March 2020 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

Stretch

or snap?

Has Ofwat delivered a Final Determination package for its price review that is challenging but achievable? Or might some firms feel they are under too much tension to tie it up now?

Take the high road

Net zero doesn’t cost nothing. Scotland’s water sector is aligned behind modest price rises to do the right thing by future generations. And to get there, it couldn’t continue with regulation-as-usual.

The Water Industry Commission for Scotland has concluded that average annual water bills have to increase by at least 1% and, potentially, up to 2% above the rate of Consumer Price Inflation. The increase would allow capital expenditure to grow 5-12% more in the next regulatory control than in the latter half of the current one.

In fact: “The Commission considers that increases in the top half of that [+1-2%] range are most consistent with the long-term challenges that Scottish Water has to meet.” Moreover that: “It would currently be prudent to expect similar charge increases in the next Strategic Review of Charges after 2027.” 

I feel comfortable with the idea that we are going to need to invest more.
It’s very difficult to make any case otherwise.”

WICS

According to the Commission: “It is not about minimising charges in the next regulatory control period and leaving future customers to pay higher prices. This would be inconsistent with the Commission’s duty to future customers.”

This way to the CMA

Four PR19 appeals – three on common grounds – will put water regulation to the test as

well as company price and

service packages.

                             Ofwat has prioritised cutting bills over increasing                                    investment. This is out of kilter with the                                                          preferences expressed by customers;                                                         jeopardises water and wastewater resilience in                                      the longer term; and will force companies down                                      the road of solutions that are cheaper in the short                                    term but less sustainable, less beneficial and more                                expensive in the long term. Despite Ofwat’s insistence                           that it did not target bill cuts in its FDs, privately many                            believe this was always the end goal – perhaps because                       it is politically attractive to "avenge" customers and to "punish" companies for past failings.

                                    Shareholders aren’t going to take halved returns lying down, and want to push back on some of the principles Ofwat has established at PR19 and that could, if left

                                                  unchallenged, come back to bite them even more in the future.

 

The details remain to be seen, but we might reasonably expect companies to challenge penalties for average performers; no dividend for the notional company; advancing revenues as a strategy for financeability; what one commentator called “the cost / service disconnect” whereby the quality of service provided is not taken into account in the funding allowed for it – as well of course as the cost of capital itself. 

#water

Love it or hate it, social media is a corporate landscape. fixture. Anastasia Maseychik looks at how water firms are faring and how they could get more likes.

You’d have to be living in a cave not to appreciate the growing power and importance of social media. Since its dawn people have used social media to become superstars from their bedrooms and create public movements which have changed politics. It has transformed the landscape of both businesses and everyday lives and will likely to continue to grow and change in the coming years.

But what social media is happening in water? Is the sector embracing the potential of new social technology? Or is it missing a trick? We clicked and swiped, spoke to comms teams and interviewed a social media expert to find out more. 

Facebook and Twitter are the must-have platforms in the water sector, with Twitter showing the highest mean number of followers. It’s the platform where companies post most regularly, with all but three companies posting at least five times per week and a quarter of all water companies posting more than 30 times per week. 

The purpose motive 

Business is well placed to drive social change, and doing so would bring corporate as well as societal benefits. Isabel Kelly offers practical advice to water companies who want to do more.

Is there genuinely growing support for the idea that financial profit isn’t the only thing a business should be concerned about? And are those ideas really being put into practice?

 

There’s plenty of talk about it in business communities right now, which suggests social and environmental purpose is going mainstream. The concept has certainly taken hold in water, where companies are becoming well versed in social contract conversations.

But, in an expert’s opinion, how much is real, and how much is it just warm words? “I think something has shifted,” says Isabel Kelly, founder of Profit with Purpose, an organisation which seeks to support businesses to get behind social purpose in a meaningful and sustainable way. “The focus on profit at any cost is diminishing,” she asserts. 

In the dark…

With less than a year to go before the OEP is up and running, whether water companies are one of the ‘public authorities’ it will oversee remains unclear. 

Defra’s lead on the Office of Environmental Protection (OEP) indicated at a conference last month that water companies will not, in practical terms at least, be directly subject to the powers of the new environmental watchdog that is being set up by the Environment Bill to police green compliance after Brexit.

The OEP’s focus in scrutinising, holding to account, dealing with complaints and taking enforcement action will be on "public authorities" (rather than businesses or individuals) that fail to comply with environmental law.  Whether or not water companies will be defined as "public authorities" is a live debate because, as Jon Taylor, Defra’s OEP policy team leader – Environmental Principles and Oversight, explained, “Statutory authorities [like water companies] do sit somewhere in the middle because they can be private businesses, but they have public functions”. 

We do not expect duplications or extra burdens for sectors like the water companies.” Jon Taylor Defra OEP policy team lead 
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
relationships

Thompson: "personalised service" to members.

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

 

It's the eye on the competition.

Full Stream ahead

A torrent of new customers from Yorkshire has buoyed Business Stream to number two spot in the market. Chief, Jo Dow says scale is essential in what continues to be a really challenging environment.

Business Stream is in the first few months of managing a much expanded customer base. On 1 October, it took legal ownership of 140,000 customers from Yorkshire Water Business Services and Three Sixty, having announced the takeover about a year ago.

Chief executive, Jo Dow says it’s been “an exciting few months.” i

 

The deal has taken Business Stream to second largest water retailer in the UK. And the company has embarked on a new service delivery path. Under the agreement, Three Sixty will continue to serve customers over an extended transition period, “making it business as usual for customers in the Yorkshire region,” Dow observes.

Dow: business as usual.

She says the approach is “very much based on learnings from the Southern experience”. Business Stream bought Southern Water’s business accounts and worked to a tight timetable to move them all over before the market opened on 1 April 2017.

Wholesalers poised to go under retailer scrutiny 

A new measure to chart how well wholesalers are performing for retailers, will be in place from 1 April 

The change, formally proposed jointly by Thames Water and Castle Water, put forward a new R-MeX mechanism which has been collaboratively produced by trading parties under the auspices of the Retailer Wholesaler Group. This will be administered by MOSL. Retailers will have equal weighting, with account not taken of the

number of supply points they have with the wholesaler.The results will be fed back to wholesalers in detail and reported publicly in summary by MOSL, via a table on its website. This will enable comparison of wholesaler performance over time, through calculating mean average scores for each wholesaler. Ofwat asked MOSL to endeavour to publish the results of the first survey “(including overall company scores as well as composite company scores) as soon as possible”.

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

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