South West Water prepares for Isles of Scilly expansion

South West Water supported the Isles of Scilly operations during the summer months when water levels fell to extreme lows as the company prepares to take over the water supply of the area.

Work is already in progress for the move which will see South West Water’s licence expanded and an infrastructure investment of around £40 million by 2030.

The licence expansion is subject to an amendment to the Water Act, which the Department for Environment Food and Rural Affairs (Defra) will need to put forward.

Ofwat has received an application from South West Water to expand its licence area, which the regulator will consider as part of the water’s company’s PR19 submission.

Chris Loughlin, chief executive of South West Water’s parent company, Pennon, told Utility Week he is hoping the change to the Water Act will happen shortly.

He described the Isles of Scilly as an “interesting case” and said the timescale of the change to the Act of Parliament has been pushed back slightly due to “other parliamentary constraints”.

Services on the five islands are currently provided by a combination of the Council of the Isles of Scilly, the Duchy of Cornwall and the Tresco Estate. Pennon has previously revealed the transfer will be at “zero cost”.

Loughlin said there has been “environmental anxiety” concerning the Isles of Scilly’s water supply. During the summer fears were raised that St Mary’s and Bryher could run out of ground water if significant steps were not taken to reduce water usage during the extreme dry period.

In July, the Council of the Isles of Scilly published a statement on its website stating that “Water usage is now at a level that we can’t sustain.”

South West Water plans to upgrade facilities and says all parties involved are supportive but the company is waiting for the settlement for PR19.

A spokesperson for Ofwat said: “South West Water has been working with a Defra-led working group including regulators and stakeholders on the Islands to ensure consumers on the Isles receive high quality services.

“South West Water has included the option to extend its appointed area to include the Isles of Scilly within its PR19 business plan, and we have received an application from South West Water to extend its area of appointment. To enable this extension to go ahead, Defra would need to amend relevant legislation. This would be subject to parliamentary scrutiny, and a consultation on the variation to South West Water’s licence.”

Loughlin also told Utility Week that the water company’s “New Deal”, which it outlined as part of its business plan for PR19 has been developed to better align customers and stakeholders.

South West Water plans to offer customers a stake in the company from 2020 if its plan is approved by Ofwat.

The company says the “New Deal” signals a “new way of doing business”. Its aim is to “empower” customers by giving them the option of a tangible financial stake which will enable customers to hold the business to account. Customers will also be given a say through a customer annual general meeting (AGM).

Loughlin said: “Customer engagement and surveys showed that customers want more say and control in how the business is being run.

“We were fast-tracked last time with our ‘WaterShare’ scheme and our ‘New Deal’ moves that on further.

“The customer AGM will mean customers are directly able to vote on a customer representative so if they don’t like what they are doing they can vote someone out and someone else in.”

Pennon Group reported a 3.1 per cent increase in underlying revenue in its half year results to 30 September 2018 published earlier this week.

The figure increased from £723.9 million for H1 2017/18 to £746.7 million for the first half of 2018/19. Underlying profit before tax increased by 8.7 per cent to £142.5 million.

The company said South West Water had a strong performance during the period having demonstrated service resilience through “extreme climatic conditions”. The water company also achieved its highest ever customer service SIM [Service Incentive Mechanism] score, which saw it rank second overall in England and Wales.

Underlying revenue for South West Water increased by 3.2 per cent to £301.5 million while profit before tax was up 4.3 per cent to £100.3 million.

In a statement, Loughlin said: “Momentum for Pennon continues with a strong performance in the first half of 2018/19 across both water and waste.

“We are delivering on our promises to customers and communities and our investment across the group is driving tangible and positive results.”

South West Water said it is on track to deliver all its current business plan commitments by 2020.