The best service to customers
Customer service – sitting at the core of everything we do, our strong focus on customer service has helped us deliver substantial improvements in recent years, becoming the most improved company in the 2010–15 regulatory period with a reduction of over 70 per cent in the overall number of customer complaints.
We have continued to improve at a faster rate than the industry average in AMP6, positioning us as one of the leading water and wastewater companies. This year, we have again gone from strength to strength in our customer satisfaction performance, achieving our highest ever scores against Ofwat's qualitative Service Incentive Mechanism (SIM) measure and finishing fourth out of the water and wastewater companies for the year overall. This performance is mirrored in the number of complaints that we receive. Since 2015/16 we have seen a 30 per cent reduction in complaints and a 64 per cent reduction in repeat complaints.
During AMP6, we have developed new services that increase the speed and quality of the customer service we provide. These include a new system that enables us to proactively keep customers informed of events on our network, increasing the hours we are available for customers to contact us, and increasing the channels by which they can contact us so they do not always need to call.
We have driven an increase in digital engagement through a new customer-centric website, the introduction of an easy-to-use mobile app and a substantially enhanced social media presence on commonly used platforms such as Facebook and Twitter. In support of our most vulnerable customers we launched our Priority Services proposition, setting up dedicated teams for those that need it most. In January, we hosted the second North West Affordability Summit, engaging with customers and key stakeholders.
We have received external recognition for the improvements made in the quality of service we deliver to customers. We are the first water company to receive Shaw Trust Accessibility status for our website, we received the Service Mark with Distinction from the Institute of Customer Service and we won three gold awards at the UK Complaint Handling Awards.
Leading North West service provider – we are consistently ranked third out of ten leading organisations in the North West, through an independent brand tracker survey which is undertaken three times per year. This covers key attributes such as reputation, trustworthiness and customer service and in the most recent survey, we have been ranked first for being environmentally responsible. We are behind only Marks & Spencer and Aldi, and ahead of seven other major organisations across utilities, telecoms, media and banking.
Robust water supply – customers benefit from our robust water supply and demand balance, along with high levels of water supply reliability. Our overall water quality continues to be good with an improvement in our water quality service index compared with the prior year. It is tracking above our historical average with plans in place to deliver further improvements going forward. We have delivered a reliable water service and although we inevitably experience some water no-supply incidents, our Systems Thinking approach is helping us to reduce the frequency and severity of such events and respond to them in a way that minimises customer impact.
During 2018/19, the UK experienced unprecedented extremes of weather beginning with a deep freeze and rapid thaw followed by the driest summer for our region since modern records began. Thanks to interventions that we were able to make, alongside the support of customers and regulators, we were able to minimise the impact of these events and maintain unrestricted service to customers.
Reducing sewer flooding – we have continued to invest heavily in schemes, projects and programmes of work designed to reduce the risk of flooding of customers' homes, including incidence-based targeting on areas more likely to experience flooding and defect identification through CCTV sewer surveys and other innovative technologies. Our plan for the 2015–20 regulatory period includes a target of reducing sewer flooding incidents by over 40 per cent, in line with customers' affordability preferences, and we are making good progress. We achieved our best ever five-year performance on our repeat flooding and internal operational flooding measures.
Our wastewater network will continue to benefit from significant investment going forward and we will continue to seek to work in collaboration with other external flood authorities and associated partners to address the widespread flooding events that hit our region, as we aim to help mitigate the effect of changing weather patterns likely to result from climate change.
Key performance indicators:
- Outcome delivery incentives (ODIs)
We have 19 wholesale financial ODIs, of which ten provide the potential to earn a reward in the 2015–20 regulatory period. In 2018/19 we have delivered our best annual performance against ODIs resulting in a net reward of £19.2 million, reflecting great operational performance across the board.
Overall, performance was again good against our wastewater measures, and significantly improved against our water measures with a net reward achieved in both areas.
We are pleased with our cumulative performance over the first four years of the current regulatory period, which have resulted in a net reward of £21.4 million, exceeding our initial expectations. WhilE a number of our ODI measures are susceptible to one-off events and, on the whole, our ODI targets get tougher each year, our strong performance to date coupled with continued targeted investment, alongside our Systems Thinking and innovative approach to the way we operate, gives us confidence that we will achieve a cumulative net ODI outcome over the 2015-20 regulatory period of around £30 million.
Our main areas of reward to date have come through our performance in the areas of private sewers, pollution and leakage. Our main penalty has been on reliable water service and water quality service, although particularly pleasing this year was a significantly improved performance against our reliable water service index where we are seeing the benefit of our targeted investment and Systems Thinking approach.
- Service incentive mechanism (SIM)
We have previously stated our target was to move towards the upper quartile in the medium term, and we are particularly pleased with the progress we have made over AMP6, ending the four-year period to 2018/19 in fourth place overall for the water and wastewater companies. This means we should be eligible for a reward of around £16 million assuming that Ofwat applies the same methodology as at PR14.
Qualitative: Ofwat has undertaken the four surveys for 2018/19 and we have improved our score to 4.53 points, compared with 4.49 points in 2017/18, putting us in fifth position for the year out of the 18 water companies, and fourth position out of the 11 companies providing both water and wastewater services. In particular, customers scored us highly for our billing services.
Quantitative: the quantitative assessment measures customer contacts, and performance is assessed on both an absolute and relative basis. WhilE relative performance can only be assessed in full following the end of each financial year when the other companies publish their respective results, on absolute performance for 2018/19, our score of 70 points represents a further improvement on our 2017/18 score of 71 points. For the first nine months of the year, of the companies that share data on quantitative SIM, we were first of the seven water and wastewater companies and fourth of the 11 water companies.
At the lowest sustainable cost
Power and chemicals – our asset optimisation programme continues to provide the benefits of increased and more effective use of operational site management to optimise power and chemical use and the development of more combined heat and power assets to generate renewable energy. In addition to the electricity we generate from bioresources, we are developing other renewable energy facilities. This is primarily in the area of solar, where we have invested £59 million in the first four years of the 2015–20 regulatory period. We have also substantially locked in our power commodity costs across 2015–20, providing greater cost certainty for the regulatory period.
Proactive network management – through our Systems Thinking approach we are more proactive in the management of our assets and networks. We have improved our predictive modelling and forecasting through better use of sensors in our network and better analysis of other data, such as weather forecasting, enabling us to address more asset and network problems before they affect customers. This reduces the level of reactive work and improves our performance and efficiency.
Debt collection – our region suffers from high levels of income deprivation and we offer wide-ranging schemes to help customers struggling to pay. We now have over 100,000 customers on affordability schemes, almost double the commitment we made at the start of AMP6. Notwithstanding our industry-leading debt management processes, deprivation remains the principal driver of our higher than average bad debt and we expect this to continue to be a challenging area for us.
Reflecting our ongoing focus on bad debt through initiatives such as our affordability schemes, our household bad debt expense has reduced to 2.1 per cent of revenue from 2.3 per cent last year.
Pensions – United Utilities has taken progressive steps to de-risk its pension provision. The group had an IFRS retirement benefit surplus of £484 million as at 31 March 2019, compared with a surplus of £344 million as at 31 March 2018. Further details of the group's pension provision are provided in the pensions section in note A5.
From 1 April 2018, the majority of active members in the defined benefit sections of the United Utilities Pension Scheme (UUPS) transitioned to a hybrid section comprising a capped defined benefit element and a top-up defined contribution component. Pension benefits under the defined benefit element of the new UUPS hybrid section that became effective for pensionable service from 1 April 2018 are linked to CPI rather than RPI.
Capital delivery and regulatory commitments – we are strongly focused on delivering our commitments efficiently and on time, and have a robust commercial capital delivery framework in place. Across the 2015–20 regulatory period, we are working with a single engineering partner and four design and construction partners to deliver our regulatory capital investment programme of around £3.9 billion. We are involving our partners much earlier in project definition and packaging projects by type, geography and timing in order to deliver efficiencies. Projects are allocated on an incentive or competitive basis leading to our partners presenting a range of solutions, innovations and pricing.
We have accelerated our 2015–20 investment programme in order to improve services for customers and deliver early operational and environmental benefits. Regulatory capital investment in 2018/19 was £821 million. This includes £165 million of underlying IRE, £40 million additional capex and IRE associated with the dry weather in the summer of 2018 and £60 million of additional investment made available through sharing our net outperformance. This, combined with £2.4 billion invested in the first three years of the regulatory period, brings our total spend to around £3.2 billion of our expected £3.9 billion capital investment across the 2015–20 regulatory period.
We are also driving more effective and efficient delivery of our capital programme and applying a tougher measurement mechanism to our Time: Cost: Quality index (TCQi) score for this regulatory period. Despite this tougher approach, our TCQi score remains high at 95 per cent, representing very good performance.
Key performance indicators:
- Total expenditure (totex) performance
Our totex allowance for the 2015–2020 regulatory period represented a significant challenge compared with the costs we originally submitted as part of our business plan. We have not only closed the gap to our allowance but we are now also confident of outperforming that allowance by £100 million. This has been achieved through a combination of driving efficiency into our capital programme and also through Systems Thinking.
The low cost of debt we have already locked in places United Utilities in a strong position to deliver significant outperformance for the 2015–20 regulatory period compared with the industry allowed cost.
- Household retail cost to serve
We continue to deliver against a challenging benchmark set for AMP6. Our target is to minimise our costs compared with our revenue allowance and we have delivered a good performance in 2018/19, outperforming this year's revenue allowance (including margin) by around £5 million. By 2020, we are forecasting a cost to serve in line with the regulatory cost allowance and we are confident that our cost plans will move us towards upper quartile performance in AMP7.
Behaving responsibly is fundamental to the manner in which we undertake our business, and the group has for many years included corporate responsibility factors in its strategic decision-making. Our environmental, social and governance performance across a broad front has received external recognition. Earlier in the 2018/19 financial year, United Utilities retained a World Class rating in the Dow Jones Sustainability Index for the 11th consecutive year, again achieving industry-leading performance status in the multi-utility/water sector. We look at our performance across a range of other Environmental, Social and Governance (ESG) indices, where we also perform well.
Leakage – we have continued our strong operational focus on leakage, alongside our network resilience improvements and a range of initiatives such as active pressure management, satellite technology and the UK's first leakage sniffer dogs, specially trained to pinpoint the exact location of leaks.
One of the consequences of the extreme weather events that we faced during 2018/19 was an increased level of pipe movements in the ground. We significantly increased our leakage detection and repair efforts in order to combat the higher levels of background leakage that resulted from this. This has delivered good performance against our leakage targets in what has been a very challenging year.
Additionally, we continue to encourage customers to save water through water efficiency programmes as this not only enables them to help preserve this precious resource but can also save money on their water bill. We are particularly grateful for customer support in protecting our water resources through the dry weather period.
Environmental performance – this is a high priority for United Utilities and we were delighted to have retained our Industry Leading Company status in the Environment Agency's latest performance metrics, as described in the KPIs section below. This is a result of our approach to managing our assets in an integrated way to minimise the number of environmental incidents.
Carbon footprint – by 2020, we aim to reduce our carbon footprint by 50 per cent compared with a 2005/06 baseline. This year our carbon footprint has reduced to 167,856 tonnes of carbon dioxide equivalent, a reduction of 71 per cent since 2005/06 and we have therefore achieved our emissions target early. This has been as a result of purchasing certified renewable electricity, with over 95 per cent of the electricity we use having zero emissions.
In addition, we generated the equivalent of 173 gigawatt hours, an increase of 6 gigawatt hours on the previous year. This illustrates good progress in our energy strategy to use less and generate more renewable energy.
Employees – we continue to work hard to engage all of our employees in the transformation of the group's performance. Employee engagement was at 81 per cent this year, higher than the UK norm. We remain focused on maintaining high levels of employee engagement.
We have been successful in attracting and retaining people and have continued with our apprentice and graduate programmes for 2018/19. We now have a total of 39 graduates and 116 apprentices across the business. Our investment in recruiting graduates and apprentices is already benefiting the company, with 214 employees who have previously been on either the graduate or apprentice scheme having secured permanent roles across our business.
Over the last year, we have continued our sustained focus on health, safety and wellbeing. We've started our new campaign, Home Safe and Well, which includes a significant focus on employee behaviour and organisational culture in relation to Health and Wellbeing, Personal Safety and Process Safety. In 2018/19, we retained our Gold award status with the Royal Society for the Prevention of Accidents for the seventh year and our status under the UK workplace wellbeing charter. We have also won REBA awards for our work on Mental and Physical Health and been recognised by Britain's Healthiest Workplace for all the improvements we have made over the last year.
Our employee accident frequency rate for 2018/19 increased to 0.152 accidents per 100,000 hours, compared with a rate of 0.101 in 2017/18. For the same period, our contractor accident frequency rate remained the same at 0.092 per 100,000 hours. While it is disappointing that these accident frequency rates have not improved since last year, they still demonstrate an improved performance against our historical average. We recognise that there is always more to do, and health, safety and wellbeing will continue to be a significant area of focus as we strive to ensure that everyone gets home safe and well.
Communities – we continue to support partnerships, both financially and in terms of employee time through volunteering with other organisations across the North West. Our approach to integrated catchments helps to tackle water quality issues in lakes, rivers and coastal waters across the North West, and our LoveMyBeach contribution includes employees volunteering to help to keep our region's beaches tidy. We continue to support local communities through contributions and schemes such as providing debt advisory services, and our community partnership with Youth Focus North West has addressed one of our region's major issues of affordability through co-creating the 'managing your money' training module.
Key performance indicators:
Although leakage is included within our outcome delivery incentives, we intend to continue publishing our leakage position separately, with it being an important measure from a corporate responsibility perspective. In 2018/19 we have again met our regulatory leakage target of 463 megalitres per day.
- Environmental performance
On the Environment Agency's latest annual assessment, published in July 2018, we were awarded Industry Leading Company status across the range of operational metrics for the third year running. This indicates we were in joint first position among the nine water and wastewater companies assessed, and aligns with our medium-term goal of being a first quartile company on a consistent basis.
United Utilities has a strong focus on operating in a responsible manner and is the only UK water company to have a World Class rating as measured by the Dow Jones Sustainability Index. In 2018/19, United Utilities retained its World Class rating for the 11th consecutive year.