Q&A: Alex Plant, regulation director, Anglian Water

Ofwat published its draft methodology for PR19 last month. The document included details of tougher performance commitments, a greater focus on resilience and innovation, and a new customer service incentive mechanism. Anglian Water’s director of regulation Alex Plant talks to Utility Week about how the company is responding to the PR19 challenge.

What is Anglian Water doing to prepare for PR19?

We are developing a business plan that meets the needs of customers, society, the economy, the environment, appropriate to our region. In that context, we recognise that we need to understand the position Ofwat is setting out in its draft methodology and respond appropriately. We must be sure that, as we write our business plan, we are able to draw, from our existing customer engagement, the material that Ofwat needs to assure itself the plan we propose is the best for current and future customers.

How will PR19 change the way you do business?

It shouldn’t fundamentally change what we do, because those things I’ve just talked about are perennial. However, we recognise what the regulator is saying in relation to strengthening our focus on resilience – which is something we’ve been speaking a lot about anyway.

We also absolutely recognise the Ofwat focus on innovation and markets, and we agree. Innovation is an area where we see ourselves pioneering, through our ‘shop window’ initiative. And, of course, we continue to recognise that affordability is an issue – particularly for those struggling to pay. All the way through the PR19 process, we will be making sure that the customer is at the heart of what we do.

We recognise the broad thrust of what Ofwat is flagging in PR19. It doesn’t change the fundamentals of how we operate, but we will continue to have dialogue with Ofwat and government about how we can best deliver the outcomes our customers need.

How could PR19 change how you work with your supply chain?

One of the things we’ve done over the last few years is to really push our supply chain structure, I think probably further than most others in the sector. We’ve got a long-term pan-alliance modelling approach. We see that as being more beneficial than a “repeat-procurement-exercise” model.

We’re drawing on the strength of those alliance models as we bring our business plan together. I’m not sure it’s PR19 itself that’s changing this, but I do feel we have a much more integrated approach to how we’re pulling together our plan with our alliance partners now than in the past.

How complex is PR19 compared to previous frameworks?

Undeniably it is more complex than before. If you circle back to the way that price reviews were envisaged when Professor Stephen Littlechild was first dreaming them up, they were supposed to be relatively simple and, actually, he felt the regulation would become simpler over time. What we’ve ended up with is definitely more complex.

It’s difficult to explain the price review process now, and I think that is a bit of a problem. It’s inevitable that we end up with more price controls, it’s a logical outcome of the position we’re taking with the development of new markets, and we support that. However, as ever, we must balance the need to get the right refined outcomes against the cost of greater complexity. It’s certainly not simple.

Will the price review be as tough as Ofwat claims?

That is impossible to answer really, we will have to wait and see. All I’m sure of is that Ofwat won’t be giving anyone an easy ride. Nor should they.

How confident are you that Anglian will achieve ‘exceptional’ status?

In general terms, we’ve done a lot that shows that we’re a leading company in the sector. Most recently this was recognised in being named as Responsible Business of the Year by Business in the Community, something of which we are all very proud. And we will keep talking to our customers and engaging with them – we’ve done more on that than ever before.

We’re leading the sector in areas like leakage, which is a really important issue for customers, particularly in an area like ours which is very dry and water scarcity is a real issue.

Whether that leads to a judgement from Ofwat on our plan being exceptional, I don’t know. But I certainly feel that we’re recognised as leading the industry in various areas, and we want to continue to contribute to both the development of the sector as a whole, and to the wider aims of growth and development in our region. That’s where we start from in developing our business plan.

How much of a challenge is the fact that Ofwat isn’t allowing a glide path for the performance commitments next price review?

We’ve performed well on the Outcome Delivery Incentives we agreed for this AMP. That places us in a good position and allows us to hit the ground running in the next price review. But it’s true that regulatory precedent tends to be that, when there are significant shifts proposed, there is a glide path element which avoids cliff-edges. It’s something we’re considering, and I’m sure we’ll make comment on in our response to the draft methodology.

What do you think of the new customer service measure?

We need to know a bit more about how it’ll be calculated, because there isn’t a lot of detail in the document, but in general, we think it’s a really good thing.

How will you ensure customers are embedded in the process?

We’ve pulled out all the stops on customer engagement. When we started to refresh what we were doing in this area, we thought rather than design an engagement process which we would then unleash on the unwitting customer, we should go through a process of co-creation.

We talked to customers about how they would want to be communicated with before putting in place the process that we’re now running. This isn’t a customer engagement process “for PR19”, its about how we should be as a business to meet the changing needs of customers today and in the future. So we’re not waiting to use the information we are gleaning for a business plan to out to Ofwat; we are making changes to how we do business now, because we’re talking to our customers every day.