January 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?

Since many water company boards branded their PR19 draft determinations (DDs) unfinanceable and unrealistic, there have been a couple of key questions kicking around the sector. How far should companies be asked to go on delivery, how fast? How much would Ofwat shift its position by final determination (FD)? Not to mention whether any or many firms would end up at the Competition and Markets Authority.

In the event, Ofwat reduced the overall stretch of its FD package.

 

A predictably lower return was teamed with a moderated efficiency challenge in the form of more base and enhancement totex; eased off expectations on some Performance Commitments (PCs); and some other adjustments, including to Pay-As-You-Go rates to alleviate financeability issues.

We consider the overall challenge across costs, outcomes and the
allowed return on capital is stretching but achievable, and that the final determinations are financeable.” 

Ofwat

Ofwat argued it had arrived at a good place. Not too much stretch to leave companies underfunded, nor too little to leave customers paying too much.

 

“We consider the overall challenge across costs, outcomes and the allowed return on capital is stretching but achievable, and that the final determinations are financeable.” 

The young ones

Water companies need more young people to take the plunge and join the sector. Why aren’t they and what’s it like for young professionals once they are in?

Anastasia Maseychik reports. 

          When we asked  science PhD students if they had ever considered the water sector              as a potential employer, we were met with a resounding ‘no’. None of them had

       encountered the sector in a recruitment capacity or given it a thought.

  Conversations with PhD students suggests the sector has much to do to entice younger workers into water, and that resonates with much broader research and analysis of the   sector. The water industry has ongoing problems with attracting new professionals,                   retaining them and more broadly with a lack of diversity in the workforce – including its             age profile. It needs to attract younger and more diverse people and then

      keep them once they’re in. 

Beast from the East byte back

The Beast from the East was traumatic for much of the water industry, but has accelerated thinking on how to use Big Data to prepare for future menaces.

It is commonly accepted that water companies are swimming in oceans of data. But the usefulness of those facts is often questioned to the point where the sector has been a tad brutally summarised by the acronym, DRIP (data rich, information poor).

 

So when the Smart Water Networks Forum (SWAN) joined forces with Water UK and titled its recent London conference: Big data beats the Beast from the East, it was arguably reasonable to see that as stretch of the imagination. But presentations at the conference covered creditable advances in the industry’s service to its customers in data governance, system design and exploitation of technology.

Don’t make do and mend

IBM-developed "fingerprinting" on leakage found pipe patch up jobs are poor value for money for customers compared with wholesale network replacement.

The water supply system should be looked at as a whole. Calm network operation should be strived for. And wholesale replacement of mains provides far better value than partial replacement where reducing water loss is concerned.

Those were among the key findings of a four-month, data-driven study on leakage conducted by an IBM team earlier this year, which included Michael Nicholson, Wenjia Tang and Donald Taylor.

 

Associate partner Nicholson is first to admit this was “purely a data exercise” and that research is needed to test the above suggestions in the field. But nonetheless, some of the study’s findings are so profound they are very worth sharing at this stage – particularly as they throw new light on an old problem at just the time water companies need it. 

Read the signs

The risk of re-nationalisation has vaporised, but this is no time for relaxing and rose-coloured glasses.

In the end, it was an election fought about Brexit and leadership. The re-nationalisation agenda barely got a look in.

Don’t sit back

So in many senses it’s back to business as usual for the water sector. However, it would be foolish to assume the Johnson government’s win is a signal it’s safe to sit back and assume nothing needs to change with the traditional water model.

The election was not a conscious rejection of public ownership by the English and Welsh public; that was a fortunate side effect of lack of support for a party with an unpopular leader and an unpopular position on Brexit. Trust in water has not been restored. Remember Michael Gove as environment secretary was among those who bolstered the idea that consumers have suffered at the hands of poor water company performance and high returns. 

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.

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

It's the eye on the competition.

Far from cut-throat retail, Affinity for Business is based on cared-for staff caring for customers – that often means battling through the market set up, says managing director, Helen Gillett. 

Anyone who follows Affinity for Business and its managing director Helen Gillett on Twitter will be aware the firm puts considerable emphasis on culture and staff wellbeing.

 

Nestled among posts on water efficiency and leak assistance, for instance, are Tweets on Gillett at a John Lewis-hosted Working Well coalition meeting and a staff member posting thanks for her Christmas mental health check pack. 

Being well, doing well

MOSL seeks modest budget boost

The market operator has asked for a 7.5% increase for 2020/21, to make business retail work better.

MOSL has asked wholesalers and retailers to approve a 7.5% budget increase in its 2020-21 business plan, published for consultation last month. The plan, shared with MOSL members on 22 November, set a budget of £11.5m, a 7.5% uplift on its forecast outturn 2019-20 costs.

 In her introduction, chief executive Sarah McMath said: “To put this in context, our budget represents an average cost of 17.7p per month per wholesaler and retailer for each of their SPIDs (compared to 16.5p in 2019/20).”

 

She said this would fund “a more sustainable market operator that will deliver on the commitments and key themes of this plan” – and that the primary objective for the plan was “to make the market an easier place to do business in” by reducing indirect cost and frictions.

Customers tell operator what they think of the market

Metering, billing and customer service problems dominate customer feedback to the market operator.

MOSL has been concertedly seeking out customer views on the water retail market as it approaches its third year, and customer input into its draft business plan for 2020-21.

This month, director of market performance Steve Arthur chaired a workshop at the Major Energy Users’ Council Policy Group meeting, in which he sought customer feedback on the four issues wholesaler and retailer chief executives had identified as top priorities to address in MOSL’s recent survey (legacy data, ongoing data maintenance, wholesale complexity and retail margin).

Arthur also asked for a more general customer wish list for the market.

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