14 July 22
Moving forward on our Journey to 2025
By Stuart Ledger, Affinity Water CEO
We have made good progress this year. Our performance has improved across all of our key areas of performance. We have redefined who we are, launching a new look for the company and re-branded, we have put in place a new leadership team, and are revitalising the culture of the organisation. We have advanced our planning for our water resources management plan, our PR24 (Price Review) plan and our longer-term strategy. We have also launched a green financing framework and a green bond. I believe we are really moving forward as a business, but also know that we have much more to do over the next couple of years.
Cost of Living
I am concerned about the impact that Covid, as well as inflation and the cost of living crisis, might have on people’s financial situation. For customers, we’ve been very proactive in providing more support. We have a social tariff and debt trust funds, and are identifying and reaching customers who qualify, and we have also established various payment plans. We have used data and insight to proactively reach out to customers to offer support. We are supporting over 96,000 households, while at the same time, actually improving our collections process and our bad debt performance.
We contact customers we feel to be vulnerable through our Priority Services Register - not just from an economic point of view, but also those who have a critical need for water supply, perhaps a medical need, or people who are unable to get to where we may be supplying water in an emergency situation. We are pleased to report we now have over 92,000 customers on our Priority Services Register to provide extra support during emergencies.
Partnerships are key for us to drive our message and engage with customers – especially those hard to reach. We have partnered with debt charities and other organisations such at National Debtline, citizens advice bureau, Money Advice Service, Surviving Economic Abuse, StepChange and Turn2Us. Data sharing is also integral in helping us reach customers who may benefit from our support and we already have arrangements in place with UKPN (UK Power Networks and SSEN (Scottish and Southern Electricity Networks). In setting our tariffs for 2022/23 we accelerated a rebate of £3m to bring forward this benefit to customers.
Our financial performance
The last couple of years have presented several ‘once in a generation’ external challenges that have had an impact on businesses across the world, and we have not been immune to this.
The Covid pandemic had a massive impact on the usual ways society consumes water and we saw much higher water use over the last two years.
Energy prices have risen sharply over the last year and the treatment of water and distributing it to our 3.8 million customers makes energy one of our biggest costs.
Inflation has also been rising at its highest rate in 40 years and this means there are additional costs we need to pay to keep our network running and continue to supply customers with a reliable, high-quality supply of water.
Our hedging strategy for energy has protected us to some extent and will do so for the year ahead. Nevertheless, higher prices than we planned for have been a challenge from a cost perspective.
The Environment
The water industry has been in the media spotlight a lot this year due to combined sewer overflows, which are instigated by storms. As a water only company, the storm overflow issue doesn’t affect us directly. But nevertheless, it has brought to the forefront the whole conversation about water, its connection with the environment and with rivers. There are sewer overflows that go into some of the chalk streams in our area, but the biggest issue for those streams is that they have very limited flow in the first place. This is partly due to the abstraction to supply customers with water, and we need to look at how we can reduce this over time. So it does lead to the need to have those wider conversations, as a nation, about how we value water and use it sensibly, and address the challenges of water scarcity. Given that our supply area includes around 10% of England’s chalk streams, which are recognised as rare ecological habitats, this conversation is important to us.
One thing we are doing, and for the first time, is to have an integrated long-term water plan for the south, as part of Water Resources SE. Here, the six water companies work together to address the need for water in the face of climate change, population growth and impacts on the environment. These plans will then feed into our own water-resources plans and then into our next price review PR 24.
Our Performance
Our business strategy is like others in the sector geared to a number of key outcomes and metrics - and while we have 28 performance commitments that are all important, I have been focusing on eight of those which we know are the ones our customers will care about most. They also have the largest penalties or rewards attached to them. I believe if we get these right, everything else will follow. They are: water quality; leakage; PCC (per-capita consumption); C-MeX (customer experience); D-MeX (developer services); mains repairs; water supply interruptions and low pressure.
We continue to supply high-quality water you can trust; and to improve on our per-capita consumption and leakage targets. Here I believe we will achieve our targets for this AMP7(Asset Management Plan) period 2020 to 2025. I know this is a bold ambition, particularly for PCC. On leakage we’ve made a massive step forward.
We know customers are concerned about their interruptions to supply and I’m really proud of what the teams have achieved in this area; it’s a brilliant performance. This year our time is three minutes, 43 seconds. Our regulatory target was six minutes, 8 seconds and just to put it in context, two years ago we were at 16 minutes. Dividing up all those minutes across our whole customer base, to improve by one minute is a big achievement. Remember if we haven’t solved the problem within three hours, the regulators clock starts ticking.
On PCC we didn’t achieve our target, but we have seen a massive reduction in the year. We are confident that over 21 million litres of water per day has been saved through demand side improvements alone and we expect this performance to be industry leading in terms of absolute reduction volume. One challenge has been the increased home usage from Covid lockdowns, but we are nearly back to pre-pandemic levels. We’ve managed this through campaign-led approaches such as our award winning Save Our Streams campaign which over 191,000 customers signed up to in 21/22 with water-efficiency home checks, virtual home checks, and engaging with our particularly high users.
While we have narrowly missed this year’s leakage target, our improvements are achieving excellent outcomes and we are at the lowest level of leakage we’ve ever achieved. In fact, we are already over half way to meeting our five year leakage reduction target to 2025 and we are absolutely on track to meet this.
We invested more than we had planned in improving our technology making use of satellite technology and developing artificial intelligence. This enables us to piece together all the monitoring across the network and understand where the leaks are. Most leaks are in the ground, rather than the classic burst pouring out across a street, so to repair a leak, we need to identify the right place to dig. Our new technology helps us do that, and it’s created a real turnaround in performance.
Cmex is our customer service metric. Here we have a lot more to do and it is an area we are focusing on. We have closed the gap, but are still ranked towards the bottom of the water companies. D mex measures how we look after our developer services, or new or additional connections, and in comparison to our peers we are now at strong mid-table performance, which is a great improvement.
Moving forward to PR 24
We still have a lot to do on our journey to 2025, but we have really moved forward in the first two years of AMP 7. After a tough price review previously, we were behind where we needed when we came into this regulatory period, and I now feel we’ve turned a corner and are moving in the right direction.
I think we can achieve an excellent performance next year and through the AMP by focusing on our key eight performance indicators. But it’s also the year when we set out our water resources plan and our PR 24 plan, so it is key year for us. Our success will be based on a robust and credible PR 24 plan that makes compelling arguments for what we aim to achieve, which of course sets us up for the longer-term future. The logic of that approach is to try to provide some clarity for each of those horizons, but it all starts with next year’s performance. The key to success in delivering our plans is prioritisation, our people and teamwork and on those fronts we are pulling ahead successfully.
Everyone has worked incredibly hard throughout the organisation and, through our collective efforts, we are becoming more of a team across the company.
For that, I would like to say a big thank you to everyone, and also for the support I’ve received since moving into this role.
On Friday 15 July, we will be publishing our full Annual Report and Financial statements for year end March 2022 on our website, so stay tuned to this space to find out more about our exciting year at Affinity Water.