CMI/R webinar PR19 initial assessment of business plans - briefing Controls, Markets and Innovation Resilience 15 February 2019 Trust in water 1
CMI/R Agenda and indicative timings webinar Introd roduction uction 1 pm Contro trols, s, Mark rkets ets and Innovation ation 1.10 pm Q&A Resi silie lience nce 2 pm Q&A Trust in water 2
CMI/R Initial assessment test areas webinar Enhanced customer engagement; customer participation; engaging customers on Engaging customers long-term issues including resilience Addressing Addressing affordability and vulnerability: affordability for all, now and in the long affordability and term, including those struggling to pay and services that are easy to access. vulnerability Focus of Delivering outcomes Performance commitments, outcome delivery incentives, appropriateness of overall today’s for customers package session Targeted controls, Innovation markets and Use of markets innovation Procurement Securing long-term Resilience ‘in the round’; risk identification and risk mitigation resilience Securing cost Assessment of base and enhancement expenditure efficiency Cost adjustment claims Cost of capital, retail margins, risk assessment and mitigation, Aligning risk and Use of PAYG/RCV run off levers return Financeability Accounting for past 2015-2020 reconciliation; confidence in business plans delivery Securing confidence Board assurance, Putting the sector in balance, data quality and assurance Trust in water 3
CMI/R Objective webinar Today’s meeting The objective of this webinar is to explain: • our assessment overall • the information we published, and • what we are expecting next of companies. This will be focused on what is relevant to all or most companies, and will not be company-specific. The Initial Assessment of Business Plans covered nine areas. Today’s webinar focusses on: • Controls, Markets and Innovation . However, we will not discuss one element of this test area, i.e. Direct Procurement for Customers (DPC), because we have offered to meet companies on a bilateral basis. • Resilience . Resilience is one of the key themes of PR19. Resilience in the round considers all aspects of resilience, including operational, corporate and financial resilience. Trust in water 4
CMI/R Actions webinar Actions include providing more evidence or clarification to substantiate part(s) of the business plan or reworking and/or resubmitting part(s) of the business plan because it falls short of the required quality. There are three types of actions. 1. Agreed actions that fast track companies committed to implement to ensure that their plans meet the threshold for fast track status. 2. Required actions for companies which in general are required so that we can make draft determinations (or final determinations for some aspects of past delivery). 3. Advised actions for companies to do by a specific date but that are not required for our draft determinations. Actions are set out in the action summary table and detailed actions documents. Trust in water 5
CMI/R Timetable webinar We will operate a queries process to assist development of revised business plans through pr19engagement@ofwat.gsi.gov.uk Next steps Date Fast-track Companies submit information, including: 11 February 2019 companies completed business plan tables an actions tracker Draft determinations 11 April 2019 Respond to draft determinations 24 May 2019 Slow-track Companies submit information, including: 1 April 2019 and a revised business plan significant completed business plan tables scrutiny a completed Ofwat financial model companies an actions tracker Draft determinations 18 July 2019 Respond to draft determinations 30 August 2019 All companies Final determinations 11 December 2019 Trust in water 6
CMI/R webinar Controls, Markets and Innovation (CMI) Trust in water 7
CMI/R Why do we asses Controls, Markets and Innovation? webinar Our approach to ‘targeted controls, markets and innovation’ test area supports the four key themes of PR19. The test area includes three main components: innovation culture, markets and controls, and procurement. • Innovation – a culture of innovation helps companies to deliver long-term resilience, great customer service and affordable bills by delivering services in different and better ways; • Markets and controls – using markets, and developing new ones, allows companies to adopt new ideas and approaches to benefit customers, shareholders and the environment; and • Procurement – getting the right services in the right way helps companies to deliver the best outcomes for customers and the environment. Trust in water 8
CMI/R Question 1 (innovation) webinar How well does the company’s business plan demonstrate that it has the right culture for innovation which enables it, through its systems, processes and people, to deliver results for customers and the environment from innovation? How did we assess companies? We assessed each companies’ culture of innovation by looking for evidence of our 14 drivers of innovation, grouped under three key areas: • the right environment and space; • the right leadership and support; and • individuals can effectively work together. We graded companies highly where they provided good evidence for the majority of our drivers in each area. A company could only achieve the highest grade for this question if there was evidence that, in addition to having demonstrated the right culture for innovation in this question, it had also provided evidence of innovation and ambition in some of the other test areas. These were the areas of engaging customers, affordability and vulnerability, delivering outcomes, long term resilience, cost efficiency and controls, markets and innovation. Key to remember that this test area focusses on the evidence provided on innovation culture enablers Trust in water 9
CMI/R Innovation: This covers an assessment of the companies culture of innovation (CMI1) webinar United Utilities Northumbrian Test area Thames Water Severn Trent Anglian Water Wessex Water Affinity Water South Staffs Bristol Water Portsmouth South West Welsh Water South East SES Water Yorkshire Southern Dyfrdwy Water Hafren Water Water Water Water Water Water Water Water CMI1 A B B B B B B C C C C C C C C D D GENERAL OBSERVATIONS Main points from IAP assessment: • While there are some examples of best practice and sector leading approaches, 10 companies have shown limited or no evidence of having a culture of innovation. There has also been limited evidence of innovation in other areas of the IAP. • In general c ompanies presented satisfactory evidence of senior leadership commitment and support but didn’t demonstrate how staff are given autonomy, engaged or incentivised. • Evidence of risk tolerance is limited. Evidence focussed on reducing the risk of failure, rather than accepting a level of failure and learning from it. General observations: • While it is encouraging that all companies discussed innovation, many companies described processes and schemes which should improve the culture and capacity of innovation but which are not yet in place or are very new. • There is little evidence of collaboration across companies on common innovation goals, and investment appears fragmented. The sector may benefit from greater collaboration on common goals and themes. • There is limited evidence of innovative ideas across the rest of the IAP (despite some stretching cost efficiency and performance outcome targets). Trust in water 10
CMI/R Question 2 (markets): webinar How well does the company use and engage with markets to deliver greater efficiency and innovation, and to enhance resilience in the provision of wholesale and retail water and wastewater services to secure value for customers, the environment and the wider economy; and to support ambitious performance for the 2020-25 period and over the longer term? How did we assess companies? We assess four areas related to the use of markets: • identification and management of gap sites and voids to ensure customers’ bills are fair; • learning lessons and adopting innovation from the business retail market to help improve companies’ activities that are non -contestable; and • use of markets, catchment management (preventing pollution from getting into raw water sources rather than, for example, treating the water after contamination) and partnership working for both wastewater and water network plus to benefit customers and the environment. We grade companies highly when they addressed all of these areas well. We consider matters related to water resources markets and bioresources markets under questions 3 and 4 respectively. Trust in water 11
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