2010 and beyond:OPA workshop

21 November 2007

Richard Ackroyd, Director of Regulation & Investment, Yorkshire Water Services Ltd

Since 2000 the industry has delivered:

• Improved performance

• Increased levels of service

• Increased efficiency

Total Score (WASCs) 2001 2002 2003 2004 2005 2006 2007

Anglian 379 359 395 421 407 388 413

Yorkshire 375 398 401 409 413 414 408

Wessex 387 351 404 410 407 416 408

Welsh 348 380 405 419 413 406 392

South West 329 328 331 374 395 386 389

United Utilities 336 335 342 394 396 395 385

Northumbrian 407 418 377 391 389 323 364

Severn Trent 366 371 407 408 408 372 362

Thames 347 379 389 383 391 362 342

Southern 373 355 391 391 400 360 342

Average 364.7 367.4 384.2 400.0 401.9 382.2 380.5

The OPA legacy

Customers?

• Is it relevant for today’s customer?

• Has customer thinking evolved?

• Have customer expectations increased?

Questions for today

Companies?

• How important is it to companies?

• Can it drive further improvements to service?

• Can it incentivise a step-change in service?

What does the OPA mean for…

Reputation:

• the primary incentive

• the industry league table

• but viewed as important by some, but not all

The current incentive mechanism

Financial:

• benefit if high performing (+ 0.5% on k)

• cost if poor performing (- 1% on k)

Can these incentives drive our industry forward?

The competitive market place:

• Innovation

New products

Broader service offerings

Step-change service improvements

Learning from other sectors

The competitive market place

Entertainment

Banking

RetailTravel

Insurance

Communication

Water industry innovation

• Zero inconvenience

• New communication channels

• On-line real time information

• Proactive, added-value services

• Smart metering

• Flexible tariff solutions

What might customers want from their water companies in the future?

The need for greater incentives

• the cost-savings alone may not provide a sufficiently large incentive for a company to invest in a real step-change to its service offering

• the improvement may require a substantial investment in new systems and technologies, where the pay-back would be much longer than 5 years

Improving customer service reduces cost, but…

The need for greater incentives

• may restrict the pace of innovation and technical development

and

• may allow the industry to fall behind other service industry sectors

An OPA with insufficient incentives …

… resulting in a poorer perception of the water industry in respect of service and value-for-money

A mechanism for innovation

• innovative thinking and development

• continuous service improvement

and

• step-change service improvements

An OPA which rewards ….

… will lead to an enhanced perception of the water industry in respect of service and value-for-money

In summary

• Measures focusing on customer interfaces and reflecting customers’ views

• A service-focused league table

• An OPA which incentivises significant investment in service improvement

…. a customer-centric OPA driving step-change improvements

to service

What does our industry need and want?

2010 and beyond:OPA workshop

21 November 2007

Richard Ackroyd, Director of Regulation & Investment, Yorkshire Water Services Ltd