United Utilities (UU) aims to deliver long-term shareholder value by providing:



The best service to customers

At the lowest sustainable cost

In a responsible manner

Best service to customers

Customer service – our continuing strong focus on dealing effectively with customer enquiries has helped us deliver further improvements in our performance, as measured by Ofwat's service incentive mechanism (SIM). This is also reflected in a reduction in the number of customer complaints received, which has contributed to improvements in opex efficiency. In addition, the number of customer complaints made to the Consumer Council for Water (CCW) in 2013/14 has reduced by a further 11 per cent, compared with 2012/13. We are pleased to report that the total number of escalated complaints assessed by the CCW was again zero in 2013/14. This has helped us improve our SIM performance further, as detailed in the KPIs section to the right. We were particularly encouraged with our qualitative SIM performance for the fourth quarter of 2013/14, where we achieved fourth position out of the 19 water companies. We believe that our improvements should move the company to a neutral position on the SIM incentive mechanism, the outcome of which will be assessed by Ofwat based on performance across the 2011/12 to 2013/14 period.

Leading North West service provider – we were pleased to have been consistently ranked third out of ten leading organisations in the North West, through an independent brand tracker survey which is undertaken quarterly. We are behind only Marks & Spencer and John Lewis, but ahead of seven other major organisations covering utilities, telecoms, media and banking services.

Robust water supply – our customers continue to benefit from our robust water supply and demand balance, along with high levels of water supply reliability. In addition, we continue to supply a high level of water quality, with mean zonal compliance continuing to be over 99.9 per cent.

Mitigating sewer flooding – we have continued to invest heavily in schemes designed to mitigate the risk of flooding of our customers' homes, including incidence based targeting on areas more likely to experience flooding and defect identification through CCTV sewer surveys. Our wastewater network will continue to benefit from significant investment going forward as we adapt to weather patterns likely to result from climate change.

Asset serviceability – we have a range of actions to help support the serviceability of our assets. We are improving the robustness of our water treatment processes, refurbishing service reservoir assets, continuing with our comprehensive mains cleaning programme and optimising water treatment to reduce discoloured water events.

Extending our presence in the retail water market for business customers – we have been building our capability and experience over the last two years to help ensure we are in a strong position as the competitive business retail market evolves and are very active in this expanding market. After obtaining a Scottish water supply licence in 2012 we have already won around 150 customers, covering around 2,000 sites and representing annual revenue in 2014/15 of around £10 million. We are the largest new entrant and have now established a position as the second largest water retailer in Scotland. We also have a significant pipeline of opportunities and are continuing to offer and develop our range of value-added services.

Improving customer service remains a significant area of management focus and we see opportunities to deliver further benefits for our customers.

Key performance indicators:

Serviceability - Long-term stewardship of assets is critical and Ofwat measures this through its serviceability assessment (Ofwat defines serviceability as the capability of a system of assets to deliver a reference level of service to customers and the environment now and in the future). We are currently assessed as 'improving' for our wastewater non-infrastructure assets and 'stable' for our water infrastructure, water non-infrastructure and wastewater infrastructure assets. The aim is to continue to hold at least a 'stable rating for all four asset classes, which aligns with Ofwat's target.

Service incentive mechanism (SIM) – UU continued its progress on Ofwat's combined (qualitative and quantitative) SIM assessment for 2012/13, moving up a further three places to joint 13th of the 21 water companies, compared with 2011/12. Further progress has continued in 2013/14, with a quantitative SIM score (which measures customer contacts) of 135 points, representing a further 25 per cent improvement compared with 2012/13. On the qualitative measure (which measures customers' satisfaction in respect of how their enquiries were handled), UU has improved its 2013/14 average score by 0.13 points to 4.56 points, significantly closing the gap to the top performers. From 2013/14, Ofwat assesses SIM out of 19 water companies and UU's qualitative SIM improvement moves it to joint seventh position. Our continued progress is encouraging.

Business Insight

Mission impossible?

Construction commenced on the Haweswater aqueduct in 1933. This huge 90km pipe is driven by gravity and is capable of delivering 570 million litres of fresh, clean drinking water per day and is hundreds of feet below ground in places.

Since the first water from Haweswater arrived in Manchester in 1955, this amazing feat of engineering has stood the test of time and still supplies water to around two million of our customers. To make sure it continues to serve a key role in supplying water long into the future, a challenging structural analysis was required.

Sending a team of specialist engineers dubbed 'aquanauts' into the aqueduct to carry out the survey required many years of careful planning. The 80 carefully selected aquanauts went through a series of fitness and psychological training to ensure they could cope underground for long periods. To transport the aquanauts through this pipeline, we used 16 specialist vehicles, dubbed 'pipe-mobiles'. Our international research led us to a specially designed vehicle, built in Canada, which was ideally suited to the job.

A 120 metre plastic replica version of the tunnel was constructed to ensure all team members were fully trained to operate effectively and safely in this environment.

We built 22 access points along the route, all manned with 24-hour security and paramedics during the shutdown, just in case the team got into difficulty. In support, there were also 200 special tunnel units equipped with specialist equipment and materials in case we found any areas along the aqueduct in need of structural help.

To ensure that we kept the water flowing despite shutting down our biggest supply of water for over three weeks whilst inspections were carried out, the flow at 39 water treatment works was temporarily increased, through a carefully planned, co-ordinated operation. On 27 September 2013, the drain down of the aqueduct commenced, which itself took around three days to complete. We then had only two weeks for our army of specially trained staff to complete the inspections and all internal work. The aqueduct was then recharged and flushed along its length, before services were gradually returned to normal from 20 to 30 October.

During this entire operation there were zero accidents and incidents and there were no customer complaints. The fact that this project was completed successfully, without affecting our customers' water supply, was testament to the meticulous planning as well as the innovative approach we adopted.

Photograph - TOP: A team of specialist engineers dubbed 'aquanauts'.

Photograph - BOTTOM: Construction of the Haweswater aqueduct started in 1933 and took more than 20 years to complete.

Lowest sustainable cost

Power and chemicals – our asset optimisation programme continues to provide the benefits of increased and more effective use of operational site management to optimise power and chemical use and the development of more combined heat and power assets to generate renewable energy. We have substantially locked in the cost of our power requirements through to 2015, via hedging, securing outperformance across the 2010–15 period.

Proactive network management – we are implementing a more proactive approach to asset and network management, with the aim of improving our modelling and forecasting to enable us to address more asset and network problems before they affect customers, thereby reducing the level of reactive work and improving efficiency.

Debt collection – we are continuing to enhance our proactive approach to debt collection and are implementing a detailed action plan. We recognise the financial difficulties facing many of our customers and provide a range of options to help those who are struggling to pay their bills, including our charitable trust, which have helped many customers back onto manageable payment plans. We have again delivered a good performance and have sustained bad debts at 2.2 per cent of regulated revenue for 2013/14, consistent with the 2012/13 full year position, mitigating the impact of recent benefit changes on customers' ability to pay.

Pensions – UU placed its pension provision on a more sustainable footing in 2010 and has subsequently taken additional steps to de-risk the pension scheme further. Further details on the group's pension provision are provided in the pensions section.

Capital delivery and regulatory commitments – the business is strongly focused on delivering its commitments efficiently and on time and has a robust commercial capital delivery framework in place. Regulatory capital investment in the year, including £165 million of infrastructure renewals expenditure, was £836 million. Including transitional spend of around £40 million, we would expect to deliver a similar level of investment for 2014/15. Following our rapid increase in our internal Time: Cost: Quality index (TCQi) score from around 50 per cent in 2010/11 to approximately 90 per cent in 2012/13, we have further improved our score to 98 per cent for 2013/14. This has already exceeded our internal target of 95 per cent, which we were aiming to achive by the end of this regulatory period in 2015. We received a shortfalling revenue penalty of over £80 million at the last price review in 2009 but, with our improved TCQi performance, we expect to significantly reduce the penalty risk at the 2014 price review. We remain on track to deliver the five-year programme within the regulatory allowance of around £3.6 billion (excluding costs associated with private sewers, transitional and non-regulated investment) and we are reinvesting capex outperformance to deliver further customer benefits.

Private sewers – in 2013/14, private sewers opex was £8 million, IRE was £15 million and enhancement capex was £16 million. This brings cumulative private sewers spend since they were transferred in October 2011 to £22 million for opex, £35 million for IRE and £37 million for enhancement capex, at the lower end of our estimates. As such, our total spend is now expected to be moderately below our 2011–15 total cost estimate of £160 million.

Key performance indicators:

Financing outperformance – UU has secured over £300 million of financing outperformance across the 2010–15 period, when compared with Ofwat's allowed cost of debt of 3.6 per cent real, based on an average RPI inflation rate of 2.5 per cent per annum. As outlined previously, we expect to reinvest around £40 million of our financing outperformance in private sewers costs which were not reflected in price limits for the current period.

Operating expenditure outperformance – The business is targeting total operating expenditure outperformance over the 2010–15 period of at least £50 million, or approximately two per cent, compared with the regulatory allowance. This is in addition to the base operating expenditure efficiency targets set by Ofwat, which equate to a total of approximately £150 million over the five years. We are ahead of schedule and expect to deliver cumulative operating expenditure outperformance of over £50 million across the 2010–15 period.

Capital expenditure outperformance – UU is continuing to deliver significant efficiencies in the area of capital expenditure and expects to meet Ofwat's allowance after adjusting, through the regulatory methodology, for the impact of lower construction output prices. As outlined previously, we expect to reinvest around £200 million of capital expenditure outperformance for the benefit of our customers and the environment.

Responsible manner

Acting responsibly is fundamental to the manner in which we undertake our business and the group has for many years included corporate responsibility factors in its strategic decision making.

Leakage – our strong, year round, operational focus on leakage and the implementation of a range of initiatives, such as active pressure management, enabled us to again beat our leakage target for 2013/14. Our leakage performance, alongside the network resilience improvements we are making, is helping us to maintain a robust water supply and demand balance and deliver high levels of reliability for our customers.

Environmental performance – this is a high priority for UU and we are pleased to be an upper quartile company in the Environment Agency's 2012/13 performance metrics (the latest available), as described in the KPIs section below.

Carbon footprint – we are committed to reducing our carbon footprint and increasing our generation of renewable energy. In 2013/14, our carbon footprint totalled 449,042 tonnes of carbon dioxide equivalent, a reduction of 11 per cent compared with the previous year. We set a target of achieving at least a 21 per cent reduction in carbon emissions by 2015, measured from a 2005/06 baseline, and we were encouraged with our performance in 2013/14 which was 23 per cent below the baseline. A detailed breakdown of our emissions can be found in the Directors' report.

Business Insight

Innovative recycling centre at dayhulme up and running

We recently completed a new sludge recycling centre at our 100-year old Davyhulme wastewater treatment works. This site, near Manchester, is one of the largest wastewater treatment works in Europe.

We have employed a ground-breaking configuration of thermal hydrolysis to maximise energy generation from sludge by advanced digestion. We were pleased that this project recently won the Annual Institution of Chemical Engineers award for innovation.

This year, we generated over 50GWhs of renewable energy at this site, contributing to our highest ever renewable energy production.

Energy represents a significant cost for UU and such projects provide benefits not only for customers and shareholders, but also the environment.

PHOTOGRAPH: Davyhulme wastewater treatment works.


The recently completed Davyhulme wastewater site (see business insight above) has contributed to our highest ever renewable energy production in 2013/14 of 133 GWh. This represents c17 per cent of our total electricity consumption, up from c13 per cent last year, and has helped us avoid energy purchase costs of around £10 million, as well as attracting renewable incentives of around £5 million. In addition, we have plans in place to further increase renewable energy production over the next few years.

Employees – a committed, capable and motivated workforce is central to delivering our vision and we remain strongly focused on high levels of employee development and engagement. In our most recent employee opinion survey, we achieved an engagement score of 79 per cent, which is close to the UK high performing norm even at a time of significant change. We continue to be successful in attracting and retaining people and have continued to expand our apprentice and graduate programmes, having recruited a further 24 graduates and 32 apprentices in 2013/14 and with plans to add a similar number in 2014/15. As part of our health and safety improvement programme, we implemented a number of initiatives throughout the year. We launched a managers' guide for health and safety responsibilities and our transformation project, covering 13 key areas of focus across the business, is progressing well. These initiatives helped reduce the employee accident frequency rate to 0.137 accidents per 100,000 hours, compared with a rate of 0.188 last year. However, we recognise we have more to do and health and safety will continue to be a significant area of focus, as we strive for continuous improvement.

Sharing benefits with customers and shareholders

  • Reinvesting c£200 million of capex outperformance for customer and environmental benefits, which will earn a return through the regulated asset base
  • Reinvesting c£40 million of financing outperformance in private sewers
  • c£20 million special customer discount; offsetting allowed real price increase for 2014/15
  • c£17 million of further support for customers struggling to pay
  • Customer bills in 2015-2020 to benefit from c£90 million of tax savings

Communities – we continue to support partnerships, both financially and in terms of employee time through volunteering, with other organisations across the North West that share our objectives. This year we set up Catchment Wise, our new approach to tackling water quality issues in lakes, rivers and coastal waters across the North West. As a first step, we have provided matched funding to all of the Defra Catchment partnerships in our region and a further £500,000 has been made available as part of a competitive improvement fund to make a difference on the catchments. Our 'Beachcare' employee volunteering scheme, working in partnership with the Environment Agency, Keep Britain Tidy and the Local Authority, helps to keep our region's beaches tidy and this is just one example of over 26,000 hours of volunteering time. We also contributed approximately £2 million, to support local communities through schemes such as providing debt advisory services and our Community Fund, offering grants to local groups impacted by our capital investment programme.

Key performance indicators:

Leakage – UU met its economic level of leakage rolling target for the eighth consecutive year in 2013/14, with a performance of 452 megalitres per day versus the regulatory target of 463 megalitres per day. The aim is to meet our regulatory leakage target each year.

Environmental performance – On the Environment Agency's latest assessment (2012/13 draft report), which covers a broad range of operational metrics, UU is an upper quartile company. Based on our performance across the range of metrics, this would indicate joint second position among the ten water and sewerage companies. This represents another step up on the previous year when UU was in third position and aligns with our medium-term goal of being a first quartile company on a consistent basis.

Corporate responsibility – UU has a strong focus on operating in a responsible manner and is the only UK water company to have a 'World Class' rating as measured by the Dow Jones Sustainability Index. The group has retained its 'World Class' rating and aims to retain this rating each year.