Bristol Water has had a tough few price reviews. Appeals against its draft determinations at both PR09 and PR14 put the company at odds with the regulator. With a poor outcome for the company from its last CMA adventure, it was clear something at the firm – the UK’s oldest water company – needed to change, and quickly, if it wanted to avoid another bad experience at PR19.
Happily, it appears that is exactly what is happening. Utility Week went to Bristol Water’s head office to visit its senior team and talk about the metamorphosis the company is going through.
Click here to go to the interviews
Over the past year, the company has launched itself on an ambitious transformation journey, starting at the very top.
A new chief executive, Mel Karam, joined the company on 1 April 2017. Coming from global “big four” professional services firm KPMG – where he was global head of asset management – Karam brought a new perspective on business improvement. He hopes a more analytical approach to running and improving the company will allow it to move from being a respected, but unexceptional local firm, to be a “global exemplar”.
The company also has a new majority shareholder – Icon Infrastructure – and, thanks to investor support of Karam’s reforming zeal, a brand-new board, including several new independent non-executive directors.
Karam estimates that 25 per cent of employees at Bristol Water have now been with the company for fewer than two years – a phenomenon almost unheard of in the water industry, he claims. This is not to say, however, that there aren’t also some old hands – some of which have been with the company for more than 20 years.
New mindset
But is an executive and wider workforce overhaul enough to boost Bristol Water’s PR19 prospects?
Even with its new team and mindset, industry experts suggest Bristol Water is a candidate for Ofwat’s “significant scrutiny” at PR19 – the worst stamp companies can receive from the regulator and one which comes which swingeing procedural and reputational penalties, not to mention significant financial disadvantages.
As part of a premium report carried out by Utility Week, industry leaders predicted that, of all the water only companies in England and Wales, Bristol Water is still the most likely to end up on Ofwat’s naughty step. They suggested its legacy of conflict with the regulator alongside ongoing operational performance issues will simply be too great for the new management team to overcome before business plans are submitted this September.
There’s no denying that the day-to-day business of running Bristol’s water supply without incident remains challenging, and potentially a distraction from longer term improvement work.
Urgent action
In the last six months or so there have been several disruptions to supply which called for urgent action.
In July last year, a large water main burst in Willsbridge on the outskirts of Bristol, cutting off supply to 35,000 properties. Then, on 11 January, the company issued a boil water notice to 7,000 properties after it discovered cryptosporidium at its Clevedon treatment works.
The challenge, say Bristol Water’s leaders, is to turn these emergencies into opportunities for engagement and brand enhancement with customers and communities – which also happens to be key focal point for the upcoming price review.
The key to success, is swift action, and a visible presence on the ground at the site of bursts and in communities affected by water quality disruptions.
In the case of the Willsbridge busts, Bristol Water started receiving customer calls about loss of water at 1.16am on 19 July. By 7am supplies were restored to 21,000 properties and 8,000 further properties had supplies restored around 10pm, with the remainder by 5.30am on 20 July.
Karam even rolled up his sleeves and got stuck in personally, putting in a 2am shift at a water refill station, to prove Bristol Water’s top-to-bottom commitment to serving customers.
Prescriptive supervision
In the case of the Clevedon contamination, Bristol Water flushed the water network in the area meaning it received a fresh supply from other sources. It kept customers informed of the work and was able to lift the boil water notice on 15 January. All affected properties received an automatic compensation payment.
But effective firefighting and community spirit won’t be enough on its own to convince Ofwat that a company doesn’t require constant and prescriptive supervision.
The regulator’s increasing scrutiny of company data quality recently caught Bristol Water out and highlights another area where the firm will have to work hard to improve its standards and processes.
In November last year, Ofwat once again ascribed Bristol Water to the prescribed assurance category of its Company Monitoring Framework – a key indicator of the regulator’s confidence in water company information and governance practices. Despite some improvements at Bristol Water since the previous framework review, Ofwat said the company’s information still lacked transparency, especially with regard to the way in communicates outcomes to customers.
Strategic overhaul
It said certain shortcomings in the reliability and accuracy of information had demonstrably “reduced stakeholders’ trust and confidence”.
Bristol Water’s strategy and regulation director Iain Mcguffog tells Utility Week this “reflects the stage in the company’s journey”.
He insists Bristol Water is trusted by its customers but argues the company’s ambitious strategic overhaul cannot come without some friction. “The key thing is Bristol Water’s responsibility to make sure its data is accurate. Our data generally is accurate, and Ofwat has recognised the improvements that have been made on that. The next focus for us is on demonstrating that.”
Summing up Bristol’s spirit as a determined underdog, Mcguffog says: “We’re not arguing about where we are as a company, but we’re determined to improve – it’s one of our top priorities. Transparency is an issue for the whole industry, particularly in the current climate. If the regulator’s telling you you’re worse than other people, that’s not a place you want to be, but irrespective of that status, everybody’s got more to do, and we are focused on it.”
And in truth, Bristol’s strong relationship with its customers – bolstered by the city’s famously engaged and community-centred culture – gives Bristol a leg up in achieving the turnaround it wants.
Tangible change
The latest Customer Satisfaction Index, produced by the Institute of Customer Service, placed the company joint top out of all the water companies, alongside Yorkshire Water. Director of customer services, Ben Newby, believes the company has a special connection with its customers because of its Bristol brand – customers think of it as “their water company,” he says. Added to this is the fact that 89 per cent of Bristol Water employees are also Bristol Water customers.
Its challenge now is twofold – to build on this strong foundation, while driving at internal improvements to asset performance and data practices which may be disruptive to employees, systems and customers alike. And to achieve enough tangible change by the time business plans are submitted, to convince Ofwat that further transformation targets are both sincerely set and realistic.
Below, Utility Week interview members of Bristol Water’s senior management team, to get their perspective on the company’s turnaround:
Iain Mcguffog, director of strategy and regulation
Mcguffog left South West Water in 2015 and joined Ofwat’s strategy and planning team as a director – where he helped in the household retail review. He says he thoroughly enjoyed his time at Ofwat. However, when the strategy and regulation director job became available at Bristol Water, Mcguffog leapt at the opportunity. “Jobs as strategy and reg directors in water companies don’t come up all that often,” he says. “It seemed to be a really obvious thing that I should do.”
How is Bristol Water changing?
“We’re being transparent about what we’re doing and about our performance. One of the things we done is produce a first-go at a mid-year performance report. It includes comparisons of where we are to other companies, to help customers set the context of where we are.
“The next thing we’re planning to publish – in the middle of February – is a long-term ambition document which will sum up how we work, our history, and some of the innovations that we’ve already done, for example the Southern resilience scheme.
“Our strategy will take all these innovations and then look forward to where we go next. We’ve got a long history as an organisation, but the key thing is what are we going to do now, how are we going to work with the partnerships that we’ve already got, and what are the factors that are driving us as.
“Our stakeholders recognise that there is a role for a socially responsible, community-focussed company. They want to lead across the social challenges in Bristol and contribute across the environmental challenges as well.”
What is Bristol Water’s strategy for water efficiency?
“We’ve worked closely to try and work out not just about water efficiency, but about resource efficiency in the round. Obviously, water and the natural environment is a big part of that.
“Just as one example, in terms of water fountains – one of the things that’s linked into the Refill campaign – one of the reasons you often hear about why those haven’t taken off is people are worried about hygiene and the maintenance of it. In Bristol, we’re supported by Bristol Waste, because they’ve got that skillset – if you work in partnership, you solve some of these problems which appear to be blockers on delivering the wider benefits. Having built up those partnerships, it’s about what we do next.
“Another aspect of our strategy is leakage. Bristol Water’s got a target of cutting leakage by 12 per cent in this five-year period, and our customers are telling us that’s the key thing they want to see us doing going forward. If you combine that with water efficiency, we’ve got quite a powerful way of delivering that, and the way we deliver it can build on all of that partnership working. Now is the chance, before we finalise our plan for the next five years, to go back to our stakeholders and replay back what we’ve heard from them.”
Will water-only companies find PR19 harder?
“PR19 is going to be pretty hard for everybody. That’s no surprise, and anybody who thinks it’s not going to be challenging is going to find that out to their cost. Price reviews are always full of surprises. I don’t think anybody outside South West Water necessarily thought its plan would be enhanced at PR14. If you get a grip of what you’re trying to do as an organisation, you trust that the regulatory framework will recognise that.”
Ed Barnes, head of regulatory programme management (PR19)
Ed Barnes was recruited by Bristol Water to lead the production of its PR19 business plans and its submission to Ofwat.
Prior to joining Bristol Water, Barnes worked for a micro-SME which was working largely on European-funded research programmes – big Horizon 2020 programmes.
For the 14-15 years before this, he held a variety of roles at the Environment Agency – starting on the water side before moving across to cover wastewater and then waste.
What is Bristol Water’s primary focus for PR19?
“There are quite a few. One of the keys for us to start with was getting the right people together – that’s really important for us. We want to build a business plan that’s a genuine business plan, which the business believes in and buys into, and is actually developed by the business. We didn’t want to just parachute people in who will create a plan that the regulator approves, but is actually one that the business will live with for the AMP7 period.
“We’ve brought in some additional support and key skills, but largely it’s being developed by core members of staff that we’ve identified as critical to the future of the company – which I think is really important.”
“We are genuinely looking top to bottom across the business, all elements, and saying: does this meet the requirements of our customers, does this meet our efficiency targets, does this meet the type of company that we want to be in the future? I think that’s dead-on the right way of doing it, and then a component of that is the submission to the regulator in September.
“We’re being ambitious, we’re setting ourselves really hard targets, we’re pushing ourselves beyond AMP6, beyond the CMA settlement and the Ofwat settlement last time. We had a big change programme internally called ‘channel’, we’re pushing beyond that again. It’s a new team using the best of what was existing to drive us forward in that 2020-25 period.”
What’s the process for developing your business plan?
“We set out fairly early the way we were going to do it. We’ve taken a bottom-up approach from the evidence we’ve got available to us and understanding what evidence we needed to pull together to enable us to make those critical decisions. Right from day one we started on the customer engagement and research.
“Over the last 18 months, we’ve had a continuous process of every idea or concept we’ve developed we’ve tested with our customers through a variety of different ways. I call it all of our ingredients for our plan – from day one we tested all of those ingredients, and what we have done from then is started to place them all into the mixing bowl and bring them together, and now we’re testing the conclusion of that as we bake our cake, we’re testing that cake itself with our customers.
“This has allowed us to test all of the building blocks and then the sum of all the parts with our customers – that’s been the way we’ve developed it.”
How confident are you that Bristol won’t end up in a dispute about its final determination at PR19?
“We’ve taken an entirely different approach. We’ve thoroughly reviewed the lessons learned from the last two price reviews, and everything from the development of the programme to the people we’ve got on board, has reflected that.
“The full design of everything we are doing is about understanding where we’ve gone wrong in the past, understanding why the regulator was applying those challenges to us, and then saying what does that mean for us as a business going forward. A core part of that is engagement with our customers from the start.”
What are the next steps in the development of your plan?
“The way we’ve built the programme is to put it into three phases: the development phase, the ownership phase and the delivery phase. There isn’t a hard boundary between each of those – it’s a ramping up and a ramping down scenario.
“Broadly speaking, up until Christmas we were in the development phase – really going through those building blocks and making sure we’ve got good data, good assurance, good processes. That has given us the opportunity to address a few areas and build on those – which is important to acknowledge.
“Now we’re moving into what we call the ownership phase. This is where we transition from building the plan into how we’re going to deliver this in the best possible way for customers. Then we will develop into that ownership phase, which is where we take into account glide paths etc, and making sure that we’re in fit shape by April 2020 for the delivery phase.
“We’re trying to do all of this much earlier than we have in the past.”
Ben Newby, customer services director
Ben Newby has worked for Bristol Water for the past five years and before being appointed to his current position in 2015 was director of business improvement and IT. The customer services and IT directorate, which Newby heads up, is responsible for customer contact, billing, debt collection, IT, communications. It also looks after Bristol Water’s “recreations business” and is accountable for the company’s success in new competitive water markets as they develop.
Before Bristol Water Newby worked for a range of companies including Serco, where he managed large outsourcing contracts, First Group, Bank of Ireland and BT.
How is Bristol Water changing?
“For me, we didn’t operate like a commercial business with our customers. A lot of the utilities are in a similar place, where they were focussed very much on the asset management side and had rather a unilateral conversation with their customers. For me it was about maturing that and understanding what the business-to-business relationships were, and the different customer segments and the different messages.
“I built a new comms team and a new customer-facing team – all new recruits, people coming in from different sectors. We try and be creative, we try and get engaged, and I’ve been really conscious of giving freedom to the comms team to do the right things and interact in modern ways. We want to have a distinctive Bristol Water way of doing things – which is where the idea for the Refill campaign started.”
“One of the things we’ve been trying to do is really own the relationship with customers. We’re absolutely on board with Ofwat’s direction of the business owning customer engagement, customer direction. That’s something which we’ve fully embraced – we’ve got ongoing research, we use an online panel, we do forums. A manifestation of that is the ICS results. They’ve put us higher than all other water companies, well, we’re joint first with Yorkshire, and we’re in third place overall out of all utilities – Ovo and Utility Warehouse are just ahead of us.”
Can you tell us a bit more about the Refill campaign?
“We’re passionate about people drinking more water, and through community interest companies like City to Sea, you can get that message across – they’re authentic, people listen to them – so it’s been great to work with them.
“We’ve packaged it up with a lot of other things, for example the Water Bar. We’ve been to all of these festivals and places you wouldn’t expect a water company to be at. Then water fountains were another part of that. We’ve had a whole campaign about getting our product out to people. For us it’s fantastic because it costs us very little, but it means a lot to people.”
What is key to the success of campaigns such as Refill?
“Partnerships are definitely key. We’re small, we recognised that we’re small and we haven’t got the resources, but if you look at the fountains, they’ve worked because there’s a desire to make things happen in a partnership model.
“For example, the fountain in Queen’s Square worked because you’ve got the Council who wanted it to happen, you’ve got who can make sure it’s a safe and hygienic fountain with a robust supply of water, then you need someone to clean it, so Bristol Waste cleaned this thing – because that was a big barrier to it, we also had another company, Unomia, which is an environmental consultancy based on Queen’s Square, which paid for the fountain. I think if one company tried to unilaterally do that, I don’t think it would get anywhere – that’s been the story in other places.”