Waking the sleeping giant of the northwest

United Utilities’ first year of AMP7 has been “a good year against the odds”, according to chief executive Steve Mogford who has guided the company to become a sector leader in the decade he’s been with the firm. He talks to Utility Week about how the company has reached this point and what the sector can gain from simplified price controls.

The business is doing a lot right. Employee engagement stands at 89 per cent, which is above high-performing norms for UK companies, it recorded no serious pollution incidents for the second year and even the Ofwat chairman visited to see how other companies could replicate its turnaround in the next price review.

As one of three companies fast-tracked for their PR19 business plans, United Utilities had a head start on planning for the AMP thanks to earlier certainty in what was a complex price review. Looking ahead to the next round of regulatory controls, Mogford advocates for a more straightforward approach this time around.

“Simplifying the process will be hugely beneficial to save time and money, which customers ultimately pay for,” he says. “The whole principle of simplification is great and something (Ofwat interim chief executive) David Black has spoken about before. (Chairman) Jonson Cox said AMP7 is the pinnacle of regulatory complexity, so now David can deliver on simplification.”

He questions whether all companies need equal regulatory attention if their performance is strong across the board or if the price review could be an opportunity for those companies that need more attention on particular areas to receive it.

“We’re upper quartile on both business and domestic customer performance, earning rewards on C-Mex and D-Mex, doing a lot to support customers, and we’ve brought forward around £900 million of investment to stimulate the economy with green recovery,” Mogford lists.

“When you look at all that you ask, do you really need to haul companies over the coals with plans, or should Ofwat be spending more time with the companies that are struggling and understanding what they need to do to improve?”

Mogford says that during his visit to the company’s headquarters, Cox asked “what we have done to go from bottom to top over a couple of AMPs and can we use price reviews to help those companies that really are struggling”.

“At the end of the day Ofwat – and the companies – all want the sector to be good and to perform well,” Mogford adds. “Perhaps a price review should focus on that and if companies are focusing on responsible capitalism then perhaps the price reviews should be simpler for companies.

Firms that began AMP7 had the opportunity to submit proposals for green recovery spending, which Mogford suggests could be extrapolated going into PR24.

Turnaround

Reaching this point for United Utilities has taken focus on areas that needed improvement and honesty about what work is required.

“It’s been a huge investment in integrity and transparency, of saying it how it is. A huge focus on the customer. We’ve got all these assets and we’re a process industry working extremely hard to do what we have to do, but at the end of the day the measure of success is whether the customers actually feel like they’re getting a decent service so we have had a ruthless focus on customer and satisfaction.”

He adds being honest about where the company is and measuring progress inline with the old adage of “you can’t manage what you can’t measure”.

“We’ve got a huge focus on innovation, which was recognised in our PR19 business plan – it’s not just about ideas but how we went about it and made it work. We’ve brought people in from outside who have experience from other sectors that are more proactive than reactive, bringing understanding about what robotics and machine intelligence can do for us.”

Putting out fires with AI

Bringing all that together means the company is on the route to being a digital utility, making the most of swathes of available information to understand the business.

Mogford explains the digital transformation is about transitioning from what is largely a reactive to a proactive environment.

“We’ve been on this journey since I joined 10 years ago,” he says. “When I came into the sector I realised how reactive we are – we’re fantastic firefighters but it’s so much easier when there isn’t a fire – we can stamp out the embers.”

This involved understanding the “patterns of life” and consumption habits within the water environment. The company has installed sensors and intelligent networks to recognise when that pattern of life changes.

Mogford says the proactive approach means the company can get to bursts and leaks earlier because the teams see them developing. “We’re investing £100 million to do the same in our wastewater network. The clever part – that’s not being done anywhere else – is we’re applying machine intelligence to learn how those systems behave and spot when they don’t behave as they should. This will give us a whole plethora of benefits in doing it.”

The transformation extends to customers and transactions. One third of customers now pay their water bill digitally, and Mogford says users of the United Utilities app rose by around 74 per cent last year.

“We’re using all the modern tools and techniques available to be digital across the board.”

Improved access for billpayers to communicate with their water company was one of several recommendations made in CCW’s affordability review along with calls for a single nationwide social tariff.

Mogford says he and the team are really supportive of the single social tariff and to do away with the postcode lottery that relies on the willingness to pay by other consumers in the region. This disparity means customers don’t get as much help as other parts of the country.

“It will need government support and endorsement to make it a successful scheme,” he adds. “We’ve put £71 million of shareholder funds into helping and supporting customers, which is where companies can step up but the idea of the social tariff is good.”

Early in the first stage of the pandemic United Utilities anticipated households coming under greater financial strain in lockdown so extended its social tariff. This meant it could support twice as many households as a consequence of the pandemic.

“The timing as we emerge from the pandemic is perfect for the single tariff to be introduced, it’ll take some families time to recover financially so now is a great time to do it. I really hope the government moves quickly and that the industry steps up and supports it because it’s entirely in everyone’s gift to get on with it.”

Reporting on CSOs and pollution incidents

As well as increasing consumer support, the company performed strongly for the environment, after recording no serious pollution incidents in 2020/21 for the second year in a row.

Mogford says better data has been key to reaching this point, during AMP6 extensive monitoring of all combined sewage overflows (CSOs) began to see what happened and when they were spilling.

With the Environment Bill, legislation will come into force that requires all water and sewerage companies to monitor and report on when and how often CSOs are used. At present, Mogford says the data is “not comparing apples with apples” and needs a common basis for measurement.

“We report every spill – whether it’s to a river or a storm tank. The duration of spills are often quite short, so there may be several spills recorded but they are all short. So there’s work to be done to look at this through a common lens.

“We focus on the most frequent spillers that could have an impact on the environment.”

Improving and avoiding the use of CSOs has been called for by politicians and environmental groups, but the alternatives are imperfect as well as costly. Therefore nature-based solutions have been called for by Ofwat in initial PR24 plans to reduce the reliance on overflows.

“We can’t build our way out of this,” Mogford says reflecting the cost and carbon intensity of expanding the sewer networks or digging extra storage spaces. “We’re treating rainwater and very dilute sewage, so we should be looking at trying to get the rainwater out of the wastewater systems by diverting it to culverts and other water bodies to stop this surface water getting into the sewers. If we did that, I’m pretty convinced we’d have ample sufficiency in our sewer systems to deal with the challenges going forward.”

With that in mind, the organisation has partnerships and schemes in place across its region to retain more water in peatlands, plant trees and explore natural solutions to slow the flow. Geographic challenges vary for all companies and require catchment thinking to keep surface water out of the wastewater networks. For United Utilities, which has an above average proportion of combined systems at 40 per cent, it will continue to work with the Environment Agency, local authorities and highways agency to route water away from wastewater networks.

Mogford believes CSOs are the company’s next big challenge going into AMP8 and recognises the increasing pressures that urban creep is adding to surface runoff as well as growing populations putting further strain on sewer networks.

He says a partnership with government is needed to divert water without mixing it with sewage.

“The solution isn’t building bigger sewers because that would cost billions across the country onto customer bills. So let’s get the water to flow naturally away towards water courses instead of going into the sewers. We can’t do that overnight.”

The focus and honesty Mogford talks about has helped turnaround United Utilities to face the challenges of the future and shows no sign of slowing down.

“Somebody told me when I first joined that United Utilities is a sleeping giant,” Mogford recalls. “It had huge capabilities, but it wasn’t being used. And that’s what we’ve done and now it’s not sleeping anymore.”