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Chapter 3

Key supporting information

CAPITAL WORKS ACTIVITY

The data reported in
the June Return and the accompanying tables (C and D) is not directly
comparable with that shown in the Final Determination, nor our Monitoring
Plan tables.  This is because they were each completed in accordance
with the relevant Ofwat guidance specifying different categories and
definitions. However, allowing for these differences, some general conclusions
can be drawn:

Sewage treatment works maintenance activity and quali</span><span class="Normal--Char" style=" font-size: 13pt;
">ty work are ahead of initial forecasts.
Sewerage maintenance activity, as measured by length of sewers renewed
and rehabilitated, is less than that shown in the Monitoring Plan. This
is partly because the solutions we are adopting involve more off-line
sto</span><span class="Normal--Char" style=" font-size: 13pt;">rage
and less sewer rehabilitation than originally envisaged.
Maintenance activity on sludge T&D assets is less than that shown
in the Monitoring Plan because of uncertainty over the new sludge regulations.
Maintenance activity on sewer pumping stations is also less than in the Monitoring Plan because our risk based approach
to maintenance is prioritising fewer of these assets than was originally
assumed.
Conversely the risk based approach is promoting maintenance activity
on water assets ahead of the origi</span><span class="Normal--Char" style=" font-size: 13pt;
">nal profile.  In addition, quality schemes for water services
are also ahead of the original profiles, with the exception of S19 Distribution
Undertaking work which is driven by PPRA criteria.

A significant increase in activity for both the quality and maintenance
programmes is projected for 2002/03.

Leakage

Our leakage estimates show that we have met the 2001/02
target. This is despite having experienced another spike in leakage
in early January following a severe frost. The experience of the last
two winters suggests that it may not be economic to maintain our current
target in all years; the target was developed based on experience of
leakage control in a period of relatively mild winters. The tripartite
study on approaches to leakage target setting noted that the level
of leakage may fluctuate about the target. This is an issue that we
will be investigating further in the next few months.

In addition, there is
some uncertainty, over the distribution input data, which could have
an impact on leakage estimates. Tynemarch is carrying out an exercise
for us to reconcile our sources of data for distribution input, and
increase our confidence in measurement of flows.

We are also investigating
the extent of supply pipe leakage. There is some evidence from differences
between internal and external metered volumes that supply pipe leakage
may be greater than current estimates.

We will keep Ofwat informed
of the results of these analyses during the year. The uncertainties
about estimation of leakage, and inevitable fluctuations in performance
from year to year, reinforce our view that it would be more appropriate
to set a range for the target level rather than a single figure.

Security
of Supply Index

We have reported in table 10 of the June Return,
in accordance with the Ofwat definitions and guidelines, figures for
the Security of Supply Index. However, we believe that there are likely
to be significant inconsistencies between the planning assumptions used
by different companies to derive their security of supply indices. Until
it is known that all companies are using a consistent set of planning
assumptions, we believe that the effectiveness of the security of supply
index as a reporting tool is limited. Until the inconsistency issue
is resolved the reported security of supply index should not be used
as the basis for decisions concerning issues such as economic levels
of leakage, Long Run Marginal Cost, tariffs and competition policies.

Progress
on AMP3 Water Resources Schemes

The 1999 Final determination took account of:

an existing 30Ml/d resource deficiency in the East
Midlands
a requirement by the Environment Agency that we divert
flows from existing drinking water sources into low flow rivers.

East Midlands resource deficiency

The deficiency will be resolved by providing 30 Ml/d
from Birmingham groundwater to support the River Trent abstraction at
Shardlow supplying the East Midlands.

The Birmingham
Groundwater scheme is progressing and the full scheme is scheduled for
completion at the end of the AMP3 period. The gravel pits at Witches
Oak Waters alongside the River Trent at Shardlow will provide bankside
storage and primary treatment as part of the River Trent abstraction
scheme.

Low Flow River Alleviation Schemes

£2.0m was
allowed in the Final Determination for Alleviation of Low Flow Rivers,
requiring us  to divert a flow of 21Ml/d.  This included 11
Action Sites and14 Investigation Sites. Subsequent negotiation with
the Environment Agency has established that the necessary flows will
total approximately 12Ml/d.

No funding was provided for replacing the water given up to the environment
on the Action Sites. The Environment Agency have proposed additional
Green Licences (time limited) which will resolve the problem temporarily.
Progress is also being made on this work although the resulting reduction
in supply capacity remains an issue which will have to be addressed
as part of PR04.  This has been discussed with Ofwat who have accepted
in principle that price limits should include an appropriate allowance
for the cost of re-deploying water resources to replace volumes lost
to low flow river alleviation.

Reservoir Storage for alleviation of flooding

With the widespread floods over the last couple of years the Company
is coming under increasing pressure to utilise the reservoirs to minimise
the impact of flooding following heavy rain. This has applied at Derwent
Valley, Carsington, Tittesworth and the River Severn Reservoir at Clywedog.
STW has agreements with the EA for flood draw down arrangements at some
of these reservoirs but the EA are also under pressure from those affected
to do something in this area.

To date it has been possible to manage this working closely with the
EA.  However, the increasing frequency of flood events and the
pro