Taking care of water. The next 25 years. Our plan for a sustainable future

Transcription

1 Taking care of water The next 25 years Our plan for a sustainable future

2 At Thames Water, we have been planning our investment strategy for the 25 years from 2010 onwards. As part of this we carried out extensive research, including discussion groups with customers, workshops with stakeholders, and interviews with Members of Parliament. This helped us to develop our draft plan, which we published in September The draft plan was then the subject of our largest ever public consultation a process which was independently run and analysed. This report, Taking care of water, is the result of our planning and our consultation. It is our Strategic Direction Statement, setting out what we think the future holds and how we will respond to this. Throughout the report, we have considered 2010 to 2015 as the medium term and 2015 to 2035 as the long term. Taking care of water also provides a summary of what our customers, employees and other stakeholders have told us and shows how we ve taken this into account in our planning. We very much hope you enjoy reading this and that you ll want to keep in touch with our progress. We ll keep our website updated with all the latest news.

3 Contents 02 Foreword from David Owens, Chief Executive Officer 04 Foreword from stakeholder perspectives 05 About Thames Water Looking to the future 08 What the future holds 14 What our customers initially told us 16 The views of our stakeholders matter 18 What you said about our draft strategy Delivering for customers 24 Drinking water quality: How are we going to maintain drinking water quality? 26 Security of supply: How are we going to make sure water is always available when you need it? 28 Leakage: How are we going to stop the leaks? 30 Water efficiency: What are we doing to encourage the wise use of water? 32 Metering: What are we going to do about metering? 34 New sources of water: What new sources of water are we developing? 36 Wastewater and sludge: How are we protecting rivers and managing sewage wastes? 38 Sewer flooding: What are we doing about sewer flooding? 40 Odour: What are we doing about the smell from sewage treatment works? 42 Customer experience: How are we going to improve customer service? Planning for a sustainable future 46 Sustainability: Is sustainable development important to us? How responsible are we going to be? 48 Climate change adaptation: Climate change is already happening how are we going to protect water services? 49 Climate change mitigation: What are we doing to reduce our contribution to climate change? 50 Asset stewardship: What are we going to do to make sure it all still works in 25 years? Delivering efficiently 56 People: How will we develop our people? 58 Innovation: Are we developing fresh approaches to new challenges? 59 Managing uncertainty: What if things don t turn out as we expect? 60 Competition: Will we always provide your water and sewerage services? 61 Supply chain: How will we work with suppliers and contractors? Providing affordable services 64 Affordability: How will we keep our services affordable? 66 Finance: How will we manage our finances? 68 How to keep in touch Taking care of water

4 2 Chief Executive Officer Foreword from David Owens Chief Executive Officer for Thames Water Type top tips for saving the planet into Google and you find a multitude of good advice on how to reduce your energy consumption and slow the progress of climate change. Much of this advice has either direct or indirect connections with water and the services that we, as a company, provide. For example, consumers are urged to take short showers (not power showers) instead of baths and use the washing machine only when it is fully loaded in order to save energy by using less hot water. The energy used in providing drinking water is also recognised people are advised to put water-saving devices in their toilet cisterns and to water their gardens with rainwater collected in water butts. This is all sound advice, and if our customers act on it they will help to reduce the long-term requirement for both water supply and wastewater treatment. But they also have a right to know how we see our role, and what we as a company are planning. How will we continue to provide them with water of the highest quality, with absolute reliability, and recycle it safely to the environment in a rapidly changing world? If you think back to the 1980s before the birth of home computing, the Internet and mobile technology, you realise just how much things could change in the next 25 years. We can t predict all the changes, but it s clear that climate change, a low-carbon economy, and new technology will be major influences. There are serious challenges ahead. We must plan to meet the demands of future generations sustainably, with continued reductions in leakage at the top of our list of actions. Equally, we will need to plan to meet the requirements of new legislation, such as the Water Framework Directive, that will improve the environment. And we must ensure that our legacy of water mains, sewers and treatment facilities are adapted to serve our customers into the future, including being able to cope with extreme events such as the flooding in July Our customers have the right to expect that the services they receive meet their requirements, represent good value for money and are efficiently delivered. It is my belief that as a company we should behave as though our customers had a choice of supplier. If they did, we could only expect them to choose Thames Water if they were confident that we would continuously improve the efficiency of the service we offer, and exceed their expectations. We currently have the lowest combined water and sewerage bill nationally. At just over 1% of average disposable income, I believe this represents good value for money. However, in order to meet future challenges, we will have to make substantial additional investments, which will mean that bills will need to increase. We will work hard to minimise the increases through continually striving for efficiency, through innovation in the way we run our business, through the processes and systems we use, through borrowing money at the lowest possible cost, and in developing new technologies to reduce the cost of the services we provide. We are also committed to working with consumer and stakeholder groups to help vulnerable customers who are least able to pay. Taking care of water

5 Chief Executive Officer 3 If customers had a choice, they would choose Thames Water. Taking care of water describes our long-term strategy to address all these issues and more. It is based on our own thinking and planning, informed by a wide range of discussions with our customers and stakeholders. It is built around the four main themes that have emerged from those discussions: delivering for customers; planning for a sustainable future; delivering efficiently; and providing affordable services. In September 2007 we published a draft version of our strategy. The document presented our initial conclusions and described the things we believe we need to do to meet the challenges of the future. It also set out the costs of providing those services and the likely impact on bills. The document was open to public consultation for five weeks and we actively sought the views of a wide range of our customers, employees and stakeholders. I was delighted with the response we received to our draft strategy and want to thank everyone who took the trouble to provide comments and suggestions. We received over 2,600 individual responses from more than 160 customers, stakeholders and employees. Every comment received has been given careful consideration and we have made many changes as a result. This feedback has proved invaluable in preparing this document which we have now sent to Ofwat, our economic regulator, and published on our website. What you told us The great majority of responses we received were supportive of our strategy and in most areas offered agreement with the approaches we have taken for the medium and longer term. Comments were thoughtful and constructive, and made suggestions on how we could improve our strategy, though many also pressed us to deliver improvements faster. There were no areas where there was a consensus of opinion disagreeing with our approach, although individuals naturally hold strong opinions which we understand and respect on issues that have affected them adversely. Leakage drew the greatest comment. There is strong agreement that we should reduce leakage as quickly as possible, giving this work high priority. We agree and intend to continue our leakage reduction efforts as rapidly as possible consistent with efficient delivery. Measures to increase the number of properties charged on a metered basis were also supported. Many stakeholders want us to make more rapid progress, metering a greater percentage of domestic properties in a shorter time scale. We have responded by strengthening our commitments to meter every property wherever it is practical and cost-beneficial to do so. We will look to innovative ways to meter properties where it would otherwise be problematic and seek to implement smart metering to provide better information to help customers save water. Our strategy retains a targeted approach to minimise the impact on those customers who are least able to pay or have a genuine need to use large quantities of water. There is a strong consensus on the importance of water efficiency as a priority for the future. Many respondents want us to provide more information to help them to save water and to do more to encourage savings. We have responded by enhancing our programmes both in the medium and longer term. There was a diverse range of views on the provision of new sources of water but general agreement that all options should be carefully considered, taking full account of environmental and social implications and, in particular, the potential carbon emissions. We have clarified our commitment to impartially and robustly assess all options and to seek the right balance between leakage, demand management and new source development in order to provide sustainable supplies for the future. Consulting thoroughly and then working with stakeholders to develop and deliver our plans is a theme that runs strongly throughout the consultation responses. We were given examples of where we have worked successfully with communities, such as the Victorian mains renewal programme, as well as suggestions on areas to improve. We welcome the opportunity to involve the communities we serve, and our other stakeholders, as we continue to shape our thinking. Customer service issues, where we had failed to meet customers expectations, drew strong criticism but also support for the programmes we are proposing to deal with these issues. Sewer flooding is an example where there is strong support for action to eliminate a severe problem. Proposals to improve the way customers can contact us and improve customer experience of service were also strongly supported. Climate change and sustainability are issues high on most people s agenda. There is broad support for our strategy to protect water services and to mitigate our impact on climate change. In response to the feedback we have received, we have provided greater clarity over our commitments to protecting biodiversity, and our plans for sustainability in the medium and longer term. Our ability to deliver this strategy is dependent on the knowledge, commitment and capabilities of our employees, so I welcome the feedback we received from them. Their support for our people strategy was particularly encouraging and I reaffirm my commitment to seeing this delivered. A fuller description of the responses we received to our draft strategy and the changes that we have made as a result are set out in Looking to the future: What you said about our draft strategy on pages 18 to 21 of this report. What will happen next? Taking care of water sets out a clear strategic direction for Thames Water. In following this strategy we will deliver the service that our customers expect, providing them with sustainable and affordable water and wastewater services for the future. Our strategy sets out many commitments and aspirations. However, our priorities are to: Deliver a clean, safe drinking water supply and recycle wastewater safely to the environment Continue our Victorian mains renewal programme to have the maximum impact on leakage reduction Plan additional sources of water to guarantee that the needs of London and south-east England can be met efficiently in the face of population growth and climate change this will potentially include a new reservoir Greatly reduce the number of our customers homes threatened by sewer flooding Increase our efforts on water efficiency and progressively meter domestic customers Reduce our carbon emissions by 20% by 2015 Deliver the Tideway Tunnel in order to improve the river water quality of the Thames Constantly improve our efficiency and bring innovation to the way we deliver service Provide services for customers that represent value for money We will be developing our plans in detail for the next five years as part of the Strategic Business Plan that we will submit to Ofwat in the summer of This is the next step in the process that will determine the service standards we are required to deliver for customers and the implications for bills from April We will continue to engage with customers and stakeholders as these plans are developed. David Owens CEO Thames Water December Taking care of water

6 4 Stakeholder perspectives Foreword from stakeholder perspectives The Consumer Council for Water is the independent watchdog representing water consumers throughout England and Wales. We are pleased to have been consulted on the development of Thames Water s Strategic Direction Statement. This is an important piece of work and aims to set the path that the company wishes to follow over the next 25 years. While we have been included in the discussions leading to each major phase of the preparation of this document, the arguments and conclusions are Thames Water s own. Thames Water bills have been significantly lower than water charges in much of the rest of the country for many years. An inevitable consequence of this relatively low revenue per customer is that investment has languished. So the forward plan for the company must make robust provision for major capital investment on measures such as continuation of the leakage reduction programme which has featured prominently in the media and ensuring that there will be sufficient supplies of water for the increasing population of the region. Climate change scenarios and the impact of EU Directives on water supply issues, have also necessarily been taken into account in the preparation of the plan. There is a high probability that Thames Water will be required to spend more than 2 billion on a final solution to the ancient problem of sewage flooding into the tidal Thames when there is heavy rainfall on the London area. This cost must be met by Thames sewerage customers, in addition to the costs of developing new water resources, leakage control and metering of households and businesses. It is clear that water services are going to become a lot more expensive to pay for these investments, yet with very few exceptions customers have no choice as to who they can buy their mains water supply from. Each water and wastewater company is a regional monopoly, so it is particularly important that water and sewerage companies show a very strong empathy with the wishes and the reasonable aspirations of their customers. In the consultation leading to this publication, Thames Water has spent a lot of time trying to get a clear view of where customers priorities lie and it is up to all recipients of this document now to study these proposals and to react to them in a timely manner. David Bland Chair, Consumer Council for Water, Thames Region This is an important document. It demonstrates a deep engagement with the issues and a strong commitment to sustainable operations. We commend the company for actively involving such a wide range of stakeholders in setting priorities for the next 25 years. Taking care of water is an example of best practice not just for the water industry but for business more widely. Few industries are as deeply connected to all aspects of sustainable development as the water industry. Water is essential to all forms of life and we face huge challenges in ensuring there s enough fresh, clean water to satisfy current and future needs. Rising population levels, changing weather patterns, new agricultural practice and increasing urbanisation will all put a strain on the water cycle. Amongst the many challenges for the next quarter of a century, I would like to see Thames Water place particular emphasis on four areas. Climate change If we are to tackle climate change, then companies like Thames Water will be at the heart of getting the response right. Vigorous and vociferous leadership on climate change now will serve Thames Water itself and its stakeholders well in the longer term. Water efficiency We will have to use water much more efficiently in the future, across the world and in the Thames region. That will require even more progress in leakage control, metering, developing new technologies and educating the public. Ongoing innovation The industry must keep developing fresh approaches. Smaller, decentralised options should be part of the solution and we could also see reductions in energy consumption through delivering water of varied treatment levels to households. We may also see very different structures for the water industry over the next 25 years. Thames Water should take a lead on making sure any new structures deliver for sustainable development. Sustainable communities The South East is facing major development pressures and growth. Thames Water, working with others, has an opportunity to showcase what sustainable development really means on the ground, and to help London, in particular, become a true global exemplar of an environmentally sustainable city. We look forward to working with Thames Water along with Government, business, customers and communities as it delivers against these challenges. Peter Madden Chief Executive, Forum for the Future Forum for the Future the sustainable development charity works in partnership with leading organisations in business and the public sector. Our vision is of business and communities thriving in a future that s environmentally sustainable and socially just. Forum has worked in partnership with Thames Water for six years. Thames Water makes a direct financial contribution of less than 1% of Forum s turnover. For more information visit Taking care of water

7 About Thames Water 5 About Thames Water Thames Water is the UK s largest water and wastewater services company. We serve over 13.5 million customers in London and the Thames Valley area, supplying an average of 2,600 million litres of drinking water and treating around 2,800 million litres of sewage every day. Our bill is currently the lowest for water and wastewater services, although this will rise as a result of the substantial investment programme we will be carrying out over the next 25 years. As part of the current Periodic Review process, we will provide Ofwat, our economic regulator, with details of this programme. They will then determine what should be funded and how much we can charge our customers. Bills are always set to achieve a balance between the costs of investment and the benefits these will bring our customers and the environment. Swindon THAMES VALLEY Tidworth Banbury River Thames River Kennet River Cherwell Oxford Reading High Wycombe Slough River Colne River Lee LONDON Key financial data for the appointed business /07 Revenue 1,386m Operating costs (excluding historic cost depreciation) 753m Capital investment 778m Profit after tax 181m Average bill for 2007/ Water region Sewerage region boundary Other water companies River Wey Guildford THAMES VALLEY Map of Thames Water operational area in London and the Thames Valley Thames Water at a glance Customer services Assets Environment Over 13.5m wastewater customers Over 8.5m drinking water customers 4 million customer enquiries annually Over 15,500 extra care services customers Over 2,000 Vulnerable Tariff Scheme customers 23% of domestic customers on a water meter 1.5m spent on community projects in 2006/07 Our key issues Excellence in customer service getting it right first time Improving our response to enquiries Promoting water efficiency Identifying the fairest ways to pay Providing extra care services for customers with special requirements Our role in the communities we serve Water-related education, including healthy living Using new technologies to improve customer communications 77% of our water is abstracted from rivers 23% of our water comes from groundwater sources 99 water treatment works Over 200 water pumping stations Over 31,300km of water mains Over 300 reservoirs Over 67,700km of sewers Over 2,400 sewage pumping stations 349 sewage treatment works including some of Europe s largest sites Providing clean, safe drinking water Reducing leakage Ensuring continuous supply of water Treating wastewater and preventing pollution Reducing sewer flooding Minimising odour from sewage works Maintaining and enhancing our sites, assets and their related performance Protecting the environment Adapting to climate change Supporting research and development of innovative solutions 100% beneficial use of sewage sludge 157 gigawatt-hours of renewable energy generated in 2006/ % of electricity self-generated in 2006/07 18 Sites of Special Scientific Interest Over 800 sites surveyed for wildlife Over 1,650 capital schemes checked for wildlife and heritage impacts in 2006/07 Over 100 Listed Buildings and historic features Over 120 sites used for recreation and public access Meeting environmental standards Reducing emissions/carbon footprint Increasing energy efficiency and renewables Reducing our contribution to climate change Sustainable use of natural resources Recycling and minimising waste Protecting and enhancing biodiversity and cultural heritage Delivering our Biodiversity Action Plan Developing projects that deliver environmental and customer benefits Taking care of water

8 We looked at what the future might be like

9 Looking to the future Taking care of water is the result of extensive planning and consultation. When developing our strategy, we looked at what we knew about the future and at what life might be like in We then explored how we could best respond to these visions of the future. We also carried out our largest public consultation to date in order to find out what our customers, employees and other stakeholders thought about our current performance and future priorities. This section describes the results of this work and shows how we took the views of customers, employees and stakeholders into account when developing our final strategy.

10 8 Looking to the future: What the future holds What the future holds The Thames area is already one of the most heavily used water resource systems in the world. Background Although it might be difficult to believe, given the extensive flooding experienced by parts of the UK in 2007, weather patterns in our region result in a relatively low level of rainfall across the Thames Water area. The amount ranges from 1000mm per year on the South Downs to as low as 500mm per year in the Thames estuary. This means that London receives less rainfall than places like Rome, Dallas or Istanbul. We also operate in one of the largest and most densely populated parts of the country, serving around 13.5 million customers. The number of customers we supply will continue to grow as a result of population movement, housing development and the London 2012 Olympic and Paralympic Games (which will see the long-term redevelopment of parts of east London). This places great demand on available water resources. In fact, the Thames area is one of the most heavily used water resource systems in the world. Together, we already use over half of the rainfall left in the environment after natural processes like evaporation have reduced the total amount of water available. This sets the scene for a challenging future one in which we will continue to need to balance protecting the environment and sustainable management of limited natural resources with factors including population growth, climate change, changing customer behaviour, and an ever-tighter legislative and regulatory environment. Pages 9 to 12 of this report set out some of the issues and trends we know we will be facing in the future, focusing in particular on the areas of water, wastewater, legislation, and climate change. Although the future is uncertain, on page 13 we set out some of our thoughts about what 2035 might be like and how we could respond. Taking care of water

11 Looking to the future: What the future holds 9 Water: Rising demand and reduced availability In our area, household water use is gradually increasing. Reasons for this include: The population in our region is growing, with projections for our supply area showing a steady increase throughout the next 25-year period (Diagram one). More people are living alone or in smaller family groups, partly due to the ageing population and separation and divorce rates (Diagram two). Single-person households are known to use more water per head than larger households (Diagram three) and will account for 35% of the UK total by 2021 according to Water UK. To meet future needs for water, more effective demand management will be required. The 2007 government announcement on metering and water stressed areas will allow more metering to take place in south-east England where it offers best value for money. There could be potential to link this to water efficiency initiatives in areas designated as water stressed. Greater use of household water meters would allow us to vary the way we charge for water, helping to encourage responsible use of limited resources and address issues around the affordability of water and wastewater services. Whilst household use of water is rising, existing sources of water are reducing. This is partly because water companies and other users are increasingly required to reduce the amount of water they take from rivers or other sources of water in order to limit the potential environmental impacts. Climate change is another important influence reducing our available resources. You can find out more about this on pages 12 and 48. Diagram one Anticipated growth in drinking water customers across Thames Water supply area Population (millions) 10m 9m 8m 7m 6m Source: Office of National Statistics and Thames Water Year Diagram two Average household occupancy in south-east England Diagram three Average water usage per person in different sized households Litres used per person per day Total household use Household occupancy Year 207 per person 172 per person 148 per person 135 per person 131 per person 127 per person 1 person =207 2 person =344 3 person =444 4 person =540 5 person =655 6 person =762 Source: Office of the Deputy Prime Minister Source: Domestic Water Use Study, Thames Water Taking care of water

12 10 Looking to the future: What the future holds Wastewater: Growing population, tighter standards The projected population growth within our area will increase demand for sewerage services, placing increasing pressure on our treatment works and sewerage network. It will also reduce availability and increase the cost of land we would need for our own developments. Additionally, where houses are built next to existing sewage works, we may find that our sites are no longer acceptable to local communities because of their odour emissions and that investment is required to address the issues this raises. Some centres of population growth are located on or close to the sources of rivers. In these areas, there are already strict standards for discharges of treated effluent to watercourses. Given that there are limited opportunities to further improve existing sewage works in these locations, it is likely that larger scale, more strategic solutions would be required to address the demands of population growth. The Water Framework Directive is also likely to result in tightening of our discharge consents, particularly with respect to phosphorus and ammonia. This would involve major upgrades, and possibly rebuilding, of sewerage assets. In order to reduce the amount of rubbish going to landfill, there is currently a trend amongst local authorities to encourage disposal of biodegradable household wastes to sewers through macerators (devices that break down solid wastes into a more liquid-like form). This results in greater volumes of waste being disposed of down the drains and increases the volume of waste that sewage treatment works have to process, putting further pressure on these sites. The situation is made worse by waste oil and animal by-products regulations that have led to cooking fats from restaurants being disposed via sewers rather than being collected for use in products such as animal feeds. This increases the risk of blockages forming in our sewers and causes them to flood. Legislation: Influencing future investment The water industry is heavily regulated in order to protect the environment, ensure high standards and encourage competitive and efficient customer service. Current legislation is dominated by European directives in addition to national controls. Over the next 25 years, changes to legislation are expected that will affect the investment required to provide water and wastewater services. Some of the key changes we currently anticipate affecting our water and wastewater operations are shown in the table opposite. Over the next 25 years, changes to legislation are expected that will affect the investment required to provide water and wastewater services Taking care of water

13 Looking to the future: What the future holds 11 Key legislative and regulatory changes currently anticipated over the next 25 years Legislation and regulation Objective Impact on us Water Framework Directive To protect inland surface waters (including rivers, lakes Tightening of consents and enhancing sewage and estuaries) and groundwater sources. The Directive will treatment works require the quality of these waters to meet good status. Reduction in abstraction at vulnerable locations and This will be taking place across three six-year phases, development of alternative resources concluding in Reduction in impact of intermittent discharges and wider adoption of sustainable, integrated urban drainage Revised Sludge Directive To encourage sustainable use of treated sewage sludge. Much greater public accountability in decisions To strengthen controls on use of sludge in order to on sludge strategies increase confidence of commercial users and the public Potential reduction in land available for sludge recycling in recycling to land. Nitrates Directive To limit the application of nitrogen (and therefore the Reduced application rates mean that more land will be amount of recycled sewage sludge) that can be applied required for recycling of sewage sludge to land in areas designated as Nitrate Vulnerable Zones. Private sewers To transfer private sewers and related drains into the Costs of transfer could lead to increase in sewerage ownership of water and wastewater companies. element of customer bills Town planning policy To ensure planning decisions are taken at the right level, Need to identify land for water and wastewater asset and Planning White Paper involve local people and support sustainable development development required by new communities in regional by integrating social, environmental and economic issues. and local plans Need to identify regional constraints on growth due to scarce resources Code for Sustainable Homes Voluntary Code for Sustainable Homes, to ensure new Need to develop ability to predict and plan for more and Building Regulations homes are designed to reduce water use, likely to become water efficient housing in demand forecasts mandatory. Building Regulations may also introduce new water efficiency requirements. Draft Climate Change Bill To set statutory commitment to progressively reduce CO 2 Need to implement strategy to reduce emissions in line emissions to achieve 60% reduction from 1990 levels by with government targets To establish an independent Carbon Committee to work with Government to reduce emissions over time and across the economy. Legally-binding five-year carbon budgets will be set at least 15 years ahead. Revised Drinking Water To further improve drinking water quality. Need to invest in further water treatment measures Quality Regulations and and, where necessary, replace lead pipes new standards for lead in drinking water Competition in the To allow customers to choose their preferred supplier. Need to fully understand customer service requirements water industry and deliver improvements in customer service so that we are the supplier of choice Taking care of water

14 12 Looking to the future: What the future holds Climate change: Managing extremes Global warming is likely to result in hotter, drier summers and milder, wetter winters. More extreme weather events (such as droughts or flooding) are also anticipated. The UK Climate Impacts Programme (UKCIP) has used computer models to estimate the likely changes in climate arising from different scenarios of greenhouse gas emissions. Predictions for the medium high emissions scenarios are shown in the maps below. As a result of climate change, we can expect greater demand for water in the summer as customers bathe, shower or water gardens more frequently. On average, about 6% of household water is used in the garden, but on hot days this can already rise to over 50%. Commercial usage of water is also likely to increase as air conditioning units are used to cool offices and IT systems, for example. Farmers and the wider agricultural industry are also expected to be affected; climate change is predicted to result in soils being able to hold less moisture, meaning that the industry is likely to require more water for crops. Greater demand for water will come at a time when our existing water resources are under increasing pressure. Climate change will shorten the period when our groundwater sources can refill and will reduce summer rainfall. As a result, demand management activities (including metering and water efficiency programmes to encourage people to use water wisely) will be increasingly important in adapting to the impacts of climate change. New sources of water will also need to be developed. You can read more about the likely impacts of climate change on our business, how we plan to adapt to this, and how we will reduce our own contributions to global warming on pages 48 and 49 of Taking care of water. Views of the future On the page opposite, we set out some of our thoughts about what life might be like in 2035 and how we should respond to these visions of the future. Over the pages that follow, we then explain what you have been telling us about your priorities for our services. We summarise what we learnt from our initial customer and stakeholder research (which included workshops, discussion groups and interviews). We also show how we ve taken into account what you told us during the public consultation on our draft version of Taking care of water. Likely changes in climate across south-east England under medium high emissions scenario Change in average daily temperature 2020s 2050s 2080s Change in ºC Percentage change in summer precipitation 2020s 2050s Percentage change in winter precipitation 2020s 2050s 2080s 2080s Per cent change Per cent change Source: Adapted from UKCIP02 Climate Change Scenarios (funded by Defra, produced by Tyndall and Hadley Centres for UKCIP) Taking care of water

15 Looking to the future: What the future holds 13 Visions of the future: What might 2035 be like and how might we respond? Pre-payment choices Customers Social and demographic change and evolving customer expectations will challenge the way we operate. Increased understanding of the value of water and carbon Automated meter reading Human beings need water to survive Public health assurance Increased variety and greater ease of communication Human beings produce waste Legislation for water quotas Increasingly transient/ mobile population Adaptation to and toleration of climate change impacts Increased ethnic and cultural diversity Assets The need to renew many of our assets and deliver a substantial investment programme provides opportunities to challenge traditional thinking, and to innovate and pioneer new approaches. Development of remote and integrated automated systems Development of more localised solutions Innovative technologies such as fuel cells Resilience of assets to climate change Realising the value of information and experience as an asset Offering wider waste processing and recycling services Development of low carbon services Market forces drive demand and price External environment Environmental constraints and the changing context of regulation will lead to a very different operating environment in the future. Development of catchment-based solutions Industry restructured to stimulate competition Integration of utility regulation across all sectors Greywater recycling becomes common place Development plans challenge existing land-use Step change in water consumption and wastewater production Downturn in economy constrains investment Carbon reductions drive water supply innovation Water is a finite resource A low-carbon future is essential We only have one planet to live on Nanotechnology and micro-solutions Carbon implications of bottled water make it less acceptable The future is always uncertain Our response Investigate potential for the development of household treatment plant (for water and waste) and associated tariff options Work in partnership with stakeholders, such as developers, to provide treatment solutions that complement future sustainable communities Develop meter technology to increase flexibility of use and remote, real-time information, and allow direct links to payment facilities Develop demonstration projects with developers to showcase future water and wastewater services, particularly wastewater reuse and greywater recycling Undertake feasibility study into innovative assets that limit land take and have potential to be developed underground. 58 Develop deeper understanding of service costs to enable critical evaluation of different business models. 60 Apply our expertise and passion for water to demonstrate thought leadership across the water and wastewater sector. 58 Develop demonstration projects in energy recovery and energy efficiency Undertake feasibility studies for greater recovery of nutrients, energy and other materials from waste. 36 Recognise that innovation is not just about technology it includes concepts, systems, regulation and more Develop methodologies to better reflect all the costs and benefits of investment decisions and research projects for the future Understand how we need to transform the way we think and act to meet the demands of the future X Denotes the page numbers relating to each bullet point Taking care of water

16 14 Looking to the future: What you initially told us What our customers initially told us We want to ensure that the priorities of our customers are embedded in our decision-making. This section explains what you told us during the preparation of our draft strategy. Customers aren t average Our customers are a diverse group: socially, geographically, economically and culturally. They have a variety of expectations, aspirations and life styles, and live in the urban centres of London and the rural Thames Valley. They also include a wide range of commercial customers, from businesses and industries to schools, hospitals and other public services. When thinking about the long-term future of our business, we need to ensure we understand the preferences and views of the people to whom we provide water and wastewater services. We also need to take care of vulnerable and lower-income groups, balancing investment decisions with affordability. As part of our early planning in the preparation of this report, we carried out detailed research to discover what our customers really thought about our services. This helped us to prepare the draft version of Taking care of water (published in September 2007) and included: A series of consultative discussions with a representative selection of customers, using independent briefing and facilitation. This is known as deliberative research. Some of the comments we received during these discussions are shown throughout this report. A stated preference survey of over 1,500 customers to explore their willingness to pay for different types of service. Stakeholder discussions (described in the next section of this document), which have also contributed to our knowledge of customer preferences. We also involved consumer interest groups, such as the Consumer Council for Water, in this research. Our regulators, primarily Ofwat (our economic regulator), the Environment Agency and the Drinking Water Inspectorate, participated as observers. These two pages set out what our customers told us during this research. On pages 16 and 17, we summarise the views shared by stakeholders. Our dialogue with customers and stakeholders did not stop there; following publication of our draft document, we consulted widely on our proposals. You can find out what was said and how we ve taken this into account on pages 18 to 21. Customer views and priorities In our qualitative discussions with customers we sought views in four main areas: drinking water, wastewater, customer issues and the environment. Leakage reduction, people agreed, must continue to be the key issue for Thames Water in the foreseeable future. A considerable reduction in leakage would increase the company s credibility when encouraging customers to use water wisely and make an occasional hosepipe ban in a drought more acceptable. This issue was regarded as so important that, over the longer term, there was general support for continuing leakage reduction beyond the economic level to between 15% and 20% (you can find out more about this on pages 28 and 29 of this report). Customers considered it wise to also increase supplies through reservoirs or other new resources to meet the likely rise in overall demand for water, provided that water efficiency work and leakage reduction continued in parallel. On paying for water, customers said they would prefer to choose whether or not to have a meter. They expected that, in the long term, more people would be metered, but did not want charges to rise simply because there were more meters. If everyone is metered, paying for what you use was seen as a fair way of charging. There was some support for introducing a variable way of charging for different levels of water use as this could benefit those who use water wisely. Customers told us they wanted more information provided to households and more education in schools on how to use water wisely. They also supported Taking care of water

17 Looking to the future: What you initially told us 15 more work to increase the use of water efficiency devices and the capture and use of greywater and rainwater run-off. The quality and taste of tap water is generally regarded as good, but some customers wanted more information to reassure them it was entirely safe to drink. People said more awareness about the quality of tap water and the benefits of drinking it would be helpful. On wastewater issues, customers found flooding of people s houses from sewers unacceptable in the future. They supported continuing work to reduce the number of homes at risk, but also to raise awareness about the proper use of the sewer system with penalties for people who misuse the sewers and cause blockages. Customers said that Thames Water should continue to make reasonable efforts to reduce odour from sewage treatment works. However, if works were required to become less odorous in the future (for example, if new homes were built nearby), then some of the costs should be borne by third parties (such as the developers). The proposed Tideway Tunnel, which is required under a legally binding directive to improve river water quality in the Thames, provoked some controversy. On balance, customers were not convinced that the problem merited such a costly solution. On the other hand, customers were surprised to be asked how much we should do to protect the environment. Proper care for the aquatic environment, meeting all existing standards, reducing energy usage and protecting wildlife on our sites, seemed a self-evident requirement for almost everyone. In the knowledge that bills are likely to increase to pay for new and improved infrastructure, affordability is a very important issue for anyone on a low income. Not surprisingly, customers made it clear that they wanted us to improve the efficiency of all areas of our operations and reduce costs to keep bill increases moderate. However, there was a clear message that everyone should pay for the services they use. A small minority supported the idea of an assistance fund to help those who genuinely could not pay. What customers would pay for Our quantitative research translated the general preferences into a willingness to pay for targeted service improvements. We took our existing levels of service (which include water pressure, water quality, hosepipe bans, odour and other issues) and asked customers to choose between several different packages of service with different effects on their bills, much like the choices made in selecting TV viewing packages or mobile phone tariffs. Overall, customers place a very high value on maintaining the current level of service for some services, notably: Maintaining compliance with drinking water standards. Reducing the number of properties affected by flooding from sewers. Keeping the taste, appearance and odour of tap water acceptable. On the question of paying to improve certain services, the clear top priorities for customers were: Continuing to reduce the level of leakage from water mains. Dealing with odour nuisance caused by sewage treatment. Reducing the number of complaints about the taste, colour or odour of tap water. Reducing problems with low water pressure. There was a low priority placed on paying for measures to reduce the frequency of hosepipe bans and improve river quality. Addressing customer priorities These results give a good indication of the general preferences of our customers but, equally, customers regard us as the experts who will develop the solutions. Translating these views into a programme of work in the medium and long term, there is clearly substantial customer support for a significant amount of further investment in leakage, reducing sewer flooding (of properties and areas external to properties), and for a measured approach to reducing the nuisance of odour from sewage treatment works. Addressing these issues will also help deliver other priorities for example, mains replacement programmes to reduce leakage can have the added benefits of reducing unplanned interruptions to water supply (as there will be fewer mains bursts) and alleviating low pressure. Summary of our initial research findings Drinking water quality: Maintaining a clean, safe drinking water supply is clearly a very high priority for everyone. While there was no request to further improve quality overall, it was recognised that there were localised issues of taste, odour or discolouration of tap water that should be addressed. Security of supply: Respondents were in general satisfied with the current level of service regarding hosepipe bans and did not call for increased investment to reduce the frequency of these. Sources of water: Many customers supported both the proposed Upper Thames Reservoir and the desalination plant in east London, if we could demonstrate that we were significantly reducing leakage. Safeguarding of low-flow rivers was also strongly supported. Leakage: Customers believed that we should seek to reduce leakage below the long-term economic level (explained on pages 28 and 29). Not only was the current level of leakage unacceptable, it was seen to undermine the value of other proposals by the company. It was felt that somewhere between 15% and 20% would be a tolerable level in the long term. Metering: Metering was seen by most as a fair way to pay, but many customers expressed concern about compulsory metering. While most saw more widespread metering as inevitable, they preferred to be able to choose whether to be metered. Meters were also seen as providing an important incentive for water efficiency. Water efficiency: There was strong support amongst customers for greater efforts by Thames Water, the Government and local authorities to educate people about the need to use water wisely. Wastewater treatment and sewage sludge: The quality of treated effluent was seen as important, but respondents were largely satisfied with current standards. Customers were also happy with current beneficial uses and recycling of sludge, once these had been explained to them. Sewer flooding: Customers felt that this was unacceptable, and that efforts to reduce flooding from sewers should be continued in the future. Willingness to pay research showed stronger support than the qualitative research. Odour: The willingness to pay research revealed considerable support for investment to reduce odour. However, customers were less concerned in the qualitative research. Despite a sense that action should be taken to reduce odour problems, many felt that third parties, such as developers, should bear some of the costs of doing so. Taking care of water

18 16 Looking to the future: What you initially told us The views of our stakeholders matter When preparing the draft version of this report, we sought the views of our stakeholders on our future services. This section summarises what they initially told us. Understanding the expectations of our stakeholders is a particular priority in our long-term planning. Each stakeholder group has its own view of what the future should hold for our customers and for society. By engaging with them, we can ensure we understand their priorities and reflect these as far as possible in our thinking. When we prepared the draft version of Taking care of water, we involved a diverse range of stakeholders, including representation from the groups listed in the box opposite. The work included independently facilitated workshops as well as telephone interviews with Members of Parliament. Key external stakeholders Our regulators: Primarily Ofwat, the Environment Agency, the Drinking Water Inspectorate and Natural England. Members of Parliament and Members of the European Parliament: Our region covers the constituencies of over 150 MPs and MEPs. Local government: Our area includes over 100 local authorities. Businesses and their representatives, including local chambers of commerce. Consumer interest groups such as the Consumer Council for Water and Age Concern. Environmental groups, including the Campaign to Protect Rural England and the Wildfowl and Wetlands Trust. Taking care of water

19 Looking to the future: What you initially told us 17 What did our stakeholders initially tell us? The overwhelming message was that further reductions in leakage must be a top priority and that our long-term plans must go beyond the economic level of leakage (this is the level at which it becomes cheaper to supply water by another means than to further reduce leakage). Stakeholders accepted that reducing leakage is expensive, but most rejected the concept of an economic level, arguing that high levels of leakage are simply unacceptable. There was no clear view of what an acceptable level of leakage would be, but general agreement that we should aim to at least match the industry average. Leakage was not seen in isolation; stakeholders stressed we could not credibly ask customers to use water wisely unless we are seen to be making every effort to do the same. Stakeholders regarded a guaranteed standard of high-quality drinking water as essential. They were generally satisfied with current standards, but concerned that customers were spending money on bottled water that is seen as no better than tap water and vastly more expensive. Security of supply was equally important. There was general acceptance of the need for occasional hosepipe bans, provided circumstances (such as a prolonged drought) are beyond our control. Emergency measures, such as water rationing, were unacceptable. Stakeholders accept the need for new water resources as a response to population growth and climate change, but not as a substitute for good demand management and proper water efficiency measures, such as rainwater harvesting in new developments. Metering was seen as essential in helping customers to understand the value of water and in providing incentives for water efficiency. Opinion was divided over whether metering should be compulsory, with concerns expressed that this would place an additional burden on lower income groups. The concept of rising block tariffs, with each successive block of water used charged at a higher price, received considerable support. Stakeholders were clear that sewer flooding of homes could never be acceptable and stressed the need for a risk-based approach, taking likely impacts of climate change into account. There was a general view that new sewage works should be designed to be odour-free, but there were more diverse views on the acceptability of odour from existing sites. Stakeholders recognised the problem will become more acute as new homes are built closer to existing sewage works. There was widespread suggestion that developers should be required to contribute to the costs of odour reduction schemes in such circumstances. Stakeholders regarded high standards of environmental protection as essential, with the company having a fundamental duty to protect wildlife and the aquatic environment. There was also a view that we must manage our landholdings well and maximise the opportunities for access and recreation. Stakeholders saw climate change as an issue of an entirely different order of magnitude to other environmental issues. They regarded it as essential that we do all we can to reduce our carbon footprint. Thames Water should take all opportunities to generate renewable energy, including installing wind turbines on its sites. Equally, we should be planning for a climate-constrained future in which we experience generally drier summers and more severe weather events. Overall, there was general acceptance that customer bills would have to rise to pay for infrastructure improvements. MPs, in particular, argued that higher water costs were a necessity, even though from a political standpoint this might be a difficult argument to put to constituents. However, there was a view that the most vulnerable customers would need protection from the more severe impacts of price rises. Opinions differed as to whether this should be achieved by a small degree of subsidy from the broader customer base or through the social security system. How we continued the debate Customers and stakeholders told us the workshops they attended during our original research helped them to recognise the potential conflicts between different priorities, that difficult trade-offs would have to be made, and that we have to operate to tight regulatory requirements. They were keen that we should take every opportunity to promote debate about the broader context of water supply and wastewater treatment, spelling out the potential costs, benefits and impacts of different options. To help achieve this, we published a draft version of Taking care of water in September We encouraged our customers, employees and stakeholders to comment on our draft strategy during a five-week consultation period. The consultation was independently run and analysed. You can find out what it revealed, and how we took this into account when preparing the final version of Taking care of water, on the next four pages. Taking care of water

20 18 Looking to the future: What you said about our draft strategy What you said about our draft strategy, and how we ve responded Following our initial customer and stakeholder research, we consulted on our draft proposals. The responses we received are summarised on the pages that follow along with how this influenced our strategy. The draft version of Taking care of water was published in September 2007 and open to public consultation for five weeks. We sought the views of customers, employees and a wide range of other stakeholders during this time. The tables over the next three pages list the main themes that arose from this, along with how they have shaped our strategy. These pages cannot fully convey the breadth of issues or tone used by such a large and varied group of people, but aim to capture recurring themes. On the whole, our draft strategy was well received by those who responded. Respondents appreciated the opportunity to contribute to its development, and the majority were fairly content with the strategy. Many also offered suggestions to either strengthen or challenge our proposals. Issues attracting the most attention were leakage, metering, water efficiency, sustainability (including broad environmental issues and energy efficiency), and new water sources. There was general recognition of the realities of delivering clean water and treating wastewater for many millions of people. People also requested us to be more specific about our proposals. However, it is important to remember that Taking care of water is a strategy document it describes our direction, but does not have all the answers on how this will be achieved. Our Strategic Business Plan, due for publication in summer 2008, will set out our specific plans for the medium term in detail. We intend to continue our dialogue with our customers and other stakeholders, and will consult on this as well. Taking care of water

21 Looking to the future: What you said about our draft strategy 19 Delivering for customers pages 22 to 43 Strategic issue Drinking water quality Participant responses The majority of respondents agreed with our proposed approach to maintaining our high performance. Some stakeholders wanted to see a clearer commitment to long-term management of clean water assets and to reducing localised complaints about discolouration, taste or odour of tap water. Employees and customers agreed that we should provide customers with more information on water quality and use in the home. How we have responded We have clarified our commitment to long-term maintenance of drinking water assets and reaffirmed our intention to reduce localised customer complaints. We have recognised the need to better inform customers about water quality issues in the home. Security of supply The majority of respondents agreed with our proposals, although the importance of reducing leakage and managing demand ahead of developing new resources was frequently stressed. Customers and stakeholders pointed out the need to plan ahead and not rely too heavily on the outcome of water efficiency initiatives. Employees supported that more could be done to raise awareness of water efficiency. Stakeholders also requested more information on proposals to resolve issues of low water pressure. We agree that we need to plan ahead and have made the text more explicit on how we do this. The asset stewardship section (pages 50 to 53) has been updated to explicitly mention proposals for tackling issues of low water pressure. Leakage Over three-quarters of customers and stakeholders supported continued investment to further reduce leakage. A significant number requested that we progress even faster than our already accelerated plans. On this point, both groups voiced a note of caution to ensure our street works do not cause severe disruption to local communities. Employees were similarly supportive and felt it important to demonstrate we were reducing leakage at a faster rate than the industry standard. We share the view that disruption limits the rate at which we can reduce leakage and believe our proposals are optimal. Our strategy has been updated to reflect this. Water efficiency There was very strong support for comprehensive water efficiency programmes and ongoing education focused on wise use of water, including rainwater harvesting. All groups strongly encouraged us to build on our existing programmes, bring forward our longer-term plans, and continue partnership work with our stakeholders to promote water efficiency. Key areas highlighted by consultees were advice on water use and recycling in the home, exploring incentives for water efficient practice, and working to encourage water efficiency in the design of new houses. We have reviewed and strengthened our entire water efficiency programme and plan to expand our activity. We have strengthened our commitment to partnerships with government, local authorities, housing associations and developers. We also now reference new water efficiency targets for the industry. Metering The majority of customers felt that metering was the fairest way to charge for water and wanted to pay for what they used. However, there remained a strong minority that would prefer to choose whether or not to have a meter. Stakeholders were more demanding and felt that as long as vulnerable groups were protected, meters should be installed as soon as possible. However, there was also recognition that plumbing complexities within flats may limit this ambition. The vast majority of employees felt metering was essential, in particular to provide visibility of water usage. We have made our commitments to metering domestic properties clearer. Where it is not cost-beneficial to individually meter a property, we now commit to reasonable alternatives for assessing consumption. New sources of water Stakeholders and customers sought reassurance that we take all options into account before deciding whether to develop new sources of water. This included reassurance that we talk to other water companies about sharing water resources across company boundaries or regions. They stressed the importance of ensuring strong demand management programmes (leakage reduction and water efficiency) before developing new resources. Working in partnership with local communities was recognised as important where new resources are to be explored. We updated this section to more clearly state that we consider all options when reviewing the case for new resources, including transfers from outside our region. We reaffirm our commitments to demand management on pages 28 to 33. Wastewater and sludge The majority of customers and stakeholders agreed with our proposals, albeit with stakeholders expressing a greater level of support for the Tideway Tunnel. Stakeholders also wanted to see recognition of work to protect Sites of Special Scientific Interest (SSSIs). Employees placed an emphasis on our work with stakeholders to achieve good status of rivers and water sources. We have reiterated our commitment to achieving good status of rivers and water sources and to beneficial and sustainable use of sewage sludge. Our management of SSSIs is covered on page 50. Sewer flooding All groups agreed that sewer flooding inside customers homes is unacceptable with some customers describing their personal experience of the issue. There was agreement that we should continue our efforts to reduce sewage flooding. Our work to promote responsible disposal of waste to commercial and domestic customers was recognised as crucial. Stakeholders and employees highlighted the importance of working in partnership with local authorities, the Environment Agency and highways authorities. Stakeholders in particular promoted a focus on developing integrated, sustainable solutions to deal with all types of drainage. We share the views of our consultees and have strengthened this section of our strategy by more clearly stating our commitment to education, collaborative working and promotion of integrated, sustainable solutions to managing all types of drainage. Information on specific customer experiences with flooding has been passed to our customer services team to inform more detailed planning. Taking care of water

22 20 Looking to the future: What you said about our draft strategy Delivering for customers pages 22 to 43 continued Strategic issue Odour Participant responses The majority of respondents agreed with our proposed approach. Stakeholders (particularly government agencies and voluntary or environmental groups) recognised the potential costs of odour reduction and were concerned that these should not have excessive impacts on our customers or our business. All groups encouraged closer working with local planning authorities to ensure appropriate land use around sewage treatment works. How we have responded We have more clearly stated our commitment to cost-beneficial odour solutions and to collaborative working with planning authorities and developers. Customer experience The majority of customers agreed with our proposals, although some expressed frustration with recent experiences and felt we had a long way to go to meet our goals. Stakeholders were also supportive, sharing encouraging examples of where we are getting it right and raising issues for us to address (e.g. points of contact for councils). As well as supporting proposals, our employees made useful suggestions to enhance our strategy (e.g. introducing Internet case tracking for customers). We have added commitments to ensure our communication with customers is done in a way that is focused on their needs. We have also included Internet case tracking within our IT research and development programme. Planning for a sustainable future pages 44 to 53 Strategic issue Sustainability Climate change adaptation Climate change mitigation Participant responses There was wide support for our commitment to environmental, social and economic sustainability and for tackling climate change. Many people suggested this should be core to our operations; some suggested we should lead the industry and bring actions forward even further. Most agreed that specific, long-term targets would be needed. Employees and stakeholders said that a partnership approach involving environmental groups, other water companies, and universities is important. Customers and employees recognised that tackling issues may increase business costs or highlight potential conflicts between competing sustainability aims. They were keen to ensure we plan for potential extremes of climate change, not just for average predictions, and that we keep our plans flexible. Many people offered their view of what our top sustainability challenges should be. Frequent examples were energy efficiency and renewable power; water efficiency; leakage reduction; wildlife conservation; protection of cultural heritage; sustainability assessments of projects and plans; waste management and sustainable building design (including promoting rainwater harvesting). How we have responded We have updated our strategy to be more specific about our key sustainability challenges and have proposed a clearer response across the medium and long-term periods. We have mentioned when we propose to launch a new sustainability strategy. We have also included stronger reference to social sustainability issues (such as reducing impacts on local communities and ensuring the health and safety of our people and the public). On climate change, we have better stated our intention to take future extremes into account. We have clarified that we believe both adaptation and mitigation are essential. We have also explained that our self-generation of renewable energy includes use of sewage sludge and methane from sewage works. Asset stewardship Although finding it one of the more complex sections, the majority of customers and stakeholders supported our proposals. Stakeholders particularly emphasised the need for us to act in the public interest when managing our assets. Employees agreed with the importance of maintaining and improving our asset base. We have updated this section to specifically refer to our wider assets, including wildlife sites, historic properties and sites used for public access or recreation. Taking care of water

23 Looking to the future: What you said about our draft strategy 21 Delivering efficiently pages 54 to 61 Strategic issue People Innovation Competition Supply chain Participant responses Although the majority of customer and stakeholder respondents supported our approach to competition, there was a significant minority expressing reservation over the value that greater competition would bring to the industry. In terms of supply chain strategy, most of the customers who responded supported our proposals. They also raised the importance of ensuring outsourced activities do not dilute our responsibility or slow down our communication with them. Stakeholders welcomed our environmental and social purchasing strategy. In expressing their support for our people strategy, stakeholders recognised the value of specialist skills and the importance of enabling talent to grow. On competition, employees agreed with the proposals provided it did not detract from long-term investment. They also suggested improvements to our internal processes to enable more value to be derived from our supply chain. The people strategy was widely commented on by employees who, in the main, welcomed the proposals and were keen to see them take effect. Innovation was recognised as essential by all groups. Many people suggested key areas to focus on and supported investment in resources to ensure we can fully benefit from research and development across our business. How we have responded On competition, along with some points of clarity, we have added a commitment to research the benefits of a national infrastructure. It was good to see our people strategy so widely welcomed by employees. Given the recent change of ownership and associated uncertainty, we have sought to reassure our commitment to deliver on this. We were pleased to see the importance of innovation recognised and have reaffirmed our commitment to this, particularly in light of Lord Sainsbury s October 2007 review of government policy. Affordability and finance pages 62 to 67 Strategic issue Affordability Finance Participant responses Around two-thirds of customers supported our proposals and the bill impact implied by it, although some questioned whether bill impacts would be higher. Stakeholders also agreed with our proposals, particularly expressing the importance of maintaining access to cheap sources of finance, although cautioning that capital programmes needed to be delivered in the most cost-effective way. In the main, stakeholders shared our concern to protect the vulnerable, although felt that this should not hold charges down to a level that could prevent essential investment. Whilst supporting the proposals, employees also felt it was good to see such transparency in our consultation and planning. How we have responded On affordability, we have committed to continue our engagement with interested stakeholders as our proposals develop. A point of clarification has been added to our finance page, setting out how customers benefit from the efficiencies we make. Taking care of water

24 We set out our strategy to deliver the services that customers want

25 Delivering for customers Our research has shown that customers have clear preferences for what their money should be spent on in the future. Some issues are given a high priority, such as reducing the amount of sewer flooding. Other issues, such as lowering the frequency of hosepipe bans, have a much lower level of support. In this section of Taking care of water, we review each of the service areas we provide. We set out our strategy in both the medium term (2010 to 2015) and the long term (2015 to 2035) to deliver the services that customers want.

26 24 Delivering for customers: Drinking water quality How are we going to maintain drinking water quality? It s when you re abroad that you realise that you re lucky [with your tap water at home]. Thames Water customer, Bromley Safe drinking water is the highest priority for our customers. They are prepared to pay for further improvements to reduce local discolouration, taste and odour issues. Background Providing clean, safe drinking water is one of our primary duties and an unequivocal requirement of our customers. Our current high performance results from our long-term programme to improve water quality and we are amongst the best across the industry. However, further investment is needed to secure localised improvements in discolouration, taste and odour, and to improve compliance with the future lead standard. Long-term sustainable maintenance of our drinking water assets is also important and addressed on page 52. We are further improving our water quality management processes, delivering an integrated approach to managing water quality risks wherever these may arise from source to tap. This approach should help us to make improvements in compliance and reduce localised complaints about discolouration, taste and odour of tap water. We will also provide information to customers to help them reduce problems arising from the plumbing within their own homes. Taking care of water

27 Delivering for customers: Drinking water quality 25 Our response In the medium term ( ), we will: Integrate a comprehensive, risk-based approach ( source to tap ) into normal business practice to maintain and improve drinking water quality. This will include developing innovative approaches to identify and manage risks and build these into current practice. Undertake the investment required to address localised deterioration in raw water quality (for example, linked to nitrate and pesticide levels). Where practical and cost-effective, promote alternative solutions to these issues. Implement further treatment measures and, where necessary, replace pipes in order to improve compliance with new standards for lead. Customers may also need to replace their lead supply pipes we will encourage them to do so where appropriate. Reduce customer complaints about discolouration, taste and odour (also see page 52). Provide our customers with more information on water quality issues, especially maintaining water quality within the home. In the long term ( ), we will: Simplify treatment processes where approaches to tackling contamination at its source have been successful, and where reduced levels of contaminants in rivers and groundwater are predicted to be sustained. Continue lead pipe replacement as opportunities arise. Monitor the effectiveness of current drinking water treatment processes and technology to ensure they remain fit for purpose in the future, adapting them as necessary. Respond to changes in raw water quality caused by climate change and other environmental factors. Seek to develop low-energy, low-chemical use water treatment processes and to implement real-time monitoring of water quality. Progressively reduce customer complaints about discolouration through a sustainable approach to asset maintenance and replacement. Key facts - We achieved 99.97% compliance in 2006 against national and European drinking water standards our best ever performance, putting us amongst the leaders in the industry. - New standards for lead in drinking water come into effect at the end of Amendments to regulations on drinking water quality will take effect from 2008/09. These will influence future operating, maintenance and investment strategies. Number of customer complaints related to drinking water quality in 2006 Number of complaints per 1,000 population South West Dwr Cymru (Welsh) Northumbrian United Utilities Hartlepool Yorkshire South East Bristol Wessex Anglian South Staffs Three Valleys Severn Trent Dee Valley Southern Essex and Suffolk Bournemouth Cambridge Mid Kent Folkestone and Dover Thames Sutton and East Surrey Tendring Portsmouth Cholderton Albion Source: Based on data from Drinking Water 2006, published by the Drinking Water Inspectorate Taking care of water

28 26 Delivering for customers: Security of supply How are we going to make sure water is always available when you need it? Why, when it rains so much, do we still have a shortage of water? Thames Water customer, Guildford Customers did not call for increased investment to reduce the frequency of hosepipe bans but want to avoid severe water rationing. Background It is a common misconception that south-east England has plenty of rainfall and that hosepipe bans are frequent. In reality, neither is true. The 2006 hosepipe ban was the first one for 15 years in our area and rainfall in London is lower than in places like Rome, Dallas and Istanbul. Droughts are not uncommon there have been four major droughts in the last 90 years, along with the more recent drought from 2004 to 2006 (highlighted in the graph opposite). These would threaten water supplies if we did not plan ahead for them. In our research, customers have shown strong preferences to avoid severe restrictions on water use during droughts. However, they would tolerate occasional hosepipe bans where these become necessary, provided they are satisfied that we as a company are also doing the most we can to conserve water supplies. To ensure we never have to resort to water rationing during a drought, we need to both continue with our extensive and enhanced demand management programmes (leakage, water efficiency and metering) and develop new resources. The risk in London is currently unacceptable, which is one of the reasons why we have increased our leakage reduction programme and why we are developing a desalination plant in east London. We also need to ensure our use of water from rivers and groundwater supplies does not cause environmental damage, and that we can meet growing demand for water as a result of population growth and climate change. It is worth noting that the 2006 hosepipe ban highlighted anomalies in the current legislation, which is over 60 years old and has fallen out of date with modern uses of water. The Government will be introducing legislation to make restrictions more relevant to today s water uses and to modernise drought order powers. Taking care of water

29 Delivering for customers: Security of supply 27 Our response There are four levels of action we can take during a drought in order to conserve water supplies. As the severity of drought increases, the actions we can take increase accordingly. In the most serious situations, this can include restricting water use. To avoid this, we have already enhanced our leakage work, water efficiency programmes and other activities. Our customers have said that in general they support the levels of service set out in the table below. The actions shown would be carried out in addition to the wide range of ongoing activities we undertake to mitigate the need for water restrictions. Our strategy follows a twin-track approach of demand management and resource development over a 25-year planning horizon. This will be set out in our statutory Water Resource Management Plan, due for public consultation in April Our approach means we consider developing new water sources alongside demand management programmes. We will only seek to bring new supplies into service if sustainability limits are likely to be reached for existing sources and demand management measures have been fully implemented. However, the speed with which we can achieve the benefits of demand management and the extent to which we can rely on them, do require us to plan and develop new resources in parallel. Our leakage and demand management programmes along with existing sources of water will enable us to achieve these levels of service in some parts of our region. Critically, for London, the Swindon/ Oxfordshire areas, and some isolated developments, we will not be able to meet these levels. For these areas, we forecast that new resources will be required. Level Action Frequency (drought severity) 1 Media campaigns, additional water efficiency campaign, enhanced activity and restrictions to reduce risk to water supply One in five years 2 3 Enhanced media campaign, customer choice/voluntary constraint, sprinkler ban Hosepipe ban, non-essential use ban, drought order One in 10 years One in 20 years 4 Severe water rationing Never Variation from average monthly rainfall, January 2000 to July 2007 (based on Environment Agency 124-year long-term average) Variation in long-term average rainfall (millimetres) JFMAMJJASOND 2000 JFMAMJJASOND 2001 JFMAMJJASOND 2002 JFMAMJJASOND 2003 JFMAMJJASOND 2004 JFMAMJJASOND 2005 JFMAMJJASOND 2006 JFMAMJJASOND drought Taking care of water

30 28 Delivering for customers: Leakage How are we going to stop the leaks? I haven t got the figures, but [the amount of leakage] is phenomenal. Thames Water customer, Enfield We have made significant progress in reducing leakage but want to do more. Customers and stakeholders strongly agree. Background We consider the current level of leakage in London to be unacceptable and are working hard to reduce it by replacing old Victorian water mains in the worst affected areas as fast as we can. Our leakage levels outside London are comparable with the rest of the water industry, but we are committed to reducing these too and continue to target specific mains with a history of bursts. Although replacing the oldest and leakiest parts of our network is the best way to make long-term, sustainable reductions in leakage, we are also continuing our find and fix programme to repair isolated leaks. This work makes use of leak detection technology that is at the forefront of technical innovation. It helps us to target the biggest leaks first, many of which are underground and invisible at street level. We have also improved our response times to visible leaks. Our leakage reduction plans have been drawn up according to the industrystandard economic level of leakage. This is the level at which it becomes more economic to supply water by some other means rather than to continue to reduce leakage. If we continue to work to this level of leakage reduction, despite replacing around 350km of mains each year, it will take us around 15 years to achieve average levels for the industry across our region as a whole. Customers and stakeholders have clearly stated that leakage should be reduced further and they recognise this will need to be paid for. Although we will never be able to eradicate leakage, we absolutely agree we need to do more. This will require a sustained programme over the long term. Our ambition is to accelerate the leakage reduction programme by around five years (as set out in the right-hand graph opposite). We believe this strikes the right balance between our desire to further reduce leakage and the need to maintain a robust and efficient water distribution network, as well as manage impacts on traffic congestion and household disruption during this work. Taking care of water

31 Delivering for customers: Leakage 29 Our response In the medium term ( ), we will: Propose that leakage levels are reduced faster than the current industrystandard approach allows. Deliver additional long-term benefits from this work, such as fewer interruptions to supply and less traffic disruption as a result of mains bursts. Seek to improve methods of leak detection and repair to improve accuracy and reduce disruption. In the long term ( ), we will: Continue an accelerated rate of leakage reduction, moving from industry outlier to industry average levels by 2020 five years sooner than the current industry approach allows. Continuously improve leakage detection and repair technology and techniques to sustain water network performance. Deliver energy savings associated with leakage reduction as a result of needing to treat less water to put into supply and procure fewer materials to repair mains bursts. Seek to develop non-intrusive street work technology and techniques to further improve the accuracy of leak detection. Key facts - In London, one third of water mains are over 150 years old, and over half are more than 100 years old. - So far we have invested around 400m to replace over 800km of Victorian water mains enough to stretch from London to Zurich. - We have around 2,000 people working to reduce leakage and, on average, we are repairing one leak every six minutes around 82,000 leaks in 2006/07. - About one quarter of leakage comes from customers pipes. We offer a subsidised leak repair scheme for customers who own and live in their property. - We reduced leakage to 790 megalitres* per day (Ml/d) in 2006/07, beating our target by 20 Ml/d. - Our current mains replacement programme will reduce leakage to 690 Ml/d (29%) by 2010 and replace 1,868km (around 10%) of water mains in London. * A megalitre is one million litres Company estimates of total leakage 2005/06 Tendring Hundred Essex and Suffolk Sutton and East Surrey Southern Dee Valley Portsmouth Bristol Anglian Folkestone and Dover Bournemouth and W Hampshire Mid Kent Cambridge South West South East Three Valleys Wessex South Staffordshire Northumbrian Yorkshire United Utilities Severn Trent Dwr Cymru (Welsh) Thames Reported leakage in litres per property per day Companies in areas of serious water stress (based on Environment Agency data, 2007) Source: Adapted from Ofwat s Security of supply, leakage and water efficiency report, Leakage (litres/property/day) Forecast leakage rates in Thames Water area (litres per property per day) Year Reduction in leakage limited by industry-standard approach Reduction in leakage achievable by accelerating beyond standard practice Source: Thames Water s 2006 Water Resources Plan Taking care of water

32 30 Delivering for customers: Water efficiency What are we doing to encourage the wise use of water? I think we should all do our bit global warming is a fact. Thames Water customer, Bromley There is strong support amongst customers and stakeholders for greater efforts to educate people about the need to use water wisely. Background Water efficiency means the wise use of water reducing unnecessary or wasteful use through behavioural and/or technological change. We believe water efficiency has a critical role to play in balancing supply and demand. We have promoted it for over a decade, gaining valuable experience from each activity to inform the future development of our programme. We have reviewed and significantly strengthened our water efficiency plans as a result of the strong support for this activity emphasised by customers and stakeholders during public consultation on our draft strategy. To date, we have delivered a wide range of activities including auditing water use in domestic properties and commercial premises, and distributing devices to reduce flush volumes in toilets or capture rainwater. We also seek to influence behaviour through education programmes such as our recent work with Global Action Plan and London Sustainability Exchange (pictured opposite). The importance of responsible water use has never had a higher profile. In 2005, the government-led Water Savings Group and Waterwise, an independent non-governmental organisation were established to raise awareness of water efficiency and develop best practice. Significant developments in policy have followed with the launch of the Code for Sustainable Homes in December 2006 and the ongoing review of Building Regulations. Taking care of water

33 Delivering for customers: Water efficiency 31 Our response In the medium term ( ), we will: Deliver water efficiency through a best practice combination of education, partnership and research projects, and water audit activity. Target advice towards key groups for example, customers who receive a water meter, low-income groups, the public sector and our commercial customers. Work with partner organisations to develop innovative approaches to improve our understanding of factors influencing water use and deliver effective and creative ways to encourage wise use of water. Work with the Government to strengthen the legislative framework and develop policy to incentivise water efficient behaviour, for example through technology subsidies. Work with local authorities, housing associations and developers to promote water efficiency in existing and new houses. Work with developers to encourage the implementation of greywater reuse and rainwater harvesting in new developments. Lead the development of the water efficiency activity within the industry, learning from the experiences of international and other sector and company initiatives to inform our own programme. In the long term ( ), we will: Work to ensure the value of water is fully appreciated and that current best practice water efficiency becomes the norm. Encourage a cultural shift in the way our customers are supplied with, and use, water through our promotion of progressive metering and investigation of new ways of charging for water use. Plan for separation of drinking water and non-drinking water supplies in best-practice developments. Key facts - Pressure on water resources, climate change, population growth and increasing household demand for water mean water efficiency is increasingly important. - We have run a water efficiency programme for over 10 years. We have committed to an enhanced water efficiency programme with an annual budget in excess of 750k to In 2006/07, we distributed almost 333,600 cistern devices to households (64% more than 2005/06) and over one million self-audit questionnaires to customers. We carried out water audits at almost 1,000 customer properties and at over 230 public buildings. - We worked in partnership with over 50 different bodies to promote water efficiency in 2006/07, including retailers, sports clubs, local authorities, and charities. - The effectiveness of water efficiency activities is often difficult to quantify and predict because it is dependent on individuals behaviour. Gaining a better understanding of how and why people use water as they do is critical to the delivery of an effective water efficiency strategy. - Water efficiency is generally an expensive and higher risk demand management option. - In August 2007, Ofwat announced voluntary water efficiency targets for water companies for the period of 2008 to 2010 and stated its intention to set further mandatory targets for 2010 to Promoting water efficiency with London Sustainability Exchange in east London Taking care of water

34 32 Delivering for customers: Metering What are we going to do about metering? I m on a water meter and it s the best thing ever. You just look at water differently. You don t leave the tap running while cleaning your teeth, you re more careful. Thames Water customer, Guildford Customers said that metering was the fairest way to charge for water, although many were keen to retain the ability to choose whether or not to have a meter. Background Metering is an effective way of managing demand for water. This is particularly important as the population grows, household use of water increases, and climate change puts pressure on limited resources. Increasing metering would allow us to help customers reduce their bills through more efficient use of water. It would help us to better understand local demand for water, identify leakage from the water network and investigate innovative ways to charge for water (to tackle affordability issues and variability of demand). We could also bring together related activities, such as water audits and distribution of water-saving devices, to offer customers a comprehensive package of services and advice. The Government is signalling that metering should increase where it offers best value for money. Water companies in areas of serious water stress can review the case for wholesale meter installation within their Water Resource Management Plans. Our entire supply area is classed as being in serious water stress. Like our customers, we think metering is the fairest way to charge because people pay for what they use. We realise this can cause concern though, particularly for people on lower incomes or for those who have a genuine need to use large quantities of water. Many customers would also prefer to choose whether to have a meter instead of being forced to have one. We are reviewing how best to increase levels of metering whilst addressing these issues. We will not be able to individually meter all properties in our area. The high number of flats in London with complex plumbing will limit what we can cost-beneficially achieve. However, this may not prevent us from adopting more representative means of charging, for example, metering the consumption of a block of flats and dividing the bill accordingly. We believe a progressive and targeted metering programme, as shown in the graph opposite, is the best approach. This would start by focusing on areas of greatest water stress and where water savings are most likely to be made. It would also link metering to other activities, such as mains replacement, in order to reinforce water efficiency messages and ensure a more cost-effective programme. Taking care of water

35 Delivering for customers: Metering 33 Our response In the medium term ( ), we will: Deliver a targeted and progressive domestic metering programme, forecast to deliver at least 50% coverage by 2015 (1.7m properties). Focus initially on areas with greatest supply/demand need and properties with highest discretionary use. Work with the Consumer Council for Water, the Government and Ofwat to identify ways to protect vulnerable customers. Investigate and consider innovative ways of charging alongside metering to incentivise efficient water use (such as rising block tariffs). Seek full recognition of additional costs of metering in prices. Support changes to the regulatory regime that properly reflect the need to manage revenue implications whilst incentivising metering. In the long term ( ), we will: Aim to individually meter all domestic properties, where it is cost-beneficial to do so. Given the profile of properties within our region and on the basis of existing technology, we believe around 80% of domestic properties will be individually metered. Where individual meters are not costbeneficial, aim for the remainder of domestic properties to move from a rateable basis of charging to one based on assessed consumption. Keep under review the case for metering flats and seek technological advances to enable greater coverage of individual domestic meters. Seek to implement remote meterreading technologies to reduce costs and provide customers with better information on their usage of water. This will also allow us to develop charging systems that protect essential use of water and introduce variable charging schemes. Key facts - The Environment Agency estimates that water meters lead to a 5 to 15% reduction in household use of water. - Some 23% of our domestic customers are metered at present. - All commercial and new domestic properties are metered as standard practice. - In addition, we are currently permitted to install meters in existing domestic properties on change of occupancy, when customers have sprinklers, own a swimming pool or when individuals choose to be metered. - Where we are unable to install a meter, customers may opt for their bill to be based on an assessed household charge. Company meter penetration to % of customers with meters Year Taking care of water

36 34 Delivering for customers: New sources of water What new sources of water are we developing? There should be more reservoirs. All that winter rain needs to be collected, especially with all the new houses being built. Thames Water customer, Swindon Many customers supported both the proposed Upper Thames Reservoir and a desalination plant in east London. Safeguarding of low-flow rivers was strongly supported. Background The need for new sources of water will be considered in our Water Resources Management Plan (WRMP); our first statutory WRMP is due for public consultation in April We consider developing new resources in parallel to demand management (see pages 26 and 27). If new resources are required, we rigorously assess the options, including their sustainability and cost-effectiveness, in order to develop the most economic means of balancing supply and demand. We consider all options, including transfers from outside our region. Work to date shows that it will not be possible to balance future supply and demand by leakage control and demand management alone, and that new resources (in our case, additional reservoir capacity) will be required to maintain our supplies and those of the whole South East region. Other water companies and the Environment Agency agree. Our planning has identified a reservoir south-west of Abingdon as our main long term option for the Oxfordshire, Swindon and London areas. This will be considered in our 2008 WRMP. This solution would store winter rainfall, helping to maintain river flows during droughts, and could allow other water companies to benefit from increased availability of river water. We also need to build our London desalination plant to redress the current deficit in supplies. Desalination can be energy-intensive, however we will minimise energy use by treating water that is less salty than seawater and by running the plant only when needed. We will also entirely power the plant from renewable energy. We have selected this option as it can be developed quickly. Taking care of water

37 Delivering for customers: New sources of water 35 Our response In the medium term ( ), we will: Continue investigations to confirm whether existing abstractions are causing environmental damage and develop alternative supplies where necessary. Undertake small-scale groundwater development. Implement a proposed desalination scheme in east London. Work with other water companies to identify opportunities for sharing resources. Maintain a list of options for new sources of supply and assess the sustainability of the most practicable options to determine their ranking. Undertake research into new resource options, including aquifer storage and recovery. Implement South London Artificial Recharge Scheme and seek further opportunities in the Thames Valley. Complete feasibility study into potential effluent reuse scheme in north London and, if successful, implement the scheme. Develop our proposals for the Upper Thames Reservoir as part of our WRMP and, if approved, begin delivery of the project. Work with local authorities and planning bodies to monitor population growth and plan demand management programmes and new water resource schemes accordingly. In the long term ( ), we will: Keep our WRMP and programme of future resource options under continual review, incorporating technological improvements as appropriate. Develop new sources of water where required: - If approved, complete the Upper Thames Reservoir, possibly to operate as a regional water resource. - Implement planned indirect effluent reuse more widely, dependent on experience and environmental impacts. - Explore the potential for direct effluent reuse schemes where appropriate. - Mitigate the impacts of any highenergy resource options, developing these only when necessary and making appropriate use of renewable energy. Work with stakeholders to monitor and understand trends in population growth, ensuring an appropriate range of water resource schemes for future years. Key facts - Existing supply is 77% surface water and 23% groundwater. - Supplies include artificial recharge, where in times of surplus supply, treated water is stored underground in water-bearing rock for later use. - The Government has given consent to build a desalination plant for London. - Some abstractions may have to be reduced or withdrawn where these are shown to be environmentally damaging. - Climate change is predicted to decrease supplies by reducing river flows and groundwater levels in summer months (see diagram below and page 48 for more on this). Predicted impacts of climate change scenarios on our water resource base 2200 Output (Ml/d) Potential gap in resources caused by the changing climate Year Output rate of existing resources Anticipated climate change impact on these resources Typical large reservoir Taking care of water

38 36 Delivering for customers: Wastewater and sludge How are we protecting rivers and managing sewage wastes? It is very important to ensure the effluent quality of local rivers is maintained to ensure the environment and wildlife are protected. Thames Water customer, Tower Hamlets I am pleased to know that 70% [of sewage sludge] is used as fertilizer on farmland and the remainder burnt to produce green energy. Excellent. Thames Water customer, Bromley River quality is important, but customers are satisfied with current standards. They are also happy with current sludge management. Background The last 10 years have seen substantial investment in sewage treatment and resulting improvements in river quality. However, further improvements are anticipated as a result of the Water Framework Directive. In London, the Government has given the go-ahead for the Tideway Tunnel 32.2 km long and seven metres wide, from Chiswick in the west to Beckton in the east, as shown in the map opposite. The tunnel will capture overflows from London s sewerage system following rainfall, helping to protect wildlife and users of the river. The project also includes a 5.5km spur tunnel from Abbey Mills pumping station to Beckton. Sewage sludge is a by-product of the sewage treatment process. Sludge disposal is strictly controlled and, after treatment, the majority is recycled to land as a soil improver. The remainder is used to produce renewable energy. To ensure we can continue to manage sludge in a safe, sustainable and beneficial manner, we need to increase treatment capacity and secure appropriate future uses. Taking care of water

39 Delivering for customers: Wastewater and sludge 37 Our response In the medium term ( ), we will: Improve the quality of the tidal Thames by upgrading our five Tideway sewage works to increase their capacity and improve effluent quality. Improve the lower River Lee by eliminating storm discharges from Abbey Mills pumping station. Work with key stakeholders and other sectors to help achieve good status (or other agreed targets) for rivers and groundwater, where this is both affordable and not disproportionately costly. Work with local and regional planning authorities to appropriately plan for investment to cater for population growth. Work to ensure we can continue to manage sludge in a safe, sustainable and beneficial manner, increasing treatment capacity and securing sustainable future uses. In the long term ( ), we will: Better understand the sustainability impacts of achieving higher effluent quality objectives (for example, the climate change impacts of high-energy treatment processes). Continue to explore new technologies to achieve a balance, aiming to maximise overall environmental benefits. Improve the tidal Thames by almost eliminating storm discharges from London s sewerage network through completion of the Tideway Tunnel. Continue a programme of cost-effective solutions working towards achieving good status in accordance with the Water Framework Directive. Adapt treatment processes to manage changes in wastewater volume and composition caused by climate change and other trends. Continue to implement a sustainable sludge strategy, maximising beneficial use and considering issues of acceptability, energy, transport, odour, nutrients and local constraints. Seek to develop innovative solutions such as low-energy/low-chemical treatment processes, removal of micro-pollutants, and real-time online monitoring and control of the sewer network. Key facts - There have been dramatic improvements in river quality and related biodiversity as a result of 4 billion investment in wastewater treatment since Around 94% of rivers in the Thames Water area are classed as good or fair quality compared to around 82% in Approximately 245,000 dry tonnes of sewage sludge is produced annually 100% is put to beneficial use, most being recycled to agricultural land or used for renewable energy generation. Chiswick Shaft Hammersmith PS Houses of Parliament Western PS Heathwall PS Heathwall Shaft North Eastern Storm Relief Shaft Tower of London Earl PS River Lee Greenwich PS Abbey Mills PS Dome Charlton Shaft Pump out to Beckton STW Thames Barrier N Crossness STW Proposed tunnel Construction shaft STW Sewage treatment works Storm pumping station (PS) Gravity combined sewer overflow (CSO) Taking care of water

40 38 Delivering for customers: Sewer flooding What are we doing about sewer flooding? Not acceptable in this day and age. Thames Water customer, Guildford Customers consider sewer flooding to be a key area for service improvement. Background We share the view that sewer flooding inside customers homes is unacceptable. Flooding occurs when sewers are too small for the drainage capacity required at a particular time, or when they are blocked by inappropriate materials that have been disposed of down drains, particularly oils, fats and greases. Much of the sewer network we inherited is combined, so surface drainage water and sewage pass through the same network of pipes. This means the system is prone to flooding in exceptional circumstances, such as during extreme rain events. Our current investment programme to 2010 is designed to reduce the threat of sewer flooding for more than 10,000 properties. To date, this programme has targeted the most severe incidents. In particular, it has focused on alleviating properties where flooding has already occurred inside the home, not tackling properties at risk of flooding in the future. This is something we aim to address by being able to forecast where problems will occur and adopting a more proactive approach to the issue. As part of this, we will need to work closely with our stakeholders to better understand and plan for the impacts of climate change. There is considerable uncertainty about the type of rainfall events we could experience in the future. A recent review of climate change scenarios revealed projections of rainfall intensity during storms will vary from an increase of 45% to a decrease of 20% by the 2080s. Partnership working with the Environment Agency, Highways Agency, Defra and local authorities is also key in identifying more sustainable and integrated approaches to tackling sewer flooding. This includes promoting sustainable urban drainage systems and use of permeable surfaces where appropriate. It will also involve continuing to work with customers to create greater awareness of responsible waste disposal. Taking care of water

41 Delivering for customers: Sewer flooding 39 Our response In the medium term ( ), we will: Continue our programme to reduce high-risk internal property flooding related to overloaded sewers. Where it is not possible to develop affordable solutions, we will offer ways to reduce risks such as floodguards, securing manhole covers and providing minor landscaping. Additionally continue our programme to reduce high-risk flooding to external areas such as gardens, roads and parks. Move to a higher design standard with flooding solutions. This will be a first step in ensuring drainage capacity adjusts to climate change predictions. Build partnerships with stakeholders concerned with catchment drainage to better enable solutions to flooding risk to be identified and implemented (this could include promoting sustainable urban drainage systems and permeable surfaces). Produce detailed hydraulic models across the catchment to identify sewage flooding risk in the future. Target sewer cleaning programmes to minimise risk of blockages. Work with customers to reduce disposal of inappropriate wastes to sewers and manage surface water disposal. Review the implications of the European Court of Justice decision on unplanned discharges from sewers. In the long term ( ), we will: Seek to eliminate high-risk property flooding related to sewer incapacity through a proactive programme that identifies areas at risk of flooding and prevents this before it occurs. Adapt the sewerage system to cope with climate change. Seek innovative solutions to sewer flooding where costs are prohibitive. Work with the Environment Agency, Highways Agency, Defra and local authorities to develop catchment-wide solutions to flooding risk, implementing those that deal with all types of drainage appropriately. Key facts - We clear 60,000 sewer blockages every year fats, oils and greases poured down drains cause over half of these. - We work with customers and stakeholders to promote responsible disposal of waste products, surface water and foul sewage. - Overloading of sewers also results in flooding. In , we will remove this risk from over 5,500 properties that have previously flooded in this way. - In 2007, the European Court of Justice classified unplanned discharges from sewers as waste. This decision has yet to be reflected in UK legislation and will have implications for the whole industry. Sewer flooding is one of the worst service failures we plan to greatly reduce the number of our customers homes threatened by sewer flooding Taking care of water

42 40 Delivering for customers: Odour What are we doing about the smell from sewage treatment works? It is just not acceptable. This should be a priority. They must be able to deal with the odour somehow in the 21st Century. Thames Water customer, Swindon It s like the Heathrow flight path. You knew it when you bought the place. Thames Water customer, Enfield Customer and stakeholder surveys gave us different views on odour from sewage treatment works. Background Options to reduce odour from sewage works may be costly and involve covering parts of them to treat their air emissions. Retrofitting is usually difficult since our sewage works were not originally designed to collect air emissions. New sewage treatment developments can be designed to more readily meet the high performance standards required by local authorities. Our new Reading works (pictured right) is a good example of this. It is one of the most technically advanced plants of its kind in the UK, costing around 80 million to build. We are developing a risk framework to help us identify priority sites where odour needs to be tackled. For these sites, we will then develop odour management plans and introduce odour control as appropriate to each site. The framework will also identify cost-beneficial levels of odour reduction at sites that need enhanced measures to reduce odour. Such measures will be completed at our Mogden sewage treatment works in west London in Taking care of water

43 Delivering for customers: Odour 41 Our response In the medium term ( ), we will: Continue to operate a risk management framework that identifies and prioritises sites that are causing odour problems (those generating significant odour complaints, for example) and sites that are at future risk from odour issues (generally because of new nearby housing development). Seek to reduce odour at these sites by: - Identifying main sources of odour. - Reviewing existing operations and maintenance practices to identify opportunities for improvement. - Introducing baseline measures to reduce sources of odour. - Implementing enhanced odour reduction measures (e.g. covering plant) if odour persists and where cost-beneficial. - Considering measures that go beyond an economic business case in exceptional circumstances (for example, regeneration projects). Design new works to meet industry best practice, typically five odour units at the site boundary (such as at our new Reading sewage works). Design upgrades to existing sewage works to avoid increasing odour. Keep local communities better informed about the potential odour impacts of planned maintenance at existing sewage treatment sites. Work with local authorities, Environmental Health Officers and developers to achieve the most sustainable use of land around sewage works. In the long term ( ), we will: Adopt a more proactive approach to odour management whereby potential odour issues are tackled at sites before they become a problem. Current projections indicate odour reduction will be needed at over 100 sites. Mitigate odour where cost-beneficial for customers at all risk sites. Seek to implement further mitigation in exceptional cases. Monitor trends in customer acceptability of odour in the context of economic development and climate change. Seek to reduce customer complaints to a minimum level. Key facts - The sewage treatment process can sometimes produce odours, but this was not a problem in the past as sewage works were located away from residential areas. - New development up to the boundaries of sewage treatment works (known as encroachment ) is now common practice because of population growth and increased pressure to find land for development. - A 2006 Defra Code of Practice clarified the roles and responsibilities of companies in reducing the risk of odour from sewage works being classed as a statutory nuisance in the future. - Close working with local authorities and other stakeholders is key in order to achieve appropriate and well-informed development near our sewage works. Digesters at our Reading sewage treatment works Taking care of water

44 42 Delivering for customers: Customer experience How are we going to improve customer service? We don t have much choice we ve only got Thames Water. Thames Water customer, Reading We want to be the company that customers would prefer to use if given the choice in the future. Background We exist to provide a service to our customers over 13.5 million people across London and the Thames Valley. Whilst the details of water and wastewater service delivery and planning are vitally important, these are only part of the picture. The way in which we interact with our customers, from the moment we start to serve them to our presence in their community, work or home, is of equal importance. We need to understand their expectations and our opportunities to exceed them. We recognise, for example, that many of our sites can benefit the communities around them, providing opportunities for conservation, leisure or education uses. Over 120 of our sites are used by our customers for bird watching, water sports, fishing and other activities (pages 50 and 51 provide more detail). We know that our customers currently have to make too many unnecessary repeat calls to resolve their queries or have sometimes been disappointed with our response. This can cause great frustration exactly the opposite of how we want our customers to feel. We are already working hard to improve performance and will continue to develop tools, techniques and services that benefit all of our customers for example, using modern technology such as the Internet to improve the ways in which customers can contact us. Achieving a position where our customers would choose Thames Water if they had a choice is central to our vision for our company. We are committed to undertaking the investment required to deliver the systems and processes necessary to ensure we achieve this vision. Taking care of water

45 Delivering for customers: Customer experience 43 Our response In the medium term ( ), we will: Introduce greater choice in the way customers can communicate with us (for example, through new uses of phone, mobile or Internet technology). Build on the best practices demonstrated through our mains replacement programme, to engage with communities and ensure customers are aware in advance of planned work, or are made aware as and when failures occur. Review our methods of interaction with customers to ensure these are focused on their needs and expectations. We will make it as simple as possible for customers to communicate with us, whilst leaving them reassured that their issues will be dealt with. In delivering our promises, seek to eliminate the need for customers to chase our progress or make unnecessary repeat calls, and seek alternative ways of providing reassurance (for example, online tracking of progress). Work with our supply chain to deliver a well-integrated service, for which we are seen to be responsible, regardless of whether it is delivered directly by us or by one of our suppliers. Improve our understanding of the ways in which communities can benefit from our sites, managing any changes to ensure value is not lost, seeking opportunities to increase access, and designing beneficial use into new developments. In the long term ( ), we will: Continue to enhance our levels of service and the experience received by our customers, striving to be the supplier of choice. Anticipate that customer expectations will rise. We aspire to predict and keep ahead of these expectations, improve our responsiveness when things go wrong, and provide timely and accurate information through appropriate technologies. Work with local people to develop a sense of shared ownership and pride in our sites where these are, or can become, a useful resource to communities. Continue to provide opportunities for conservation, leisure and education, delivered through cross-sector partnerships to benefit communities throughout our region. Manage our investment plans to ensure that all proposals represent good value for customers and that resulting bill increases remain within customers ability to pay. Key facts - Around 70% of our customers are satisfied with the services we provide. - We receive four million enquiries about bills and payments and one million operational enquiries every year. - Around 54% of callers in 2006/07 thought they received a good or excellent service. However, 19% of callers were disappointed with our response and 22% had to call more than once to resolve their query. - Competition in the water industry in the future is likely to give customers more freedom to choose their water and wastewater services supplier. Customer responses on satisfaction with services we provided in % 60% 50% 40% 30% 20% 10% strongly agree tend to agree neither tend to disagree strongly disagree Satisfied with the services of your water company Taking care of water

46 We have the potential to impact upon the environment and the communities within which we work

47 Planning for a sustainable future Our business will face many challenges over the next 25 years population growth, changing customer behaviour, tighter legislation and climate change will all affect the way in which we operate. Equally, we have the potential to impact upon the environment and the communities within which we work. Our impacts might be immediately felt or have implications long into the future. We want to ensure that the decisions we make and the actions we take over the next 25 years are environmentally, socially and economically responsible, and that the way in which we operate does not disadvantage future generations. Our approach to some of our key sustainability issues is discussed in this section.

48 46 Planning for a sustainable future: Sustainability Is sustainable development important to us? How responsible are we going to be? Stakeholders consider sustainability to be an integral part of our planning and operations. Background There are many definitions of sustainability or sustainable development. For us, it means that future generations should not be disadvantaged by the actions that our business decides to take today. Sustainability is about planning and operating in a socially, environmentally and economically responsible way. It ensures we are able to deliver the same or improved levels of service into the future, whilst also protecting the environment, operating responsibly within the communities we serve, and providing effective stewardship of our assets. Our core business depends upon sustainable use of the water environment, something we address throughout this report. We also face a variety of related, long-term challenges. These include minimising energy use, securing renewable forms of energy, reducing waste, protecting wildlife and archaeology, respecting local communities, and ensuring responsible procurement of goods and services. We are already responding to these issues in many ways, practising sustainability by: Checking all our capital projects for impacts on wildlife and heritage. Undertaking Environmental Impact Assessments and Sustainability Assessments on major projects and programmes (including our forthcoming Water Resources Management Plan and our Sludge Strategy). Working proactively with the planning system to ensure sustainable infrastructure for new developments, and applying planning policy (which places sustainable development at its core) to our own development proposals. Implementing our Biodiversity Action Plan, which has identified the wildlife interests of hundreds of our sites and the steps we need to take to protect this. Setting ambitious business-wide targets through our Climate Change and Carbon Management Strategy. Working to further reduce the impacts of our street works on local communities, and ensuring the health and safety of employees and the general public across our activities. You can find out more about this in our annual Corporate Responsibility report, which is available on our website. Industry-wide performance is reported in Water UK s annual report, Towards Sustainability. Individual issues have historically shaped our approach to sustainability. However, new challenges such as climate change mean we need to make a step change in what we do. We need to adopt a much broader perspective, tackling issues across the business as a whole and not in isolation. This will almost certainly identify potential conflicts for example, how we continue to improve effluent quality but minimise energy use, or how we balance sustainability aims and ensure value for our customers. We are already starting to address this and explore our response to potential conflicts by developing a companywide sustainability strategy. This will bring together existing activity, identify additional issues to address and set clear targets across all business units. We plan to launch our new strategy in Taking care of water

49 Planning for a sustainable future: Sustainability 47 Our response In the medium term ( ), we will: Review our sustainability strategy, ensuring we prioritise our actions, set clear targets for all business units, and provide our employees with guidance on how to respond to potentially competing sustainability objectives. Continue to assess the sustainability of our projects and programmes using the criteria we developed with Forum for the Future to ensure responsible investment decisions. Maintain our partnerships with stakeholders to identify and address our environmental, economic and social sustainability challenges. Continually monitor our performance against our strategy and against wider industry performance, identifying areas for improvement and taking action to advance our contribution to sustainable development. Ensure we continue to comply with the sustainability requirements of planning policy for new developments and throughout our capital programme. Build on our existing sustainability practice, for example in waste management, biodiversity and heritage protection, health and safety, community investment and liaison, climate change and carbon management, and responsible procurement. In the long term ( ), we will: Continually review our sustainability strategy in light of our own experience, customer, employee and stakeholder feedback, and changes to our operating environment (such as climate change), adapting our approach as appropriate. Continue to publish our performance in our own reports and through appropriate industry-wide reports, working with industry groups and stakeholders to develop and improve this. Monitor advances in sustainability practice, working across our business and with our stakeholders to understand how we can benefit. Seek to develop innovative approaches to operation and maintenance activities that improve the sustainability and efficiency of our business. Sustainability of the water environment is core to our business Thames Water Natural resources Abstracting water for supply as drinking water Treating and distributing water to customers Healthy river and groundwater sources High quality land and water environments Collecting and treating returned sewage Returning treated effluent to the environment Recycling sewage sludge to land Maintaining river flows and ecological health of rivers Recycling of nutrients within the environment Additional community and environmental benefits Renewable energy generation from sludge digestion and combined heat and power facilities Improving wildlife habitats Providing recreation and access opportunities Taking care of water

50 48 Planning for a sustainable future: Climate change adaptation Climate change is already happening how are we going to protect water services? We are adapting now to inevitable changes in the climate. Background Some climate change impacts are unavoidable because of past carbon emissions. This will lead to variations in patterns and frequencies of droughts, and other extreme weather events. Summers are expected to become drier by 20-40% by the 2050s and maybe 50% by the 2080s; winters are anticipated to become wetter by 10-20% by the 2050s and up to 30% by the 2080s. The impacts of climate change will be felt throughout our business, as the diagram below shows. Water distribution Underground pipe network affected by changes in wetting/drying soil Water treatment Reduced volume/lower quality of water for treatment and risk of flooding to operational sites The impacts of climate change on our business We will have to plan appropriate adaptation measures in order to protect public water supplies and the environment for the future. This means taking action now where necessary and working hard to ensure that we build our understanding of the implications, making decisions on the basis of sound science. This is particularly important in the areas of water resource planning (to protect the security of future water supplies such as rivers and groundwater) and sewerage design (to prevent sewer flooding, for example). Water usage Changes in the pattern of customer demand Wastewater to sewer Increased flooding/surcharge Wastewater treatment Increased risk of inundation of operational sites Key facts Using Environment Agency guidelines, we currently estimate that climate change will reduce available water for London by over 100 Ml/d by 2025, although this figure could increase as understanding of climate change develops. Climate change is expected to increase demand for water in hotter, drier summers, in addition to demands from population growth. Extreme rainfall events could occur three times as often by the 2080s. This would put customers properties and our sites at greater risk of flooding. Sea level rise combined with water from storm events could raise the level of the River Thames by over two metres, putting many of our Tideway sewage treatment works at increased risk of flooding by the 2080s. Research funded jointly by the UK water industry and the Environment Agency indicates that the natural flow of the River Thames at Kingston in August could be reduced by as much as 25% during the 2020s. Water abstraction Reduction in water available for abstraction Effluent discharge Reduced river flows in summer to dilute effluent discharges Our response In the medium term ( ), we will: Assess and document the impacts of climate change (including extreme scenarios and weather events) on all activities and operational sites. Continue to develop approaches to modelling that are consistent with those developed by our stakeholders and build the latest climate change scenarios from the UK Climate Impacts Programme (UKCIP) into our planning processes. Implement our Water Resources Management Plan to safeguard water supplies from the impacts of climate change, with particular focus on leakage control, metering and water efficiency, and new water resources. Enhance our sewerage design standards to increase capacity for projected additional flows. Develop an enhanced sewerage network model to allow us to assess the impact of climate change on our network and to target capital expenditure more effectively. Review and improve the resilience of our sites to flood events. Continue to work in partnership with our stakeholders to promote understanding of climate change issues, options and solutions. In the long term ( ), we will: Continue to monitor the impacts of climate change on our activities and revise our adaptation responses as necessary. Undertake full consideration of all environmental impacts, including energy use, in proposals for adaptive responses in order to minimise associated increases in carbon emissions. Upgrade water treatment works to deal with poorer quality abstracted water as necessary. Upgrade sewage treatment works to deal with reduced capacity of rivers for effluent dilution as necessary. Continue to design our sites, and plan our operations, to adapt to increased flood risk. Taking care of water

51 What are we doing to reduce our contribution to climate change? Planning for a sustainable future: Climate change mitigation 49 Limiting our impacts on climate change is key to ensuring a sustainable future. Background We believe that a combined approach to managing the unavoidable impacts of climate change on our business and to reducing our greenhouse gas emissions ( mitigation ) is vital. The challenge for our business, our regulators and our stakeholders is to find climate change solutions that balance competing environmental, social and economic demands in a sustainable, integrated and equitable way. In this context, climate change cannot be thought about in isolation and we have integrated it into our planning throughout Taking care of water. To mitigate our potential climate change impacts, we have already cut our emissions through energy Our renewable energy generation Renewable energy generation (gigawatt-hours) and business efficiencies. We have combined this with increasing use of self-generated renewable energy. This makes beneficial use of methane gas and sewage sludge produced during sewage treatment processes. However, we believe that a step change in approach is now required to deliver the emission reductions that are needed to mitigate our climate change impacts. We expect that targets arising from the Climate Change Bill will affect us significantly, although this has yet to be confirmed by the Government. This will require additional investment associated with energy efficiency, reduced-energy technology and development of further renewable energy options. We will keep this issue and our response under regular review as part of our Climate Change and Carbon Management Strategy. Key facts - The water industry emits about 1% of the UK s greenhouse gases. - Most of our energy use is related to three key activities: pumping water uses around 55% of our energy needs, whilst sewage treatment processes account for around 25% and drinking water treatment processes for about 10%. - We already generate over 14% of our own energy needs from renewable sources (making beneficial use of the sewage sludge and methane produced during sewage treatment processes) and have a target of 18% by Our total greenhouse gas emissions are at a similar level to 1990 levels despite a considerable increase in energy use due, for example, to tighter discharge consents and development of new assets. - The draft Climate Change Bill sets targets to reduce CO 2 emissions by at least 60% from 1990 levels by Interim targets of 20% reduction in CO 2 emissions by 2015 and 26-32% by 2020 are also included. - The EU Emissions Trading Scheme already covers some of our operational sites. It is increasingly likely that our remaining sites will be included in a domestic emissions trading scheme /07* Year * Change from calendar year reporting for data to regulatory year reporting Our response In the medium term ( ), we will: Limit our contribution to climate change by reducing emissions in accordance with government policy. We will assume reductions of 20% (compared to 1990 levels) by 2015, recognising the importance of this for our customers, the wider environment and the long-term sustainability of our business. Improve our energy efficiency through integrated maintenance strategies, new operational practices and the specification and installation of more energy-efficient equipment. Reduce our carbon footprint through energy avoidance, replacement of energy from fossil fuel sources, supply chain agreements and waste elimination, reduction, reuse and recycling. Develop opportunities for increasing the amount of self-generated renewable energy from options including combined heat and power, biogas, biosolids, wind and low head hydropower. Invest in research to develop low carbon water services. Understand, quantify and report our carbon footprint. Meet or exceed the requirements of planning policy to use less energy, be as energy efficient as possible and include renewable energy provision in our development proposals. Seek appropriate recognition of this obligation through price limits. In the long term ( ), we will: Continue to deliver our share of relevant carbon reduction targets, as set out in the enacted Climate Change Bill. Seek further opportunities to achieve greater energy efficiency in our operations, self-generate renewable energy from a variety of sources (including methane from sewage treatment) and reduce our carbon intensity. Seek full consideration of all environmental impacts, including energy use, in all proposals for environmental and service improvements. Taking care of water

52 50 Planning for a sustainable future: Asset stewardship What are we going to do to make sure it all still works in 25 years? Our maintenance and investment programme must be economically sound and sustainable. Background Our maintenance and investment decisions involve a risk-based approach that evaluates the likelihood and potential impacts of failures across the full range of our assets. This allows us to focus our investment in areas that will achieve the most value for customers and the environment. It also allows us to be responsive to changing priorities as assets deteriorate over time and the surrounding environment changes. The views of our customers and other stakeholders help to inform our decisions on levels of service and priorities. We also take into account the need to protect public health, to ensure the health and safety of everyone affected by our operations, to meet statutory and regulatory obligations, and to ensure that our assets are resilient to events such as severe weather, power failures or other external incidents. Our assets are not just restricted to water and wastewater treatment facilities. They include sites of local, national and international importance for their wildlife (or biodiversity ), which we work hard to protect and enhance. Of the 18 Sites of Special Scientific Interest (SSSIs) that we own, for example, some 96.8% of SSSI units are in favourable status with 2.6% classed as favourable recovering by Natural England. We are working closely with Natural England to maintain and improve this record. Our landholdings are also important for their archaeological and cultural heritage importance. Our heritage assets include a variety of Listed Buildings, historic properties, Scheduled Monuments and archaeological remains. We work closely with stakeholders including English Heritage and local authority archaeologists to ensure appropriate protection, management and use of these sites. We balance all of these competing requirements to provide the most cost-beneficial, economic and sustainable overall programme of maintenance and investment that delivers the service our customers require both now and long into the future. The diagram opposite shows this approach in more detail, with the tables on pages 52 and 53 setting out our specific plans to maintain service levels across our range of water and wastewater assets. More detail on some of these activities can be found throughout the Delivering for customers section of Taking care of water. Taking care of water

53 Planning for a sustainable future: Asset stewardship 51 Key facts - We own and operate a substantial asset base. This includes reservoirs, pumping stations, water and sewage treatment works, and a huge network of pipes (page 5 provides more details). - The combined length of our water mains and sewers is 100,000km more than twice the circumference of the planet. - If our assets were entirely replaced, it would require an investment of almost 52 billion. - We are currently investing an average of 337 million per year to maintain our assets. - Our assets also include a range of sites managed for wildlife conservation, cultural heritage or public access and recreation. These include 18 Sites of Special Scientific Interest, over 100 Listed Buildings and historic features, and over 120 sites used for bird watching, water sports, sailing and other activities. Restoration work at Abbey Mills pumping station, east London Our strategic approach to asset management Drivers Compliance with statutory and regulatory requirements, including Health and Safety Customer-preferred service levels Increasing population and new social and demographic trends Maintenance and improvement of asset performance and serviceability Resilience to extreme events such as flooding Climate change Sustainable development New legal obligations Best practice asset management Benefits to communities Process Company vision and asset strategies Data capture and information management Asset planning Maintenance and investment programmes Key components Company vision and Strategic Direction Statement Customer and stakeholder research Changes to external environment Opportunities for innovation Performance and condition information Predictions of future performance Data validation and assurance Risk assessments and prioritisation Identification of priority requirements Analysis of maintenance and investment solutions Cost benefit analysis Priorities and programme development Affordability of programmes Development of efficient delivery programmes Service delivery Taking care of water

54 52 Planning for a sustainable future: Asset stewardship Water assets: Background Raw water, abstraction and storage These are strategically important assets that are crucial to maintaining security of supply (for example, reservoirs and related pipelines). They are sensitive to environmental and climatic change, requiring continuous monitoring and adaptation. Key drivers include: Integrity of raw water transfers Changes to raw water quality across the region Sustainable abstraction of water from rivers and other sources Reservoir safety and resilience Protecting and enhancing wildlife and heritage assets, and promoting public access and recreation Our response In the medium term ( ), we will: Deliver maintenance programmes based on comprehensive surveys and risk assessments Invest in groundwater protection schemes Ensure stable asset performance Continue to develop and promote the conservation, access and recreation value of our sites In the long term ( ), we will: Provide raw water resilience to enable major asset repairs to be undertaken without affecting security of supply Enhance real-time control and automation of processes and procedures Ensure sustainable asset performance Continue to develop and promote the conservation, access and recreation value of our sites Water treatment Since 1989, we have installed advanced treatment processes to improve drinking water quality. We now produce some of the finest tap water in the country a standard to be maintained. Water treatment works are vitally important for maintaining public health. Improving their resilience to extreme weather events, such as flooding, is a critical duty of care we need to meet. Increase capital maintenance of advanced water treatment assets installed since 1989 to maintain performance Review upgrades to London Water Control Centre for improved resilience and control of water treatment and distribution Ensure stable or improving serviceability where justified Work to improve technology to reduce the carbon footprint of water treatment, enhance performance and provide lower cost solutions Ensure sustainable asset performance and serviceability Transmission We have invested heavily over the years to develop a massive underground pipeline (the Thames Water Ring Main) for London. This provides a secure way to connect water treatment facilities around London. We need to continue to manage risks related to pipelines and the distribution of water, including the quality of water in distribution, the risk of interruptions to supply and flooding. We still have an extensive network of Victorian trunk mains around London and need to continue to renew the network and reduce leakage. Monitor and enhance operational control Extend planned maintenance programmes on high-risk sections of assets Ensure a minimum of stable serviceability Undertake major maintenance programmes on transmission assets Renew pumps on Ring Main shafts Ensure sustainable asset performance and serviceability Distribution and customer supply Over the last few years, we have replaced more than 800km of Victorian water mains and customer supply pipes. The programme was primarily introduced to reduce leakage, but should deliver wider benefits such as improved drinking water quality and fewer interruptions to supply. Further key drivers include: Increased take-up of water metering Localised improvements in lead compliance Addressing localised customer complaints related to discolouration, taste or odour of drinking water Supply interruptions and low pressure issues Reduce the rate of burst mains per kilometre towards industry average levels Maintain and improve levels of service for low pressure and interruptions to supply where customer support exists Deliver our ongoing mains replacement programme, advancing this as far as is reasonably practicable Deliver maintenance programmes for treated water storage assets Ensure stable or improved serviceability Deliver stable network with limited susceptibility to climatic shock Build additional treated water storage to provide enhanced network flexibility and security Expand maintenance programme for water supply meters Ensure sustainable asset performance and serviceability Taking care of water

55 Planning for a sustainable future: Asset stewardship 53 Wastewater assets: Background Customer connection and sewerage Our Victorian heritage means we have an ageing combined surface and foul water drainage system in parts of our region. This increases the risk of the system becoming overwhelmed as a result of severe rainfall. It makes it even more important and challenging to maintain and develop the sewerage network. We need to ensure that strategic assets, such as trunk sewers, are robust and have sufficient capacity to meet the changing demands placed upon them. These include population growth, the impacts of increased paving of surface drainage areas and climate change. The proposed Tideway Tunnel will add a new and significant facility to our sewerage assets. Private sewers that connect into our sewerage system are likely to become our responsibility from This will relieve owners who currently bear the risk of costs for maintaining and repairing them, which for most comes as a surprise when problems occur. This transfer is likely to extend to private pumping stations by Further key drivers include: Changes to waste disposal practices Misconnections between foul and surface water systems Reducing sewer flooding and pollution events Tidal Thames river quality to meet European standards Our response In the medium term ( ), we will: Work with planning authorities to recognise the need to provide timely and appropriate wastewater services for the communities we serve Seek improvements to planning regulations for sewer connections Improve monitoring and control of sewerage system to enhance performance and resilience Deliver risk-based maintenance and investment to maintain and enhance levels of service and protection where justified Ensure a minimum of stable serviceability In the long term ( ), we will: Seek to ensure timely provision of wastewater infrastructure accounted for in development plans Work with stakeholders to develop solutions to integrate storm water management and the widespread adoption of Integrated Urban Drainage Undertake real-time monitoring and control of the sewerage system to manage and control flows where this is cost-beneficial Develop area-wide (catchment level) drainage solutions including Sustainable Urban Drainage Virtually eliminate overflows to the Tidal Thames Ensure sustainable asset performance and serviceability Sewage treatment Many large sewage treatment works require major refurbishment in order to maintain service levels long into the future. At the same time, processes will need to adapt to accommodate requirements to enhance quality standards. Key drivers include: Safety, compliance and performance to service levels Impact of new legislation, particularly the Water Framework Directive Encroachment of development to boundaries of sewage works Sustainable solutions to problems of odour Protecting and enhancing wildlife and heritage assets, and promoting public access and recreation Define maintenance programmes according to risk Deliver cost-beneficial solutions for new obligations Implement new design standards for new works and extensions to existing works Ensure a minimum of stable serviceability Continue to develop and promote the conservation, access and recreation value of our sites Seek to identify technologies to deliver enhanced performance with minimum energy use Ensure sustainable asset performance and serviceability Continue to develop and promote the conservation, access and recreation value of our sites Beneficial use of sewage sludge Sludge is a by-product of the sewage treatment process. Not only can it be processed for use as an organic fertiliser but it can also be used as a renewable energy source. We built two sludge-powered generators in 1998, one at each of our biggest treatment works. Both require major refurbishment and upgrade. As a significant waste, it is critical to secure a diverse range of beneficial uses for sludge, including recycling. This will also help to deal with periods when access to agricultural land is restricted (for example, because of measures to control outbreaks of disease). Enhance our programme of maintenance/renewal of sludgepowered generators installed in 1998 Extend and secure sludge recycling capacity Secure sustainable and varied recycling routes and beneficial uses for sludge Maximise cost-effective renewable energy opportunities Ensure a minimum of stable serviceability Seek to develop new recycling opportunities and beneficial uses for sludge, including generating energy Develop community-based waste management solutions, servicing both our needs and those of adjacent communities Ensure sustainable asset performance and serviceability Taking care of water

56 By operating efficiently, we can better meet the needs of our customers

57 Delivering efficiently Meeting the expectations of our customers is key, but we need to ensure we do this in a way that is both effective and efficient. This can include ensuring best value from our contractors and suppliers, developing the skills of our own people, thinking more innovatively about the challenges we face, and making sure we are prepared for future change. By operating efficiently, we can better meet the needs of our customers whilst minimising the impact on their bills. Our approach is set out in this section.

58 56 Delivering efficiently: People How will we develop our people? Developed nations are relying more and more on their capacity to innovate to drive economic growth. The ability to do this depends upon the skills and knowledge of their people. Leitch Review of Skills, December 2006 Background Our people are our most important asset in delivering value to our customers, but the UK is facing significant changes in workforce demographics and skills demand, which will place many challenges upon us in the future. Defining expectations and setting standards Shaping organisational development Building and developing relationships With the December 2006 change of ownership, our business has also gone through a period of significant change. This has inevitably been unsettling for some. To help us respond to these issues, we have developed and launched our People Strategy and will continue to evolve this in response to business needs and the challenges we have yet to face. Inspiring a culture of engagement Our People Strategy Strengthening the organisation It is also important that our people reflect the diversity of the communities within which we live and work. We will actively promote equality, diversity and inclusion by removing barriers to education, training and employment opportunities. We will ensure our people are treated with fairness and respect, and that we understand and value their differences. Evaluating talent Developing talent Resourcing Taking care of water

59 Delivering efficiently: People 57 Our response In the medium term ( ), we will: Position Thames Water as an employer of choice, continuing to modernise our reward and recognition mechanisms, accelerate employee engagement and create a great place to work. Continue to develop talent management processes to maximise people s performance and potential throughout their career cycle. Ensure we have robust recruitment processes that attract and retain a diverse workforce, establishing closer links with schools, colleges, universities and other relevant bodies. Continue to drive a comprehensive skills and development strategy to ensure we have the right skills and capabilities to meet regulatory standards and enable career progression. For example, extend the skills passport scheme, support apprenticeship and graduate training schemes, and develop specialist technical and leadership skills. In the long term ( ), we will: Continue to enhance performance and increase productivity through the application of technology and the development of skills and processes. Implement our long term resourcing strategy to meet the global manpower and recruitment challenges set out by Lord Leitch in his December 2006 Review of Skills. Work with the Government, schools, colleges and universities to promote and develop economically valuable skills. Embed our talent management processes at all levels within the organisation, ensuring we have the right talent, organisational design, skills and employee engagement to deliver the long-term business strategy. Key facts - The utility sector creates a disproportionate demand on skills compared to the wider economy. - Nationally, demand on skills is set to increase over the next 10 to 15 years by around 40% for NVQ Level 3 and above. - Major infrastructure developments within our region will accelerate skills shortages. - There is more service industry in the south-east, further intensifying demand on skills. - Given the ageing nature of the UK workforce, around 75% of our 2020 workforce is already in employment. This reinforces the need to retain, develop and reward existing employees. - A fresh determination to make the most of our employees contributions, skills and abilities has been the driving force behind our People Strategy. Laboratory analysts Manisha Bhatt and Phillippa Sleigh Sustainability Strategy Manager Darren Towers (right) and Cotswold Archaeology s Eddie Stratford Lab Technician Barry Wyeth (left) and Safety/Environment Advisor Garry Wilson Crossness Nature Reserve Manager Karen Sutton Taking care of water

60 58 Delivering efficiently: Innovation Are we developing fresh approaches to new challenges? Innovative thinking will be vital in an ever-changing and increasingly demanding future. Background Innovation involves thinking creatively about the challenges we face and how we respond to them. It is essential given increasingly stringent (and sometimes conflicting) legislation, growing demands and a tougher operating environment. Lord Sainsbury s October 2007 review of the Government s science and innovation policies recognised innovation as key for companies, the Government, and the UK as a whole. It added that innovation is also important to protect the interests of both current and future consumers. By challenging traditional thinking and through thought leadership, we can ensure we operate more efficiently, meet enhanced levels of service, and deliver value for our customers. We will also be better placed to respond to issues such as climate change, increasing demand, sustainable drainage, water efficiency, and changes in population. Wherever possible, we will work with our suppliers to encourage development of technologies needed by our business. We will also work proactively using the expertise and skills of our own Research and Development teams, through industry and Government organisations (such as the Technology Strategy Board), and with leading universities. There are some technology areas that are fundamental to our current and future operations. We have already developed sophisticated leak detection technology, are in the process of researching new water recycling techniques and wastewater treatment processes, and trialling smart water meters (see opposite). The diagram below is not a route map but does show some of the innovations we might expect to see in the future it highlights a range of potential possibilities for the industry. Innovation in action Case study: Automated meter reading Our trial of automated meter reading has allowed us to record water meter data at 15-minute intervals for 1,500 properties in parts of north London. Recording was achieved through a fixed radio network and walk-by radio collection. This smart metering has revealed major advantages which will ultimately enable us to: Develop the capability to display data on a unit in the customer s house or on a website, so customers can see their own water use and adapt their behaviour accordingly. Identify continuous usage, helping to pinpoint where customer-side or distribution system leakage may exist. Better understand water use for example, if customers run dishwashers at night without a smart meter, it risks being counted as leakage New water resources (raw water) catchment transfers, artificial recharge, new sources Further enhanced web access for customers (usage, billing, disruptions) Nitrogen removal from wastewater Remotely activated valves in clean water network Increased energy from sludge High intensity treatment processes Household treatment plant for water and waste Valves and network fittings (more robust/efficient, onboard diagnostics and status indicators) Targeted customer phone calls (for disruptions or in emergencies) Potential for indirect re-use of treated wastewater Further energy production from sludge and recycling to agriculture Processes for low/zero sludge yield Non-intrusive streetworks Methods to deal with endocrine disruptors in wastewater discharges Smart metering and tariff management Real-time water quality sensors in pipe network Increased accuracy of leak detection Odour mitigation and management Sustainable drainage systems Lower energy treatment processes (water and wastewater) Water treatment processes to produce less wastewater Potential for direct re-use of treated wastewater Bio-nuisances mitigated or solved (algae and zebra mussels) Keyhole repairs Next generation pipes improvements to materials Real-time sampling of treatment work outputs Real-time online monitoring and control of trunk networks (water and wastewater) Next generation desalination Low land take and underground assets Medium-term period ( Long-term period ( The purple bands on the radar s potential innovations into the f across the industry Removal of micro pollutants from wastewater Lower chemical use processes (water and wastewater) Monitor the impacts of water efficiency advice and practice. Provide more accurate billing forecasts during times of variable demand, such as hot weather. Medium-term period ( ) Long-term period ( ) The purple bands on the radar show potential innovations into the future across the industry Taking care of water

61 What if things don t turn out as we expect? Delivering efficiently: Managing uncertainty 59 We need to be ready to respond to any surprises or risks that the future holds. The strategic direction we set out in this report reflects our central plan. Like all businesses, ours is exposed to many risks and uncertainties. These could have a material impact on our service or financial performance and cause us to amend our original strategy. To help understand and control these risks, we proactively look to the future to understand where changes may occur and how we could adapt. This enables us to plan for events that are foreseeable. It allows us to respond effectively to changing policy or legislation, and adapt to emerging social, economic and environmental trends, including climate change. Uncertainty increases into the future, so we use planning scenarios (for example, Ofwat s Water Industry Forward Look ) to help us develop and compare different approaches to a range of economic and environmental scenarios. One key uncertainty relates to the environment, its ability to meet demands placed upon it, and how we need to adapt in order to prevent deterioration and meet new requirements on quality. The diagrams below set out some of these issues. The table lists potential scenarios and our likely response; the graph compares related costs and benefits of tackling these. Larger circles on the graph represent greater costs, whilst darker colours depict greater benefits. Circles higher up the graph indicate the most likely issues to occur. In responding to changes in requirements (for example where tighter standards are proposed through new legislation or policy), we will work with the relevant bodies to promote and protect the interests of our customers and the environment. We will challenge policy where the benefits are unclear or where they conflict with our sustainability aims. We will encourage others to do the same where necessary. Where appropriate, we will seek improvements to new legislation or policy in order to reduce the impact on customers bills and allow time for technological advances to reduce costs. Where we believe standards should go beyond regulatory requirements, we will base our decisions on how important the issues are to our customers and their willingness to pay for any service enhancement. The regulatory regime ensures the company is responsible for managing most of the risk but establishes limits to that responsibility, helping to keep our cost of borrowing (and customers bills) down. This method works well for customers, although we need to ensure that it is equitable with respect to the risks we carry. Potential scenario Low levels of water flow in sensitive streams New information on health-related risks introduces additional requirements, for example, organic carbon removal and cryptosporidium treatment Meeting new standards for lead in water supplies Meeting new chemical and biological standards introduced through the Water Framework Directive Poor microbiological quality of rivers causes illness to recreational users Likely response Introduce alternative sources of supply in order to reduce water abstraction within the connected area Adapt water treatment processes, for example, replacement of slow sand filters and installation of ultra-violet treatment Replace connection pipes to deal with localised issues Adapt sewage treatment processes to increase removal of nitrogen, ammonia, phosphorous and chemicals such as endocrine disruptors Contribute to a river basin-wide quality improvement plan by disinfecting wastewater effluent Quality enhancement scenarios into the future Nitrogen removal (London STWs only) Additional sludge treatment capacity Medium net benefit Low net benefit Likelihood Low Medium High Reduced abstractions Listed pollutant removal at STWs* Widespread lead pipe replacement EDC removal (sand filter) Widespread phosphorus removal from STWs Disinfection of sewage effluents Large WFD abstraction reductions including LTOA WFD additional ammonia and BOD reduction from STWs Enhanced cryptosporidium destruction in drinking water Enhanced cryptosporidium destruction in drinking water EDC removal (GAC) from STWs WFD further ammonia and BOD reduction from STWs million million million Nitrogen removal (all major STWs) Enhanced organic carbon removal from drinking water Enhanced organic carbon removal from drinking water 1 billion - 2 billion Year Abbreviations used: BOD Biochemical Oxygen Demand; EDC Endocrine disruptor chemicals; GAC Granular activated carbon; LTOA Lower Thames Operating Agreement; STW Sewage treatment works; WFD Water Framework Directive * Priority substances as defined by the European Union Taking care of water

62 60 Delivering efficiently: Competition Will we always provide your water and sewerage services? Background The water industry was established in 1989 as a series of geographically-based monopolies in which consumer interests are protected by regulation. Comparative competition between companies has successfully generated investment in assets, improvement in environmental standards, and delivered value for customers by reducing costs and improving service. However, regulation is always likely to be a second best alternative to competition, where it is feasible. Ofwat and the Government are now considering changes, some far-reaching, to introduce greater opportunity for competition within the industry. As a result, things will be different in 25 years, although we believe regulation will still play an essential role given the nature of our business. It is possible that the structure of regional water and sewerage companies like Thames Water may change significantly. For example, some companies might compete to provide retail services such as billing, whilst others might only supply and treat drinking water or dispose of wastewater. Our response In the medium term ( ), we will: Continue to innovate to drive sustainable cost reductions without compromising service standards. Continue to competitively tender services where these are not part of our core skills and there is a commercial rationale. Actively participate in the development of retail competition. Enable separate accounting for our costs through the water and sewerage value chain. We anticipate potentially fast-moving change and will welcome this where it delivers value for customers and provides business opportunities. Ofwat are currently undertaking a full market survey to assess the opportunities for competition and we support this initiative as a first step to assessing the likely costs and benefits of further competition. Currently, interest is focused on competition to supply retail services, initially to large industrial customers and new housing developments. Competition for domestic customers is likely to become viable as metering becomes more widespread. We believe in the principles of competition, particularly in retail services, where it may drive better performance for customers. In relation to the supply and treatment of water, there are greater issues to resolve, particularly the lack of availability of water in some parts of the country and implications for the value and price of water in a competitive market. Work with eligible customers and new entrants to enable choice, carefully evaluating opportunities to win new customers. Expose and explore the issues arising in a move from costing water to valuing water in line with its economic and social value. Assist the Government in the development of mechanisms to deal with affordability. Although the majority of responses to our consultation document supported our approach to competition, mixed views were expressed over the benefits that greater competition would bring. Earlier market research with large users indicated a greater level of support. In the long term ( ), we will: Seek to establish the costs and benefits of developing an infrastructure to facilitate inter-regional transfers. Seek to understand the opportunities for further value chain disaggregation, with the objective of promoting the efficient development of water and sewerage services to the benefit of all consumers. Taking care of water

63 Delivering efficiently: Supply chain 61 How will we work with suppliers and contractors? Background The size and nature of our business means we need to source goods and services from a wide variety of routes, both internal and external. The way in which we develop our own internal capability as well as that of our supply chain is critical to delivering value for our customers. A key driver that influences our sourcing decisions is the premise that the supply market will add value in areas where it is well established and where competition over the years has driven investment to increase levels of service and efficiency. Well-conceived, applied and managed contracts are also critical to the longerterm success of supply relationships. Our supply chain strategy will also need to adapt to pressures created by planned major infrastructure investments within our region, principally the London 2012 Olympic and Paralympic Games, proposed airport and railway developments, increased housing development and, by no means least, our own investment proposals, such as the Tideway Tunnel. Construction of tanks to improve the treatment process at Swindon sewage treatment works Our response In the medium term ( ), we will: Evolve our delivery model to build on the benefits of competition and commercial incentive, developing our own capability and implementing a range of approaches to suit our varied business needs in order to realise best value from the market. Actively influence supply markets to identify suppliers that can demonstrate the expertise and commitment to deliver continuous improvement in cost, innovation, quality and service. Seek to provide continuity of work, particularly across our construction programme, to enable a more stable demand on resource levels and realise further efficiency benefits for customers. Further develop and implement procurement strategies to support our sustainability goals, selecting suppliers who share our values and will contribute to the achievement of our wider corporate responsibility programme. In the long term ( ), we will: Seek to maintain and increase competition and innovation in key external and internal supply markets to drive improved efficiency performance. Encourage markets to develop new capabilities in areas where we believe value is not being delivered and where competitive alternatives are not available. Maintain a balance of in-house and outsourced capability to protect the longer-term interests of our customers, stakeholders and investors. We will extend in-house activities in areas where value cannot be achieved through external markets. Continue to review advances in environmentally and socially responsible procurement, adapting our approach accordingly. Taking care of water

64 Essential investment will mean that although we currently have the lowest combined bill nationally, this will need to rise

65 Providing affordable services For the vast majority of people, bills are affordable. Ours is currently the lowest combined bill nationally. As a result of the work needed to maintain service levels and meet the challenges of the future, the cost of water to customers will rise. There will be a small proportion of our customers who are less able to pay their water bills. It is important that we recognise the impacts that future bill increases will have on these customers and that we make appropriate provisions to help them keep up to date with payments. We discuss how to ensure we provide affordable services in this section.