1. Art and Diseño

OUR PLAN 2015-20
I NN
OVA
TI
ON
ON
ATI
OR
AB
LL
CO
TRAN
SFORMATION
INTRODUCING OUR
BUSINESS PLAN
This document summarises our Business Plan for
2015-20 and beyond, and it is part of our regulatory
submission to Ofwat for the 2014 Price Review.
Unless otherwise stated, all numbers in this document
are total expenditure (totex IFRS), in 2012-13
price base, post efficiency and net of grants and
contributions. Numbers in tables may not add up due
to rounding.
Platinum Big Tick award
Anglian Water has been named as one of
the top performers in this year’s Business
in the Community Responsible Business
Awards. We received a Platinum Big Tick
– achieving our highest ever score of 97%,
and were shortlisted for ‘Responsible
Business of the Year’ recognising us as
a leader of responsible business in the UK.
December 2012
The awards identify companies that are
transforming their businesses to create
a more sustainable future, looking at
how businesses tackle biodiversity,
environmental protection, waste
reduction and climate change, as well as
how they work with suppliers and take
care of employees.
Setting the scene
2
Our Plan at a glance
4
Outcomes-based business planning
6
OUR PLAN
OUR TRANSFORMATIONAL JOURNEY
Putting customers at the heart of our business
Our carbon story
8
10
Understanding our customers’ views and priorities 12
Our customer engagement programme
13
Key messages from our customers
14
The Customer Engagement Forum
14
Over 90% of the customers we surveyed that
we had got the balance right
16
...And we have gone even further
17
Outcomes for customers and the environment
18
20
The cost of delivering our Plan
24
Balancing expenditure
26
Wholesale expenditure
27
Our retail plan
38
Our financial strategy and plan
40
Measures and incentives
46
In summary: the four price controls at a glance
48
Board statement
50
ANNEX
Annex 1: Key challenges from the independent
Customer Engagement Forum
53
Annex 2: Managing future uncertainty
54
Annex 3: Past performance
56
Annex 4: Measures and incentives
58
CUSTOMERS ARE AT THE HEART OF OUR PLAN
CUSTOMERS ARE AT THE HEART OF OUR PLAN
Bills and affordability
OUR TRANSFORMATIONAL JOURNEY
CONTENTS
OUR PLAN
ANNEX
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
1
A BALANCED AND AFFORDABLE PLAN –
SETTING THE SCENE
In this Business Plan we demonstrate
how we will continue to drive the
performance of the business and to make
sure that we exceed the expectations
of our customers wherever we can. We
are ambitious to be a leading customer
service business in the UK and know that
we can only achieve this by retaining the
trust and confidence of our customers.
We believe this Plan builds on the strong
working relationship we have established
with them, and sets out how we will be
delivering for customers in coming years.
•First and foremost, we’ll hold increases in average
household bills to no more than half the rate of
inflation between 2015 and 2020. This goes further
than our draft plan which proposed keeping bills
flat before inflation, and which was approved by
over 90% of customers surveyed. To deliver this,
amongst other things, will require significant
additional efficiencies from our Wholesale business
as well as the absorption of inflation within the
costs of our Household Retail business.
•Household budgets are under pressure, and yet
customers have told us that they attach importance
to securing continued high levels of service. Our
plan is to spend £4,746m to run our business, both
maintaining and, where possible, enhancing our
service to customers. We see that as a balanced and
affordable plan, and we’ve been able to reconcile
customers’ requirements on service levels with a
financial plan that goes beyond their expectations
on future bills.
•And we plan to go further. If inflation is higher than
the 3% we have assumed, then we will only increase
bills by half the increase above 3% to a limit of 4.5%.
If RPI rises above 4.5%, we would need to review the
impact on our business and whether we can absorb
a further proportion of this higher inflation.
These decisions and the many others in our Plan
have been guided and shaped by our biggest ever
consultation and conversation with customers.
Together with the new and most welcome freedoms
granted by Ofwat’s new regulatory approach to AMP6,
we now have a much more appropriate framework for
how we want to manage our business to 2020
and beyond.
2
In our Plan, we summarise our credentials, and provide
very clear evidence of our record and performance
to show we can be trusted to deliver. We highlight
how, with the help and support of customers, we’ve
been able to operate consistently beyond the current
regulatory framework; an approach that is at the
heart of our long-standing ambition to be a leading
customer service business in the UK.
What we hear back from customers is consistent too:
they expect a safe, clean water supply and a reliable
wastewater service; fair and affordable bills; reduced
leakage; and security of future water supplies to meet
the challenge of population growth and changing,
more extreme weather patterns.
They recognise our record of high performance too.
For example, our industry-leading SIM score for
2012–13; achieving our lowest ever level of leakage; our
continued investment in resilience; the operating cost
efficiencies that have allowed us to absorb unfunded
costs of £70m over AMP5; and the capital efficiencies
we have made which have enabled us to invest
an extra £185m over AMP5 in new schemes to
benefit customers.
The strategic approach to achieving all this is rooted
in our 25-year Strategic Direction Statement (SDS)
and the long-term view this took of the particular
challenges that we face here in the East of England –
not least in tackling the impacts of climate change in
our low-lying and dry region, which is also among the
fastest growing in the UK.
But we know that traditional solutions do not always
apply. Which is why we have been working in close
cooperation with Ofwat in the development of
outcomes-based regulation. We’ve also worked with
a wide range of customers, community and business
leaders and others. Between us, we’ve agreed 10
outcomes that we want to achieve for our customers,
the environment, local communities and the economy.
The success of our campaigns like Keep it Clear and
Drop CO2 has convinced us of the benefits of an
outcomes-based approach and this is why outcomes
are a central feature of this Business Plan.
We believe this Plan provides a clear and compelling
vision for the future. We want to build on what we’ve
achieved and to continue to persuade customers,
businesses and communities to collaborate with us.
Many actively support us already, and by working
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
together, we recognise there is enormous potential
to achieve even more. And we know that success
depends on us winning and maintaining their
confidence and trust.
So we are focusing on three main areas:
Innovation - setting ourselves, as well as our partners
and suppliers, tough goals to force step changes.
Being open to new ideas and innovative thinking,
adapting to new ways of working and operating
more sustainably.
Collaboration – taking our engagement with
customers to a new level, and working with national
business leaders, senior academics, partners from
across the public and private sectors, young people
and community leaders, to inspire them to take
positive steps towards helping achieve our vision for a
sustainable future.
Transformation – transforming the way we work with
our partners and suppliers, with a strong focus on
outcomes. Driving a new commercial focus to deliver
leading standards of customer service, together with
cutting-edge social marketing initiatives to lead the
way in reshaping how society values and uses water.
We’ve proven our ability to deliver on an outcomesbased approach, the foundation of which are the ten
business goals which are at the heart of our Love
Every Drop strategy.
We’ve shared our strategy and ideas with customers
and the independent Customer Engagement Forum
and we have been challenged and questioned
throughout the engagement process. The CEF’s
members have brought experience and expertise from
a wide range of sectors, and their challenge has been
robust. Working together, we have a Plan that has their
endorsement and support, and we will continue to
consult with them in the future as we explore ways to
deliver beyond expectations.
We believe this is a Plan for a water company that
wants to embrace and lead change and to redefine
the boundaries of how a customer-focused industry
operates in a changing world.
The Board of Anglian Water Services and the senior
management team, join us in commending this Plan to
you, and commit to levels of performance in AMP6 –
and beyond – that exceed your expectations.
Sir Adrian Montague CBE
Chairman
Peter Simpson
Chief Executive
Our innovative evidence-based campaigns; the way
we have actively involved customers and pushed at
boundaries to collaborate with a much wider range
of key stakeholders; and the transformational results
we have achieved in terms of behavioural change
and thought leadership, have all contributed to
our success.
The affordable financial package we present
demonstrates a clear understanding of the cost of
living pressure being felt by many of our customers.
This is balanced by a firm commitment from our
owners to manage risk and share reward; to recognise
that fair profit and high performance are intrinsically
linked; to continue to invest billions of pounds in
essential infrastructure and services; and to bring even
greater transparency in our corporate governance.
3
THIS PLAN IS
BALANCED AND
AFFORDABLE
BECAUSE…
We have listened to our customers
• In total, the views of over 50,000 customers have shaped our Plan.
•O
ur programme of customer engagement has been extensive,
innovative, robust and independent.
•W
e have worked with the Customer Engagement Forum to
ensure that the views of all customers were invited, and that
as many as possible were heard, especially from those in
vulnerable groups who are seldom heard or included.
Want to know more? See pages 12–19
We
listened
We will hold increases in average household bills to at least 1.8%
p.a. below inflation
•W
e are going even further to protect customers from the impacts of
inflation. If Ofwat accepts our Plan in the round, we will absorb half of
any increase in RPI between 3.0% and 4.5%. If RPI is 3.5% then bills will
reduce in real terms by 2.05%. (If RPI rises above 4.5%, we would need to
review the impact on our business and whether we can absorb a further
proportion of this higher inflation.)
•W
e are planning to introduce a new social tariff that will provide extra
help to our most vulnerable customers. The tariff will be available to
customers who have been independently assessed by a third-party advisory
agency as needing additional support.
Bills below
inflation
FAIR
PROFITS
A financially
responsible,
efficient business
earning fair profits
• Business customer default tariffs will increase by less than RPI.
Want to know more? See pages 20–23
INVESTING
FOR TOMORROW
We are addressing customer priorities
• Customer priorities and values are reflected in the outcomes, measures and incentives.
•W
e are investing to tackle what matters most to customers, for example:
– Safe clean drinking water and reliable wastewater services are customers’ top
priority, and we will ensure we continue to deliver excellent services.
Working responsibly
with and for
your community
– We will increase the amount of customers who are metered to 88% by
2020, without introducing a compulsory metering programme.
Customer
priorities
Want to know more? See pages 24–37
Leading by example on
reducing emissions and
conserving the world’s
natural resources
A SMALLER
FOOTPRINT
Frontier efficiency
• Our costs include the delivered efficiencies we have made during
this AMP period. We estimate this is worth £150m against our
investment proposals for maintaining services in AMP6.
• We have set ourselves challenging targets for future efficiency.
In total, we will deliver productivity improvements to reduce
wholesale costs by £151m, and we will absorb cost pressures
on retail costs and hold them at 2013-14 levels.
•W
e have an industry-leading position on reducing
on-going pension costs.
OUT
FOR CUS
AND
ENVIR
CARING FOR
COMMUNITIES
– We have already reduced our leakage to its lowest ever level, and
over AMP6 we will continue to reduce it to 172 Ml/d by 2020, an 18%
reduction against the current target.
– We are investing to tackle future challenges, such as growth and
climate change.
Provide the services our
customers expect over the
long term through responsible
asset stewardship
A flourishing
environment,
for nature and
for everyone
FLOURISHING
ENVIRONMENT
Efficient
Want to know more? See pages 35–36
We are maintaining and
enhancing services
We will meet our statutory obligations
We will spend a total of £4,746m over
the period, which includes:
•Our region is of national ecological importance and is
water stressed.
•£
3,638m to run our business and
maintain our assets and services.
•We will continue to meet our existing obligations,
and we are investing a total of £485m to meet new
ones. This includes:
– £322m to meet National Environment Programme
requirements.
– £43m to address raw water deterioration.
Statutory
obligations
Want to know more? See pages 30–35
• Investment to maintain services has
increased by 6% after efficiency.
• £1,108m to enhance our services,
which includes meeting new legal
obligations such as the National Environment
Programme and addressing customer priorities.
Want to know more? See pages 24–37
4
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
Balanced
costs
It is supported by the
independent Customer
Engagement Forum
•W
e have responded to
the key CEF challenges,
and this has made our
Plan even better.
Over 90% acceptability
• In our draft plan we proposed to
keep bills flat before inflation.
Over 90% of customers
surveyed thought that the
draft plan was acceptable
Customer after considering it in detail,
and we have gone
support
even further.
CEF
support
•O
ur final Plan is
supported by the
CEF and the four
Independent
Advisory Panels.
Want to know more?
See page 14
Want to know more?
See pages 16–17
We are embracing greater competition
• We support the introduction of competition where there are clear benefits
to customers.
• We are actively preparing our business for the separate retail price
control and in anticipation of greater retail competition in the future.
• We have established a UK-wide retail company (Anglian Water
Business (National) Ltd), and we will continue to develop the retail/
wholesale trading relationships in a non-separated model.
SATISFIED
CUSTOMERS
Ensuring that
you are very
satisfied with
your service
FAIR
CHARGES
Our corporate governance is good, and our Board
endorses this Plan
•W
e comply with the UK Corporate Governance Code in all significant
respects and can explain the reasons why we do not comply with
the Code in its entirety.
Bills balance
fairness,
affordability and
value for money
COMES
TOMERS
THE
ONMENT
Nondomestic
competition
• Our Board has been actively engaged in the development of our Plan.
Over the last two years we’ve had 22 board meetings, and half of our
Board’s time has focussed upon the Business Plan.
• We have put a rigorous Board Assurance process in place.
Drinking water
is safe, clean
and acceptable
SAFE
CLEAN
WATER
•O
ur Quality Management Systems are independently certified by
Lloyd’s Quality Register. We hold ISO 9001, BS OHSAS 18001,
ISO 14001, ISO 22301, ISO 14061, PAS55, and PAS100.
Want to know more? See pages 50–52
We will be more open than ever before
Our services cope with the
effect of disruptive events,
in particular increasingly
severe weather events. We
plan ahead for the impacts
of our changing climate
Manage and
meet the growth
in demand for
sustainable and
reliable water and
wastewater services
Governance
and
assurance
•W
e have already taken steps to improve our
transparency, for example, by integrating our
financial, social and environmental reporting into our
Annual Report and Accounts.
RESILIENT
SERVICES
•W
e will publish our performance against
the outcomes using a clear set of measures
and milestones.
• We expect to publish Anglian Water’s
governance code (which will comply with
Ofwat’s new governance principles) by the
end of 2013.
SUPPLY MEETS
DEMAND
Open
Want to know more? See pages 46–47, 50–52
Financeable
It is financeable
We will introduce new sharing
mechanisms to benefit our
customers
Wholesale
• 3.94% post-tax weighted average cost of capital.
• Water wholesale 56% PAYG and 44% capitalised.
• Wastewater wholesale 52% PAYG and 48% capitalised.
• This reflects underlying operating costs and capital investment.
• RCV run-off rate of 3.95% for water and 3.85% for wastewater.
• 26 year depreciation rate for new assets.
• Financeability ratios acceptable.
Retail
• 1.9% margin on household and 5.3% on non-household.
Want to know more? See pages 40–45
•W
e will share totex outperformance
50:50 with customers.
Fair
•2
017 rates revaluation to be reflected in
2018 adjustment to revenues and 50:50
sharing of benefit of water rates appeal.
•W
e are not proposing any additional
adjustments beyond what is already set out in
the licence.
Want to know more? See pages 43–45
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
5
OUTCOMES-BASED BUSINESS
PLANNING – IT’S HOW WE WORK
In 2007, in response to the challenge
from Ofwat, we produced our 25-year
Strategic Direction Statement (SDS).
It raised our game and focused us on the longterm challenges facing the business – tackling the
impacts of climate change and of a fast-growing
population. However, it was soon clear this didn’t go
far enough. It assumed a relatively ‘fixed’ view of what
the future might hold, and covered a period of just
25 years. We needed a more flexible strategy, with
a global perspective, that placed communities, the
environment and the economy at the heart of our
thinking and planning – we needed to go further.
To do this, we threw out any traditional, introverted
and ‘incremental’ ways of managing our business.
Instead, we’ve set ourselves ten far-reaching and
audacious goals to focus our strategy and our
business, with over 100 public commitments to drive
delivery, against which we hold ourselves accountable.
We call this strategy Love Every Drop, and it puts
water at the heart of a whole new way of living. The
strategy encompasses activities and campaigns that
purposefully include everyone – including customers,
stakeholders, community leaders and young people.
Love Every Drop has fundamentally
challenged how we operate. We have
embraced innovation, collaboration and
transformation to help re-define how
we think a 21st-century water company
should operate. It’s how we’ve worked
since we launched Love Every Drop in 2010.
Our outcomes-based Business Plan is a natural
extension of this revolutionary approach. For
example, instead of assuming a static view of the
future, we called in Outsights, international specialists
in planning for the future using horizon scanning and
scenario-based techniques. Their clients have included
100%
of our
customers
very satisfied
with our
service
No
incidents
No
accidents
Get it right
first time,
every time.
Zero waste
No
pollution
Leading
employer in
our region
Frontier
performer in
our industry
Effective management
of the impact of
growth and climate
change in our region
Halve our embodied
carbon in new assets
we build in 2015 from
a 2010 baseline
Reduce our operational
carbon emissions by
10% in real terms by
2015 from 2010 baseline
The 10 goals shown above are the ones we developed in 2010. As part of the development of our Business Plan, we have refreshed some of
these goals. For more details please refer to our ‘Outcomes in detail’ document.
6
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
Combining Outsight’s research (21 drivers for the
21st century), our own market expertise, and external
and internal interviews, we framed the key issues.
Detailed workshops developed four potential future
scenarios, spanning a 50-year horizon. We then
tested how robust our SDS would be in each
of the possible futures.
The impact has been profound. For example, it
has transformed our traditional water resource
management planning to a new scenarios-based
approach, known as Robust Decision Making. And
we’re collaborating with a wide range of others
to help meet the challenges: we founded Water
Resource East Anglia to drive progress and help
deliver essential outcomes.
We set ourselves 10 goals, underpinned
by over 100 public commitments, when
we launched Love Every Drop. In the
next few pages, we’ve highlighted
just two goals to show the innovation,
collaboration and transformation that the
strategy has helped us achieve. To read
more about our progress against all 10
goals, please see our externally audited
review, launched in
November
2012 to report
on two years
of momentum
and progress.
OUR TRANSFORMATIONAL JOURNEY
Unilever, Coca Cola, Shell, the European Bank for
Reconstruction and Development, and many others
across Asia, the USA and Europe.
We’re proud of what we are achieving with this
approach. The examples of customer service and
carbon reduction on the following pages give a good
insight into the transformation which has taken place
within Anglian Water.
Having worked with
organisations in most sectors and
geographies over the last two
decades, we were particularly
impressed by Anglian Water’s
willingness to think wide and deep
about the future, to confront real
dilemmas and challenges and to
prepare for future uncertainties.
This work needs energy,
enthusiasm, courage and high levels
of engagement for best results. The
Anglian Water team combined all
of these with a highly professional
and thorough approach, to produce
outstanding Futures work.
When Anglian Water launched
Love Every Drop in 2010, they
demonstrated leadership
and challenged us all to think
differently about water. Anglian
Water is truly leading the way.
Dr Neil Bentley, Deputy Director-General,
Chief Operating Officer, CBI
? WANT TO KNOW MORE?
See Annex 2: Managing future uncertainty
P54
Tim Bolderson,
Co-Founder, Outsights
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
7
OUR TRANSFORMATIONAL JOURNEY
Our ambition is to be a leading
customer service business in the UK
and this has transformed the culture
of our business. We have a very clear,
audacious goal:
COLLABORATION
To have
100% of our
customers very
satisfied with
our service.
ANNEX
8
Our most powerful collaboration is with our
customers. For example, during the 2010–2012
drought, customers responded to our Drop 20
campaign and this saved 60Ml of water every
day during the shortage.
We’re innovative in our operations.
For example, we use pressure
management to reduce the number of
burst mains, and if a burst does occur, we
pipe water ‘overland’ to keep customers’
supplies secure while we repair it.
INNOVATION
We pioneered the centralisation of scheduling
and deployment of jobs in the water industry
a decade ago. Since then we’ve continued to
develop our systems, people and processes
and have driven year-on-year improvements in
customer service as a direct result.
We support our staff to deliver excellent
customer service with industry-leading training
programmes Licence to Operate and Face of
Anglian Water. All our employees are directly
involved in helping us achieve our business goals,
and we judge their performance on the progress
we make.
OUR PLAN
CUSTOMERS ARE AT THE HEART OF OUR PLAN
PUTTING CUSTOMERS AT
THE HEART OF OUR BUSINESS
Anglian Water is the world’s
leading water utility. Your vision
for linking operational systems
and the back office is exactly
where we see the future.
Henry Bailey
Global Vice President Utilities,
SAP America Inc.
Our top priority is to get things right for our customers.
Our investment in innovative technology has transformed how
we track ‘live’ jobs and allows us to keep customers informed
via phone, text message or social media. If things go wrong,
we have an ‘intensive care’ process to help customers who
need it. Speed of response is vital – we’ll mobilise a ‘blue light’
response if we think a problem might be about to recur or we
know we can prevent a problem by getting there fast.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
Our award-winning water efficiency campaigns
help household customers save water, such as Bits
and Bobs (free devices to help homeowners save
water), and The Potting Shed (working with the
Royal Horticultural Society and B&Q to help
gardeners save water).
[Anglian Water views]
service optimisation as an
opportunity, not a challenge. The
company continues to ask questions
as to where else it can leverage
technology and business process
improvement to drive efficiency
gains. From improving its customer
service to reducing carbon
emissions, it consistently seeks
ways in which it can lead its service
business to excellence.
Dr Moshe BenBassat
ClickSoftware Founder and CEO
RECOGNITION
•2
013 Business in the Community Platinum Big
Tick Award
•2
013 National Business Awards, Future Champion
• 2013 European Smart Metering Awards,
Innovation of the Year – Winner, in
collaboration with Green Energy Options
•2
013 Greenbuild Awards, Behavioural change
category – Winner in collaboration with
Flagship Housing Group
CUSTOMERS ARE AT THE HEART OF OUR PLAN
We convened the UK’s first international water
conference for business, The Global Water Challenge,
bringing together business expertise to encourage
innovative thinking and new approaches to an
international challenge. In addition, we help business
customers to help themselves by developing joint water
strategies to save water, energy and money, with projects
such as the Rippleffect.
We are pioneering cross-sectoral collaboration with
emergency services and local authorities in Local
Resilience Forums across our region, and regularly
share information with Category 1 and 2 responders.
This results in more appropriate targeting and sharing
of resources for the benefit of our customers.
OUR TRANSFORMATIONAL JOURNEY
Our award-winning Keep it Clear campaign has seen sewer
blockages fall by an average of 42% in the areas targeted.
This reduction is largely thanks to customers who are now
recycling fats, oils and grease and disposing of unflushable
items like wipes and sanitary waste in the bin rather than down
the toilet. This simple behaviour change has led to a reduction
in repeat call-outs to unblock sewer pipes.
• 2012 Environment Agency and Waterwise UK
Water Efficiency Award, Potting Shed
– Winner
•2
012 Environment Agency and Waterwise UK
Water Efficiency Award, Tap Into Savings
– Runner up
OUR PLAN
TRANSFORMATION
We’ve jumped from seventh to first position in Ofwat’s
Service Incentive Mechanism (SIM) league table.
In addition, our own survey of over 35,000 customers in
2012 showed that over 95% of those we spoke to were
satisfied or very satisfied with our service.
ANNEX
We’re the only utility to have fully
embraced the business continuity
recommendations of the Pitt Review.
We adopted BS 25999 before the transition
to ISO 22301. This means our customers can
rely on us to be a resilient business.
SocialBakers1 describe us as a ‘socially
devoted brand’ because of the number
and speed of our digital interactions
with customers. Innovations such as
timed home visits, text message updates
on work in progress, and the opening
up of various social and digital channels
for up to the minute contact with
customers have helped to transform our
relationship with customers.
1S
ocialBakers is a popular provider of social
media analytic tools, statistics and metrics.
Socially Devoted is a SocialBakers initiative which
recognises the best performing brands in social
customer care.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
9
OUR TRANSFORMATIONAL JOURNEY
CUSTOMERS ARE AT THE HEART OF OUR PLAN
OUR PLAN
ANNEX
10
OUR CARBON STORY – SAVING
COST, MAKING US MORE RESILIENT
Reducing our carbon footprint saves money,
drives innovation and creates a more resilient
business. Our region is particularly vulnerable
to the impacts of a changing climate, so we are
working to reduce our dependence on fossil-fuels
and encourage our partners to do the same. That’s
why we set ourselves the tough challenge to:
Halve the
embodied
carbon1 in new
assets we build
by 2015, from a
2010 baseline.
We’ve challenged our partners and suppliers
to help us meet our carbon goals. We
expect innovative approaches from our
suppliers, such as using recycled materials
in construction. Their carbon targets are
now aligned with ours. We support and help
them measure their carbon impact, and set
challenging reduction targets.
Anglian Water is an
organisation at the forefront
of efforts to adapt to climate
change, is actively adapting and
is an exemplar organisation for
others that need to adapt.
Lord Henley
Former Climate Adaptation Minister
COLLABORATION
INNOVATION
Our management of embodied and
operational carbon is UK leading.
Reducing carbon is an integral part
of our investment decision-making
process. We use carbon models to
choose between designs and identify
low-carbon and low-cost solutions.
1 Embodied
carbon, also known as capital
carbon, is the sum of all the carbon required to
manufacture the chemicals we use in treatment
processes, and the materials used to build new
assets (treatment works, pipes, etc)
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
Our Climate Change Adaptation Report was
praised by Defra ministers and we reinforced our
approach in our own publication, Small Steps Big
Impact. We helped prepare the UK Government’s
first National Adaptation Plan.
We have built on this approach and
recently developed a sophisticated
sustainability toolkit. This links
the costs of proposed solutions to
embodied carbon and embodied
water. It can highlight carbon
hotspots and will help us to cut
costs and carbon even further.
REDUCE CARBON
REDUCE COST
TRANSFORMATION
In 2012–13, the embodied carbon in the assets
we built was 40% lower than in 2010. We’re
on track to hit our target of a 50% reduction
by 2015. This means we use less carbon and
generate big financial savings that are being
passed on to customers.
We chair the Infrastructure Working Group of
the government’s Green Construction Board, in
recognition of our approach to energy and carbon
savings, and financial efficiencies in the delivery of
outstanding projects.
RECOGNITION
•2
013 Finance for the Future, Large Business
Award – Highly Commended
•2
013 European Business Awards, Environmental
CUSTOMERS ARE AT THE HEART OF OUR PLAN
We’re leading by example. We’re a part of the
Prince of Wales’s Corporate Leaders Group
on Climate Change, working with Cambridge
University. We lead the Green Economy
Pathfinder project, sponsored by government to
drive the transition to a low-carbon economy;
and we supported the Department for Business,
Innovation and Skills to produce Down to Zero,
a practical guide to businesses on low-carbon
procurement.
OUR TRANSFORMATIONAL JOURNEY
We founded the Water Innovation
Network giving us access to fresh
thinking and new ideas from businesses
that we wouldn’t previously have
worked with. There are over 500
companies participating.
and Corporate Sustainability, listed as
one of the UK national champions
• 2013 ENDS Green Economy Awards for Water
Efficiency – Winner, in collaboration with
Green Energy Options
•2
012 W
ater Industry Achievement Awards,
Outstanding Innovation and Innovative
Use of an Existing Technology with
Inverter Drive Systems
• 2012 Water Industry Achievement Awards,
OUR PLAN
We’ve developed a new process that
transforms sludge into a high-quality
fertiliser and generates renewable
energy. What started as a trial in a
lab has grown into a number of fully
operational sites across our region,
saving money and creating a valuable
natural fertiliser known as biosolids. 94%
of our nutrient-rich biosolids are recycled
and used on agricultural land – we sell
350,000 tonnes to farmers in our region
every year – enough to treat 200 km2
of farmland.
Carbon Reduction – Winner
• 2012 The Independent Peer Awards, Winner
ANNEX
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
11
OUR TRANSFORMATIONAL JOURNEY
CUSTOMERS ARE AT THE HEART OF OUR PLAN
Understanding our customers’ views and priorities
12
Our customer engagement programme
13
Key messages from our customers
14
The Customer Engagement Forum
14
Over 90% of the customers we surveyed that we had got the balance right
16
...And we have gone even further
17
Outcomes for customers and the environment
18
UNDERSTANDING OUR CUSTOMERS’
VIEWS AND PRIORITIES
The price review process continued
our already extensive engagement
with customers. We built our Love
Every Drop strategy on customers’
expectations that we should support
local communities to thrive, underpin
economic growth and protect
our environment.
Research indicates this approach helped continue
to build trust with our customers and to support
collaborative working to achieve our shared goals. Our
Keep It Clear and Drop 20 campaigns demonstrate the
positive results achieved thanks to the encouragement
and practical support given by customers.
To monitor progress and maintain momentum, every
week we speak to approximately 6001 customers about
the services we provide.
ANNEX
OUR PLAN
WHAT YOU WILL SEE IN THIS SECTION…
1T
his includes those contacted by the Voice of the Customer team,
who speak to over 30,000 customers each year (2,500–3,000 a
month); McCallum Layton conduct customer satisfaction surveys,
with over 2,000 people each year (200 per month); monitoring
levels and reasons for service failures throughout the year; and
tracking the root cause of written complaints.
12
Over 4,800
OUR TRANSFORMATIONAL JOURNEY
OUR CUSTOMER ENGAGEMENT
PROGRAMME WAS EXTENSIVE,
INNOVATIVE, ROBUST
AND INDEPENDENT
Independent review and challenge from
the Customer Engagement
Forum and four Independent
customers responded
to our Discuss, Discover,
Decide consultation
Advisory Panels since 2012
involved in willingnessto-pay research
15 focus
SATISFIED
CUSTOMERS
SAFE CLEAN
WATER
groups
FAIR
CHARGES
RESILIENT
SERVICES
SUPPLY MEETS
DEMAND
FLOURISHING
ENVIRONMENT
A SMALLER
FOOTPRINT
CARING FOR
COMMUNITIES
INVESTING
FOR TOMORROW
FAIR
PROFITS
Entry into a
PRIZE
DRA
W
for
every
completed
return*
* Subject to terms and conditions, see separate survey sheet
960 responses to
Shaping our future
45 in-depth
interviews
with business
customers and
stakeholders
80 news articles
In-depth customer
phone-ins on all regional
BBC radio stations,
covering 13 counties
7 in-depth
ethnographic
interviews
90 customers involved in
deliberative workshops
promoting the conversation
The range and diversity of the
PR14 evidence base is a great
strength. It provides depth as well
as breadth, helps to tackle potential
methods bias, and allows participants
to take part in debates and discussions
a number of different ways.
CUSTOMERS ARE AT THE HEART OF OUR PLAN
1,000s of customers
involved in online
conversations, including polls
and My 2020 Water View
budget simulator
7,150 customers
YOUR OPPORTUNITY
TO HAVE A SAY
2,200
customers
involved in
acceptability
research
OPM1
500
customers
surveyed using
My 2020 Water
View budget
simulator
Email invitations
to join the
conversation
sent to over
interviewed as part of
ongoing research activity,
such as Ofwat’s SIM survey
OUR PLAN
Over 38,000 customers
100,000
customers
213 future
customers involved
in education
workshops
ANNEX
Almost 8m people
targeted with
radio advertising
1 OPM (Office for Public Management) is an independent organisation that specialises in market research.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
13
OUR TRANSFORMATIONAL JOURNEY
CUSTOMERS ARE AT THE HEART OF OUR PLAN
OUR PLAN
KEY MESSAGES FROM OUR CUSTOMER
ENGAGEMENT INCLUDE:
•Core responsibilities: the provision of safe,
reliable, clean water is consistently rated by all
customer groups as the most important thing we
do. Customers also perceive removing and treating
wastewater and good stewardship of our assets to
be core responsibilities.
•Leakage: our customers are particularly concerned
about leaks and are willing to pay for a reduction in
leakage levels.
•Resilience and future challenges: there is
awareness of increasing pressures on the water
system, associated with housing growth and
changing weather patterns, and customers want to
know that we are planning ahead and working with
others to address these challenges.
•Bills, affordability and profits: although the
majority of our customers say that bills are fair,
affordable and value for money, there is a significant
minority of customers who are very concerned
about price and worried about bills rising. Many
customers are concerned that our monopoly status
means that we have no incentive to keep bills fair
and affordable.
? WANT TO KNOW MORE?
CUSTOMER
ENGAGEMENT FORUM
The Customer Engagement Forum has provided
independent advice and scrutiny throughout the
development of our Plan.
The Forum is an independent group made up of
representatives from a wide range of organisations
and backgrounds, to champion the interests of
household and business customers, communities, the
environment and the economy. Dame Yve Buckland,
national chair of the Consumer Council for Water,
chairs the Forum in an independent capacity.
The Forum is supported by four Independent Advisory
Panels, which are subcommittees of the Customer
Engagement Forum designed to provide expert
challenge in the following areas:
ANNEX
•Economic development
•Environment and climate change
•Customers and communities
•Hartlepool
? WANT TO KNOW MORE?
See Annex 1: CEF challenges
P53
14
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
See Discover, Discuss, Decide: Summary of research into
household and business customer and stakeholder views:
version 10, available at: www.discoverdiscussdecide.co.uk
A MESSAGE FROM THE CUSTOMER
ENGAGEMENT FORUM
The independent Customer Engagement Forum is
a new and very important means of ensuring that
the views of all customers, domestic and business,
influence the way that Anglian Water plans and
delivers its services.
We have put pressure on the company to produce a
plan which represents the priorities of customers and
their willingness and ability to pay for water services
in these tough economic times.
We have carefully reviewed the company’s proposals
in the light of customer priorities, regulatory
requirements and the implications for the local
economy, environment and communities.
We accept it is not possible to get everything
customers and stakeholders want at the price that
customers are willing to pay and we believe that this
is a balanced plan.
We are very pleased that the company listened to
our ongoing challenge about keeping bills as low as
possible and have come forward with proposals to
keep rises in average household bills to below half
the rate of inflation.
You can find out more about how we’ve challenged
Anglian Water and come to our conclusions
in our assurance report to Ofwat at
www.discoverdiscussdecide.co.uk.
• Focus groups, in-depth interviews,
county shows, ethnographic portraits,
deliberative workshops and
ongoing engagement
• Online conversation hub
• My 2020 Water View budget simulator
• Future customer workshops
• Willingness-to-pay surveys
Acceptability of our Plan
• Your chance to have your say
consultation document
• Acceptability research
Focusing on the future
• The 2050s scenarios project
• Understanding future risks and uncertainty
Shaping options
• Developing outcomes
• Identifying choices and
developing proposals
Developing our Plan
• Addressing customer priorities
• Balancing bills and essential investment
Going further
CUSTOMERS ARE AT THE HEART OF OUR PLAN
Testing choices
• Discover, Discuss, Decide
HOW CUSTOMERS
SHAPED OUR PLAN
OUR TRANSFORMATIONAL JOURNEY
Listening
Scrutiny and challenge from the independent Customer Engagement Forum
OUR CONVERSATION
WITH CUSTOMERS
• From flat bills before inflation to
bills falling before inflation
• RPI sharing
Reviewing
Evolution and future
price reviews
OUR PLAN
• We will engage with customers and
stakeholders on the delivery of our final
Business Plan.
Achieving a balanced and affordable plan
ANNEX
The views of our customers, and others with an interest in what we do, have shaped every stage of
the development of our Plan, starting with the 2050s scenarios project that focused on the future,
through to the development of our outcomes and draft plan to the feedback on our draft plan.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
15
OUR TRANSFORMATIONAL JOURNEY
In our draft plan we proposed to
keep bills flat before inflation, while
investing to maintain and improve
services, meeting our legal obligations
and tackling future challenges. We
tested the acceptability of our draft
strategy and plan with our customers
and the results were encouraging – after
considering the plan in detail over 90%
of customers surveyed said that they
found the plan acceptable.
Customers told us that in order to improve the
acceptability of our Plan we would need to reduce
bills further, do more to tackle leakage, and address
the concern that shareholders are benefitting more
than customers. The biggest concern about our plans
came from customers who had financial difficulties
or special requirements such as medical conditions
needing a lot of water.
ANNEX
OUR PLAN
CUSTOMERS ARE AT THE HEART OF OUR PLAN
OVER 90% OF THE CUSTOMERS
SURVEYED THOUGHT THAT WE HAD
GOT THE BALANCE RIGHT . . .
16
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
shaping
our FuTurE
2015–2020
HIGH-QUALITY
SERVICE
METERING
LEAKS
RESILIENCE
ENVIRONMENT
Help us check we’re
getting the balance right
Given the very high levels of
acceptability that our draft plan
achieved, we could have stopped there.
But, at a time when household incomes
are not keeping up with inflation,
we continually drive our business to
deliver the best possible outcome for
our customers.
We explain how we’ve balanced our Plan in the
following section.
CUSTOMERS ARE AT THE HEART OF OUR PLAN
That is why we have challenged our business to
go further, and to hold the increase in average
household bills to 1.8% p.a. below inflation over the
period 2015-20. Assuming RPI increases at 3%, the
average household bill is forecast to increase to £468,
compared with the £499 set out in our draft plan and
the acceptability research. We have done this without
making substantive changes to what we plan to deliver
in the period, but by setting ourselves a tougher
efficiency challenge and reducing returns.
In the development of our Plan we have had to
balance the need to ensure that bills are fair and
affordable, and with the need to make essential
investment to meet legal obligations, maintain our
services and prepare for future challenges. In addition,
our customer engagement programme has shown that
in some areas, such as leakage, customers would value
an improvement in our current service. By investing
less in areas such as leakage and resilience, we could
have reduced customers’ bills even further, but we do
not believe this would be the right thing to do, or that
it would be supported by our customers.
OUR TRANSFORMATIONAL JOURNEY
. . . AND WE HAVE
GONE EVEN FURTHER
OUR PLAN
ANNEX
Peter Simpson out and about in Ipswich
meeting customers.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
17
OUR TRANSFORMATIONAL JOURNEY
WE HAVE DEVELOPED 10
OUTCOMES FOR CUSTOMERS
AND THE ENVIRONMENT
Why this outcome?
As a monopoly provider of an essential service it is
important that our profits are perceived to be fair and
proportionate. Some customers are concerned about
water company profits and this has convinced us that we
need to do more in this area.
A good outcome will be…
We deliver our services efficiently
compared to other leading companies.
We can raise finance efficiently at
relatively low costs to ensure enough
money to fund future investment.
Our business is financially stable over
the long term and we demonstrate
responsible stewardship of
financial resources.
FAIR
PROFITS
A good outcome will be…
CUSTOMERS ARE AT THE HEART OF OUR PLAN
Why this outcome?
Customers see good
stewardship of assets as one
of our core responsibilities.
They want to know that we are
investing in infrastructure to
safeguard water supplies now
and in the future.
Why this outcome?
This is about acting as
a responsible company
and a force for good in
our region, recognising
the wider impact of
our activities upon the
communities we serve.
Assets (such as our pipes, works,
buildings and equipment) are
maintained effectively so they
provide the services customers
expect both now and in
the future.
A good outcome will be…
An inclusive and accessible service,
sensitive to the needs of individual
customers. Our infrastructure
underpins and contributes to a
successful regional economy. Our
operations do not unduly disturb
the community. Our water parks
and nature reserves provide valued
recreational benefits. Our sites are
maintained to ensure the health and
safety of visitors and our staff. The
next generation has a real personal
belief in the value of water.
OUR PLAN
Why this outcome?
Reducing our dependence
upon natural resources
drives innovation, improves
resilience and saves cost.
Furthermore, as one of
the largest emitters of
greenhouse gasses in the
East of England, it is right that
we play our part to mitigate
climate change.
ANNEX
Why this outcome?
18
A healthy natural environment
is the foundation of sustained
economic growth, prospering
communities and personal
wellbeing, and we need to play
our part to protect it.
A good outcome will be…
We lead by example on mitigating climate
change and protecting natural resources.
Decarbonisation and resource efficiency
are central to investment and operational
decisions. We continue to reduce energy
consumption and carbon emissions related to
water production, consumption and disposal.
Water footprinting is established as a social and
business norm and drives down usage.
A financially
responsible,
efficient business
earning fair profits
INVESTING
FOR TOMORROW
Provide the services our
customers expect over the
long term through responsible
asset stewardship
OUT
FOR CUS
AND
ENVIRO
CARING FOR
COMMUNITIES
Working responsibly
with and for your
community
Leading by example on
reducing emissions and
conserving the world’s
natural resources
A SMALLER
FOOTPRINT
A flourishing
environment,
for nature and
for everyone
FLOURISHING
ENVIRONMENT
A good outcome will be…
The environment in our region flourishes. Rivers, lakes, aquifers and coastal
waters support a rich biodiversity, contribute to a growing economy and provide
a valuable amenity for families and communities. There is joined-up, effective and
collaborative management of the water cycle in our catchments (areas drained by a
river) from source to tap and back to the environment. Our activities are sensitive to
environmental needs, and risks and adverse impacts are avoided. People, businesses,
water- and land-users in our region are engaged in the challenges of maintaining a
sustainable environment. All legal requirements are met.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
Why this outcome?
We respond to customer needs with tailored, innovative
services. Our processes are customer focused, and our
people highly motivated and capable. Service failures
are very rare and caused by factors beyond our control.
If failures do occur we act promptly and effectively –
keeping customers up to date and doing all we can
to prevent and reduce the impacts on individuals
and businesses.
This outcome will ensure that we continue
to listen to our customers and to focus our
business on the things that matter to them.
We have a responsibility to all our customers
to achieve excellence in everything we do,
because our customers depend upon us to
supply an essential service.
A good outcome
will be…
SATISFIED
CUSTOMERS
FAIR
CHARGES
Bills balance fairness,
affordability and
value for money
COMES
TOMERS
THE
NMENT
Drinking water
is safe, clean
and acceptable
SAFE
CLEAN
WATER
Our services cope with the
effect of disruptive events,
in particular increasingly
severe weather events. We
plan ahead for the impacts
of our changing climate
RESILIENT
SERVICES
SUPPLY MEETS
DEMAND
A good outcome will be…
A good outcome will be…
Why this outcome?
Customers are confident that
their water is always clean and
safe to drink and use. Water
sources are used wisely and
protected properly, and all legal
requirements are met.
The delivery of highquality, safe, clean
drinking water is the most
important thing we do and
a fundamental expectation
of our customers.
A good outcome will be…
Our business understands and is prepared for
the impact of extreme natural and man-made
hazards. Such hazards do not cause customers
to suffer interruptions to water supply or
disposal of sewage. Customers understand the
risks from disruptive events. We use the best
available science to understand, successfully
plan for and adapt to a changing climate. We
monitor the impacts of these changes on our
assets and processes, and consider their impacts
on all investments and decision making. We set
an example to others in the region on adapting to
our changing climate.
Why this outcome?
Making sure we
are able to provide
reliable water and
wastewater services
to our customers now
and in the future is a
key priority.
Why this outcome?
Customers recognise that water
resources in our region are particularly
vulnerable to increasing pressures
such as population growth and climate
change, and they want us to take
preventative action and to engage in
long-term planning to prevent problems
storing up for the future.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
ANNEX
Prudent investment in reliable,
affordable and sustainable supplies
that are flexible enough to cope
with uncertain demands. Manage
changing demand on our water
and wastewater systems from new
and existing customers, as well
as meeting demand and enabling
economic growth with additional
supply. The level of leakage is
acceptable to customers.
Many of our customers are telling us
that they are worried about bills rising,
and it is clear that incomes are not
keeping up with the cost of living. In
addition, some customers are concerned
that our monopoly status means we
have no incentive to keep prices fair and
affordable. Against this background it
is vital that we ensure that customers
perceive our bills to be fair, affordable and
value for money.
OUR PLAN
Manage and
meet the growth
in demand for
sustainable and
reliable water
and wastewater
services
Why this outcome?
CUSTOMERS ARE AT THE HEART OF OUR PLAN
Ensuring that
you are very
satisfied with
your service
Customers recognise that
our bills are a fair way
of covering the costs of
what we need to do. Bills
are seen to be affordable,
and the service provided
represents good value for
money. Tariffs are simple
and easy to understand.
We recover fair costs
from developers for the
infrastructure needed
when new houses are built.
OUR TRANSFORMATIONAL JOURNEY
A good outcome will be…
19
OUR TRANSFORMATIONAL JOURNEY
CUSTOMERS ARE AT THE HEART OF OUR PLAN
OUR PLAN
THIS IS WHAT YOU WILL SEE IN THIS SECTION…
Bills and affordability
20
The cost of delivering our Plan 24
Balancing expenditure
26
Wholesale expenditure
27
Our retail plan
38
Our financial strategy and plan
40
Measures and incentives
46
In summary: the four price controls at a glance
48
Board statement
50
BILLS AND
AFFORDABILITY
We recognise that household budgets
are under pressure, which lead us to
place even greater importance on
responding to feedback received
via regular contact and consultation
with customers. This has helped us
to achieve what we regard as the
right balance between keeping bills
affordable and the need to invest to
maintain and improve vital services.
To achieve this, and to deliver the ten outcomes, we’ve
focused on the following key areas:
•Challenging ourselves to deliver additional
efficiencies, both in the wholesale business
and retail services. In retail we are taking on
the challenge of finding efficiencies to offset
real cost pressures. Our Plan puts us beyond the
current frontier.
•Working with the Environment Agency to ensure
The draft Business Plan was the subject of our biggestever consultation with customers. It was based on
keeping bills flat before inflation, and over 90% of
customers surveyed thought we had got the balance
right and that the Plan was acceptable. We paid
particular attention to what vulnerable customers told
us, especially those who struggle to pay their bill. They
said that we should do more to reduce bills and we took
on that challenge.
ANNEX
The independent Customer Engagement Forum
reinforced this view, so we are going beyond the
expectations of the majority of customers and cutting
bills even further, in real terms.
20
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
investment decisions driven by environmental
legislation are based on robust evidence.
We take our legal obligations to protect and
enhance the environment very seriously, but we
need to make sure that any investment results in
real improvements to the environment before asking
customers to pay more. We’ve been working closely
with the Environment Agency to make sure that any
investment is based on robust evidence. Together,
we have reduced the investment needed to meet
the requirements of EU environmental directives
from a potential £1.3bn to £322m. This compares to
£164m in AMP5 and will add approximately £8 to
average household bills by 2020.
•Reducing our forecasts of additional costs and
•Reducing the weighted average cost of capital,
even though forward interest rates have increased.
We have taken advantage of current low interest
rates through a hedging approach for a proportion
of our debt that maximises the benefit for
customers. The cost of putting in place this strategy
to reduce the impact of rising interest has been
borne by the company.
This, together with our Plan to absorb half of inflation
if RPI increases to between 3% and 4.5% (see page
23), means that the average bill will rise by less than
half of inflation in each year of the next period.
We have considered whether it would be better to
give a one-off reduction in bills and then increase
bills by inflation each year after that, but customers
have consistently told us that it is easier to budget if
volatility in bills is kept to a minimum.
•Reduced headroom in financial covenants to
Average household water and
wastewater bills
(£)
We will hold increases in average
household bills to at least 1.8% p.a.
below inflation1
£440
£445
£450
£457
£462
£468
2015–16
2016–17
2017–18
2018–19
2019–20
500
2014–15
600
Key
Bill impact
before inflation
Bill impact after
inflation
400
We recognise the challenge we face in delivering
our Plan against a backdrop of bill reductions in
real terms, but believe this will drive innovative
thinking, efficiencies and new approaches; encourage
greater levels of collaboration with customers and
stakeholders; and further transform the way we
operate and do business in the future.
300
200
100
CUSTOMERS ARE AT THE HEART OF OUR PLAN
the minimum needed to maintain and secure
investment grade status.
OUR TRANSFORMATIONAL JOURNEY
This means that the average household bill will
reduce in real terms from £440 in 2014–15 to £403 in
2019–20. We have assumed that inflation will average
3% p.a. throughout the period, which means that after
inflation, the average household bill will be £468
in 2019–20.
taking on more risk of costs increasing. We
manage our business on a commercial basis for
the long term, unconstrained by the shorter-term
five-yearly regulatory cycles. For example, we’ve
reduced our forecast for energy costs and taken
steps to fix a significant proportion of future
energy costs.
The reduction in bills in real terms is a result of the various challenges made in developing this Plan:
Explanation of change in bills (before inflation)
(£)
460
OUR PLAN
440
420
400
380
360
340
320
Average bill
2014–15
Efficiencies
Key
New
obligations
Investment to
improve services
and for growth
Average bill
2019–20
Increase
ANNEX
Decrease
Lower profit
and interest
1 Our Plan assumes that the RPI increases by 3% p.a.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
21
The previous graph shows the impact on the average
bill. Account should also be taken of those metered
customers who pay only for what they use, and of
those customers who pay an ‘unmeasured’ charge.
Our customers in Hartlepool, and some customers in
the main Anglian region, only have one service, either
water or sewerage. So the impact on the bill for each
category of customer is shown in the charts below.
As illustrated in the graphs, unmeasured bills are
higher and increase at a faster rate than measured
bills, because their consumption is higher. Customers
on average save more than £100 a year by switching
to a meter. By 2015, 87% of households will have a
meter fitted, and 79% will pay a measured charge. We
will increase this so that, by 2020, 95% of households
will have a meter fitted, and 88% of customers will pay
a measured charge.
Vulnerable customers with relatively high measured
consumption can also use the WaterSure and
AquaCare Plus tariffs to help reduce their bills. In
addition, we plan to offer a new social tariff from April
2015 to provide additional support.
£609
250
£204
£207
£211
ANNEX
£255
£257
Hartlepool average household
water bills
(£)
200
150
£152
£155
£158
£161
£165
£148
100
Bill impact before inflation
Bill impact after inflation
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
2019–20
2018–19
50
2017–18
2019–20
50
2018–19
50
2017–18
100
2016–17
150
100
2015–16
£253
200
150
2014–15
£250
2016–17
£201
£246
2015–16
£199
2014–15
200
£195
£245
£440
2019–20
300
250
£432
2018–19
300
£424
2017–18
2017–18
2016–17
2014–15
2014–15
Average household wastewater
bills
(£)
£416
2019–20
100
£408
2018–19
100
£407
2017–18
200
100
2019–20
300
200
2018–19
300
200
2017–18
300
2016–17
400
2015–16
400
£457
2019–20
400
£450
2018–19
500
£440
£445
2016–17
600
500
500
Key
22
£623
2016–17
£468
£594
2015–16
£462
£580
£549
2015–16
600
Average household measured
water and wastewater bills
(£)
2014–15
600
Average household unmeasured
water and wastewater bills
(£)
£637
2014–15
Average household water and
wastewater bills
(£)
Average household water bills
(£)
OUR PLAN
because it reflects the savings made by customers
who switch from an unmeasured to measured charge.
We are forecasting almost 190,000 customers will
switch, each saving an average of £100. By 2020, we
expect 88% of customers will be paying measured
charges. As more customers switch, the remaining
unmeasured customers pay more because, on average,
their consumption is expected to increase (as those
customers with lower unmeasured consumption
will switch). Hartlepool average water bill increases
are higher than average for the same reason. To
encourage customers to switch to a measured charge,
we allow two years from the date of switching for a
customer to switch back to an unmeasured bill if they
find they are worse off.
The average water and sewerage bill increase
is a combination of the average measured and
unmeasured bill increases, but is lower than either,
2015–16
OUR TRANSFORMATIONAL JOURNEY
CUSTOMERS ARE AT THE HEART OF OUR PLAN
What happens to each group of
household customer?
again whether we can continue to absorb half of the
impact of higher inflation on customers’ bills. We
have prepared a plan that already means the company
absorbs significant risk and passes on the benefit of
efficiency challenges to customers. We may not be
able to also absorb the impact of higher inflation if
greater pressure were put on the company through
additional adjustments.
Affordability of bills is also crucial for our business
customers and impacts on their ability to secure and
grow their businesses. The level of bills for business
customers will vary depending both on the scale
and on the combination of services provided across
water supply, sewerage and trade effluent treatment.
The structure of bills is also dependent on annual
consumption, determining whether customers are
charged a two-part tariff (fixed and volumetric
charges) or a three-part tariff (fixed, volumetric and
peak charges). On average, default tariffs will rise by
0.5% less than RPI.
Additional help for vulnerable
customers
While we are reducing bills in real terms, there are
some customers who may need additional help.
We offer a range of tariffs, services and partnerships
targeted at our business customers to help them
manage their consumption and hence the size of their
water bill.
We recognise that if RPI is higher than forecast, this
will put further pressure on customers’ ability to
pay. We have taken action to mitigate the impact of
inflation on our own costs, for example, by locking in
the price of 40% of our energy costs through to 2020.
•Making sure that customers are on the lowest tariff
for their individual circumstances. We currently have
two assistance tariffs, WaterSure and AquaCare
Plus. In June 2013 we had almost 44,000 customers
on these tariffs, which is one of the highest of any
water company.
•Providing metering and practical water efficiency
advice to help customers reduce their bill.
•Offering a series of payment options to help
And we want to go even further to protect
customers. Subject to Ofwat accepting our Plan in
the round, we will absorb half of any increase in RPI
between 3.0% and 4.5%.
customers to budget and best manage the payment
of their bills.
Inflation is not predicted to rise above 4.5% over the
next few years. However, should this happen, then the
impact upon our costs would be unpredictable. We
would hope to continue to absorb a proportion of this
higher inflation, but would need to review the impact
on our business and our ability to do so.
Assuming inflation remains within predicted limits,
what would this mean for our customers? For example,
inflation at 3.4%, in line with PwC’s report for Ofwat1,
would see bills reduce in real terms by 2% and rise after
inflation by 1.4%.
•Continuing to offer the Anglian Water Assistance
Fund to help customers who have historic debt get
back on track. Our annual contribution the Fund is
currently £750,000 p.a. and we will increase this to
£1m p.a. from 1 April 2015.
In addition to the WaterSure and AquaCare tariffs,
from 1 April 2015 we are also proposing to provide
additional support through the introduction of a new
social tariff. This will ensure that customers who have
been independently assessed by a third-party advisory
agency as needing additional support will be able to
access a discounted tariff. We are already working
with the Citizens Advice Bureau in Northampton
on a pilot study to test the process for carrying out
assessments, and if successful, we will hope to roll this
out across the region. We will be undertaking further
customer consultation on this proposal, as required by
legislation, over the next few months.
OUR PLAN
Our strategy for addressing water affordability has
the support of the independent Customer and
Community Panel.
? WANT TO KNOW MORE?
See Strategy in focus: Addressing affordability
and bad debt, in ‘Outcomes in detail’.
ANNEX
Sharing some of the risk of higher inflation in respect
of our costs will provide a real challenge to the
business. In the current period, while inflation has
averaged 3.3% p.a., all of the efficiencies that have
been achieved have been offset by additional costs
that were not foreseen at the last determination,
including the cost of the transfer of private sewers,
mitigating the impacts of drought, reducing leakage
and paying new carbon taxes and environmental
charges. Interest charges form a large part of our
annual costs and while interest rates have fallen over
recent years, the benefit of this has been wholly offset
by the cost of holding necessary cash reserves.
We are confident that Ofwat will be able to accept
the intentions behind our Plan but if significant
adjustments are made, we will need to review once
Our existing comprehensive package of measures
includes:
CUSTOMERS ARE AT THE HEART OF OUR PLAN
Protecting customers from RPI
OUR TRANSFORMATIONAL JOURNEY
Business customers
1 PwC, Economic assumptions for PR14 risk analysis, July 2013.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
23
OUR TRANSFORMATIONAL JOURNEY
CUSTOMERS ARE AT THE HEART OF OUR PLAN
OUR PLAN
ANNEX
24
THE COST OF
DELIVERING OUR PLAN
Summary of expenditure
The total cost of delivering our Plan
over the next five years is £4,746m
This expenditure reflects a number of trade-offs and
balances. Throughout, we have balanced the benefits
of investment against the impact on customers’ bills.
We have set ourselves challenging efficiency targets
to drive forward frontier performance.
The table below compares the expenditure allocated
to outcomes compared with the categories used
in past price reviews. The figures given are post
efficiency, net of grants and contributions, and in
the 2012–13 price base.
Running the
Extending
business and
the service
maintaining the to cope with
current level of growth (£m)
service (£m)
Enhancing
Enhancing
the service
the service
due to legal
due to
obligations
customer
(£m) priorities (£m)
Total
expenditure
(£m)
Satisfied customers
–
–
–
65
65
Fair charges
–
–
–
1
1
Safe, clean water
–
–
68
–
68
Resilient services
–
–
23
98
122
Supply meets
demand
–
215
–
61
276
Flourishing
environment
–
24
371
8
403
A smaller footprint
–
–
–
–
–
Caring for
communities
–
19
23
18
60
Fair profits
–
–
–
–
–
Private sewers and
pumping stations
–
–
–
113
113
Total wholesale
base opex and
maintenance, retail
opex, retail capex
3,638
–
–
–
3,638
Total expenditure (£m)
3,638
258
485
365
4,746
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
•We have allocated 100% of our capital maintenance
Expenditure by outcome
We have prepared business cases for all capital
expenditure and have allocated that expenditure to
outcomes. There are some instances where investment
in a single business case is relevant to more than
one outcome. For example, increasing the
interconnectivity of our network will contribute
to the delivery of ‘Satisfied customers’, ‘Resilient
services’ and ‘Supply meets demand’.
expenditure to ‘Investing for tomorrow’, because
this is about maintaining our current level of service.
Together with operating costs and retail costs, this
expenditure falls into the category ‘Running the
business and maintaining services’.
•We have not allocated any expenditure to ‘A smaller
footprint’ because this outcome is all about doing
things differently, rather than spending money. We
have already demonstrated that, instead of costing
more, reducing our use of finite resources results in
cost savings.
•Similarly, we have not allocated any expenditure to
OUR TRANSFORMATIONAL JOURNEY
Having conducted our biggest ever consultation with
customers, and worked with many different people
and organisations to help shape our draft Plan, we
have agreed ten outcomes that have driven our
business planning for AMP6. These will be delivered by
the whole business, including the retail businesses. The
allocation of total costs against outcomes is set out in
the chart below.
‘Fair profits’. We believe that a fair profit depends
on driving efficient performance throughout the
whole business rather than increasing costs
for customers.
CUSTOMERS ARE AT THE HEART OF OUR PLAN
Expenditure allocated by outcome
(£)
5000
4500
4000
3500
3000
2500
2000
1500
OUR PLAN
1000
500
0
Running
Satisfied
the
customers
business
and
maintaining
services
Fair
charges
Safe,
clean
water
Resilient
services
Supply
Flourishing A smaller
Caring
meets environment footprint
for
demand
communities
Fair
profits
Private
sewers and
pumping
stations
Total
£4,746
million
£65
million
£1
million
£68
million
£122
million
£276
million
£403
million
£0
million
£60
million
£0
million
£113
million
76.4%
1.4%
0.0003%
1.43%
2.6%
5.8%
8.5%
0%
12.8%
0%
2.4%
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
ANNEX
£3,638
million
25
OUR TRANSFORMATIONAL JOURNEY
BALANCING
EXPENDITURE
Affordability
of the Plan to
customers
Efficient
and timely
investment
to maintain
services
A Plan which is an
appropriate balance
of price and service
New statutory
obligations
3000
Improving the
service in line
with customer
priorities
Growth in
the region
2000
Key
Retail wholesale
Wastewater
wholesale
Water wholesale
1000
Efficiency &
innovation:
delivering more
for less
ANNEX
OUR PLAN
0
Growing
asset stock
requires more
maintenance
Running the
business and
maintaining
services (£m)
Doing more
Extending the
service to cope
with growth
(£m)
Enhancing the
service due to
legal obligations
(£m)
Non-discretionary
investment
26
£4,746m
4000
Total expenditure £m
CUSTOMERS ARE AT THE HEART OF OUR PLAN
5000
Getting the
most out of
our resources
Ensuring
investment
decisions are
based on robust
evidence
Prioritising
improvements
to provide the
best value
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
Enhancing the
service due
to customer
priorities (£m)
Discretionary
investment
Running the business and maintaining
services
numbers have been stated under UKGAAP and also
after adjusting to reflect the latest IFRS accounting
standards. UKGAAP and IFRS differ in their
classification of some expenditure, which moves
from capital investment to operating expenditure,
but the total is the same.
The tables below set out the wholesale costs of
running the business and maintaining services.
To allow comparisons with the current period, the
Base operating costs £m
Water
Sewerage
p.a. 2015–20
p.a. 2015–20
Total 2015–20 2013–14
Annual
p.a. 2015–20
Cost
166
829
223
1,114
389
1,943
IFRS
188
939
240
1,200
428
2,139
Water Sewerage
Total
2015–20
Forecast
2010–15
1,189
UKGAAP
603
710
1,3141
IFRS
493
624
1,118
Running and maintaining
the business at current
levels of service £m
Water Sewerage
Total
2015–20
UKGAAP
1,433
1,824
3,257
IFRS
1,433
1,824
3,257
items of equipment, or an individual length of pipe,
and the impact that the failure of each individual
component would have on our service. We also
use this to assess the costs and benefits of our
maintenance programme.
The operating costs, including pension deficit
payments, are a carry forward of the 2013
annual costs.
Investing in maintaining services
OUR PLAN
Operating costs
389
CUSTOMERS ARE AT THE HEART OF OUR PLAN
UKGAAP
Maintenance
Expenditure
(Totex) £m
OUR TRANSFORMATIONAL JOURNEY
WHOLESALE
EXPENDITURE
This approach has been assessed by Ofwat as being
leading and our independent assurers, Halcrow,
commented:
Our customers tell us that good stewardship of our
assets is one of our fundamental responsibilities, as
is the provision of safe, reliable, clean water and the
removal and treatment of wastewater.
“Anglian Water’s approach to investment planning
reflects current best practice in asset management,
embodying sound risk-based principles and
incorporating reliable asset-specific data.2”
ANNEX
This helps us to prioritise the investment required
to maintain our growing asset base, and to ensure
that the investment is cost efficient and we are not
spending any more than we need to. Our established
set of risk-based models ensures that every pound of
investment is targeted to where it is most needed. This
is done by modelling the deterioration of individual
1 Includes £19m operating costs associated with AMP5 carry-over
investment.
2 Halcrow, Technical Assurance - Executive summary, 2013.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
27
OUR TRANSFORMATIONAL JOURNEY
CUSTOMERS ARE AT THE HEART OF OUR PLAN
As part of our approach to continuous improvement,
we have achieved and maintained certification to
Publicly Available Specification (PAS) 55 - Asset
Management through Lloyd’s Register. We plan to gain
ISO 55000 accreditation in January 2014 when the
new standard is released.
Planned expenditure
Overall, after, efficiencies, we are planning £1,295m
expenditure (an increase of 6%, excluding metering,
from AMP5) to maintain assets and services. This
increase reflects a growing asset base, and increased
use of technology, instrumentation and automation in
the management and control of our operations. For
example, as illustrated earlier in our transformational
journey, we pioneered the centralisation of scheduling
and deployment of jobs a decade ago. We also
have one of the most extensive telemetry systems
in Europe.
Capital Maintenance
Expenditure (£m)
AMP5
PR14
Planned Business
Plan
Water Above Ground Assets
194
217
Water Below Ground Assets
214
240
Wastewater Below
Ground Assets
170
188
Wastewater Above
Ground Assets
370
381
Meter replacement
33
76
207
193
1,188
1,295
Management and General
Total
2012-13 price base, after efficiencies, UKGAAP. Excludes AMP5
carry-over operating costs.
Water Non Infrastructure (above ground
treatment assets)
We have 146 water treatment works and 389
storage assets that, if allowed to deteriorate, would
result in water quality failures. Our Drinking Water
Safety Planning approach is central to how we
manage drinking water quality. Our forward-looking
modelling has identified an increase in the rate of
investment required for short-lived assets installed
to meet increased water quality standards. A further
risk of water quality failures has arisen due to
assets becoming obsolete because spare parts are
increasingly difficult to procure given the pace of
innovation and developments in new equipment.
Water Infrastructure (below ground assets)
Our underground network of pipes is over 38,000km
(23,600 miles). Over AMP5 our burst rate has
averaged 152 bursts per 1,000km of mains. The
deterioration of these assets is due to corrosion or
material failure. Other factors that impact on the burst
rate include accidental damage and seasonal ground
movements exacerbated by increasing extreme
weather patterns. We plan to maintain the burst rate
at current levels throughout the AMP6 period, and
reduce where possible. With current replacement
rates, this brings the average operational life of our
pipes to 370 years.
Wastewater Infrastructure (below ground assets)
The recent transfer to our ownership of private
sewers virtually doubled our network. Excluding this
new transfer, the underground network we manage
of sewers and rising mains (pumped sewers) is over
40,000km (24,800 miles). The average collapse rate is
420 per year. At the current replacement rate it would
take nearly 1,000 years to replace the entire network.
Sewer collapses can lead to severe inconvenience and
distress for customers, including blocked drains and
toilets that don’t flush away. In extreme cases, there
1600
Capital Expenditure (£m)
OUR PLAN
Capital maintenance expenditure UKGAAP
1400
1200
1000
800
600
400
200
ANNEX
0
AMP1
AMP2
AMP3
AMP4
AMP5
AMP6
AMP7
AMP8
Key
Water
Sewerage
Water (projected expenditure)
Sewerage (projected expenditure)
1H
alcrow have been appointed to provide independent assurance to the Board of Anglian Water and challenge on behalf of the Customer
Engagement Forum as to the effectiveness and efficiency of our proposed plan.
28
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
Meter replacement
The maintenance of our revenue meters is assessed
separately, using an economic model to optimise the
costs and benefits of replacement. It is important to
maintain our meters as they can become less accurate
with age and may under-record consumption. There
is a risk that bills will be inaccurate and it also reduces
our ability to manage leakage effectively.
•While a meter is under-recording this results in
inaccurate bills and unfair cross-subsidies. Then
when it is replaced it will result in an unexpected
bill increase.
•Suspending our meter replacement programme
would result in a significant shift in costs to AMP7
which we consider unfair to future generations of
bill payers.
Asset Serviceability
We forecast that for 2013-14 all four categories of assets
will be assessed as ‘stable’ for asset serviceability.
In 2011-12 our wastewater infrastructure was assessed
as marginal.
We are delivering a very strong performance this year
against all measures in Wastewater Infrastructure, with
a number of key measures forecast to be at reference
level. Therefore, we anticipate a move back to stable at
year end.
? WANT TO KNOW MORE?
See Annex 3: Past performance
P56
OUR PLAN
Our Plan includes £76m (compared with £33m in
AMP5) to replace 880,000 revenue meters, which
represents 49% of our total stock1. During AMP5 our
proactive replacement programme focused on small
meters (15mm) only (which have an average economic
life of 12–13 years), because the case for replacing
larger meters had not been robustly proven. Since
then, research has shown that these larger meters
also under-record with age, so additional investment
will be required in AMP6 to replace those that have
reached the end of their operational life.
CUSTOMERS ARE AT THE HEART OF OUR PLAN
Wastewater Non Infrastructure (above ground
treatment assets)
The region we serve is the largest by land area of
any sewerage company. It is predominantly rural
with thousands of small dispersed communities and
relatively few urban centres. Which is why we have
1,123 treatment plants and 4,923 sewage pumping
stations. We are required to meet some of the highest
environmental standards in the UK. Our region is
characterised by low-flow, slow-moving rivers and
large areas of intensive farming, and this drives tight
environmental standards. We have made significant
investments to meet environmental standards, including
in high technology assets, for example, to replace
traditional trickling filters which would have been a
preferred treatment method in the past. These assets
are short lived and when they fail they compromise the
treatment plant performance, leading to a works sample
failure and potential environmental pollution.
The Customer Engagement Forum challenged us on
whether we could reduce bills in AMP6 by suspending
our proactive meter replacement programme, only
replacing them when they fail. We do not consider this
the right thing to do for two main reasons:
OUR TRANSFORMATIONAL JOURNEY
can be internal and external flooding of customers’
homes and property. We plan to stabilise and maintain
the failure rates at current levels against an increasing
trend of asset deterioration.
ANNEX
1 In AMP6 we are planning to replace 880,000 ‘dumb’ meters that will reach the end of their useful life, with ‘smart’ meters. The cost of a like-forlike replacement (‘dumb’ with ‘dumb’) is £74. The additional cost of replacing ‘dumb’ meters with ‘smart’ meters is £28m. Want to know more?
See Strategy in focus: Metering in ‘Outcomes in detail’, page 32.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
29
OUR TRANSFORMATIONAL JOURNEY
CUSTOMERS ARE AT THE HEART OF OUR PLAN
Enhancement expenditure
Our Plan includes £1,108m total expenditure
to enhance our services.
Total enhancement
Total £m
131
111
165
407
Wastewater wholesale
enhancement
128
374
199
701
Total £m
258
485
365
1108
Water wholesale
enhancement
Extending the
service to cope
with growth £m
Enhancing the
service due
to legal
obligations £m
Enhancing the
service due
to customer
priorities £m
Total £m
Metering and water
efficiency
46
–
27
73
–
66
–
66
27
–
32
59
Implementing the Natural
Environment Programme
(NEP)
–
46
–
46
Resilience
–
22
70
92
33
–
–
33
Security and Emergency
Measures Direction
(SEMD)
–
21
–
21
Low pressure
–
–
7
7
Other
–
2
7
10
106
158
143
407
Drinking water quality
Reducing our leakage
Total £m
ANNEX
30
Enhancing the
service due
to customer
priorities
Water wholesale
enhancement
Planning for growth
OUR PLAN
Extending the
Enhancing the
service to cope
service due to
with growth legal obligations
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
Extending the
Enhancing the
service to cope
service due to
with growth legal obligations
Enhancing the
service due
to customer
priorities
Total
£m
276
–
276
Planning for growth
128
–
–
128
Transferred assets –
private sewers and
pumping stations
–
–
110
110
First time sewerage
–
71
–
71
Flooding from sewers
–
–
44
44
Sludge strategy
–
18
–
18
Other
–
6
10
16
Resilience
–
–
15
15
Odour management
–
–
12
12
Improving the
environment (beyond
the NEP)
–
–
7
7
The Security and
Emergency Measures
Direction (SEMD)
–
3
–
3
128
374
199
701
Total £m
CUSTOMERS ARE AT THE HEART OF OUR PLAN
–
Implementing the
National Environment
Programme (NEP)
OUR TRANSFORMATIONAL JOURNEY
Wastewater
wholesale
enhancement
OUR PLAN
ANNEX
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
31
In the next five years we will continue to build on this
industry leading position:
Our priority is to make the most of the resources
we have, and since privatisation we have proved our
ability to achieve this. We put the same amount of
water into our network today as we did in 1989, even
though the local population has increased by more
than 20%. This has been achieved by:
•By investing £68m to increase the number of
households that have a meter fitted to 95%, and
88% of customers who pay a measured charge
by 2020 and begin the transition to smart meters.
We will do this without a compulsory metering
programme.
•Moving water around the region to where it is
needed most.
•By driving down leakage to 172Ml/d (15% of the
•A successful metering campaign: by 2015 87% of
water we put into supply) by 2020 in response to
our customers’ concerns. Reducing our leakage
from our current target of 211Ml/d (19% of the
water we put into supply) to 172Ml/d, will cost an
additional £59m.
households will have a meter fitted and 79% of
customers will pay a measured charge.
•Reducing leakage: over the last two years we will
•By increasing the number of water efficiency audits
and retrofitting of water efficient devices, at a cost
of £5m.
•Encouraging and supporting our customers to
As well as focussing on reducing demand, we will also
plan for increased water resources for the longer term
as noted above.
become more water efficient.
2012-13
2011-12
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2003-04
2002-03
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
1995-96
1994-95
Making the most of our resources
1993-94
CUSTOMERS ARE AT THE HEART OF OUR PLAN
have reinvested £35m of capital and operating cost
efficiencies to reduce our leakage to its lowest ever
level. We have the lowest level of leakage of any of
the larger companies in the industry1.
2004-05
OUR TRANSFORMATIONAL JOURNEY
Making the most of our water resources
+30%
Properties
supplied
+22%
+20%
Percentage change from 1993-94 levels
OUR PLAN
+10%
+0%
1993-94 levels
Water
supplied into
network -4%
-10%
-20%
Leakage
-32%
ANNEX
-30%
-40%
1 At 189 Ml/d in 2012-13, which is equivalent to 4.97 l/d/km of main compared with the next lowest water and sewerage company at 5.31 l/d/km.
32
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
Building resilience
The severe drought in 2010-2012 highlighted a number
of vulnerabilities in our supply system, particularly in
the event of a third dry winter. If this had occurred,
water supplies to customers in the worst affected areas
could only have been maintained if alternative supplies
had been available, water pressure had been reduced
substantially, or rota-cuts had been introduced.
We are already improving the resilience of our supply
system to drought, for example, by reducing leakage
and promoting water efficiency through a range of
innovative evidence-based campaigns.
The independent Economic Development Panel
supports our view that we have a fundamental role to
play in underpinning economic prosperity across the
region by supporting growth and in helping to make
this an attractive place to live and work. Our challenge
is to invest at the right level and at the right time to
ensure we can meet the demand of all domestic and
business customers. However, growth has been slower
than expected in recent years due to the economic
downturn, so we need to match spending with
actual need.
To forecast demand for new connections we have
referred to the Department for Communities and
Local Government’s most recent sub-national property
projections. We believe these to be overly optimistic,
so we have adjusted the figures to reflect the impact
on new connections of the current movements in
the housing market, and also incorporated a forecast
gradual recovery in the market by 2024-25. We have
tested this approach with housing developers in our
region, who agreed that our approach and forecast
was appropriate. If growth recovers more quickly, then
we will invest on the basis that it will be logged up1 at
the next price review, in line with established practice.
Growth chart
30
25
20
‘000
But we know we need to do even more. So we are
planning a new major raw water transfer from the
River Trent to support our Ruthamford reservoir
system. During AMP6 we will conduct detailed
planning to ensure that the proposal meets the needs
and aspirations of all involved. We are planning to
invest £4m to start the design in AMP6. It is currently
estimated that the transfer may cost £425m to deliver,
after 2020.
The East of England is one of the two fastest growing
regions in the country and is playing a key role in the
recovery of the UK economy.
? WANT TO KNOW MORE?
CUSTOMERS ARE AT THE HEART OF OUR PLAN
Our customer engagement showed that severe water
restrictions of this sort are one of the most unwanted
of all service failures. Customers are willing to pay to
avoid these measures and don’t expect to experience
any of them in their lifetime.
Extending services to support growth
in the region
OUR TRANSFORMATIONAL JOURNEY
We have an integrated strategy to build the resilience
of our business and plan to invest £107m to help
secure our future. This involves mitigating foreseeable
risks, and building flexibility into our systems and
processes to protect against unforeseen events.
The total investment includes £58m to improve the
interconnectivity of our water supply system, £20m to
improve the resilience of our water treatment works
against power shortages and disruptions, and £2m to
increase the resilience of our assets against flooding.
15
10
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
0
2010
5
OUR PLAN
See Strategy in focus: Resilience to drought, in
‘Outcomes in detail’.
Key
New Connections – AWS
New Connections – Office for National Statistics
ANNEX
1 This means that costs will be reflected in the RCV at 31 March 2020.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
33
OUR TRANSFORMATIONAL JOURNEY
Within our Plan we include a total expenditure of
£316m to support regional growth, which includes
the following:
•£117m for water service new connections, housing
estate mains and intra-zone transfers of water.
•£59m for sewerage connections and requisitions.
•£112m for additional sewage treatment works
capacity to meet increased demand.
•£29m to improve the existing sewerage network
to avoid increased sewer flooding and combined
sewer overflow events as a result of growth and
new developments.
OUR PLAN
CUSTOMERS ARE AT THE HEART OF OUR PLAN
A large part of these costs will be recovered through
forecast contributions of £156m. The total expenditure
required net of grants and contributions is £161m
(Water £33m and Sewerage £128m).
Drinking Water Quality
There has been significant investment over many years
to improve drinking water quality. Since privatisation
we have invested £1.2bn1 to meet improved standards,
achieving 99.96% compliance with drinking water
standards in 2011 and 2012. Despite this, the need to
address deteriorating raw water quality remains a key
priority in the East of England.
We are working with the Environment Agency
to model the effect of decades of nitrate use on
farmland that is seriously affecting the quality of
the groundwater sources on which we depend. We
have identified five sources at significant risk of
deterioration, to the extent that, if untreated, the water
may fail to meet Drinking Water Standards.
The Drinking Water Inspectorate (DWI) has considered
whether we need to invest to treat the water at the
sources identified to remove nitrates before 2020. In
two cases, the DWI does not agree that investment
is needed, because while there is clear evidence of a
rising trend of nitrate levels, it is not certain that the
standard will be exceeded before 2020. Consequently,
we have removed these two investment schemes from
our Business Plan. We will be carrying out further
modelling of the groundwater data and if there is new
evidence we may submit this to the DWI and seek its
support for investment prior to Ofwat making its final
decision on the price review.
ANNEX
The remaining Drinking Water Quality investment
included in our Plan is £43m to address raw water
deterioration from nitrates, nickel and pesticides;
we will continue our lead reduction strategy at a
cost of £14m.
The DWI has considered whether we need to invest
to minimise the formation of disinfection by-products
(DBPs) before 2020 and is supporting our proposed
1 2012-13 price base
22012-13 price base
34
expenditure of £5m to enhance process monitoring
and control, and research to better understand DBP
formation. The DWI were unable to support our
proposal to increase the frequency of regeneration of
granular activated carbon at surface water treatment
works, but has stated that it will potentially support
a pilot study to enable the benefits of more frequent
regeneration to be tested. Consequently, we plan
to trial more frequent regeneration at one site. We
have arranged to meet with the DWI to discuss the
scope for the proposed trial and anticipate securing
DWI support for our revised proposal prior to the
final determination.
The challenge of hard water
Some customers told us they dislike the hardness of
their water. This is a familiar issue given that the water
in our region is very hard, but to tackle it would be
extremely expensive.
We recognise that some customers find hard water
inconvenient or unpleasant, while many others
recognise it as a feature of the local area and deal
with it independently, for example, with private
water softeners. Consequently, we have not planned
any specific investment to deal with the issue, but
will continue to help and support customers with
information and practical advice.
Environmental improvements
Since privatisation, we have invested £2.2bn2 to
transform the quality of water in our environment. Our
region is one of the most ecologically diverse in the
UK: there are more than 750 Sites of Special Scientific
Interest (18% of the total number of sites in England);
internationally important wetland habitats; as well as
1,238km of coastline and many beaches which hold
blue flags. The region is flat with low-flow and slowmoving rivers and is particularly susceptible to the
impacts of climate change with predictions of hotter
summers, wetter winters, rising sea levels and more
extreme weather events. All of these mean that EU
directives, such as the EU Water Framework Directive
(WFD) and Urban Wastewater Treatment Directive
(UWWTD), will have more impact on Anglian Water
than most other water and sewerage companies.
These directives are driving significant investment to
improve the quality of treated wastewater discharges
and reduce our abstractions.
We take our legal obligations to protect and enhance
the environment very seriously, but we need to make
sure that any investment results in real improvements
to the environment before asking customers to
pay more. We have been working closely with
the Environment Agency to make sure that any
investment is based on robust evidence. Together,
we have reduced the investment needed to meet the
requirements of EU environmental directives from a
potential £1.3bn to £322m. This compares to £164m
in AMP5 and will add approximately £8 to average
household bills by 2020.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
Catchment management – working
collaboratively
Integrated in our water and wastewater plans is our
catchment management strategy which addresses
a range of water quality issues, including the impact
of pesticides and fertilisers. Our team of catchment
officers continue to work at a local level to ensure
best practice is understood and implemented. In
addition, we will work at a regional and national level,
in collaboration with the NFU, CLA, EA, landowners
and others to encourage and support the adoption of
sustainable practices.
Embedded efficiencies
Operating costs
During AMP5 we have made efficiencies in operating
costs of around £70m, which has been offset by
increased costs arising from the introduction of private
sewers, increased Environmental Charges, an increase
in bad debts as a result of the recession and increases
in carbon taxes. We expect that our operating costs
for the five years 2010 to 2015 will be in line with the
AMP5 determination.
We have undertaken many sector leading initiatives
that have delivered efficiencies over the last five years,
including Shaping the Future, which involved a radical
change in employees’ terms and conditions, a move
to “single-man” working in waste water, off-shoring
back-office customer contact and debt recovery work
without the need for redundancies, reducing support
services staff numbers and costs.
Pension costs
We treat pension costs, including deficit funding, like
any other operating cost and a risk that has to be
managed. Our Defined Benefit Pension Scheme was
closed to new members in 2002. In 2011 we carried out
a significant review of the benefits of our scheme to
reduce costs and manage future risk.
We examined every aspect of the scheme and made
difficult changes which almost halved the cost of
future service. These included:
Catchment management solutions to deal with high
nitrate levels are very expensive and given the length
of time taken for nitrate to transfer into groundwater,
estimated at over forty years, are ineffective in the
short to medium term. For these reasons we are not
proposing any significant investment in catchment
management solutions to address nitrate problems.
•Putting a cap on the amount by which pensionable
salaries grow in any year (RPI up to 2.5%)
•Reducing accrual rates
•Introducing higher employee contributions (all
now pay between 6–15% of pensionable pay into
the Scheme)
OUR PLAN
Instead, we propose a pilot study in a small number of
catchments that feed major reservoirs and rivers used
for public water supply. This will focus on achieving
the right approach for the large arable catchments
prevalent in East Anglia, and will test the appetite of
customers in relation to various options available to
change behaviours.
•Removing unreduced pensions on redundancy
•Changing early retirement discount rates so they are
now cost neutral for the Scheme and the Company
•Reducing pension increases for those who leave
•Limiting the amount of tax-free cash members can
take from their AVCs.
ANNEX
The total cost of our integrated catchment
management strategy is £8m, which includes £2m for
product substitution1.
Our costs include the delivered efficiencies we have
made during this AMP period. We undertook extensive
totex efficiency modelling that shows we are close to
the frontier. We have assumed that we will have caught
up with the frontier by day one of AMP6, and we will
deliver further productivity improvements to push the
frontier forward.
CUSTOMERS ARE AT THE HEART OF OUR PLAN
Another key element of our environmental quality
programme, is investment of £71m to connect rural
communities to the sewerage network for the first
time. Our region has a large number of widely
dispersed small rural communities that have never
been connected to the sewerage network. Increasingly,
the traditional use of septic tanks and cesspools is
having a detrimental effect on the environment and we
have seen no slowdown in the number of applications
for connection under Section 101a of the Water
Industry Act 1991, where we have a statutory duty to
provide mains sewerage and treatment.
Efficiency
OUR TRANSFORMATIONAL JOURNEY
We have worked with the Environment Agency within
the guidelines set out in their Managing Uncertainty
guidance to understand and manage the risk of further
environmental obligations that may appear in Phases
4 and 5 of the National Environment Programme.
These obligations will not be known until after our
Business Plan has been submitted. We will work with the
Environment Agency to challenge the robustness of the
evidence for further investment, and where we agree
investment is justified we may seek an adjustment prior
to the Final Determination to cover these obligations.
1W
e have not prepared a separate business case for catchment management activity, because catchment management is one of several
activities that we are undertaking in order to address raw water quality issues.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
35
OUR TRANSFORMATIONAL JOURNEY
CUSTOMERS ARE AT THE HEART OF OUR PLAN
OUR PLAN
We did consider closing the final salary arrangement
to all future accrual, but actuarial modelling showed
that under legacy Scheme Rules, closure would have
been more expensive than radical benefit redesign.
The savings we made helped us absorb the cost of
new obligations, such as auto enrolment regulations,
and pension costs for new recruits.
We believe that pension costs, including deficit
payments, should be treated no differently to other
costs. Risks associated with a pension scheme are
best managed by the company, without additional
risk being placed on customers. In our Plan, we
have assumed that deficit payments and future
service costs will continue at the current level, and
are included in our totex spend. The next triennial
valuation will begin in March 2014, with any associated
risk carried by the company.
The company and Trustees have established a joint
working group to oversee the long-term financial
management strategy for the Scheme, together
with faster, more efficient controls and governance
processes, which enables action to reduce interest
rate and inflation risk at times when it is most cost
effective to do so.
We believe it is appropriate to manage pension risks
over a 15-year period, so that financing the Scheme
is not overly onerous on a single generation
of customers.
This approach is consistent with Ofwat’s treatment of
deficit funding as set out in Information Notice 13/17.
ANNEX
We have set ourselves challenging efficiency targets.
To assess our current relative efficiency, we asked
Nera to produce efficiency models based on the total
expenditure incurred by the water and sewerage
companies of England and Wales since 2000. Nera’s
work concluded we were 1.9% less efficient than the
frontier company on water, and 0.2% less efficient
on sewerage.
We have set an efficiency challenge so that we catchup with the frontier companies in the industry from
day 1 of 2015-16.
We have then gone further and assumed that as a
frontier company we can become even more efficient.
In assessing the potential for further improvements we
took two steps:
•We have looked at how the real cost of our
activities will increase, based on independent
forecasts of input price movements for the major
cost components of investment and operating costs
compared to Retail Price Index (RPI). The resulting
Real Price Effects are largely driven by forecast rises
in the cost of energy.
•Then we set ourselves an additional productivity
challenge of 1% per annum for operating costs and
0.7% per annum for capital investment.
In total we will deliver additional efficiencies in
wholesale costs of £151m over AMP6.
Capital investment
We estimate that the efficiencies made in delivering
capital schemes in AMP5 have resulted in our
investment plans for AMP6 costing £150m less than
would otherwise have been the case. Our solutions
reflect innovations during AMP5. For example, 90%
of sewer rehabilitations are carried out using “no dig”
techniques, which reduces cost and minimises
traffic disruptions.
Summary
5 year totals at 12-13 prices
36
Additional efficiency challenge for AMP6
Water Sewerage
£m
£m
Total
£m
Catch-up efficiency
36
5
41
Frontier productivity
improvements
46
65
110
Total efficiency challenge
82
70
151
Real Price Effects (above RPI
at 3%)
34
43
76
Efficiency challenge net of
real price effects
48
27
75
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
Investment profile
OUR TRANSFORMATIONAL JOURNEY
The profile of investment is driven to a large extent by
legal requirements, for example, National Environment
Programme obligations that are required by
March 2018.
We welcome the opportunity to advance investment
as part of a transition plan, which will allow us to
smooth investment between the AMPs. Our Plan
allows us to bring forward a total of £58m (funded by
our shareholders) for use in projects such as meeting
our obligations under the Natural Environment
Programme and maintaining our IT.
The transitional investment will allow us to deliver the
efficiencies set out in our Plan.
Impact of transition expenditure
Capital Expenditure (£m)
600
500
400
300
200
2018/19
2017/18
2016/17
2015/18
2014/15
2013/14
2012/13
2011/12
2010/11
0
2019/20
100
CUSTOMERS ARE AT THE HEART OF OUR PLAN
700
Key
No transition
With transition
OUR PLAN
ANNEX
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
37
OUR TRANSFORMATIONAL JOURNEY
OUR RETAIL
PLAN
Operating Costs Combined Retail
£m
Total 2015–20
2013–14
2020
2015–20
Annual
Cost
In out-turn prices
84
408
77
In 2012-13 prices
68
351
75
CUSTOMERS ARE AT THE HEART OF OUR PLAN
The small rise of retail costs in out-turn prices reflects the forecast increase in customer
numbers, and consequently levels of bad debt, over the period.
Capital Investment
- Retail - £m
2015–20
In out-turn costs
35
In 2012-13 prices
31
Household customers
Retail services are provided through a separate
Business Unit. While we remain an integrated company
and will leverage the synergies of wholesale and
retail functions to promote better outcomes for
customers, we will equally use the separate price
control disciplines to drive greater cost efficiency and
customer focus. Over AMP6, retail costs and margin
will represent 9% (£35) of the average household bill.
ANNEX
OUR PLAN
Our track record
38
Retail Services drives customer satisfaction across
the business. Customer satisfaction with our service
has risen progressively in recent years and in 2012-13
we were first in Ofwat’s Service Incentive Mechanism
(SIM) league table.
Our performance is the result of a series of strategies
that started with our Strategic Direction Statement
and culminated with our Love Every Drop Goal of
100% of our customers very satisfied with our service.
By any standards, seeking to have all of our customers
being very satisfied with our service is an ambitious
challenge. Customer expectations are continually
rising, driven by the economic climate and experiences
of other sectors’ retail services.
What is considered ‘great’ service today will be an
‘ok’ service tomorrow. To keep ahead of customer
expectations we continually focus upon what
customers tell us is important to them.
Our Voice of the Customer survey (over 30,000
customers in 2012-13) is at the heart of our listening
programme and the results are made available to team
managers, enabling them to respond to customer
comments and use in their coaching and performance
management of their teams. Voice of the customer
results are embedded in objectives and targets for
managers and front-line staff alike, linking customer
feedback directly to performance management.
We aim to provide a great customer experience
through our call centres, but we also provide
customers with the choice to self-serve through
effective automation. Customers are now self-serving
for nearly a quarter of our billing related phone calls,
providing choice, convenience and saving £2.5m in
retail service costs.
Costs and efficiencies
Our current Average Cost to Serve, based on
information previously shared by Ofwat, is below
the industry average. We expect unavoidable cost
pressures on retail costs over the coming five years.
For example, we expect salaries and energy costs to
rise. However, as part of delivering a high-quality plan,
we will take on the challenge of holding costs at the
2013-14 level.
Key to reducing the cost to serve is the management
of bad debt. Bad debt adds about £13 to the average
customer bill. Our customers have told us that they
expect us to pursue debtors fairly but rigorously. In
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
Our team of process engineers are available to these
customers to understand how water and wastewater
services are used in their production and hence how
efficiencies can be made, profiles smoothed and cost
savings achieved.
The Plan also allows for capital investment of £35m,
predominately to maintain the Information Systems
infrastructure.
We have extended our leakage detection service to
offer repairs when leaks are found and promote this
amongst our customers.
Business customers
The future
Through a separate sister company Anglian Water
Business (National)1, we have been active in the
Scottish business retail market since market opening.
In 2011 we won Asda’s Supplier of the Year Award. We
will build on this experience to ensure that Anglian
Water Business is well placed to compete successfully
when the market opens in England in 2017.
Large business customers
We read meters and provide SME customers
with quarterly bills giving frequent visibility of
consumption, and hence enabling water efficiency
action to be taken.
We are in the process of reviewing the structure of the
business for delivering retail services, both household
and business, and we will make positive changes
to ensure that we are well placed to drive service
and value for all of our customers in the new
competitive market.
We will develop a gain share proposition to encourage
customers to implement water efficiency measures, so
upfront costs are covered by a share of savings.
We are working with the Carbon Trust to help promote
the Carbon Trust Water Standard to customers.
The Standard certifies organisations that measure,
manage and reduce water use year on year. We have
trained our staff to become assessors for customers
working towards the Standard. This will provide
a cost-effective solution for businesses to receive
independent third-party recognition that it has not
only committed to water reduction and stewardship,
but has demonstrated genuine action on these.
To enable our business customers to have increased
control over their costs, facilitate network optimisation
and ensure our charges are fair and cost reflective,
our large user tariffs are structured so that part of the
charge is based on the customer’s peak daily demand.
We provide smart meters to these customers giving
them greater visibility of usage via a secure website.
ANNEX
We have progressively brought more customers
into this tariff structure over the last AMP, lowering
the eligibility criteria to 10Ml/year. This incentivises
businesses to modify and manage their water
consumption profile so that it is reduces fluctuations,
which reduces the impact on the supply network.
OUR PLAN
Anglian Water Business has a strong track record
in serving our larger business customers over
many years.
To help small and medium enterprises (SMEs), we
have partnered with WRAP (Waste & Resources
Action Programme), working on the Rippleffect water
efficiency programme for SMEs, which enables us to
engage with a greater number of smaller businesses,
providing customers with an online suite of tools for
water efficiency.
CUSTOMERS ARE AT THE HEART OF OUR PLAN
We are looking forward to the extension of business
retail competition and have been active in supporting
the programme for successful market implementation.
Our Chief Executive Peter Simpson is a member of
the High Level Group and we are a member of the
Programme Delivery Board, as well as having provided
a full-time project manager to the programme from
the outset.
Small and medium enterprises
OUR TRANSFORMATIONAL JOURNEY
recent years we have invested in a state of the art
debt management system, linked to external data and
information. We benchmark our debt management
practices extensively, including against international
collection and debt management organisations.
Experian Consulting Services, who carry out the
assessment, have reported year-on-year improvements
in our performance across a range of metrics and our
performance is assessed by Experian as being upper
quartile against international benchmarks. Ofwat set
out a number of best practice metrics as part of its
draft determination for the Thames Water Interim
Determination application; our assessment is that we
have implemented all of the measures. Despite the
increasing pressure on household budgets resulting
from the economic downturn, we have reduced levels
of bad debt from 3% of our revenue in 2010-11, to 2.7%
in 2012-13.
1 Formerly branded Osprey Water.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
39
OUR TRANSFORMATIONAL JOURNEY
CUSTOMERS ARE AT THE HEART OF OUR PLAN
OUR PLAN
OUR FINANCIAL
STRATEGY AND PLAN
Our financial strategy and plan for
AMP6 is set against a slow recovery
from the most severe economic
downturn, and the most uncertainty,
businesses and customers have faced,
compared with any previous price
review. This has challenged us with
a whole new dimension to our longterm business planning, as we work
to achieve the right balance between
investing to maintain and improve vital
services and keeping bills affordable.
The economic downturn, coupled with increasing
pressure on the cost of living, is seeing wage levels
grow more slowly than inflation. In its strategy to
help stimulate recovery, the Bank of England reduced
interest rates to historic low levels over the past
five years.
•Our cost of capital assumption is consistent with
the scale of risks faced by the business.
•Management action is being taken now, at
shareholder cost, to protect a proportion of our
debt against future rises in interest rates: this allows
us to reduce our assumed cost of debt.
•We are able to finance the substantial investment
that will be needed to maintain and enhance
services, ensuring that we retain and secure the
investment grade credit rating that is required by
our Licence.
•Margins allowed for in our retail businesses ensure
they are financeable and in line with the level of
risks that these businesses face.
•We have put in place a mechanism for the company
to absorb some of the impact of higher-thanexpected inflation on our in-year costs, rather than
placing that risk solely on customers.
•It proposes an appropriate package of incentive
mechanisms for achieving long-term outcomes.
For example, if we reduce interruptions to supply
beyond our committed target, or fail to meet the
target, there will be a modest financial reward or
penalty. The scale of the incentive reflects the value
that customers place on a continuous and reliable
water supply.
As a result, the cost of capital is now significantly
lower than was assumed when water prices were set
four years ago. So we have been able to finance new
investment at relatively low cost, but the longer-term
outlook for the economy in general and the capital
markets in particular remains uncertain.
Market expectations are for a rise in interest rates
– reflected in recent rises in forward rates – even
though the Bank of England suggests a continuation
of the current Bank of England monetary policy until
economic conditions improve substantially.
•Our assumptions on the Pay As You Go ratio and
There is a significant cost of carrying cash because
deposit rates are low. This is costing the company
around £42m p.a. compared to £17m p.a. in the five
years to 2010, despite the fact that our cash balances
have been at similar levels to those in AMP5 and our
debt has increased by over £1bn. This has significantly
offset the benefit of lower long-term debt costs to the
company throughout AMP5.
•It allows us to sustain our current financial strategy,
The right financial strategy and plan
depreciation are reasonable given the underlying
assets and expenditure assumptions, and also fairly
balance recovery of costs between present and
future customers.
which has delivered low costs of finance, and has
proved to be robust and resilient to turbulent
economic and financial market conditions.
•It maintains the incentives for the efficient operation
and financing of the business, which are appropriate
and in the long-term interest of customers.
•Other than for water rates, we have not proposed
ANNEX
We believe this to be a fair and robust financial
plan because:
40
•Our cost of capital assumption is towards the low
end of the range that is suggested by credible
market evidence for comparative levels of risk.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
any risk-sharing mechanisms or Notified Items,
reflecting customers’ desire for bills which are both
affordable and predictable.
These factors include:
The wholesale cost of capital is a critical driver of
both customer bills and returns to investors. Our Plan
assumes that the wholesale business faces a cost of
capital (on a vanilla basis) of 4.29%. This compares
to the PR09 determination of 5.1%. Taking account of
tax, our assumption is 3.94%, compared to 4.5% now.
This is a substantial reduction which is reflected in the
proposed reduction in average household customer
bills of around £23 (2012–13 price base).
•The success the company achieves in delivering for
customers and meeting the targets set for it by the
regulator.
•Whether investors drive the management of the
business to outperform, to ensure that the business
is able to absorb the challenges within the period
and keep bills stable without the need to resort to
interim determinations.
•Whether the company is prepared, as in our case, to
These cost of capital assumptions are central to our
financial strategy and plan for 2015-2020.
share outperformance with customers.
OUR TRANSFORMATIONAL JOURNEY
Cost of capital
•Recognition that investors are attracted to investing
Cost of Capital
Our
assumption
6.2%–8.2%
6.77%
2.55%–3.08%
2.8%
60–65%
62.5%
Vanilla Cost
of Capital
4.0–4.9%
4.29%
Post tax Cost
of Capital
3.7–4.5%
3.94%
Cost of Equity
Cost of Debt
Gearing
in infrastructure assets, underpinned by an RCV that
is linked to inflation.
•Whether investors have demonstrated, as
in our case, a commitment to inject equity
when necessary.
•Whether decisions on the level of gearing reflect
the risks facing the business and reduce gearing
when appropriate. During AMP5 we have reduced
gearing from 81.5% to 80%.
We have conducted a detailed risk modelling analysis
which indicates our cost of equity assumption is
consistent with the range of returns that might be
expected given a likely range of scenarios on future
demand and cost pressures.
The appropriate level of dividends for a company like
ours is influenced by a range of factors, including the
ownership and performance of the company.
The dividend policy is also limited by ensuring that
there is adequate headroom in our projections of
financial covenants. In particular, we currently maintain
gearing (total debt to RCV) at around 80%, which is
significantly below the level of 85%, at which we can
no longer pay dividends as set out in our financial
covenants. In assessing any dividend payment, the
independent non-executive directors are required
to consider business performance forecasts and
consider the potential impact of external factors in the
economy, as well as the regulatory environment, on
forecast cash flows.
We believe that this cash-based approach provides an
acceptable and fair return to the equity investors while
ensuring the liquidity requirements of the business are
fully met. The overall amount of ordinary dividends will
not exceed the free cash flow (defined as operating
cash flow less interest and capital maintenance
payments) generated by the company, and in practice
will be limited by the financial covenants. Special
dividends may also be paid in addition to ordinary
dividends, but these are limited by more stringent
financial covenant constraints. This policy is consistent
with Condition F of the Licence.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
ANNEX
Our dividend policy
Our dividend policy is to identify the residual cash
available for distribution having set aside sufficient
funds to meet our liquidity requirements for funding
our operations, servicing the capital programme and
also funding debt for 18 months.
OUR PLAN
Our assumptions are in the lower half of the ranges
suggested by our economic advisers, Nera, based on a
robust analysis of a range of credible market evidence.
We consider there is a substantial risk that interest
rates will rise over the medium term. Our cost-ofdebt assumption reflects the lower rates locked into
debt that has been raised recently and has not been
adjusted for additional future interest rate rises. In
response to recent market movements, we have put in
place financial instruments which will partially protect
against future rises in debt raising costs, which in turn
allow us to limit our cost of debt assumption in the
Plan. We do not see any compelling evidence which
suggests that the risks in the water and wastewater
businesses vary sufficiently to warrant a different
cost of capital in each. We continue to feel that the
company carries a significant level of risk if interest
rates rise rapidly over the period.
Our approach to gearing and dividends has proved
to be resilient to the impacts of the financial crisis;
to RPI falling below zero; in responding to the
recent drought; and in absorbing the costs of
new obligations.
CUSTOMERS ARE AT THE HEART OF OUR PLAN
Nera range
41
OUR TRANSFORMATIONAL JOURNEY
HOW WE HAVE APPLIED OUR DIVIDEND POLICY DURING AMP5
•A logging-up adjustment to RCV that was made
at PR09. This additional investment, to reflect
capital output inflation in AMP4 and to deliver
additional investment to meet growth in the
region, was funded primarily by lower dividends in
AMP4 and this was rebalanced in 2010-11.
CUSTOMERS ARE AT THE HEART OF OUR PLAN
•A relatively high level of gearing. The overall
business risk is the same as for a company with
gearing at Ofwat’s assumed level of 57.5% but
the thinner slice of equity is taking a higher
proportionate risk. At PR09, Ofwat assumed a
real cost of equity of 7.1%; this is equivalent to 11%
at 80% gearing without impacting on customer
bills. That is, there is a greater concentration of
risk for the equity holders. For a top-performing
company the incentive-based regulatory reward
for outperformance will be proportionately
higher. Meanwhile a bottom-quartile-performing
company may have no or very little equity
dividends in the regulatory period.
•Leading performance. At PR09, Ofwat assessed
Anglian Water as being a frontier performer on
capital investment costs and the Capital Incentive
Scheme baseline was increased by £183m (200708 price base). This capital efficiency incentive,
together with additional outperformance in AMP5,
has been reflected in additional dividends. Poor
performance would very quickly result in dividend
lock-up.
•The combined effect of higher inflation and
OUR PLAN
maintaining gearing at around 80% of RCV. RPI
was higher over the first two years of AMP5. This
Dividend chart
Key
300
Impact of capex
outperformance
net of drought
expenditure
250
200
Impact of higher
RPI net of
degearing
150
100
Impact of AMP4
logging
2012–13
2011–12
2010–11
50
ANNEX
was used partially to degear the business with
an element distributed in 2011–12. A fundamental
tenet of the regulatory regime is that real
returns are earned on an asset base that is
indexed by RPI.
The level of dividend in Anglian Water in AMP5 is a
combination of:
ormal equity
N
returns from both
appointed and
non-appointed
businesses
Shareholder commitment
The ultimate shareholders of Anglian Water are
committed to a long-term investment in the
company. The dividend policy is flexible and
based on residual cash availability. This is clearly
sustainable when balanced and supported by a
consistent approach and long-term commitment
from our shareholders. For example:
•Equity injections may be required to fund
additional investment or where inflation has
fallen below expected levels. In 2009, when RPI
fell rapidly below zero, shareholders injected
£115m of equity, until it had recovered to a more
normal position.
Sharing outperformance with customers.
Higher gearing reduced average household bills
by £6 p.a. A result of our higher level of gearing is
that we pay more interest and, as a result, less tax.
All of the benefit of paying less tax is passed
to customers and the average bill is £6 p.a.
lower than for a company with an average level
of gearing.
£220m efficiencies. The CIS mechanism will result
in 70% of the benefit, around £150m of efficiencies,
being passed back to customers through lower
bills. This is reflected in our Plan and the proposed
fall in average bills of 1.8% p.a. below inflation.
£205m additional expenditure on customer
priorities. During AMP5, we recognised that it was
important to do more. In total, we have committed
to £185m of additional investment and £20m
of additional operating costs for the benefit of
customers. The expenditure included, for example,
£43m to protect our customers from the impact
of drought and £30m to keep leakage at an
all-time low.
£50m of additional costs absorbed. Operating
cost efficiencies achieved during AMP5 mean that
we have been able to absorb additional unfunded
costs of some £50m associated with the adoption
of private sewers and bad debt. And
this is without the need to pass that expenditure
back to customers through the interim price
review process.
This graph shows the breakdown of dividends between the impact
of being highly geared, logging up and outperformance and RPI.
42
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
Risks sharing and incentives
Our cost-recovery assumptions enable us to balance
financeability of the Plan with affordability for
customers now and in the future.
We have put together an innovative and comprehensive
package of incentive and sharing measures.
The top tier risks associated with this Plan are:
•Delivering the challenging efficiency targets we
Wholesale Cost
Recovery
PAYG Rate
Run Off of 2015 RCV
Depreciation of
New RCV
Water
Sewerage
56%
52%
3.95%
3.85%
25.6 years
26.3 years
have set for ourselves in the Plan. In particular
holding the costs of the retail business at the same
level as 2013-14 will be an enormous challenge.
•Additional costs pressures over and above those
allowed for in the Plan, including:
OUR TRANSFORMATIONAL JOURNEY
Recovery of costs for Wholesale
– Bad debt cost increases.
– Energy cost increases.
The rates at which we depreciate new and existing RCV
are set to be broadly consistent with the existing rate
at which RCV is remunerated in the current regime. We
seek to maintain a broadly flat profile of depreciation
over time given reasonable assumptions about
expenditure in future regulatory periods. We also ensure
that there is sufficient depreciation in the current period
to allow for the risk of additional spending on capital
maintenance should the need arise.
– Increases in rate costs, particularly water rates as a
result of the 2017 rating revaluation.
–P
ension costs, as volatility in equity returns and
gilt rates continues.
– Interest rate rises.
•New environmental obligations emerging, in
particular as a result of the Water Framework
Directive phases 4 and 5.
•The increasing impacts of climate change and
severe weather events.
We recognise that customers are reluctant to take on
any extra risk, but are keen to share in benefits. Our
approach overall has been to acknowledge the genuine
imbalance that exists between the company and
customer in terms of the ability to carry risk.
Retail businesses
Our business plans for the retail businesses reflect the
planned introduction of competition in the market and
are based on the principle that each should be able to
stand alone and be financeable.
CUSTOMERS ARE AT THE HEART OF OUR PLAN
We have set the PAYG ratio at its “natural” rate – that is
one which reflects the actual balance of spend between
operating and capital expenditure in our plans.
One exception to this relates to water rates. At previous
rating revaluations there have been very large step
increases in rates on the water side of business, which
are not within our control. In fact, we regard this as a
specific and increasingly unfair tax on the water industry
and our customers.
We assume an operating margin of 1.9% in the
Household Retail business, which ensures that a
substantial working capital requirement (arising from
differences in customer and wholesale payment terms)
is met and allows for a return commensurate with the
risks faced.
In previous price determinations, five-yearly rates
revaluations around the time of the Final Determination
have allowed for a precise reflection of rates costs in the
price control. This time the revaluation has been delayed
until 2017, which adds a further element of uncertainty.
Based on advice received from our Rating Advisors, the
best estimate is that rates payable in the three years
2017-18 to 2019-20 will increase by c£42m1. We have not
included this estimate in our forecasts because it is not
certain and we will vigorously challenge an increase on
this scale. However, the scale is such that it is not a cost
we can absorb if it materialises and it is not within our
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
ANNEX
1W
e have received the following advice from Savills, our Rating Advisors. The accounting changes introduced as part of PR14 will, most likely,
result in the VOA not having some of the data it needs for the methodology it has previously used to determine a water cumulo rates value.
Anglian Water has appealed the 2005 water cumulo rates valuation and in the VOA’s evidence they place heavy reliance on the relationship
between the Regulatory Capital Value (RCV) and Rateable Value (RV). Within the evidence, the VOA has produced a check valuation of 4.84.9% of RCV. Applying this percentage to our forecast RCV for the water price control indicates an RV from 2017 of c£148m, compared with
the current RV of £88.8m. Assuming no change in the rate poundage and previous transition relief arrangements apply, the increase in water
cumulo rates payable would be £42m (2012-13 price base) in total for the three years 2017-18 to 2019-20.
OUR PLAN
In constructing default tariffs for the Non Household
Business, we assume an overall net operating margin
of 5.3% based on a gross margin of 8.3%. These levels
are consistent with margins in retail businesses in
competitive markets, including the water business
retail market in Scotland, and ensure that the retail
business can make a profit. We do not allow for any
loss of market share in the plan. We have allocated
margin across our tariff bands so as to ensure that each
customer segment is profitable on the basis of ensuring
that margin per customer is equivalent in each class.
43
OUR TRANSFORMATIONAL JOURNEY
CUSTOMERS ARE AT THE HEART OF OUR PLAN
control to manage. We are, therefore, proposing that
the revenue requirement for 2017–18 to 2019–20 should
be adjusted for any significant increase, or decrease, in
water rates based on this revaluation. We restrict this
to water rates as these are calculated in a way that is
unique to the industry, whereas the sewerage business
faces a similar risk to other businesses in the economy.
We are also proposing to share with customers a
potential £20m positive outcome from the current water
rates appeal, which relates to a period before 2010.
The key elements of the risks and incentives
package include:
A totex sharing ratio of 50:50
This means that each £ of outperformance, or
underperformance, is shared equally between company
and customer. This ratio for risk sharing is weighted
substantially more in favour of the customer than in
the current regulatory regime. Whilst our Plan includes
a substantial efficiency challenge, we expect over
the course of AMP6 to find ways to save costs, while
delivering better outcomes.
We have been challenged by the Customer Engagement
Forum to push the rate slightly more in favour of
customers (51:49). We believe that this would be
seen as window-dressing and we do not believe it is
appropriate to go further. The 50:50 split maintains the
right balance between incentives on us to encourage
outperformance and the expectation by customers
that we will outperform and that there will therefore be
benefit to share.
The challenging nature of the efficiency assumptions
in the Plan means outperformance will not be easy,
and we do not believe it would be appropriate to allow
customers to bear any more of this risk.
ANNEX
OUR PLAN
Risk mitigation mechanisms
Our approach has been to eliminate explicit risk
mitigation mechanisms as far as possible.
Generally we are content with the protections provided
in Condition B of our Licence. In particular, the Relevant
Change of Circumstance provisions provide protection
against new environmental obligations. We considered
a number of possible Notified Items but rejected them
on the basis that the company is best placed to manage
risk. In fact, we have demonstrated over many years
that we do have the capacity to absorb risk. Of the key
risks associated with delivery of this Plan, we will take
on the risk of reducing bad debt from current levels (a
reduction is required in real terms to hold retail costs
at the 2013-14 level); any volatility in pension costs and
interest rate costs; as well as the in period impacts
of severe weather events. For the same reason, after
careful consideration, we have rejected the notion of a
mechanism to pass through further potential increases
in power beyond the assumption that underpins our
assessment of future efficiency, despite the uncertainty
around the extent of the upward trend of energy prices
over the period. We believe we are well-equipped to
manage power price risk and have already been able
to hedge around 40% of the wholesale element of our
estimated AMP6 power requirements.
Inflation
We recognise that when inflation outturns at a higher
rate than was assumed at a determination, this can
be a benefit to companies, and this may be perceived
to be unfair or unwarranted. However, we believe that
the link to inflation is a fundamental feature of the
regulatory regime in water (and other sectors), and is
a key driver of the relatively low costs of capital from
which customers benefit. Conversely, if inflation outturns significantly lower, this can adversely impact the
company’s financial position.
We have included in our Plan an innovative sharing
mechanism which restricts the impact of higher than
expected RPI inflation on customer bills, whilst retaining
the essential link to RCV. Subject to Ofwat accepting
our Plan in the round, we will absorb half of any increase
in RPI between 3% and 4.5%. If Ofwat make material
changes to any element of the Plan, then we may
not have the capacity to take on the additional risk
associated with our proposed RPI sharing mechanism.
For out-turn rates of inflation which are above our Plan
assumption of 3%, but below 4.5%, we will only apply
to bills 50% of the difference between out-turn and 3%
in the period. For example, if RPI out-turns at 4% in the
November before the charging year, the bill increase
applied to the wholesale element of bills for inflation
will only be 3.5%. RCV would still be adjusted by 4%
in this example.
At rates above 4.5% there will be no automatic sharing,
but the impact of higher inflation on costs will be
reviewed to determine the appropriate course of action
and we would expect to explain to customers and
stakeholders the impact on our business. At rates below
3%, bills will be adjusted by the lower rate of inflation
and the company would bear the consequences of this.
We do not consider that it is appropriate to adjust for
the impact of RPI on RCV. This is consistent with Ofwat’s
approach to RCV in its recent consultation on Thames
Water’s price limits for 2014-151.
Outcome Delivery Incentives
We have designed a package of outcome delivery
incentives in line with the diagram on pages 46 and 47.
These consist of a package of non-financial and financial
incentives. Financial incentive rates have been based
on the detailed analysis of marginal benefits and
marginal costs to ensure that the levels of performance
over which the incentive operates, and the incentive
1 Informal consultation on a possible notice to determine Thames
Water’s price limits for 2014-15, October 2013, page 13
44
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
Tax
We have calculated the projected taxation in the
AMP for the wholesale business will be £26m in Water
and £35m in Wastewater. Our calculations assume that
the corporation tax rate will remain at the announced
rate for 2015–16 of 20% throughout the AMP and are
based on our actual gearing level of 80%. We have
also prepared our calculations on the basis that
Anglian Water Services should be treated as a
stand-alone company.
In addition to our outcome performance measures, we
remain subject to a wide range of specific obligations.
For example, the Environment Agency and the Drinking
Water Inspectorate will continue to report on a suite of
performance measures relating to existing obligations.
We will also produce annual progress reports, and this
will enable customers and other stakeholders to hold
us accountable for the delivery of our Plan. We will
report on progress against the outcome performance
measures, and explain where we have made a variation
from our Plan.
Financeability
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
ANNEX
We believe that our Plan is financeable at a whole
business level. We have tested the Plan against interestcover ratios and asset-based ratios at test levels which
are consistent with maintaining an investment-grade
credit rating for a business with gearing at 62.5%. Based
on the notional plan at 62.5% gearing, the resulting
ratios are broadly in line with test levels although there
are small breaches in individual years. However, when
we overlay this into our own actual financial structure,
we meet our covenant requirements and we therefore
judge this to be acceptable.
OUR PLAN
We believe that this combination of targeted and
incentivised outcome performance measures,
transparency about our progress and variations in our
Plan, provides adequate protection for customers whilst
allowing for flexibility and innovation in how the Plan
is delivered.
CUSTOMERS ARE AT THE HEART OF OUR PLAN
The largest predefined incentive to deliver outcomes is
associated with delivering stable serviceability, which, as
in the existing regime, puts up to 50% of maintenance
investment in any category at risk. Other incentive
measures, including the outcome delivery incentives
that we propose, provide a maximum potential penalty
of £25m p.a. for five years in AMP7. Of this £10m is from
Ofwat’s Service Incentive Mechanism (SIM) adjustment.
The maximum reward available is £6m, of which £5m
is from Ofwat’s SIM. These represent an additional 0.1%
p.a. revenue, but an additional -1.5% p.a. revenue as a
downside over and above the performance incentives
currently in place.
We have also used our risk modelling to generate
distributions for the key interest cover ratios based on
reasonable assumptions about the range of outturns
on a number of key cost drivers. We have looked
at the range of outturn ratios against the threshold
ratios consistent with progressively lower target credit
ratings. This has allowed us to take a robust quantitative
approach to downside risk. The results of this analysis
demonstrate that there is an acceptably low risk of ratios
materially breaching test levels which are consistent
with the lowest investment-grade credit rating. However,
the modelled distribution of ratios is skewed to the
downside, reflecting the relatively high level of risks
being taken by the company within this Plan.
OUR TRANSFORMATIONAL JOURNEY
rates themselves, are supported by economic analysis
based on the costs and benefits of our Plan. The
setting of financial incentives at this level of detail is
a new approach and there has been some concern
expressed by the Customer Engagement Forum that
customers may not be willing to see increases in bills
in the future as a consequence of us achieving more
than is committed to in the Plan. We have therefore
been cautious in designing our incentive package at
this price review. We have not generally applied high
incentive rates and have only proposed a small number
of incentives which involve rewards and penalties.
45
OUR TRANSFORMATIONAL JOURNEY
MEASURES AND
INCENTIVES
£
Ofwat Totex assessments
Network plus incentive
Network management incentive
A+
Ofwat Key Performance
Indicators
A+
Key
Ex-post judgement (others are ex-ante/mechanistic)
£ A+
£
Discretionary
sharing (RPI
impacts on costs)
Publication of
discretionary
sharing of benefits
Financial incentive
Reputational incentive
2020+ Future measure
FAIR
PROFITS
CUSTOMERS ARE AT THE HEART OF OUR PLAN
Existing incentive
Proposed outcome incentive
£
2020+
£
ANNEX
OUR PLAN
A+
Provide the services our
customers expect over the
long term through responsible
asset stewardship
A more radical change of measures to make an
assessment of ‘asset stewardship’ to be developed
Working responsibly
with and for
your community
Failure demand
Recreation revenues
Traffic Management
Act charges
Service Incentive
Mechanism (SIM)
Abatement notices
A+
A+
Cost saving from
carbon reduction
OUT
FOR CUS
AND
ENVIR
CARING FOR
COMMUNITIES
Service Incentive
Mechanism (SIM)
A+
Survey of community
perception
A+
Operation carbon
(reduction from baseline
in real terms)
Leading by example on
reducing emissions and
conserving the world’s
natural resources
A SMALLER
FOOTPRINT
Embodied carbon
(reduction from baseline)
Enforcement/
prosecution by EA and
other regulators
EA and other regulators’
publications, scrutiny,
measures and
enforcement
2020+ (reduction from baseline)
EA and other regulators have sufficient powers to ensure we
meet our obligations
Meeting our obligations may not deliver outcomes customers
want (if our actions are not the only problem for example)
£
A+
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
Abstraction Incentive
Mechanism (AIM)
% bathing waters attaining excellent status
% of SSSIs (by area) with ‘favourable’ status
A flourishing
environment,
for nature and
for everyone
FLOURISHING
ENVIRONMENT
Water footprint
Ofwat Key
Performance Indicators
Ofwat Key
Performance Indicators
46
INVESTING
FOR TOMORROW
An evolution of Ofwat’s serviceability assessment,
using a basket of service/asset measures, with
performance assessed within ‘tramlines’
£
£
A financially
responsible,
efficient business
earning fair profits
Properties at risk of low pressure
Properties flooded internally (average 3 years)
Properties flooded externally (average 3 years)
A+
UK Customer Service Institute comparison
Qualitative SIM score (customer satisfaction)
% of sewerage capacity schemes using sustainable solutions
for example, Sustainable Urban Drainage Systems
2020+
A+
Risk-based flooding measure (based on
UKWIR recommendations)
A+
Survey of customer perception of:
•h
ow affordable our charges are
•h
ow fair our charges are
• t o what degree our charges
represent value for money
Guaranteed Standards
Scheme (GSS)
Failure costs/compensation
Service Incentive Mechanism
(SIM)
Ofwat KPIs
Consumer Council for Water
£
A+
We just do this
Drinking water quality is our highest priority
and we work effectively with our regulators
and stakeholders in order to maintain it
FAIR
CHARGES
Bills balance
fairness,
affordability and
value for money
Performance in this area is central to our ethos,
and is also adequately incentivised by Drinking
Water Inspectorate through publication,
scrutiny and enforcement
We therefore do not feel that any additional
incentive is required
COMES
TOMERS
THE
ONMENT
Drinking water
is safe, clean
and acceptable
SAFE
CLEAN
WATER
A+
Our services cope with the
effect of disruptive events,
in particular increasingly
severe weather events. We
plan ahead for the impacts
of our changing climate
RESILIENT
SERVICES
SUPPLY MEETS
DEMAND
2020+
£
A+
Water
trading
incentive
Ofwat Key
Performance
Indicators
Leakage (average 3 years)
Per property consumption (PPC)
A+
Security of Supply Index (SOSI)
2020+
Sewerage capacity measure
Leakage – annual target
£
A+
A+
Drinking Water
Inspectorate
publications,
scrutiny,
measurement
and enforcement
Security and
Emergency
Measures
Direction
(SEMD) audit
Civil
Contingencies
Act (CCA)
Independent assessment of the risks to
our assets
Ofwat’s cost assessment (Totex) incentives encourage us to
deliver solutions as efficiently as possible. In addition, we have
developed targeted measures of success and corresponding
incentives which we believe will help to ensure that we achieve
the right outcomes for our customers and stakeholders.
We have been mindful of existing incentives, and are only
proposing limited additional incentives, where they will
encourage us to do more of the right things in the future. We
have balanced a few financial incentives, where appropriate,
with reputational incentives. Good reputational incentives
can often be more effective than financial incentives for us,
as we place a high value on our reputation as a leading water
company. We will continue to review these measures and
incentives to ensure there are no unintended consequences.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
ANNEX
£
Frequency of level of service
restrictions (hosepipe bans)
Independent assurance that we are
abiding by our climate change our
strategy
Consumer
Council for
Water
OUR PLAN
Manage and
meet the growth
in demand for
sustainable and
reliable water and
wastewater services
£
% of population
supplied by single
supply system
Bad debt
costs
CUSTOMERS ARE AT THE HEART OF OUR PLAN
SATISFIED
CUSTOMERS
Ensuring that
you are very
satisfied with
your service
£
Service Incentive Mechanism
(SIM)
OUR TRANSFORMATIONAL JOURNEY
£
Water supply interruptions (seconds per total property
served) (average 3 years)
47
OUR TRANSFORMATIONAL JOURNEY
IN SUMMARY: THE FOUR PRICE
CONTROLS AT A GLANCE
Wholesale Water
Price Control
£m
Key assumptions
Fast money
1022
Pay As You Go ratio: 55.6%
Depreciation
545
Allocation of 2015 RCV: 38%
Revenue Requirement
2015 RCV Run Off Rate: 3.95%
Depreciation of New RCV over: 25.6 years
Return
574
Cost of capital – post tax: 3.94%
CUSTOMERS ARE AT THE HEART OF OUR PLAN
Cost of capital – vanilla: 4.29%
AMP5 true ups
15
SIM Incentive: 0.3% of revenues
Tax
26
Corporation tax rate: 20%
Actual gearing:80%
Total
2182
Expenditure
Maintaining the service
1433
Efficiency improvement: £82m
Enhancing the service
407
Real Price Effects: £34m
Total
1840
Base Operating Cost Adjustment: £5m (market costs)
Opening
2571
Reduction for past out-performance & true-ups: £132m
Closing
2711
Growth attributable to AMP6: 11%
-0.4%
RPI inflation: 3%. Bill impact of higher inflation restricted up to 4.5%
Regulatory Capital Value
Bills and Risk
Average K factor
OUR PLAN
Adjustment for water cumulo rates revaluation from 2018–19
Household Retail
Price Control
£m
Key assumptions
Revenue Requirement
Wholesale costs
4093
Operating costs and
depreciation
336
No increases in 2013–14 costs per customer after inflation
Efficiencies of c£37m over the AMP
2013–14 costs to serve below industry average
Margin
79
Net margin (EBIT/Revenue): 1.9%
ANNEX
Residual margin after allowing for working capital: 0.9%
Total
Bills
Average annual change in
household bills
48
4508
-1.8%
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
£m
Key assumptions
Fast money
1317
Pay As You Go ratio: 52.2%
Depreciation
843
Allocation of 2015 RCV: 62%
Revenue Requirement
OUR TRANSFORMATIONAL JOURNEY
Wholesale Sewerage
Price Control
2015 RCV Run Off Rate: 3.85%
Depreciation of new RCV over: 26.3 years
Return
913
Cost of capital – post tax: 3.94%
Cost of capital – vanilla: 4.29%
-29
SIM Incentive: 0.3% of revenues
Tax
35
Corporation tax rate: 20%
Actual gearing: 80%
Total
3079
Expenditure
Maintaining the service
1824
Efficiency improvement: £70m
Enhancing the service
701
Real Price Effects: £43m
Total
2525
Base Operating Cost Adjustment: £23m (market costs & private
pumping station adoption)
Opening
4178
Reduction for past out-performance & true-ups: £197m
Closing
4345
Growth attributable to AMP6: 8%
Average K factor
-1.2%
RPI inflation: 3%. Bill impact of higher inflation restricted up
to 4.5%
Non-Household Retail
Price Control
£m
Key assumptions
Regulatory Capital Value
CUSTOMERS ARE AT THE HEART OF OUR PLAN
AMP5 true ups
Bills and risk
Wholesale Costs
1169
Gross Margin
105
OUR PLAN
Revenue Requirement
No increases in 2013–14 costs per customer after inflation
Efficiencies of c£5m over the AMP
Gross margin as a % of Revenue: 8.3%
Net margin (EBIT/Revenue): 5.3%
Residual margin after allowing for working capital: 4.8%
ANNEX
Total
1274
Default Tariffs
Implied price per m3 of water
-0.5%
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
49
OUR TRANSFORMATIONAL JOURNEY
CUSTOMERS ARE AT THE HEART OF OUR PLAN
BOARD
STATEMENT
We, the Board of Anglian Water, are pleased to submit
our Business Plan for 2015 to 2020. Our Plan has
been developed following the Company’s biggest
ever consultation with customers and others with an
interest in the services that Anglian Water provides.
We believe that it strikes the best possible balance
of priorities, while delivering high-quality customer
service and keeping bills affordable.
Over the next period, we will spend a total of
£4,647m to look after customers’ water supply,
protect the environment and prepare the region
for future challenges such as population growth
and climate change. This is achieved while holding
increases in the average household bills to 1.8% p.a.
below inflation.
The Board has been engaged extensively in the
development of the Business Plan, starting with
a meeting in November 2011. Over 50% of Board
meeting time over the last two years has been
dedicated to the development, review and challenge
of the Plan.
In May 2013 the Board established a set of principles
for developing the Business Plan alongside Ofwat’s
criteria for a high-quality plan:
•Engagement with customers is important and our
Plan should reflect their views and priorities;
•The Plan should seek to balance the needs of
customers today in a time of austerity with the need
for a sustainable future; and
•The Board will take ownership of the Plan – not
ANNEX
OUR PLAN
‘gaming’ and not leaving it to Ofwat to moderate
and make trade-offs.
50
To challenge the Board in its thinking we engaged
with external experts and commentators. Sir Ian
Byatt, former Director General of Ofwat and Chairman
of the Water Industry Commission for Scotland
attended a Board meeting in April 2013; Dr Bill Emery,
Chairman of the Northern Ireland Authority for Utility
Regulation, former Chief Executive of the Office of Rail
Regulation and former Chief Engineer and Director
of Ofwat, has also challenged us on the development
of our Plan. Throughout, we have reflected on the
views of customers and the challenges made by the
Customer Engagement Forum.
All of the challenges made have resulted in a plan
that has changed significantly between the draft
plan that we published in the summer and this final
Plan. In many cases, the discussions have not been
easy as we have sought to achieve the right balance
between keeping bills as low as possible; recognising
affordability constraints; investing to provide the
necessary infrastructure in one of the fastest-growing
regions of the country; meeting the requirements
of the National Environment Programme and
other statutory obligations; investing for resilience
in a region which is one of the most affected by
the impacts of climate change; and all balanced
against the need to earn sufficient returns to deliver
sustainable investment over the long term.
The Board is confident that Anglian Water’s
Business Plan satisfies each of the requirements
for a high-quality plan set out in Ofwat’s Methodology
because it:
•Is designed to deliver good outcomes for current
and future customers and the environment.
•Is based on good-quality engagement with
customers and consumers, and the results of this
engagement are reflected in proposed outcome
commitments, and the Plan more generally.
The Company has conducted an extensive
engagement programme to ensure customers are at
the heart of our business planning. Working closely
with customers, the Customer Engagement Forum
and Independent Advisory Panels, we have agreed ten
outcomes that will deliver priorities for our customers,
the environment, local communities and the economy.
We have also agreed the measures and incentives by
which our progress in achieving these outcomes will
be monitored.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
•Will ensure that the company meets its statutory
•Is both financeable and affordable.
The Plan is financeable taking the balance of returns
and capital charges.
Our Plan will enable us to deliver all our statutory
obligations. The Environment Agency and Drinking
Water Inspectorate have included statements
confirming this to be the case in the Customer
Engagement Forum Report.
•Is cost efficient, containing accurate projections
and estimates.
We are confident that costs are efficient. Our assurers,
Halcrow Management Sciences, on behalf of the
Board and the Customer Engagement Forum have
specifically reviewed the basis of costs used in the
Plan and confirm that efficiencies delivered in AMP5
have been reflected in the Plan. We engaged Nera to
assess our total expenditure efficiency and we have
included additional efficiency challenges aimed to
deliver frontier efficiency from day one of the new
AMP period and then to deliver further efficiencies
beyond that. As part of the Board’s challenge
to deliver an enhanced Plan, we will absorb cost
pressures on the retail business.
reward between customers, investors, and other
stakeholders, with efficient proposals to share
‘pain and gain’ with customers.
Average household bills will rise by 1.8% p.a. less than
RPI (assuming RPI of 3% p.a.). As noted above, if RPI
is higher than 3% we will absorb half of the additional
RPI up to 4.5%. Vulnerable customers will receive
additional help. The narrative sets out the bills in the
context of current and forecast earnings and growth
in the economy. We expect bills as a proportion of
disposable household income by 2020 to revert to the
same level as ten years ago.
•Has a coherent narrative based on sound reasoning
and contains proportionate evidence.
Our Business Plan Summary sets out the key features
of our Plan and explains how we have put customers
at the heart of our decision making. This summary is
supported by ‘Outcomes in detail’, together with a
narrative and supporting business cases, as well as the
Ofwat tables and commentaries.
•Does not seek to game the regulatory process in
any way.
The Board has challenged management to ensure that
the key elements of the Plan are supported by robust
business cases which have been challenged further as
part of the assurance process described below.
OUR PLAN
•Proposes a reasonable balance of risk and
We are proposing only one risk-sharing mechanism
beyond the standard Relevant Changes of
Circumstance in Condition B of the Licence, to reflect
the risk of a step change in water rating valuation.
The Board tested the need for this risk mechanism
a number of times but, on balance, believes that the
uncertainty is such that we cannot provide an accurate
forecast in our Plan or effectively manage the risk.
CUSTOMERS ARE AT THE HEART OF OUR PLAN
obligations and enables the relevant regulators
to confirm this in the customer challenge
group report.
The balance of risk and reward and the sharing of
pain and gain have been the areas that have received
the most challenge by the Board. We believe that the
package of sharing included in this Plan achieves the
right balance. The innovative RPI sharing mechanism
means that if RPI increases beyond our 3% p.a.
assumption then we will absorb half of any additional
increase up to 4.5%. We will need to review the impact
on our business and consider whether we can absorb
a further proportion of inflation beyond 4.5%.
OUR TRANSFORMATIONAL JOURNEY
The draft plan and outcomes were tested with
customers in July this year and over 90% of customers
thought it was acceptable. The main reason that a
minority of customers found our proposed Plan to
be unacceptable was the level of the bill. The Board
challenged management to keep bill increases
affordable whilst ensuring that the Plan remained
financeable and capable of delivering the 25-year
strategy set out in our Strategic Direction Statement.
The Board was anxious that reductions in bills were
not achieved just by deferring spend in key areas –
such as resilience – to be funded by future customers.
Reductions were achieved through efficiency
challenges, reducing expected returns and working
with quality regulators to ensure that investment
would deliver real benefits.
ANNEX
ANGLIAN WATER
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51
OUR TRANSFORMATIONAL JOURNEY
We have worked collaboratively with other companies
on elements such as Water Resource Management
Plans to the benefit of our customers, but our Plan
has been built independently of other companies
and competitors.
An extensive assurance framework has been in
place throughout the development of our Plan. The
Board has sought external assurance, from Halcrow
Management Sciences and PriceWaterhouseCoopers,
on every process, assumption, data and information
which has been input into our Plan.
The Board continually keeps its governance processes
under review. In September 2013, Ofwat published
its consultation on board, leadership, transparency
and governance. We are supportive of the principles
that Ofwat has outlined. We expect to publish our
governance code by the end of 2013. We are working
on the structural issues that, once addressed, will
enable us to comply fully with this code by April 2015
(which is Ofwat’s deadline for full compliance).
The Board therefore commends the Plan to Ofwat and
confirms its willingness to support management to
deliver it over the course of AMP 6.
Signed by the Chairman on behalf of the Board
ANNEX
OUR PLAN
CUSTOMERS ARE AT THE HEART OF OUR PLAN
•Comes with a high level of assurance.
52
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
The key challenges from the Customer Engagement
Forum and how we have addressed them are
described below:
continue to make sure that customers are on the most
appropriate tariff for their individual circumstances.
We will also increase our annual contribution to the
Anglian Water Assistance Fund from £750,000 to £1m.
Challenge: Keep flat bills after inflation
Challenge: Develop mechanisms
to further share the benefits of
financial success between customers
and shareholders
We have looked at whether there are any better ways
to make sure any negative impacts or positive benefits
are fairly shared between customers and our investors.
In general, we believe that the current regulatory
system represents a fair balance of risk and reward.
However, we will do more to share the risk of inflation
with our customers and, if our Plan is accepted in
the round by Ofwat, then we will absorb half of any
increase in RPI between 3.0% and 4.5%. If RPI rises
above 4.5%, we would need to review the impact on
our business and whether we can absorb a further
proportion of this higher inflation.
Challenge: Ensure that Hartlepool
Water customers are fairly represented
A dedicated Discover, Discuss, Decide page was set up
on the Hartlepool Water website with a factsheet to
introduce the consultation, to explain how it impacted
on Hartlepool Water customers and how they could
get involved and take part. During the consultation,
two customer engagement roadshows and two future
customer events were held in Hartlepool to ensure
Hartlepool Water customers were fully represented,
and the consultation was promoted through the local
media. Hartlepool Water customers were also included
in willingness-to-pay studies and the acceptability
research.
Challenge: Ensure the costs of the
Natural Environment Programme
are proportionate
We take our legal obligations to protect and enhance
the environment very seriously, but we need to make
sure that any investment results in real improvements
to the environment before asking customers to
pay more. We have been working closely with
the Environment Agency to make sure that any
investment is based on robust evidence. Together
we have reduced the investment needed to meet the
requirements of EU environmental directives from a
potential £1.3bn to £322m. This compares to £164m
in AMP5 and will add approximately £8 to average
household bills by 2020.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
ANNEX
We are also proposing to introduce a new social tariff
from 1 April 2015. Eligibility for the new tariff will be
based on independent financial assessment by a thirdparty advisory agency, such as the Citizens Advice
Bureau. This will ensure that we reach those most
vulnerable and in need of help and support. We are in
preliminary discussions with the Citizens Advice Bureau
about the process for carrying out assessments and we
will be carrying out further customer consultation on
this proposal, as required by legislation, over the next
few months. We will continue to offer our AquaCare
Plus tariff and the national WaterSure tariff, and we will
We work with the Housebuilders Federation and will
support and encourage all developers to build waterefficient homes by abolishing infrastructure charges
for homes that achieve consumption of 80 litres per
person per day (equivalent to levels five and six in the
Government’s Code for Sustainable Homes).
OUR PLAN
Challenge: Extend support to the most
vulnerable customers through a social
tariff
Challenge: Find new ways to incentivise
developers to build water efficient homes
CUSTOMERS ARE AT THE HEART OF OUR PLAN
We have worked hard to meet this challenge and to
find efficiencies and smarter ways of working. Our Plan
assumes that the Retail Price Index (RPI) will increase
by 3.0% p.a. in the period 2015 to 2020. At that level,
average bills will reduce in real terms by 1.8% p.a. and
average bills will rise by 1.2% after inflation. In addition,
subject to Ofwat accepting our Plan in the round, we
will absorb half of any increase in RPI between 3.0%
and 4.5%. If RPI rises above 4.5%, we would need to
review the impact on our business and whether we
can absorb a further proportion of this higher inflation.
OUR TRANSFORMATIONAL JOURNEY
ANNEX 1: KEY CHALLENGES FROM
THE INDEPENDENT CUSTOMER
ENGAGEMENT FORUM
53
OUR TRANSFORMATIONAL JOURNEY
CUSTOMERS ARE AT THE HEART OF OUR PLAN
OUR PLAN
ANNEX 2:
MANAGING FUTURE
UNCERTAINTY
Planning for the long term is absolutely key to us
achieving the right balance between anticipating
future challenges, investing in the right things at the
right time, and managing inevitable uncertainties. In
addition, we need to secure customer confidence in
our ability to deliver a high-quality and reliable service
for them in the short as well as the long term, while
keeping bills affordable.
Our Strategic Direction Statement (SDS), published
in 2007, looked ahead 25 years and assessed the
challenges we face. Chief among which is tackling
the impacts of climate change in this particularly
vulnerable region, with the East of England being one
of the two fastest-growing regions in the UK.
While specific plans and provisions were made in
our long-term planning, we had to remain flexible
to changing circumstances. For example, economic
assessments in our SDS on the pace of growth were
made years before the impacts of recession hit the
UK. And on climate change, the scale and scope of
its impact appear less certain than when our SDS
was published, which at the time anticipated more
immediate consequences.
Our role in underpinning a thriving economy, in
securing a healthy environment, and in helping
communities have a more sustainable future, depends
on our ability to plan ahead. Which is why our
collaborations with a broad range of stakeholders and
customers are all vital to planning for long-term water
security and to securing our asset base so we can
maintain services.
Recently, we have taken the opportunity to go even
further in our long-term planning by introducing an
innovative scenario-based approach to look ahead to
2050. We used this approach to help better inform the
development of our business strategy.
ANNEX
In due course we will publish more information about
the scenarios project, together with a more detailed
analysis of what we have learned from it.
54
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
THE 2050s SCENARIOS PROJECT
To ensure that our strategy is resilient to future
uncertainty, we have used an innovative scenarioplanning approach to develop and test our longterm strategy. Drawing on experience and expertise
from all parts of the business, our Board and senior
management team has been closely involved
throughout.
Unlike conventional forecasting, scenario planning
develops multiple alternative futures. This puts
the focus on what might happen, as opposed to
what should happen, or what we would like to
happen. The purpose is much less about predicting
the future, more about achieving a better
understanding of the range of uncertainties by
examining what may happen if trends and events
unfold differently.
We developed four alternative future scenarios.
These were designed to provide extreme but
plausible alternative futures and show how in 2050
the water industry could look very different from
today, and what society might expects from it.
The diagram opposite highlights four scenarios,
and the key features of each in a ‘future world’.
At a high level, each scenario is defined by the
extent to which natural and economic resources
are constrained and by the extent to which society
becomes more or less collaborative at national or
local level.
By testing different strategic options against each
scenario, we selected strategies that perform well
in a variety of futures. For example, strategies
such as reducing our dependence upon finite
resources, and working with our customers to
increase water efficiency, performed particularly
well in all the scenarios. The project also
highlighted the importance of collaboration and
working with other sectors to increase resilience
and plan infrastructure.
Our four alternative future scenarios
OUR TRANSFORMATIONAL JOURNEY
CUSTOMERS ARE AT THE HEART OF OUR PLAN
ROBUST DECISION MAKING
Testing investment options in this way will also allow
us to select those that perform well in a range of
different scenarios and avoid, for example, the risk
of investing in under-utilised or stranded assets.
This will allow us to manage any uncertainty more
successfully because it can test the performance of
supply side and demand management options over
hundreds of possible scenarios.
OUR PLAN
Robust Decision Making (RDM) is an innovative
scenario-based approach to long-term water
and wastewater planning. We are developing this
through the Water Resources East Anglia project
in partnership with other water companies in
the Anglian region, the Environment Agency
and others.
ANNEX
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OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
55
OUR TRANSFORMATIONAL JOURNEY
We are proud of our track record of past performance:
We have delivered the outputs we set
ourselves in our PR09 Business Plan
In Part A of our 2009 Plan we set
out what we planned to deliver for
customers over the period 2010-15. We
can confirm that we have met those
commitments in all material aspects,
unless factors outside of our control
have intervened (for example, where
we have postponed investment in
response to the recession in the housing
market). Our delivery against our 2009
commitments is set out in our Business
Plan narrative.
We have achieved good (‘green’)
performance against most of Ofwat’s Key
Performance Indicators
Our performance on sewerage
infrastructure serviceability has been
disappointing, but thanks to the actions
we have taken, we are confident
of returning to stable in 2013-14.
Our only other ‘ambers’ have been
on environmental performance
where, in common with most other
companies, we have struggled to attain
the challenging standards set by the
Environment Agency. Achieving ‘greens’
in these measures remains a target.
We have maintained high levels of
customer satisfaction
The Consumer Council for Water’s
latest annual household tracking survey
for 2012-13 showed that 92% of our
customers were satisfied with their
water supply and 90% were satisfied
with their sewerage service1. The
corresponding figures for the industry
as a whole were 90% and 85%.
Ofwat’s Service Incentive Mechanism
tells us how well we are serving those
customers who call us for help. In 2011–12
we were ranked second on this measure
among the water and sewerage companies and in
2012–13 we were ranked joint first.
ANNEX
OUR PLAN
CUSTOMERS ARE AT THE HEART OF OUR PLAN
ANNEX 3: PAST
PERFORMANCE
1 http://www.ccwater.org.uk/upload/pdf/CCWtrackingsurvey1213.pdf
56
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
2012-13
Service Incentive Mechanism
79 points
85 points
Water supply interruptions
24 mins per property
14 mins per property
Sewer flooding
99 incidents
204 incidents
Leakage
199 Ml/d
189 Ml/d
Serviceability water infra
Stable
Stable
Serviceability water non-infra
Stable
Stable
Serviceability sewerage infra
Marginal
Marginal*
Serviceability sewerage non-infra
Stable
Stable
Security of Supply Index
100
100
Pollution incidents
116 per 10,000km
99.7 per 10,000km
Serious pollution incidents
2.0 per 10,000km
0.7 per 10,000km
Discharge permit compliance
97.1%
98.1%
Sludge disposal
100%
100%
Greenhouse gas emissions
481 kt CO2e
483 kt CO2e
Our assurance processes have
underpinned the success of our business
and inspired the confidence of our
stakeholders in our data
Regulatory action
ANNEX
There continues to be a number of pieces of casework
in progress. The earliest is a Competition Act case
which dates back to November 2009. The accusation
is of margin squeeze based on the offer made to
a developer to supply the Fairfields development
site relative to the offer made to a competitor. We
strongly refute the claim of any wrongdoing in this
case. We believe that the case has several analytical
shortcomings, including market definition and
the appropriate rate of return. We expect the
draft decision on this case to be made in
November 2013.
The other areas of outstanding casework relate to a
dispute raised under sections 42 and 30A of the Water
Industry Act in relation to the collection of developer
contributions to strategic water mains, and a dispute
under section 105 relating to the disputed adoption
of a surface water sewer between Anglian Water and
a developer. Ofwat has stated its intention to publish
draft decisions in respect to both in January 2014 and
December 2013 respectively.
OUR PLAN
We have embraced the changes
in Ofwat’s approach to regulatory
reporting and taken full responsibility
for assuring our own data. We were
one of only two companies not to
receive negative feedback from Ofwat
on our 2012-13 regulatory accounts
and we were excluded from Ofwat’s
criticism in November of companies’
August Submissions. The quality of our
assurance processes ensures that all
our business decisions are founded on
robust and reliable data.
We also applied to Ofwat in 2009 for a determination
under sections 40A and 110A of the Water Industry
Act in respect of the financial terms for the existing
bulk supply and discharge agreements for Priors
Hall, Long Croft Road and Great Billing. These are
three insets within our region which are served by
Independent Water Networks Limited under the new
appointments and variations regime. The case centres
around a disagreement over the suitability of a large
user tariff for serving an inset. The case has resulted
in several detailed requests for information from
Ofwat in relation to a variety of areas, most notably
cost allocation. We understand that Ofwat will be in a
position to issue a draft determination shortly, which
could have implications for the financial terms for
existing and future bulk agreements.
CUSTOMERS ARE AT THE HEART OF OUR PLAN
2011-12
OUR TRANSFORMATIONAL JOURNEY
Key Performance Indicator
* We expect to return to stable serviceability in 2013-14.
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
57
OUR TRANSFORMATIONAL JOURNEY
CUSTOMERS ARE AT THE HEART OF OUR PLAN
ANNEX 4:
MEASURES AND
INCENTIVES
Outcomes are inherently difficult
to measure directly, and are intended
to span more than one price-control
period. In order to judge our success in
achieving the outcomes we have defined,
some aspects of those outcomes need to
be directly measurable.
In order to assess whether we are achieving the
outcomes desired by our customers and the
environment (for example, satisfied customers),
we have defined measures of success (for example,
supply interruptions), which are related to that
outcome. Each measure of success has a committed
performance level by the end of 2020. An outcome
delivery incentive is then defined in case performance
at the end of the price-control period varies from
the commitment.
In choosing what should be measured for each
outcome, we have made use of the framework
developed by UK Water Industry Research (UKWIR)1.
The criteria for assessing potential measures of
success suggested in this framework were:
1. As closely related to the outcome as possible, and
covering a large proportion of the outcome
2. Informed by stakeholder engagement
3. Measurable, verifiable and comparable
4. Easy to understand by stakeholders
5. At least in part controllable by the water company.
Our approach has been to select measures of success
which we believe will encourage the right behaviours
and to focus our attention on areas of an outcome
which are not incentivised by other means. This
means we have a small number of targeted measures,
which closely align to both customer and stakeholder
priorities and will incentivise the right behaviours to
achieve the desired outcomes.
For example, in the past we have measured
environmental impact in terms of the effects of our
assets (such as discharge compliance and pollution
incidents). However, under the outcome ‘Flourishing
environment’, we are not proposing these as measures
of success. They are already measured by the
Environment Agency and our statutory obligations
will ensure that improvements against these measures
will remain a priority. Instead, we are proposing to
ANNEX
OUR PLAN
Outcomes terminology
1 UKWIR, 2012, ‘Defining and incentivising outcomes and measures of success’, (prepared by Frontier Economics).
58
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OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
We have also carefully considered what incentives are
appropriate for each measure of success. In making
these proposals, we have taken account of:
As a company, we respond strongly to reputational
incentives, and this has been a factor when deciding
whether to propose a financial or reputational
incentive. Our focus is on how the measures of success
and incentives will encourage us to operate in new and
innovative ways.
In many cases we believe that other regulators possess
sufficient enforcement powers to make further
financial incentives unnecessary. In some other cases,
such as our ‘Investing for tomorrow’ outcome, sizeable
financial penalties are proposed if we fail to perform
well against the proposed measures of success,
reflecting both the importance of investment in this
area and the absence of other incentives.
We firmly believe that an outcomes approach is in the
best interest of both customers and water companies
and will free up the industry to innovate and deliver
what is really valued. We are committed to making
this work over the long term, and this should give
confidence that we will continue to deliver for our
customers even if a particular piece of investment is
no longer monitored to the same fine degree as in the
past. We have proven our intent to go beyond what is
expected of us by the regulator through Love Every
Drop, and we will continue to do so to deliver against
the outcomes our customers value.
Example of an incentive mechanism based on economic analysis for properties at risk of low pressure
CUSTOMERS ARE AT THE HEART OF OUR PLAN
•The level of investment associated with the measure
•The relative priorities of customers and stakeholders
•Existing incentives
•The degree of confidence in the measurement
•And the guidance in the business plan methodology.
Customers are protected through the measures we
are proposing, as well as the many other existing
incentives which form the context in which
we operate.
OUR TRANSFORMATIONAL JOURNEY
measure those things which are directly valued by
customers and stakeholders such as the number of
coastal bathing waters achieving ‘excellent’ status.
While this is not something entirely within our control,
this is an example of what is actually valued by
customers, and we should therefore seek to make
improvements against this measure, looking to ensure
that investments we make to our assets to meet
statutory obligations flow through to actual benefits
to our customers and the environment. Such measures
are not without risk, and this is reflected in the
incentives we are proposing.
OUR PLAN
ANNEX
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59
OUR TRANSFORMATIONAL JOURNEY
CUSTOMERS ARE AT THE HEART OF OUR PLAN
OUR PLAN
The economics, however, assume that all of the
information is known to determine marginal costs
and benefits. In reality, it is only possible to make
estimates. We have taken a pragmatic approach given
the information available to us and attempted to
estimate marginal costs and benefits for our measures
of success and use them to set our committed levels
of performance and incentives where possible. For
future price reviews, this will be easier as WillingnessTo-Pay studies can be tailored to fit measures
of success.
The table below shows committed levels of
performance and the type of incentive that would
apply over the next five years. Full details of the
economic analysis supporting our committed
performance levels and incentives is available in our
Business Plan narrative.
Measure
In addition to our outcome performance measures, we
remain subject to a wide range of specific obligations.
For example, the Environment Agency and the
Drinking Water Inspectorate will continue to report
on a suite of performance measures relating to
existing obligations.
We will also produce annual progress reports, and this
will enable customers and other stakeholders to hold
us accountable for the delivery of our Plan. We will
report on progress against the outcome performance
measures, and explain where we have made a variation
from our Plan.
We believe that this combination of targeted and
incentivised outcome performance measures,
transparency about our progress and variations in
our Plan, provides adequate protection for customers
whilst allowing for flexibility and innovation in how the
Plan is delivered.
Incentive
type
Units
Committed Performance
Levels
Customer Satisfaction Index prepared by the
UK Institute of Customer Service
Rep.
rank
Ranked in the top 25%
of utilities
Qualitative Service Investment Mechanism score
Rep.
rank
Remain as a top 3 water
and sewerage company
Water supply interruptions (seconds per total
properties served) – averaged over 3 years.
£-
seconds
Reduce by 90 seconds to
750 seconds
Properties at risk of persistent low pressure
£ +/-
# prop.
Reduce by 260 properties
to 257
Properties flooded internally from sewers – averaged
over 3 years
£-
# prop.
Reduce by 27 properties to
304
Properties flooded externally from sewers – averaged
over 3 years
£-
# prop.
Reduce by 22 properties to
5,038
Percentage of sewerage capacity schemes
incorporating sustainable solutions such as SuDS
Rep.
%
25%
Survey of customer perception of: fairness of bills
Rep.
-
Improvement against
2015 baseline
Survey of customer perception of: affordability
of bills
Rep.
-
Improvement against
2015 baseline
Survey of customer perception of: value for money
of bills
Rep.
-
Improvement against
2015 baseline
NA
-
-
% of population supplied by single supply system
£-
% pop.
Reduce by 2.8% to 24.7%
Frequency of level of service restrictions
(hosepipe bans)
Rep.
freq.
Maintain at 1 in 10 years
Satisfied customers
Fair charges
Safe clean water
ANNEX
No additional measures of success proposed
60
Resilient services
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
Incentive
type
Units
Committed Performance
Levels
Independent assurance that we are abiding by our
climate change strategy
Rep.
-
Positive assessment
Independent assessment of the risks to our assets
2020+
-
-
Security of Supply Index (SOSI) – dry year
annual average
Rep.
SOSI
Maintain at maximum
level of 100
Security of Supply Index (SOSI) – critical period
(peak) demand
Rep.
SOSI
Maintain at maximum
level of 100
Leakage – averaged over 3 years
£-
Ml/d
Reduce the three-year
average from around 196
Ml/d to 177 Ml/d (implies 172
Ml/d in 2019-20)
Leakage - annual target (upper bound)
Rep.
Ml/d
Annual targets at 10% above
the glide-path to 172 Ml/d
Per Property Consumption (PPC)
£-
l/p/d
Reduce by 7 to 333 l/p/d.
Sewerage capacity measure
2020+
-
-
% of bathing waters attaining excellent status
Rep.
%
Increase from 58% to 67%
% of SSSIs (by area) with favourable status
Rep.
%
Increase from 49% to 50%
Operational carbon (% reduction from 2015 baseline
in real terms)
Rep.
%
Reduce by 7%
Embodied carbon (% reduction from 2010 baseline)
Rep.
%
Reduce by 60%
Water footprint (% reduction from baseline)
2020+
%
Rep.
-
Improvement against
2015 baseline
Water infrastructure
£-
-
Maintain at stable
Water non-infrastructure
£-
-
Maintain at stable
Wastewater infrastructure
£-
-
Maintain at stable
Wastewater non-infrastructure
£-
-
Maintain at stable
Future suite of measures (lead/lag/service impacts)
2020+
-
-
OUR TRANSFORMATIONAL JOURNEY
Measure
Supply meets demand
CUSTOMERS ARE AT THE HEART OF OUR PLAN
Flourishing Environment
A smaller footprint
Caring for communities
Survey of community perception
Investing for tomorrow
OUR PLAN
Fair profits
To be incentivised through mechanisms such as Retail Price Index sharing, cost outperformance incentives
and publication of unfunded benefits provided to customers
£ -= Penalty only financial incentive
#prop.
£ +/- =R
eward and penalty financial
incentive
% pop. = Percentage of population
Rep.
= Reputational incentive
freq.
ANNEX
Key:
= Number of properties
= Frequency
2020+ = Future measure
ANGLIAN WATER
OUR PLAN 2015-20: INNOVATION, COLLABORATION, TRANSFORMATION
61
Anglian Water Services
Anglian House
Ambury Road
Huntingdon
PE29 3NZ
www.anglianwater.co.uk
LED354/11/13
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