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Strategic directionstatementWhat will the future be like over the next 25 years?

December 2007

Strategic direction statement

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Page

1. Chairman’s foreword 3

2. The context of our strategy: what will the future be like over the next 25 years? 5

2.1 Socialandeconomiccontext 5

2.2 Ourcustomers’opinionsandbehaviour 6

2.3 Legalandregulatoryframework 7

2.4 Marketcompetition 8

2.5 Theenvironment 9

3. Our strategy and customers’ priorities 10

3.1 Meetingdemand 10

3.1.1 Demandforwater 11

3.1.2 Oursupplyofwater 11

3.1.3 Enoughwateravailableforourcustomers 12

3.1.4 Managingdemand 15

3.1.5 Ensuringsupply 19

3.2 Rightquality 21

3.2.1 Howwewillmakesurethatwaterisoftherighttechnicalandaestheticquality 23

3.3 Theenvironment 24

3.3.1 Howwewillhavetherightcareandconsiderationfortheenvironment 26

3.4 Minimisingdisruption 28

3.4.1 Howwewillminimisedisruptiontosupply 29

3.5 Affordability 32

3.5.1 Howwewillensurethatwaterremainsaffordable 32

4. Summary 34

Contents


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Itisourdutytoprovidesafeandwholesomedrinkingwaterinsufficientquantitiestomeetthedemandofourcustomers.Weneedtodothisatapricethatisaffordableandinthecontextofclimatechangeandsustainability.Weneedtoupholdthetrustnotonlyofthosewhouseoroverseeourservices,butalsoofthepublicatlarge.

Thewaysinwhichwewillfulfilourobligationswillundoubtedlychangeoverthenext25yearsandbeyond.Wewillhavetoadapttoevolvingcircumstancesintheenvironment;therewillbedemographicshifts,changesinmarkets,inregulation,inpoliticalthinking,andofcourseinwhatourcustomersexpectofusandwhattheyarewillingtopayfor.Allthesechangeswillaffectandshapewhatwedo:fromsupplyingwaterfromsourcestotap,tocommunicatingwithandservingourcustomers.

Webelievethatthepriceofanddemandforwaterandthesystemofregulationunderwhichitisprovidedcouldchangemarkedlyoverthenext25years.Thepricesthatwechargeforwaterarelimitedbyoureconomicregulator,OFWAT,whichwillsetpricelimitsin2009forthefiveyearperiod2010-15.Theaveragehouseholdbillforwatersupplyiscurrently£150peryear.Ouroverallstrategicintentisstraightforward.Wewill:

• balancethesupplyofanddemandfordrinkingwaterinthemediumandlongtermthroughmanagingdemandandextendingsupply,a“twintrackapproach”

• ensurethatourassetsaredurable,strongandresilienttobothsocialandenvironmentalpressures

• listentoourcustomers,tounderstandthemand,whereverpossible,toexceedtheirexpectationsofus.

Weconsultourcustomersandstakeholderscontinuallyandhavegroupedourstrategyintofiveobjectiveswhichmatchourcustomers’priorities.Theyare:

1. Enoughwaterwillbeavailabletoourcustomersbynormalmeansinallbutextremecircumstances

2. Waterwillbeoftherighttechnicalandaestheticquality

3. Wewillhavetherightcareandconsiderationfortheenvironmentinwhatwedo

4. Thereshouldbeminimaldisruptiontosupplyinthecourseofournormaloperations

5. Watershouldremainaffordableforcustomers.

ThisStrategicDirectionStatementsetsoutthecontextwithineachoftheseareas,thechallengesweface,andthewaysinwhichwewilladdressthemoverthenext25years.Thesummaryattheendofthisdocumentsetsoutabroadtimescaleforourprogrammeofimplementation.

Thisstatementdealswithourstrategyratherthanouroperations,withhigh-levelperspectivesratherthandetail.OurBusinessPlanswillcomplementthisdocumentandsetouttheoperationaldetails,resources,timetablesandmeasurements.Whatfollowshereisourstrategicdirectionforthenext25years.

1.Chairman’sforeword


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AboutThreeValleysWaterThreeValleysWaterservesover1.3milliondomesticandbusinesspremisesinnorthLondonandthehomecounties,northandwestofthecapital.Onaverageweput840millionlitresofdrinkingwaterintosupplyeachday.Mostofthewaterwesupplycomesfromundergroundsources,butwealsosupplytreatedwaterfromtheriverThames.AsmallproportionofourwaterissourcedfromGrafhamWaterReservoirinCambridgeshire.Wedistributetreatedwaterthrougha

networkofover14,000kmofmains.Wedonotprovidewaste

waterservicesbutbillonbehalfoftheservice

providers(eitherThamesWaterorAnglianWater)inourarea.

ThreeValleysWaterataglancein2006/7Customerservice• Over3.2millionpopulationserved• Over30%ofcustomerspaybywatermeter• 1.2millioncustomercallsreceived• 3,400writtencomplaintsreceived• Dailydemandforwaterperpersonis8%above

thenationalaverage

Assets• 60%ofourwaterisabstractedfrom

groundwatersources• 40%ofourwaterisabstractedfromriversources• 82%ofwaterputintosupplyrequirescomplex

treatment• 14,000kmofwatermains• 87watertreatmentworks• 130servicereservoirs,63watertowers,

187pumpingstations• 318mainsburstsper1,000kmofmain

Environment• 17%ofwatersuppliedislostthroughleakage• About20%ofstreetworkwasteisre-usedrather

thanbeingdisposedoftolandfill• 100%ofwatertreatmentwastesarerecycledas

soilconditioneronagriculturalland• Throughitseducationprogrammesour

Environment&EducationCentrecontinuestoencourageschoolchildrenandadultstousewaterwisely

• DesignatedasanareaofseriousWaterStressbyDefra

ThreeValleysWaterisownedbyVeoliaWater,theworld’slargestwatercompanywhichprovidesdrinkingwaterandwastewatertreatmentservicestonearly117millionpeoplein59countries.VeoliaWaterhasownedThreeValleysWaterfornearlytwentyyears,oneofthelongestperiodsofownershipofanywatercompanyinEnglandandWales.VeoliaWaterprovidesuswithgreatadvantagesinsharingknowledge,experienceandresearchanddevelopmentfromaroundtheworld.

Keyfinancialdataforthe

regulatedbusiness2006/07

Revenue:£213m

Operatingcosts:£134m

Capitalinvestment:£95m

Profitaftertax:£23m

Averageannualhouseholdbillforwater:£150

SURREY

BUCKINGHAMSHIRE

HERTFORDSHIRE

BEDFORDSHIRE ESSEX

GREATER LONDON

Luton•

•Hatfield

•Stevenage

•SaffronWalden

• Harlow

•Amersham

•Barnet

•Harrow

•Woking

•Staines

BERKSHIRE


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Overthenext25years,therewillbeseveralforcesforchangethatwillaffectus:

• thesocialandeconomiccontext• ourcustomers’opinionsandbehaviour• thelegalandregulatoryframework• marketcompetition• theenvironment.

2.1OursocialandeconomiccontextWeexpectasasocietythatthequalityoflifewillimproveoverthenext25years.Ifrecentaverageratesofgrowtharemaintained,weshallbemorethantwiceaswell-offinrealtermsby2035.Wealsoexpectthatthepopulationwillincreaseandoccupantsperhouseholdwillfall.ThesefactorswillbeamplifiedbyhigherthanaverageeconomicregionalgrowthinSouthEastEngland;andtheyarelikelytoincreasethedemandforwater.Inordertosatisfythishigherdemand,theactionsweneedtotakecouldincreasethepriceforwater.

Inadditiontopopulationgrowth,thereareanumberofchallenginglocalfactorswhichimpactonourcostsandwhichwillcontinuetodosoforthemediumterm.Weoperateinadynamiceconomicregionthatischaracterisedbyasignificantnumberofinternationallyimportantconstructionprojects(suchassportingsitesforthe2012Olympics,ChannelTunnelRailLink,Crossrail,Heathrowexpansion)andavibrantservicesectorthankstothearea’sproximitytoLondon.Asaresultlocalemploymentlevelsareatarecordhigh,wagecostsandwageinflationexceedthenational

average,androads,motorwaysandpublictransportareheavilycongested.Theselocalfactorsaffectourabilitytorecruitandretainskilledstaffandtotravelaroundoursupplyarea,aswellasouroperatingcosts.

Wethereforebelievethattherewillbepressuretoincreasewaterbillsinfutureforthefollowingreasons:

•weseeacontinuingneedforinvestmentinthewatersupplysystem.Thisisrequired

principallyformaintainingandimprovingthewatersupplyinfrastructure.Butwe

willalsoneedtoextendourabilitytosupplywater,anddosoundermoreunpredictableconditions.Anycapitalinvestmentincreaseswaterbillsbecauseweborrowtofundinvestment.Thecostsofservicingourborrowingismetfromwater

charges.

•pricelimitsaresettoallowareturnonthevalueofthecompany’sassets.These

arecurrentlyvaluedataround£700millionbuttheirtruereplacementvalueisnearer£4billion.Asassetsarerenewedattheirreplacementcost,theassetvaluewillrise.Thismeansthatthediscountwillshrinkovertime,causingwaterpricestorise.

Anyincreasesinthepriceofwatermustbeseeninthebroadercontextofrisingincomesandrisingregionalwealth.Ourlocalcircumstancesinthisregardareparticular:inoursupplyregiontherewillbemorecustomersneedingmorewater.Manyofthosecustomerswillbebetteroffthantheyaretoday;butsomewillnot.OurBusinessPlansneedtoprovidesustainablesolutionsthataddresstheeconomic,environmentalandsocialconsequencesofouroperations.

2.Thecontextofourstrategy:whatwillthefuturebelikeoverthenext25years?


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2.2Ourcustomers’opinionsandbehaviourAslivingstandardsandthedemandfordrinkingwaterincrease,sotoodoexpectationsaboutsupplyandthenatureoftheservicethatweareproviding.Thereiscurrentlysufficientclean,wholesomewatertosatisfyourcustomers’needs.However,asbasicexpectationsaremetcustomerswill,webelieve,considerothervalues,higherupthescaleofneeds,suchasinformationaboutwheretheirwatercomesfrom,howitisabstracted,treatedanddistributed.Webelievethisgreaterinterestintheroleofwaterintheenvironmentwillbesatisfiedbymoreprecisewaysofmeasuringenvironmentaleffectsandtheirmitigation.

InformationMoreover,ascustomersbecomebetterinformedaboutwheretheirtapwatercomesfrom,andhowitistreatedandpipedtotheirhomes,sotheirideaofwhatconstitutesgoodservicewillalsochange.Asaresult,inthefuturenotonlyreliabilitybutalsoswiftresponsewillbeofgreatervalue.Forexample,wewillneedtoactquicklyinprovidinginformationtocustomersaboutthewatertheyreceive,aboutinterruptionsorreplacementofpipes,andaboutusageandhowmuchourservicescost.

TechnologyInthisregard,ourconsultationsshowthatagrowingmajorityofcustomerssupportmeteredchargingasthefairestwaytopay.Theyunderstandthatinformationaboutwaterusagecanhelpreducedemandandmanagesupply.Newtechnologywillhavearoletoplayherenotonlyintechnicalchangestothewaywaterismeasuredandpriced,butinprovidingagreaterrangeofinformationthroughdifferentandnewmediachannels,includingtheinternet,mobilephonetechnologyanddigitaltelevision.Itishardtogaugepreciselytheeffectsoftechnologieswhichhavenotyetbeenappliedorevenconceived.However,itissafetoassumethatnewtechnologywillchangethewayweoperate,and

changethewaysinwhichwecommunicatewithourcustomers.Inbothourownoperationsandinourrelationshipswithcustomers,suppliers,regulatorsandthemedia,weanticipatethatnewtechnologieswillallowustomeasureandanalysemoreaccurately,andcommunicatefasterandmoreoften.Wewillalsobeabletotargetourcommunicationstodifferentgroups,refiningtheformandcontentofourinformation.

CommunicationFortheirpart,ourcustomerswillrightlyexpectnewtechnologytohaveabeneficialeffectinkeepingtheminformedofourserviceandensuringthatworksarecarriedoutquickly,cleanly,andwithminimaldisruption.Allutilitiescompanieswillhavetobeinnovativenotonlyinthewaytheyusenewtechnologytoruntheirbusinessandworkwiththeirsuppliers,butalsoinhowtheymodeltheirbusinessandoffernewservices.Ourplanswillanticipateandrespondtocustomerneedsandwillcontinuetodeliverahighquality,reliableservice.Inlocalterms,inanareaofhighpopulationdensitywhererepairsaffectthedailylivesofmanycustomersandcommuters,newcommunicationstechnologieswillenhanceourservice.


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2.3LegalandregulatoryframeworkWeexpectthelegal requirementswhichwehavetomeettobecomemoreonerous.Thisisnotsimplyaquestionofrequirementsinrespectofdrinkingwater.Weexpectnewnationalandinternationalrequirementstomitigateclimatechange,implyinglimitationsoncarbonemissions.Asastart,weshallbeincludingmeasurestolimitcarbonemissionsinourBusinessPlanfor2010-15.Legallimitationsonenvironmentalimpactarealsolikelygraduallytobecomemorestringent,inpartasaresultofprogressivetighteningundertheWaterFrameworkDirective.Thesignsarealsothatrequirementsinrespectofhealthandsafety,employmentstandards,andthelikewillbecomemoredemanding,whatevertheactioncompaniestakevoluntarilytoimprovetheirperformance.Thiswillbeacontinuingpoliticalimperative,despitefrequentgovernmentalcommitmentstoderegulation.

Theevolutionofthestructure and shape of water regulationoverthenext25yearsismoredifficulttopredict.Wehopefornewapproaches,includingmoreco-andself-regulation,greaterregardforvariationsinrisk,increasedregulatoryconsistencyandlong-termclarity,andlessmicro-managementbyregulators.Asthiswould,however,reversetheinexorabletrendofthelast20years,wedonotexpectmuchchangeinpublicandmediaattitudesandexpectationsintherightdirection,howeverdesirable.Thisisnotsimplyaquestionofeconomicregulation.Forexample,wedependonaccesstowaterresources,bothexistingresourcesandnecessaryadditionalresources.TheEnvironmentAgencycontrolsaccesstotheseresources(andhaslegalobligationsnotonlytoprotecttheenvironmentbuttoallocateandaugmentresourcesforotherpurposesasnecessary).Wehaveanabsolutedutytosupplydrinkingwater,andourcustomersandthemediaholdusaccountable

forhavingenoughdrinkingwatertomeetcustomers’needs.Itisimportantthatweworkcloselywithourregulatorstoensurethatwehavesufficientwater,whilereducingwastethroughleakageandatthesametimeencouragingcustomerstocutbackdemandwheretheycanwithoutlesseningtheirqualityoflife.Whereachoicebetweensupply-sideanddemand-sidemeansofmeetingdemandisnecessary,thechoiceshouldbemadeonobjectiveratherthansubjectivegrounds.

Overthenext25yearsweshallneedthehelpofgovernmentandregulatorsinpromotingtheefficientuseofdrinkingwater,throughmetering,tariffs,technologicalinnovation,andothermeansofencouragingwaterefficiency.Indoingthis,weneedtoprotectvulnerablecustomersandthoseonthelowestincomes.Governmentandregulatorsneedtorecognisethedifficultythatrisingwaterpricesmeanforsome:iftherecannotbespecifichelpforthem,cross-subsidytohelpthemmustnotberegardedasdiscriminatorypricing;norinthelongerrunshouldcross-subsidybeprovidedbytheunhealthyandcovertmeansofspreadingthecostofbaddebtacrossallcustomers.


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2.4MarketcompetitionAmongregulatorsandinsomepoliticalcircles,thedesireforcompetitionbetweenwatersupplierswillgrow.Wearereadytocompeteifitwillbenefitcustomers.Butsuspicionofcompetitioninthissectorislikelytocontinueamongthegeneralpublicandthiswillhampersignificantextensionsofcompetition.Ourcustomersdonotgivehighprioritytocompetitionindomesticwatersupplyandfearthatitwouldmeanhigherratherthanlowerprices.Muchdependsonpoliticalandregulatoryattitudestowardswhetherornotthepresentregionalandareaaveragingofprices(which,forexample,increasespricesoverallforurbancustomersanddecreasesthoseforruralcustomers)shouldbemaintained,againstabackgroundinwhichmoremeteringwillproducesignificantvariationsinthebillsofindividualcustomers.

Generallyspeaking,itischeapertosupplywatertothosewholiveclosetowatersourcesandtreatmentplants,ortothosewholiveinurbanareasofhigherpopulationdensitybutthisisnotreflectedintheirwaterchargessincesomecustomersinpracticesubsidiseothers.Competitionwillresultinanunwindingofcross-subsidy;thatis,therewillbemoreextremesofhighandlowpricesforwater.

Competitionmaybeintroducedinthecustomerservicesegmentofthevaluechain,butmajorextensionsincompetitionareonlylikelyfordomesticcustomersifareacross-subsidyissignificantlyreduced.Politicalattitudessuggestthatprogresswill

beslow,despiteacademicandthink-tankinterestinit.Ifthereweretobemorecompetitionindomesticsupply,whetherthroughgreaterde-averagingofpricesand/orcompetitionforprovisionofcertainseparablesegmentsofthesupplychain,thiswouldlikelytoimpairtheco-operationandcollaborationwhichtheEnvironmentAgencywishestoseeintheuseofwaterresourcesattheregionallevel.Theenvironmental,commercialandsustainabilityissuesinherentinlocalcompetitionwouldhavetobecarefullyhandled.

Wewouldwelcomegreaterapplicationofeconomicpricingtowaterabstractionandexpectthattherewillbemorecompetitioninabstraction.Tradingofabstractionlicencesandeconomicpricingofaccesstowaterresourcesaresensibleandwouldencourageinvestmentdecisionsandpricingwhichtakefulleraccountoftheenvironmentalimpactofabstraction.


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2.5TheenvironmentThenaturalandbuiltenvironmentwillchangehowwefind,useandthinkaboutwateroverthenext25years.Inthenaturalenvironment,weoperateinaneraofclimatechangewhichwemustanticipateinourstrategicplanningandwhatitmeanstotakeaccountofthefuture.Ournaturalenvironmentiscomingunderincreasingpressure.Ourwater,theproductofbothourclimateandourland,howeverabundant,ishighlysensitivetoenvironmentalchange.Historically,asanindustrialsocietywetoleratedthepollutionofourwatercatchmentareasfromurbanandagriculturalpollution,usedpoorlyprotectedlandfillsitesandfailedtocleanuptoxicsites.Landandgroundwaterpollutionhasbeenalong-termchallengeinourarea.

Now,asapost-industrialsociety,wehaveanawarenessofpastpollutantsandhowtocounterthem.Buttherearenewchallenges:newpollutantsfromnewsources;chemicalsandprocessesoncethoughtsafearenowbeingreassessedandregardedasdangerous.TheWaterFrameworkDirectiveshouldimprovetheprotectionofsurfaceandgroundwaterfrompollutionandinparticulartheprotectionofpublicwatersupplysourcesbutthiswillrequireconsiderableeffortandcostforboththewaterindustryandtheEnvironmentAgency.TheWaterFrameworkDirectiveshouldstarttoimprovethenaturalenvironmentnowandoversuccessivegenerations,butitseffectivenesswillbemeasuredoverthelongterm.Itmaytakemanyyearstomakeasignificantimprovementingroundwaterinparticular.Meanwhilewewillhavetocontinuetomanagethesituation,andwherenew,poorerqualitysourcesofwaterwithhigherconcentrationsofpollutantsareusedthesewillrequirehighstandardsofwatertreatmenttoensurethequalityofsuppliestocustomersismaintainedatalltimes.

Ourbuiltenvironmentputspressuresonpresentandfutureresources.WerecognisethatintheSouthEast

furtherurbanisationisneededforeconomicgrowthwhichgeneratesincreasesinpopulationandhouses.Inabusy,crowdedenvironment,allutilityproviderswillhavetoconsiderchangesinhowtheyoperate,howtheymaintainandrenewtheirnetworks,andhowtheycontinuetoprovideforperiodsofshortageinthefuture.Weexpectthatplanningwilltakeaccountofhowresourcesareusedandreused:plannersinlocalandcentralgovernmentwillhavetocollaboratebetterwithwaterutilitiestoensurethatsustainableresourcesareavailable.Balancingtheneedsofsocietywiththebuiltenvironmentinthiscontextisasignificantchallenge.Ourplanswillneedtobebothflexibleandrobustinthelongertermtoensurewedevelopnewresourceswherenecessaryand,inconjunctionwithdemandmanagement,moderatethedemandforwaterandreduceleakage

Theseforcesforchange,then,defineourfuture:society,ourcustomers,thelaws,marketcompetitionandthenaturalandbuiltenvironments.Togethertheymakeupthefullpicture;yeteachisdistinctbutrelatedandinterlinked.Ourstrategy,whichfollows,isdesignedtoenableustoachieveourmissionoverthenext25years.


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Ouroverallstrategicintentisto:

• balancethesupplyofanddemandforwaterinthemediumandlongtermthroughmanagingdemandandextendingsupply,a“twintrackapproach”

• ensurethatourassetsaredurable,strongandresilienttobothsocialandenvironmentalpressures

• continuetolistentoourcustomers,andunderstandandexceedtheirexpectationsofus.

Thisinformsallourstrategicthinkingandplanning.Inthisdocument,weexpressitinaseriesofstrategicprincipleswhichwehavedevelopedbylisteningtoourcustomers.Throughout2007weconsultedextensivelywithcustomersandotherstakeholderstounderstandtheirpriorities.Infocusgroups,inface-to-faceinterviews,independentlymoderated,andinmorequantitativeresearch,customersandstakeholdersinformedusoftheirexpectationsandpriorities.Therearefiveclearpriorities:

1. Meeting demand:Enoughwatershouldbeavailabletoourcustomersbynormal(iepiped)meansinallbutextremecircumstances

2. Right quality:Watershouldbeoftherighttechnicalandaestheticquality

3. The environment: Weshouldhavetherightcareandconsiderationfortheenvironmentinwhatwedo

4. Minimising disruption:Thereshouldbeminimaldisruptiontosupplyinthecourseofournormaloperations

5. Affordability:Watershouldremainaffordableforcustomers

Informulatingourstrategy,wehaveturnedeachoftheseprioritiesintoastrategicprinciple.Ineach,

wesetoutthecontextasitappliestous;andthensaywhatwewilldotosecure

ourstrategicintent.TheSummaryattheendofthisdocumentsetsoutthetimescaleforourprincipalactivities.

3.1MeetingdemandEnoughwaterwillbeavailabletoourcustomersbynormalmeansin

allbutextremecircumstances

Thesupplyofanddemandforwaterrelatetoeachotherinmanyways.The

balancebetweenthetwohasabearingonallouroperations.Generally,itisfairlyeasytodistinguishthosemeasuresthatincreaseorsafeguardsupplyfromthosethatmeasureandcontroldemand.Sometimes,however,whatmightatfirstappeartobeasupplyproblem,suchasleakageinthemainswaternetwork,canalsobeviewedasademandproblem.Reducingleakageisawayofbothincreasingsupplyandreducingdemand.

3.Ourstrategyandcustomerpriorities


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3.1.1DemandforwaterDemandin25yearswillbehigherthanitistoday.Weexpectaround200,000newhouseswillbebuiltinthenext20years,mostlyintheeastandnorthofouroperatingarea;thismeansa17%increaseinconnections.Weexpectoveralldemandtoincreaseby11%.Thiswillinturnrequireasignificantincreaseinthecapacityofthenetworktosupplydrinkingwatertoareasofpopulationgrowthanddemographicchange.Furthermore,weknowthatbetteroffcustomerswithrisingincomestendtousemorewater,otherfactorsremainingconstant.Thistendency,coupledwithapatternofwaterdemandthathassteadilyincreasedoverthelastthirtyyears,will,webelieve,causedemandtoriseratherthanfall.Whilewerecognisethatourpredictionscontradicttheprincipleofwaterneutrality,wenonethelessthinkthedemandforwaterinourareawillrise;thismakesthemanagementofdemandevenmoreimportantforus.

Demandforwaterwillnotbeconstant.Climatechange,leadingtolongerandhottersummerperiods,willalsodrivemorefrequentandhigherpeakseasonaldemands.Withoutcontrolsandmanagement,theperiodswhenwaterisnotfreelyavailablewillbecomemorefrequent.Withcontrolsondemandthroughreductionsinleakage,widespreadmeteringandwaterefficiency,wecanmakesurethereisenoughcapacitytomeetdemandforthemediumterm.Butinthelongertermthereisasignificantriskthathouseholddemandwillriseagainasmeteredcustomersbecomeaccustomedtopayingforwhattheyuse.

However,thereareindicationsthatdemandmightnotincreasetoorapidly.Wehaveseenlowerdemandbycertaincommercialcustomersoverthepasttwoyears.Moreover,weexpectthatwaterefficiencymeasures,suchasnewbuildingregulations(“wholebuilding”waterefficiency),efficiencydevices,increased

educationandawarenessfromthenextgenerationofcustomersarealsolikelytohavesomeeffectondomesticandcommercialdemand.ThesedemandmeasurescouldhelpusachievewaterneutralityandwillbeconsideredaspartofourWaterResourcesManagementPlan.

3.1.2OursupplyofwaterAtThreeValleysWater,60%ofourwatersupplycomesfromundergroundsources;therestcomesfromsurfacesources,primarilytheriverThames.Theresourcesavailablefrombothundergroundandsurfacesourcesarenowclassedas‘stressed’bytheEnvironmentAgency,andofferlimitedopportunityforexpansion.Theyarethreatenedbypollutioncausedbythearea’sindustrialpastandbypresentagriculturalpractice,andasaresultarelikelytobecomemoreexpensiveandmoredifficulttouse.Assourcesbecomemoredepleted,anycontaminantshaveagreatereffect,makingthepollutionmoreconcentrated.Theeffectsofchangingclimate,andbetterscienceandknowledgeinassessingenvironmentalevents,maymeanthatsomeexistingabstractionisunsustainable.


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SincewedrawfromgroundwaterthatalsosupportstheenvironmentallysensitivechalkstreamsoftheChilternHills,wecouldberequiredtostopabstractioninupto20%ofoursourcesinfutureyears.Inaddition,changingrainfallpatternscausedbyclimatechangemayreducetherechargeofourundergroundsourcesandatthesametimeincreasedemandinthesummermonths.Amajorstudyweundertooktoassessthevariouseffectsofclimatechangeonourgroundwaterresourcespredictedthatgroundwaterlevelswillfall.Moreimportantly,thestudypredictedthatthebehaviouroftheaquiferislikelytochange,andwithwidervariabilitywithina12-monthperiod.Changesinclimate(with,forinstance,alongerseriesofsuccessivedrywinters)willproducemorefrequent“extremeevents”forgroundwater.Thehighandlowextremesofgroundwaterlevelsarelikelytobecomemorepronouncedandmorefrequent,withvaluesoutsidetherangewethinkofasnormal,especiallyinthelowestlevels.WewillbuildanadditionalprovisionintoourWaterResourceManagementPlanstoallowfortheserisks.

Threefactsareclear:

• waterisbecomingscarcerbecauseofenvironmentalchangeandpollution

• climatechangeislikelytoleadtomorefrequent“extremeevents”andthereforemoredrought,flooding,highertemperaturesandhighdemand

• competitionforaccesstowaterislikelytoincrease,therebyraisingthecostofthenextnewresource.

Theriskofgreaterflooding,duetoincreasedintensityofrainfallintheThamescatchment,willleadtogreaterriskofinterruptionoftheproductionandsupplyofwater.

3.1.3EnoughwateravailableforourcustomersHowwewillensurethereisenoughwateravailableforourcustomersbynormalmeansinallbutextremecircumstances.

Wehavesetouttheproblemsfacingusindemandandsupplyandourtwin-trackapproachtomanagingboth.ThesolutionsweprovidearesetoutinourWaterResourcesManagementPlan;thisensureswehavesufficientresourcestomeetdemandforwateruntil2035andbeyondandtakesaccountoftheconceptofwaterneutrality,animportantaspectofsustainability.ThePlanwillbepublishedforconsultationinApril2008butourpreliminaryviewoftheunconstrainedsupply/demandbalance,assumingmeteringdoesnotreducethedemandforwaterandwithoutnewwaterresources,isshowninFigure1above.

Figure1showsthatmeetingtheheightenedneedsofourcustomersoverthenext25yearswillrequireustomakeconsiderablenewinvestmentinbothdemand-

1000

1100

1200

1300Maximum critical period demand with safety margin

Water Available for Use

20402038203620342032203020282026202420222020201820162014201220102008

Figure1:ThreeValleysWaterSupplyDemandForecastwithnodemandsavingsfromhouseholdmetering


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sideandsupply-sidemeasurestoensurewehaveenoughsuppliestomeetdemand.Theseinvestmentswillbeexpensiveandarelikelytoincreasetheoverallcostofwatersupplyforallourcustomers.TheGovernmentandregulatorswillhaveacentralroletoplayinmanagingcustomers’expectationsofpriceincreases.

Inplanningforbothsupplyanddemandinthelongtermthereislessriskinsolutionsthatexpandsupply(supplymeasures)thaninthosethatreducedemand(demandmeasures).Thisisbecausedemandmeasuresrequirereductionsinconsumptionandthereisconsiderableuncertaintywhethersavingswillendureintothefuture.However,asourwaterenvironmentisclassifiedaswaterstresseditisimportantwereducethedemandforwaterwherepracticableandFigure2(aboveright)showsthebenefitsweexpecttoseefrommetering.

Thediagramshowsthatweexpecttohavesufficientresourcesuntil2024astheblue‘wateravailableforuse’lineremainshigherthanthedemandlineevenafterincludingasafetymargin(knownas‘headroom’,i.e.thegapbetweenwhatwehaveavailabletosupplyandwhatcustomersuse).

Figure2alsoshowsthatreducingdemandaloneisinsufficientinthelongtermandweneedtoplantoincreasesupplyaswelltocopewiththerapidriseinpopulationinourarea.Inadditionitisimportantweplanwellinadvanceastheleadtimefornewsignificantsourcesofsupplyislong,andtheenvironmentalconsequencescanbeconsiderable.

Wecannotanddonotwanttopreventourcustomersfromusingthetapwatertheyarepreparedtopayforandsoitisimportantthatweplanforbothsupplyanddemandmeasures.Inaddition,actionstoprovidenewresourcescannotbeleftuntilitisclearaftertheeventthatdemandmanagementisinsufficienttomaintainsecurityofsupply.Suchanoutcomewillbeunacceptabletocustomers.Demandmanagementmustminimisewastageandinefficientuse,buttheinsuranceofresourcedevelopmentandadequateheadroomisessentialforcustomersandmustbeplannedforonalong-termbasis,notasemergencymeasures.

However,thereareconsiderablechallengesinmaintainingsufficientsafetymarginbetweensupplyanddemandinmoreextremeclimaticconditionsthatcouldoccurasaresultofclimatechange.Theseextremescouldinfluencebothsupplyanddemand.Wewillseektoprovidedrinkingwatersafelyandinsufficientquantitiestomeetthedemandsofourcustomers,withinaframeworkofclimatechangeandsustainability.Thismeansextensiveenvironmentalplanningforthe“100yearevent.”

1000

1100

1200

1300Maximum critical period demand with safety margin

Water Available for Use

20402038203620342032203020282026202420222020201820162014201220102008

Figure2:ThreeValleysWaterSupplyDemandForecastwitheffectivedemandmanagement


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ThirtypercentofthewaterwesupplyisabstractedfromtheRiverThames,andtreatedatsiteslocatedontheThamesfloodplain.Theimpactofclimatechangeandtheprospectofextremeweathereventswillcauseustoreviewtheflooddefencesandpossiblythelocationofsomeofoursitesandtoeliminatevulnerablepointsoffailure.Ourflooddefenceshaveprovedsuccessfulinthepast,butthefloodingoftheriversSevernandAvoninJuly2007showsthatwhathasserveduswellinthepastmaybeinadequateinthefuture.Wewillbalancethelikelihoodofsuchevents,andthepossibleconsequences,againstthecostsandtherisksofmakingsuchprovisions.Asidefromflooddefence,wewillestablishappropriateassumptionsonwhichtoplanforclimatechangeanditseffectsongroundwaterlevelsintheLeeandColneValleycatchments.

Weanticipatethatthewayweallviewwaterwillchangefundamentallyoverthenext25years,fromsomethingfreelyavailableandunconsideredtoascarceresourcewhichmustbetreatedwithrespectandrestraint.Again,climatechangeinfluencesdemand:duringthehotsummerof2003customersusedmorewateratpeaktimesthaneverbefore.Thisspike,theproductofextremeclimaticconditions,wasa“100-yearevent”intermsofdemandandpastexperience.Wethinkthatclimatechangewillmaketheserareeventsmorefrequentandmoresevere.

0

50

100

150

200

250 Total Leakage (Ml/d)

2006/072005/062004/052003/042002/032001/022000/011999/001998/991997/981996/971995/961994/951993/941992/93

LeakageWearecommittedtomeetingthetargetsforleakagesetbyourregulatorandoverthelast15yearshavereducedleakagebynearly30%.Leakagecontrolisexpensive,however,sowehavetobalancethecostsoffurtherleakagereductionagainstthevalueofwatersaved.

• Lastyearwelocatedandrepairedover32,000leaks,nearly100everyday

• Wespent£18monleakageactivityin2006/7

• 17%ofwatersuppliedislostthroughleakage

• 30%ofleakageoccursoncustomers’supplypipes

• Thecompany’snetworkof14,000kilometrescontainsanestimated3millionpipejoints

• TheLondonClaysoilinourregionisknownforitsaggressivechemicalconditionsandgroundmovements


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3.1.4ManagingdemandTocopewiththewaterdemandsofarisingpopulation,changingdemographicsandrisingincomes,coupledwithhighandinsomecasesrisingconsumptionpatterns,wewillhelpcustomersmanagetheirdemandforwater.

Webelievethatinordertoreducethedemandforwater,reducingtheleakageonournetworkisanabsolutepriority.Wewillalsopursuefourfurtherinitiatives:

• promotingwaterefficiency

• supportingourcustomerstoreducetheleakageontheirpipes;

• lobbyingfortighterregulationforwaterefficiencyinbuildingregulationsandfornewdomesticappliances

• promotingcompulsorywatermeteringanddemandmanagementtariffs.

Reducingleakagefromournetwork Leakagereductionhasbeenasignificantpriorityforusinordertocontainthedemandforwaterandtoallowmorewatertobeavailableforourcustomers.Mendingaleakincreasessupplyandreducesdemand.Despitetheenormousprogressachievedoverthepast15yearstocontainleakage,weplantokeepleakagecontainmentandreductionasakeypriorityforthecompanyoverthelongterm.

ResearchOurresearchprogrammehelpsusunderstandleakageinourareaandtheeffectofinvestmentonfuturelevelsofleakage.Avitalconceptwhenforecastinginvestmentrequiredtotackleleakageisthenaturalrateofriseofleakage(NRR).NRRistherateofincrease

inleakageifnoinvestmentismade.FollowingoneofthemostextensiveNRRresearchstudiescarriedoutbyanycompanyintheUK,wearerapidlyincreasingourunderstandingofthelinkbetweennetworkdeteriorationinvestmentandleakage.Thisknowledgewillinformourleakagestrategy.

RenewalWewillcontinuetorenewourmainspipesatthecurrentrate(1in100yearsreplacement)orhigherwherethiscanbejustifiedtooureconomicregulator,Ofwat.WewillworkwithOfwatonaprogrammetoreplacecommunicationpipes(whichrunbetweenthemainsandthecustomer’sproperty)atthesametimeasmainsarerenewed.

InnovationandenhancementWewillmakeuseofnewtechnicaladvancementsnowcomingtomarkettolocateandfixleaksmorequickly.Alreadyweareextendingourcoverageofnoise“listening”devicesonournetworktoidentifyleaksandrepairquickly.WewillmaintainandextendourDistrictMeteredAreas,smallzonedandmeteredareaswherewecanmeasureusageandleakageprecisely.Weregulatewaterpressureinthenetworkto


16

thegroundsoilsinourarea.Sufficientheadroomisrequiredinabstractionlicencesandoperationalplanttoaccommodatedemandwhenleakageoutbreaksoccurandarebroughtundercontrol.

Itisimportanttoengagecustomersinidentifyingleaksthatwemightnotbeawareof,sosavingwaterandmitigatingdamage;andcustomersaregenerallyquicktoinformusofleaksifweareaskingthemtoconservewaterintheirhomesandgardens.Withtheaidofnewtechnology,greaterinvestment,andbetterandfasterinformation,wewillbeabletorespondmorepromptlytoleaksidentifiedbycustomers.However,customersmayneedtobeencouragedtoseebeyondtheleakingwatermaintorealisethatifwetackleeveryleakbyapplyingastandardbeyondthatoftheEconomicLevelofLeakage,thenwewillhavetoincreasewatercharges.Itispossible,ofcourse,thatdemandissohigh,andtoleranceforleakagesolow,thatthesefactorswillbeseenasmoreimportantthaneconomicones,andleakagemaythenbeaddressedirrespectiveofcosttothecompanyandtothecustomer.

reduceandcontrolleakage,whilstmaintaininglevelsofserviceexpectedbyourcustomers.Ourinnovativemanagementsystem,usinghydraulicmodels,willensurethatwaterpressuresandthereforeleakagecanbereducedoutsidepeakdemandperiods.

Theregulatoryframeworkpromotesrepairsonthenetworktothepointthatrepairingaleakorseriesofleakscostsnomorethandevelopinganewwatersource.Incurrentindustryterms,thisistheEconomicLevelofLeakage;itisaconsistentapproachthroughoutthewaterindustry.Wewill,overthenext25years,havetomakesurethatindealingwithissuesofsupplyanddemand,leakagedoesnotriseabovethislevel.Moreover,togetherwithOfwatandtheEnvironmentAgencyweareexploringthepossibilityofrecalibratingtheEconomicLevelofLeakage.Thenetworkthatwehaveisthelegacyofpreviousgenerations;wehavetomakesurethatoverthenext25yearsthenetworkisrenewed,maintained,andpassedoningoodworkingorder.

However,mendingleakscannotbeseenasareliabledemandmanagementsolution.Inanetworkofvariableage,inwidelydifferinggroundconditions,leakswilloccur.Around70%ofournetworkcomprisesoldironpipes,andtheseareparticularlysusceptibletobursts.InthegroundconditionsinourareatheseironwaterpipesarevulnerabletocorrosionandtofractureduetotheaggressivenatureoftheLondonClaysoils.Theseclayscanremainsaturatedlongaftersubstantialrainfall,whileconditionsonthesurfacemayappeardry.Sotheremaywellbeasituationwheredemandpeaks(indryconditions,hightemperatures)atthesametimeasthereishighleakagefromamultitudeofburstsduetogroundmovementandwetclayconditionsbelowground,referredtoasaleakageoutbreak.Ironpipescannotwithstand,overthelongterm,boththecorrosiveandthedistortingeffectsof


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Waterefficiency Weplantoextendtheinformationandeducationserviceweprovidetoallourcustomers,domesticandcommercial.Forcommercialcustomerswewillcontinuetopromoteourservicesofleakagedetection,privatenetworkmanagementandwaterefficiencyauditingtoassisttheminidentifyingandsolvingwaterwastageproblems.Therearesignsthatourcommercialcustomersareusinglesswater.Overtimewewouldlikeallourcustomerstobecomemoreconsciousoftheirwaterusageandwewillcontinuetoinvestineducatingthenextgenerationofcustomersthroughourschoolsprogramme.Wewillencouragecustomerstousetapwaterefficientlyinthehomebyprovidingthemwithmoreinformationontheavailabilityanduseofwaterefficientdevices,whichcanbefittedintoeitherneworexistinghomes.Weknowthat25%ofthehomesintheThreeValleysWaterregionwillberefurbishedoverthenext25years,sothereisconsiderablescopetoretrofitwaterefficientdevicesandappliances.

WewillcontinuetoworkwiththeEnvironmentAgencyandwithplanningauthoritiestoensurethatasufficientandsustainableinfrastructureisinstalledfornewdevelopments.Wewillalsopursueappropriateresearchanddevelopment,workingwithindustrypartnerstobuildonexistingdataaboutwaterefficientproductsanddevices.WewillcontinuetosupportorganisationssuchasCCWater,WaterwiseandWaterUKwhichseektoinfluencecustomersandmanufacturerswithregardtotheuseanddevelopmentofwaterefficientproducts.

Reducingleakagefromcustomers’pipesWeknowbroadly(andwouldknowmoreaccuratelythroughappropriatemetering)thataroundathirdofallleakagetakesplaceonourcustomers’property.Meteringattheboundaryofacustomer’spropertyhelpsourcustomersidentifyleakageandencouragesthemtotakeactiontohaverepairsdone,astheypay

EducationLastyearweeducatedmorethan26,000adultsandschoolchildrenfrom335schoolsinthesupplyarea.Wehaveadedicatedandaward-winningEnvironment&EducationCentreandteamwhichaimstopromotesustainablewaterefficiencythrougheducationprogrammes.ActivitieslinkedtothenationalcurriculumtakeplacebothatourCentreandthroughanextensiveoutreachprogramme.

DesignatedasanareaofseriousWaterStressbyDefra

forthewaterthatislostfromtheirpipes.Itmightalsoreducedamage,and,withappropriatenewtechnology,giveearlywarningofalow-levelleak.Inourareaweofferfreerepairofcustomers’pipes,andwesubsidisearenewalschemetoreplaceoldorunreliablepipesoncustomers’property;thisencouragesownerstotakethenecessaryaction.

Butoverthenext25years,tomakerealprogresswiththisimportantcomponentofleakage,itispossiblethatwatercompanieswilltakesomeformofresponsibilityforthecustomers’supplypipesfromtheboundarystopcocktothepointofentryintotheirproperty.Giventheproportionofleakagethatoccursoncustomers’ownpipes,itmightbebeneficialiftheirwatercompanyweretobecomemoreengagedintheproblem.Such


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aninvolvementbythewatercompanymightentailagreatersubsidyforcustomerstorepairtheirleakage,orwideruseoftheexpertisewhichwatercompanieshave.

BuildingregulationsandnewdomesticappliancesWethinkthatitisimperativeforGovernmenttodothreethings:

• toencouragecustomerstofitnewer,moreefficientappliancesinbothnewandexistinghomesbycontrollingthesaleofhighconsumptionappliances,coupledwithwaterefficiencylabellingfornewappliances

• tointroduceandenforcenewmandatoryminimumbuildingandplumbingstandards,bringingwaterefficiencyalongsideenergyefficiency

• toensureallpublicbodies,regulatorsandwatercompaniesactinpartnershiptoestablishahigherprofileforwaterefficiencyandrecognitionofwater’sstatusasascarceandvaluableresource.

WewelcometheCodeforSustainableBuildingswhichsetstargetsforwaterusingappliancesinnewhomes.However,theCodeisvoluntaryandimposesnocontrolsonchangesafterconstructionhasfinished;householderscanretrofithigherconsumptionappliances.Furthermore,webelievethatplumbingregulations(alongthelinesforelectricityandgas)shouldbeintroducedwhereallappliancesarefittedbyregistered,trainedpersonnel.Intheabsenceofthesetherewillbeincreasingrisksofwasteorcontaminationthroughcross-connectionsofinnovativewatersavingproductssuchasgreywatersystems.

CompulsorymeteringanddemandmanagementtariffsCompulsorymeteringanddemandmanagementtariffsworktogether.Ifall(oratleast90%)ofourcustomersweretohavewatermeters,wecouldmeasureusageandpatternsofusagemoreaccurately,allowingustomanagedemandmoreeffectively.Morethana

thirdofourcustomershasameter.Fromourexperiencewithmetering,weknowthat

customerstendtouse,onaverage,10%lesswaterthaniftheystayed

unmeasured.Metersalsoallowustochargeonapay-as-you-takebasis,whichthemajorityofcustomersbelievesisafairerbasisforcharging.

Metersalsoopenthewayforinnovativetariffswhichvarywith

thescaleofdemandbyindividualcustomersandwhichrelatetothe

differingcoststhatparticulartypesofdemandimposeonthesystem.Variable

tariffswillmeanthatcustomerspayaccordingtotheirusage,beitessential,discretionary,seasonal,dailyornightly.Seasonaltariffs,forexample,willhelpusmanagedemandinthepeaksummermonths,andshifttheburdenofwaterchargestothosewhousemostatperiodsofpeakdemand.However,thetruepotentialofmorediscriminatingtariffstructureswillnotbeunlockeduntilwecanaccessreliablehouseholdoccupancydataasdemandforwatermostcloselycorrelateswiththenumberofpeoplelivinginahouse.

Thesenewtariffswillcreateincentives,promoteawarenessandencourageresponsiblebehaviour,whileofferingprotectiontothosecustomerswhoarelesswelloff.Wewillexplorenewwaysofpricingthatencouragetheefficientuseofwater.Wewillprotectvalueformoneyforallcustomersbyintroducingdifferentpricelevelsforessentialanddiscretionaryuse.


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Whenpromotingnewtariffswewillremainsensitivetotheissueofwaterpoverty,andworkwiththerelevantgroupstodevelopappropriatesocialtariffs.Formanyofourcustomerswaterchargesrepresentasmallproportionoftheirdisposableincome.Asignificantnumberofthempayslittleattentiontotheirconsumption.Thisisborneoutbytheper capita consumptionrateforoursupplyarea,eightpercenthigherthantheindustryaverage.Formanycustomers,wateristoocheaptobevaluedsothereislittlemotivationtouseawatermetertosavemoney.Metersandtariffswillencouragecustomerstothinkofwaterasavaluableresource.

Inparallel,overthenext25yearsweexpectmeasuringandpricingtechnologies(“drive-by”meterreadingisanexampleofthisin2007)tochangeandbecomemoretimelyandmorespecific.Thiswillallowustomanageoursupply/demandbalanceevenmoreefficiently.Anincreasinglyvaluableresourcecanbemonitoredwithgreateraccuracyandinformationtoandfromcustomerscanbeofbetterquality.

3.1.5EnsuringsupplyWebelievethattoimprovesupplyweneedtoprotectandoptimisetheuseofresourceswecurrentlyhave,promotethelocalwatercycle,and,asindicatedabove,developnewresourcesforthefuture.

MakingbestuseofourresourcesThefirstmethodtoensuresufficientsuppliesofwateristomakebestuseofwhatwecurrentlyhaveavailable.Thisrequiresmanagementof:

• pollution

• climatechange

• themovementofwater.

Wewillmanagetherisksofpollutionfrompointanddiffusesourcesandactshouldathreatappear.WorkingwiththeEnvironmentAgencyandpotentialpollutershasmeantwehavebeenabletoprotectcatchmentsandreducethethreattoexistingresources.ImplementationoftheWaterFrameworkDirectivemeansthatwehaveanopportunitytoincreasetheprotectionofpublicwatersupplies.WeareworkingwiththeEnvironmentAgencyandotherwatercompaniestosetqualitativeandquantitativetargetsforthewaterenvironment.

Weassessthepotentialeffectsofclimatechangeandfloodingonourcurrentresourcessothatwecantakepreventativeactionsuchasstrengtheningthefloodprotectionofourworks.Thechallengeofpollutioncanequallybemetbyinstallingenhancedtreatmenttocopeforgreatervariabilityinthequalityofrawwater.Newtreatmentprocessessuchasmembranetechnologiescanallowusfromtimetotimetore-commissionsourcesthathaveremaineddormantforsomeyears.


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Makingbestuseofourwaterresourcesalsomeansensuringthemobilityofwaterresources.OurdemographicplanningindicatesthatpopulationgrowthwillbemostlikelyinthoseareasoftheThreeValleysWaterregionwherewaterisscarcest.Wethereforehavetobeabletomovelargequantitiesofwaterfromonepartoftheregiontoanother.Overthepasttwodecadeswehavebuiltaregionalwatergridinourareaofsupply.Thismeanswecanoptimisetheenergyandcostoftransferringwaterfromareasofsurplustowhereitisneeded.Ourregionalwatergridwillneedtobeenhancedandexpandedbymoretrunkmainsandbyincreasinginter-connectivitytotransfertreatedwatertocustomersintheeastofourregionwherepopulationgrowthwillbehighest.

ThelocalwatercycleIncreasedscrutiny,environmentalandsustainabilityconsiderations,andsociety’sgrowingintolerancetoriskmaymeanthatduringthenext25yearsthewaterindustrymayneedtorevisethewayitmanagesandtreatswater.Wethinkthatwatercanbeeffectivelytreatedlocallybyrecyclingwastewater,whichisamoresustainableapproach.Thiscanbeachievedatacommunitylevelbycustomersorbuildersinstallingdomesticorcommercialgreywaterrecyclingsystems.Alternatively,localrecyclingcanbedonebyreturningtreatedwastewatertotheaquiferortotheheadwatersofthelocalrivers:thissupportstheexistingabstractionsfromtheassociatedaquifersandkeepswaterinthelocalarea.Thiswouldinvolveareversalofthepatternofcentralisingsewagetreatmentworksatthelowerendofrivercatchments.Toachievethischangewillrequireconsiderableinfluenceoverdecisionmakersandoverourneighbouringwatercompanieswhichcontrolandmanagetheseweragenetworks.

Asenvironmentalconcernsbecomeclearer,andenvironmentalmeasurementmoreaccurate,therewillbeincreasedpressureonregulatorstorecognisethevalueoflocalwatertreatment.However,itmaynotalwaysbeintheinterestsofcustomersthatwatershouldbesuppliedlocallyifwatercanbetransferredoverlongerdistances;wewillhavetobalanceenvironmentalandeconomicconcernsontheonehand,andavailabilityandqualityconcernsontheother.

InvestmentinnewregionalresourcesWeproposeinvestmentinthenewregionalAbingdonReservoir(Oxfordshire),sharedwithThamesWater,inordertocollectandstorewinterrainfalltosupplementsummerflowsintheRiverThames.Thiswillboostthecapacitytomeetsummerdemand.WearecontinuingourinvestigationswithAnglianWatertoincreaseourimportofwaterfromGrafhamWaterReservoirnearHuntingdon,andwearealsoexploringdevelopmentofnewresourcesintheconfinedchalkaquiferundertheLondonurbanarea.Lastly,wewillbeworkingwiththeEnvironmentAgencyandtheotherwatercompaniesintheSouthEasttopromoteothernewstrategictransfersintoourarea.


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3.2RightqualityWaterwillbeoftherighttechnicalandaestheticquality

Weknowthatourcustomersareconcernedwiththequalityofdrinkingwater.Intolerancetoissuesoftaste,odour,appearanceandhardnessintapwaterisverylikelytogrow.Weneedtorespondwithpositiveactiontoretainourcustomers’faithandconfidenceinourwater.Wewillcontinuetoaimfor100%complianceinalltreatedwaterquality.

Thequalityofrawwaterfromoursources,particularlygroundwater,isconstantlyunderthreatofpollutionandisdeteriorating.Wemonitorgroundwaterandsurfacewaterqualitycontinuously,assessrisksregularly,andinstallappropriatetreatmentwherenecessarytoensurecompliancewithdrinkingwaterstandards.Thenatureofthegeologyandhistoriclandusecombinetoprovideavarietyofactualandpotentialcontaminants.Whilegroundwaterpollutioncanbeslowtooccur,onceithashappened,itcantakeyearstodiminish.

Pollutionarisesfromtwokeyareas:thefirstispointsourcepollutionsuchassewerageleakage,chemicalandoilstorage,andlandfillsites;andthesecondisdiffusepollutionfromurbanisationandagriculture.Insomeareas,historicgroundwaterpollutionisonlynowbecomingevidentasweextendtherangeoftestsandanalysiswedo.

Ourwatersourcesarevulnerabletopolluters,nowandinthepast,butrawwaterqualitycouldbeimprovedifpollutersweremadetopayforandremediatetheenvironmentaldamagetheyhavecaused,orpayforend-of-pipetreatmentwherethisisacosteffectivesolution.

99.3

99.4

99.5

99.6

99.7

99.8

99.9

100.0

200620052004200320022001200019991998

WaterqualityWearecommittedtoprovidesafe,highqualitydrinkingwaterforourcustomers.Wedothisbyoperatingandmaintainingourassetsdiligentlyalongwithsamplingandtestingthequalityofourwater.

Lastyearwecarriedoutover192,000regulatorywaterqualitytestsonsamplestakenattreatmentworks,servicereservoirsandcustomers’taps.99.98%ofourdrinkingwatersamplesatconsumers’tapsmettheregulatorystandards,aboveaverageforthewaterindustry.

Wealsotestedover200,000samplesforoperationalpurposes.Wecarryoutourwaterqualityanalysisworkatourownlaboratorywhichwehavesubstantiallyupgradedoverthelasttwoyearstoensurethatitremainsamodernandefficientfacility.WereportourlaboratoryresultstotheDrinkingWaterInspectorate.

Eachyearwealsopublishaleafletforourcustomersdescribingthequalityofwaterwehavesupplied.


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RecentlyweparticipatedinaPublicInquiryconcerningalargescalepollutionemanatingfromaformerchemicalworks.ThiswasthefirstInquirytobeheldundertheContaminatedLandRegulations,andourexpertwitnessesdetailedtheeffectofthispollutiononourresourcesandpromotedremediationstrategiesthatwouldlowertheimpactofthepollution.WearestillawaitingtheoutcomeofthisInquiry,butourparticipationdemonstratesourcommitmenttothe“polluterpays”principleandthatitshouldnotbeourcustomerswhopaytocleanupthirdpartycontamination.

TheWaterFrameworkDirectiveisdesignedtoimprovesurfaceandgroundwaterbutitmaytakemanyyearsbeforeweseemarkedimprovementstosurfaceandgroundwatersinourarea.Thisisduetolegacypollution,someofwhichisonlynowbecomingmeasurable.Existingwatertreatmentplantsmaywellbeinadequateintreatingwaterofdeterioratingqualityintheshorttomediumterm.Standardsforqualityofdrinkingwaterhaveincreased,andnewstandardsareintroducedregularly(forexample,legalstandardsforleadintapwaterwillbetightenedin2013).Moreover,pollutionaside,thequalityofourrawgroundwaterintheThreeValleysWaterareaispoor.Ourtreatmentprocessesareadvancedenoughtocopewiththis,buttheywillneedtobeenhancedoverthenext25years.

Increasedtreatmenttomeethigherstandardshasaneffectontheaestheticqualitiesofthedrinkingwaterwesupply.Itisnotonlytherawwaterthataffectstheaestheticqualityofwateratthetap;thestateofthenetwork,inourcaseapoorandagingone,caninfluencethewaywaterlooksandtastes.Atpresent,highlevelsofmaintenanceonournetworkcancausedisturbancetoourpipesandthisinturncancauseproblemsinwaterquality.

Inthelongerrun,EuropeanDirectivesandEnglishandWelshwaterregulationsmaycontinuethetrendtowardsmorestringentandbroaderstandards.Thiswilldrivethewaterindustrytoinvestintreatmentplantsandprocessesthatcomplywithhigherstandards.However,watertreatmentrequiresoftenintensiveuseofchemicalsandhighuseofenergy,whileenvironmentalconcernsabouttheeffectofwatertreatmentarebecomingmorepressing.Weareincreasinglylikelytohavetodealwithmoreinsidiousthreatsfromchemicalssuchasendocrinedisruptors,PFOS(perfluorooctanesulphonate,foundinfirefightingfoam)andmorepesticides.Wewillcontinuetoaimfor100%complianceinalltreatedwaterquality.


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3.2.1Howwewillmakesurethatwaterisoftherighttechnicalandaestheticquality

TreatmentprocessesaresufficientlyrobustWeneedtoensurethatourtreatmentprocessesaresufficientlyrobustandwellmaintained,firsttocopewiththevariabilityweforeseeinrawwaterquality,andsecondtoachievechangesindrinkingwaterstandardsandexpectations.Weanticipaterawsurfaceandgroundwatertodeterioratebeforetheyimprove,andwewillneedtoworkharderthereforetomaintainthequalityofourendproduct.Bridgingthequalitygapislikelytorequirenewinvestmentinplantandprocess,especiallygivenenvironmentalstrictureswhichmay–forperfectlyproperreasons–becomemoremanifestoverthenext25years.Aswerenewourdisinfectionequipmentwewillmakegreateruseofultra-violetlightandoxidationtechniqueswhichwillhelptoreducechlorinetaste.

CompliancewithregulationTherearemandatorystandardsandproceduresestablishedandrunforthecommongoodtoachievewholesomeandsafedrinkingwater.Compliancewithregulationrequiresustomeetmandatorystandardsasaminimumthroughproperanddiligentoperationofoursupplyassetsandthroughacontinuousprogrammeofwaterqualitysamplingandtestinginourlaboratory.Thisassureswaterquality.

MaintainingthenetworkOccasionallycustomersexperiencediscolouredtapwater.Althoughdiscolouredwaterisnotusuallydangeroustohealth,itisnotacceptabletocustomers.Wewanttoreducefurtherthenumberofinstancesofdiscolourationbyactiveoperationalmaintenanceofourpipe-work,forexamplebyincreasingtheamountofmainsflushingtocleantheinsidesofourwatermains.

Renewalofironpipesformaintenancereasonswillalsohelplessendiscolouration.Weknowthatwewillneedtoremainvigilantwhenwemixandblendwaterinournetworktomaintainitsquality.

Althoughweneedtomaintainournetworkinordertosupplywaterattherightquality,theactualmaintenanceworkitselfcancausedisturbanceswhichcanleadtoqualityissues.Inviewofthesignificantlevelsofnetworkmaintenanceworktobecarriedoutinthefuturethisisanissuethatwewillneedtomanagecarefully.

WorkingwithothersFinally,webelieveothershavearoletoplayinsecuringthequalityofwaterinourtapsas,forexample,theEnvironmentAgencywhichenforcesthe“polluterpays”principle.Wewillcontinuetoworkwithregulatorstoensurepolluterstakeresponsibilityfortheconsequencesoftheiractionsandminimisetheburdenofcostcarriedbyourcustomers.


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3.3TheenvironmentWewillhavetherightcareandconsiderationfortheenvironmentinwhatwedo.

Allwatercompaniesbringaboutchangestotheenvironment–aboveandbelowground–fromwhichwaterisdrawn.Asatreatmentindustry,weaffectthenaturalandbuiltenvironmentwherethetreatmenttakesplace;andasasupplyindustryweaffectthenaturalandbuiltenvironmentalongthelengthofoursupplychain.Whilewearenotengagedinthedisposalofwastewater,werecognisethatthisisyetanotherplacewherethewaterindustryhasaneffectontheenvironment,andindeedonthewatercycleitself.Lookedatasawhole,thewatercycleisboththeextractionandthedisposalofwater,somanyofthesolutionswhichapplyinmanagingdemandwillhavethedoublebenefitofreducingnotonlytheenergyandchemicalsneededforextrawater,butthoseneededtodisposeofitaswaste.

Thewaterindustryisanintensiveuserofelectricalenergywhichisrequiredtopumpwaterfromsources,throughtreatmentstagesandthroughthepipenetworktocustomers.Therearemanyenvironmentalcostsattachedtotheindustry,notonlyenergyusewithitsassociatedgreenhousegasemissionsbutalsochemicaluseandthegenerationanddisposalofwastematerials.Inthefuture,thewaterindustrywillhavetoembracetheideaofcarbonreductionandcarbonneutrality.Therearemanywaysinwhichthiswillbecomenotonlyenvironmentallybuteconomicallymoreattractiveoverthenext25yearsandbeyond.

Movingandtreatingincreasingamountsofwaterrequiresmoreenergyandmorechemicals(whichthenhavetobedisposedof),andcreatesmoregreenhousegases,andmorewastewatertotreat.Assupplyincreases,sodothewiderenvironmentalcosts.Onesolutiontoenvironmentalcostsinindustrieswithan

extendedsupplychainistoactlocally;anotheristoapplyeconomiesofscale.Thesesolutionsinformthedebateaboutalocaloranationalapproachforwaterprovision.Anationalgridforwatersupplyiscurrentlyunnecessaryanduneconomic.Althoughlongdistanceregionaltransfersexistandmorearenecessary,itisdifficultandenvironmentallycostlytomovewaterfromareasintheUKwithplentyofwater,suchasScotland,toourareaofsupply.However,werecognisetheneedforneighbouringwatercompaniesinourareatomakeprovisionforamorerapidandflexibleresponsetolocalsupplydeficits.Thiswilldependonappropriateeconomicandlogisticalcooperation.Itwillalsodependontherelatedandcrucialpracticeofthedisposaloftreatedwaterbyneighbouringcompanies.

Thereare,however,considerablecoststothebuiltenvironmentinmovingwateracrossanetworkandinmaintainingthatnetwork.Theenvironmentalcostsinmaintainingournetworkcomefromthematerialsweuse,thecarbondioxidewedischargeandtherepairswemaketoleaks.Therearealsoenergycostsconnectedwithdisruptiontotrafficonthehighways;andthesocialcostsoftrafficjams


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andlosttime.Itislikelythatsomeofthesecostswillbereducedbynewtechnologiescapableofrepairingorrenewingournetworkmorequicklyandwithlessenvironmentalimpact.

Asasociety,weneedtobeabletomeasuretheenvironmentalcostofdoingbusiness,notjustincurrentvalues,butinthevalueforfuturegenerations.Customersassumewewilldotherightthingnotjustforourowngeneration,butforourchildren’schildren.Bothcurrentscienceandprevailingpublicopinioninturnexpectustoactinenvironmentally-friendlyandsustainableways.

Thewatercycleispartofthenaturalenvironment,fromdeepundergroundtohighintheatmosphere.Yetwaterrarelyimpingesonthepublicconsciousnessexceptintimesofdroughtorflood.Webelievethatinthenext25yearswewillseeaneverydayappreciationofthevalueofwaterasanenvironmentalresource.Aswatershortagesaroundtheworldbecomemoreacute,wewilllearntovaluetheresourceswehaveintheUK.Wewillalsolearntobecomemoreaccurateaboutthecoststotheenvironmentateverystageofthewatersupplychain.In2007,wearebeginningtomeasuretheseintermsofcarbonfootprintorbiodiversityloss;butinthenext25yearswewillbecomemorepreciseinwhatwearemeasuringandmoreaccurateinhowwemeasure.

Weareconcernedtominimisetheenvironmentaleffectsofthewaterweabstractandtreat.Wedevoteagreatdealofeffortinunderstanding,quantifying,developingandimplementingmitigatingstrategies,bothoperationalandthroughcapitalinvestment,toachievethisgoal.Thisisofparticularimportanceduringtimesofdroughtwhenriverflowscanbesignificantlyaffected;ourdroughtmanagementplantakestheseintoaccount.Communicationofthesituationwiththepublic,andrequestsforvoluntary

demandreductionsinadvanceofimplementingwaterrestrictionsunderpinthedroughtmanagementplan.Thisplanwaslastusedduringthedroughtof2005/06.Wegatherdataonrainfall,groundwaterlevels,riverflows,andecology.Thisallowsustounderstand,planandmeasurewhatishappening,andenablesustotakestepstomitigateeffectsontheenvironment.Thesedata-gatheringexercisesarecarefullycoordinatedwiththeEnvironmentAgencytoensureappropriateinformationisbeingcollectedandthereisnoduplicationofeffort.Wealsooperateseveralriversupportschemesduringdroughtsandalsoreduceabstractionfromparticularlysensitivesources.WehavealreadyinvestedinschemestoalleviatelowflowsontheriversMisbourne,VerandHiz,andarecurrentlyundertakinginvestigationsontheriversRib,Beane,Mimram,GadeandHughendenStream.MaintainingcontactwithlocalgroupsaswellaswiththeEnvironmentAgencyisvitaltosuccessfulresults.Wearealsopromotingmoreintegratedcatchmentmanagement,bothinwaterresourcesandinpollutionprevention.Suchinitiativestakealongtimetodevelopandcanbecostly;butwebelievetheyofferamoresustainablefuture.


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Ournetworkactivitiesarealsofacingnewchallenges.Increasingpressurethroughlandfilltaxandintoleranceofdisposalroutestolandfillforexcavatedmaterialsmeansweneedtofindimprovedwaysofhandlingoursolidwastewhilewealsofacetougherregulationinmanagingdischargesofwaterfromburstpipesanddewatering.Inadditionweseeadilemmainourwatertreatmentprocesses.Theneedforincreasinglycomplextreatmenttocomplywithhigherwaterqualitystandardsoftenmeansweusemoreenergyintheseprocesses.

Theenvironmentalsoincludesthewayweprotectourworkforceandthepublicwhenwearecarryingoutouroperations.Ourofficeoperationsandourfleetof500vehicleshaveanenvironmentalimpact.Healthandsafetyobligationsareimportantandextensive,placingconsiderableconstraintsonworkpractices,particularlywhenweareexcavatingroads.

3.3.1Howwewillhavetherightcareandconsiderationfortheenvironment

ManagingdemandAsalreadyreferredtoinsection3.1.4,weproposetocontinuetomanagethedemandforwater.Thiswillbothreducethevolumeoftreatedwater,soreducingtheenergyandchemicalsrequiredintheprocess,andthevolumeofdischargedwaterforwastewatertreatment.Boththesereductionswillmitigatetheenvironmentalimpactofusinganddisposingofwater.

AbstractingwaterWewillminimisetheeffectsofourabstractionontheenvironment.Webelievethatthebestwaytoachievethisandtofindviablealternativestoabstractionistoincludethefullvalueofenvironmentalconsequencesinourinvestmentchoices.Wearekeentoworkwithourregulatorstoensurethatourindustryvaluestheenvironmentcorrectly.

ReplacinginefficientplantWealreadyreplaceoldandwornoutpumpswithmodern,efficientequivalents,evenwherethiscostsusmorethanlessenergy-efficientalternatives.Wemustalsoconsiderearlyreplacementofinefficientassetswherethesearecontributingtoenvironmentaldamage.Thismaybethecasewheretheyareinefficient,orcauseustousemoretreatmentchemicalsorgeneratemorewastethanareplacementwould.

Usingenvironmentally-friendlypracticesInallouroperationswewillseektobeenvironmentallyfriendlybyreducing,reusingandrecycling.Thisobtainsinthewaywerunouroffices,ourfleetofvehicles,ourplantandourrepairwork.Forexample,inthelatter,wherewecanwewillreducewastebyusing“no-dig”techniquesfornetworkmaintenance.Whenreinstatingholeswewill,wherepossible,reusereprocessedexcavationwastetoreducetheamountofvirgininfillrequiredandminimiselandfillwaste.Inadditiontoexploringnewtechniquesforreprocessingexcavationwaste,wehavealsobegunconvertingtreatmentsludgeinto(competitivelypriced)buildingmaterials.


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TransparentreportingWewillmeasureallthatwedousingtransparentreportingagainstsustainabilitymeasures(alsocalledenvironmentalmetrics,orenvironmentalaccounting).Wewilloperateenvironmentalaccountingatboththecorporatelevel,wherewefocusonthecoststructureandenvironmentalperformanceofthecompany,andalsoatthemanagementlevel,whereweidentify,collectandanalysedataonouruseofenergy,waterandmaterials(includingwaste)andfinancialinformationonenvironmentalcosts,earningsandinvestments.Wecanthenusetheemergingtechniquesofenvironmentalaccountingtotakeintoconsiderationboththesesetsofinformation,establishstrategyandsetourselvestargetsforimprovingperformanceonkeyissuessuchasenergysavingbothinwaterproductionandinthetransportthatweuse.

InformingandeducatingcustomersWewillkeepourcustomersinformedoftheenvironmentalimpactofwater,ofthecarbonemissionsinvolvedinitsabstractionanddisposal,andofthewastewegenerateinprocessingit.Wewillcontinuetoeducateourcustomersonbroaderissues(suchasthewatercycle,ourcarbonfootprint)andonwaysinwhichtheycanreducetheirdemandforwater.Overthenext25yearscustomerswillbecomemoreinformedaboutthebalancesandchoicesthatmustbemadewhereabusinesssuchasoursinteractswiththeenvironment;theywillhavebettermeansofmeasuringenvironmentalrisk;andtheywillexpresstheirviewsmorereadily.Ourtaskistomakesurethattheyarekeptinformed.

LobbyingforwaterefficiencyWewill,asanenvironmentalmeasure,lobbyforchangeinbuildingregulationsandintheregulationsgoverningdomesticappliancesandtheirinstallation;wewillcallfortighterregulationonequipmentandontheadoptionofmeasurestomitigateandadapttoclimatechange.

ManagingoursupplychainWewillusesupplychainmanagementtofavourenvironmentallysoundsuppliersandsocreatehigherenvironmentalstandardsinwhatweuseandhowweuseit.Giventhatthewaterindustrytouchessomanyothersupplychains,webelievethatanenvironmentallysensitivestancewillbehighlyinfluentialoverthenextgeneration.Thisiswhereourenvironmentalstewardshipcanbeofthewidestbenefit.

Investinginmicro-generationAspartofourenvironmentalstewardshipandimprovementworkweareconsideringinvestinginmicrogenerationtosupplementourenergyneeds.Theremaybeseveralenvironmentally-friendlywaysofgeneratingenergylocallyusingrenewableresources.Sincewaterpumpsarepoweredbyelectricity,whichhasassociatedhighcarbondioxideemissions,anythingwecandotoreducetheenergyweuse,ortoproduceenergyinamorebenignway,willhelpourenvironmentalefforts.Althoughmicro-generationisnotjustifiableonpureeconomicgroundstoday,wehopesoonthatitwillbecomeeconomicallyaswellasenvironmentallydesirable.


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SafeguardingstaffandthepublicWewillensureourworkforceandthepublicremainssafefromouroperationsatalltimes.Wehavecomprehensiveriskassessmentandmanagementproceduresinplacetoachievethis,andthesewillbecontinuouslyimproved.

3.4MinimisingdisruptionThereshouldbeminimaldisruptiontosupplyinthecourseofournormaloperations

Wemaintainanetworkwhichbringsdrinkingwaterto3.2millionpeople.Ournetworkofundergroundpipesextendstoover14,000kilometres,andinourmostpopulatedregionstheylieinanaggressiveLondonClaysoilenvironmentpronetomovementfromshrinkageandexpansion.Wemaintainanextensivearrayofassetssuchasreservoirs,treatmentworksandpumpingstations,withacurrentreplacementcostof£4billion.Theygenerallyhavealonglife,incertainclassesbeyond60years.Thecontinuedserviceabilityoftheseassetsisessentialfortheconstantdeliveryofawholesomeproductinthequantitiesdemanded.Withouttheproperandfulloperationoftheseassets,wecannotsupplywatersafelyandreliably.Thisfundamentalremainsconstant,andthenext25yearswillposesomespecificnewchallengesforus.

Theconsequencesofclimatechangearelikelytohaveadetrimentaleffectonthenetwork,throughtheeffectsofLondonClaysoil.Drought,freezingandrapidrainfallwillleadtounpredictablemovementintheground,directlyincreasingthenumberofburstmainsandleaks.Thenetworkitselfisold.Weknowwhichpipesaremostlikelytofailbecausewekeepgoodinformationabouttheage,conditionandperformanceofournetwork.Theolderironpipes,whichmakeupabout70%ofournetwork,areneartheendoftheireconomiclivesandarevulnerabletobursting.Burst

watermainsare,bydefinition,unplannedandcauseadisruptioninsupply;theyalsocausetrafficjams,flooding,andriskofdamagetotheenvironment.

Ourfuturemaintenanceprogrammeforabovegroundassetswilldifferfromthepast.Itwillneedtoaccountforthreefactors:

• majorcomponentswithinournewtreatmentprocessesandplantswhichweinstalledinthe1990swillfalldueforrenewalinthenext25years

• ourwatermeters,nowatrecordnumbers,willreachtheendoftheirlivesinthenext25years

• wewillhavetoprotectoursurfaceassetsagainstthepredictedeffectsofclimatechangeduringtimesofflooding.Theunprecedentedfloodingof2007posedchallengestotheutilitiesingeneralandtothewaterindustryinparticular.

Inchangeableandturbulentconditionswemustsafeguardourassets,andindoingsooursupply;yetwemustnotmakedoingsoanonerousburdenborneby


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thisgenerationalonewhichdoesnotbenefitthenext.Wemustalsoguaranteethesecurityofallourphysicalassetsagainstvandalismandsimilarthreatstothesafetyofourcustomersandthepublic.

Wehaveawidearrayoftechnologicalassets.Likemanybusinesses,weinvestintechnologyandinparticularinformationtechnology.Ourbusinessnowreliesmoreoninformationtechnologythanatanytimeinthepast.Theseassetsbecomeobsoletefastandneedfrequentupgradeandrenewal.

Environmentalaccountingandclimatechangewillaltertherisk-basedandhistoricalapproachestothewaywerenewpipesandplantduringthenext25years.Wewillneedtocalculateandshowanappropriaterateofrenewalinthefuturetogetherwithanappropriatestrategyformainsrepairs.Inessence,environmentalaccountingwillchangethepointatwhich,insteadofdecidingtorepairfailingpipes,wewillrenewthewatermainalongitsentirelength.

WhendraftingourWaterResourcesPlans,weworkonthebasisthattherewillbeashortageofwaterrequiringhosepiperestrictionsonceeverytenyears.Evenin2007,followingthehosepiperestrictionin2006,ourcustomerstoldustheywerenotpreparedtopaymoreforwaterinordertoreducetheplannedfrequencyofhosepipebans.Weareconcernedthatoverthenext25yearsourcustomerswillbecomelesstolerantofrestrictionswhileremainingunwillingtopaymoretoreducethem.

3.4.1MinimisingdisruptiontosupplyHowwewillensurethereisminimaldisruptiontosupplyinthecourseofournormaloperations

ProtectingourassetsWewillprotectourassetsfromtheconsequencesofclimatechange(extremeweatherpatterns,floodingetc).Thisplanningwillbedifficultinachangeablesetting,butwehavecommissionedresearchonthewaysinwhichclimatechangemightaffectourabilitytosupplywateroverthenext25years.

MaintainingreliableplantandequipmentThekeytoreliablesupplyismaintenance.Wewillcontinuetomaintainourassets,butinadifferentwayandbysettingdifferentpriorities.Withoursurfaceassets,wewillcontinuetorepair,renewandreplaceaccordingtomoreenvironmentallysensitiveprinciples.Withourundergroundassets,weaimtoincreasemaintenance,againinlinewithcosteffectiveandcost/benefitprinciples.


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RenewingmainsattherightrateIngeneral,weplantorenewenoughmainsandservicepipeseachyeartoensurethatmainsburstsdonotbecomemorefrequent.Thishastheaddedbenefitofreducingleakageandimprovingwaterquality.Wethinkitappropriatethatwhenrenewingmainswealsorenewcommunicationpipesandfitanewboundaryboxandstopcockatcustomers’propertyboundaries,inreadinessforanewmeter.Atthesametime,toreduceleakageoncustomers’property,wewillofferasubsidytowardsthecostofrenewingtheirsupplypipe.Thisapproachtopipemaintenanceminimisesdisruptionandreducescostsbyensuringthatanumberofjobsthatwouldneedtobedoneinthecomingyearsarecarriedoutatthesametime.Wearealsoreducingdisruptionbyincreasingthenumberofcustomerssuppliedbydualfeed.

Thelevelofmaintenancedependsonthemonitoringofkeyareas.Newtechnologywillhelpmonitoringbypredictingwhereournetworkismostlikelytofail.Pipeshaveafinitelifeandsimplyrepairingthemwhentheyfaildoesnotimprovetheconditionofthepipe,itjustfixesthepointofimmediatefailure.Weprefertorenewratherthanrepairbecausepiperenewalcreatesabrandnewassetwithalifeof80–100years.Itwilltakeseveraldecadestoreplacetheironpipesinourareabutwecanreplacethecurrentlymostvulnerablepipesoverthenext25years.

Socialandenvironmentalcostsalsohaveabearingonourlevelsofmaintenance.Here,wehavetosetacost-effectivelevelofmaintenancewhichissupportedbyourcustomers’willingnesstotakeintoaccountthesocialandenvironmentalcostofourwork.

BuildingresilienceItisvitalthatourassetsaredurableandlong-lasting,thatourproceduresaretriedandtested,andthatourstaffarewelltrained.Wemustbuildresilienceintoallouroperations.Forourassets,thismeanssecuringandmaintainingthem,andmakingsurewecanoperatethemusingun-interruptiblepowersuppliesandstandbygeneration.Forourprocedures,resiliencemeansmakingsurethatwehavesufficientlyrobustwaysofcarryingoutbothordinaryandextraordinaryoperations.

Forourstaff,resiliencemeansthelong-termrecruitment,trainingandretentionofskilledstaff.Ourrecruitmentstrategyneedstoensureweplanfortheretirementofmorethan50%ofourworkforceduringthenext25years.Asanemployer,wefaceacutedifficultiesinrecruitingandretainingadequatelyskilledstaffduetothefierce,competitiveandeconomicallyvibrantlocaleconomyinwhichweoperate.Oursupplychainfacessimilarpressures.Ourlocalareaofoperationisoneofalmostfullemployment.Ourstrategywillensureweattractandretaintalentedstaffbyprovidinganattractiveworkingenvironmentandopportunitiesforthemtodevelop


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theirskillsandcareer.Weneedtheeconomicregulatortorecognisetheselocalanduniquecircumstancesasthesewillcontinuetobereflectedinourhigherthanotherwisecostbase.

EnsuringphysicalsecurityThemanyassetswehavemustbesecure,notonlyfromnaturaldisaster,butalsofromvandalism,terrorismandotherrisks.Wewillensurethesafetyofourstaffandallthosewhouseourassets.Thisobtainsnotjustatfixedassets,butatworkandrepairsites.

CommunicationsItisclearthatallthesesolutionsdependonreliableinformationtechnologywithinournetwork,andongoodcommunicationstechnologyoutsideit.Wehavetheabilityandthemeanstocommunicateeffectivelywithallourstakeholders.Manyofthewaysinwhichwecanreducedisruptionareinherentlymattersofinformation,andwillbehandledwithincreasingspeedandcomplexitybyinformationtechnologyasitdevelopsoverthenext25years.


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3.5AffordabilityWatershouldremainaffordableforcustomers

Thepriceourcustomerspayfortheirwaterserviceisextremelyimportanttous.Wehaveundertakensignificantresearchwithcustomersandstakeholdergroupstounderstandwhatfeaturesofourservicecustomersarepreparedandwillingtopayforinthefuture.Thisresearchhasinformedourstrategicapproachandthewaywehaveselectedandprioritisedvariousinitiativestoaddressthefivecustomerpriorities.

Weseeacontinuingroleforpriceregulationintothefuturetoensurethatcustomersobtaingoodvalueformoneywaterservices.Weexpectwaterchargestohavetoriseinrealtermsoverthenext25yearsbutasrealincomesarealsosettoriseastheeconomygrows,chargesarelikelytoremainanaffordableproportionofhouseholddisposableincomeformostcustomers.However,weareawarethatformanyyearsnow,thetrendinincomedistributionhasbeentowardsgreaterinequality.Astoday,thiswillmeanthatwaterchargeswillremainasignificantoutgoingforaproportionofourcustomers.

Overall,weareawarethatrisingwaterbillscouldcreatehardshipforsomecustomersinfuture,particularlyaswidespreadmeteringeliminatesthecrosssubsidiespresentinunmeasuredtariffsthattendtoassistcustomerslivinginsmallerhousesandflats.Othershavearoletoplayindeliveringaffordablewaterbills;thegovernment,forexample,hasaninfluencebysettingminimumwageratesandoperatingthetaxcreditsandbenefitssystems.Butweknowthatwealsohavecertainresponsibilitiestodischarge.

3.5.1HowwewillensurethatwaterremainsaffordableWewillensurethatdrinkingwaterremainsaffordableforallourcustomers.Weknowthatwaterpriceswillrise,andareawareofthedangersof“waterpoverty”forsomeofourcustomers.Weproposearangeofmeasures,somefinancial,sometechnicalandsomebehavioural,whichwillhelpusensuretheaffordabilityofwater.

WatermeteringandtariffsWeneedtousewatermeterstomeasurehowmuchdrinkingwaterourcustomersuse.Wethinkthisisfairforall,sinceitgivescustomersachoiceofhowmuchwatertheyuse.Whenitcomestopayingforthatwater,weplantointroduceaseriesofinnovativetariffs.Thesewilldistinguishbetweenessentialandnon-essentialusage(calledrisingblocktariffs).Weexpecttointroduceothertypesofsociallyresponsibletariffssuchasseasonaltariffsortariffslinkeddirectlytotheabilitytopay,ieavulnerabletariff.Thisrangeoftariffswillineffectensurewaterremainsaffordableforessentialpurposesbutbecomesmoreexpensivefordiscretionaryuseslikegardenwatering,andusinghosepipesandsprinklers.


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ProtectingvulnerablecustomersWewillsupportvulnerablecustomersthroughthepromotionofbespoketariffs,morefrequentbilling,thepromotionofflexiblepaymentoptionsandthecreationofacharitabletrust.Werecognisethatthecreationofsociallyresponsibletariffswillleadtocrosssubsidywithothercustomerclasses.Thisisineffectnodifferentfromtheinvisiblecrosssubsidiesthatexisttodayviabaddebtcharges.

FinancingandoperationalefficiencyWewillcontinuetomakeourselvesmoreefficientintermsofbothouroperatingexpenditureandourcapitalexpenditure.Thiswillmeanthatwaterchargeswillbenohigherthantheyneedtobe.Wewillseektofinancenewinvestmentthroughefficientsourcesofdebtfinance.Proper,long-termdebtfinanceforusdependsonacommensuratelylong-termcommitmentfromandrelationshipwithourregulators,andonourupholdingour“investmentgrade”statuswithourdebtinvestors,presentandfuture.

Finally,wewilldoallthatwecantomanagedemandinordertoavoidordelayexpensiveinvestmentinnewsourcesofwatersupply.Thismeanswewillvigorouslypromotemeteringandwaterefficiencytohelpourcustomerstomanagetheirwaterconsumption.


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Strategic intent Key issues Principal activities Term

We will make enough tap water available to our customers, in all but unusual circumstances (i.e. drought).

Leakage Renewalandrepairofpipes Shorttolong

Demandgrowth Expansionofmetering Shorttomedium

Waterefficiency Educationandinformationandretrofitofwaterefficiencydevices Shorttolong

Supplypipeleakage Meteringtohelpdetectleaks. Shorttomedium

Housinggrowth Promotemandatorywaterefficiencystandardsfordevelopersbuildingnewhomes

Shorttomedium

Availabilityofwaterinsummer

Investmentinregionalreservoirschemes Long

Rawwaterqualitydeterioration

Developtreatmentsforcurrentlyabandonedsourcesandensurecurrenttreatmentsarerobustagainstfuturerawwatervariability

Shorttolong

Regionaldeficits Investtoimprovetransfercapacity Mediumtolong

Localwatercycle Promotelocalre-cyclingofwastewater Mediumtolong

We will supply good quality tap water that meets the high technical standards set for drinking water in the UK.

Tighterregulatorystandards Diligentoperationoftreatmentworks,investmentinadditionaltreatmentswherenecessary

Shorttolong

Discolouration Largerprogrammeofmainsflushingandcleaning Shorttolong

Rawwaterquality Promotepolluterpaysprinciple Shorttomedium

Taste Greateruseofultravioletandoxidationtoreducechlorinetaste Shorttomedium

We will care for our environment as part of our day to day business.

Carbondioxideemissions Controldemandforwatertomanageassociatedcarbonemissions,plusinvestmentinmicrogenerationandearlyrenewalofinefficientplant.Procurementofrenewableenergy

Shorttolong

Incompleteunderstandingofenvironmentaleffects

Improveunderstandingthroughenvironmentalaccounting Shorttomedium

Sustainableprocurement Useourpurchasingpowertoimproveenvironmentalstandardsamongstoursuppliers.

Shorttomedium

Wastedisposal Recyclingofexcavationspoilandtreatmentwastesratherthanlandfill Short

We will minimise disruption to the water supply and the inconvenience of planned works.

Climatechange Investmenttoprotectassetsagainstfloodingandextremeweather Shorttolong

Reliabilityofassets Investmenttomaintainassetperformance Shorttolong

Unplannedinterruptionstosupply

Renewoldandpoorlyperformingmains Shorttolong

Plannedinterruptionstosupply

Betterinformationforcustomersandbettercoordinationwithhighwaysauthorities

Shorttomedium

Security Improvephysicalsecurityatoperationalsites Short

Our tap water will remain affordable to customers.

Growingbaddebts Appropriatesocialtariffs,creationofcharitabletrusts Shorttomedium

Universalmetering Appropriatesocialtariffs,paymentforwaterused,customershavecontrol Medium

Effectsofcapitalinvestmentonwaterbills

Efficiencyinfinancinginvestmentandoperations Short

4.Summary

Three Valleys Water PLC

Registered in England No 2546950

Registered office:PO Box 48Bishops RiseHatfieldHerts AL10 9HL Tel: 01707 268111 (main switchboard)Fax: 01707 277333

www.3valleys.co.uk

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