improved evidence and presentation in our Final Business Plan. Strategic Direction Statement It would not be in the long term interests of customers and stakeholders for price sensitivity to prevent progress towards the long term goals set out in our SDS being achieved. Our Final Business Plan has been a difficult balance between meeting service aspirations and ensuring that prices are as low as possible in the long term. Where enhancement capital expenditure, such as mains rehabilitation, has been included in our business plan we have ensured that it offers the best available value to customers, is cost beneficial and wherever possible (as with PUROS) contributes to lower customer bills by Water Because of the thorough approach we have taken to achieving the right balance for customers and stakeholders for , we believe that the capital expenditure baseline should equal our post efficiency FBP capital programme. If any changes to the scope of the programme outputs are made following discussions with stakeholder subsequent to our FBP submission, these should be made as two sided adjustments in the CIS baseline process. Excised The details of the changes in each category are given in the sub service summaries shown later in this section. Sewerage Excised Page 5 of 38

6 The details of the changes in each category are given in the sub service summaries shown later in this section. 3 Clean water maintenance infrastructure Excised The details of all of these proposed adjustments are set out in section 3.3 of the B3 plan. Changes in expenditure result from adjustments to on-costs COPI for all asset groups. Additional specific changes include the following: Mains: Expenditure has increased following refinement of the analysis of our unit cost of burst repairs, and the addition of on-cost elements not included in the Draft Business Plan. Critical Crossings: Expenditure has decreased following further site surveys to better quantify the length of duplications required. DOMS: Expenditure has increased following the addition of appropriate on-costs. Distribution Studies: Expenditure has increased following a minor correction to oncosts. Page 6 of 38

7 Communication Pipes: Expenditure has decreased after refining the deterioration modelling approach, which gives a more conservative view of future failure trends. DG2: Expenditure has decreased following re-evaluation of the forecast end of AMP4 position, and the corresponding volume of work needed to meet AMP5 targets. The risk factor allowance applied to Wimbleball grouting which has been removed from the draft baseline has been removed from our costs for the Final Business Plan. We have reviewed the scope of the rationalisation case and some have been removed on cost benefit and price constraint grounds. One element will be delivered in 2009/10, as a business need pulled this forward from K5 into K4 since the Draft Business Plan. The change in the AMA score is equivalent to a FBP score of 70% compared to 53% for the Draft Baseline. This additional score derives from additional validation of our modelling approach and the balanced approach to preparing our business plan. We set out in B3.0 of part B3 an AMPAP assessment undertaken on our behalf. Exceptional items being proposed include the strategic crossings and rationalisations [Excised], spillways and Wimbleball grouting [Excised]. The case for these is made in B3.3.1 of part B3. Appropriate outputs for these projects are reporter confirmation of the specific improvement being delivered. The business case for critical crossings, DG2 pressure, Reservoir safety & spillways, and the customer driven communication pipe programme, are all cost beneficial cases set out in C8 section to Page 7 of 38

8 4 Clean maintenance non infrastructure Excised The details of all of these proposed adjustments are set out in section 3.3 of the B3 plan. Changes in expenditure reflect the outputs from our revised modelling and updated costs. A change to meter replacement projections to reflect our updated policy has resulted in a significant reduction in proposed expenditure. The allocation of M&G expenditure between clean and waste water has also been reviewed. The customer billing system proposals have been updated to reflect the requirements of a 1Ml threshold for large user eligibility. New evidence is presented demonstrating what sites and type of investment the energy investment proposed covers. This therefore means that the adjustment in the draft baseline would not be required. The reduction in meter replacement expenditure more than reflects the [Excised] adjustment made in the draft baseline. Leakage expenditure reflects the need for maintenance of pressure reducing valves and district meters. Discussions with Ofwat following the DBP feedback, concluded that an allocation to capital maintenance was appropriate (rather than opex) as this is noninfrastructure equipment being maintained. Alternative allocations would result in customers paying more than the actual operating profit cost in our accounts. We have reviewed the scope of the rationalisation case and some have been removed on cost benefit and price constraint grounds. The change in the AMA score is equivalent to a FBP score of 63% compared to 44% in the Draft Baseline. This additional score derives from additional validation of our modelling and the balanced approach to preparing our business plan. We set out in section B3.0 of part B3 an AMPAP assessment undertaken on our behalf. Page 8 of 38

9 Exceptional items we are proposing include the strategic crossings and rationalisations [Excised], Leakage [Excised], PUROS network components [Excised], Energy investment [Excised], Customer billing & contact systems [Excised], SEMD compliance and business continuity [Excised], and Recreation & Amenity STWs [Excised]. Meter replacement of [Excised] (K4 expenditure) is also relevant to the CIS baseline calculation. The case for these is made in section B of part B3. Specific outputs will generally comprise reporter confirmation of the output being delivered. For energy investment, the opex efficiency included as a special adjustment is an appropriate output. SEMD and business continuity can be reviewed as part of SEMD audits. For the Customer billing & contact system the output will be to deal with the requirements of a 1Ml eligibility threshold, and the ability to bill a rising block tariff through this system by Energy investment contributes significantly to a 21% reduction in our operational carbon emissions during K5. No wind energy investment is included in these proposals. The rationalisation, energy investment and customer billing and contact sub programme areas, are all cost beneficial cases set out in C8 section 1.3.4, and respectively. 5 Clean water supply demand The table below is before baseline adjustments for grants and contributions: Excised The details of all of these proposed expenditure items are set out in the B5 plan. Changes in expenditure reflect a lower number of new connections in the Final Business Plan due to the impact of the recession. Costs have also been reviewed. The cost base takes into account cost differences between companies and therefore including a new development unit cost cap and meter optant unit cost cap double counts these adjustments in the baseline process. Our own efficiency estimate in our plan also takes into account the potential for improvements in new development costs. Page 9 of 38

10 A lower number of meter optants and therefore cost is reflected as a proposed change to the output package. Other changes are as a result of reallocations we can agree following Ofwat DBP feedback. The leakage component has been reallocated to capital maintenance rather than removed from capex into opex as implied by the draft baseline, following DBP feedback discussions with Ofwat. Water licence variations have been removed from our plan as they are not required for water resource purposes. Water efficiency activity, although not required for water resources, has been included because of the strength of stakeholder support and the impact on affordability of this strategy, which combined with new tariffs is a key element of our SDS strategy. These projects are justified on cost benefit, the case for which is set out in C8 section The grant and contribution change from the DBP and the draft baseline is given in the overall summary table. We make a case for adjusting the baseline approach within the contribution section of the B5 commentary. In summary the reasons why the contributions as a percentage of infrastructure new development expenditure are lower than for other companies is because of: Higher bill levels which result in the statutory commuted sum payable by developers being lower for the same level of capex The free trench and backfill developer offer taken up by 99% of new developments, results in lower new development capex than if South West Water carried out this activity. This means that the proportion of the total new development capex that is reflected in requisition charges is lower. Smaller average development sizes. 6 Clean water quality Excised The details of all of these proposed adjustments are set out in x.x.x.x of the B4 plan. Page 10 of 38

11 Changes in required outputs, where the DWI have provided support since the draft business plan are reflected in the above table. Where support has not been received, the expenditure has been removed as a proposed change to the output package. DWI have stated that they are minded to support catchment management schemes but are yet to identify how a statutory instrument could be written for these schemes under a Quality programme. It is not appropriate to allocate these projects to any other expenditure driver, so they remain in our quality programme. AMP4 phased schemes with delivery dates in AMP5 rely on the AMP4 letters of support already received from the DWI will for these schemes. MIRES has been reallocated from waste water in the Draft Business Plan. We provided in section B4 new evidence showing the contributions (including in kind) that other parties are making to this project. Therefore the draft baseline assumption of 50% contribution from elsewhere is not required, as this was already reflected in our expenditure projection. We would prefer a specific requirement for this project to evidence the investment actually made rather than making an assumption based on theoretical contributions (as discussed at the DBP feedback meeting with Ofwat). Additional specific details have been provided on SEMD in section B4, meaning that the 15% challenge in the draft baseline should not be applied. IPPC expenditure removed from the draft baseline does not feature in our FBP. Any risk of actual expenditure will be covered as an RCC, which could trigger an IDOK should a significant need arise. A number of additional schemes have been included since the Draft Business Plan: Bovey Cross WTW recently supported by the DWI Enhanced targeted lead interventions supported by the DWI Countryside & Rights of Way (CRoW) Act has been included within 4.1 MIRES Catchment Management Catchment Investigations The requirement for PAC has been removed from the Tottiford WTW scheme. Cost benefit evidence on these schemes is provided in section C to Clean water enhanced services Excised Page 11 of 38

12 PUROS expenditure changes reflect a change to the assessment of the cost split between clean and waste water. All SCADA expenditure has been re-allocated to capital maintenance [Excised]. The Draft plan included 7.5% proportional allocation to capital maintenance. PUROS is an integrated programme for water and sewerage services. Proportional cost allocation to water service has reduced to 42% from 50%, in the draft plan following a more specific assessment. Additional cost beneficial flood resilience outputs have been included in the Final Business plan following updated analysis. This is set out in section 2 of Part B6. The cost benefit details are shown in C8 section Further information has been submitted on site risk screening, service risk levels and alternative intervention options considered. Lopwell Intake project has been removed from plan because it is non cost beneficial [Excised]. Pynes WTW capex has increased for environmental risk ([Excised]. Rapid response units have been removed from the FBP as this will now be delivered during K4 to ensure that there is no DG3 target shortfall. DG3 now indicates a stable service level throughout K5 as a result. Base maintenance expenditure has ensured stable performance levels for the customer service DG indicators, with DG9 improving in K5 due to our contact reduction strategy. Mains rehabilitation projects were removed from the draft baseline, as there was a need to provide further evidence of the step change in customer contacts as a result of the improvement. Further information comprising PPRA studies and water quality trends data submitted to support whole programme and target service levels for reduction in customer contacts, are reported in section 2 of Part B6. The cost benefit details are shown in C8 section The mains rehabilitation programme has significant stakeholder support as part of the long term strategy for reducing avoidable discoloured water contacts. The three projects included could not be efficiently delivered except as a package delivered over The long term cost of having no mains rehabilitation programme during AMP5 would result in significantly higher costs of restarting the programme for AMP6 as the contractor technology and expertise would be lost in the meantime. For these reasons, any adjustments that Ofwat make to this programme should be made as two sided adjustments to the baseline as the overall programme should be treated as one coherent programme. It also provides one of the most significant examples of improving services to customers in the context a plan where most enhanced service improvements have been constrained due to price sensitivity. Page 12 of 38

13 8 Sewerage maintenance infrastructure Excised The details of all of these proposed adjustments are set out in section 3.5 of the B3 plan. Changes in expenditure reflect the revised modelling and updated costs estimates. Integrated urban drainage projects and saline infiltration projects have been reduced following a review of the cost benefit case and after applying capital constraints due to price sensitivity The AMA score is equivalent to a FBP score of 80% compared to 62% in the Draft Baseline. This additional score derives from additional validation of our modelling approach and the balanced approach to preparing our business plan. We set out in section 3.0 of part B3 an AMPAP assessment undertaken on our behalf. Exceptional items include the saline infiltration schemes [Excised] and Integrated Urban Drainage Pilot investigations [Excised]. The case for these is made in section 3.7 of part B3. Appropriate outputs for these projects are reporter confirmation of the specific projects being delivered, and the expenditure is not reflected in historic expenditure or readily linked to serviceability measures. The saline intrusion projects are all cost beneficial cases set out in C8 section Page 13 of 38

14 9 Sewerage maintenance non infrastructure Excised The details of all of these proposed adjustments are set out in section 3.5 of the B3 plan. Changes in expenditure reflect the revised modelling and updated costs. Updated models and validation have identified that the requirements for STC and SPS expenditure is higher than in our draft business plan. The allocation of M&G expenditure between clean and waste water has also been reviewed. The customer billing system proposals have been updated to reflect the requirements of a 1Ml threshold for large user eligibility. New evidence is presented demonstrating what sites and type of investment the energy investment proposals cover. This therefore means that the adjustment in the draft baseline would not be required. The change in the AMA score is equivalent to a FBP score of 66% compared to 42% in the Draft Baseline. This additional score derives from additional validation of our modelling and the balanced approach to preparing our business plan. We set out in B3.0 of part B3 an AMPAP assessment undertaken on our behalf. Exceptional items we propose include the PUROS components [Excised], Energy investment [Excised], Customer billing & contact systems [Excised], SEMD compliance and business continuity [Excised] and DSEAR (Dangerous Substances and Explosive Atmospheres Regulations ) [Excised]. The case for these is made in B3.7 and B3.9 of part B3. Specific outputs will generally be reporter confirmation of the specific output being delivered. For energy investment and sludge digestion, the opex efficiency included as a special adjustment is an appropriate output. SEMD and business continuity can be reviewed as part of SEMD audits. For the Customer billing & contact system, the output will be to deal with the requirements of a 1Ml eligibility threshold, and the ability to bill a rising block tariff through this system by Energy investment contributes significantly to a 16% drop in operational carbon emissions during K5. No wind energy investment is included in these proposals. Page 14 of 38

15 The sludge digestion, energy investment, customer billing and contacts and PUROS network component sub programme areas are all cost beneficial cases set out in C8 sections to respectively. 10 Sewerage supply demand Excised The details of all of these proposed expenditure is set out in section 3 of the B5 plan. Changes in expenditure reflect a lower number of new connections in the Final Business Plan due to the impact of the recession. Costs have also been reviewed. Higher growth expenditure results from a changed balance of allocation with enhanced services and elements reviewed following the draft business plan. The cost base takes into account cost differences between companies and therefore including a new development unit cost cap and growth unit cost caps double counts these adjustments in the baseline process. For growth in particular, the choice of three separate p.e. bands, two of which are below an industry average, and adjusting for the largest above 10,000 p.e. bands ignores the overall smaller than average p.e. size within the 10,000+ band. The below average cost for the below 10,000 p.e. bands in itself provides evidence of the overall cost. The larger size projects are skewed by growth pressures from new towns. Comments in the draft baseline document about growth being removed because of falling demand overall ignores the basic nature of local development growth pressures, particularly for sewerage. We deal with these points in section C6. Our own efficiency estimate in our plan also takes into account the potential for improvements in growth and new development costs. Similar comments apply to limiting treatment capacity increases to population growth, where new evidence is presented in section 3 of part B5. Changes to the proposed output package are as a result of reallocations we agree to following Ofwat DBP feedback. [Excised...] Additional sewer flooding outputs in supply demand include 1 in 20 year additions where the cost was omitted from the DBP and therefore the draft baseline. The cost benefit of the sewerage flooding enhancements is considered in section C8 and the sewerage flooding outputs explained in B6 section 6 and in detail in C6. Page 15 of 38

16 The grant and contribution change from the DBP and the draft baseline is given in the overall summary table. We make a case for adjusting the baseline approach within the contribution section of the B5 commentary. In summary the reasons why the contributions as a percentage of infrastructure new development expenditure are lower than for other companies are because of: Higher bill levels result in the statutory commuted sum payable by developers being lower for the same level of capex Smaller average development sizes. 11 Sewerage quality Excised The details of all of these proposed adjustments are set out in section 4.4 of the B4 plan. Changes in required outputs where the EA have changed requirements since the draft business plan are reflected in the above table. Where DBP projects are no longer required the expenditure has been removed as a proposed change to the output package. MIRES has been reallocated from waste water at the Draft Business Plan. The change to the baseline after the transfer is explained in the Clean Water Quality section above. First time sewerage costs have been reappraised since the DBP. Projects with a unit cost of capex above [Excised] have been reconsidered as part of the overall programme. No IPPC projects are required for the FBP, instead they are replaced by the CHP investigations shown separately, together with a risk covered as an RCC which could trigger an IDOK should a significant requirement arise as a result of the investigations. Additional specific details have been provided on SEMD in section B4, meaning that the 15% challenge in the draft baseline should not be applied. Cost benefit evidence on these schemes is provided in section C to Page 16 of 38

17 12 Sewerage enhanced services Excised PUROS expenditure changes reflect a change to the assessment of the cost split between clean and waste water. The reduced IUD cost stems from removal of flap valves from the Final Business Plan. The changes for this to the output package reflect reallocations suggested in the draft baseline. A lower number of cost beneficial flood resilience outputs have been included in the Final Business plan compared to those in capital maintenance at the Draft Business Plan following updated analysis. The reappraisal of these schemes means that the specific cost adjustment in the draft baseline will not be required. This is set out in section 3 of Part B6. The cost benefit details are shown in C8 section Lower enhanced service sewer flooding expenditure has resulted from ensuring that all of the enhancement elements are cost beneficial. The overall explanation of sewer flooding expenditure and outputs is in section 3 of Part B6. The cost benefit details are shown in C8 section Additional cost beneficial odour projects have been included in the final business plan. The outputs and expenditure are detailed in Part B6. The cost benefit details are shown in C8 section Overall balance in the Final Business Plan An important part of our overall long term strategy is to deliver prices that are as stable as possible, without this constraining our ability to continue to deliver the services that customers and stakeholders expect. Using our investment optimisation tool, a number of alternative scenarios were considered, constraining service levels and capital expenditure. The outputs of this process in terms of service and performance level, risk and price limits were considered by the Directors of South West Water, as a key part of the governance process adopted in preparing the business plan. In presenting a summary outcome of theses scenario options we considered in particular: Page 17 of 38

18 Most cost beneficial base service A programme that included all cost beneficial base maintenance and base supply demand projects that delivered stable serviceability, but at a lower risk of failure or whole life cost. Enhanced most cost beneficial base service A fully unconstrained run of base and enhanced services where all cost beneficial projects would be included. This is higher for both cost and service outputs than the plan we have chosen, which is constrained by customer price sensitivity Minimum cost A level of higher risk to the delivery of stable serviceability equivalent to a base capital maintenance and base supply demand draft CIS baseline level of expenditure. This would result in a largely reactive, rather than planned, approach to asset maintenance as expenditure would be prioritised where failures, damage and deteriorating customer service had already occurred. Minimum cost plus enhancements As the run above but with quality and service enhancements that could not be avoided (such as those required by the Environment Agency). Chosen option with no enhancements The base maintenance and base supply demand programme actually selected for the business plan. This shows the impact of the quality and enhancement programme in the Final Business Plan on both cost and outputs. Chosen option The Final Business Plan Capital Expenditure Programme. This programme is the base and enhancement programme based on our decisions on the most cost beneficial enhancements and a base programme delivering a stable level of risk to serviceability. This is the programme that we believe represents the best value and balance of service risk and performance to customers for Capital costs and output performance measures are determined for each run and compared with the chosen option for the business plan. This reflected the level of risk offered by the proposed capital expenditure and performance in the business plan. These calculations are based on pre-efficiency capital expenditure gross of grants and contributions. Capital efficiency assumptions present an additional expenditure rather than output scope risk. Output constraints are based on the forecasted performance level in the Final Business Plan. The performance measure being compared is that in in the business plan. Although we consider each output performance measure in isolation, each graph shows the total cost related to all the activities that contribute to the output. Our optimisation process considers the best mix of outputs against cost in constraints for the whole programme at once, but we show each performance measure in isolation for ease of presentation. The graph below shows the size of the capital programme resulting from each of these sensitivity runs, compared to the chosen option: Page 18 of 38

19 Excised The following charts indicate the variation about the chosen option for particular performance measures. Cost values below zero indicate a lower cost option. OPM values below zero indicate a reduced output option, which for base maintenance no deterioration runs represents a higher risk of stable serviceability not being delivered. In each case projects are likely to contribute to several performance measures. The capital expenditure quoted for each performance measures refers to looking at that performance measure in isolation, even though removing the expenditure would affect more than one performance measure. We also show charts with the chosen option cost and performance shown on the chart rather than just the variation one. Page 19 of 38

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38 Contribution of projects to our long term strategy The table below shows the contribution of each of the main expenditure project areas to the overall long term strategy within our Strategic Direction Statement. The capital cost and impact on the customer bill by is also shown. Page 38 of 38