Water industry reveals details of revised PR19 plans

A total of 14 water companies have submitted their revised business plans for the 2019 price review, PR19 to Ofwat today (1 April).

When the regulator published its initial assessment of the proposals at the end of January it placed four companies in “significant scrutiny” – Thames Water, Southern Water, Affinity Water and Hafren Dyfrdwy.

Only Severn Trent, South West Water and United Utilities were “fast tracked” and given the green light to get started on delivering their plans for customers.

All other water companies in England and Wales were placed in the “slow track” category: Anglian Water, Dŵr Cymru Welsh Water, Yorkshire Water, Northumbrian Water, Wessex Water, Bristol Water, Portsmouth Water, South East Water, SES Water and South Staffs Water.

The regulator said it would push companies to go further to deliver for customers between 2020 and 2025.

Ofwat’s PR19 is centred around four main themes – affordable bills, great customer service, resilience in the round and innovation.

PR19 sets the price, service and incentive package that the water companies must deliver during the five-year period from 2020.

The industry reveals details of what the revised business plans include:

Ofwat: David Black, senior director of Ofwat told Utility Week: “We’ve already seen the fast track companies put forward high-quality plans that deliver for customers, propose investment in infrastructure and enhance the natural environment, alongside keeping bills affordable.

“We will scrutinise closely the information the remaining companies submit to make sure they have addressed our concerns and now have plans that deliver more of what matters.”

Significant scrutiny 

Thames Water: Thames Water said it has received “overwhelming customer support for its strengthened business plan” for 2020-2025, which commits to deliver more for customers and the environment at a reduced cost. “Customers strongly back this plan, with 87 per cent acceptability for the revised package – up from 67 per cent for the original plan,” it said.

The company’s revised plan includes a “tough new pledge” on efficiency, fewer pollutions and water supply interruptions and a reduction in customer bills.

Highlights in the revised version include commitments to:

• Reduce combined bills by 1.3 per cent or an average of £5 before inflation by 2025 (from flat bills)
• Reduce pollutions by 30 per cent (from 18 per cent)
• Reduce water supply interruptions by 20 per cent (from 6 per cent)
• Reduce sewer flooding in homes and businesses by 20 per cent (from 15 per cent)
• Increase base cost efficiency by 22.5 per cent per customer (from 13.6 per cent)
• Reduce the overall budget for the five-year period from £11.7 billion to £10.9 billion

Steve Robertson, Thames Water chief executive, said: “We remain committed to the principles which underpinned our plan in September, doing the right thing for customers and the environment amid population growth and climate change. We’ve also listened to more valuable feedback from our customers, stakeholders and regulators and stretched our performance and efficiency targets to produce an even better plan.

“The vast majority of this feedback has reinforced our view that further cuts would prevent us from delivering the major investment our customers demand. This is a transformative moment for Thames Water and our significant investment will help boost employment and regional economic growth and ensure London and the Thames Valley has the high-quality waste and water networks its residents rightly expect.”

Membership group London First has given its support to Thames Water’s revised business plan. John Dickie, London First’s director of policy and strategy, said: “London’s growing population is compounding the pressures on our often Victorian water infrastructure. We need to invest to build a network fit for the future, as widespread water shortages would be disastrous for the capital.

“Thames Water’s plan will plough billions of pounds into improving the resilience of water infrastructure, while cutting prices and reducing pollution. This plan, and the longer-term proposal for a new reservoir in Oxfordshire, are critical to securing the capital’s water supplies for generations to come.”

Southern Water: The company said it has responded to the “tough challenges” set by Ofwat.

A spokesperson for the water company said: “Ofwat demanded we make major efficiency gains and provide further robust evidence of our ability to deliver what is acknowledged to be a highly ambitious plan.”

Southern Water says it has identified “£366 million of expenditure reductions” on its £4 billion plan “closing half of the cost challenge” it was set.

“We have also provided the evidence and analysis we believe Ofwat needs to support the remaining £400 million challenge,” the spokesperson added.

The company’s board and executives believe its response to Ofwat today presents a “truly significant” movement in its plan and demonstrates a “crystal clear commitment” to continuous improvement, efficiency and long-term resilience.

“Our transformation programme continues to bear fruit but we accept that there is still a long road to travel to become the company that our customers, our regulators and our stakeholders want and deserve.

“To that end, we are adopting all the major expectations of ‘putting the sector back in balance’. Executive pay and bonuses will be directly linked to delivery to customers and communities. Dividend policy to our shareholders will likewise reflect Ofwat’s expectations.”

The spokesperson added: “The South East faces major challenges in ensuring adequate resilient water resources as Environment Agency chief executive Sir James Bevan put it ‘the jaws of death’ of  changing climate and growing population.

“We believe our revised plan – independently assured and audited – is up to to the task of meeting the challenge of resources, the test of public partnership and benefit and the scrutiny of regulators.”

Hafren Dyfrdwy: A spokesperson for the company said the key changes in its plan relate to:

• The design of ODIs – following additional customer engagement, it claims to have greater use of reputational and penalty-only ODIs. For the financial ODIs it says it has stronger incentive rates. This ensures its ODIs are “better aligned” to customer views;
• The targets for a small number of performance commitments (namely supply interruptions and pollutions) have increased in response to the sector wider challenge;
• The introduction of two new performance commitments, relating to the sector-wide Priority Services Register PC, and a new measure relating to resilience; and
• Finally, the change in bills is a little lower at 1.9 per cent compared to 2.2 per cent in its September plan (this reflects the fact that bills in 2019/20 are slightly higher).

Alongside these changes it says it has provided “a lot more evidence”. This includes new evidence “demonstrating customer support”  for its long-term bill profile, evidence on customer support for its social tariff, and completed acceptability research – which shows 73 per cent of customers find the plan acceptable.

A spokesperson said: “While our September submission had much to be proud of, notably our sector-leading efficiency, we’ve fully embraced every aspect of the feedback from Ofwat, and seized this opportunity to deliver even more for our customers in an updated plan.

“Our updated plan has been built on three new areas of customer engagement that allow us to understand various things such as the value customers place on service improvements, how we balance charges over time, and the overall acceptability of our new proposals.

“With this additional insight, and by challenging ourselves against the ideas and plans put forward by other companies, we’ve further increased the improvement we’re committing to make in some areas, and have strengthened the design of our customer ODIs.

“We’ve also responded to Ofwat’s specific feedback across a number of areas. For example, we’ve created a new performance commitment in relation to resilience. We’ve also provided additional evidence and assurance to show why some of our initial proposals remain right for our customers, such as our social tariff cross subsidy.

“We now look forward to delivering it for our customers.”

Slow track

Bristol Water: Mel Karam, chief executive of Bristol Water, said: “In their initial assessment of our business plan, Bristol Water For All, Ofwat recognised the high quality of our customer engagement and the clear line of sight to the outcomes in our plan. Therefore, our revised PR19 business plan retains the ambitious service levels and the reduction in bills we promised in September 2018.

“We have ensured that we have listened to Ofwat’s initial assessment and revised our plan, providing new evidence in light of this scrutiny. Their main concern was whether we could deliver our ambitious plan. We are confident that we can deliver what we have promised to our customers, communities and stakeholders; as we continue the rapid progress we have made under our transformation programme. For example, we now expected to beat our leakage target for AMP6 and, in January, we published the water industries first social contract to respond to the resilience and trust challenges facing all utilities.

“As a local community water company, we will deliver our plan by working with and collaborating with our local community, other water companies, and our supply chain.”

South Staffs Water: Phil Newland, managing director of South Staffs Water, said: “Our plan reflects on feedback we have received from our key stakeholders, including Ofwat. We have looked carefully at this feedback and have improved our proposals, increased the level of explanation and continued to challenge ourselves on cost efficiency. We believe our plan is compelling – one that is ambitious, innovative, high quality and that delivers the right outcomes. And we remain committed to making water count for our customers and the communities we serve, now and over the long term.”

SES Water: Anthony Ferrar, managing director said: “We developed our business plan for 2020 to 2025 in partnership with our customers so it is important that our re-submission continues to deliver what matters most to them with bills lower in real terms than they are today. We have largely focused on further justification of our original plan, providing more evidence where appropriate and taking on board some refinements suggested by Ofwat.

“I maintain the view that our business plan is the best one we have ever submitted with investment that will raise the bar for the industry in important areas like leakage and interruptions to supply, as well as improving our local environment and doing more to support our customers and local communities.”

Wessex Water: Andy Pymer, managing director said: “Ofwat’s initial assessment of plans is a stepping stone towards its final determination of prices and we have responded constructively. Our business plan, published last September and widely supported by customers and stakeholders, proposed our highest level of investment ever, alongside bill reductions.

“Ofwat have questioned whether all of this investment is necessary and, in the light of new information, we have made some amendments. Where we are satisfied the investment is still essential, we have provided additional supporting evidence.

“Wessex Water is a high performing company with a strong history of delivering efficient investment, so we are confident that our response will be given careful consideration.”