Changing track

Heidi Mottram came into the top job at Northumbrian Water from a distinguished career in rail. Two years on, she talks to Megan Darby about sustainability, regulatory drama and why some people in the industry need to grow up

“The first thing that strikes you is that the people in this business care passionately about what they do.” Care, passion and values are words that come up a lot in conversation with Heidi Mottram, chief executive of Northumbrian Water. It was a big decision for her in 2010 to leave the rail industry, which she “cared about an awful lot”. She had been in the rail sector for 24 years, starting “on the shop floor” and ending up as managing director of Northern Rail.

Northumbrian Water, as a private company charged with delivering public services that really make a difference to communities and the environment, seemed to share her values. “It felt like this is going to be a business where I feel very comfortable,” she says. “I got really excited by the possibility of learning

something new.”

While she had to learn about the technology of the water sector – “I hadn’t the first clue about making water and treating wastewater” – Mottram was used to working in an environment hemmed in by rules and regulations.

One thing that surprised her on arrival in water was the “excessive” intensity of the debate generated by Ofwat on the sector’s future. “We were just about to go into the general election and there was talk of a water white paper,” she says, “but the regulator was talking about all sorts of change and talking about it in quite dramatic language. I have no problem with change, but the industry seemed to me from the outside to be quite a high performing industry.”

Ofwat was encroaching on political territory, she thinks. “A number of the things the regulator was talking about were for the government to decide.”

Since the government asserted itself with the publication of a White Paper in December 2011, she thinks the regulatory landscape has settled down. “It’s clear what the government wants and thinks is important – things to do with resilience and the environment, as well as competition,” she says. The discourse has become more balanced, she says. “It is absolutely right to debate change. To me, it was the intensity of the call to action that seemed a bit excessive.”

If the regulator is in danger of sometimes being overzealous, Mottram implies, then the industry does not help itself by overreacting.

One element of Ofwat’s reforms that has provoked tantrums in some quarters is the proposal to modify licences under Section 13. The regulator wants the flexibility to vary the number, length and nature of price controls, according to plans set out in December. But flexibility for the regulator means uncertainty for investors, which potentially drives up the cost of borrowing for water companies. The sector has more or less unanimously rejected the proposal.

“Investors understand what regulators are trying to do – what is frustrating is the uncertainty,” says Mottram. “Whenever anything is thrown up in the air… it causes a stir.”

She says she is “delighted” that Ofwat is engaging with companies and investors to try and resolve the matter. If that fails, the Competition Commission will have to get involved. If the regulator and the regulated act like grown-ups rather than parent and child, Mottram says, it should be possible to reach a solution. “I will be really, really pleased if Ofwat and the industry in partnership can do this, because I think that would be a great thing for our relationship in the future.”

Not every chief executive seems ready for a mature conversation. “There is a lot of history, I think, that I don’t share because I’m new into the industry,” she says. “I don’t want to be too controversial, but there is a degree of angst [about Section 13] and I don’t feel it quite as strongly as other people.”

Are others in the industry more entrenched in an “us against them” mindset when it comes to Ofwat? There is an unmistakable flicker of a smile before Mottram politely declines to answer the question.

“I’ve always tried to work in partnership,” she says. “It’s an adult, grown-up way of doing business. I’m not on my own in thinking that.”

This philosophy of engagement is evident in Mottram’s relationship with employees as well as Ofwat. Her vision is for the company to be a leader in sustainable water and wastewater services. Six months into the role, she went on the road and talked to “basically every employee” – some 3,000 people – about what that would mean. “We asked: if you were the leader in customer services, what would it look like? If you were the leader in environmental issues, what would it look like? And so on… you use their experience and ­commitment.”

She cites supply interruptions as an area of particular success – the number was reduced by 90 per cent in a year. “The team really got the bit between their teeth and decided to have a zero tolerance approach.”

In sewage treatment, Northumbrian Water was already considered a high performer, but that did not stop the company making ambitious plans. It boasts of being the first UK water company to put 100 per cent of its sewage sludge through anaerobic digesters. At present, the biogas produced is burned to generate electricity, but the company is working with Northern Gas Networks towards injecting it into the grid. That would be a much more efficient use, Mottram says. The only UK sewage gas-to-grid operation to date, at Thames Water’s Didcot works, has been beset with technical problems and has operated only fitfully since it launched in October 2010. However, Mottram is confident that Northumbrian’s scheme, involving around ten times the volume of gas, will work.

Nor is Northumbrian stopping at sewage. Mottram is committed to putting food waste into the digestion mix. There are regulatory hurdles militating against co-digestion, but she is not fazed. “Food waste and where it goes has been regulated in a particular way and sewage waste has been regulated in a particular way… There is no regulator fighting us, it’s just working through the bureaucracy.” While waiting for Europe to catch up, Mottram reckons the company can avoid the red tape by simply introducing food waste into the system slightly earlier than necessary, so it could be classified as sewage sludge. “I don’t think anybody is going to have a problem with that – it is not a controversial thing to do. It [food waste] could go in further down the process but it is not a big deal. We can crack on with getting more gas.”

Hydro power and “little wind” (small turbines for onsite use) are also on the renewable energy agenda. The company has looked into “big wind” and photovoltaics but Mottram says its not viable right now. A combination of anaerobic digestion, hydro and efficiency enabled Northumbrian to cut emissions by 11 per cent in the last financial year.

As well as the northeastern business, Northumbrian Water Limited encompasses the water-only company Essex & Suffolk Water. The former has surplus water at Kielder Reservoir, built in the 1970s to support an industrial boom that turned into a bust. The latter is in a water-stressed area. “We do a lot of thinking about where we are going to get water from.”

Essex & Suffolk is expanding capacity at its Abberton Reservoir by 60 per cent, taking the opportunity to exchange the concrete lip running round the edge of the reservoir with something more wildlife-friendly. In a less traditional move, it also recycles treated sewage water from Anglian Water’s Chelmsford plant. The effluent doesn’t make the most direct journey possible from sewer to tap, because “we are quite squeamish about taking water directly from sewage works”. Instead, it flows along the River Chelmer to Langford water treatment works, getting inconveniently “muddied up” along the way, but boosting the local ­environment.

Mottram appears, like many in the sector, ambivalent about plans for increased competition. “There is nothing wrong with competition,” she says. “Where people get frustrated is where it feels like it’s being done for the sake of it.”

She was “very pleased” to be invited to join the market reform group set up by the Department for Environment Food and Rural Affairs when the government launched its draft Water Bill in July. She has “no problem” with retail competition but is sceptical about the “more complicated” upstream elements.

“I think this business should be focused on what customers want, and competition can play a part in that. But it is not necessarily the answer to everything.”

There was a competitive element in rail. However, Mottram points out the rail sector is being told to integrate more, to be more efficient, at the same time as Ofwat is pursing disaggregation. “I don’t say that to be a cheap shot, simply that scenarios are different.”

Mottram is tight-lipped about what Northumbrian’s strategy will be once business customers are allowed to switch supplier. “It is a bit early to say,” she says. The non-domestic retail market will not be opened up until 2017 at the earliest, while upstream reform could

take longer.

Northumbrian’s heavy industrial customers will stick with the company, she thinks, because of the close relationship they have on wholesale matters. “Our big customers are actually much more focused on the supply and quality of the water [than retail services], because they are process industries. In many cases, if something went wrong, it could completely destroy their whole production line… In waste, if something shifts in their production process, it shifts in our effluent process.”

Mottram is “intrigued” by the idea that another firm could put water into an incumbent’s pipes. “There is no God-given right of the water companies to say: we are the only ones who know how to do this, that or the other,” she says. But there are high regulatory standards to meet. Not to mention the question of whether alternative water sources are even available. “I kind of think if it [water] was there, we would be using it already, so I can’t really see where it is going to come from.”

However, she is keeping an open mind: “I don’t slavishly follow the model one way or the other. If we can learn from somebody who has done something more innovative then we should.”

This article first appeared in Utility Week’s print edition of 31 August 2012.

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