The PR19 rollercoaster sets off – Utility Week
24/09/2018 at 8:56am
Sewerage networks, Wastewater treatment, Water, Water networks, Water treatment, Analysis
The water companies’ business plans for the next price review
period are in Ofwat’s hands. Katey Pigden considers what the
regulator has revealed about those plans so far, as the scrutiny
Business plans for PR19 have been a long time in the making but, for
now at least, water companies can do no more. They have a fourmonth wait to see if Ofwat looks favourably upon their proposals and
earmarks them for fast-track. No company wants to find itself in the
slow lane for the next price review period.
After agonising over the detail for months, the 3 September
submission day was a bit of an “anticlimax”, one chief executive tells
Utility Week. The regulator will be tight-lipped about individual plans
until 31 January 2019, but it has wasted no time in beginning to
scrutinise the hefty docum
Proposals and engagement
The 2019 price review sets the price, service and incentive package
that the water companies must deliver during the five-year period.
As part of PR19, each water company in England and Wales has set
out a business plan detailing what it intends to deliver and what it
proposes to charge customers.
Ofwat says it expected companies to engage with customers and
stakeholders “actively, meaningfully and effectively” while
developing their business plans. Indeed, companies appear keen to
show how they have developed their proposals with customers and
Water UK’s manifesto for the sector, published on the same day
water companies submitted their proposals to Ofwat, says the
business plans are the result of an “extensive consultation exercise”
with 5.3 million customers.
While there will be similarities and common themes across all the
plans as a result of Ofwat’s four main themes for PR19 – great
customer service, affordable bills, resilience in the round and
innovation – each plan, as Water UK observes, is “unique” and
reflects the priorities of the communities served by individual
Thames Water, which no doubt feels it has something to prove after
being criticised for its leakage and pollution
erformance, says it consulted a record one million customers to
develop its “ambitious” five-year business plan. It started the
process nearly three years ago – including topics such as customer
service, leaks, wastewater and bills – gathering feedback from all
customer groups and through a variety of channels.
Steve Robertson, chief executive of Thames Water, says: “Our
proposals are a true reflection of what our customers have told us
they want to see.”
As well as consulting customers, the water sector is set to invest
more than £50 billion on improving services – a 13 per cent increase
on the previous five-year business period.
Collectively the sector reveals plans for a “major investment
programme in services, a significant cut in leakage, an overall realterm reduction in bills, and a big increase in help for people who
struggle to pay”. It also includes a programme to improve the
environment under which 8,00
“There is a danger that customers will feel misled when they see the
final bill that lands on their doormat, particularly when many
households have told us they don’t think there are getting a fair deal
from their company,” says Smith.
He adds: “The prospect of bill reductions has already grabbed many
of the headlines, but what has been overlooked is the fact that many
customers will see their bills rise once you factor in inflation and the
potential impact of regulatory incentives.”
Northumbrian Water has one of the most ambitious plans to cut
bills. It proposes a reduction of up to 14 per cent for all customers in
its drive to offer “world class” customer service to the whole of the
region. It says customers will not have to wait five years to receive
the benefits of these changes.
The company will begin in 2020 with a 10 per cent cut in water bills
and a 12 per cent cut to sewerage bills for customers across the
north east. These reductions will increase to 12 per cent and 14 per
cent by 2024/25.
Northumbrian’s customer service director Claire Sharp says: “While
other water companies are having to increase bills, we’ve been very
successful in running an efficient business and we are in a fantastic
position to be able to pass these benefits on to our customers… The
ability to cut our customers’ bills by up to 14 per cent has been down
to great forward planning as a business and a good investment in
our assets and networks.”
One of the companies that is opting to increase its bills “slightly” is
Anglian Water. The company says the hike will only be 1 per cent
over the five years. It argues this is reflective of two things: a £6.5
billion investment programme – a 30 per cent increase – and the fact
that it cut its bills by 9 per cent at the start of this current AMP – the
biggest cut in the industry, and double the average.
Setting the pace
Environment secretary Michael Gove visited Anglian a few days after
it submitted its business plan to learn about the company’s sectorleading approach to leakage. Despite having the best record in the
country for dealing with leaks, Anglian has committed itself to a
further 22 per cent leakage reduction between 2020 and 2025.
Meanwhile, Yorkshire Water aims to reduce leakage by 40 per cent
between 2018 and 2025 – to both minimise its impact on the
environment and increase resilience.
In what it describes as a “first of a kind”, the company aims to
become an open data business and will publish data sets that
underpin its business plan submission, including 12 months of
leakage data and reports into pollution incidents. Liz Barber,
Yorkshire Water’s director of finance, regulation and markets, tells
Utility Week: “It’s important to be honest about our performance –
good and bad.”
CCWater’s Smith says: “Leakage is an issue that really matters to
customers so we think it’s a shame that more companies have not
shown more ambition and targeted going beyond the 15 per cent
reduction the regulator Ofwat has set out.
Companies should be taking action now as part of a more ambitious
long-term vision to cut leakage.”
Nicci Russell, managing director of efficiency champions Waterwise,
says she is looking forward to reading the water efficiency ambition
in the plans. “On a first pass it plays much more of a role in the core
plan and narrative of some companies than others, but we’re
Ofwat senior director David Black says: “Over the coming months,
we’ll be scrutinising each and every plan in detail to ensure they are
robust enough to deliver a high quality, affordable and resilient
service to customers in the years 2020-25 and beyond.
“As we test each plan, we’ll be looking for evidence of ambition and
innovation and crucially, we’ll want to see customers and the
environment put to the fore as never before.”
While it will be a “fast-track” ticket for some companies, it will be a
bumpy ride for others with ups and downs. The rollercoaster journey
of PR19 is just getting started.