Monitoring the finance needed for service delivery

‘When you get there ….. what are the issues?

Dr Richard FranceysAcademic Researcher, Cranfield University and Local Consumer Advocate with Consumer Council for Water, England and Wales

Financial monitoringHigh-income country WASH

Fully privatised England Revenue approx $15bn per year Asset Values $3,000 water, $3,500 sewerage per person

• Ofwat - the economic regulator (tariffs & service - $1.13 per customer per year)– Incentive based regulation annual tariff changes: inflation +’K’ factor– Opex plus Capital Maintenance Expenditure plus Cost of Capital = $600 per

household per year - $5 /m3 for water and sewerage (and highway drainage!)

• Drinking Water Inspectorate (water quality at tap - $0.20 per customer per year)

• Environment Agency (water resources, waste water discharge)

• Consumer Council for Water (customer interests –

$0.40 per customer per year)

CCW OFWAT DWI EA

Financial monitoring

When you get there . . . . What are the issues?

1. Drowning in data?

2. Searching for stories Information or informing?

1. Delving in to detailNever stop mining data

3. Communicating with customers

4. Empowering engagement for customers

5. Use it or lose it

Richard Franceys: Water Industry Performance Benchmarking, Perth 2003

1. Drowning in data?

Richard Franceys: Water Industry Performance Benchmarking, Perth 2003

1. Drowning in data?

Drowning in data?

Drowning in data

When you get there . . . . What are the issues?

2. Searching for stories

Water & Sanitation Investment as percentage of GDP(2004-2010 projected GDP on trend)

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

0.90%

1920

1924

1928

1932

1936

1940

1944

1948

1952

1956

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

2008

2. Searching for stories

2. Searching for stories – Opex efficiency

• Data Envelopment Analysis for customers?!

When you get there . . . . What are the issues?

3. Delving in to detail

3. Delving in to detailDate Envelopment AnalysisAnalysis on Frontier Analyst 1.1 using Constant Returns to Scale

Input Input Input1. Cost of operations p/m3 2001-02

Ouput Ouput Ouput

Unit Score Unit Score Unit ScorePortsmouth 100 Portsmouth 100 Portsmouth 100Southern 96 South Staffs 82 South Staffs 100Wessex 94 Cambridge 73 Southern 96Yorkshire 92 Folkestone & Dover 68 Wessex 94Northumbrian 88 Northumbrian 64 Yorkshire 92Three Valleys 84 Bournemouth 62 Northumbrian 88United Utilities 82 Three Valleys 59 Three Valleys 84South Staffs 79 South East 57 Bournemouth 83Severn Trent 77 Sutton & East Surrey 54 Cambridge 82Bournemouth 77 Mid Kent 51 United Utilities 82South West 76 Dee Valley 50 Severn Trent 77Thames 76 Bristol 49 South West 76Mid Kent 74 Severn Trent 48 Thames 76Cambridge 72 Southern 47 Mid Kent 74Sutton & East Surrey 72 Wessex 45 Bristol 74Bristol 70 Yorkshire 44 Sutton & East Surrey 73South East 69 Thames 44 South East 69Anglian 67 South West 40 Anglian 67Folkestone & Dover 67 United Utilities 37 Folkestone & Dover 67Dee Valley 66 Anglian 36 Dee Valley 66Dyr Cymru 58 Tendring Hundred 36 Dyr Cymru 58Tendring Hundred 52 Dyr Cymru 34 Tendring Hundred 52

1. Cost of operations p/m3 and 2. Cost of capital maintenance

1. Cost of capital maintenance p/m3 2001-02

Overall Performance Assessment 2001-02

When you get there . . . . What are the issues?

4. Communicating with customers

The PR04 documents for ‘customers’ to consider for just two companies ….

4. Communicating with customers

Source: Consumer Council for Water, Complaints summary 2012

Source: The Economist & author’s analysis of Ofwat, Ofgem

UK utility prices in real terms 1990=100

40

60

80

100

120

140

160

180

Telecoms

Gas

Electricity

Water SVT RV

Water SST RV

Electricity

4. Communicating with customers

UK utility prices in real terms 1990=100

40

60

80

100

120

140

160

180

Telecoms

Gas

Electricity

Water SVT RV

Water SST RV

Electricity

SVT Business Plan

Ofwat Price Determination

SST Business Plan

Ofwat Price Determination

Richard Franceys: Water Industry Performance Benchmarking, Perth 2003

160

180

200

220

240

260

280

300

70 80 90 100 110 120 130 140 150

Average Water Tariffs

Overa

ll P

erf

orm

an

ce A

ssessm

en

t

4. Communicating with customersTariffs relative to Levels of Service 2002 (& relative to 1997)

Incl. trend in SST, SVT & Industry since 1997

Average Water1997

2000

SVT

SST

Lower Price

Higher Service

Communicating with customers

-5%

0%

5%

10%

15%

20%

25%

Returns to providers of capital - England & Wales

Dividends Percentage (Dividends/(RCV-Debt)

Interest Percentage (Interest/Net Debt)

Source: author's analysis of Ofwat FPE 1991-2011 & Company Statements 2012

2

3

4

5

6

7

8

9

10

11

12

Perc

enta

ge R

OCE

Pre

-tax

Water Industry Profitability (ROCE Pre-Tax)

Return on capital employed pre-tax

Ofwat 1994 'Glide Path'

MMC 1995 'Glide Path'

4. Communicating with customers

When you get there . . . . What are the issues?

5. Empowering engagement for customers

5. Empowering engagement for customers

When you get there . . . . What are the issues?

6. Use it or lose it

6. Use it or lose it

When you get there . . . . ‘full financial monitoring ….. What are the issues? ‘ . . To ensure that monitoring contributes to policy-development and service improvement

1. Drowning in data

2. Searching for stories Information or informing?

Never stop mining

3. Delving in to detail

4. Communicating with customers

5. Empowering engagement for customers

6. Use it or lose it