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4 March 2013 Interview

Heidi Mottram, Northumbrian Water

From investing in infrastructure and tackling droughts and floods to providing value for money, the water industry faces a range of challenges. But Heidi Mottram, CEO of Northumbrian Water, is confident that it's up to the task, writes Peter Curtis.

It’s just before 9am at Hanningfield reservoir and water treatment works near Chelmsford in Essex – and the news channel on the TV in reception is covering the announcement of a 3.5 per cent rise in the average domestic water and sewerage bill in England and Wales for 2013-14.

The increase is above the rate of inflation, sparking complaints from consumer groups about the pressure this will place on hard-pressed household incomes and questions about the water companies’ profits.

It’s a sign of the scrutiny that the industry inevitably faces as a privatised utility. It must provide a cost-effective and high-quality service, while ensuring secure supplies against a backdrop of increasingly unpredictable weather patterns, investing ininfrastructure and becoming more sustainable.

I’m here to meet Heidi Mottram, chief executive of Northumbrian Water Group (NWG), which supplies more than 1.15bn litres of drinking-quality water each day to 4.4 millionpeople through Northumbrian Water in the north-east and Essex & Suffolk Water in the south-east.

Despite the challenges facing the industry, Mottram is extremely positive about its record. “In the main, customers have a really good experience in this country,” she says. “We turn on the tap, the water comes out. The quality of water in the UK is extremely good and our waste-water treatment is very good. But we can never be complacent: customers quite rightly have high expectations of us.”

Northumbrian Water will raise its bills by 2.2 per cent, while Essex & Suffolk Water will make a 2.95 per cent increase. But, while NWG acknowledges the impact this will have on consumers, Mottram says that there’s a need to strike a balance between this and securing the investment necessary to maintain its high quality of service over the longer term.

"We need to give great customer service, we need to look after the environment and we need to keep our bills good value for money,” she says. “But, equally, we need to give a return to the people who’ve lent significant amounts of money to this and other companies to do what they need to do.”

Industry regulator Ofwat is consulting on the next five-year pricing framework for the industry, which will run in 2015-20.

NWG – which was acquired in October 2011 by a consortium controlled by Hong Kong billionaire Li Ka-shing – also provides water and waste-water services in Scotland, Ireland and Gibraltar. Its pre-tax profit rose by 7.1 per cent to £193.9m in the year to March 2012 on a revenue of £789.5m (up by seven per cent).

NWG’s overseas owners have specialised in regulated utilities, which means that they understand what an appropriate rate of return is, according to Mottram, who adds that they are “very keen to be positive partners of the regulators”.

Changeable weather

NWG’s role in abstracting and cleaning water means that it considers itself as a “custodian of the environment”, she says. “What will climate change mean for the industry? We plan for 25, 30, 40 years – the assets we build have got a very long life. So how do we make what we’re doing much more environmentally sustainable?”

The turbulent weather in 2012 was graphic evidence of the challenges. Hosepipe bans were imposed over much of southern England in April as the result of two successive dry winters. But by July all restrictions were lifted after torrential rain and floods. It turned out to be the second-wettest year on record.

The increasing intensity of rainfall is the biggest short-term threat that climate change brings for water companies, because of the way it can overload sewers. Tackling this problem entails co-operation among a range of agencies. In Tyneside, for example, NWG is working with the Environment Agency and local authorities to explore hydrological solutions for the whole water catchment area rather than looking only at its own sewer network.

“Streams go through that catchment area that we don’t put water into or take water from. But, as long as the streams can take it, we could potentially divert water into them that would otherwise have gone into a highway drain and then into our system,” Mottram explains.

Another idea is to divert water into the rough of a council-owned golf course, where there’s a natural hollow, and hold it there until it can be slowly released. NWG is also seeking to encourage construction companies to use permeable hard surfaces that will slow down the passage of water into the drainage system.

NWG’s north-east region, which is home to the UK’s largest artificial lake by volume, Kielder Water, has plentiful supplies. But Essex & Suffolk Water (which provides water, but not sewage services) is located in one of the country’s driest regions. Unlike many of its counterparts in the south, it avoided imposing usage restrictions during the drought, thanks to its two big reservoirs in Essex and its ability to use a grid system to move water around. Nevertheless, it has been planning well ahead. “We looked at the likely rainfall and population and business growth and eventually decided to expand one of our existing reservoirs at Abberton, near Colchester,” Mottram says.

The £150m project, which has included the construction of new pumping stations, began two- nd-a-half years ago and is on track for completion, slightly under budget, this year. When fully operational in 2014, the reservoir’s storage capacity will increase by about 60 per cent – which Mottram says will future-proof supplies in the region for over two decades.

Despite last spring’s restrictions, Mottram says that “droughts do not happen routinely” and insists that the industry has a good record in tackling them. “Predicting exactly where these things might happen is more localised. 

In 2012 the firms that were predominantly affected were drawing from ground water supplies rather than surface water – they need a steady amount of rain over time to build up storage underground.”

One possible response is through more water trading – where companies with an abundance of water sell it to those in areas where it is scarce. Indeed, such moves already take place – WG sells water to United Utilities in the north-east and has bought some in from Thames Water in the south-east since the 1960s.

Mottram says that more connecting pipes enabling such transfers would be beneficial, particularly in the south, adding that the industry is broadly supportive of recent Ofwat proposals to change regulatory incentives to encourage more localised redistributions of water.

But this can be taken only so far: energy-intensive pumping and the installation of new pipes make the concept of a national grid for water both uneconomic and unsustainable. “Studies show that you shouldn’t routinely pump water more than 40 miles at a push,” she says. “We are trying to provide additional resilience, but not at silly value for money.”

An innovative approach

Mottram says that such collaborations are common in an industry where there’s a “lot of public-service-type psychology, even though it’s privately delivered”. A further example is water efficiency forums, where companies discuss the most effective ways of reducing users’ water consumption – from practical measures such as installing low-flush toilets to the psychology of customer communications.

Co-operation with the agricultural industry is also important: Essex & Suffolk Water is working with farmers to test special “biobeds”, which prevent pesticides from being washed into the water supply from farmyards.

It’s one of a range of innovative schemes that the group has implemented in order to improve efficiency and become more environmentally friendly. In the past 18 months, for example,  NWG has reduced the number of unexpected interruptions to supply by 90 per cent, making it the industry leader, through better planning and the use of automated water management software that can detect a drop in pressure and enable a burst pipe to be fixed before customers are affected. It is also trialling the use of ice to clean mains in the north-east to reduce the incidence of discoloured water.

In terms of sustainability, as part of the expansion of Abberton reservoir the company has removed a steep concrete apron to make it a more attractive habitat for wading birds. At Hanningfield it has built what it believes is the world’s biggest reed bed to process liquid sludge as part of the process for treating drinking water. The first system of its kind worldwide, this will naturally recycle water from the sludge without the need for mechanical or chemical processes.

But it’s the drive to reduce energy consumption – the water industry is one of the UK’s largest users – that is behind NWG’s biggest sustainability project. It has invested £72m in two anaerobic digestion plants at Bran Sands on Teesside and Howdon on Tyneside that turn 100 per cent of treated sewage waste into biomethane. “This is a fantastic form of renewable energy,” Mottram says.

The biomethane provides a substantial proportion of the energy used in the sewage treatment plant. But the company is also exploring how the gas could be cleaned up and supplied to the grid.

And at Bran Sands it’s investing a further £9m in a “co-digestion” plant that will also be able to handle other forms of organic waste, including from households and food retailers, and organic chemicals from Teesside’s processing industries. This could boost the plant’s power output by 35 per cent.

The regulation game

Mottram is undoubtedly passionate about the need to improve sustainability. She says that both domestic and business consumers are becoming more efficient in their water usage, adding that NWG works especially closely with heavy industry. “With our big industrial customers on Teesside it’s a much more complex relationship – you’re nearlyintegral to their chemical process. The quality of the water that goes in and the reliability of the flow affect their products, then at the end we treat what comes out. We’re almost part of these companies at that point.”

Following the publication of the government’s water bill last summer, the way in which big companies buy water is set to change. Although the wholesale market is geographically tied, the coalition’s aim is to increase competition in the water retail market, allowing businesses and public-sector organisations to switch water and sewerage suppliers.

Mottram recognises that nationwide businesses such as supermarket chains may want to procure water from one company rather than have multiple bills.

“We’re trying to find a solution to that. You can see that it would be easier for them if they can have a relationship with a single retailer that will have a back-to-back relationship with multiple wholesalers on their behalf.” But she notes that this may not be so attractive for big industrial customers that develop close working relationships with a water company at a specific site.

Water companies are also getting to grips with a new set of proposals from Ofwat to change the way it regulates the water and sewerage sector, which would link incentives to achieving particular outcomes for customers rather than the investments or schemes needed to realise them. “It’s more in favour of the customer’s experience – and I think that’s a really good thing,” Mottram says, although she adds that it will take time for the industry to assess whether the proposed measures will have the desired effect.

But she is pleased that Ofwat has backed down on plans to introduce greater flexibility into water companies’ licence conditions, which would have allowed it to remove the inflation-linked return on investors’ money without seeking companies’ approval. This could have pushed
up the cost of capital – and, ultimately, customers’ bills – by damaging investors’ confidence.

While the industry is receptive to new proposals, above all it needs predictability, says Mottram, arguing that privatisation has brought significant improvements to water services. “We have done all this without burdening the taxpayer by being able to access capital markets to borrow money over very long periods at low rates of interest.”

So what does all this mean for the price that businesses are likely to pay for water in the years ahead? “It’s a bit too early to predict,” says Mottram, noting that the next five-year pricing framework isn’t due to start until 2015. But she stresses that the CBI, chambers of commerce and other voices from business, along with consumer groups and regulators, are represented on the independent forum that is examining NWG’s proposals under the review process.

The company will use this as a channel toset out the likely impact on bills and gather feedback on whether its proposed approach is fair. “Business customers”, Mottram says, “should feel very confident that they’re being represented at the table – and that rigorous, independent scrutiny is going on.”

 

The Mottram CV

1986 - Joins British Rail as a management trainee.

1999 - Operations director, Midland Mainline.

January 2004 - Commercial director, Arriva Trains Northern.

November 2004 - Managing director, Northern Rail.

April 2010 – Chief executive, Northumbrian Water Group.

Education - Degree in geography from the University of Hull.

Other roles - Chair of the CBI’s north-east regional council; member of the CBI infrastructure board and the government’s green economy council.

 

Why water is a people business 

There’s no doubt that Heidi Mottram is a “people person”. Personable and gregarious (“I could talk for England,” she jokes), she won an industry award for inspirational leadership during her time at Northern Rail.

She refers frequently to the need to provide excellent service, emphasising that this relies on NWG’s 3,000  employees – many of whom work in a dispersed, relatively unsupervised way on the road or at water treatment works. “If you meet people in a water company, they’re almost vocational about what they do,” Mottram says. “Quite often they come from the community where they work.”

A strong sense of ownership and of making a difference to people’s lives is very motivating, she adds. “It’s not unusual for people to work for 30 or 40 years here.”

She believes that all employees would, if asked, know NWG’s vision: to be the national leader in the provision of sustainable water and waste water services. 

The company is measuring progress against this objective using a range of metrics – but Mottram sets great store in talking to people on the ground. As part of her philosophy of being “a highly visible manager”, this year she is holding 52 roadshows with fellow directors over two-and-a-half months in order to seek feedback from 30 to 40 employees at a time.

Building a sense of self-belief

As chair of the CBI’s north-east region, Heidi Mottram is worried that the area could be underestimating its potential.

“One of my priorities is to try to get the north-east to have strong belief in itself,” she says. "We’ve a lot to be proud of and a lot to contribute economically – we’re the only region that has a positive balance of trade, for example, and we’ve a lot of advanced manufacturing. But we need to improve business confidence, because that will create growth.”

The CBI is working to give business leaders and MPs a series of positive talking points about the north-east.

Transport is a big issue here: with the North East Chamber of Commerce, the CBI recently published 13 lobbying priorities for infrastructure improvements. 

These include an electrified trans-Pennine rail link and a daily flight from the region to the US. Two priorities – the upgrading of a 12-mile stretch of the A1 to create a continuous motorway link between Newcastle and London and improved capacity on the road near Gateshead – got the green light in the chancellor’s autumn statement.

“We may need to lobby to get approval for some plans,” Mottram says. “With others we need to ensure that a digger turns up and does it.”

She is also a member of a review, commissioned by the North East Local Enterprise Partnership, of how best to create jobs and boost prosperity in the region. The team, which is led by Labour peer and former transport minister Lord Adonis, will publish five recommendations later this year.

“I’ve been asked to look at other regions, in Europe and beyond, that have done well and to assess what we can learn from them,” Mottram says. “Somehow we must find a different way to look at this conundrum. If it were easy to fix, it would have been fixed.”

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