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May 2024
Issue 104

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. SUBSCRIBE HERE

PUBLISHED BY

KEW PLACE

SSWAN song

As he steps down from Wessex Water after 36 years as chief executive, Colin Skellett talks about securing Sustainable Solutions for Water and Nature in the future, rather than pouring over the past.

In water industry terms, Colin Skellett has seen and done it all. He has seen umpteen ministers, regulators and other company bosses come and go. But when we meet to mark the announcement that he is to hand over the reins as chief executive of Wessex Water after more than 36 years, it is the future that Skellett wants to talk about, not the past.  

 

Skellett will stay on as group chief executive with overall responsibility for all of parent company YTL’s UK activities, including the water operation. But he says he is planning to be “hands off” at Wessex when he hands the tiller to Ruth Jefferson who is currently Wessex’s chief compliance officer and group general counsel. 

 

“I think the industry is going to change to reflect the focus we now have on compliance and on the real detail of regulation,’ says Skellett. “If you look at the guidance that's coming out, at all the things that are happening, I think water companies are going to move much more towards being organisations where compliance has to be absolutely the top priority. And it's going to need somebody with that mindset.” 

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Going forward, we have to recognise that if you’ve got things you’re supposed to do,
you need to do them and demonstrate that they’ve been done.”

He reflects: “The traditional approach was a more collegiate view of ‘are we doing the right thing for the environment’ rather than ‘are we focused on the detail of regulation?’ Going forward, we have to recognise that if you’ve got things you’re supposed to do, you need to do them and demonstrate that they’ve been done.” 

High debt: a symptom not the cause

Thames has used debt to fill the gap between what it spends and what it takes in bills, Company direcrtor, Cathryn Ross told the All Party Parliamentary Water Group. It needs to be more efficient, but investability problems run deeper.

Speaking to the All Party Parliamentary Water Group (APPWG) at a special session early this month onThames Water. the firm's strategy and external affairs director, Cathryn Ross, advised members not to believe everything they read.

 

Amid a media frenzy – with a twin focus on operational failings and financial fragility, including contagion risk for wider investment – Ross told Parliamentarians Thames was not:

  • facing imminent collapse (it has £2.4bn in cash, enough to operate until May 2025);

  • seeking to hike bills or build the Abingdon reservoir to save its financial skin (respectively these are to pay for higher operating costs/new investment and to shore up water resources, with the reservoir to be outsourced and off balance sheet);

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  • spilling more untreated sewage to save money (it’s the rain);

  • “locked in crisis talks” with Ofwat (it has answered 266 business plan queries and had many meetings, but these are price review negotiations); and

  • has not had its business plan rejected and had to re-submit it (most companies have had to update their plans as conversations have continued with regulators since October). 

 

So, what is the truth of Thames’ situation, in Ross’ eyes? 

 

The company, she told the APPWG, is facing “really significant challenges as a business, so let’s not hide that”.

 

In operational terms, she said these relate to:

  • asset condition – the average age of a Thames asset is 79 years – over 20 years older than the industry average (56). 

  • geography – the region is flat, driving high pumping costs, which has been especially challenging since energy prices have been high. 

  • demographic trends – urbanisation has caused a “massive surface water drainage issue”. 

  • climate change – from two months of rain in an hour, to a week of 40º heat: weather extremes are enormously challenging. 

Productivity prospects at PR24

Regulation does not insulate water companies from UK economy gloom, and frontier shift expectations in the PR24 determinations should recognise that, a new Economic Insight study finds. 

Has anything happened in the past year to change views about water companies’ productivity in AMP8?

 

That question was set for Economic Insight by a group of eight water companies, as a follow up to its April 2023 research which identified the scope for frontier shift improvements in AMP8 to be somewhere within the  0.3 – 0.7% per annum range.

Economic Insight's answer, set out in a new paper, Further evidence on frontier shift at PR24, was a resounding “no”. None of the evidence it examined suggested any change to the range that it assessed in 2023; on the contrary, if anything the latest data indicates that Ofwat should look to the low end of the original range in setting its PR24 determinations as the outlook has become more pessimistic rather than less over the past 12 months.

Best of both worlds 

Independent Challenge Groups have added value, but have the potential to add more. Indepen suggests a future framework that marries flexibility with mandatory elements and best practice.

One of the many things Ofwat will give a view on in its PR24 determinations is water company customer challenge arrangements. According to independent research commissioned by the Consumer Council for Water (CCW), the Independent Challenge Groups (ICGs) that have operated across the industry in the run up to PR24 have proved valuable in scrutinising and challenging their host companies as they have produced their business plans.

 

However, some ICGs have proved much more valuable than others. According to the report: “Customers are currently exposed to a postcode lottery regarding the quality of customer challenge that their water company receives.” There is not a league table or anything of that nature; indeed the research did not set out to compare ICGs against each other. Instead it shines a light on factors that support effectiveness, and will give Ofwat insight into where ICGs were most able to influence their companies and where issues were encountered, as well as providing lessons for future customer challenge arrangements. 

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Click to enlarge

Customers are currently exposed to a postcode lottery in the quality of customer
challenge that their water company receives.”

On a mission

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UKWIR has a new research strategy which has broad social relevance, says chief executive, Steve Kaye. It seeks, he says to challenge the simplified media narrative about water with hard facts and compelling evidence.

At the start of 2023, UK Water Industry Research’s (UKWIR) chief executive, Steve Kaye, told THE WATER REPORT that his organisation’s intention was to become more outward-facing. It wanted to proactively communicate industry research outcomes externally, and to welcome a greater diversity of voices to its table.

With some funding from non-water company sources and academics helping to shape its research programme, the thinking was that UKWIR would be better placed to take a broader approach while continuing to serve its water company members’ interests. It could add evidence-based communications to ground public discourse in facts to its provision of essential collaborative research. In so doing, it could play a part in rebalancing a very negative narrative about water.

 

Kaye and his team have been working on this agenda since, and have formalised the approach in a new, more outward-facing research strategy. It sets out seven key themes that will be UKWIR’s focus areas for the future. These align with both the UN Sustainable Development Goals and the UK 2050 Water Innovation Strategy. UKWIR describes each theme as “mission-based” and centred on providing value to society and the environment. 

Amnesia or déjà vu?

Scott Reid from ICS Consulting asks whether Ofwat will break the pricing cycles of the past at PR24 or let history repeat itself.

PR24 was supposed to be different. It is supposed to be the water industry “Creating tomorrow, together.”  But with a little pause for reflection, the current feeling is one of déjà vu.

 

Back in October 2023, the submission of the PR24 business plans provided the first clue as to what companies, at least, believe needs to be created for the 2025-30 period (AMP8) and beyond. And it was a lot. A lot more. 

 

The biggest investment programme ever matched by the ambition to provide the best service to customers and environment ever. There was a near three times increase in new improvements (largely for the environment) equating to £40bn of new expenditure. And there was the circa 30% increase in average water and sewerage bills needed to pay for this and other increases like the 15% increase in base spending. Since the original submissions in October 2023, company updates to their business plans mean these proposed increases for expenditures and bills are slightly higher at industry level.

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So why the feeling of déjà vu?  Let’s place the PR24 business plan proposals in the context of what has gone before. PR24 looks – at least in terms of the potential impacts for household bills – a lot like PR94 (30 years ago) and PR04 (20 years ago).  And looking with hindsight at the reviews from PR94 to PR19 it becomes obvious that water prices have moved in a pretty cyclical fashion.  The question to ask looking ahead to the PR24 draft determinations is whether these cycles are about to repeat?

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

It's the eye on the competition.

Skin in the game

Retailers and wholesalers have different, but aligned, interests in making the smart meter rollout a success, as their representatives on the Strategic Panel explain.

The Strategic Panel's national metering strategy for the non-household market, published in March, aims to "maximise rollout speed, efficiency and transparency."

 

It recommends a framework and identifies opportunities for standardisation among wholesalers, and it addresses how wholesalers and retailers should work together, share data and provide a good level of service to customers. 

 

A little over a month on, two members of the panel who produced the strategy reflect on it and how it has gone down with the market. They are chief executive of Wave, Lucy Darch, and strategy and Southern Water regulation director, Chris Offer.

Talking to the two, it soon becomes clear that wholesalers and retailers come at the strategy from different places – they have different drivers, needs and priorities – but they have a common interest in a successful smart meter deployment, both for their own and each other’s benefit. 

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Darch: until her term ended recently, she represented retailers on the panel and played a particularly active role in the metering subset.

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Offer: haveing recently joined Southern Water from Yorkshire Water, Offer now represents wholesalers on the panel. 

In the first flush

Wave and Infersens have embarked on a trial to overhaul legionella risk management practices through technological innovation. Head of operations at the water retailer, Oli Shelley, tells the story so far.

Though essential, there has historically been a hidden water cost associated with Legionella Risk Management as a result of the water usage involved. While we have always understood the necessity of these practices, we have observed a high degree of associated wastefulness, sparking us to look for a more efficient solution.

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Shelley: wastefulness has sparked innovation

There are currently over 7m business and public sector premises in England manually carrying out weekly and monthly water monitoring regimes, as part of their legionella risk strategies. This includes running taps while taking temperatures and flushing out taps and systems on top of regular daily use to avoid the Legionella growth conditions of lukewarm and stagnating water.

Legionella risk management in businesses and public sector
organisations across the UKcould account for up to 8% of totalnon-household consumption.”

As it stands, flushing – a particularly water-intensive process – is only normally required in little-used outlets to prevent stagnation. But most consumers have limited awareness of where water has been used, so businesses err on the side of caution and will flush taps regardless.

Infersens estimated that legionella risk management in businesses and public sector organisations across the UK could account for up to 8% of total non-household consumption.

CONTENTS May 2024 full contents of the magazine  

INTERVIEW Colin Skellett champions change as he steps down at Wessex. 

 

REPORT Thames: fact and fiction 

 

REPORT Frontier shift: caution needed.

 

INDUSTRY COMMENT Will Ofwat follow or break historic bill patterns?

 

REPORT Pennon invited to offer SES remedies.

 

REPORT How effective were the ICGs? 

 

INTERVIEW Steve Kaye on UKWIR’s new strategy.

 

NEWS REVIEW Trust takes another dive.

NEWS REVIEW Governments confirm wipes ban.

NEWS REVIEW EA opens whistleblowing portal.

 

INDUSTRY COMMENT A water quality monitoring blueprint.

 

NEWS REVIEW US sets drinking water PFAS limits.

 

NEWS REVIEW Developers plot path to water efficient new homes. 

 

INDUSTRY COMMENT Waterfall returns for season four.

 

NEWS REVIEW Mega farms accused of untethered pollution.

 

INDUSTRY COMMENT Software innovation for AMP8. 

 

NEWS REVIEW WICS appoints an interim CEO.

 

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

It's the eye on the competition.

CompetitionWatch_edited.jpg

INTERVIEW Retailers and wholesalers reflect on the NHH national
                     metering strategy.

 

INDUSTRY COMMENT Water efficiency and Legionella risk management.

REPORT Global standards needed for business water stewardship.

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