Southern Water increases investment to £4bn for PR19

Southern Water proposes to increase investment to £4 billion between 2020 to 2025 up from £3.2 billion for the current five-year price control period, the company revealed in its PR19 business plan.

The water company aims to be “brilliant at the basics” to provide a resilient water future for customers in the south east of England.

Its chief executive Ian McAulay told Utility Week, the water company has previously been “very poor” in customer service areas and its systems and processes “have not been” as joined up as they should be.

Southern Water also plans to deliver five “transformational programmes” and reduce customer bills by more than 3 per cent in real terms.

In addition, the company says it will reduce its gearing to 70 per cent in PR19 down from around 78 per cent currently in response to Ofwat’s reform agenda.

Utility Week discussed Southern Water’s business plan at the company’s Peacehaven wastewater treatment works, which is being used as a pilot “resource hub” to help benefit the local community. The meeting took place on the business plan submission deadline day.

McAulay said: “When I was brought in it was to make a lot of change and I think the plan reflects that. We’ve certainly gone out of our way to engage with customers and stakeholders in a completely different way this time.

“We’ve had 42,000 direct engagements with customers and we’ve gained insight from a million more touchpoints with them.”

The company’s “strategy on a page” within the 300-page document defines the basics as: quality, network, vulnerability, experience and affordability.

It will build on these with five long-term outcomes: resources, environment, economy, communities and value.

Finally, Southern will aim to deliver five transformational programmes: target 100, catchment first, networks 2030, resource hubs and sustainable drainage 2030.

McAulay explained the company has looked at its experiences over the last 30 years to develop the plan and looked at this year in a “big way” as there has been a “lot of learning” from the Beast from the East and the long, dry summer.

He said: “That’s our big vision but a vision isn’t enough, so we need a plan. We have looked at this and said right we have some historical areas of performance that are not good enough. We have other areas where we have led the way. We need to be excellent in everything we do so we’re starting by being brilliant at the basics. That’s the challenge we’ve laid out, in terms of water quality, our networks, our customer experience our affordability and vulnerability.

“We have to be brilliant at all that stuff that we do every single second of every day.”

He described the document submitted to Ofwat as a “carefully developed plan”, which will allow Southern to “become better and better” at the core of what it does.

But he would not be drawn on what category he feels Ofwat should place Southern Water’s plan into when the regulator carries out its initial assessment in January 2019.

He said: “We have produced a plan that I think meets the requirements, it’s got a bold vision, it’s ambitious, it’s very stretching for us in terms of where we have been historically on performance and where we need to get to, it’s stretching financially as well.

“I think it meets the requirements, it’s up to Ofwat how they determine it. I think it actually goes beyond it and it pushes boundaries as I want us to do as a company, not just in the region but nationally and globally as well.”

He added: “I’m comfortable with that, I think we have worked really hard, but challenging shouldn’t just be about the financial metrics. Ofwat has put some very challenging metrics in place – the lowest ever Wacc [weighted average cost of capital] for example and we have responded to that.”

Southern Water said it is making “really good progress” in reducing its customer service complaints which fell by 41 per cent last year, although McAulay admitted the company is still “towards the bottom”.

“We are starting to move more into the pack in areas, but the pack will move forward and we have to recognise that,” he said.

He added: “Our board has said that we want a stretching plan, as a chief executive I said I want a stretching plan. I do think it is deliverable, but we need to do things differently.

“And that’s why we’ve started now, we’re not waiting. There is no point waiting until 2020 to start delivering your plan, so we’ve put together a business transformation programme which we call pathway to PR19.

“We’re running our business now on a dual basis to conclude the existing AMP and to start the next one and I don’t think we have done that before.

“The responses we have had from stakeholders shows this is a different Southern Water, this is a different way of engaging. We better live up to our promises going forward.”

He added: “You’re not going to find anything in there [the business plan] that is absolutely genius, because I’m not a genius. But the most successful companies I have ever worked for and the most successful teams I have played in have had that relentless desire to be better and the will to prepare to win as well as have the will to win.”

Southern Water’s “strategy on a page”