Sutton & East Surrey Water is addressing its “disappointing performance on the Service Incentive Mechanism” which remains "our biggest single challenge", according to a statement by Chairman Jeremy Pelczer released on the company's progress to accompany the publication of its interim results for the six months ended 30 September 2016.

Company turnover rose 2.5% (£0.8m) to £32.4m (2015 - £31.6m) during the period, with water supply income increasing by £0.2m (0.7%) to £29.7m, reflecting the 2.0% increase in wholesale charges permitted under Ofwat’s Final Determination for the last Price Review including the impact of 1.05% allowed inflation.

Other income rose by £0.6m to £2.7m  - however SESW said growth in demand from new properties had been offset by savings customers are able to make from choosing to have a meter and lower usage by metered customers over the summer period.

Operating costs increased by £0.5m (2.4%) to £21.7m (2015 - £21.2m), largely due to higher manpower costs reflecting an agreed pay award from 1 April 2016. Cost drivers also included  investment in resources for retail services and preparations for the opening of a competitive market for business customers from April 2017. Operating profits increased by £0.3m to £10.7m.

Commenting on Outcome Delivery Incentives (ODIs), the water company said it has “continued to focus intently” on the commitments. The performance measures reflected in the Outcome Delivery Incentives included in Ofwat's Final Determination for the 2015-20 regulatory period remain the central focus of the Company’s monthly performance reporting to the Board, and are “prominent elements” of the bonus schemes shared by all employees.

Incentive target for customer contacts on appearance of water “continues to prove challenging”

However, the statement by said the incentive target for customer contacts in relation to the taste, odour or discolouration of water continues to prove challenging. In the nine months to the end of September SESW had received 299 such contacts, a reduction of over 12% on the previous year, but still 85% of the 350 included in the Outcome Delivery Incentive for the full year. Ongoing analysis of the contacts received had still not identified any dominant overall cause of contacts, and actions continue across many activities to reduce the need for customer contact for this reason.

“ Whilst the actions already undertaken have reduced the number of contacts received compared to last year, we continue to seek new and innovative solutions to enable essential network maintenance and upgrade work to continue whilst avoiding causes for customers having to contact us about the appearance of their water.”

Meeting targets for the level of customer service “remains our single biggest challenge”

Commenting on its customer service ODI, Jeremy Pelczer said:

“Meeting our targets for the level of service we provide when customers need to contact us for any reason remains our single biggest challenge. Whilst we have invested heavily in additional resources for our Contact Centre and have made significant use of a supplementary third party call handling facility, we are still not handling the volume of contacts we are receiving promptly enough.”

 “Delays in our responses to customer contacts mean that we still have more complaints than we allowed for in our Outcome Delivery Incentive, although the level is down on last year and at 4.2 complaints per 1,000 customers is still well below the industry average.”

“Nevertheless, these circumstances are likely to have contributed to a disappointing overall 17th ranking (out of 18) across the industry in the latest independent Service Incentive Mechanism survey undertaken for Ofwat.”

The statement says a concerted effort to improve turn-around times for customer enquiries and a programme of call-backs to keep customers updated on the progress of work will be key to short-term improvements, while a programme of process and performance improvements is addressing the underlying issues.

“We are determined to restore our performance to above industry average and avoid any penalties for below average performance when it comes to the next Price Review.” Jeremy Pelczer continued.

Commenting on water resources and demand, the statement says SEWS is continuing to work closely with six other water companies in the South East England Water Efficiency Partnership, now renamed Save Water South East, to achieve greater collective action across the region to complement individual programmes within each company.

The utility has also continued to support the Water Resources in the South East partnership which aims to provide combined resilience in the event of a serious water supply incident

Further good progress made on capital investment

In the last six months SESW has made further good progress on the capital programme for the current five year period,  investing £9.0m (2015 - £8.6m). The firm has also made good progress across its key investment plans – the major project to enhance the capacity and resilience of water treatment works at Woodmansterne is well into the construction phase, with the off-site lagoon now fully operational, excavations for the new filter house well advanced and foundations being laid. Under SESW’s ongoing age and condition based mains replacement and reinforcement programme, 3.2 km of main and 383 service transfers had been completed by the end of September.

A total of 2,588 meters had been installed in properties under schemes for installing meters at a customer’s request or when there is a change in the occupier of a property. This is somewhat lower than planned for at this stage in the year, largely due to fewer customers coming forward to ask for a free meter to be installed at their home.

SESW has started targeted mail-shots and other promotional techniques to encourage further volunteers to take up what is essentially a risk free option, with a right to revert to unmetered charges after a year if their bill turns out to be higher with a meter. “There is no doubt, however, that other options for achieving our five year target will need to be pursued in future years.” Jeremy Pelczer said.

Market reform - competitive market has been a major focus for last six months

On market reform, the SESW Chairman said that ensuring that the company is ready for the opening of a competitive market for all business customers in April 2017 has been a major focus in the last six months, commenting:

“We have committed significant resource to the work necessary to ensure that the Wholesale part of our business will not only be able to meet the service standards demanded by Retailers operating in the competitive market, but will be able to do so consistently for all Retailers, ensuring the requirements of a "level playing field" are being met.”

SESW has also established a Wholesale Service Desk to act as a primary point of contact for Retailers in time for the opening of "shadow" market operation on 3 October. The water company was the first major incumbent in the industry to complete the upload of its data into the central market system ready for the start of "shadow" market operation.

The statement says the water company had been clear from the outset that it regarded the opening of a competitive market for business customers as an opportunity rather than a threat. It had recognised at an early stage that this would require fundamentally different skills and culture from those that made for a successful wholesale business – a capability which is now being built in a separate associated unit with a distinctive identity of its own.

SES Business Water has a core team of ten employees, drawn principally from outside the company, with the skills and experience to thrive in a new competitive market, which has been providing retail services since September on SESW’s behalf to its business customers.

From 1 April 2017, SES Business Water will acquire the right to serve the customers in its own name, as the foundation of an offering made available across the competitive market in England and Scotland. SESW itself has separately applied to Defra to "exit" the market on 1 April 2017, with the aim of transferring existing customers to SES Business Water.

Jeremy Pelczer said:

“Meanwhile our associated company has successfully applied to Ofwat (and the Water Industry Commissioner in Scotland) for Licences to serve eligible customers throughout the competitive market and has been actively pursuing opportunities to acquire new customers in Scotland prior to the market opening in England.”

“ I am pleased to report that this programme is making good progress, with new customers worth over £1m pa already signed-up, including some well-known High Street names. We remain positive and enthusiastic about the prospects for this new business.”

However, he added that the company was “ under no illusions” that competitive pressures would bring real challenges for the wholesale parts of the business as well as for the new retail business, SES Business Water.

Future challenges

Commenting on future challenges, the SESW Chairman described the retendering and award of its infrastructure services contract, based on a partnership approach involving shared rewards and penalties for achievement or otherwise of its ODI targets and co-location of contractor and its own teams as an important milestone in ensuring that the firm would be able to maintain its strong track record of bringing projects in on time and budget.

He also said that while the company was pleased with its preparations for the competitive market for business customers after April 2017, uncertainties still remain around the performance of central market systems and the response of business customers to the new opportunities open to them.