Utility Week

Utility Week 4th October 2013

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

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Interview I n almost two months final business plans for 2015-20 are due in to Ofwat. Consultation on Southern Water's draft has recently closed. The £3 billion plan contains a number of bold ambitions (see table). In line with a growing trend in the industry, Southern is proposing to deliver all this while capping price rises at the rate of inflation. Pre-inflation, its average water and sewerage bill will be the same in 2020 as in 2015 at £449; with inflation added, the average customer will pay £535 by the end of the period. This contrasts with an inflation+7 per cent price hike in the 2009 price review. Chief executive Matthew Wright brushes off the suggestion that capping prices at inflation is designed to keep on the right side of Ofwat and avoid the full strength of its glare when business plans are graded. Thames Water's recent rebuke over its interim determination would suggest this isn't an entirely unreasonable idea. Instead Wright explains: "A lot of things are driving it. There is concern about affordability and customer ability to pay… Our strong sense is that as a package, in most walks of life, for most companies, customers would like more for less or more for the same, so we have been very conscious about the overall effect on prices. The general economy is such that above inflation increases would attract some interest, if not criticism. "But there 's another reason. We've done the bottomup as well so we've got a very detailed plan that sits behind that… So it's not that we started with the bills rising by no more than inflation and worked backwards. We've worked both ways and we're confident we can deliver the improvements our customers want to see within an affordability envelope that sees bills rise by no more than inflation." Wright stresses that where customers have expressed a greater willingness to pay for a specific item – for example, more resilient water resources – Southern will prioritise and resource it, within the wider inflationcapped plan. He says: "What we've done is look at all the things customers have said are a priority and where they might pay more for those in individual components. But in the round they might also want us to either do less in some areas or become more efficient, so that by the time it feeds through into prices they are, at a component level, paying more for resilience but actually it's being offset by efficiencies or something else." Southern factored efficiency savings worth £180 million into its draft plan: £150 million of capital savings and £30 million of operational savings. Wright says additional help for those who particularly struggle to pay their bills should be in place for the start of the sixth asset management plan (AMP6) period, in the form of a social tariff. Preliminary research suggests customers would be willing to pay a cross-subsidy to the tune of up to £6 a year, though Wright notes that it's a difficult sell in practice. "Whether that's where we end up [is yet to be decided]; I think we have to go through various other phases to get there." Wessex Water, a social tariff pioneer, has kicked off with a cross-subsidy of just 50p. So, of all the business plan elements, what are Southern's priorities? Wright doesn't hesitate in listing first an improvement in customer service. He is refreshingly frank about the company's recent poor performance: "We are not contented in any sense with our customer service performance historically – it's been an area of particular weakness for us." He includes as reasons poor processes, under resourcing at peak times, and a culture not focused on the customer. Extensive improvement programmes are going on already and will continue into AMP6. Says Wright: "Sitting rather uncomfortably towards the bottom of the UTILITY WEEK | 4th - 10th October 2013 | 9

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