United Utilities Water Accounting Separation
Methodology 2013
Date: 21 June 2013
Accounting Separation Methodology 2013
Table of contents
Overview ..................................................................................................................... 3
Main systems .................................................................................................................. 4
Operating expenditure ..................................................................................................... 5
Infrastructure renewals charge ........................................................................................ 7
Amortisation of deferred credits....................................................................................... 8
Fixed assets and depreciation ......................................................................................... 8
Introduction to the appendices ..................................................................................... 11
Appendix 1 - operating cost analysis wholesale and associated cost allocations .......... 12
Appendix 2 - operating cost analysis retail and associate cost allocations .................... 14
Appendix 3 - current cost analysis of fixed assets ........................................................ 16
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Overview
This methodology statement provides an overview of the process followed by United Utilities Water (UU
Water) in preparing the accounting separation supplementary tables listed below, as requested by Ofwat
in Information Notice IN13/01 ‘Regulatory accounts reporting requirements for 2012-13 and onwards’.
The tables have been included in the March 2013 UU Water PLC Regulatory Accounts in compliance with
the requirements of IN13/01.
Regulatory accounting guideline 4.04 ‘Guideline for the definitions for the regulatory accounts tables’
contains five regulatory accounting principles. These principles are applied in the order of priority as set
out below:
• Transparency: the attribution methods applied within the accounting separation system need to be
transparent. This requires that the costs and revenues apportioned to each service and business unit
should be clearly identifiable. The cost and revenue drivers used within the system should also be clearly
explained to enable a review of their appropriateness.
• Causality: cost causality requires that costs (and revenues) are allocated to those activities and services
that cause the cost (or revenue) to be incurred. This requires that the attribution of costs and revenues to
activities and services should be performed at as granular level as possible.
• Non-discrimination: the attribution of costs and revenues should not favour any business unit within the
regulated company and it should be possible to demonstrate that internal transfer charges are consistent
with the prices charged to external third parties.
• Objectivity: the cost and revenue attribution criteria need to be objective and should not intend to
benefit any business unit or service.
• Consistency: the cost and revenue attribution criteria should be consistent from year to year to enable
meaningful comparison of information over time. Changes to the attribution methodology from year to year
should be clearly justified and documented.
The processes in this methodology have been designed to ensure that these principles are adhered to in
the preparation of the regulatory tables. The relevant financial statements note and pages in the
Regulatory Accounts for each of the tables is identified in italics below:
Appendix 1: Operating cost analysis (wholesale business) – Water
(Regulatory Accounts Note:2 Page: 93)
Appendix 1: Operating cost analysis (wholesale business) – Sewerage
(Regulatory Accounts Note:2 Page: 93)
Appendix 2: Operating cost analysis (retail business) – Household/Non-household
(Regulatory Accounts Note:2 Page: 94)
Appendix 3: Current cost analysis of fixed assets (wholesale business) - Water
(Regulatory Accounts Note:3 Page: 95)
Appendix 3: Current cost analysis of fixed assets (wholesale business) - Sewerage
(Regulatory Accounts Note:3 Page: 96)
Appendix 3: Current cost analysis of fixed assets (retail business) - Household/Non-household
(Regulatory Accounts Note:3 Page: 98)
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The methodology is prepared over four sections:
No.
Description
Pages
1
Operating expenditure (Opex) included in appendix 1 and 2
5 to 6
2
Infrastructure Renewals Charge (IRC) included in appendix 1
7
3
Amortisation of deferred credits included in appendix 1
8
5
Fixed assets and depreciation included in appendix 1, 2 and 3
8 to 10
Main Systems
For all tables, the majority of the data is either derived from SAP, the accounting system, or Cognos, the
consolidation and reporting package, used by UU Water. The SAP data is adjusted to a Regulatory
Accounting basis in accordance with Regulatory Accounting Guideline 3.07 and is presented for the
appointed business only.
Specifically for fixed assets and deferred income, data is extracted from SAP for every asset held in the
SAP asset register, including both commissioned assets and assets under construction (AUC). The data
extracted includes opening and closing balances and all categories of movement in the year (e.g.
additions and disposals). The data extract also includes key master record data for each asset e.g. asset
class and service area.
The tables are prepared using MS Excel models from this data.
The allocation to business units is based on a document issued by Ofwat being ‘RAG 4.04 – Guideline for
the definitions for the regulatory accounts tables’. This document summarises activities, processes and
assets allocated to each business unit.
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1. Operating expenditure
Process Description
The following table describes the key process steps followed in order to allocate operating expenditure
across business units and reporting lines.
Key Steps
1
Description
An MS Excel model is prepared which includes the operating expenditure for the
year, on a regulatory basis, for every cost centre in the business.
These costs are analysed between business units and by reporting line through
review with the relevant budget manager. Operational cost centres are principally
allocated to the direct cost section of the table whereas functional support (indirect)
cost centres are allocated to the general and support section of the table.
2
Various inter stream allocations are made to reallocate costs to the most
appropriate business units.
Examples of these reallocations include:
Environment Agency costs are reallocated to the relevant Water or
Wastewater business units; and
The cost of Water Sludge Disposal is reallocated from Sludge Treatment to
Water Treatment.
The costs of Meter Maintenance and Disconnections are reallocated from
Retail to Treated Water Distribution.
A proportion of the ARC costs relating to non network activities are
reallocated from Water Direct Support to Retail Household.
Changes made to the allocation methodology from 2011/12 include:
Scientific Services / customer tap sampling costs are now included in Retail.
No allocation of Trade Effluent costs from Wastewater Sewage Collection to
Retail Non-Household.
3
General and support costs from direct cost centres are reallocated out of direct
costs into general and support costs. These costs are allocated across the
business units’ pro-rata to the level of direct costs for each business unit.
4
All indirect general and support cost centres are allocated across the relevant
business unit using the most appropriate driver in accordance with the regulatory
guidance.
Examples of the drivers used to allocate indirect general and support costs include:
the HR department is allocated on the basis of which business areas are
supported; and
the rates cost is allocated pro-rata to the Gross Modern Equivalent Asset
Value of business unit assets.
5
Each category of general and support costs is calculated from the addition of direct
and indirect general and support costs in each business unit.
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Cost allocation changes in the year
In line with the introduction of Regulatory Accounting Guideline Regulatory accounting guideline 4.04 –
‘Guideline for the definitions for the regulatory accounts tables’ in February 2013 the following changes
have been made to the cost allocations:
Support for trade effluent compliance costs moved from retail to sewage collection;
Scientific services associated with trade effluent also treated as wholesale;
Disconnections have been split between wholesale and retail;
Meter maintenance / installation has changed to be 100% wholesale activities; and
Scientific services costs relating to sampling at customer taps have been allocated to retail.
Since the introduction of accounting separation for regulatory reporting in 2009-10, we have been
continually improving the data and processes used in preparing these tables. A management review of
cost allocations has been completed for 2012/13 resulting in the following changes to cost allocations:
Call centre costs relating to activities on the network (i.e. costs not related to retail activities)
have been allocated to wholesale in line with Ofwat guidance.
Part of the charitable trust cost not funded through the price control is now treated as a
United Utilities Group PLC cost and not as a United Utilities Water PLC cost.
Asset Management support costs have been directly allocated based on projects the
department supports.
Regulatory costs (Ofwat licence and Regulation team) are allocated equally across the 10
business units in line with Ofwat guidance on allocation of the licence fee.
Support function costs have been reviewed to improve the appropriateness of the allocation
basis. Support function allocations have changed from a predominately employment cost
basis to one based on allocation of federated support costs and use of function specific cost
drivers:
o
IT costs are now allocated on the basis of number of devices and licence costs
dependent on which software is used by business area (in 2011/12 allocation of costs
were based on number of devices);
o
Finance costs are now allocated on the basis of which business areas are supported
and a more granular allocation of insurance costs (in 2011/12 allocation of costs were
based on direct costs); and
o
HR related costs are now allocated on the basis of which business areas are
supported, the number of employees and the number of pension scheme members
by area (in 2011/12 allocation of costs were based on employment costs).
Planned improvements in the coming year
The methodology for populating the accounting separation tables will be subject to annual review to
ensure that the basis for allocating operating expenditure is appropriate.
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2. Infrastructure Renewals Charge (IRC)
Process Description
The following table describes the key process steps followed in order to allocate IRC across business
units.
Key
Steps
1
Description
2
For the period 2020/21 to 2024/25 (AMP 7) the forecast impact of private sewers
expenditure has been added to the forecast IRE from the PR09 Final
Determination. The same annual level of spend, as the last year of AMP6, per
the FY13 Internal Company Business Plan, has been assumed in each year of
AMP 7. Renewals accounting has been followed on the basis that the nature of
the expenditure is similar to that on the public sewer network and UU Water’s
PR09 Private Sewers supplementary report to Ofwat was reviewed by the
company’s reporter.
3
The projected spend from 2013/14 to 2024/25 was adjusted to bring it to a
comparable price base (2012/13 average) using the Construction Output Price
Index (COPI). COPI is used because the business plan figures were compiled
using this index.
4
The total expenditure (including the carried forward balance of the
accrual/prepayment into AMP 5) is then apportioned equally over the remaining
13 years (inclusive of 2012/13) to 2025 to establish the IRC charge for the
year. This IRC is split by accounting separation business units, using the
investment categories assigned to each programme of work.
5
The difference between the IRE and IRC is treated as an accrual or prepayment.
6
All expenditure is charged to the profit and loss account over the 15 year period
from April 2010 – March 2025 and all accruals and prepayments are projected to
be wound down to nil by March 2025.
The regulatory Infrastructure Renewals Charge (IRC) is calculated from the
regulatory Infrastructure Renewals Expenditure (IRE), net of income, over a 15year period using:
actual IRE for 2010/11, 2011/12 and 2012/13;
forecast IRE from the Company Business Plan for 2013/14 to 2019/20; and
forecast IRE from the PR09 Final Determination for 2020/21 to 2024/25.
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3. Amortisation of deferred credits
Process Description
The following table describes the key process steps followed in order to allocate deferred income
amortisation across business units.
Key
Steps
1
2
Description
The SAP deferred income report is extracted from SAP. This report classifies
the amortisation of deferred credits by service area.
The figures from this report are based on the individual service areas that each
deferred income asset is allocated to. Service areas are fields populated in the
SAP fixed asset register that denote which business unit the asset relates to
(see Fixed Asset section of this methodology for further description).
Examples of the allocations include:
income relating to environmental schemes on catchment areas are
allocated to Water Resources; and
income relating to refurbishment of fluoridation plant at Water Treatment
Works are allocated to Water Treatment.
4. Fixed Assets and Depreciation
Process, systems and cost drivers
Each asset in SAP is assigned to a service area and an asset class. The underlying principle that applies
across all fixed asset and depreciation reporting, within the regulatory tables, is that the service area
determines the ‘business unit’ that the asset/depreciation is to be allocated to, and the asset class
determines the asset type allocation (Infrastructure/Non-infrastructure).
There are 37 ‘live’ service areas in SAP of which eight relate to wholesale ‘business units’, two relate to
retail ‘business units’, twenty six relate to management and general (M&G) allocations, and one relates to
the non-appointed ‘business unit’, as detailed in the following table.
Business Activity
Water Resources
Raw Water Distribution
Water Treatment
Treated Water Distribution
Sewage Collection
Sewage Treatment
Sludge Treatment
Sludge Disposal
Retail Household
Retail Non-household
Management & General
Non-appointed
Service Area
WR
RD
WT
WD
SC
ST
LT
LD
RH
RN
MG01 to MG26
NR
Allocation principle
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Retail
Retail
Apportioned
Excluded
Additional processes are followed to allocate assets under construction (see process step 3),
management and general assets (see process step 4) and year-end adjustments (see process step 5).
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Key Process Steps
Process
Step
1
Description
A detailed Fixed Asset Report was run in SAP as at 31st March 2013 and
downloaded into MS Excel.
This report details, for every asset, the movements in the year from opening
cost to closing net book value. The report also includes the service area and
asset class for each asset.
2
SAP posts ‘Assets Under Construction’ (AUC) to summary asset classes. In
order to obtain detailed asset classes for AUC, additional data is extracted from
the UUW Project Management System – see step 3.
Mapping of asset classes to Infrastructure/Non-infrastructure
3
An asset class listing is maintained detailing how each asset class is allocated
to asset types i.e. Infrastructure and Non-infrastructure. The listing is
maintained in-line with guidance provide by Ofwat in Regulatory Accounting
Guideline 2.04. Using this data, each asset can therefore be categorised by
‘business unit’ and ‘asset type’.
Assets Under Construction (AUC) allocation
4
Each AUC asset in SAP contains a project number, which is used to identify the
allocations for the tables. Reports are extracted from the project management
system detailing how each project is allocated to asset classes and service
areas. During the projects life, the postings to SAP are based on the primary
service area. On commissioning, projects are posted on a proportional basis.
As a result, reclassifications between service areas, and therefore ‘business
units’, can occur on commissioning.
Management and General (M&G) reallocation
M&G assets are allocated to one of twenty six MG Services Areas (MG01 to
MG26). These Service Areas determine the allocation percentage of each
asset across the 11 direct ‘business units’ (including the non-appointed
business unit).
5
Examples of the drivers used for M&G assets include:
direct costs for each business unit for cross business ICT assets;
AMP5 capital expenditure by business unit for capital delivery assets;
GMEAV from the PR09 asset inventory by business unit for asset
performance related assets;
allocation of jobs completed on the Work Management System for
Network service assets;
floor space allocation of the Head Office site by business unit for the
Head Office building; and
allocation of the number of domestic and commercial customer
properties billed for Customer Operations assets.
Year-end adjustments
Allocations of year-end adjustments – opening and closing journal accruals are
individually reviewed to allocate across the business units and asset types.
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Recharges to/from other business units for the use of fixed assets
All assets are allocated to the ‘business unit’ of principal use in the Regulatory Tables. There are
currently no recharges made between ‘business units’ for the use of fixed assets. For 2012/13 reporting,
the Ofwat Information Notice 13/01 ‘Revised regulatory accounting guidelines and regulatory accounts
reporting requirements for 2012-13 and onwards’ only required assets used by both wholesale and retail
to be recorded in the area of principal use with recharges made by the other. There are currently no
assets that meet these criteria. Management and General assets are however allocated across business
units as detailed in key process step 4 in the table above.
Significant changes in costs in the year
The key changes in depreciation in the year arose due to the following key reasons:
accelerated depreciation for assets whose lives were revised during the year, particularly assets in
the water and sewage treatment ‘business units’;
additional depreciation from the uplift in asset values by RPI to comply with current cost
accounting guidance;
growth depreciation from new assets commissioned offset by depreciation on assets which
became fully depreciated in the year;
the transfer of customer meters from the retail ‘business units’ to the treated water distribution
‘business unit’ following the introduction of Regulatory Accounting Guideline 4.04 – ‘Guideline for
the definitions for the regulatory accounts tables’ in February 2013; and
movements of asset allocations as part of the annual review of management and general
allocations.
Improvements that have been made to methodology in the year
Since the introduction of accounting separation for regulatory reporting in 2009-10, we have been
continually improving the data and processes used in preparing these tables. Key improvements in the
year include:
update of the regulatory reporting models to ensure compliance with revised RAG4 (issued in
February 2013) including the transfer of customer meter assets from retail ‘business units’ to the
treated water distribution ‘business unit’;
data cleanse of records to ensure assets are appropriately allocated to service areas and therefore
‘business units’; and
review of M&G assets and allocations to ensure that each asset is allocated to the correct service
area, and that each service area is allocated using the most appropriate driver.
Planned improvements in the coming year
As part of our introduction of a new SAP accounting system, further improvements are planned including:
improved granularity in asset commissioning to better align to the operational fixed asset registers;
greater use of SAP modules to prepare the regulatory tables resulting in reduced reliance of
Microsoft Excel models; and
further data cleanse of records to ensure appropriate allocation to service areas.
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The following appendices detail the operating cost analysis for both wholesale and retail and the basis of
cost allocations by line item.
The data in these tables are derived from the underlying financial records as follows:
Cost Driver – A
Is where direct costs can be mapped directly from a cost centre (or service area for fixed assets and
investment category for IRC) to the relevant Accounting Separation (AS) business unit.
Cost Driver – B
Is where direct costs can be mapped directly from a cost centre to a service area (water, sewerage or
retail) and then costs are apportioned across the business unit using a specific cost driver, in accordance
with regulatory guidance.
Cost Driver – C
In cases where the mapping is not direct a specific cost driver is used to allocate the cost to the
appropriate AS business unit.
Cost Driver – D
In cases where the mapping is not direct, costs are apportioned across the relevant services based on the
level of direct costs.
Management consider that the allocation of costs generated by this process are reasonable for the
following reasons:
The Microsoft excel model used to generate the regulatory reporting allocations is reviewed each
year to reflect any organisational and activity changes in order to ensure that the costs are
accurately reflected in the relevant business unit.
United Utilities Water PLC financial records are maintained in SAP and this data is used to provide
the majority of the financial data for both the regulatory accounts and the AS tables.
Data that is not from SAP is reviewed and checked as part of the preparation process to ensure it
is appropriate and consistent when it is included in the tables.
There is then a process of reviews and sign-offs to ensure that all the information with the
regulatory financial statements, including the AS tables is consistent before the financial
statements are published. This includes review and approval by the Chief Financial Officer and the
Board of United Utilities Water PLC.
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Appendix 1 –Operating cost analysis wholesale (water and sewerage) and associated cost
allocations
Operating cost analysis for the 12 months ended 31 March 2013 (wholesale business only) - Water
Water
Resources
£m
Raw water
distribution
£m
Water
Treatment
£m
Water
Treated
distribution
£m
Water
sub-total
£m
1.7
19.6
1.5
14.3
15.6
0.3
2.5
(0.3)
4.3
4.3
-
8.8
0.3
46.8
6.1
0.4
8.1
34.2
31.2
0.3
21.1
(0.3)
19.9
1.5
99.6
57.2
1.0
53.0
10.8
62.4
73.8
200.0
Capital maintenance
Infrastructure renewals charge
Current cost depreciation
Amortisation of deferred credits
17.7
14.6
(0.6)
0.9
2.3
-
63.2
(0.8)
53.2
76.8
(4.2)
71.8
156.9
(5.6)
Total capital maintenance excluding third party services
31.7
3.2
62.4
125.8
223.1
1.2
1.8
1.0
0.1
0.3
0.1
0.7
-
3.2
2.0
87.7
15.1
125.2
200.3
428.3
Operating expenditure
Power
Income treated as negative expenditure
Service charges
Bulk supply imports
Other operating expenditure
Local authority rates
Exceptional items
Total operating expenditure excluding third party
services
Third party services
Operating expenditure
Current cost depreciation
Total operating costs
Operating cost analysis for the 12 months ended 31 March 2013 (wholesale business only) - Sewerage
Sewage
collection
£m
Sewage
treatment
£m
Sludge
treatment
£m
Sludge
disposal
£m
Sewerage
Sub-total
£m
Operating expenditure
Power
Income treated as negative expenditure
Service charges
Other operating expenditure
Local authority rates
Exceptional items
3.8
1.8
36.0
3.0
0.3
23.5
4.3
57.0
15.5
0.6
7.2
(3.2)
0.5
22.2
4.3
0.2
2.7
0.1
19.7
0.2
37.2
(3.2)
6.7
134.9
22.8
1.3
Total operating expenditure excluding third party services
44.9
100.9
31.2
22.7
199.7
Capital maintenance
Infrastructure renewals charge
Current cost depreciation
Amortisation of deferred credits
74.4
38.1
(3.8)
1.3
172.9
(0.4)
2.0
42.5
-
1.6
-
77.7
255.1
(4.2)
Total capital maintenance excluding third party services
108.7
173.8
44.5
1.6
328.6
Total operating costs
153.6
274.7
75.7
24.3
528.3
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Cost allocations for operating costs relating to wholesale- water and sewerage
Expenditure line item
Cost
Driver
Allocation Basis
Operating expenditure (excluding third party
services)
Power
B
Direct costs are charged to the individual sites which are then apportioned across the business
units based on assessment by production managers at each site.
Income treated as negative expenditure
A
Direct cost
Service charges
A
Direct cost
Bulk supply imports
A
Direct cost
Employment costs
B
Direct costs are charged to the individual sites which are then apportioned across the business
units based on assessment by production managers at each site.
Hired and contracted services
B
Direct costs are charged to the individual sites which are then apportioned across the business
units based on assessment by production managers at each site.
Associated companies
B
Direct costs are charged to the individual sites which are then apportioned across the business
units based on assessment by production managers at each site.
Materials and consumables
B
Direct costs are charged to the individual sites which are then apportioned across the business
units based on assessment by production managers at each site.
Other direct costs
B
Direct costs are charged to the individual sites which are then apportioned across the business
units based on assessment by production managers at each site.
Other operating expenditure:
General and support expenditure
C/D
Direct general and support costs are allocated to business units’ pro-rata to the level of direct
costs for each business unit.
Indirect general and support costs are allocated across the relevant business unit using the
most appropriate driver in accordance with regulatory guidance.
Costs are allocated directly across water, sewerage and retail on a proportional allocation
basis (labs and water quality costs are allocated based on the number of samples taken within
each activity and transport costs are apportioned based on fleet volumes for each service
area). Costs are then apportioned across the business units’ pro-rata to the level of direct
costs for each business unit.
Scientific services
D
Other business activities
C
Regulatory costs are allocated equally across the 10 business units.
Meter maintenance/installation non capex
A
Direct transfer of costs from retail to wholesale treated water distribution.
C
Rates are split proportionally based on the Gross Modern Equivalent Asset Value (GMEAV) of
those assets attracting rates.
B/D
If the exceptional item relates to a water, sewerage or retail activity then costs are allocated to
that service area and apportioned across the business units based on the direct costs for those
business units. If the exceptional item relates to a support activity then the cost is apportioned
across all 3 service areas based on the level of direct costs for each business unit.
Local authority rates
Exceptional items
Capital maintenance (excluding third party
services)
Infrastructure renewals charge
Current cost depreciation
Amortisation of deferred credits
A
Direct cost to the business unit from allocations based on investment categories assigned to
each infrastructure project, in the Investment Management System by the project manager.
A/C
Direct cost to business units based on the service area field of the SAP fixed asset register
with the exception of Management and General business activity which is allocated across
business units based on appropriate cost drivers.
A
Direct cost to business units based on the service area field of the SAP fixed asset register.
B
All third party operating expenditure relates to the water service and is allocated 100% to
water.
Third party services
Operating expenditure
Current cost depreciation
A/C
Direct cost to business units based on the service area field of the SAP fixed asset register
with the exception of Management and General business activity which is allocated across
business units based on appropriate cost drivers.
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Appendix 2 –Operating cost analysis retail and associated cost allocations
Operating cost analysis for the 12 months ended 31 March 2013 (retail business only)
Household
£m
Nonhousehold
£m
Total
£m
26.6
12.3
57.9
5.8
10.9
0.3
0.2
4.6
3.3
6.1
2.1
2.6
0.1
0.1
31.2
15.6
64.0
7.9
13.5
0.4
0.3
114.0
18.9
132.9
Capital maintenance
Current cost depreciation
15.7
1.4
17.1
Total capital maintenance
15.7
1.4
17.1
129.7
20.3
150.0
43.7
7.3
51.0
Operating expenditure
Customer services
Debt management
Doubtful debts
Meter reading
Other operating expenditure
Local authority rates
Exceptional items
Total operating expenditure
Total operating costs
Debt written off
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Cost allocations for operating costs relating to retail
Expenditure line item
Cost
Driver
Allocation Basis
Operating expenditure
Customer services:
Billing
Payment handling, remittance and cash handling
Charitable trust donations
Vulnerable customer schemes
Non network customer enquiries and complaints
Network customer enquiries and complaints
Debt management
Direct costs relating to the retail service are allocated between household and nonhousehold based on number of bills issued.
In addition there are specific retail costs that need to be apportioned across certain retail
activities. These are allocated to the activity based on the proportion of direct costs and
then allocated between household and non-household based on number of bills issued.
B/C
Direct costs relating to the retail service are allocated between household and nonhousehold based on number of bills issued.
In addition there are specific retail costs that need to be apportioned across certain retail
activities. These are allocated to the activity based on the proportion of direct costs and
then allocated between household and non-household based on number of bills issued.
B/C
B
Direct costs relating to the retail service are wholly attributable to household
B/C
Direct costs relating to the retail service are wholly attributable to household.
In addition there are specific retail costs that need to be apportioned across certain retail
activities. These are allocated to the activity based on the proportion of direct costs and
then allocated 100% to household.
B/C
Direct costs relating to the retail service are allocated between household and nonhousehold based on number of customers.
In addition there are specific retail costs that need to be apportioned across certain retail
activities. These are allocated to the activity based on the proportion of direct costs and
then allocated between household and non-household based on number of customers.
B
Direct transfer of activity related costs from wholesale to retail. Costs are then allocated
between household and non-household based on number of customers.
Direct costs relating to the retail service are allocated between household and nonhousehold based on the split of debt data from Table 6a of the June Return (JR).
In addition there are specific retail costs that need to be apportioned across certain retail
activities. These are then allocated between household and non-household based on the
split of debt data from Table 6a of the June Return (JR).
Direct costs are allocated between household and non-household based on the bad debt
model calculation.
Direct costs are allocated between household and non-household based on the actual
number of meter reads.
B/C
Doubtful debts
B
Meter reading
B
Other operating expenditure
Demand side water efficiency initiatives
B
Customer side leaks
C
General and support expenditure
D
Other business activities
C
Exceptional items
Costs are allocated based on management assessment of work completed and wholly
attributed to household.
Direct general and support costs are allocated across the business units’ pro-rata to the
level of direct costs for each business unit.
Indirect general and support costs are allocated across the relevant business unit using
the most appropriate driver in accordance with regulatory guidance.
C/D
Scientific services
Local authority rates
Direct costs are allocated between household and non-household based on the number
of water efficiency devices fitted.
Costs are allocated directly across water, sewerage and retail on a proportional allocation
basis (for labs and water quality costs are allocated based on the number of samples
taken within each activity and transport costs are apportioned based on fleet volumes for
each service area). Costs are then apportioned across the business units’ pro-rata to the
level of direct costs for household and non-household.
Regulatory costs are allocated equally across the 10 business units.
Rates for sites specifically used by retail are allocated based on the number of desks
occupied. These are then allocated between household and non-household based the
proportion of direct costs.
If the exceptional item relates to a water, sewerage or retail activity then costs are
allocated to that service area and apportioned across the business units based on the
direct costs for those business units. If the exceptional item relates to a support activity
then the cost is apportioned across all 3 service areas based on the level of direct costs
for each business unit.
D
B/D
Capital maintenance
Current cost depreciation
Debt written off
Direct cost to business units based on the service area field of the SAP fixed asset
register with the exception of Management and General business activity which is
allocated across household and non-household based on number of properties billed.
A/C
Direct costs are allocated between household and non-household based on the bad debt
model calculation.
B
15
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Appendix 3 –Current cost analysis of fixed assets
Current cost analysis of fixed assets – Water
Water
Resources
£m
Raw water
distribution
£m
Water
Treatment
£m
Water
Treated
distribution
£m
Water
sub-total
£m
Non-infrastructure assets
Gross replacement cost
At 1 April 2012
Reclassification adjustment
RPI adjustment
Disposals
Additions
At 31 March 2013
484.9
7.1
15.9
(3.5)
15.9
520.3
82.0
1.1
2.7
(1.6)
1.0
85.2
2,210.4
(3.8)
71.4
(28.4)
79.6
2,329.2
2,265.3
235.1
82.0
(25.9)
47.8
2,604.3
5,042.6
239.5
172.0
(59.4)
144.3
5,539.0
Depreciation
At 1 April 2012
Reclassification adjustment
RPI adjustment
Disposals
Charge for year
At 31 March 2013
(233.1)
(4.2)
(7.6)
3.1
(16.4)
(258.2)
(46.6)
(0.1)
(1.5)
1.6
(2.3)
(48.9)
(1,184.5)
3.1
(37.9)
27.4
(63.3)
(1,255.2)
(1,194.2)
(167.0)
(44.4)
24.1
(76.8)
(1,458.3)
(2,658.4)
(168.2)
(91.4)
56.2
(158.8)
(3,020.6)
Net book amount at 31 March 2013
262.1
36.3
1,074.0
1,146.0
2,518.4
Net book amount at 1 April 2012
251.8
35.4
1,025.9
1,071.1
2,384.2
Infrastructure assets
Gross replacement cost
At 1 April 2012
Reclassification adjustment
RPI adjustment
Disposals
Additions
5,190.3
(0.6)
170.3
4.6
1,477.2
(0.1)
48.5
-
8.4
(1.1)
0.2
8.9
9,178.2
1.2
300.9
(0.1)
51.4
15,854.1
(0.6)
519.9
(0.1)
64.9
At 31 March 2013
5,364.6
1,525.6
16.4
9,531.6
16,438.2
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Current cost analysis of fixed assets – Sewerage
Sewage
collection
£m
Sewage
treatment
£m
Sludge
treatment
£m
Sludge
disposal
£m
Sewerage
sub-total
£m
Non-infrastructure assets
Gross replacement cost
At 1 April 2012
Transfer of private pumping stations1
Reclassification adjustment
RPI adjustment
Disposals
Additions
1,093.6
6.8
7.7
35.3
(16.6)
82.8
5,418.6
(2.1)
175.3
(58.2)
174.4
1,507.1
5.8
48.4
(33.7)
22.6
19.8
(2.1)
0.6
(0.7)
6.9
8,039.1
6.8
9.3
259.6
(109.2)
286.7
At 31 March 2013
1,209.6
5,708.0
1,550.2
24.5
8,492.3
Depreciation
At 1 April 2012
Transfer of private pumping stations1
Reclassification adjustment
RPI adjustment
Disposals
Charge for year
(551.7)
(4.6)
(0.8)
(17.8)
15.7
(38.0)
(2,844.6)
6.3
(91.7)
52.1
(173.0)
(800.7)
(6.2)
(25.5)
32.7
(42.5)
(5.2)
(0.6)
(0.2)
0.4
(1.6)
(4,202.2)
(4.6)
(1.3)
(135.2)
100.9
(255.1)
At 31 March 2013
(597.2)
(3,050.9)
(842.2)
(7.2)
(4,497.5)
Net book amount at 31 March 2013
612.4
2,657.1
708.0
17.3
3,994.8
Net book amount at 1 April 2012
541.9
2,574.0
706.4
14.6
3,836.9
Infrastructure assets
Gross replacement cost
At 1 April 2012
Reclassification adjustment
RPI adjustment
Disposals
Additions
53,515.7
(2.4)
1,755.2
(0.3)
169.9
287.2
9.4
3.4
35.7
0.2
1.2
-
-
53,838.6
(2.2)
1,765.8
(0.3)
173.3
At 31 March 2013
55,438.1
300.0
37.1
-
55,775.2
Note:
1
- The ownership of, and responsibility for, certain private sewer pumping stations in UUW’s region were transferred to the company during 201213. To meet the requirements of RAG1.05, these assets have been included in fixed assets at their modern equivalent asset (MEA) value with a
corresponding credit to third party contributions. The gross MEA value is based on construction unit costs for similar pumping stations within the
public sewer network. The net MEA value is based on an engineering assessment of the remaining service potential of these assets. This
valuation will be reviewed as further data becomes available.
17
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Current cost analysis of fixed assets – Wholesale total
Water
sub-total
£m
Sewerage
sub-total
£m
Wholesale
total
£m
Non-infrastructure assets
Gross replacement cost
At 1 April 2012
AMP adjustment
Reclassification adjustment
RPI adjustment
Disposals
Additions
At 31 March 2013
5,042.6
239.5
172.0
(59.4)
144.3
5,539.0
8,039.1
6.8
9.3
259.6
(109.2)
286.7
8,492.3
13,081.7
6.8
248.8
431.6
(168.6)
431.0
14,031.3
Depreciation
At 1 April 2012
AMP adjustment
Reclassification adjustment
RPI adjustment
Disposals
Charge for year
At 31 March 2013
(2,658.4)
(168.2)
(91.4)
56.2
(158.8)
(3,020.6)
(4,202.2)
(4.6)
(1.3)
(135.2)
100.9
(255.1)
(4,497.5)
(6,860.6)
(4.6)
(169.5)
(226.6)
157.1
(413.9)
(7,518.1)
Net book amount at 31 March 2013
2,518.4
3,994.8
6,513.2
Net book amount at 1 April 2012
2,384.2
3,836.9
6,221.1
Infrastructure assets
Gross replacement cost
As at 1 April 2012
Reclassification adjustment
RPI adjustment
Disposals
Additions
15,854.1
(0.6)
519.9
(0.1)
64.9
53,838.6
(2.2)
1,765.8
(0.3)
173.3
69,692.7
(2.8)
2,285.7
(0.4)
238.2
At 31 March 2013
16,438.2
55,775.2
72,213.4
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Current cost analysis of fixed assets – Retail
Household
£m
Nonhousehold
£m
Total
£m
Non infrastructure assets
Gross replacement cost
At 1 April 2012
Reclassification adjustment
RPI adjustment
Disposals
Additions
At 31 March 2013
321.3
(154.6)
4.0
(29.5)
15.9
157.1
107.1
(91.0)
0.4
(2.3)
2.5
16.7
428.4
(245.6)
4.4
(31.8)
18.4
173.8
Depreciation
At 1 April 2012
Reclassification adjustment
RPI adjustment
Disposals
Charge for year
At 31 March 2013
(198.3)
94.8
(2.5)
28.8
(15.7)
(92.9)
(83.4)
74.7
(0.2)
2.1
(1.4)
(8.2)
(281.7)
169.5
(2.7)
30.9
(17.1)
(101.1)
64.2
8.5
72.7
123.0
23.7
146.7
Net book amount at 31 March 2013
Net book amount at 1 April 2012
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