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Our approach to planning

The three business areas within our business model – wholesale water, wholesale wastewater, and household retail – are structured in line with Ofwat's distinct price controls for the current regulatory period.

The fourth price control, non-household retail, is regulated within our 50:50 joint venture with Severn Trent, Water Plus. While we can influence it, we cannot control this joint venture and it is not part of our consolidated group, therefore it does not form part of our group's business model.

Each business area undertakes both long, medium and short-term planning to identify how they can best deliver their outcomes now and in the future.

We have planning cycles that cover:

  • 25+ years – reflecting the long-term nature of our business, which provides an essential service to customers, and helping us to define what we need to deliver in each five-year regulatory period to ensure long-term resilience;
  • 5 years – reflecting the regulatory review periods within which our revenue allowances are set, and helping us move towards achievement of our long-term goals; and
  • 1 year – reflecting the annual targets we set to help move us towards achievement of our five-year goals.

Our plans take into account the internal and external drivers and relationships described in our business model, and we adopt an integrated approach that consults with and considers the interests of a whole range of stakeholders.

Underpinning our approach to planning, we continuously assess our performance using key performance indicators (KPIs) and other performance measures, which help us to formulate our future improvement plans for our various stakeholders.

Planning – 25+ years

In order to maintain a reliable, high-quality water service for our customers into the future, we have to look a long way ahead, to anticipate and plan for the changes and core issues that are likely to impact on our activities.

Over the next 25+ years, we will face many challenges and opportunities including:

  • Climate change and its implications for water resources and flooding;
  • A more open, competitive UK water market;
  • More rigorous environmental regulations;
  • Population growth;
  • Developments in technology;
  • The UK's exit from the European Union; and
  • Combining affordable bills with a modern, responsive service.

By anticipating and planning ahead for these, we can ensure that we continue to deliver the best service to customers, at the lowest sustainable cost, in a responsible manner.

Our strategy for the future is set out on our web pages where we examine the challenges ahead and how we will focus our resources and talents in order to meet them. Our current 25-year Water Resources Management Plan (WRMP) was published in 2015 covering the 2015–40 period.

We have recently finished consulting with customers and stakeholders to ensure their interests are reflected in our new 25-year WRMP, which covers the 2020–45 period and will be submitted to Defra in August 2018.

These long-term plans set out the investment needed to ensure we have sufficient water to continue supplying our customers, taking into account the potential impact of climate change.

Some of the key ways we are aiming to create value over the long-term are by:

  • Investing in our people to ensure a committed, capable and motivated workforce delivering high performance;
  • Close collaboration with suppliers and disciplined investment, based on sustainable whole-life cost modelling;
  • Efficiently implementing a robust and appropriate mix of debt and equity financing;
  • Embracing innovation and our Systems Thinking approach to make our future services better, faster, safer and cheaper;
  • Long-term planning and management of water resources (25-year WRMP);
  • Responding to the many challenges and opportunities we face, including climate change and population growth; and
  • Sustainable catchment management.

Planning – 5 years

Each five-year regulatory contract is designed with our strategic themes in mind and aims to help us to work towards our long-term plans and ultimately to achieve our long-term vision. We submit a robust, balanced plan to Ofwat in order to agree a regulatory contract that allows for the best overall outcomes for our customers, shareholders and the environment.

Once each regulatory contract is set, we create value principally by delivering, or outperforming, that contract by providing the best service to customers, at the lowest sustainable cost, in a responsible manner.

Our five-year plan for the 2010–15 regulatory period focused on improving customer satisfaction, meeting our statutory obligations, and delivering shareholder value. We delivered on each of these, which provided us with a strong platform to deliver further in the current 2015–20 regulatory period.

Some of the key ways we are aiming to create value over the 2015–20 regulatory period are:

  • Improving our customer service further – improving efficiency while reducing costs, improving our SIM performance to increase rewards/reduce penalties from Ofwat;
  • Enhancing our debt collection activities – reducing retail costs, whilst providing the best support for customers struggling to pay;
  • Minimising total costs on a sustainable basis – for example power, materials and property rates, which will help us to meet or outperform our allowed totex costs;
  • Raising low-cost finance – helping us to outperform our allowed finance costs, which is our most significant area of potential outperformance in this regulatory period;
  • Delivering our operational and regulatory commitments – helping to ensure we achieve high levels of customer service and meet environmental standards, as well as improving our ODI performance to increase rewards/ reduce penalties from Ofwat in areas such as reliable water delivery and reducing pollution and sewer flooding incidents;
  • Implementing our hedging strategies to fix medium-term interest rates and power costs – helping us to meet our allowance by reducing the volatility of these costs;
  • Increasing our production of renewable energy from waste – helping to protect us from rising energy costs and reducing our carbon footprint; and
  • Maintaining a robust supply/demand balance – providing water resource and customer supply benefits, and avoiding penalties/ unfunded expenditure requirements.

See below for more on the plans each of our business areas are delivering over the 2015–20 period.

Wholesale water

  • Maintain existing high levels of reliability in the delivery of day-to-day water services, making better use of technology for remote monitoring and control of source-to-tap assets;
  • Maintain existing high levels of water quality, as measured at customers' taps and our water treatment works;
  • Reduce the number of customer contacts regarding water quality;
  • Maintain leakage at or below the sustainable economic level;
  • Limit the impact on customers of increases in operating costs, such as chemicals and rates, by making cost savings elsewhere through continuous improvement in our operational efficiency; and
  • Work to link 150,000 customers in West Cumbria to Thirlmere reservoir to ensure a long-term, reliable supply of drinking water and to support the sensitive ecology in that area.

Wholesale wastewater

  • Continue to improve the way we operate, making better use of technology, automation and control to drive better customer service at reduced cost, and build on customer satisfaction improvements already delivered;
  • Reduce the number of our customers' properties exposed to sewer flooding, working in partnerships to deliver schemes cost-effectively and promote the use of more sustainable drainage systems;
  • Improve bathing waters to meet tougher regulatory standards, and work with other organisations to support them in delivering improvements to our region's beaches;
  • Improve water quality in the North West's rivers and lakes through investment in our treatment works and at overflows, and engage with others to explore innovative catchment management techniques to control diffuse pollution in our catchments;
  • Increase production of renewable energy from waste to protect customers from rising energy costs and reduce our carbon footprint; and
  • Constrain the costs of taking responsibility for all private sewers and private pumping stations across the region, through improvements to our operating model and efficient delivery of our programme.

Household retail

  • Continue to improve the customer experience by being more proactive, anticipating problems before they materialise and improving our communication channels;
  • Reduce the number of customer complaints further, and resolve them whenever we can, avoiding the need for complaints to be referred to the Consumer Council for Water;
  • Reduce the debt burden on the company and its customers by engaging with those who are struggling to pay, helping them return to sustained payment behaviour. We are extending our options for assistance to hard-pressed customers, including the social tariff, and we remain committed to contributing to the United Utilities Trust Fund, 'Restart', which has proven effective in helping customers in difficulty return to regular payment; and
  • Reduce the cost to serve our customers through systems and process improvements. This is particularly important under the current price control methodology which uses an industry average retail cost to serve to determine part of customer bills.

Adapting our plans to meet our customers' evolving needs

The North West remains the most socially and economically deprived region in England, which is the principal driver of our higher than average cost to serve for household customers. This is currently recognised by Ofwat through an additional cost allowance for deprivation of £20 million per annum over the 2015–20 regulatory period.

A report from the Department for Communities and Local Government in 2015/16 reaffirmed that the North West has the most deprived regions in England, containing three of the top five local authority districts with the highest proportion of 'highly deprived' neighbourhoods (categorised as the most deprived 10 per cent).

Bad debt remains a risk, particularly with the continuing tightening of real disposable incomes and the impact of welfare reforms likely to intensify. Our debt management processes have been externally benchmarked as efficient and effective. We continue to refine and enhance them, whilst also helping customers back into making regular payments through the use of manageable payment plans.

We anticipate continued hardship for a number of communities and difficulties for some customers in paying their bills. We will remain committed to supporting these customers through a suite of payment assistance schemes and by looking at new ways to help, like the introduction of our social tariff in 2015, supporting elderly customers.

We are also adapting to the increasing use of social media and digital technology. We have recognised the increasing power of social media as communication channels for customers in doing business with us, and have invested in a new digital external communications capability and a number of website improvements that were built through consultation with our customers.

Planning – 1 year

Before the start of each financial year, we develop a business plan for that year, which is approved by the board.

This sets our annual targets, which are designed to help deliver further improvements in service delivery and efficiency, and to help move us towards achievement of our five-year goals.

Our business plan covers a broad range of measures across our three strategic themes to deliver the best service to customers, at the lowest sustainable cost, in a responsible manner.

Our one-year targets help us to measure progress towards our five-year goals, which in turn help us work towards our long-term plans and, ultimately, our vision to be the best UK water and wastewater company.

This top-down approach helps us to ensure the long-term resilience and sustainability of our business through short and medium-term goals that we can monitor and measure our progress against.

Performance monitoring

The executive directors hold quarterly business review meetings with senior managers to monitor and assess our performance against these measures, helping to ensure that we are on track to deliver our targets.

Performance measurement

At the end of every financial year, our performance is assessed against these measures and this determines employees' annual bonuses right through the organisation.

As well as annual targets, our directors are assessed against three-year performance, covering total shareholder return, sustainable dividends and customer service, through long-term incentive plans.

Details of the 2017/18 annual bonus and vested long-term incentive plans for our executive directors are shown within the remuneration report.

Planning - key milestones

2020+

We will continue to contribute to improving bathing water quality

2022

We will extend our integrated water supply network into West Cumbria

2025

We will halve the risk of requiring drought permits to augment supply

2025+

We will work to enable future national water trading

2030

We will work with others to achieve 'Blue Flag' beaches along our coastline

2045

We will serve 900,000 more households in the North West

Planning cycle 2020-2045 new