The CRU has published an update to Irish Water’s Capital Investment Plan – Revenue Control 3.5. The Plan sets out the total allowed revenue that Irish Water can receive, through Government subvention and from customers, to cover its efficiently incurred costs during the period 2020 – 2024.
Further capital funding of €784 million has been allowed following review of a submission by Irish Water in relation to Revenue Control 3 decided by the CRU in December 2019 bringing Irish Water’s total allowed capital expenditure for the five-year period to €4,523 million. An extension to the revenue control process had been agreed by the CRU with Irish Water to facilitate further review of capital expenditure.
As part of this review, the CRU also required Irish Water to carry out an external review of its processes and procedures to develop its capital investment plans. Irish Water engaged Scottish Water International (a subsidiary of Scottish Water, SWI) who proposed a number of recommendations for process improvements to address shortcomings in the earlier Capital Investment Plan development and build out processes. The CRU is requiring Irish Water to address these recommendations.
Revenue Control 3
The revenue control process is based on a review by the CRU of Irish Water’s plans of what it intends to deliver, the proposed costs of which are benchmarked and compared with comparable water and wastewater utilities in other jurisdictions.
Since the CRU began regulating Irish Water in 2014, costs have been reviewed and revenues allowed through short interim revenue controls. The first revenue control covered the period October 2014–December 2016 and the second, 2017– 2018 with a subsequent extension to 2019 due to changes in the funding model for Irish Water introduced by the Water Services Act 2017.
In November 2018, Irish Water submitted business plans to the CRU for both operating and capital costs for the period 2020-2024 (Revenue Control 3). The CRU reviewed Irish Water’s submissions to challenge the utility to deliver continued efficiencies without reducing the quality of services to its customers.
In this revenue control, the CRU set out the outcomes that are expected from Irish Water to deliver over the five years. Tied to these outcomes are an extensive and detailed set of outputs, covering projects and programmes across water and wastewater, that Irish Water will be required to deliver.
A portion of Irish Water’s network capital expenditure, amounting to €788 million, was not approved at the time of the CRU’s RC3 decision in December 2019. However, the RC3 decision provided Irish Water an opportunity to make a further submission in 2020 if it wished to seek further capital funding for this potential expenditure.
Irish Water submitted a further capital funding request in April 2020 which was reviewed in its entirety by the CRU. A decision to allow €4,523.1 million for the five-year period was approved by the Commission on 29th July 2020. The decision took into account evidence related to commitment dates for projects that Irish Water plans to deliver in the period and information provided by a review of Irish Water’s capital planning processes by Scottish Water International.
Irish Water’s revised Capital Investment Plan and CRU Decision
- In 2020, Irish Water requested €4,831m in network capital expenditure over the 5-year RC3 period.
- For this RC3 2020 review, the CRU examined the reasonableness of the costs outlined in Irish Water’s revised Capital Investment Plan (April 2020), and explanations for the changes in cost from its original Plan.
- The CRU has determined that Irish Water’s network capital expenditure allowance for the RC3 period is €4,523 million, representing a reduction of €308 million from Irish Water’s request. The CRU considers that Irish Water can deliver its proposed Capital Investment Plan more efficiently.
- This RC3 2020 review looked at the outcomes that we expect Irish Water to deliver over the five years. Tied to these outcomes are an extensive and detailed set of outputs, covering projects and programmes across water and wastewater. The CRU holds Irish Water accountable for delivering these outputs and outcomes.
- The high-level outcomes that Irish Water are required to deliver over RC3 are:
- High quality customer service and customer satisfaction;
- Providing a high quality of service for water supply, including security of supply;
- A reliable service to remove and treat wastewater:
- Efficient delivery of services, i.e. value for money
- Achieve compliance with public health and environmental standards
- Environmental performance (for example, a good quality water environment)
Chairperson of the CRU, Aoife MacEvilly said today “The CRU has updated the Revenue Control allowing an additional €784 million to Irish Water for capital expenditure. While this is still €308 million less than that requested by Irish Water for the five year period, the CRU believes, following its review the total amount allowed, €4,523.1 million is appropriate and ensures that Irish Water is challenged to deliver for the customer at the most efficient cost possible.”
The full decision and relevant publications are available to view here