At the lowest sustainable cost
Power and chemicals – our asset optimisation programme continues to provide the benefits of increased and more effective use of operational site management to optimise power and chemical use and the development of more combined heat and power assets to generate renewable energy. In addition to the electricity we generate from bioresources, we are developing other renewable energy facilities. This is primarily in the area of solar, where we have invested £53 million in the first three years of the 2015–20 regulatory period and contributing towards our expected investment of up to £100 million across the five-year period. We have also substantially locked-in our power commodity costs across 2015–20, providing greater cost certainty for the regulatory period.
Proactive network management – through our Systems Thinking approach we are more proactive in the management of our assets and networks. We have improved our predictive modelling and forecasting through better use of sensors in our network and better analysis of other data, such as weather forecasting, enabling us to address more asset and network problems before they affect customers. This reduces the level of reactive work and improves our performance and efficiency.
Debt collection – our region suffers from high levels of income deprivation and we offer wide-ranging schemes to help customers struggling to pay. We now have over 100,000 customers on affordability schemes, almost double the commitment we made at the start of AMP6. Notwithstanding our industry-leading debt management processes, deprivation remains the principal driver of our higher than average bad debt and cost to serve and we expect this to continue to be a challenging area for us.
Reflecting our ongoing focus on bad debt through initiatives such as our affordability schemes, our household bad debt expense has reduced to 2.3 per cent of regulated revenue from 2.5 per cent last year.
Pensions – United Utilities has taken progressive steps to de-risk its pension provision. The group had an IFRS retirement benefit surplus of £344 million as at 31 March 2018, compared with a surplus of £248 million as at 31 March 2017. Further details of the group's pension provision are provided in the pensions section in Note 17.
From 1 April 2018, the majority of active members in the defined benefit sections of the group's pension schemes transitioned to a hybrid section incorporating both defined benefit and defined contribution elements. The changes have had no impact on the financial statements for the year ended 31 March 2018 as they have only taken effect for pensionable service from 1 April 2018.
Capital delivery and regulatory commitments – we are strongly focused on delivering our commitments efficiently and on time, and have a robust commercial capital delivery framework in place. Across the 2015–20 regulatory period, we are working with a single engineering partner and four design and construction partners to deliver our regulatory capital investment programme of around £3.8 billion. We are involving our partners much earlier in project definition and packaging projects by type, geography and timing in order to deliver efficiencies. Projects are allocated on an incentive or competitive basis leading to our partners presenting a range of solutions, innovations and pricing.
We have accelerated our 2015–20 investment programme in order to improve services for customers and deliver early operational and environmental benefits. Regulatory capital investment in 2017/18, including £147 million of infrastructure renewals expenditure, was £816 million, including additional investment that we have committed to, sharing our overall regulatory outperformance with customers. This, combined with £1.6 billion invested in the first two years of the regulatory period, brings our total spend to around £2.4 billion of our planned £3.8 billion capital investment across the 2015–20 regulatory period.
We are also driving more effective and efficient delivery of our capital programme and applying a tougher measurement mechanism to our Time: Cost: Quality index (TCQi) score for this regulatory period. Despite this tougher approach, our TCQi score remains high at 93 per cent, representing very good performance.
Key performance indicators:
Total expenditure (totex) performance – our totex allowance for the 2015–20 regulatory period represented a significant challenge compared with the costs we originally submitted as part of our business plan. We have not only closed the gap to our allowance but we are now also confident of outperforming that allowance by £100 million. This has been achieved through a combination of driving efficiency into our capital programme and also through Systems Thinking.
Financing outperformance – the low cost of debt we have already locked-in places United Utilities in a strong position to deliver significant outperformance for the 2015–20 regulatory period compared with the industry allowed cost.
Household retail cost to serve – we continue to deliver against a challenging benchmark set for AMP6. Our target is to minimise our costs compared with our revenue allowance and we have delivered a good performance in 2017/18, outperforming this year's revenue allowance by around £9 million. By 2020, we are forecasting a cost to serve in line with the regulatory cost allowance and we are hopeful that our cost plans will move us towards upper quartile performance in AMP7.
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