The Customer Challenge Group for Dŵr Cymru Welsh Water

Transcription

1 1 The Customer Challenge Group for Dŵr Cymru Welsh Water Report on the on the Company s Business Plan for the 2014 Price Review For submission to Ofwat 02 December 2013

2 2 Contents Page 1 Introduction by the Chair of the for Dŵr Cymru Welsh Water 5 2 Executive summary 7 3 The Customer Challenge Group for Dŵr Cymru 10 4 Water services in Wales 12 5 The Company s engagement with its customers, stakeholders and 14 the wider public 6 Testing the Company s Strategic Business Plan: 21 Does the Plan meet statutory and environmental requirements? 7 Evidence of innovation in delivering outcomes 26 8 Is the Plan balanced, to meet the needs of different customer groups, 27 and has the Company considered the best use of its planned efficiency savings? 9 How have customers and the influenced the final Business Plan? Do customers and the believe that the final Business Plan 34 is acceptable? What areas of concern remain? 11 Concluding comments 36

3 3 Appendices 1 Profile of s and terms of reference 2 Submissions by: a. Natural Resources Wales b. The Drinking Water Inspectorate c. The Consumer Council for Water 3 Research and engagement framework 4 Customer engagement, research activities and timeplan 5 meeting dates and main agenda items 6 Challenge Matrix Glossary of Acronyms AMP5 Asset management plan 2010 to 2015 AMP6 Asset management plan 2015 to 2020 CBA Cost benefit analysis Customer Challenge Group CCWater Consumer Council for Water DCWW Dŵr Cymru Welsh Water DWI Drinking Water Inspectorate UKWIR UK Water Industry Research Ofwat Water Services Regulation Authority WACC Weighted average cost of capital WASC Water and sewerage Company WG Welsh Government WOC Water only Company WRMP Water Resources Management Plan WTP Willingness to pay WTW Water treatment works WWTW Waste water treatment works Throughout this report we have used the terms domestic and business customers to refer to household and non-households respectively.

4 4 Disclaimer This document has been produced by the Customer Challenge Group () of Dŵr Cymru Welsh Water Water (the Company) specifically for issue to Ofwat to inform and aid Ofwat in its risk based assessment of the DCWW Business Plan. This report has been produced by the based on the evidence provided by the Company. The recognises the need for further detailed challenge by Ofwat on those elements of the Business Plan unseen by the and beyond its competence. It is noted that the ability to deliver against the objectives is reliant entirely on whether the Company has made sufficient provision in its financial calculations and is able to deliver against its Business Plan, and the outcome of the final determination. The document and/or its contents are not intended for use or to be relied upon by any other party.

5 5 1 Introduction by the Chair of the for Dŵr Cymru Welsh Water I am pleased to present the report from the Customer Challenge Group of Dŵr Cymru Welsh Water. This report could not have been produced without the commitment, enthusiasm, and determination of the Group s individual members. It has been my pleasure, as well as at times a challenge, to chair this Customer Challenge Group. I also wish to thank the Company, Dŵr Cymru they too have also been on a voyage of discovery through the ups and downs of this challenge and challenging process. Thanks are due to our report writer for helping us present this clear concise report of our extensive deliberations and conclusions. We present this report to Ofwat to provide assurance that Dŵr Cymru has indeed consulted its customers, has responded to our challenges, and more importantly to what its customers said they wanted and expected from the Company. Views on the provision of water and sewerage services in Wales, using our natural environment and resources to provide sufficient, safe clean water for health and daily use, and disposal of our wastewater safely back into our environment, seem to strike strong views everyone seems to have a view and is prepared to express it. Some aspects are not negotiable - like meeting our health and legal requirements - others, like investing for the future and the scale and the delivery of additional discretionary items, such as support for customers who find their bills difficult to pay, depend on customers acceptability and willingness to pay. How much customers in Wales can afford to pay is a fundamental question especially given the prevailing economic climate and impending changes to welfare benefits, on which so many people depend. Notwithstanding this it is clear that customers do not want to see a reduction in service or performance, and are willing to pay to ensure the security of service and investment for the future. Our job has been to challenge the Company to ensure that it has adequately taken its customers and statutory requirements on board, to shape an affordable, acceptable Business Plan for and the longer term sustainable future.

6 6 We challenged ourselves to be constructive and critical in our fierce and unrelenting challenge to the Company, to propose the best outcomes in its Business Plan, for customers. We also wanted a good outcome to safeguard the resilience of the natural environment, from which we get our water and to which we return our wastewater. The diversity of experience and personalities, together with the amazing and sustained commitment of the s made us a strong force for the Company to reckon with, especially when armed with the evidence from its customer and stakeholder engagement process. We set ourselves high standards and we expected nothing less of the Company. The demands on members have been considerable, well over and above what I am sure they expected at the outset, yet their commitment and enthusiasm to get this right has been astounding. I thank them all for supporting this process and for supporting me as I tried to bring our extensive discussion to a conclusion. This report reflects our considered consensus opinion and I am proud to recommend it to Ofwat on behalf of my colleagues, the s of the. Diane McCrea Independent Chair of the Customer Challenge Group, Dŵr Cymru Welsh Water

7 7 2 Executive Summary This report of the Customer Challenge Group set out to be a straightforward explanation of the process that we have gone through, and the outcomes that we have challenged as we have overseen Dŵr Cymru s Business Plan preparation. We are required to provide assurance to Ofwat that we have challenged the Company on the quality of its customer engagement, and challenged how well the proposed outcomes, associated commitments and delivery incentives reflect customer engagement, and wider consumers views and priorities This formal report to Ofwat aims to do this to aid its risk based assessment of the Company Business Plan. To begin, we explain the membership drawn from groups with a particular interest and ability to represent a cross section of Dŵr Cymru s customers, both domestic and business. s represented special interest groups including, for example, the elderly, vulnerable groups, tenants, environmental interest and the public sector. Statutory bodies, the Drinking Water Inspectorate, Natural Resources Wales and the Consumer Council for Water were s and advised the group about the legal framework and responsibilities of the Company to deliver its obligations. Throughout we have largely been dependent upon the Company to inform us about its current performance, obligations, and aspirations for the future as it has developed its Business Plan. Whilst being serviced by the Company we maintain our independence from the Company. We set our work in the wider context of water services in Wales and reflected on issues particular to Wales and the area serviced by Dŵr Cymru, under the governance of the Welsh Government with its particular obligations, strategy and policy framework. The business model of Dŵr Cymru has support in Wales, although awareness of this is not particularly high among its customers. While the has not disregarded the not for profit status of the Company in our deliberations, we have sought evidence in the Business Plan of any additional benefit this model will deliver to customers. A substantive part of our work and Section 4 of this report focused on challenging the Company as it planned its research and engagement process. The Company carried out a broad and comprehensive research and engagement programme with many separate phases that went over and above our expectations: we thought this was

8 8 commendable. We are confident to provide our assurance to Ofwat that we have challenged the Company on the quality of its customer engagement The programme of public and stakeholder engagement produced some clear customer views and stakeholder preferences and we were keen to see how these had been used to inform the Business Plan. We challenged the Company on how well the proposed outcomes, associated commitments and delivery incentives reflect customer engagement, and wider consumers views and priorities. Throughout the process the sought firm evidence of how the results of research and engagement have been interpreted to influence the Company s Business Plan. In Section 5 we selected various case studies to explain key issues and challenges and how the Company responded to them. For example, the sought assurance that research on bills correctly and adequately represents the Company s customer demographics and was a representative sample its customer base. We were also keen to better understand minority views which did not accept the consultation Business Plan. The asked the Company to analyse its results to understand why this group was unsupportive. The Company pledged ongoing engagement with vulnerable customer groups. The sought evidence of further engagement with representatives of vulnerable customers during the consultation process as it became clear there was an issue. The Company responded and made specific proposals to extend the reach of its current customer assistance offering with the proposed introduction of new social tariffs to support those who find it difficult to pay. In addition to customers priorities we were also required to test the Company s strategic Business Plan and how it meets statutory and environmental standards. The Company is required to meet a range of legally binding targets enshrined in National legislation. Both the Drinking Water Inspectorate and Natural Resources Wales, as quality regulators, participated and advised the, as did the Consumer Council for Water, the statutory body that represents the interests of domestic and business customers. The Company has worked with its regulators to develop detailed proposals for the next AMP period. This has informed its Business Plan, its outcome delivery incentives and performance targets. Dŵr Cymru s proposed investment of 1.5 billion between 2015 and 2020 must achieve the objectives of improving both the quality of the services it provides to customers and its environmental performance. The investment programme intends to improve the resilience of its core infrastructure, in order to cope with regulatory requirements, increase service levels, and attain better environmental performance to meet the challenges of climate change.

9 9 We sought evidence of innovation in delivering outcomes and noted several that will deliver outcomes to benefit customers and the environment. These relate to improving water quality in catchment areas, an initiative to promote sustainable urban drainage, and a planned increase in the Company s sustainable energy production as highlighted in Section 7. A major consideration was whether the Plan was balanced to meet the needs of different customer groups, and had considered best use of its planned efficiency savings. We challenged the Company hard, since research into the acceptability of the Business Plan showed that customers preferred choice would be lower bills coupled with service improvements. During the customer challenge process the Company revised its Business Plan proposal to meet this preference. The supports this goal in the current economic climate particularly as it is in the best interests of the many customers who currently experience difficulty in paying household bills. We include many examples in Section 8 to illustrate our challenge and the Company s response. Finally, we report on how customers and the influenced the final Business Plan. Following its two phases of research and engagement the Company s Business Plan retains eight proposed outcomes. There were modified following customer research feedback, stakeholder responses and discussions at the. The Company has adopted additional measures of success on leakage and sewer flooding, issues that are of great importance to customers, and also to s. In response to challenges regarding building customer confidence in its services, the Company stated that it is developing a Customer Trust measurement that includes improved customer education, communication and community involvement. The Company moved from its position of maintaining what it described as flat bills over the five year period to a target of reducing bills in real terms that is, below the rate of inflation while maintaining in full its planned investment programme. This amended proposal, which would be made possible by achieving much increased efficiency savings, removed a proposed charge to customers for maintenance of the formerly private sewer network. The concludes that it believes that through its challenges, particularly over acceptability, based on customer research and engagement, that the Company has made significant changes to improve its final Business Plan for submission to Ofwat.

10 10 3 The Customer Challenge Group for Dŵr Cymru Welsh Water The Customer Challenge Group () of Dŵr Cymru was created on the direction of the industry regulator Ofwat to help ensure that people who pay for water and sewerage services have a strong voice in the regulatory process. The is entirely independent of the Company and its s have been drawn from a wide cross section of customer representatives, regulators and stakeholder groups. s include and represent the following: Consumer Council for Water, Wales Committee Natural Resources Wales Drinking Water Inspectorate Age Cymru NHS Wales Shared Services Partnership Welsh Local Government Association Wales Environment Link Valleys 2 Coast Housing and Moneyline Cymru Federation of Small Business Profiles of members are given in Appendix 1. As a group we have worked extensively and independently to challenge the Company s proposals to help inform the emerging, and final proposal for Dŵr Cymru s Business Plan for the period 2015 to Ofwat has stated that the opinions of customers are an important factor in its examination of companies Business Plans. Water customers must be satisfied that the bills they will pay are fair and acceptable, that they will receive high levels of customer services, and that companies are fulfilling their responsibilities to protect the environment. All water and sewerage companies have therefore been instructed by the regulator to research customers opinions and engage with customers and stakeholder groups in order to gauge views on a range of issues. The goal has been to find a balance between future service levels and the prices that customers are willing and able to pay. The has considered the research and engagement carried out by Dŵr Cymru and issued challenges to ensure that it is thorough, appropriate, and that the Company

11 11 evidences how the process, customers views and the s challenges, have informed and influenced the Business Plan that has been submitted to Ofwat. Throughout 2013 we have tested the Company s assumptions for assurance that it has adequately understood and addressed customers priorities and needs. Where necessary, we have requested additional information, explanations and clarifications. We have assessed how well the Company s Business Plan has evolved from its research and engagement. We have considered whether the Company s stated outcomes from its Business Plan demonstrate sufficient customer focus, is adequate in scope and scale, and is financeable, affordable, and meets all legal and statutory obligations. We have also sought evidence of efficiency, improving service levels and environmental protection. We have been informed by the assessments and views of the statutory regulators. Throughout the process we have largely been dependent upon the Company to inform us about its current performance, obligations, and aspirations for the future as it has developed its Business Plan. Whilst being serviced by the Company we maintain our independence from the Company. With the information received we have provided our views on elements of the effectiveness of the Company s engagement and of the acceptability of its Business Plan to customers. This report of our conclusions has been submitted to Ofwat for consideration alongside Dŵr Cymru s Business Plan Biographies of s can be seen in Appendix 1

12 12 4 Water services in Wales. As part of this process the has issued detailed challenges to the Company s assumptions from its research and sought proof that the Business Plan will deliver the fairest deal for customers with an acceptable balance between service delivery, public health, environmental protection and affordability of bills. We also reflected on issues particular to Wales and the area serviced by Dŵr Cymru. Water is an emotive issue in Wales. It is regarded by many as a valuable national resource, and therefore the industry has a high public profile within Wales and is the subject of much comment. In examining and challenging Dŵr Cymru s customer research and its work to produce a Business Plan, the has been mindful of the Company s business model. Dŵr Cymru s business model is unique among the ten principal water and sewerage companies in that the Company, which is owned, financed and managed by Glas Cymru, is a company limited by guarantee - and as such has no shareholders. The Company therefore states that its financial surpluses are reinvested to improve services for customers who are also, uniquely, its shareholders. The business model of Dŵr Cymru has wide support in Wales, although awareness of this is not particularly high among its customers. Various pieces of the Company s research programme show that when customers are informed of its business model they subsequently tend to be more supportive of its proposals. The Company states that its ethos is solely to do its best for customers. However, this laudable aspiration is meaningless unless the Company can evidence this by delivering very high quality services to customers at fair, reasonable, and acceptable prices. While the has not disregarded the not for profit status of the Company in our deliberations, we have sought evidence in the Business Plan of any additional benefit this model will deliver to customers. We are therefore pleased that the Company s Business Plan has included an Outcome Delivery Incentives Scheme and describes a new approach to sharing transparently any future gains with its customers (whether these come from favourable economic circumstances or outperformance of efficiency targets). We note the Company s commitment to continuous engagement and research, which will help identify customer preferences and inform the way these gains are returned.

13 13 The recommends that the Company should consult with customer representatives and any future incarnation of this when developing the process and determining how to return future gains to customers. We have issued detailed challenges to the Company s assumptions from its research and sought proof that the Business Plan will deliver the fairest deal for customers with an acceptable balance between service delivery, environmental protection and customer acceptability of proposed bills. The Challenge Matrix, which was our working record of the challenges presented to and responded by the Company, is presented in Appendix 6. This working document recorded all challenges and was our audit trail throughout. It is presented here as the evidence to substantiate our work and underpins the opinions expressed in the report.

14 14 5 The Company s engagement with its customers, stakeholders and the wider public Summary: The Company delivered a commendable programme of public and stakeholder engagement that produced some clear customer views and stakeholder preferences. It carried out a broad and comprehensive research programme with many separate phases that went over and above our expectations. Appendix 3 gives a diagrammatic representation of the various research phases and the wider stakeholder and public engagement process and shows how this fed into the business planning process. The findings have resulted in important changes to the Business Plan. However, the would like to have seen more detail on how the research findings influenced the initial strategy, and ultimately the decision making processes. The has been involved in the development of Dŵr Cymru s customer research and stakeholder engagement throughout the process. The Company has gathered the views of its domestic and business customers through two separate and complementary exercises detailed research with individuals and focus groups, and consultation with its wider customer base and stakeholders via its extensive Your Company, Your Say initiatives. The Company launched its biggest ever direct customer engagement campaign as part of the Your Company, Your Say consultation, visiting communities in Wales and Herefordshire. It was publicised using national and regional media, social media and local community networks to maximise public involvement. The engagement involved roadshow exhibitions, open evenings and a dedicated Your Company, Your Say website. A total of 2,336 questionnaires were completed by customers. The wider engagement with key stakeholders included a launch for politicians for Welsh Assembly s in the Senedd in Cardiff Bay and for s of Parliament in Westminster. Customer research was undertaken using focus groups and qualitative and quantitative techniques to capture the views of a representative sample of the Company s customer base. Dŵr Cymru followed the best practice approach laid out in the UKWIR guidance published after the last price review. The research programme included the use of 44 focus groups, 2550 consultations on willingness to pay and 1,487 interviews on the Consultation Plan s acceptability

15 15 The engagement and research activities detailed above were scrutinised in detail at every step by the to ensure that research material was clear and easy to understand, was of the appropriate range and quality to provide Dŵr Cymru with the solid foundation of customer views to inform its business planning process and priorities. The examined these activities, contributed to their design and implementation, and worked to interpret the research and engagement findings. The assessed whether the resulting Business Plan accurately reflects customers priorities, as well as fulfilling statutory requirements in so far as far as we are able to do so. We recognise and emphasise that it is the Company s responsibility to assure itself that it meets statutory requirements, and performance targets. We have been assured by the Board. The Chairman s statement of assurance in the introduction to the Business Plan reconfirms the Company s commitment to this, to its values and to customers. The has participated in these activities - as fully as our engagement and other commitments allowed us. We attended the Consultation launch at the National Assembly for Wales. The chair has addressed the Company s Board of Directors and its s on several occasions, and the Company has also shared with us internal documents such as the Board s own challenges. The Company s chief executive has attended several meetings. A good example of the depth of customer engagement and how the sought assurance that their views had been captured can be seen in obtaining the views of Hard to Reach customer groups: Case study: Hard to reach groups Nearly 15% of Dŵr Cymru s customers spend more than 5% of their disposable incomes on their water and sewerage bills. The Company stated its aim of ensuring that its engagement was inclusive, and the challenged Dŵr Cymru to reach groups of customers defined as hard to reach. With assistance from s the Company established direct relationships with various representative organisations. This enabled Company staff to attend meetings arranged for tenant, community and special interest groups - to encourage and enable people to participate in the Consultation and give their views in a more informal setting.

16 16 Some challenges about the engagement process Throughout the examination process the has sought firm evidence of how the results of research and engagement have been interpreted to influence the Company s Business Plan. The s Challenge Matrix (Appendix 6) records our questions and observations on the research programme and the Company s responses. In particular, we challenged the following aspects of the programme: The challenged the Company on many aspects of its research and engagement. Research demographics Challenge The sought assurance that research on bills correctly and adequately represents the Company s customer demographics and was a representative sample of the Company s customer base. Response The professional research Company commissioned by Dŵr Cymru assured the of the sample profile and confirmed that the methodology used accurately profiles customer groupings. The Company also used the wider customer engagement work to seek the views of specific groups of customers, such as those on low incomes. Your Company, Your Say terminology Challenge The language used in some research and engagement materials including its Your Company, Your Say document was too complex and may not have been easily understood by all customers. Response The Company revised and simplified the wording in its research materials, its customer facing documents, and its Your Company, Your Plan document, which will be widely publicised alongside the Company s Business Plan and the report.

17 17 Linking the influence of research to emerging Business Plan proposals Challenge More evidence was needed to show the links between research and resulting proposals and changes to the emerging Business Plan. The Company must explain how it has chosen its priorities (influenced by customer views) and to demonstrate better how research has influenced its final business plan. Response The Company revised and improved its Business Plan to show greater clarity on how research has influenced its contents. However, we feel that the Company could have made more extensive use of the data that it obtained from its research and consultation exercise. We recommend that it reflects and builds on this as it further develops its ongoing research and engagement programme with customers. Measures of success Challenge In line with customer research and stakeholder engagement, specific Measures of Success were requested for certain operations such as leakage targets and sewer flooding. The also sought a clear measurement model for its customer performance. Response The Company revised its Measures of Success to include specific targets for leakage and sewer flooding. It also revised its customer satisfaction measurement to adopt that of SIM (Service Incentive Mechanism), which enables clear customer performance comparisons with other water companies. The Company also introduced a new measurement of Customer Trust which the welcomed.

18 18 Measures of success Challenge In line with customer research and stakeholder engagement, specific Measures of Success were requested for certain operations such as leakage targets and sewer flooding. The also sought a clear measurement model for its customer performance. Response The Company revised its Measures of Success to include specific targets for leakage and sewer flooding. It also revised its customer satisfaction measurement to adopt that of SIM (Service Incentive Mechanism), which enables clear customer performance comparisons with other water companies. The Company also introduced a new measurement of Customer Trust which the welcomed. Minority view on acceptability of the consultation Business Plan Challenge A substantial minority of customers (17%) did not support the initial proposal in the consultation document for an increase of 13 in future charges. The asked the Company to analyse its results to understand why this group was unsupportive. Response The Company reported that its acceptability research showed that this minority included people who expressed difficulties in paying, and generally were in lower socio-economic groups. The Company stated that it would review its proposal for a price increase and submit a revised Plan. Challenge The wished to see more engagement with vulnerable groups and information on the introduction of social tariffs to support those who find it difficult to pay. Response The Company pledged ongoing engagement with vulnerable customer groups. It sought further engagement with representatives of vulnerable customers during the consultation process and it became clear there was an issue. The Company is currently exploring and researching a new social tariff which it aims to introduce in The level of assistance and targets will be informed by broad customer support and research for the detail of future proposals. Social tariffs will be further researched and developed to meet the WG s Guidance with engagement from CCWater and other representative groups.

19 19 Second phase of customer acceptability research on Business Plan proposals Challenge The asked the Company to demonstrate how it had considered the views of uninformed customers on its revised business plan since uninformed views are more typical and representative of the wider Dŵr Cymru customer base and person off the street. In the first phase results, views of uninformed customers were considerably less acceptable than from those who had been informed. Response The Company assured the it would repeat its initial acceptability survey with the same methodology to ensure a meaningful comparison of the initial consultation plan price (with a 13 bill increase) and investment package, to compare with the eventual Business Plan proposed price (below inflation increase) and investment package. When the results emerged towards the very end of November it was clear that the Company had not asked for uninformed views on the revised Business Plan. The second phase of acceptability research was undertaken late in the process, to deliver final results on 22 nd November. The was not able to oversee or check the research methodology as it had done with the previous phase, which arguably might have prevented this omission. Nevertheless, the acknowledges that the overall acceptability of informed customers improved. Notwithstanding this the reminded the Company of the importance of uninformed customers views, and that as with the first phase acceptability results, it was likely that uninformed views of the Company s Business Plan would be less acceptable. As such the Company has a clear responsibility to proactively and effectively communicate with customers about its Business Plan and explain what customers can expect to receive for the bills they will be expected to pay over the five year period. We note that the Company is preparing to publish a customer facing version of its Business Plan as Your Company, Your Plan. The had little time to provide feedback and comment on this document, but its publication and the Company s commitment to inform its customers are welcomed.

20 20 The s view of the quality of the customer engagement process The Company has exceeded expectations with its customer engagement and consultation work, especially given that it has widened the scope of this engagement significantly beyond that of the research programme. The Company has clearly invested heavily in research and has made considerable efforts to engage its wider customer base and stakeholder groups. It has demonstrated an extremely strong commitment to giving all customers and interest groups the opportunity to comment on its proposals. Unfortunately, the views of uninformed customers were not tested in the second round of customer research undertaken (on the revised Plan) and therefore no direct comparison can be made on the views of this group. For several reasons Dŵr Cymru began its research and engagement programme months later than many other companies. This resulted in a compressed timescale for the s consideration of information presented to us for response. We would have preferred more time to digest and consider some elements of the research - especially in advance of each wave of research being undertaken. The was not always satisfied with the evidence that the Company provided to justify in full its decision making processes. We challenged the Company to provide evidence of how its customer research data have influenced some elements of the Business Plan. While we are not in a position to challenge some of the decisions made by the Company for example on levels of expenditure for specific investment projects we would have wished to see strong evidence that they reflect customer priorities. We would therefore request that this greater clarity is provided from future consultation and research. We are disappointed that the Company does not seem to have used the full range of its research findings to inform the development of its investment proposals and its plan. It has seemed that some decisions were considered retrospectively. We feel that the results of this research should be fully embraced in the future in the delivery of the Company s Business Plan.

21 21 The Challenge Matrix shows that the Company has responded positively to the and that several significant changes were made to the Plan. s had expressed concern that the draft Plan had not provided enough detail to assure that all aspects of it were customer driven. The Company has revised its final Business Plan, to some extent, to explain more fully how it has chosen its priorities. Our overall conclusion is that the commends the Company s strong commitment to the research and engagement process and the thoroughness of its programme. While we have questioned whether the Company made full use of the extensive data it obtained, we accept that the Company has responded by developing a Plan that is informed by its customers views, was supported by its customers and which, ultimately and most importantly, will benefit customers through lower bills with an investment programme that will improve services in line with customers expectations.

22 22 6 Testing the Company s strategic Business Plan Does the Plan meet statutory and environmental standards? Summary: The Company has worked with its regulators to develop detailed proposals for the next AMP period. We have questioned why the Company has not pursued a 100% target for all its compliance requirements. Dŵr Cymru s proposed investment of 1.5 billion between 2015 and 2020 must achieve the objectives of improving both the quality of the services it provides to customers and its environmental performance. The investment is intended to improve the resilience of its core infrastructure, in order to cope with regulatory requirements, increase service levels, and attain better environmental performance to meet the challenges of climate change. The Company is required to meet a range of legally binding targets enshrined in National legislation. Both quality regulators are represented on the Dŵr Cymru as is the Consumer Council for Water, which represents the interests of household and non-household customers, and Wales Environment Link (WEL), the representative body for environmental and countryside non-governmental organisations in Wales. The Company s research showed very strong customer support for environmental protection with more than three quarters of domestic and business customers supportive of its preferred plan. In particular, respondents supported a planned reduction in pollution incidents and were supportive of the Company s development of renewable energy resources, as well as action to tackle flooding. There will be a significant investment in Dŵr Cymru s sustainable drainage initiative Rainscape. Investment will be in pursuit of a range of specific targets over the period. These include a 20% reduction in the number of properties affected by sewer flooding, and for pollution incidents to fall by a third. These performance targets and outcomes were revised in light of feedback from customers, including those for internal and external sewer flooding WEL welcomes the Company s assurance that it considers its approach to the treatment of waste water and other environmental issues to be consistent with the principles set out in its document Valuing Our Freshwaters.

23 23 The Company was encouraged to maintain a dialogue with its customers regarding its engagement with environmental protection and improvements, beyond that required by statutory obligations. Predictions of reduced river flows as a consequence of climate change have raised concerns over the effects of over-abstraction on catchment systems. Water efficiency measures to develop and promote wider water conservation strategies are consistent with customers expressed view to learn more about how to be more water efficient. Dŵr Cymru has established an Independent Environment Advisory Panel (IEAP) with which the has liaised. It is made up of representatives of the key organisations with an interest in environmental policy in Wales. The IEAP has reported to the Company and the that it is generally supportive of the Company s proposals but is critical of a lack of detail in the environmental improvement program - specifically in relation to the Water Framework Directive (WFD) and improvements to support improved biodiversity and ecosystem services. IEAP s have previously called for more to be done about flooding, leakage and the dilapidated state of many rural sewage works, and so welcome the increased level of investment to support this work. In addition to its statutory requirements, Dŵr Cymru intends to improve its environmental performance as part of its climate change mitigation measures. This provides for a doubling of the renewable energy produced at its operational sites, coupled with a 5% reduction in the amount of energy it uses.

24 24 Challenge Pollution incidents Challenge Why does the Company s target for reducing pollution incidents not show an improvement on performance targets set by environmental regulators in 2011? Does this show a lack of ambition on driving down pollution incident numbers throughout the next investment period? Response The Company revised its target from 160 pollution incidents to 150 incidents by 2020 following the s insistent challenge as late as 27 th November. Challenge Could the Company be more ambitious and state 100% targets for compliance with regulations? Response Providing safe, clean drinking water is the Company s most important duty and reaching the target of 99.99% will place Dŵr Cymru amongst the top performing water companies. However, the hygiene of customers taps and the quality of customer owned pipes also impact on this target, which means that achieving 100% is beyond the Company s control. The s View The Company s regulators reported to the that it has been transparent and open with the development of its Business Plan. Natural Resources Wales considers that the Plan will build on the Company s much improved environmental performance of recent years, but feels the Company could be more ambitious in its target for compliance against permits and pollution incidents between 2015 and It has expressed confidence to the that all statutory obligations will be met and that the Plan will deliver evidence based environmental improvements.

25 25 The Company has been set targets by the environmental regulator to reduce its category 3 pollution incidents to 150 by the end of Currently the Company is performing well and 2013 figures show a marked improvement (indicative figures at present). Following challenge from the and Natural Resources Wales the Company has revised a target of 160 pollution incidents within the AMP6 plan to 150 by the end of members felt this could be more ambitious. Pollution incidents Cat 3 Incidents * *provisional data up to 27/11/13

26 26 The Company has a statutory obligation to achieve 100% compliance with drinking water quality standards and environmental permits, to provide for a safe, clean and wholesome supply and minimise impact to the environment from its assets. Dŵr Cymru is planning investment to improve from 99.98% to 99.9% compliance for drinking water quality and from 97% to 99% for compliance with environmental permits. The wishes to emphasise that this is must be against a background of striving to achieve 100% compliance. We question the Company s setting of any water quality or environmental compliance targets at below 100%. The Drinking Water Inspectorate s (DWI) representative on the says that it expects water companies to ensure that their business plans make provision to meet all their statutory obligations, including the need for public water supplies to be safe, clean and wholesome, and that provision is made for a sustainable level of asset maintenance to maintain public confidence in drinking water quality. DWI has formally supported two of the Company s proposals with the remaining two being commended for support by OFWAT. The Inspectorate is generally supportive of the Company s approach. However, the improvement schemes referred to above will make only a small contribution to enabling the Company to meet its legal obligations in respect of drinking water quality. These obligations are met overwhelmingly by the Company making sufficient provision in its Plan for operational and maintenance requirements. Any support or assurance by the of the Company s proposals needs to be set clearly and firmly in the context of adequacy of customer engagement and reflection of customer views. The proposed Business Plan must be consistent with the views of customers, and the recognises the need for further detailed challenge by Ofwat on those elements of the Business Plan that have not been seen by the and which are beyond its competence. In addition, it is noted that the ability to deliver against the objectives is reliant entirely on whether the Company has made sufficient provision in its financial calculations and is able to deliver against its Business Plan, and the outcome of the final determination. The Company has set ambitious long-term targets to improve its environmental performance by reducing the carbon footprint of its operations. The notes and approves of these significant efforts that will continue to deliver results in coming years, particularly by the use of its own resources to increase production of renewable energy.

27 27 7 Evidence of innovation in delivering outcomes? Summary: The noted several innovations that will deliver outcomes to benefit customers and the environment. These relate to improving water quality in catchment areas, an initiative to promote sustainable urban drainage, and a planned increase in the Company s renewable energy production. Dŵr Cymru states that over the five years to 2020 it will invest in catchment management, to tackle potential pollution of the water it abstracts from rivers for water supply. It will continue to work closely with farmers, landowners and other organisations to investigate how all can tackle these problems at source to improve the environment and protect our water supplies. This approach reduces treatment costs. Case study Rainscape Stebonheath Primary School For a number of reasons the town of Llanelli has frequently experienced surface water flooding during heavy rain. In the town s Stebonheath Primary School Dŵr Cymru has invested 500,000 to create a new RainScape playground the first scheme of its kind in the UK. The school used to generates 10,000m3 of storm water annually. That is enough to fill four Olympic sized swimming pools. The new playground which will also be used to educate children about how to use water efficiently is anticipated to remove 3,000m3 of surface water from the sewer network (equivalent to 6 million bottles of drinking water), by putting the water back into the natural water cycle through new plants and trees. 100 more Rainscape schemes are planned across Wales. The Company intends to reduce its carbon footprint by becoming more energy efficient and also increasing production of renewable energy at its operational sites.

28 28 It will invest in the production of electricity by advanced anaerobic digestion facilities at Treborth (Caernarfon) and Five Fords (Wrexham) sewage treatment works, turning sludge into electricity It also plans to use, hydro and wind to reduce carbon emissions and cut energy costs. The Company plans a 5% reduction in the amount of energy it uses by The s view The sees evidence of innovation and is supportive of the Company s initiatives. These will deliver real benefit to customers, the local environment, and be more cost efficient, as well as addressing the challenge of Climate Change. CCWater s of the visited Stebonheath Primary School s new RainScape playground and the Rainscape scheme in the surrounding area in October 2013 and was impressed with the project as an innovative and more sustainable approach to solving this long-standing problem. Research showed that customers are supportive of Rainscape and the welcomes this initiative for sustainable surface water drainage. Its greater use throughout Wales will reduce the amount of rainwater entering sewers and the incidence of urban flooding in susceptible communities during storms and sustained wet weather.

29 29 8 Is the Plan balanced to meet the needs of different customer groups, and has the Company considered best use of its planned efficiency savings? Summary: Research into the acceptability of the Business Plan showed that customers preferred choice would be lower bills coupled with service improvements. During the customer challenge process the Company has revised its Business Plan proposal to meet this preference. The supports this goal in the current economic climate particularly as it is in the best interests of the many customers who currently experience difficulty in paying household bills. Dŵr Cymru has carried out extensive research on the affordability of its Plan, seeking customers views on options for investment and bills in order to achieve an appropriate balance. 52,000 of Dŵr Cymru s most vulnerable customers currently receive financial support from the Company - through Welsh Water Assist and associated tariffs and a Customer Assistance Fund. Dŵr Cymru commissioned research about customers attitudes to its Business Plan over two phases, including qualitative testing the acceptability of customer preferences for services delivery and its proposed charges over the five year period to Both domestic and business customers (formerly household and non-household respectively) were interviewed to discover their views on the options presented to them. The results of the first phase of research indicated that customers would accept relatively small increases in bills for improved services that would deliver long-term environmental and service benefits. The great majority did not favour any deterioration in services in return for a bill reduction, and did not wish to delay necessary investment. While there was support for proposed outcomes and the balance between investment and bills (among informed customers who had the Business Plan explained to them), only 56% of the uninformed domestic customers (52% business customers) supported the Business Plan. 17% of informed respondents in the first phase of consultation preferred bills to be reduced. Predictably, this minority included disadvantaged and vulnerable customers who currently find it difficult to pay their bills. Business customers who found the proposals unacceptable included a higher proportion of organisations employing fewer than 50 people and consuming less than five ML a year, these being overwhelmingly the majority of business customers in Wales.

30 30 The draft Plan described a period of flat bills, with no increase in real terms. However, the questioned and challenged both this increase and how it was communicated in the Consultation Plan. It was proposed that a charge of 13 would be added to cover the cost of maintaining the formerly private sewer network that is now the Company s responsibility. Although a significant minority of customers stated that they wanted to see a reduction in bills, many of those who accepted that some increase is necessary also said a reduction would be welcomed. Challenges The made a number of challenges to assess whether the Company s Business Plan will meet customers needs. Private sewers charge and the proposed 13 increase Challenge The challenged the Company s communication of its Consultation Business Plan in its engagement and research material. A plan that offered flat bills after a one off 13 spike in bills to cover private sewers transfer costs was considered a misrepresentation and would be misleading customers and stakeholders. Response The Company amended its acceptability research material to reflect the increase in prices and what this would mean to bills over the five year period, and to explain why it felt this increase was necessary. The first phase of acceptability research was carried out in August. The accepted that that this issue had been addressed in the research. However, given the production and planning timetable for the public consultation these changes could not be made to the consultation document. The Company decided to keep a consistent message and price proposal throughout the consultation process, accepting that changes would have to be made to reflect customers views and understanding, and these would all need to be reflected in the detailed development of the business plan, its bill and investment proposals.