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8 | 2ND - 8TH JUNE 2017 | UTILITY WEEK Event Utility Week Live reveals: 5 things to know about PR19 John Russell, Ofwat's senior director of strategy and planning set out the water regulator's thinking for the next price control at Utility Week Live. Here's what companies need to know. 1. Resilience expectations Russell said the regulator will build resilience into its PR19 meth- odology, and expects water companies to use "all the tools in their toolkit" to achieve better resilience outcomes. This may mean building new infrastructure, but companies also need to think smarter about resilience. "We can't just build our way into a more resilient sector," said Russell. 2. Customer service scrutinised Ofwat is in the process of developing a replacement for the service incentive mechanism, which will look at the full experience of a wider range of customers. In January, the Institute of Customer Service published its yearly UK Customer Satisfaction Index. The top three companies in terms of customer satisfaction this year are Amazon, ASOS and John Lewis. There were no water companies in the top 50. Russell pointed out that benchmarks for good customer service "won't necessarily be set in the water sector". The regulator is, therefore, considering benchmarking customer service in the water sector against other sectors. 3. Innovate to deliver "more for less" Many people think the water sector is not particularly innovative and, according to a recent survey water companies spend around 0.5 per cent of their turnover on innovation, compared with upward of 5 per cent in the unregulated engineering and technology sectors. Ofwat will incentivise companies to put more into innovation, by rewarding exceptionally ambitious business plans that "shi the frontier" on service and cost efficiency. 4. Strengthened outcome delivery incentives Ofwat has stated on many occasions that it will be "less forgiving" during PR19, and that it expects "enhanced level" business plans from all companies. Russell said the regulator wants incentives to better align inves- tors' and company managements' incentives with those of custom- ers towards a "greater emphasis on service delivery". What's more, it will make sure performance commitments are "more transparent, stretching and powerful", so customers get more for their money and further improvements in service. 5. Affordable bills for all The potential for a lower cost of capital and improved efficiency reflecting the introduction of the totex and outcomes should create scope for lower bills, Russell said. Companies will be expected to consider the profile of their bills as well as their level, as sharp movements in bills can affect afford- ability for customers if they are not expecting them. Q&A Piers Clark, chairman of Isle Group A head of Utility Week Live 2017, Piers Clark, Isle Group chairman and former commercial direc- tor at Thames Water, was voted one of the Top 10 most transformative leaders in the utilities sector. At the show, he spoke to Utility Week. What are the greatest obstacles to innovation and how can they be addressed? One of the main barriers to innovation is how water companies adopt new technology. What they tend to like to do is trial aer trial aer trial, and what we need to see is more pull from the asset management func- tions inside water utilities so that once a technology is trialled, it is properly adopted. What will be the impact of competition on innovation? Competition is going to be great for innovation because everyone's going to lower their margins as it becomes a fight to the death for who can offer water for the cheap- est price. The only way you can offer water at a cheap price is if you can control your costs. And the way you can control your costs is by doing things better, cheaper, quicker, faster than you did yesterday. How can greater flexibility be achieved in water wholesale? Flexibility is key to the wholesale business. It needs to adapt to the changing regulations and the changing environmental circumstances. We're seeing different weather patterns; more extreme rain events; hotter, drier summers; and so flexibility is absolutely essential to both the wastewater business and wholesale business. How they are going to adopt it requires innovation. It requires them having suites of technologies where you can control your duty and your standby and wrap things up and down according to the needs of those particular issues. What opportunities are there for innovation and new business models in the sludge market? The sludge market presents probably the hottest opportunity for new business models, mainly because everyone understands sludge and it's already a pretty mature market. I think we're going to see a lot of different models coming in. There will be the traditional ones where people are selling technology and the end user buys it and then operates it themselves. But there will also be models around gate fees, where the technology company builds the technology, they fund it themselves and then people bring their waste to that facility – say a gasifica- tion plant – and it gets processed on that site for a fee.