Boards Overview
Company Name
South West Water
JUNE RETURN 2007
BOARD’S OVERVIEW Chapter 1 Key Outputs and Service Delivery - (Tables A and B) Chapter 2 Expenditure and Financial Performance Measures - (Table C) Chapter 3 Key Supporting Information - (Tables D and E) Chapter 4 Efficiencies Chapter 5 Competition
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Company Name
South West Water
JUNE RETURN 2007
BOARD’S OVERVIEW In 2006/07, there were again significant benefits to customers from customer service investments and benefits to the environment from the completion of environmental schemes, adding further to the considerable achievements of previous years. Highlights of the year were: •
Drinking water quality performance was maintained at the best ever of 99.96%, supported by the rehabilitation or replacement of 638 km of water mains (4% of the Company’s network) benefiting around 90,000 customers.
•
Customer demand was again met without the need for hosepipe bans or drought orders.
•
Bathing water compliance was at record levels in 2006 with all our beaches meeting the Mandatory standard and a record 132 beaches (92%) meeting the tougher Guideline standard. This performance is supported by our operation of 54 UV waste water treatment plants.
•
Opex efficiencies of £3M and capex efficiencies of £22M were achieved.
•
For the eighth consecutive year we met our leakage target. The three year rolling average leakage was again below the target of 84 Ml/day.
•
There were over 26,000 free meters fitted in the year; 60% of our customers are now metered.
•
Improvements have been made to a further 4 sewage treatment works (27 in AMP4) and 6 intermittent discharges (61 in AMP4).
Corporate Governance and Quality Assurance The Board confirms that sufficient processes and internal systems of control are in place to fully meet the Company’s obligations for the provision of data to Ofwat. The information provided in this June Return has been properly compiled and computed in accordance with our procedures and data sources, in line with our interpretation of Ofwat’s requirements as set out in the appropriate commentaries and in a manner appropriate for the purposes of meeting the Company’s responsibilities under its licence of appointment. The processes by which the Board ensures this are as follows:
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Company Name
South West Water
JUNE RETURN 2007
June Return Processes The Board ensures that, at all times, the Reporter and Auditor are given full cooperation by Company staff and full access to all Company data and systems. The Company allocates responsibility for specific line data in the June Return to data owners and managers, via a master spreadsheet which forms the basis of the audit programme each year. Through the Executive Management Team, the Board approves the June Return audit programme and reviews weekly reports on audit progress and key issues arising. The Board has reviewed the confidence grade system (at the May 2007 Board meeting) and fully supports data owners and managers in appropriately allocating confidence grades to data. The Reporter and (from this year) the Auditor meet with the Executive Management Team and separately with the Board to present their findings, before submission of the June Return. The Board ensures that any key issues presented to the Executive Management Team or the Board, by the Reporter or Auditor are followed up, with corrective action taken where necessary. Where improvements are recommended for the following year, data owners and managers are responsible for carrying out follow up actions and updating procedures. They are also required to include new or changed requirements made by Ofwat. Progress on these processes is monitored by the SWW Board. Internal Quality Assurance Processes The Pennon Audit Committee allocates resources for carrying out internal audits in key June Return areas. The SWW Board endorses and acts on audit findings from these audits carried out within the Company. There is also a programme of internal audits by the Quality Assurance Department as part of the Company’s ISO9001: 2000 and ISO 14001: 2004 accreditations. Independent review and challenge of reporting by the Regulation Department is carried out, with special focus on perceived areas of heightened interest.
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Company Name
South West Water
JUNE RETURN 2007
In addition, the Board monitors and controls June Return data by: •
Setting targets and reviewing performance against key levels of service indicators and financial measures on a monthly basis at Board and Executive Management Team level.
•
Implementing Investment Planning & Control procedures (IPAC) to ensure that the principles of proper financial control are applied throughout the inception, evaluation, implementation and handover of the investment.
•
Encouraging a culture of openness, where issues can be openly discussed.
•
Continuing to support a ‘Whistleblowing’ policy.
Corporate Governance - Key Risk Management The system for profiling and monitoring key risks is embedded in our normal business practices. We regularly review how we have sustained specific risk control measures, to decide if the probability and consequence of certain risks has changed, and if necessary to recommend further actions or investment to ensure the solidity of our corporate governance.
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Company Name
South West Water
JUNE RETURN 2007
CHAPTER 1 WATER SERVICE - KEY OUTPUTS AND SERVICE DELIVERY Drinking water quality Total drinking water quality compliance for 2006 was maintained at its highest level to date of 99.96%. Performance against the DWI’s Operational Performance Index (OPI - 6 parameters) was 99.85%, maintaining the high standards achieved in recent years. The following chart shows total and OPI performance improvements over recent years.
Water Quality Performance
%
100.0 99.92 99.9
99.92
99.95
99.88 99.85
99.96
99.96
99.86
99.85
99.79
99.8 99.72 99.69
99.7
99.6
Total Compliance OP Index
99.52 99.5
99.47
99.4 2000
2001
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2002
2003
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2004
2005
2006
Company Name
South West Water
JUNE RETURN 2007
Leakage For the eighth consecutive year we met our leakage target of 84 Ml/day, which represents a decreasing trend when measured on a leakage per property or length of water main basis. The three year rolling average leakage was below the target of 84 Ml/day. Analysis undertaken for the Periodic Review 2004 and reviewed in 2007 confirmed that we have gone below the economic level of leakage in order to meet customer and environmental expectations, with significant cost implications. In response to the dry summer we increased our leak detection resource earlier and improved our average repair times for visible leaks. We intend to follow this up with further improvements in repair times for visible leaks. We have carried out a detailed review of all of the components of the water balance, to significantly increase confidence in the leakage and consumption calculations. DG2 – water pressure Only 0.03% of properties are below the reference level, which is a greater than ten-fold improvement since 1997/98. DG3 – supply interruptions There was a decrease in unplanned interruptions to a weighted average of 0.30% of customers in 2006/07. Mostly due to our mains rehabilitation programme, we issued 377,000 notifications of planned shutdowns (equivalent to 50% of our customer base) with only 0.10% of customers having shutdowns which exceeded the notified time. Mains rehabilitation In the financial year 2006/07, 638 km of mains were either replaced or renewed at an average of 53 km per month, benefiting around 90,000 customers. Customer contacts DG6 billing queries were dealt with in 5 working days and 99.7% of all DG7 written complaints were dealt with in 10 working days. DG6 reporting is on the same basis as
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Company Name
South West Water
JUNE RETURN 2007
previous years, we are revising our methodologies to take into account additional guidance received at the end of the reporting year. A significant improvement in customer helpline performance was achieved with calls receiving the engaged tone at 0.31% in 2006/07, reduced from 2.1% the previous year. The proportion of abandoned calls increased to 10.7% in 2006/07 from 8.1% in the previous year. This increase resulted from improvements that had been made to the telephony system which increased the number of places within the IVR that abandoned calls could be measured. These improvements were to collect additional data to enable the installation of a new telephony platform in April 2007, which has already supported better handling of telephone contacts in future and enabled the collection of much more detailed management information. DG8 - bills for metered customers Performance was maintained at 99.9%, despite an 8.4% increase in the number of metered accounts. This is an exceptionally high standard of performance in the South West region, which has a high proportion of holiday homes, where access to internal meters can be consequently difficult to arrange. Serviceability Over the K4 period (2005/06 to 2009/10), we will report on serviceability using K3 (2000/01 to 2004/05) performance as a base. In this report, the Ofwat serviceability indicators have been used for each of the asset groups. In future years, the indicators used may change as a result of further work on serviceability by South West Water. The following charts summarise performance over the last seven years for the Ofwat serviceability indicators, by each of the asset group areas. Each chart shows performance in a year divided by the average of performance over the K3 period for each serviceability indicator. If performance was at the average level for K3 in 2006/07 then this would be plotted as a value of 1.0. If the indicator was above the average then it would therefore be above 1.0 and performance below average would be between 1.0 and zero. This allows for the comparison of trends in performance for all the indicators in each asset group.
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Company Name
South West Water
JUNE RETURN 2007
It should be noted that in the summary charts all of the indicators measure adverse events or non-compliance, so downward trends represent improving performance, upward trends represent deteriorating performance. Water non-infrastructure serviceability Water Non-Infrastructure Serviceability Indicators 3.0
Ratio of Year to K3 Average
WTW Determinations Containing Coliforms % (TA L21) Enforcement Actions Considered - DWI
2.5
Service Reservoirs with Coliforms >5% of Samples WTW Turbidity 95th Percentile > 0.5 NTU (T11a L1)
2.0 1.5 1.0 0.5 0.0 2000
2001
2002
2003
2004
2005
2006
Performance for all of these indicators has been at, or below, the K3 average for the last 2 years. No adverse trends can be identified in the data. Ofwat’s Assessment 2005/06: SWW Assessment 2006/07:
Stable Stable
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Company Name
South West Water
JUNE RETURN 2007
Water infrastructure serviceability Water Infrastructure Serviceability Indicators 3.5
DG2 Properties Below Reference Level % (T2 L3/L1) DG3 Interruptions >12 hours % (T2 L7/L1)
Ratio of Year to K3 Average
3.0
Iron Mean Zonal Non-Compliance % Mains Bursts and Leaks per 1,000 km (T11 L11)
2.5 2.0 1.5 1.0 0.5 0.0 2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
•
DG2 performance has a slight improving trend.
•
DG3 performance is close to its lowest result, after a high result last year caused by two large bursts.
•
Iron mean zonal non-compliance is showing a reducing trend.
•
Mains bursts and leaks showed a 3% reduction on the previous year, with results still higher than the K3 average. The monthly profile of bursts and leaks correlates strongly with the weather, with high numbers of bursts in the cold winter of 2005/06 and in the warm dry summer of 2006/07.
Three of the above indicators show a strong downward trend, with the fourth indicator, mains bursts and leaks, showing a reduction on the previous year of 3%, and a correlation with prevailing weather conditions. We believe that overall, this represents stable serviceability. Ofwat’s Assessment 2005/06: SWW Assessment 2006/07:
Marginal Stable
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Company Name
South West Water
JUNE RETURN 2007
SEWERAGE SERVICE - KEY OUTPUTS AND SERVICE DELIVERY Bathing water compliance The Company has almost 30% of the country’s bathing beaches, but only 3% of the resident population so our environmental obligations are particularly demanding. In 2006, all of the region’s beaches passed mandatory standards putting our performance at the best in Europe and a record 92% passed the tighter Guideline compliance standard, improving on the high levels of compliance set in recent years. SWW Region Bathing Water Compliance
%
100 95
97.9
97.9
99.3
97.9
99.3
100.0
95.7
90
90.9
91.7
85 84.3 80
81.6
81.1
75 70
71.4 Mandatory Standard
65
Guideline Standard
60.7 60 2000
2001
2002
2003
2004
2005
2006
In “The Good Beach Guide 2007”, the Marine Conservation Society recommended 117 of the beaches in our region, the best ever performance for our region. River water quality Devon and Cornwall has a higher percentage of high quality rivers (90% are classified as ‘Very Good’ or ‘Good’) than any other region in England. Since 1989, we have improved treatment standards at over 300 waste water treatment works, greatly improving the quality of treated waste water entering the region’s rivers. This has provided a major contribution to the improvement in river water quality. Page: 10 Date Stamp: 30 August 2007
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Company Name
South West Water
JUNE RETURN 2007
However, not all river water quality issues are caused by waste water discharges, consequently an increasing proportion of remaining problems will result from other sources such as diffuse pollution. Waste water discharges & compliance In total, 4 sewage treatment works were improved in 2006/07 as part of our Quality Programme, taking the total improved in K4 to 27. The Company now has UV treatment at 54 works and membrane treatment at a further 3 works, more than any other water and sewerage company and 36% of all such works in England and Wales based on JR06. These works together serve more than one million people. UV treatment plants have very exacting standards on their consents. Waste water sanitary compliance (based on population equivalent) improved to the best ever 99.6% in 2006 from 99.4% in 2005. We also achieved full compliance with the Urban Waste Water Treatment Directive look-up-table requirements for BOD and the EA’s stringent 99% UV disinfection rule at all UV works. A total of 6 intermittent discharge schemes were completed in 2006/07, reducing the number of unsatisfactory discharges requiring improvement to just 11 out of a total number of 1,706 intermittent discharges. In K4, 61 intermittent discharges have been improved. In addition, 24 environmental investigations at intermittent discharges were completed in the year. Table B Lines 10 and 11 have been calculated from resident population equivalent only. On this basis for JR06, Table B Line 10 is 0.54% and Line 11 is 2.08%. For Line 11, JR06 included failures for COD LUT, but removing these and calculating for resident population equivalent only gives the restated figure. Sewerage and sewage treatment performance Significant performance improvements in sewerage serviceability were again made in 2006/07. The downward trend in the number of collapsed sewers, has continued, as shown by
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Company Name
South West Water
JUNE RETURN 2007
the following chart: Sewer Collapses per 1,000 km 30
27.2 25
24.5
25 Collapses per 1,000 km
21.4 18.7
20
17.3 14.7
15 10 5 0 2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
Once again, there were no Category 1 pollution incidents (there have been none in the last eight years), and the number of Category 2 incidents was only 4 non-compliant pollutions. The total number of Category 2 and 3 pollution incidents at CSOs and foul sewers has shown a substantial reduction in the report year with a reducing trend over the last 7 years, as shown in the chart below. Pollution Incidents Category 1, 2 and 3 at CSOs & Foul Sewers Nr 120
118
117
100
94
80
91
89 79
60
66
40 20 0
2000
2001
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2002
2003
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2004
2005
2006
Company Name
South West Water
JUNE RETURN 2007
Pollution numbers need to be viewed in the context of the Company’s asset base of 623 sewage treatment works, 1,706 intermittent discharges, 789 pumping stations and 9,100km of sewers. In some cases, these are substantially more than for some larger companies and represent a much higher number per head of population served. DG5 – properties at risk of flooding At 31 March 2007, there were 20 properties at risk of flooding twice in 10 years and 86 at risk once in 10 years, a net reduction of 18 on the previous year. In total, the number of properties at risk of flooding more than once in 10 years represented 0.016% of connected properties, half the national average figure for 2005/06. A further 45 properties are in the risk category 1 in 20 years. The following chart shows the downward trend of properties at risk of flooding more frequently than once in ten years, and the corresponding reduction in flooding incidents due to insufficient sewer capacity. Flooding incidents due to other causes remained high in the year, with a small increase in hydraulic capacity floodings, resulting from a much wetter winter and considerable numbers of heavy localised storms. Internal Sewer Flooding - At Risk and Actual
No 300
250
Properties At Risk of Flooding (>1 in 10 yrs)
245
244
Flooding Incidents Due to Insufficient Sewer Capacity
246
Flooding Incidents Due to Other Causes
206 200
150
100
139 123
113
107
122
145
143 106
101 124
83 56 40
50
39 25
16
26
0 2000/01
2001/02
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2002/03
2003/04
2004/05
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2005/06
2005/06
Company Name
South West Water
JUNE RETURN 2007
The predictive modelling tool, SPSS Clementine, is being used to focus attention on ‘other causes’ flooding which remains high despite major improvements in the reduction of sewer blockages and collapses. Proactive investigations and interventions are being carried out at specified locations according to risk; effectiveness will be assessed by comparison of quadrant serviceability over time. This approach will be aligned with Location Modelling and planned sewer rehabilitation to achieve programme efficiencies where possible. The Company uses an expert fire and flood cleaning contractor to assist customers by cleaning properties where internal floodings have occurred. There has been very positive feedback on the contractors from customers who have been unfortunate enough to require this service. Serviceability The following charts summarise waste water performance over the last seven years for the Ofwat serviceability indicators, in the same way as the previous ones for clean water, by each of the waste water asset group areas.
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Company Name
South West Water
JUNE RETURN 2007
Waste water non-infrastructure serviceability Waste Water Non-Infrastructure Serviceability Indicators 2.5
Ratio of Year to K3 Average
STWs Failing Numeric Consents % (TB L22) STWs Failing LUT Consents Peq % (TB L10)
2.0
STWs Forecast BOD 95%ile (T16b L1 C3) STWs Forecast SS 95%ile (T16b L4 C3)
1.5
1.0
0.5
0.0
2000
2001
2002
2003
2004
2005
2006
Performance for three of these indicators has been at or below the K3 average for the last 2 years. Whilst the trend for numeric consent non-compliance has been downward, last year there was an increase, largely due to failures of non-sanitary parameters including COD where analysis is affected by saline ingress into the system. It is not possible to include the ammonia forecast in the summary chart as there are only two years’ data, and no data for K3. The ammonia forecast improved from the previous year to last year. Overall, we believe that serviceability is continuing to improve, as evidenced by the best ever sanitary performance of our works and the improving trend of the forecasts for the sanitary parameters. We will be continuing to invest in the robustness of our waste water processes to ensure that the improvement rate is sustained. Ofwat’s Assessment 2005/06: SWW Assessment 2006/07:
Improving Improving
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Company Name
South West Water
JUNE RETURN 2007
Waste water infrastructure serviceability
Waste Water Infrastructure Serviceability Indicators
Ratio of Year to K3 Average
2.5
Gravity Sewer Collapses/1,000km Properties Flooded Hydraulic Overload incl. Extreme Weather Pollution Incidents/1,000 km Properties Flooded due to Other Causes (T3 L8) Rising Main Bursts/1,000km Sewer Blockages/1,000km (T16 L13) Equipment Failures (T16A L5)
2.0
1.5
1.0
0.5
0.0
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
There are now seven indicators for this area, compared to four last year: •
Gravity sewer collapses – slight increase but maintaining the downward trend.
•
Rising mains bursts – increasing trend but the subject of a substantial capital maintenance programme delivering recent replacements of rising mains, which should reverse this trend from 2007/08. We have replaced all or significant parts of the following rising mains: Broadhembury, Stoneyford, Blue Ball (Exeter), Goonamaris, Clennon Valley (Paignton) and Mevagissey.
•
Properties flooded due to hydraulic overload – higher numbers in 2006/07 due to a wet winter and associated extreme weather. Floodings excluding extreme weather remained low.
•
Properties flooded due to other causes – high results in the last two years and the subject of increased investment in further proactive blockage prevention, targeted using the predictive modelling tool, SPSS Clementine.
•
Sewer blockages – improving trend.
•
Equipment failures – increase in number from previous year, but similar to 2004/05 and very low number overall compared to 9,100km of sewers.
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Company Name
South West Water
JUNE RETURN 2007
Table E lines 13 to 15 show 6.9km of sewers renewed or replaced against the Monitoring Plan target of 6.2km. There was also 1.8km of rising main replaced in the ‘new’ sewers category, as the pipe was laid in a different trench to the original main. Therefore the renewed and replaced total is actually 8.7km. It is difficult to identify an overall trend in what is a fairly complex picture with the seven individual measures. In summary, four indicators are below 1.0 on the chart, a fifth, hydraulic capacity floodings, resulted from extreme weather and excluding extreme weather gives a very low result. Of the remaining two indicators, rising main bursts have increased over the last few years and other causes floodings have had high results for the last two years. We believe that overall, the trend for this area can be judged to be stable but we will continue to invest in the robustness of our sewerage systems. Ofwat’s Assessment 2005/06: SWW Assessment 2006/07:
Stable Stable
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Company Name
South West Water
JUNE RETURN 2007
OCCUPATIONAL HEALTH AND SAFETY South West Water ensures that occupational health, welfare, well-being, and safety underpin the Company’s approach to corporate responsibility, risk management and business continuity. This includes involvement in helping to set national agendas, both within the water industry and in representing the private sector in Government-led peer group reviews, whilst using innovative and cost-effective ways of implementing sound management systems for the benefit of all our stakeholders. (Further detail is given in the commentary for Table 41). Revitalising, Securing Health Together, and Clear Water 2010 South West Water continue to advocate and participate in a number of “Revitalising” ”think tanks”, and associated research publications which help the Government to deliver existing Revitalising Action Points and re-focus the regulatory regime for further progress in the UK. We maintain our efforts to publicise the benefits of effective occupational health management, continuing our major involvement in the “Securing Health Together” (SH2) with the Health and Safety Executive (HSE). In particular, our contributions include: •
Providing key management roles for the “Clear Water 2010” programme, adopting and promoting SH2 targets within the water industry.
•
Developing and arranging for continual external audit of the UK’s first verified Occupational Health Performance Measurement System, which enables water companies to provide occupational health data for Table 41.
•
Preparing the “Clear Vision 2004” report, which, records industry performance trends at the mid-point of Clear Water 2010.
•
Contributing to HSE working parties which have eventually led to the setting up of Government “national occupational health” services for small and medium sized businesses in various UK pilot regions ( and being congratulated alongside one other one other contributor by the Minister for Health and Safety at the launch )
We have consolidated business continuity and extended risk management in all areas of the business, demonstrating how corporate resilience benefits from including sound occupational health, safety and security assessments in all decisions and activities. We have also:
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Company Name
South West Water
JUNE RETURN 2007
•
Prepared detailed plans for capital investment for the prevention of musculo-skeletal disorders, asthma and substance-borne illness
•
Entered into a service agreement with a leading occupational health service provider, which includes the provision of a full-time occupational health adviser
Health and Safety Performance Our management of occupational health and safety during 2005/06 was further developed to reflect the business benefits which will accrue from improved business management and resilience. The following chart shows reportable incidents, over-3-day accidents and major accidents for the last seven years. The “Major accidents” category does not include any fatal accidents in any of the years. Lost Time Accidents & Reportable Accidents 20 18
Reportable Incidents / 1,000 employees
17
17
Over-3-Day Accidents / 1,000 employees
16
Major Accidents / 1,000 employees
Number / 1,000 Employees
16 14
14
14 13 12
12
13 13
12
12
11 10
10
8
8 6
4.5
4 2
2.6
3.0
2.3
1.5
1.2
0
0 2000/01
2001/02
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2002/03
2003/04
Time Stamp: 12:03
2004/05
2005/06
2006/07
Company Name
South West Water
JUNE RETURN 2007
CHAPTER 2 - FINANCIAL PERFORMANCE MEASURES Turnover Appointed business turnover for the year increased by 9.9% to £373.9m. Turnover from main water and sewerage charges, including large user revenues, was £360.0m (2006 £327.0m). The effect of meter option switchers was to reduce turnover by £8.0m, £0.1m more than in 2006, benefiting 26,500 customers by, on average, about £300 each. Operating Costs Total Appointed business historic cost operating costs, including depreciation, rose from £220.7m to £222.4m. The 2006 figure included exceptional charges of £14.5m due to a one-off payment of £20 per customer following financial restructuring. Operating efficiencies of £3.0m made a strong contribution to offsetting other additional costs, mainly arising from increased depreciation and operating costs from new and improved works (£7.7m), infra renewals charge (£2.7m) and inflation (£10.0m). The inflation figure includes for major increases in energy, fuel and chemical costs as well as several other above RPI increases. Operating costs, before depreciation and exceptional charges, were £137.2m (2006 £127.0m), an increase of £0.2m after inflation. Profit Historic cost operating profit after exceptional charges was £153.9m (2006 £120.7m). Net interest payable decreased to £58.2m (2006 £96.6m). The 2006 figure included an exceptional charge of £42.3m, comprising the cost of early redemption of the £150m loan from Pennon Group PLC (£50.2m), partially offset by receipts on transfer of a finance lease (£7.9m). Excluding exceptional items, net interest payable increased by £3.9m, reflecting higher borrowings to fund the capital expenditure programme. Net profit before taxation amounted to £95.9m (2005 £81.1m before exceptional costs of £56.8m). The Appointed business's taxation position results in a charge to mainstream Page: 20 Date Stamp: 30 August 2007
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Company Name
South West Water
JUNE RETURN 2007
corporation tax of £14.9m (2006 £10.6m credit) for the year. The credit in 2006 was driven by the effects of a lower profit figure affected by exceptional charges (ie Bond redemption costs) coupled with a £7.8m credit from the re-assessment of corporation tax due for prior periods. The Company continues to benefit from substantial capital allowances generated by the capital expenditure programme. A discounted provision for deferred tax has been made resulting in a charge of £7.8m in the year (2006 £6.7m). Dividends and retained profit Dividends totalling £75.0m (2006 £197.9m) were paid to the parent undertaking. This included the final £55m of the £200m special dividend related to the financial restructuring undertaken during 2005/6. £20m was an outperformance dividend in respect of 2005/06. This was calculated with reference to the projections in the Final Determination. In view of the change to International Financial Reporting Standards and the provision of deferred tax in full in the statutory accounts there were insufficient reserves to pay a normal dividend for 2006/07; this will be paid in 2007/08. The Company has established a dividend policy, which involves the following components: •
a sustainable level of base dividend growth, determined by a number of factors including the shareholder’s investment and the cost of capital.
•
a further level of growth funded by efficiency out-performance.
•
consistency with the assumptions made by Ofwat in setting prices for the K4 period.
Dividend payments are designed to ensure that key financial ratios are not prejudiced and that the ability of the Appointee to finance its Appointed Business is not impaired. Cash Flow Net cash inflow from operating activities increased to £231.8m (2006 £184.7m), reflecting the increase in operating profit and reduction in the pension prepayment made during the year, partially offset by working capital movements.
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Company Name
South West Water
JUNE RETURN 2007
Financial Ratios
Historic cost dividend cover Current cost dividend cover Gearing
05/06
06/07
1.3 1.3 62.5%
4.8 6.8 62.1%
Note: The 2006/7 figures exclude the £55m financial restructuring dividend in the calculation of dividend cover. The 2005/6 figures exclude the £145m financial restructuring dividend and exceptional changes.
Financial needs and resources Significant funding facilities are in place to cover both medium and long term requirements, including loans from the European Investment Bank. In addition, short term facilities exist with a range of financial institutions. Loans and finance lease obligations amounted to £1,539m (2006 £1,359m). Current asset investments of £118m (2006 £52m) were held at the Balance Sheet date. Short term facilities in place at 31 March 2007, but not utilised, totalled £165m (2006 £90m). These resources form part of the funding strategy put in place to finance the future investment expenditure needs of the Company. The Directors confirm that the Company can meet its short term requirements from existing facilities without breaching covenants or other borrowing restrictions.
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Company Name
South West Water
JUNE RETURN 2007
CHAPTER 3 WATER SERVICE - KEY SUPPORTING INFORMATION Integrated Management System The Company has successfully implemented an integrated management system across all of its operational activities. This has added ISO14001:2004 to the Company’s existing ISO9001:2000 accreditation under one management system. This system is focused on reinforcing good practice in the operation and improvement of our assets. It supports progress and encourage further initiatives on waste water compliance, energy saving, sustainability and waste minimisation. The system, available to all staff and partners via our Intranet, allows a regional approach to managing environmental issues and involves suppliers in best environmental practice and the operation of quality systems. The integrated system will be the basis for the Company’s Drinking Water Safety Plans, which are becoming mandatory through DWI instructions. Pennon Group achieved the highest ‘Platinum’ category in the Business in the Environment Awards 2006 with a score of 97%. Achievement of ISO14001 in SWW was a major contributor to this and the Group achieved 100% on all environmental management scores. Water Resources, Supply and Demand Customer demand was again met without the need for hosepipe bans or any drought restrictions. We have now gone ten years without any demand restrictions being imposed on customers and we are optimistic that there will be no restrictions in 2007. Total reservoir storage dropped to a minimum value of 47% in October 2006. Colliford and Stithians pumped storage schemes were again used over the winter 2006/07 to supplement natural refill of these reservoirs and thereby significantly removing the risk of customer restrictions. Pumping increased the storage in these reservoirs by 8% and 26% respectively. Total reservoir storage at the end of March 2007 was 7.3% higher than at the end of March 2006.
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Company Name
South West Water
JUNE RETURN 2007
In response to the dry summer we increased our leak detection resource earlier and improved our average repair times for visible leaks. We intend to follow this up with further improvements in repair times for visible leaks. Water efficiency measures Over the past year SWW has been conducting a large scale water efficiency trial the objectives of which were: • • •
to assess the acceptability of water efficiency devices to customers to calculate the cost of implementation to assess the savings achieved
The trial was conducted in the Roadford Strategic Supply Area which currently has less than the target supply/demand headroom. From an initial trial size of 500, a statistically significant sample of 300 measured customers across two communities has been used, with two control groups totalling 150 customers. The trials were conducted by plumbers visiting the sample of our customers, doing a water audit, giving efficiency advice and installing a package of water efficiency devices. These devices included dual flush replacement siphons, spray heads for taps, restrictor valves, shower timers, spray guns for hoses, leak alarms etc. Customers could have as many or as few as they wished and some had as many as 12 devices fitted. The average cost per household of the devices, the plumbers’ visits and overheads was approximately £190. Preliminary analysis of the results showed that the initial water savings were around 5% per household reducing to around 4% after 6-7 months. A lot of other useful information was obtained during the trial which will be written up and shared with interested parties. We are also continuing to implement a variety of domestic and commercial water efficiency initiatives, working with various partners including councils, environmental organisations and manufacturers to promote water efficiency as widely as possible. Meter optants There were 26,330 free meter optants in the year. We now have 60% of customers
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Company Name
South West Water
JUNE RETURN 2007
metered. Cryptosporidium compliance In spite of the rural nature of the South West, and high impact of agriculture in the Region, there have again been no failures of the cryptosporidium standard since the Cryptosporidium Regulations were introduced in April 2000. Lead compliance Phosphate dosing is operational at 18 water treatment works; 100% of samples met the lead standard of 25 µg in 2006 and 100% met the 10 µg standard which is to be introduced in 2013. The following chart shows the downward trend in average lead results since 1995. Average Lead Concentration - Distribution Audit Samples
µg/l 8
7.5 7.0 6.7
7
6
5
4.6 4.2
4.0
4 3.2 3
2.5 2.1
2
1.5
1
0.6
0.7
0 1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Water distribution iron compliance The Company is continuing to improve serviceability to customers, and iron compliance results demonstrate the positive effect of the water mains rehabilitation programme. This indicator and several other related measures have shown an improving trend over Page: 25 Date Stamp: 30 August 2007
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Company Name
South West Water
JUNE RETURN 2007
successive years, as shown by the DWI’s Operational Performance Index (OPI): Year
2000
2001
2002
2003
2004
2005
2006
OPI (6 parameters) %
99.47
99.50
99.69
99.72
99.79
99.86
99.85
75
59
29
14
12
4
8
Tests failed for Iron
Distribution operation and maintenance project In addition to the mains rehabilitation programme, the Company has a programme of water mains cleaning, using flushing, swabbing and air scouring techniques. In the last year, the total length of mains that was cleaned and maintained was 1,626km. The following table shows the outputs and costs of the programme to date: Year 2002/03 2003/04 2004/05 2005/06 2006/07 Total
DMAs Designed 44 41 44 52 88 269
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DMAs Cleaned 1 8 35 62 84 190
Mains Cleaned km 17 121 2,460 1,056 1,626 5,280
Time Stamp: 12:03
Population Benefiting 1,910 22,258 93,840 146,400 220,000 484,408
Capital Expenditure £507k £614k £592k £1,254k £1,800k £4,767k
Company Name
South West Water
JUNE RETURN 2007
SEWERAGE SERVICE - KEY SUPPORTING INFORMATION Key supporting information for waste water treatment and sewerage are discussed in Chapter 1 under Key Outputs and Service Delivery. Sludge strategy The Company meets HACCP standards on sludge treatment and disposal, with compliance on disposal at 100%. ASSET MANAGEMENT We have further developed our Customer Focused Asset Management approach (CFAM), to ensure that the principles of the Common Framework and PAS 55 are adopted. Our Asset Management process is key to delivering efficiently the Company’s vision of pure water, pure service and a pure environment. Reliability Centred Maintenance – Will improve the focus of our Capital and Preventative Maintenance interventions. It is not just about changing the balance between reactive to a more proactive approach. Where utilized, the approach has generated operational cost savings. In addition, this process provides an opportunity to manage the Carbon footprint of our sites. Whole Life Costing – Ensuring the correct intervention is initiated at the right time, with the correct maintenance strategy. We have initiated a system that clearly identifies changes in Whole Life Cost at the time of the investment approval which will improve the accuracy of RCC estimates. Investment Optimisation (IO) – The use of the tool has been the subject of further development and the relative weightings used within the tool have recently been re assessed. The tool enables us to determine the optimum portfolios of projects and programmes of investment. The tool enables us to strike a balance between the costs of the improvements and the perceived value delivered to our customers. The IO process will be a key element of the companies PR09 submission.
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Company Name
South West Water
JUNE RETURN 2007
Risk Analysis –We have determined the level of risk we are carrying at all our sites. This has directly fed into the Investment Optimisation process enabling us to see residual risk post investment, enabling improved targeting of investments. A further development this year will enable us to have visibility of the change in risk at a project level. All of the above have enabled us to understand and capture with more confidence the condition and serviceability grade for our asset base. Scenario based – We are able to put together the right investment that covers the widest future operating environment. We have only been able to do this by clear understanding of demand and its management. All of these deliver clear customer focus, risk based, holistic and structured investments that evidence we are good asset stewards, delivering appropriate stakeholder value within target costs. SUSTAINABLE PROCUREMENT South West Water includes all aspects of sustainability in its procurement processes and this is a central theme of procurement strategy supporting SWW as a sustainable company, ensuring a sustainable supply chain and promoting a sustainable regional environment. Suppliers are assessed for their environmental, social and financial sustainability including their approach to occupational health and other societal issues, working conditions in the supply chain, corporate governance, sustainability of their products and services, issues of natural capital and environment etc. We aim to work with the best companies whose forward thinking approach to sustainability gives reassurance that environmental, social and ethical risks are minimised. In addition to ethical and financial considerations, this approach also supports our business continuity objectives and is a core element of our Key & Strategic Supplier risk review methodology. Some indicators of our industry leading approach are included below. •
We fully support the British Water 'Guide to Sustainable Procurement' and were ranked first in their recent benchmarking survey of water industry suppliers.
•
We are a leading member and contributor to the Achilles Corporate Responsibility Group resulting in the incorporation of additional Corporate
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Company Name
South West Water
JUNE RETURN 2007
Responsibility elements in the Achilles Utilities Vendor Database. These have been fully incorporated in SWW’s ISO 9001 quality management system. •
In October 2006 we held a Corporate Responsibility and Sustainability Forum for regional SME suppliers supported by Envirowise and Twenty Fifty. This raised awareness and provided support to smaller supplier in meeting increasing expectations and competing on an equal basis.
•
We have continued to work closely with UK Water Industry Research Ltd (UKWIR) and Water UK in developing an industry wide approach to reporting using a set of sustainability indicators. This includes sustainable procurement indicators that record progress towards responsible contracting and the sustainable use and management of key materials.
•
Reporting of supply chain environmental and sustainability data forms a key element of our corporate reporting included in the Pennon Corporate Responsibility report
•
Pennon’s leading position in the 2006 Business in the Environment Index (97.13%) is supported by a 100% score for supply chain management.
•
Sustainability factors relating to energy procurement are covered in the Efficiencies section on Energy.
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Company Name
South West Water
JUNE RETURN 2007
CHAPTER 4 - EFFICIENCIES Operating costs Operating efficiency savings totalling £3.0m were achieved in the report year, marginally ahead of the profiled savings included in the Final Determination. Cumulatively savings of £7.0m have been made in the first 2 years of the K4 period and the company is on track to achieve Ofwat’s total operating efficiency target. Additional efficiencies are helping to mitigate the impact of significant price increases to the cost base. Energy prices have virtually doubled over the last 2 years, chemical prices are some 25% higher over the same period as are bad debts, the cost of which are driven by tariff changes rather than RPI. There are numerous other examples of above RPI increases and in overall terms we estimate that from the original K4 2002/3 base, real price increases are approaching £14m (11%) higher than specifically allowed in the determination or funded through the cumulative RPI addition to the cost base. The £3.0m efficiency savings in the year were broadly achieved in the following areas:•
Manpower costs – increased productivity through mobile working and continued move to planned rather than reactive work, absorption of additional work, changes in terms and conditions and NI savings from salary sacrifice schemes.
•
Use of Materials and Contracted Services – improved chemical management, elimination of expensive processes, optimisation of sludge transport costs, reduction in UV monitoring costs, replacing rather than repairing black alkathene service pipes and ongoing price management. Savings are also being achieved from adopting a proactive asset management philosophy with targeted investment to improve asset reliability.
•
Other costs – reduced energy usage, negotiated reduction in EA charges as a consequence of more robust flow volume data, lower bad debt charge through investing additional resources and more focused targeting of debt recovery activity, together with other overhead reductions.
Capital costs In the second year of K4 we have continued delivery of the significant Mains Rehabilitation programme. This and other key programmes and projects are being
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Company Name
South West Water
JUNE RETURN 2007
delivered via the partnering strategy developed in 2004 for K4, building on the successes of this approach in K3. The change in emphasis of K4 with fewer large projects and many smaller investments has driven a revised partnering structure with two contractors for mains rehabilitation, two for planned programme and five consulting engineers. Strategic sourcing strategies have also been developed for equipment, supplies and services to promote standardisation and consistency of approach. Our capital efficiency targets for K4 are again primarily programme based with achieved efficiencies of just over £14m arising from the mains rehabilitation programme in the first two years. A significant contribution of £8m from the Water Treatment Quality Programme has also been delivered. The new approach to the collection of cost data to monitor and deliver improved unit cost analysis and benchmarking, “Cost Availability for Continuous Timely Improvement” (CACTI) is now fully implemented. Continuous Improvement Service + ‘Service +’, a major project to improve the service to customers in relation to the company’s day to day operational activities and to reduce costs, was launched in October 2006. The new Service Centre in Exeter utilises the latest mobile computing technology to give quicker, more accurate information to customers on service issues as well as better prioritising the work of field operations staff. The benefits of the new system are already being seen with a significant reduction in the number of repeat contacts from customers. Customer contact strategy In September 2006 a new free phone Litigation Helpline was introduced which runs in parallel with the existing 0845 number. Callers to both numbers are automatically routed to the Credit Management agent group, unless they have chosen to make a card payment, in which case they are routed to an automated hosted payment service. Only the new Litigation Freephone number is advertised to customers, the intention being that the old charged number will be phased out for 2007/08.
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Company Name
South West Water
JUNE RETURN 2007
In April 2007 the new Call Centre telephony platform became fully operational. This has changed the customer experience with respect to IVR, queuing and messaging. The new platform incorporates IVR, removing the need for it to be hosted by the network provider. This enables greater visibility of calls abandoned within the IVR as well as information on where in these routes calls are abandoned. This alongside changes to call routing is expected to increase calls answered and improve overall reported performance. The installation of a Workforce Management application is due to follow the initial platform implementation. This will in turn enable better management, measurement, forecasting and scheduling of calls and advisors to answer calls. Debt management Progress has continued on track against our plan to ensure that by autumn 2007, we will be at the forefront of good practice in debt management. The implementation of a leading commercial credit management system, Tallyman, is proceeding to plan with beneficial use expected by October 2007. Tallyman will provide us with full back office automation, reporting and recovery of debt via segmented pathways based on information about an individual customer and their payment behaviour. Evening and Saturday outbound telephone collections activity and proactive debtor management is now implemented fully. Purchase and implementation of a power dialler is scheduled in line with Tallyman implementation and this will improve the efficiency of our telephone collections operation. As with virtually all water companies, previous occupier debt is an increasingly significant debt issue and is a key focus for finding new ways of recovery. Extra resource is being focused on the recovery area and new ways of tracing "gone away" customers developed and trialled. ‘WaterCare’ ‘WaterCare’, a ground-breaking new customer care programme, was launched early in 2007 targeted at helping those most in need to pay their bills by advising them on how to manage better both their water use and household budget. Trained advisors are
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Company Name
South West Water
JUNE RETURN 2007
meeting with around 2,500 qualifying customers a year in their homes and offering a range of free services including home water audits, advice on potential savings from fitting a meter and advice on receiving financial benefits to which they are entitled. The identification of customers who would benefit from moving to special payment plans enables them to make regular affordable payments, thereby reducing the Company’s outstanding debt. ‘Puros’ To meet the twin objectives of service excellence and operational efficiency, South West Water has launched a long-term project, ‘Puros’, to move the organisation towards a more centralised operational structure employing increased levels of automation and remote working. In the shorter term, a new ‘rightsourcing’ review is under way to determine the optimal combination of internal and external resource provision. Energy efficiency Energy consumption has increased slightly from the previous year mainly as a result of additional pumped storage activities due to the longer summer periods with lower rainfall and also due to containment, pumping and treatment of additional waste water during the winter periods of intense rainfall. Energy costs for the year were much higher than the previous year as a result of the difficulties in the wholesale market caused by the UK’s gas infrastructure limitations. Previous developments continue to be integrated in the areas of monitoring, controls and sourcing of our electricity requirements: •
Our advanced monitoring and targeting system reports on daily consumptions and exceptions so that operational activities can be regulated to achieve targets wherever possible.
•
Energy Risk Management has been successfully integrated into the Company, supported by external advisors, and ensures Board level involvement with purchasing decisions in the volatile energy market.
•
Our energy sourcing from Total Gas & Power continues, from Good Quality CHP sources, and we have secured a 'green' renewable energy supply contract for our smaller sites for the next two years. This supplements the renewable energy that
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Company Name
South West Water
JUNE RETURN 2007
the Company generates forming a package of measures to reduce our carbon footprint from energy use. We have completed the installation of over 220 automatic electricity meters at the small site level, which has increased the consumption measured through 'self-reading' meters to 96% of our total electricity consumption. At process level, a number of sub-meters are being used to support the process efficiency benchmarking work that we are undertaking. SWW's use of this process benchmarking has enabled reporting of energy efficiency and carbon labelling for our waste water and clean water treatment sites, which enables poor performing sites to be identified and investigated. Process benchmarking is one of the key activities being undertaken by the Water UK energy management forum, which our Energy Manager continues to chair. He was instrumental in engaging the group to work together to complete the assessment phase of the Carbon Trust’s Carbon Management Programme, which continues this work towards identification of mitigation and adaptation measures for implementation.
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Company Name
South West Water
JUNE RETURN 2007
CHAPTER 5 - COMPETITION During the last year the Company had discussions over a possible mixed use inset appointment. The discussions were constructive, and workable supply and pricing arrangements were developed with the potential inset appointee. To our knowledge no formal proposals have emerged from these discussions. No water supply licensing applications for common carriage or wholesale supplies of water were received last year. The Company signed one confidentiality agreement with a licensee under the water supply licensing arrangements and has provided one draft wholesale master agreement for negotiation with a licensee. No licensees have proposed amendments or agreed to our draft wholesale master agreements over the last year. The Company updated its Water Supply Licensing Access Code, including indicative prices for wholesale and common carriage supply, in September 2006.
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Company Name
South West Water
JUNE RETURN 2007
Confidentiality We consider that Tables 18a, 18b, 18c, 18d, 30, 31, 35b, 36b and 39 in the Return should be classified as confidential, as disclosure of their data and the respective commentaries to third parties would be prejudicial to South West Water’s commercial interests. We request that they remain as ‘Commercial-in-Confidence’ within the Information Capture System and should be excluded from the versions of the Return in the public domain. Directors’ Statement and Board Endorsement “I have taken all reasonable steps that I ought to have taken as a director in order to make myself aware of any relevant audit information and to establish that the information is included in the June Return. Any other records and related information which might affect the truth and fairness of, or necessary disclosure in, the June Return, including minutes of directors' and relevant management meetings, have been made available to the reporter or auditor. So far as I am aware, there is no relevant audit information of which the reporter or auditor is unaware”. Signed
Name
Position
Ken Harvey
Chairman (non-exec)
Chris Loughlin
Chief Executive
Dr Stephen Bird
Operations Director
Monica Read
Customer Services Director
Richard Hughes
Finance and Regulatory Director
This Board Overview is endorsed by the Board of South West Water Ltd.
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South West Water
JUNE RETURN 2007
BOARD’S OVERVIEW Chapter 1 Key Outputs and Service Delivery - (Tables A and B) Chapter 2 Expenditure and Financial Performance Measures - (Table C) Chapter 3 Key Supporting Information - (Tables D and E) Chapter 4 Efficiencies Chapter 5 Competition
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Company Name
South West Water
JUNE RETURN 2007
BOARD’S OVERVIEW In 2006/07, there were again significant benefits to customers from customer service investments and benefits to the environment from the completion of environmental schemes, adding further to the considerable achievements of previous years. Highlights of the year were: •
Drinking water quality performance was maintained at the best ever of 99.96%, supported by the rehabilitation or replacement of 638 km of water mains (4% of the Company’s network) benefiting around 90,000 customers.
•
Customer demand was again met without the need for hosepipe bans or drought orders.
•
Bathing water compliance was at record levels in 2006 with all our beaches meeting the Mandatory standard and a record 132 beaches (92%) meeting the tougher Guideline standard. This performance is supported by our operation of 54 UV waste water treatment plants.
•
Opex efficiencies of £3M and capex efficiencies of £22M were achieved.
•
For the eighth consecutive year we met our leakage target. The three year rolling average leakage was again below the target of 84 Ml/day.
•
There were over 26,000 free meters fitted in the year; 60% of our customers are now metered.
•
Improvements have been made to a further 4 sewage treatment works (27 in AMP4) and 6 intermittent discharges (61 in AMP4).
Corporate Governance and Quality Assurance The Board confirms that sufficient processes and internal systems of control are in place to fully meet the Company’s obligations for the provision of data to Ofwat. The information provided in this June Return has been properly compiled and computed in accordance with our procedures and data sources, in line with our interpretation of Ofwat’s requirements as set out in the appropriate commentaries and in a manner appropriate for the purposes of meeting the Company’s responsibilities under its licence of appointment. The processes by which the Board ensures this are as follows:
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Company Name
South West Water
JUNE RETURN 2007
June Return Processes The Board ensures that, at all times, the Reporter and Auditor are given full cooperation by Company staff and full access to all Company data and systems. The Company allocates responsibility for specific line data in the June Return to data owners and managers, via a master spreadsheet which forms the basis of the audit programme each year. Through the Executive Management Team, the Board approves the June Return audit programme and reviews weekly reports on audit progress and key issues arising. The Board has reviewed the confidence grade system (at the May 2007 Board meeting) and fully supports data owners and managers in appropriately allocating confidence grades to data. The Reporter and (from this year) the Auditor meet with the Executive Management Team and separately with the Board to present their findings, before submission of the June Return. The Board ensures that any key issues presented to the Executive Management Team or the Board, by the Reporter or Auditor are followed up, with corrective action taken where necessary. Where improvements are recommended for the following year, data owners and managers are responsible for carrying out follow up actions and updating procedures. They are also required to include new or changed requirements made by Ofwat. Progress on these processes is monitored by the SWW Board. Internal Quality Assurance Processes The Pennon Audit Committee allocates resources for carrying out internal audits in key June Return areas. The SWW Board endorses and acts on audit findings from these audits carried out within the Company. There is also a programme of internal audits by the Quality Assurance Department as part of the Company’s ISO9001: 2000 and ISO 14001: 2004 accreditations. Independent review and challenge of reporting by the Regulation Department is carried out, with special focus on perceived areas of heightened interest.
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Company Name
South West Water
JUNE RETURN 2007
In addition, the Board monitors and controls June Return data by: •
Setting targets and reviewing performance against key levels of service indicators and financial measures on a monthly basis at Board and Executive Management Team level.
•
Implementing Investment Planning & Control procedures (IPAC) to ensure that the principles of proper financial control are applied throughout the inception, evaluation, implementation and handover of the investment.
•
Encouraging a culture of openness, where issues can be openly discussed.
•
Continuing to support a ‘Whistleblowing’ policy.
Corporate Governance - Key Risk Management The system for profiling and monitoring key risks is embedded in our normal business practices. We regularly review how we have sustained specific risk control measures, to decide if the probability and consequence of certain risks has changed, and if necessary to recommend further actions or investment to ensure the solidity of our corporate governance.
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Company Name
South West Water
JUNE RETURN 2007
CHAPTER 1 WATER SERVICE - KEY OUTPUTS AND SERVICE DELIVERY Drinking water quality Total drinking water quality compliance for 2006 was maintained at its highest level to date of 99.96%. Performance against the DWI’s Operational Performance Index (OPI - 6 parameters) was 99.85%, maintaining the high standards achieved in recent years. The following chart shows total and OPI performance improvements over recent years.
Water Quality Performance
%
100.0 99.92 99.9
99.92
99.95
99.88 99.85
99.96
99.96
99.86
99.85
99.79
99.8 99.72 99.69
99.7
99.6
Total Compliance OP Index
99.52 99.5
99.47
99.4 2000
2001
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2002
2003
Time Stamp: 12:03
2004
2005
2006
Company Name
South West Water
JUNE RETURN 2007
Leakage For the eighth consecutive year we met our leakage target of 84 Ml/day, which represents a decreasing trend when measured on a leakage per property or length of water main basis. The three year rolling average leakage was below the target of 84 Ml/day. Analysis undertaken for the Periodic Review 2004 and reviewed in 2007 confirmed that we have gone below the economic level of leakage in order to meet customer and environmental expectations, with significant cost implications. In response to the dry summer we increased our leak detection resource earlier and improved our average repair times for visible leaks. We intend to follow this up with further improvements in repair times for visible leaks. We have carried out a detailed review of all of the components of the water balance, to significantly increase confidence in the leakage and consumption calculations. DG2 – water pressure Only 0.03% of properties are below the reference level, which is a greater than ten-fold improvement since 1997/98. DG3 – supply interruptions There was a decrease in unplanned interruptions to a weighted average of 0.30% of customers in 2006/07. Mostly due to our mains rehabilitation programme, we issued 377,000 notifications of planned shutdowns (equivalent to 50% of our customer base) with only 0.10% of customers having shutdowns which exceeded the notified time. Mains rehabilitation In the financial year 2006/07, 638 km of mains were either replaced or renewed at an average of 53 km per month, benefiting around 90,000 customers. Customer contacts DG6 billing queries were dealt with in 5 working days and 99.7% of all DG7 written complaints were dealt with in 10 working days. DG6 reporting is on the same basis as
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Company Name
South West Water
JUNE RETURN 2007
previous years, we are revising our methodologies to take into account additional guidance received at the end of the reporting year. A significant improvement in customer helpline performance was achieved with calls receiving the engaged tone at 0.31% in 2006/07, reduced from 2.1% the previous year. The proportion of abandoned calls increased to 10.7% in 2006/07 from 8.1% in the previous year. This increase resulted from improvements that had been made to the telephony system which increased the number of places within the IVR that abandoned calls could be measured. These improvements were to collect additional data to enable the installation of a new telephony platform in April 2007, which has already supported better handling of telephone contacts in future and enabled the collection of much more detailed management information. DG8 - bills for metered customers Performance was maintained at 99.9%, despite an 8.4% increase in the number of metered accounts. This is an exceptionally high standard of performance in the South West region, which has a high proportion of holiday homes, where access to internal meters can be consequently difficult to arrange. Serviceability Over the K4 period (2005/06 to 2009/10), we will report on serviceability using K3 (2000/01 to 2004/05) performance as a base. In this report, the Ofwat serviceability indicators have been used for each of the asset groups. In future years, the indicators used may change as a result of further work on serviceability by South West Water. The following charts summarise performance over the last seven years for the Ofwat serviceability indicators, by each of the asset group areas. Each chart shows performance in a year divided by the average of performance over the K3 period for each serviceability indicator. If performance was at the average level for K3 in 2006/07 then this would be plotted as a value of 1.0. If the indicator was above the average then it would therefore be above 1.0 and performance below average would be between 1.0 and zero. This allows for the comparison of trends in performance for all the indicators in each asset group.
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Company Name
South West Water
JUNE RETURN 2007
It should be noted that in the summary charts all of the indicators measure adverse events or non-compliance, so downward trends represent improving performance, upward trends represent deteriorating performance. Water non-infrastructure serviceability Water Non-Infrastructure Serviceability Indicators 3.0
Ratio of Year to K3 Average
WTW Determinations Containing Coliforms % (TA L21) Enforcement Actions Considered - DWI
2.5
Service Reservoirs with Coliforms >5% of Samples WTW Turbidity 95th Percentile > 0.5 NTU (T11a L1)
2.0 1.5 1.0 0.5 0.0 2000
2001
2002
2003
2004
2005
2006
Performance for all of these indicators has been at, or below, the K3 average for the last 2 years. No adverse trends can be identified in the data. Ofwat’s Assessment 2005/06: SWW Assessment 2006/07:
Stable Stable
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Company Name
South West Water
JUNE RETURN 2007
Water infrastructure serviceability Water Infrastructure Serviceability Indicators 3.5
DG2 Properties Below Reference Level % (T2 L3/L1) DG3 Interruptions >12 hours % (T2 L7/L1)
Ratio of Year to K3 Average
3.0
Iron Mean Zonal Non-Compliance % Mains Bursts and Leaks per 1,000 km (T11 L11)
2.5 2.0 1.5 1.0 0.5 0.0 2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
•
DG2 performance has a slight improving trend.
•
DG3 performance is close to its lowest result, after a high result last year caused by two large bursts.
•
Iron mean zonal non-compliance is showing a reducing trend.
•
Mains bursts and leaks showed a 3% reduction on the previous year, with results still higher than the K3 average. The monthly profile of bursts and leaks correlates strongly with the weather, with high numbers of bursts in the cold winter of 2005/06 and in the warm dry summer of 2006/07.
Three of the above indicators show a strong downward trend, with the fourth indicator, mains bursts and leaks, showing a reduction on the previous year of 3%, and a correlation with prevailing weather conditions. We believe that overall, this represents stable serviceability. Ofwat’s Assessment 2005/06: SWW Assessment 2006/07:
Marginal Stable
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Company Name
South West Water
JUNE RETURN 2007
SEWERAGE SERVICE - KEY OUTPUTS AND SERVICE DELIVERY Bathing water compliance The Company has almost 30% of the country’s bathing beaches, but only 3% of the resident population so our environmental obligations are particularly demanding. In 2006, all of the region’s beaches passed mandatory standards putting our performance at the best in Europe and a record 92% passed the tighter Guideline compliance standard, improving on the high levels of compliance set in recent years. SWW Region Bathing Water Compliance
%
100 95
97.9
97.9
99.3
97.9
99.3
100.0
95.7
90
90.9
91.7
85 84.3 80
81.6
81.1
75 70
71.4 Mandatory Standard
65
Guideline Standard
60.7 60 2000
2001
2002
2003
2004
2005
2006
In “The Good Beach Guide 2007”, the Marine Conservation Society recommended 117 of the beaches in our region, the best ever performance for our region. River water quality Devon and Cornwall has a higher percentage of high quality rivers (90% are classified as ‘Very Good’ or ‘Good’) than any other region in England. Since 1989, we have improved treatment standards at over 300 waste water treatment works, greatly improving the quality of treated waste water entering the region’s rivers. This has provided a major contribution to the improvement in river water quality. Page: 10 Date Stamp: 30 August 2007
Time Stamp: 12:03
Company Name
South West Water
JUNE RETURN 2007
However, not all river water quality issues are caused by waste water discharges, consequently an increasing proportion of remaining problems will result from other sources such as diffuse pollution. Waste water discharges & compliance In total, 4 sewage treatment works were improved in 2006/07 as part of our Quality Programme, taking the total improved in K4 to 27. The Company now has UV treatment at 54 works and membrane treatment at a further 3 works, more than any other water and sewerage company and 36% of all such works in England and Wales based on JR06. These works together serve more than one million people. UV treatment plants have very exacting standards on their consents. Waste water sanitary compliance (based on population equivalent) improved to the best ever 99.6% in 2006 from 99.4% in 2005. We also achieved full compliance with the Urban Waste Water Treatment Directive look-up-table requirements for BOD and the EA’s stringent 99% UV disinfection rule at all UV works. A total of 6 intermittent discharge schemes were completed in 2006/07, reducing the number of unsatisfactory discharges requiring improvement to just 11 out of a total number of 1,706 intermittent discharges. In K4, 61 intermittent discharges have been improved. In addition, 24 environmental investigations at intermittent discharges were completed in the year. Table B Lines 10 and 11 have been calculated from resident population equivalent only. On this basis for JR06, Table B Line 10 is 0.54% and Line 11 is 2.08%. For Line 11, JR06 included failures for COD LUT, but removing these and calculating for resident population equivalent only gives the restated figure. Sewerage and sewage treatment performance Significant performance improvements in sewerage serviceability were again made in 2006/07. The downward trend in the number of collapsed sewers, has continued, as shown by
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Company Name
South West Water
JUNE RETURN 2007
the following chart: Sewer Collapses per 1,000 km 30
27.2 25
24.5
25 Collapses per 1,000 km
21.4 18.7
20
17.3 14.7
15 10 5 0 2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
Once again, there were no Category 1 pollution incidents (there have been none in the last eight years), and the number of Category 2 incidents was only 4 non-compliant pollutions. The total number of Category 2 and 3 pollution incidents at CSOs and foul sewers has shown a substantial reduction in the report year with a reducing trend over the last 7 years, as shown in the chart below. Pollution Incidents Category 1, 2 and 3 at CSOs & Foul Sewers Nr 120
118
117
100
94
80
91
89 79
60
66
40 20 0
2000
2001
Page: 12 Date Stamp: 30 August 2007
2002
2003
Time Stamp: 12:03
2004
2005
2006
Company Name
South West Water
JUNE RETURN 2007
Pollution numbers need to be viewed in the context of the Company’s asset base of 623 sewage treatment works, 1,706 intermittent discharges, 789 pumping stations and 9,100km of sewers. In some cases, these are substantially more than for some larger companies and represent a much higher number per head of population served. DG5 – properties at risk of flooding At 31 March 2007, there were 20 properties at risk of flooding twice in 10 years and 86 at risk once in 10 years, a net reduction of 18 on the previous year. In total, the number of properties at risk of flooding more than once in 10 years represented 0.016% of connected properties, half the national average figure for 2005/06. A further 45 properties are in the risk category 1 in 20 years. The following chart shows the downward trend of properties at risk of flooding more frequently than once in ten years, and the corresponding reduction in flooding incidents due to insufficient sewer capacity. Flooding incidents due to other causes remained high in the year, with a small increase in hydraulic capacity floodings, resulting from a much wetter winter and considerable numbers of heavy localised storms. Internal Sewer Flooding - At Risk and Actual
No 300
250
Properties At Risk of Flooding (>1 in 10 yrs)
245
244
Flooding Incidents Due to Insufficient Sewer Capacity
246
Flooding Incidents Due to Other Causes
206 200
150
100
139 123
113
107
122
145
143 106
101 124
83 56 40
50
39 25
16
26
0 2000/01
2001/02
Page: 13 Date Stamp: 30 August 2007
2002/03
2003/04
2004/05
Time Stamp: 12:03
2005/06
2005/06
Company Name
South West Water
JUNE RETURN 2007
The predictive modelling tool, SPSS Clementine, is being used to focus attention on ‘other causes’ flooding which remains high despite major improvements in the reduction of sewer blockages and collapses. Proactive investigations and interventions are being carried out at specified locations according to risk; effectiveness will be assessed by comparison of quadrant serviceability over time. This approach will be aligned with Location Modelling and planned sewer rehabilitation to achieve programme efficiencies where possible. The Company uses an expert fire and flood cleaning contractor to assist customers by cleaning properties where internal floodings have occurred. There has been very positive feedback on the contractors from customers who have been unfortunate enough to require this service. Serviceability The following charts summarise waste water performance over the last seven years for the Ofwat serviceability indicators, in the same way as the previous ones for clean water, by each of the waste water asset group areas.
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Company Name
South West Water
JUNE RETURN 2007
Waste water non-infrastructure serviceability Waste Water Non-Infrastructure Serviceability Indicators 2.5
Ratio of Year to K3 Average
STWs Failing Numeric Consents % (TB L22) STWs Failing LUT Consents Peq % (TB L10)
2.0
STWs Forecast BOD 95%ile (T16b L1 C3) STWs Forecast SS 95%ile (T16b L4 C3)
1.5
1.0
0.5
0.0
2000
2001
2002
2003
2004
2005
2006
Performance for three of these indicators has been at or below the K3 average for the last 2 years. Whilst the trend for numeric consent non-compliance has been downward, last year there was an increase, largely due to failures of non-sanitary parameters including COD where analysis is affected by saline ingress into the system. It is not possible to include the ammonia forecast in the summary chart as there are only two years’ data, and no data for K3. The ammonia forecast improved from the previous year to last year. Overall, we believe that serviceability is continuing to improve, as evidenced by the best ever sanitary performance of our works and the improving trend of the forecasts for the sanitary parameters. We will be continuing to invest in the robustness of our waste water processes to ensure that the improvement rate is sustained. Ofwat’s Assessment 2005/06: SWW Assessment 2006/07:
Improving Improving
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Company Name
South West Water
JUNE RETURN 2007
Waste water infrastructure serviceability
Waste Water Infrastructure Serviceability Indicators
Ratio of Year to K3 Average
2.5
Gravity Sewer Collapses/1,000km Properties Flooded Hydraulic Overload incl. Extreme Weather Pollution Incidents/1,000 km Properties Flooded due to Other Causes (T3 L8) Rising Main Bursts/1,000km Sewer Blockages/1,000km (T16 L13) Equipment Failures (T16A L5)
2.0
1.5
1.0
0.5
0.0
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
There are now seven indicators for this area, compared to four last year: •
Gravity sewer collapses – slight increase but maintaining the downward trend.
•
Rising mains bursts – increasing trend but the subject of a substantial capital maintenance programme delivering recent replacements of rising mains, which should reverse this trend from 2007/08. We have replaced all or significant parts of the following rising mains: Broadhembury, Stoneyford, Blue Ball (Exeter), Goonamaris, Clennon Valley (Paignton) and Mevagissey.
•
Properties flooded due to hydraulic overload – higher numbers in 2006/07 due to a wet winter and associated extreme weather. Floodings excluding extreme weather remained low.
•
Properties flooded due to other causes – high results in the last two years and the subject of increased investment in further proactive blockage prevention, targeted using the predictive modelling tool, SPSS Clementine.
•
Sewer blockages – improving trend.
•
Equipment failures – increase in number from previous year, but similar to 2004/05 and very low number overall compared to 9,100km of sewers.
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Company Name
South West Water
JUNE RETURN 2007
Table E lines 13 to 15 show 6.9km of sewers renewed or replaced against the Monitoring Plan target of 6.2km. There was also 1.8km of rising main replaced in the ‘new’ sewers category, as the pipe was laid in a different trench to the original main. Therefore the renewed and replaced total is actually 8.7km. It is difficult to identify an overall trend in what is a fairly complex picture with the seven individual measures. In summary, four indicators are below 1.0 on the chart, a fifth, hydraulic capacity floodings, resulted from extreme weather and excluding extreme weather gives a very low result. Of the remaining two indicators, rising main bursts have increased over the last few years and other causes floodings have had high results for the last two years. We believe that overall, the trend for this area can be judged to be stable but we will continue to invest in the robustness of our sewerage systems. Ofwat’s Assessment 2005/06: SWW Assessment 2006/07:
Stable Stable
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Company Name
South West Water
JUNE RETURN 2007
OCCUPATIONAL HEALTH AND SAFETY South West Water ensures that occupational health, welfare, well-being, and safety underpin the Company’s approach to corporate responsibility, risk management and business continuity. This includes involvement in helping to set national agendas, both within the water industry and in representing the private sector in Government-led peer group reviews, whilst using innovative and cost-effective ways of implementing sound management systems for the benefit of all our stakeholders. (Further detail is given in the commentary for Table 41). Revitalising, Securing Health Together, and Clear Water 2010 South West Water continue to advocate and participate in a number of “Revitalising” ”think tanks”, and associated research publications which help the Government to deliver existing Revitalising Action Points and re-focus the regulatory regime for further progress in the UK. We maintain our efforts to publicise the benefits of effective occupational health management, continuing our major involvement in the “Securing Health Together” (SH2) with the Health and Safety Executive (HSE). In particular, our contributions include: •
Providing key management roles for the “Clear Water 2010” programme, adopting and promoting SH2 targets within the water industry.
•
Developing and arranging for continual external audit of the UK’s first verified Occupational Health Performance Measurement System, which enables water companies to provide occupational health data for Table 41.
•
Preparing the “Clear Vision 2004” report, which, records industry performance trends at the mid-point of Clear Water 2010.
•
Contributing to HSE working parties which have eventually led to the setting up of Government “national occupational health” services for small and medium sized businesses in various UK pilot regions ( and being congratulated alongside one other one other contributor by the Minister for Health and Safety at the launch )
We have consolidated business continuity and extended risk management in all areas of the business, demonstrating how corporate resilience benefits from including sound occupational health, safety and security assessments in all decisions and activities. We have also:
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Company Name
South West Water
JUNE RETURN 2007
•
Prepared detailed plans for capital investment for the prevention of musculo-skeletal disorders, asthma and substance-borne illness
•
Entered into a service agreement with a leading occupational health service provider, which includes the provision of a full-time occupational health adviser
Health and Safety Performance Our management of occupational health and safety during 2005/06 was further developed to reflect the business benefits which will accrue from improved business management and resilience. The following chart shows reportable incidents, over-3-day accidents and major accidents for the last seven years. The “Major accidents” category does not include any fatal accidents in any of the years. Lost Time Accidents & Reportable Accidents 20 18
Reportable Incidents / 1,000 employees
17
17
Over-3-Day Accidents / 1,000 employees
16
Major Accidents / 1,000 employees
Number / 1,000 Employees
16 14
14
14 13 12
12
13 13
12
12
11 10
10
8
8 6
4.5
4 2
2.6
3.0
2.3
1.5
1.2
0
0 2000/01
2001/02
Page: 19 Date Stamp: 30 August 2007
2002/03
2003/04
Time Stamp: 12:03
2004/05
2005/06
2006/07
Company Name
South West Water
JUNE RETURN 2007
CHAPTER 2 - FINANCIAL PERFORMANCE MEASURES Turnover Appointed business turnover for the year increased by 9.9% to £373.9m. Turnover from main water and sewerage charges, including large user revenues, was £360.0m (2006 £327.0m). The effect of meter option switchers was to reduce turnover by £8.0m, £0.1m more than in 2006, benefiting 26,500 customers by, on average, about £300 each. Operating Costs Total Appointed business historic cost operating costs, including depreciation, rose from £220.7m to £222.4m. The 2006 figure included exceptional charges of £14.5m due to a one-off payment of £20 per customer following financial restructuring. Operating efficiencies of £3.0m made a strong contribution to offsetting other additional costs, mainly arising from increased depreciation and operating costs from new and improved works (£7.7m), infra renewals charge (£2.7m) and inflation (£10.0m). The inflation figure includes for major increases in energy, fuel and chemical costs as well as several other above RPI increases. Operating costs, before depreciation and exceptional charges, were £137.2m (2006 £127.0m), an increase of £0.2m after inflation. Profit Historic cost operating profit after exceptional charges was £153.9m (2006 £120.7m). Net interest payable decreased to £58.2m (2006 £96.6m). The 2006 figure included an exceptional charge of £42.3m, comprising the cost of early redemption of the £150m loan from Pennon Group PLC (£50.2m), partially offset by receipts on transfer of a finance lease (£7.9m). Excluding exceptional items, net interest payable increased by £3.9m, reflecting higher borrowings to fund the capital expenditure programme. Net profit before taxation amounted to £95.9m (2005 £81.1m before exceptional costs of £56.8m). The Appointed business's taxation position results in a charge to mainstream Page: 20 Date Stamp: 30 August 2007
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Company Name
South West Water
JUNE RETURN 2007
corporation tax of £14.9m (2006 £10.6m credit) for the year. The credit in 2006 was driven by the effects of a lower profit figure affected by exceptional charges (ie Bond redemption costs) coupled with a £7.8m credit from the re-assessment of corporation tax due for prior periods. The Company continues to benefit from substantial capital allowances generated by the capital expenditure programme. A discounted provision for deferred tax has been made resulting in a charge of £7.8m in the year (2006 £6.7m). Dividends and retained profit Dividends totalling £75.0m (2006 £197.9m) were paid to the parent undertaking. This included the final £55m of the £200m special dividend related to the financial restructuring undertaken during 2005/6. £20m was an outperformance dividend in respect of 2005/06. This was calculated with reference to the projections in the Final Determination. In view of the change to International Financial Reporting Standards and the provision of deferred tax in full in the statutory accounts there were insufficient reserves to pay a normal dividend for 2006/07; this will be paid in 2007/08. The Company has established a dividend policy, which involves the following components: •
a sustainable level of base dividend growth, determined by a number of factors including the shareholder’s investment and the cost of capital.
•
a further level of growth funded by efficiency out-performance.
•
consistency with the assumptions made by Ofwat in setting prices for the K4 period.
Dividend payments are designed to ensure that key financial ratios are not prejudiced and that the ability of the Appointee to finance its Appointed Business is not impaired. Cash Flow Net cash inflow from operating activities increased to £231.8m (2006 £184.7m), reflecting the increase in operating profit and reduction in the pension prepayment made during the year, partially offset by working capital movements.
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Company Name
South West Water
JUNE RETURN 2007
Financial Ratios
Historic cost dividend cover Current cost dividend cover Gearing
05/06
06/07
1.3 1.3 62.5%
4.8 6.8 62.1%
Note: The 2006/7 figures exclude the £55m financial restructuring dividend in the calculation of dividend cover. The 2005/6 figures exclude the £145m financial restructuring dividend and exceptional changes.
Financial needs and resources Significant funding facilities are in place to cover both medium and long term requirements, including loans from the European Investment Bank. In addition, short term facilities exist with a range of financial institutions. Loans and finance lease obligations amounted to £1,539m (2006 £1,359m). Current asset investments of £118m (2006 £52m) were held at the Balance Sheet date. Short term facilities in place at 31 March 2007, but not utilised, totalled £165m (2006 £90m). These resources form part of the funding strategy put in place to finance the future investment expenditure needs of the Company. The Directors confirm that the Company can meet its short term requirements from existing facilities without breaching covenants or other borrowing restrictions.
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Company Name
South West Water
JUNE RETURN 2007
CHAPTER 3 WATER SERVICE - KEY SUPPORTING INFORMATION Integrated Management System The Company has successfully implemented an integrated management system across all of its operational activities. This has added ISO14001:2004 to the Company’s existing ISO9001:2000 accreditation under one management system. This system is focused on reinforcing good practice in the operation and improvement of our assets. It supports progress and encourage further initiatives on waste water compliance, energy saving, sustainability and waste minimisation. The system, available to all staff and partners via our Intranet, allows a regional approach to managing environmental issues and involves suppliers in best environmental practice and the operation of quality systems. The integrated system will be the basis for the Company’s Drinking Water Safety Plans, which are becoming mandatory through DWI instructions. Pennon Group achieved the highest ‘Platinum’ category in the Business in the Environment Awards 2006 with a score of 97%. Achievement of ISO14001 in SWW was a major contributor to this and the Group achieved 100% on all environmental management scores. Water Resources, Supply and Demand Customer demand was again met without the need for hosepipe bans or any drought restrictions. We have now gone ten years without any demand restrictions being imposed on customers and we are optimistic that there will be no restrictions in 2007. Total reservoir storage dropped to a minimum value of 47% in October 2006. Colliford and Stithians pumped storage schemes were again used over the winter 2006/07 to supplement natural refill of these reservoirs and thereby significantly removing the risk of customer restrictions. Pumping increased the storage in these reservoirs by 8% and 26% respectively. Total reservoir storage at the end of March 2007 was 7.3% higher than at the end of March 2006.
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Company Name
South West Water
JUNE RETURN 2007
In response to the dry summer we increased our leak detection resource earlier and improved our average repair times for visible leaks. We intend to follow this up with further improvements in repair times for visible leaks. Water efficiency measures Over the past year SWW has been conducting a large scale water efficiency trial the objectives of which were: • • •
to assess the acceptability of water efficiency devices to customers to calculate the cost of implementation to assess the savings achieved
The trial was conducted in the Roadford Strategic Supply Area which currently has less than the target supply/demand headroom. From an initial trial size of 500, a statistically significant sample of 300 measured customers across two communities has been used, with two control groups totalling 150 customers. The trials were conducted by plumbers visiting the sample of our customers, doing a water audit, giving efficiency advice and installing a package of water efficiency devices. These devices included dual flush replacement siphons, spray heads for taps, restrictor valves, shower timers, spray guns for hoses, leak alarms etc. Customers could have as many or as few as they wished and some had as many as 12 devices fitted. The average cost per household of the devices, the plumbers’ visits and overheads was approximately £190. Preliminary analysis of the results showed that the initial water savings were around 5% per household reducing to around 4% after 6-7 months. A lot of other useful information was obtained during the trial which will be written up and shared with interested parties. We are also continuing to implement a variety of domestic and commercial water efficiency initiatives, working with various partners including councils, environmental organisations and manufacturers to promote water efficiency as widely as possible. Meter optants There were 26,330 free meter optants in the year. We now have 60% of customers
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Company Name
South West Water
JUNE RETURN 2007
metered. Cryptosporidium compliance In spite of the rural nature of the South West, and high impact of agriculture in the Region, there have again been no failures of the cryptosporidium standard since the Cryptosporidium Regulations were introduced in April 2000. Lead compliance Phosphate dosing is operational at 18 water treatment works; 100% of samples met the lead standard of 25 µg in 2006 and 100% met the 10 µg standard which is to be introduced in 2013. The following chart shows the downward trend in average lead results since 1995. Average Lead Concentration - Distribution Audit Samples
µg/l 8
7.5 7.0 6.7
7
6
5
4.6 4.2
4.0
4 3.2 3
2.5 2.1
2
1.5
1
0.6
0.7
0 1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Water distribution iron compliance The Company is continuing to improve serviceability to customers, and iron compliance results demonstrate the positive effect of the water mains rehabilitation programme. This indicator and several other related measures have shown an improving trend over Page: 25 Date Stamp: 30 August 2007
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Company Name
South West Water
JUNE RETURN 2007
successive years, as shown by the DWI’s Operational Performance Index (OPI): Year
2000
2001
2002
2003
2004
2005
2006
OPI (6 parameters) %
99.47
99.50
99.69
99.72
99.79
99.86
99.85
75
59
29
14
12
4
8
Tests failed for Iron
Distribution operation and maintenance project In addition to the mains rehabilitation programme, the Company has a programme of water mains cleaning, using flushing, swabbing and air scouring techniques. In the last year, the total length of mains that was cleaned and maintained was 1,626km. The following table shows the outputs and costs of the programme to date: Year 2002/03 2003/04 2004/05 2005/06 2006/07 Total
DMAs Designed 44 41 44 52 88 269
Page: 26 Date Stamp: 30 August 2007
DMAs Cleaned 1 8 35 62 84 190
Mains Cleaned km 17 121 2,460 1,056 1,626 5,280
Time Stamp: 12:03
Population Benefiting 1,910 22,258 93,840 146,400 220,000 484,408
Capital Expenditure £507k £614k £592k £1,254k £1,800k £4,767k
Company Name
South West Water
JUNE RETURN 2007
SEWERAGE SERVICE - KEY SUPPORTING INFORMATION Key supporting information for waste water treatment and sewerage are discussed in Chapter 1 under Key Outputs and Service Delivery. Sludge strategy The Company meets HACCP standards on sludge treatment and disposal, with compliance on disposal at 100%. ASSET MANAGEMENT We have further developed our Customer Focused Asset Management approach (CFAM), to ensure that the principles of the Common Framework and PAS 55 are adopted. Our Asset Management process is key to delivering efficiently the Company’s vision of pure water, pure service and a pure environment. Reliability Centred Maintenance – Will improve the focus of our Capital and Preventative Maintenance interventions. It is not just about changing the balance between reactive to a more proactive approach. Where utilized, the approach has generated operational cost savings. In addition, this process provides an opportunity to manage the Carbon footprint of our sites. Whole Life Costing – Ensuring the correct intervention is initiated at the right time, with the correct maintenance strategy. We have initiated a system that clearly identifies changes in Whole Life Cost at the time of the investment approval which will improve the accuracy of RCC estimates. Investment Optimisation (IO) – The use of the tool has been the subject of further development and the relative weightings used within the tool have recently been re assessed. The tool enables us to determine the optimum portfolios of projects and programmes of investment. The tool enables us to strike a balance between the costs of the improvements and the perceived value delivered to our customers. The IO process will be a key element of the companies PR09 submission.
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Company Name
South West Water
JUNE RETURN 2007
Risk Analysis –We have determined the level of risk we are carrying at all our sites. This has directly fed into the Investment Optimisation process enabling us to see residual risk post investment, enabling improved targeting of investments. A further development this year will enable us to have visibility of the change in risk at a project level. All of the above have enabled us to understand and capture with more confidence the condition and serviceability grade for our asset base. Scenario based – We are able to put together the right investment that covers the widest future operating environment. We have only been able to do this by clear understanding of demand and its management. All of these deliver clear customer focus, risk based, holistic and structured investments that evidence we are good asset stewards, delivering appropriate stakeholder value within target costs. SUSTAINABLE PROCUREMENT South West Water includes all aspects of sustainability in its procurement processes and this is a central theme of procurement strategy supporting SWW as a sustainable company, ensuring a sustainable supply chain and promoting a sustainable regional environment. Suppliers are assessed for their environmental, social and financial sustainability including their approach to occupational health and other societal issues, working conditions in the supply chain, corporate governance, sustainability of their products and services, issues of natural capital and environment etc. We aim to work with the best companies whose forward thinking approach to sustainability gives reassurance that environmental, social and ethical risks are minimised. In addition to ethical and financial considerations, this approach also supports our business continuity objectives and is a core element of our Key & Strategic Supplier risk review methodology. Some indicators of our industry leading approach are included below. •
We fully support the British Water 'Guide to Sustainable Procurement' and were ranked first in their recent benchmarking survey of water industry suppliers.
•
We are a leading member and contributor to the Achilles Corporate Responsibility Group resulting in the incorporation of additional Corporate
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Company Name
South West Water
JUNE RETURN 2007
Responsibility elements in the Achilles Utilities Vendor Database. These have been fully incorporated in SWW’s ISO 9001 quality management system. •
In October 2006 we held a Corporate Responsibility and Sustainability Forum for regional SME suppliers supported by Envirowise and Twenty Fifty. This raised awareness and provided support to smaller supplier in meeting increasing expectations and competing on an equal basis.
•
We have continued to work closely with UK Water Industry Research Ltd (UKWIR) and Water UK in developing an industry wide approach to reporting using a set of sustainability indicators. This includes sustainable procurement indicators that record progress towards responsible contracting and the sustainable use and management of key materials.
•
Reporting of supply chain environmental and sustainability data forms a key element of our corporate reporting included in the Pennon Corporate Responsibility report
•
Pennon’s leading position in the 2006 Business in the Environment Index (97.13%) is supported by a 100% score for supply chain management.
•
Sustainability factors relating to energy procurement are covered in the Efficiencies section on Energy.
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Company Name
South West Water
JUNE RETURN 2007
CHAPTER 4 - EFFICIENCIES Operating costs Operating efficiency savings totalling £3.0m were achieved in the report year, marginally ahead of the profiled savings included in the Final Determination. Cumulatively savings of £7.0m have been made in the first 2 years of the K4 period and the company is on track to achieve Ofwat’s total operating efficiency target. Additional efficiencies are helping to mitigate the impact of significant price increases to the cost base. Energy prices have virtually doubled over the last 2 years, chemical prices are some 25% higher over the same period as are bad debts, the cost of which are driven by tariff changes rather than RPI. There are numerous other examples of above RPI increases and in overall terms we estimate that from the original K4 2002/3 base, real price increases are approaching £14m (11%) higher than specifically allowed in the determination or funded through the cumulative RPI addition to the cost base. The £3.0m efficiency savings in the year were broadly achieved in the following areas:•
Manpower costs – increased productivity through mobile working and continued move to planned rather than reactive work, absorption of additional work, changes in terms and conditions and NI savings from salary sacrifice schemes.
•
Use of Materials and Contracted Services – improved chemical management, elimination of expensive processes, optimisation of sludge transport costs, reduction in UV monitoring costs, replacing rather than repairing black alkathene service pipes and ongoing price management. Savings are also being achieved from adopting a proactive asset management philosophy with targeted investment to improve asset reliability.
•
Other costs – reduced energy usage, negotiated reduction in EA charges as a consequence of more robust flow volume data, lower bad debt charge through investing additional resources and more focused targeting of debt recovery activity, together with other overhead reductions.
Capital costs In the second year of K4 we have continued delivery of the significant Mains Rehabilitation programme. This and other key programmes and projects are being
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Company Name
South West Water
JUNE RETURN 2007
delivered via the partnering strategy developed in 2004 for K4, building on the successes of this approach in K3. The change in emphasis of K4 with fewer large projects and many smaller investments has driven a revised partnering structure with two contractors for mains rehabilitation, two for planned programme and five consulting engineers. Strategic sourcing strategies have also been developed for equipment, supplies and services to promote standardisation and consistency of approach. Our capital efficiency targets for K4 are again primarily programme based with achieved efficiencies of just over £14m arising from the mains rehabilitation programme in the first two years. A significant contribution of £8m from the Water Treatment Quality Programme has also been delivered. The new approach to the collection of cost data to monitor and deliver improved unit cost analysis and benchmarking, “Cost Availability for Continuous Timely Improvement” (CACTI) is now fully implemented. Continuous Improvement Service + ‘Service +’, a major project to improve the service to customers in relation to the company’s day to day operational activities and to reduce costs, was launched in October 2006. The new Service Centre in Exeter utilises the latest mobile computing technology to give quicker, more accurate information to customers on service issues as well as better prioritising the work of field operations staff. The benefits of the new system are already being seen with a significant reduction in the number of repeat contacts from customers. Customer contact strategy In September 2006 a new free phone Litigation Helpline was introduced which runs in parallel with the existing 0845 number. Callers to both numbers are automatically routed to the Credit Management agent group, unless they have chosen to make a card payment, in which case they are routed to an automated hosted payment service. Only the new Litigation Freephone number is advertised to customers, the intention being that the old charged number will be phased out for 2007/08.
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Company Name
South West Water
JUNE RETURN 2007
In April 2007 the new Call Centre telephony platform became fully operational. This has changed the customer experience with respect to IVR, queuing and messaging. The new platform incorporates IVR, removing the need for it to be hosted by the network provider. This enables greater visibility of calls abandoned within the IVR as well as information on where in these routes calls are abandoned. This alongside changes to call routing is expected to increase calls answered and improve overall reported performance. The installation of a Workforce Management application is due to follow the initial platform implementation. This will in turn enable better management, measurement, forecasting and scheduling of calls and advisors to answer calls. Debt management Progress has continued on track against our plan to ensure that by autumn 2007, we will be at the forefront of good practice in debt management. The implementation of a leading commercial credit management system, Tallyman, is proceeding to plan with beneficial use expected by October 2007. Tallyman will provide us with full back office automation, reporting and recovery of debt via segmented pathways based on information about an individual customer and their payment behaviour. Evening and Saturday outbound telephone collections activity and proactive debtor management is now implemented fully. Purchase and implementation of a power dialler is scheduled in line with Tallyman implementation and this will improve the efficiency of our telephone collections operation. As with virtually all water companies, previous occupier debt is an increasingly significant debt issue and is a key focus for finding new ways of recovery. Extra resource is being focused on the recovery area and new ways of tracing "gone away" customers developed and trialled. ‘WaterCare’ ‘WaterCare’, a ground-breaking new customer care programme, was launched early in 2007 targeted at helping those most in need to pay their bills by advising them on how to manage better both their water use and household budget. Trained advisors are
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Company Name
South West Water
JUNE RETURN 2007
meeting with around 2,500 qualifying customers a year in their homes and offering a range of free services including home water audits, advice on potential savings from fitting a meter and advice on receiving financial benefits to which they are entitled. The identification of customers who would benefit from moving to special payment plans enables them to make regular affordable payments, thereby reducing the Company’s outstanding debt. ‘Puros’ To meet the twin objectives of service excellence and operational efficiency, South West Water has launched a long-term project, ‘Puros’, to move the organisation towards a more centralised operational structure employing increased levels of automation and remote working. In the shorter term, a new ‘rightsourcing’ review is under way to determine the optimal combination of internal and external resource provision. Energy efficiency Energy consumption has increased slightly from the previous year mainly as a result of additional pumped storage activities due to the longer summer periods with lower rainfall and also due to containment, pumping and treatment of additional waste water during the winter periods of intense rainfall. Energy costs for the year were much higher than the previous year as a result of the difficulties in the wholesale market caused by the UK’s gas infrastructure limitations. Previous developments continue to be integrated in the areas of monitoring, controls and sourcing of our electricity requirements: •
Our advanced monitoring and targeting system reports on daily consumptions and exceptions so that operational activities can be regulated to achieve targets wherever possible.
•
Energy Risk Management has been successfully integrated into the Company, supported by external advisors, and ensures Board level involvement with purchasing decisions in the volatile energy market.
•
Our energy sourcing from Total Gas & Power continues, from Good Quality CHP sources, and we have secured a 'green' renewable energy supply contract for our smaller sites for the next two years. This supplements the renewable energy that
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Company Name
South West Water
JUNE RETURN 2007
the Company generates forming a package of measures to reduce our carbon footprint from energy use. We have completed the installation of over 220 automatic electricity meters at the small site level, which has increased the consumption measured through 'self-reading' meters to 96% of our total electricity consumption. At process level, a number of sub-meters are being used to support the process efficiency benchmarking work that we are undertaking. SWW's use of this process benchmarking has enabled reporting of energy efficiency and carbon labelling for our waste water and clean water treatment sites, which enables poor performing sites to be identified and investigated. Process benchmarking is one of the key activities being undertaken by the Water UK energy management forum, which our Energy Manager continues to chair. He was instrumental in engaging the group to work together to complete the assessment phase of the Carbon Trust’s Carbon Management Programme, which continues this work towards identification of mitigation and adaptation measures for implementation.
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Company Name
South West Water
JUNE RETURN 2007
CHAPTER 5 - COMPETITION During the last year the Company had discussions over a possible mixed use inset appointment. The discussions were constructive, and workable supply and pricing arrangements were developed with the potential inset appointee. To our knowledge no formal proposals have emerged from these discussions. No water supply licensing applications for common carriage or wholesale supplies of water were received last year. The Company signed one confidentiality agreement with a licensee under the water supply licensing arrangements and has provided one draft wholesale master agreement for negotiation with a licensee. No licensees have proposed amendments or agreed to our draft wholesale master agreements over the last year. The Company updated its Water Supply Licensing Access Code, including indicative prices for wholesale and common carriage supply, in September 2006.
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Company Name
South West Water
JUNE RETURN 2007
Confidentiality We consider that Tables 18a, 18b, 18c, 18d, 30, 31, 35b, 36b and 39 in the Return should be classified as confidential, as disclosure of their data and the respective commentaries to third parties would be prejudicial to South West Water’s commercial interests. We request that they remain as ‘Commercial-in-Confidence’ within the Information Capture System and should be excluded from the versions of the Return in the public domain. Directors’ Statement and Board Endorsement “I have taken all reasonable steps that I ought to have taken as a director in order to make myself aware of any relevant audit information and to establish that the information is included in the June Return. Any other records and related information which might affect the truth and fairness of, or necessary disclosure in, the June Return, including minutes of directors' and relevant management meetings, have been made available to the reporter or auditor. So far as I am aware, there is no relevant audit information of which the reporter or auditor is unaware”. Signed
Name
Position
Ken Harvey
Chairman (non-exec)
Chris Loughlin
Chief Executive
Dr Stephen Bird
Operations Director
Monica Read
Customer Services Director
Richard Hughes
Finance and Regulatory Director
This Board Overview is endorsed by the Board of South West Water Ltd.
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