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NOTES PRESENT: Independent Deputy Chair: Richard Powell For Consumer Council for Water (CCW): Steve Grebby For Consumer Council for Water (CCW): Bernard Crump For Chelmer Housing Association: Keith Andrew For Essex Chamber of Commerce (ECC): Robert Leng For Natural England (NE): Gareth Dalglish For Environment Agency (EA): John Orr For Essex & Suffolk Water (ESW): Heidi Mottram, John Devall, Ceri Jones, Chris Johns, Ken Oswald, Ros Shedden and Lucy Denham Independent Assurance Advisor: Ben Haywood Smith APOLOGIES: Independent Chair: Dame Yve Buckland For New Anglia Local Enterprise Partnership: Iain Dunnett For Citizens Advice Bureau (CAB): Lesley Crisp For Country Land and Business Associated (CLA): Nicola Currie For East of England Local Government Authority (EELGA): Councillor Frank Mortimer For Drinking Water Inspectorate (DWI): Jacqueline Atkinson NOTES AND ACTIONS 1. Welcome and apologies

Richard welcomed everyone to the Sixth meeting of the Forum. He welcomed two new members, Professor Bernard Crump (Chair of CCW Central and Eastern Region) who will be attending both this and the Northumbrian Water Forums in future, and Councillor Frank Mortimer who could not attend this meeting. Four other members, Iain Dunnett, Lesley Crisp, Nicola Currie and Jacqueline Atkinson had provided their apologies. 2. Notes & actions of last meeting

Actions from last two meetings were reviewed. The record in the table at the end of these notes has been updated with progress. Two actions from the Outcomes Event have been added to this meetings action log. There were four notable points: Item 25 - National Environment Programme update The Environment Agency has now listed the projects which are included in its current programme. For Essex & Suffolk Water this includes: i. Three schemes which implement the conditions required after a review of consents; they are Trinity Broads mud-pumping, Geldeston Meadows and Old Ore Estuary. ii. New investment project on the Lower Stour iii. Eel Regulations although discussions with the Environment Agency are still underway Catchment work which is to be undertaken by Essex & Suffolk Water is not included in the programme; it is included in actions in the Safeguard Zone Action Plan 1

Item 32 - Poverty update the company offered to hold a Forum meeting at their St Marys customer centre office. This would allow Forum members to see the innovative way that the company manage debt. Members agreed that this meeting could cover debt generally and that a debt advice agency could be invited. Members also thought that other debt stakeholders, e.g. gas electricity suppliers, could be invited. Action NWL Item 33 Forum interaction with the Board the company said that Water Forums were a standard Board agenda item. Also Andrea Cook and Yve Buckland, as forum Chairs, had agreed to attend the Board meeting on 17 July. Item 34 Forum understanding of financial items the members welcomed the opportunity to review and challenge incentives; they will ensure the company does not choose easier measures to apply incentives.


Members approved the notes of the sixth meeting of the Forum and the Outcomes Event. Financing and financeability (see also presentation slides)

Chris Johns (CJ) gave a presentation describing the mechanisms of water company finance. CJ described: Services provided drive cost of delivery, which drives our required revenue which in turn drives customer bills. The price control aims to assess how much income we need to raise to run the business efficiently and deliver agreed outputs and customer service levels. The settlement also includes challenging annual efficiency targets for both operating and capital costs. As part of its Final Determination (FD) Ofwat assumes that we will find efficiencies the PR09 FD itself included a significant efficiency assumption. A large proportion of the operating cost base is subject to annual upward cost pressures (wage inflation, contractor costs, energy costs). If cost pressures increase, NWL has to do everything it can to find other business efficiencies to minimise overall cost increases, which in turn minimises impacts on customers bills. CJ described how each type of cost translates into bills (e.g. opex goes straight in to bills, capex is charged over the life of the asset including financing cost). CJ explained the need for profits and an appropriate Weighted Average Cost of Capital (WACC); they are fundamental to the return for investors who finance the company. Water companies must also retain their credit rating to attract low interest rates.

CJ then went on to describe the Business Plan, first the progress with regards to AMP5: Our AMP5 capex programme of 1.2bn has presented us with the opportunity to give more back to customers by reinvesting efficiency savings in outputs to deliver benefits now and in the future for customers - in NWL style we have just got on and done this since 2010. The capex programme consists of thousands of schemes all managed on a risk basis to ensure we deliver our commitments. Weve decided to invest >60m of discretionary spend this period for the benefit of our customers all funded from outperformance of our plan.

Then plans for AMP6: 2

Our initial base programme for the next AMP, now costed (on current cost levels), looks to be close to 1.3bn. This programme is focussed on maintaining the asset base at stable serviceability and delivery of statutory obligations. We aim to minimise any increase in customer bills from the programme by delivering savings against current cost levels - in essence attempting to deliver the new programme for the same cost as the current AMP programme.

CJ described Weighted Average Cost of Capital (WACC): The WACC is the figure Ofwat use to calculate the allowance for a return on investment for both lenders and shareholders the return on investment. The WACC is multiplied by the Regulatory Capital Value to give this allowed return to fund notional interest and dividends.

An important point was raised and discussed by the members. The WACC set at PR09 was 5.1%; members thought that this seems out of kilter with current interest rates and companies could be profiting from this. Forum challenge CJ explained that this rate is to cover the companys embedded debt as well as new debt; some was entered into as early as 1998. Therefore, the interest rates range widely. CJ said that 5.1% has turned out to be appropriate. ESW response CJ described the companys position on gain-sharing: As mentioned previously the company has already been proactive since 2010 in sharing the benefits of outperformance with customers. The company has reinvested >60m in schemes in the current AMP which will directly benefit customers. We are currently considering whether formal gain sharing proposals might be incorporated in our Business Plan we will revisit this key topic with the Forums at a later date this year.

CJ covered the company position on tax: The Group has adopted a wholly transparent approach with the UK tax authorities (HMRC) and reached agreement on the interest paid on the loans involving very open discussions on the amount and terms on which they were issued. It is the companys parent company, which pays interest on shareholder loans as well as dividends on shareholder equity. NWL pays all tax that falls due. Our Board takes its leadership and governance responsibilities (including its taxation obligations) very seriously

The Forum members said it was good to have an open debate on tax. 4. Outcomes research and measures of success update (see also paper and presentation in pack)

Lucy Denham (LD) did not present but one key point was raised: LD said she our research had shown customers found it difficult to engage on the measures of success and we therefore propose that this element of research should be suspended. The members said they were not surprised by this and agreed that consulting domestic customers on this subject would not be productive. Measures of success will therefore be discussed directly with forum members through a subgroup. 3


Business plan customer validation (see also presentation in pack)

Ken Oswald (KO) presented an outline proposal for discussion: KO proposed that the respondents would be shown the Base Package; he gave an indicative example of this. KO assured the members that the company would obtain a best estimate of the likely change in Anglian and Thames bills so that respondents can consider the whole bill. Respondents would be asked whether they would accept the base package, Yes or No.

Respondents would then be tested for their appetite for service enhancements. The latest revision was presented for these; recent CBA analysis (with better cost information) has reduced cost but not changed choices. Members discussed the difficulties of consulting out an entire draft business plan as some other companies have done; especially as Ofwat methodology has not been finalised. Members agreed with the principle of the company plan. The consultation will be developed further with a forum sub-group.

Members discussed what endorsement should be defined as; for PR09 it was a broad acceptance. Could the company approach it more thoughtfully, a broad acceptance (e.g. 80%) and a lower acceptance figure for the harder pressed? It was difficult to agree precise parameters in advance but these thoughts provided the company with a useful steer. 6. Timeline and future meetings

The following items were proposed for discussion at the July meeting: The business plan including implications for bills and underlying drivers and assumptions Financial assumptions Delivery incentives The members also asked for future meetings to be longer, with an earlier start.

SUMMARY OF ACTIONS completed actions shaded, all uncompleted actions to be rolled forward Description Environmental outcomes need clarifying and bringing to table with key statutory guidance Update given at this meeting. Ongoing watching brief Provide the Forum with an estimate of the cost of the report process, as well as all Forum work that is the cost over and above business as usual. This action is extended to carrying out a cost/benefit analysis also possibly benchmarking costs across other company customer challenge groups. Ongoing we will update after December submission. The Forum to discuss poverty and what can be done. Offer of a meeting at St Marys and visit the Debt Team. Also consideration of inclusion of other stakeholders in this meeting. Forum interaction with the Board. An Executive Director to attend a future Water Forum meeting. Also, the Chairs of the Essex & Suffolk and the Northumbrian Water Forums will be invited to meet with the NWL Board. Andrea and Yve to meet the Board in July. Financial items such as efficiency and incentives are expected to be in the plan it would be appropriate for the Forum to review and challenge these; how can the Forum get to a point where they can challenge these? BHS to assist the forum. All to determine what actions are required. Content of this meeting moves Forum members towards required understanding. Demystification of Ofwats methodology - glossary document is now in Members Area Forum Information. July meeting to include efficiency and incentives. Forum membership broaden membership Membership complete for now with CLA and new EELGA representation Responsibility ESW and environmental regulators













Establish contact with Thames Waters customer challenge group. Thames Contacted Chris Vinson, Stakeholder Engagement Manager Not able to give us sewerage bill at the moment, awaiting Ofwats final methodology (explanation is that some of the wastewater bill can be transferred to water under the RCV) Anglian Contacted Susan Fennah happy to exchange bill information. Hopefully can be done in time for research Universal metering ESW to: state in Draft WRMP that it is looking further at compulsory metering; and Carried out the draft plan is in the Meeting 5 folder provide the Forum with more detail on plan for compulsory metering, e.g. how it would work with its customers and why other ways of persuading customers had been ruled out. Ongoing Report to Ofwat need for material to make report relevant to Essex and Suffolk areas. Forum members and company to provide material (stories, pictures, statistics...) Ongoing company have provided first batch of information. Drinking water quality lead ESW to consider innovative pilot studies Plan in development - Liaison Officer role being put in place in company. We would hope this role will help to develop pilot studies in AMP6 at a DMA level which will help raise awareness of lead to customers and offer a replacement package (as yet unknown what this would look like). Take up can then be established and costs extrapolated etc. Action complete note this will be followed challenges log. Rare events - the company to supply the Forum with more information about areas that have been identified as at risk. Underway this information is being prepared. If a rare event happened where there was only one pipe, customers may view this as a supply issue. The company will examine this area of the plan again and think more broadly; the plan must have a level of risk everyone is comfortable with. Underway the company is reviewing what is being done throughout the whole plan on resilience and will present this to its customers.





Forum members ESW





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