January 2021 issue

List of contents

This website includes excerpts from the latest edition of THE WATER REPORT

Full coverage is available only in the print and digital editions of the magazine.

PUBLISHED BY

KEW PLACE

Hints on the way forward

South East Water chief, David Hinton, is looking to company culture to deliver AMP7 with society and the environment in mind.

After more than 18 years working at the company in various  roles,  David Hinton's early days as chief executive of South East Water during a pandemic and a heat wave were not what he imagined they might be: "I spent most of it in my shed," he explains.

Looking ahead Hinton says his focus for 2021 is on embedding the positive changes implemented in 2020 – such as flexible and remote working – while getting on with delivering AMP7 and – crucially – focusing hard on company culture.

 

New chiefs, he says, “often have a desire to go around and kick the tyres of the business." but he already know the business. "I’ve been getting into serious delivery mode – but also bringing a cultural piece to it – operating as a responsible business and developing the resilient customer approach."

South East’s whole AMP7 business plan is about “customer satisfaction responsibly delivered” he says.

 

in November, the compnay incorporated a new purpose statement into its Articles of Association: “To provide today’s public water service and create tomorrow’s water supply solutions, fairly and responsibly, working with others to help society and the environment to thrive,”  Hinton says.

“I think of this as articulating the culture in the strategy…the culture of the business is already socially focused, looking after the vulnerable, looking after the environment. The guys and girls on the ground, that’s what they’re doing all the time.”

Despite final decisions from the CMA outstanding, Ofwat has launched work on the design of future price reviews.

A quest for better regulation

Just before Christmas, Ofwat kicked off a programme of work around the future of water regulation and the design of future price reviews. The move is widely welcomed for being prompt after the start of AMP7. True, the fact that PR19 has not yet concluded for all water companies has raised eyebrows.

 

With final decisions from the Competition and Markets Authority  on the redeterminations for Yorkshire Water, Northumbrian Water, Bristol Water and Anglian Water expected in February, you could be forgiven for wondering whether it would have been better to wait a couple more months so the outcome of those cases could have been fully fed in.

But setting that aside, there is plenty to be getting on with from four publications Ofwat put out in December. They build on work already underway that will have a bearing on future price reviews – notably on reform of the environment programme WINEP and research on asset resilience.

Two of the publications sought new input from water companies and other stakeholders: one on the experience of PR14 and the other on upcoming challenges and opportunities for the sector. The latter poses a dozen specific questions and cites profound challenges in the coming years and decades. 

Public value may be in the DNA of the water industry but Ofwat is eager to see it expressed in the sector's culture –  including the part played by regulation.

An upward spiral

Ofwat wants to see public value thinking “permeate the culture of the sector more deeply and systematically, and for the question to be asked at every meaningful point, whether core services can be delivered differently in a way that creates greater public value”. 

 

To that end, it is considering how it can monitor water company progress on delivering public value and whether there should be a direct role for Ofwat through the regulatory framework.

The regulator shared these thoughts as part of a December discussion paper, accompanied by a report commissioned from Purpose Union and the Impact Institute. It said the essential

nature of the services water companies provide means stakeholders expect company decisions to be driven by a broad range of societal and environmental factors, as well as financial considerations. On top of that, societal expectations are evolving, which means “water companies should expect to do more through their core water and wastewater services to keep pace”. 

 

Ofwat and the Purpose Union and the Impact Institute provided thoughts on where the sector is currently as well as on the approach that might be taken by both companies and regulator for the sector to fulfil its public purpose potential. 

The long game    INDUSTRY COMMENT

Nick Fincham considers adjustments to the regulatory regime to mitigate the perennial risk of under spending.

A lack of focus on serving the long-term interests of customers and the environment has been a matter of abiding concern in the UK water industry.  You might even call it a long-term problem.

 

Over the years, including after each of the past three price control reviews, interested parties have questioned whether long-term considerations have had sufficient attention. After each review, the regulator has resolved to do more to get the balance right:

 

• In PR09, Ofwat mandated companies to write 25-year Strategic Direction Statements, and set their five-year plans in that context.

• In PR14, it introduced Outcome Delivery Incentives on performance targets that included asset health metrics (albeit that such metrics tended to be lagging, not leading, indicators).

• In PR19, among other measures, it laid out a series of expectations on companies as to how they should plan, invest and operate so as to ensure that the water industry would continue to be able to provide a resilient service into the long term.

Long covid           INDUSTRY COMMENT

Annabelle Ong and Emily Nielsen of Frontier Economics report on the sector’s collective effort to understand what changes the pandemic may bring about.

We identified a number of material impacts across the water sector which we then projected over the course of AMP7 on the basis of the three scenarios described above.  The impacts were caused by a shift in consumption from non-household customers to households, social distancing rules and macroeconomic forces. 

The pandemic may have other consequences for the sector but they are more uncertain. We have not projected how these effects might unfold as they are not expected to have a net impact over the AMP due to mitigation and catch-up measures. However, careful monitoring is called for as the fallout may become material depending on the path of the pandemic.

The opportunities mainly relate to adopting and trialling new ways of working. Companies adapted technology in various ways so they could keep operating during lockdown. Some, notably tele-working, have proved successful. However, the effectiveness of the new methods is yet to be fully determined, so the long-run impact on the water sector is unclear. The pandemic also provides an opportunity for water companies to engage with customers on topics including resilience, value for money and support for local communities.  

The opportunities mainly relate to adopting and trialling new ways of working.

will keep you on top of the threats and opportunities emerging from retail and upstream competition.

It's the eye on the competition.

Water-only four and Wessex serve retailers best

MOSL publishes the results of the first survey of how retailers rate wholesalers.

Retailers rated Bristol Water as the best performing wholesaler in the first ever R-MeX survey. Bristol secured an overall service score of 8.5 out of ten and scored very highly across all seven individual service areas measured. It was closely followed by Portsmouth Water and Wessex Water, both of which chalked up an overall service score of eight out of ten.

MOSL commented on the strong performance of water-only companies more generally, with four (Affinity and South East along with Bristol and Portsmouth) appearing in the top five positions. It also noted the area which received the highest scores from retailers was ‘level of engagement and support’, adding: “The comments showed that most retailers felt supported by their wholesalers, however, suggested they needed more regular meetings, increased automation with systems and consist points of contact.”

At the bottom of the table were Thames (6.1), South Staffs and Severn Trent (6.3 each). The industry average overall

service score was 7.4. 

Zero heroes

Waterscan’s self-supply community is targeting zero long unread meters within months.

While the market’s long unread meter (LUM) rate edges upwards, the self-supply community under Waterscan’s wing has an ambition for zero LUMs within a few months.

 

At its Winter Self-Supply Users Forum (SSUF), Waterscan shared data showing self-suppliers’ performance on LUMs is already market leading. But the company, which is managing agent for most self-supply customers, has set its sights on perfection and has mapped out a path to zero long unreads. 

Operations director, Barry Millar, called getting consumption data from meters unread for 12 months or more “the lynchpin” of making the market work better. Moreover, three and a half years on from market opening, he said the “legacy data excuse is probably wearing a bit thin” with customers. Indeed, one SSUF participant remarked: “If the market engages in more accurate regular reads, then everyone can stop talking about historic

data problems and the market can move forward!”

Coping with Covid… continues

Ofwat puts the onus on retailers to engage with customers on Covid as WICS extends its protections and bad debt looms large.

The day after London and the South East entered Tier 4 on 20 December – with the attendant further closure of businesses and workplaces – Ofwat implemented Customer Protection Code of Practice (CPCoP) change proposal CP0009, to provide additional protections to non-household customers impacted by Covid-19 restrictions. 

THE

WATER REPORT

HARD. WATER

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