Customer opinions about how water companies should spend money to prepare for challenges must be a central consideration by Ofwat as it prepares final determinations in PR19.
That’s according to the chief executive of Anglian Water, Peter Simpson who told Utility Week it would be a failure of duty by his company and the regulator not to listen to customers.
“We must make absolutely sure that what our customers said, and what they were willing to pay for, is reflected in the final determination. If it isn’t then, quite apart from how I think Ofwat will have failed, I think we will have failed in our duty to them.”
Anglian was awarded a blue star by Ofwat for the level of customer engagement with its business plans in which Simpson said customers were “pretty clear” about spending.
“We took our draft determination back to customers and asked them ‘would you prefer a bigger bill reduction, or do you want smaller bill reduction as per our original plan?’ Two thirds of them said they wanted the original plan not the bill reduction – they essentially are saying ‘Don’t kick the can down the road this time’”, he said.
Ahead of the PR19 process Anglian opted for “co-creation”, so discussed with customers how they wanted to be included, not just for the business plan, but regularly about how the business is run.
There is a sizeable gap in the totex outlined by Anglian and what Ofwat deemed appropriate spending. The regulator’s intervention reduced Anglian’s totex costs by 20.5 per cent to save customers £1.3 billion.
The expenditure, which the company has defended in its resubmission, was to boost resilience in the region. An additional 200,000 new homes will be built in the coming five years, which along with the implications of climate change has added extra pressures on water supplies.
The company’s programmes include a 500km trunk line pipe from Humber to Suffolk to move water around the region. It is also rolling out smart meters to more than a million households. Furthermore, it plans to reduce leakage levels by 40 mega litres a day to ensure resilience.
“We spent a lot of time on our business plan and customers were very clear about what they want and were very supportive about what the business plan looked like. Ofwat is supportive of that but they will always challenge us to be more efficient, that’s their job.”
He said the multiple approaches from companies to resilience in this spending period has caused challenges in the determinations because it is a new element.
“All companies have done it differently so this has made the job more difficult than it otherwise would have been. There’s a lot of resilience money taken out in the draft determinations, quite a lot related to areas that companies are going back to Ofwat with extra evidence to show that customers are being supported and that it’s being done efficiently in line with all our obligations to develop a more resilient system,” Simpson said.
Earlier this year Anglian amended its constitution to include a public interest pledge. It was the first company to make such a move by embedding public interest into its Articles of Association. Ofwat had mused including a form of social contract into water companies’ licences to include protection for the environment and offer support to their wider communities.