Planning

Planning – 25 years+

In order to maintain a reliable, high quality water service for our customers in the future, we have to look a long way ahead and anticipate those changes and core issues that are likely to impact on our activities. Our long-term strategy helps us to define what we need to deliver over the shorter term, which in turn helps to create value.

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

  • climate change and its implications for water resources and flooding;
  • the emergence of a more open, competitive UK water market;
  • more rigorous environmental regulations; and
  • the ever-present need to combine affordable bills with a modern, responsive water and wastewater service.

By anticipating these changes we can ensure that we continue to deliver what customers want at a fair price and in a responsible way.

Our Strategic Direction Statement, 'Playing our part to support the North West' (which can be downloaded at corporate.unitedutilities.com/future), sets out our long-term strategy for the next quarter of a century. It examines the challenges ahead and explains how we will focus our resources and talents in order to meet them. We consulted with thousands of customers and stakeholders to ensure their expectations are reflected in our plans.

Some of the key ways we create value over this longer time frame are by:

  • investing in our people to ensure a committed, capable and motivated workforce which delivers high performance;
  • close collaboration with suppliers;
  • efficiently implementing a robust and appropriate mix of debt and equity financing;
  • disciplined investment, based on a sustainable whole-life cost modelling;
  • embracing innovation to make our future services better, faster or cheaper;
  • long-term planning and management of water resources – 25-year Water Resource Management Plan;
  • responding to climate change; and
  • sustainable catchment management.

Planning for future water demand

Our 25-year Water Resource Management Plan sets out the investment needed to ensure that we have sufficient water to continue supplying our customers, taking into account the potential impact of climate change.

Planning – 5 years

Each five-year investment period is designed to help us achieve our longer term vision.

By submitting a robust, balanced plan to Ofwat prior to the start of each five-year regulatory period, we can help ensure we receive a regulatory contract that allows for the best overall outcomes for our customers, shareholders and the environment.

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

Our five-year plan for 2010–15 was focused on improving customer satisfaction, meeting our statutory obligations and delivering shareholder value and we delivered on all fronts. We were the most improved water company as measured in Ofwat's SIM assessment, with customer complaints down approximately 75 per cent over 2010–15. We achieved upper quartile performance on Ofwat's and the Environment Agency's respective KPIs in both 2013/14 and 2014/15, met our annual leakage target each year and retained our 'World Class' status in the Dow Jones Sustainability Index. Our outperformance was generated mainly through efficiency savings on operating and capital expenditure and, in particular, by securing debt costs at below Ofwat's allowed industry cost of debt. For our shareholders, we delivered a strong total shareholder return of 115 per cent, outperforming the market. Our good performance over 2010–15 has provided a strong platform to deliver further value over the 2015–20 period.

For the 2015–20 regulatory period, some of the key ways in which we are aiming to create value are summarised below:

  • improving customer service, which will improve efficiency, reduce costs and reduce potential penalties/increase rewards from Ofwat, under its service incentive mechanism (SIM);
  • enhancing our debt collection activities, which will reduce our retail costs. Alongside this, we continue to provide comprehensive support for customers struggling to pay;
  • raising low-cost finance, which helps us outperform the finance costs allowed in our regulatory contract. This is our main area of outperformance potential in the 2015–20 period.
  • implementing our hedging strategies, such as fixing medium-term interest rates and power costs, to reduce the volatility of these costs, helping us meet our regulatory contract;
  • minimising total costs on a sustainable basis, such as on power, materials and property rates, which helps us meet or outperform totex costs allowed in our regulatory contract;
  • delivering our operational and regulatory commitments, which helps ensure we achieve high levels of customer service and meet environmental standards. Our performance can also result in potential financial rewards or penalties such as those linked to our outcome delivery incentives (ODIs), which include reliably delivered high-quality water and reducing pollution and sewer flooding incidents;
  • maintaining a robust supply and demand balance, which provides water resource and customer supply benefits and avoids any penalties or unfunded expenditure requirements from our regulators; and
  • increasing our production of renewable energy from waste, which helps protect us from rising energy costs and reduces our carbon footprint.

Supporting this value generation, each of our four business areas has plans over 2015–20 to deliver as follows:

Wholesale water

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

Wholesale wastewater

  • build on the customer satisfaction improvements we have already delivered. We will continue to improve the way we operate our wastewater business, making better use of technology, automation and control to drive better customer service at reduced cost;
  • reduce the number of our customers' properties exposed to sewer flooding by over 40 per cent, seeking opportunities to work in partnership with others to deliver schemes cost-effectively and promote the use of more sustainable drainage systems;
  • improve the region's bathing waters, in light of tougher regulatory standards;
  • work with other organisations to support them in delivering improvements to our region's beaches;
  • improve the water quality in the North West's rivers and lakes through investment in our treatment works and at overflows, reducing pollution. We are engaging with stakeholders to explore innovative catchment management techniques to control diffuse pollution in our catchments;
  • increase our production of renewable energy from waste to help protect customers from rising energy costs and reduce our carbon footprint; and
  • constrain costs associated with taking responsibility for all private sewers and private pumping stations across the region, through improvements to our operating model and efficient delivery of our programme.

Domestic retail

  • continue to improve the customer experience by being more proactive with customers, anticipating problems before they materialise and improving our communication channels so that we are easier to do business with;
  • reduce further the number of customer complaints and to resolve them whenever we can, avoiding the need for complaints to be referred to the Consumer Council for Water;
  • reduce the debt burden on the company and its customers by engaging with those who are struggling to pay, helping them to return to sustained payment behaviour. We are extending our options for assistance to hard-pressed customers, developing a new social tariff from 2015, and we remain committed to contribute annually to the United Utilities Trust Fund, which has proven effective in helping customers in difficulty return to regular payment; and
  • reduce the cost to serve our customers through systems and process improvement. This is particularly important under the new price control methodology which uses an industry average retail cost to serve to determine part of customer bills.

Business retail

  • build stronger relationships with customers to develop tailored plans to meet their needs;
  • give customers greater choice in how they contact and transact with us;
  • increase first point resolution and case ownership, reducing cost to serve and improving customer satisfaction;
  • install meters in all business customer premises that give automated meter reads (AMR) to facilitate billing for actual consumption; and
  • offering value-add additional services such as leakage detection and repair and ways in which to reduce water use.

We are already starting to plan for the next price review which will cover the 2020–25 period in order to achieve the optimal plan for our stakeholders. In light of the 2014 price review, a key area of focus is to compile more robust evidence to support our cost requirements reflecting our significant regional differences. For example, we have a higher proportion of industrial customers whose potent wastewater is more expensive to treat. We also have many designated sites of environmental importance, such as the Lake District, which requires us to treat wastewater to higher standards.

Planning – 1 year

Each financial year we develop a business plan, approved by the board, which sets our annual targets to help deliver further improvements and move us towards achievement of our five-year goals. This business plan covers a broad range of measures across the three strategic areas of best service to customers, lowest sustainable cost and responsible manner. Senior management has quarterly business review meetings with the executive directors to monitor and assess performance to help ensure we are on track to deliver our targets.

At the end of every financial year, our performance is assessed against this basket of measures and this determines employees' annual bonuses right through the organisation. As well as annual targets, our directors are assessed against three-year performance covering total shareholder return, sustainable dividends and customer service through long-term incentive plans. Details of the 2015/16 annual bonus and vested long-term incentive plans for our executive directors are shown within the remuneration report.

Pictured above: United Utilities key customer manager Jill McGrath with Steve Woods, Environmental and Health & Safety Technologist at Dairy Crest. Our key customer managers play an important role in helping to develop strong relationships with our commercial customers, acting as the first point of contact to resolve any service issues and offer advice around leakage detection and water efficiency.