WET News

JUNE 2017 WET NEWS 7 News+ J ohn 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 methodology, 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 cus- tomer service "won't neces- sarily be set in the water sec- tor". The regulator is, therefore, considering bench- marking 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 "shiŽ 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 investors' and company managements' incentives with those of customers towards a "greater emphasis on service delivery". What's more, it will make sure performance commit- ments are "more transparent, stretching and powerful", so customers get more for their money and further improve- ments 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 affordability for customers if they are not expecting them. S enior executives set out to define the utility of the future at Utility Week Live – diversity will be the common feature, they concluded. What does good look like for the utility of the future? That was the question posed to four of Utility Week Live's transformative leaders in the show's closing session. The lively debate between Piers Clarke of Isle Utilities, John Reynolds of Castle Water, Simon Harrison of Mott McDonald and the IET, and Cheryl Latham of Brighter World Energy may not have come to any conclusive answers – but they posed some thought-provoking challenges, and had some fun along the way. First up, customers. This group of transformative leaders agreed that the end consumer should be the one calling the shots, with Harrison making reference to a paternalistic mindset still existent in some traditional utilities, whereby the business thinks it knows what is best for its customers. Our panellists challenged this mindset, agreeing that what customers want and need may look very different to what utilities think they want and need. This creates opportunities for new entrants to utilities markets – as John Reynolds, who runs a new water retailer for business customers, has realised. Declaring himself a "barbarian at the gates" of traditional utilities, he insisted that today's payment and billing options make it look as though "the sector is run by a bunch of Luddites", and even raised the tantalising possibility of a multi-utility bill with a single point of payment. Customers may go even further, our panel suggested, and take themselves off the grid altogether. Clarke raised the alarming prospect that within 100 years, a major public health incident, or series of incidents, could have destroyed consumer trust in water utilities to the point where customers process their own water, or buy it bottled from a trusted retailer. This raises the same risk for water companies as has been acknowledged by energy – becoming increasingly irrelevant as customers find their own solutions that bypass traditional networks. Different business models create different risk profiles, and our panellists acknowledged that traditional utility investors may baulk at the move to riskier businesses such as retail and grid-edge services. But they insisted that this shouldn't hold utilities back from transformation. Harrison suggested that regulators may be able to find a way round the problem by putting the risk of new business models on to the customers in the first instance, in recognition of the upside for end users. Clarke and Reynolds believed that different investors would be attracted to different parts of the disaggregated value chain, while Latham represents a new type of business model, with "angel" high net worth investors backing her business for social as well as financial objectives. Finally, the panellists were asked to consider whether regulation should encourage innovation, or get out of its way. Their answers were emphatic – our panel were firmly of the belief that the customers and the market will find their own solutions. Rather than identify the utility of the future, the debate identified that there is no such thing. The main feature of future utilities will be their diversity. Businesses may split into asset-heavy, traditional wholesalers and more agile, technology-driven customer- facing retailers. Or they may split into many more component parts. What is clear is that utilities of the future will look very different to today, being customer driven, disaggregated and truly diverse. Our panellists promised to come back in 30 years' time to see whether their predictions come true. We'll see you there! Utility Week Live reveals: 5 things to know about PR19 No one size fits all

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