The appointed business plan

359 Pages·2014·3.65 MB·English

The appointed
business plan
Area of supply
This Business Plan has been redacted to maintain
commercial confidentiality
Contents
page
Introduction ...............................................................................................................1
Executive summary ....................................................................................................2
Board assurance statement ......................................................................................21
Section1 – Our current performance ....................................................................32
Section 2 – What customers have told us ..............................................................42
Section 3 – Outcomes ...........................................................................................64
Section 4 – Acceptability and affordability .............................................................77
Section 5 – Performance incentives .......................................................................88
Section 6 – Balancing risk and reward ...................................................................98
Section 7 – Innovation ........................................................................................118
Section 8 – Financial modelling ...........................................................................123
Section 9 – Costs ................................................................................................126
Section 10 – Financing the plan ............................................................................144
Section 11 – Revenue projections and tariffs .........................................................161
Section 12 – This section has been removed as the subject matter is
commercially sensitive ..................................................................172
Section 13 – Maintaining the wholesale service ....................................................176
A: Water resources ...........................................................................177
B: Water production .........................................................................190
C: Water distribution ........................................................................194
D: Maintaining the supply-demand balance ......................................203
E: Supply resilience ...........................................................................210
F: Looking after the environment ......................................................217
G: Drinking water quality ..................................................................228
H: Leakage .......................................................................................239
I: Capital investment .........................................................................244
Section 14 – Retail ...............................................................................................304
Appendices
Appendix 1 – Compliance with UK Corporate ........................................................312
Governance Code
Appendix 2 – Pension deficit contributions .............................................................327
Appendix 3 – Postage, print and paper inflation .....................................................332
Appendix 4 – Salary input pressures .......................................................................341
Appendix 5 – Debt recovery environment ...............................................................347
The appointed
business plan
Introduction
Introduction
Sembcorp Bournemouth Water supplies water to just under half a million people. We
have been in existence for 150 years as a local company employing local people to
serve the local community consistently and reliably with safe drinking water, and to be
responsive when customers contact us.
Our customers tell us that a safe and reliable water supply is their top priority for the
service. We have made good progress over recent years in ensuring that the service
is reliable and will remain so, well into the future by striking an appropriate balance
between managing risks to the service and keeping bills as low as possible. Demand
from customers has been slowly but steadily falling for over more than a decade as a
result of metering and greater awareness of the need to conserve water.
Our customers also tell us they expect very good service, that we must operate
efficiently and in a sustainable manner, and that we should continue to engage with
the local community because we are part of it.
Our strategy in the past has been successful in providing a dependable service which
95% of our customers tell us they are happy with both in respect of the water supply
and their experience of dealing with us.
This is our plan for the future, focussing especially on the five years from 2015 to
2020, but also considering the longer-term need to continue to provide a reliable and
sustainable service at a reasonable price. We plan well ahead to ensure that we take
into account longer-term issues such as population growth and the challenge of a
changing climate.
A non-technical summary of our plan has been published on our website and hard
copies are available on request.
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The appointed
business plan
Executive summary
Executive summary
Context
Sembcorp Bournemouth Water delivers its services efficiently and to high standards,
and is one of the best-performing water companies across a range of indicators
including:
• Value for money – average water bill in 2013/14 is 17% below the industry
average
• Customer service – ranked equal top using the industry’s Service Incentive
Mechanism (SIM) over the two-year period 2011/12 to 2012/13; and received
the Customer Service Excellence Award for the 13th consecutive year
• Reliability of service – number and duration of interruptions is one of the
lowest in the industry, with 1% of customers experiencing a loss of supply for
more than three hours in 2012/13
• Costs – retail and customer debt costs are amongst the lowest in the
industry, with bad debt averaging £4.52 per customer per year over the last
three years. Wholesale costs are also low.
We will continue to provide a ‘best in class’ service to our customers. We regard this
as particularly important as customers do not have a choice in respect of their water
supply. Our commitment is to improve the service and reduce our base costs even
further, achieving more at a lower cost, which will benefit our customers.
At the 2009 price review, we made a series of commitments to maintain our network
of assets in a serviceable condition overall; to deliver certain enhancements to the
assets and service; and to take necessary action to ensure it is safeguarded into the
future. The overall performance of our asset base is in a stable state and we are on
track to deliver what we have committed to as evidenced in Section 1.
Our performance as a whole in the current Asset Management Period (AMP) has been
strong, and we have met or exceeded targets across all key indicators as detailed in
Section 2.
We are preparing for, and welcome, competition in the non-household retail sector.
We hold accurate information about our customers and understand our customer
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The appointed
business plan
Executive summary
base. This is supported by work carried out by external consultants. Therefore, we
do not anticipate the need to spend further time or money improving our customer
databases in preparation for a new market, unless specific additional requirements
emerge.
Our current position, performance and the economic climate has led to an overall
approach to our plan as one of incremental rather than step change, ensuring
continuous and measurable improvement across all areas while reducing bills, because
we are very conscious of the pressure on customers’ income at this time.
Indeed, because of this pressure and the scope we have to reduce bills from 2015/16,
we propose to freeze our prices in 2014/15, thereby bringing forward part of the price
reduction so that customers get the benefit as soon as possible. Our modelling shows
that keeping bills low in 2015-2020 will not result in large rises at PR19.
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The appointed
business plan
Executive summary
Key features of the plan
79% of customers surveyed regarded the plan as being acceptable, 14% were neutral.
This represents a high level of support.
The plan makes provision for:
What How
1 Prices to fall A price freeze for 2014/15, followed by a price reduction
by about 10% of 4.7% in real terms in 2015/16, and further reductions of
in real terms 0.5% each year thereafter until 2019/20
by 2020
2 Meeting our Maintaining our assets in serviceable condition
statutory
Delivering the National Environment Programme
obligations
Maintaining financeability through prudent management
3 Improving Achieving and maintaining a Service Incentive Mechanism
the service to score of ≥ 90
customers
Reducing leakage – by 5% from 21 Ml/d in 2014/15 to 20
Ml/d in 2019/20
Reducing the risk of supply outage – to 12,000 customers
supplied though a single trunk main
Metering – the remainder of households, where viable, over
10 years but more efficiently
4 Reducing costs Improving efficiencies across the business. Reducing our
base operating costs by about 5% or over £1m by 2019/20
when compared with 2013/14, after allowing for real input
cost pressures, mainly in the areas of energy and construction
Keeping our retail costs low – and maintaining our
excellent performance relative to others
Reduced returns – assuming a weighted average cost of
capital of 4.5%
Managing customer debt – and keeping debt levels at their
current low level in real terms
5 Keeping our Delivering outcomes – based on customer engagement and
promises to discussion with our challenge group
customers
Publishing our performance against the schedule of
outcomes annually
Imposing financial penalties on ourselves for non-delivery
of two specific service improvements, which customers have
said they are prepared to pay for – leakage reduction and
outage risk reduction
Sharing with customers as soon as practicable during
AMP6, any material unexpected gains from cost reductions
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Executive summary
How we developed the plan
Our plan is set within the context of the long-term nature of our business and the
need to ensure that the operation is sustainable. We have developed it in consultation
with our customers, the customer challenge group, the Board and our shareholder.
These parties have all challenged and endorsed our plan, with a very high proportion
of our surveyed customers finding the plan and our interpretation of customers’ views
acceptable.
We have developed our plan based on:
• Continuing to provide an excellent service
• Customers’ priorities and preparedness to pay for service improvements
• Minimising bills to customers as soon as possible
• Extensive work to review the performance of our network of assets and our
operations
• Our ability to maintain and improve performance where necessary
• Our statutory obligations
• Reducing our costs
• The demand for water in the future
• New legal obligations, and
• Our aim to reduce our impact on the environment.
In arriving at this plan, we have carefully considered risks to the service, as well as risks
related to fulfilling the commitments we have made. Risks to the service are closely
monitored and are described in Section 6, while key risks to the delivery of the plan are
covered later in this summary.
Central to the planning process has been the extensive customer research undertaken
and our engagement with our customer challenge group, known as the Customer
Engagement Planning Forum (CEPF). Our research methodology, results, analysis and
engagement programme are detailed in Section 2.
The plan has been developed around a set of outcomes we are committed to
delivering. These outcomes are derived from the six key customer priorities identified
through our customer research and endorsed by the CEPF. We have developed a
series of measures and targets to evaluate our progress towards delivering these
outcomes. The details of the targets, how we arrived at them, how we will measure
our performance against them and what we will do if we do not achieve them can be
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business plan
Executive summary
found in Section 3. We will track our performance against the proposed outcomes and
outputs and report publically on progress.
What our customers have told us
Customers would like to know more about what we do. Our research indicates that
customers are very happy with the service and have had little problem with their water supply.
The most frequent ‘top of mind’ issue is leakage and they expect a rapid response
from the company to visible leaks. They are keen to ‘do their bit’ to save water in the
future, but want us to help them achieve it. And the large majority of them feel that
everyone should be metered – because it’s the fairest way to charge people.
More than 80% of customers find a bill increase at the rate of inflation to be
acceptable provided that the current service is maintained. However, 9% of customers
would like to see the bill fall slightly even if this means a drop in the level of service.
What they are prepared to pay for
We conducted a willingness to pay study as part of our programme of research and
the following emerged:
• Customers are prepared to pay an additional £3.80 for a modest package of
service improvements which include reducing leakage and reducing the risk
of interruptions to supply.
• There were mixed views on paying for accelerating our metering programme.
• Customers are also prepared to pay a small amount towards the cost of
environmental improvements – 80% willing to pay 25p on additional spend
of £100,000, dropping to 60% on spend of £25,000.
• We found very mixed views about the preparedness to support social tariffs,
with a significant proportion (29%) of customers simply not willing to
subsidise these.
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