The loss cause

The newest weapon in the sector’s leakage armoury is collective commitment. PIC leakage leads Pauline Walsh, Peter Simpson and Bob Taylor explain how collaboration will help unlock innovation.

For about six years after its post privatisation peak in 1994, leakage in England and Wales fell from about 5,000Ml a day to about 3,000Ml a day. Since the turn of the millennium there has been little change.

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Nearly two decades after that purple patch of leakage reduction came to its end,

THE WATER REPORT caught up with three water company chiefs who were opening the Leakage Conference 2019, the 20th annual gathering of the UK’s leakage community. This was in their capacity as the leads for the industry's Public Interest Commitment on leakage.

Before we focused all of our attention on fixing our own networks. We’re

getting to the end of that now and seeing more happening on customers’ apparatus.”

If we could get better at documenting and standardising our processes, it

would be easier to learn, share and quickly implement new ideas and ways of working.”

“This is an industry commitment we’ve made and the important thing about

that is, it’s a new way to unlock collaboration and innovation between companies

Fail safe

Bluewave is Southern Water's internal innovation consultancy, bringing positive disruption and containing risk while proving concepts.

For a sector that has long been associated with aversion to risk, some quarters of the water industry have, in recent years, been showing a lively interest in the inherently risky business of bringing innovation into their businesses.

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But how do water companies foster innovation under a regulatory regime whose price controls offer little latitude for the failure that is all but an inevitable element of any bid to innovate? The simple answer is: don’t fail. A more realistic one might be: keep the failures small. Enter Southern Water’s head of innovation, Lauren Tyler. 

She arrived at the company in March this year with a bag of risk-reducing innovation techniques that are lingua franca in industries such as telecoms, financial services and fast moving consumer goods for which she has worked in the past.They come with less-than revelatory names like design thinking, agile scrum, and lean start-up – but at the core is a lot of common sense.

The principle is to experiment with innovative ideas at a level where the cost of failure is low in time and money but where the findings are meaningful.

A question of duty

Fletcher: hints future

UK water returns are represented at the appointee level, that is including the allowed return for the wholesale activities as well as the net margin for household  retail services. For UK water, the chart assumes a full switch to the consumer price index (including housing costs) of inflation for 2025 onwards. The solid lines show cash returns,including the switch in inflation measures, wile the dotted lines indicate real returns on a like-for-like basis. Sources: Ofgem, Ofwat, Moody’s Investors Service.

While PR19 negotiations continue, Moody’s says Ofwat’s current definition of its financeability duty leaves investment grade ratings at risk – and CMA appeals a realistic prospect

With PR19 final determinations (FDs) now less than two months off, prospects of multiple Competition and Markets Authority (CMA) appeals continue to loom large, with financeability very much centre stage.

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On top of the many water company draft determination (DD) responses which spelled out that boards could not give assurance of financeability under the proposed terms, Moody’s has asserted that a downward shift in the average rating is on the cards.

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The agency has negative outlooks for 80% of the water companies it rates, meaning it sees an elevated risk of downgrades. According to its latest publication: “The sector as a whole has also had a negative outlook since January 2018, and there is a clear risk that the average sector rating of Baa1 today could fall to Baa2, which would be below the strong investment-grade rating level that regulators

were focusing on in the past.” 

Strategy for a burning platform

Ofwat elevates public purpose and the environment in its regulatory plan for a “new normal”. 

Ofwat has published a strategy to reposition economic regulation for what chief executive Rachel Fletcher has called the “new normal”. Time to act, together combines upping performance today with the elevation of the environment as a priority and requiring companies to explicitly serve a greater public purpose.

Speaking at Moody’s Water and Regulated Networks conference the day after the strategy launch, Fletcher explained the rationale. “It’s not an exaggeration to say the water industry is facing a burning platform,” she said, listing challenges including climate change, population growth, increasing environmental consciousness, soaring customer expectations and legitimacy – which along with impacting on public trust also poses a risk to attracting finance and skills.

Against that backdrop, she said there was “no room for complacency or turning a blind eye”; in fact, the challenges must be risen to decisively and urgently. 

If the company is out of balance with the community and the environment, in the long term, that’s not good for shareholders. Peter Simpson

A cost efficiency gap persists for slow track firms in Ofwat’s draft determinations.

relationships

Thompson: "personalised service" to members.

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Bob Taylor

Pauline Walsh

Bob Taylor