CEF Valuation Sub-Group Societal Valuation Programme Update 20 April 2018

Background March 6th meeting Provided core valuation reports for sub-group to review and comment including independent peer reviews of all core studies Action: responding to outstanding CEF sub- group questions Key updates since March meeting Updates to Valuation Completion Report to deliver final recommended values Delivery of final main stage survey report incorporating CEF comments Delivery of second stage environment study

PR19 Customer Valuation Re-cap: our triangulation approach AW has developed a service measure framework with over 200 measures linking to outcome PCs & ODIs Aim to understand customer valuations for each of these Prioritising measures that link to PCs, important to customers and impact on the bill Need to balance all the evidence, recognising that not all evidence is equal: Robustness and relevance are key to understand how we favour each evidence source Focus on service areas with the most evidence and then linking to other measures using wider evidence e.g. customer preference surveys with relative preference weights.

Valuation Completion Report Triangulation update The update to the valuation completion report has focused on: Updates to Steps 2 and 3 incorporating new valuation evidence Moving forward to Step 4 (Assess & Test Valuations) of the triangulation process Wider qualitative customer evidence of the anchor measures has been collated Further testing has taken place, including: Specific engagement with customers to understand their interpretation of pollution incidents Testing assumptions of specific service measures with AW business leads Cost benefit analysis insight to understand if the results look sensible when compared to the wider evidence

Valuation Completion Report Key updates Values have been updated based on sources and information available as of 31st March Updated values incorporate new primary valuation information, filling specific evidence gaps and reviewing key assumptions (as recommended in the interim stage report) Additional primary valuation information incorporated: Main stage study Best worst scaling (BWS) study results for household customers Full non-household results Revised scaling factors (resulting from further analysis) Use of updated customer numbers to include Hartlepool numbers in the aggregated values Evidence gaps and assumptions reviewed: Pollution – definitions were tested in the online community to understand how customers had interpreted our definition of a category 3 incident Bio-resources, shellfish & wastewater compliance – assumptions tested with business leads SuDS - a bespoke PR19 SuDS Benefit Tool is being developed by Atkins for AW to feed into investment planning for the appraisal of the benefits of SuDS

Valuation Completion Report Wider customer engagement evidence AW customer engagement synthesis report and operational data used to gather additional evidence on the key anchor service measures Types of wider customer engagement evidence assessed includes: Online community engagements Consultations Co-creation events Social media analysis Operational data including complaints and insurance data A template has been established to assess the evidence in terms of the research method used and any limitations of the evidence/data Key messages of each evidence source has been recorded and assessed to confirm if the information supports or contradicts what we already know from the valuation research Plan for the analysis to be incorporated in the final VCR report

Valuation Completion Report Pollution incidents Interim values highlighted a significant upward step in values from PR14 for pollution incidents – recommended as part of the interim stage report to test the definition with customers Definitions were tested in our online community (March 2018) to see how customer interpret our definition used in the main stage study The results show that customers believed the definition used in the valuation better aligned with a category 2 incident (not a category 3) “A majority felt Category 2 was the best reflection of the pollution description”, Incling As a result, the VCR is recommending to link the pollution anchor category to a category 2 in line with customers’ interpretation Implications: values for pollution incidents for categories 1 to 3 have all been reduced; however, note these values are still showing an increase compared to PR14 values. Category 1 19% Category 2 51% Category 3 30%

Second stage environment study building in a natural capital approach We commissioned eftec to undertake an environment study as part of our wider societal valuation programme The aim of the study was to develop a practical approach for estimating the values of changes in service levels across key environmental attributes The final report has now been delivered and sets out a natural capital framework to help analyse the impact & dependencies of investments on natural capital assets and ecosystem services (see diagram below) The study also provides recommended values for investment appraisal; where appropriate these have been incorporated into the Valuation Completion Report The natural capital framework has developed 12 impact pathways representing the range of investments that have impacts and dependencies on natural capital and includes 3 case studies to illustrate the approach in practice We are in the process of developing an internal guide to use of natural capital and environmental values in investment planning appraisal which draws on the key findings from the environment study.

PR19 Customer Valuation Next steps Final Valuation Completion Report to be delivered shortly Customer segmentation analysis - to feed into final VCR, there will be an additional section exploring how priorities and preferences differ by customer segments Deliver of narrative for business plan and more detailed write up of societal valuation programme results

CEF Valuation Sub-Group 20 April 2018