Leading Through Transition: Gippsland Water's Vision for the Future

[00:00:00] Piers Clark: Welcome to the Exec Exchange, a 15 minute podcast in which a leader from the water sector shares a story to inspire, educate and inform other water sector leaders from across the globe. My name is Piers Clark and today my guest is Sarah Cumming, Managing Director for Gippsland Water in Australia, and we're talking about industrial clients and the challenges and opportunities that they present.

Sarah, wonderful to be with

you.

[00:00:25] Sarah Cummings: Thanks Piers, lovely to be here.

[00:00:27] Piers Clark: Now, let's start by talking a bit about your background, because, you're a bit different to most, uh, water utility chief execs. You're a lawyer by training. Tell me about that.

[00:00:37] Sarah Cummings: Yes, I started my career actually as a litigation lawyer, so I've got a background in industrial relations.

And sort of personal injuries litigation. So quite a different background. And then I moved to working for the corporate regulator the Australian securities investment commission. So I've also got a strong background in governance and largely not in major IT sort of projects. So it's quite a diverse, I often describe myself as a deep generalist.

I've got a lot of knowledge about a range of things like just, but just to a splice.

[00:01:12] Piers Clark: Well, I think that, that sort of legal training and mindset is going to, as this story is going to unfold, is going to show how that skillset has really come to the fore. Now, um, we're going to be talking about industrial clients because that's the majority of the clients you serve in Gippsland Water.

But before we get to that, let's just explore where is Gippsland Water? How many domestic customers do you serve? What's the geography? What's the makeup of the population that you're serving?

[00:01:41] Sarah Cummings: So, Piers, we're based on the southeast of Melbourne, um, out towards the, the border of the coast of Victoria, and we cover an area of 5, 000 square kilometers, and we service a population of 165, 000 people.

So, relatively, Relatively small, but spread over a very large area. And then in addition, we manage around 2

infrastructure. Um, but that infrastructure also services our very large industrial customers, who include power stations, gas production, and very large scale manufacturing.

[00:02:18] Piers Clark: Yeah, so you've got this really interesting mix of, of something like 20 to 30 percent of your water and wastewater services goes to domestic customers, and the great majority is to this relatively small number of large industrial clients.

And that creates both opportunities and challenges. And so let's start with the good stuff. Let's start with the opportunities that having individual. large industrial clients. What does that give you that other utilities might not be experiencing?

[00:02:49] Sarah Cummings: So we have infrastructure that's, you know, we have really big infrastructure.

We have excellent resilience built into our infrastructure because all of our contracts have historically been high reliability contracts.

[00:03:03] Piers Clark: So there is no option to, there's no option to fail, is there? Because the industry fails. You cascade down, everything fails.

[00:03:12] Sarah Cummings: This is right, you know, if we, if we fail in our service provision, either we lose gas to the state or southern, um, eastern seaboard or, um, we lose, you know, power to the state.

So the consequences are so large that we've built infrastructure and reliability to match those contracts. It also means we've got significant water resources at our disposal because we're filling such large contracts. Um, it means we've got resilience in water resources, you know, for the long term.

[00:03:41] Piers Clark: And it obviously also creates job security for the staff that you've got.

It gives you scale. It gives you a big, as you mentioned, a big capital program to, to deploy. And I suppose it also means that you can focus very quickly down to individual clients. You, you have key client relationships with the, the, the big users.

[00:04:03] Sarah Cummings: That's right. We have key client relationships, but we're also actively involved in economic development.

development in our region. So we cover four different local government areas, and we have a strong relationship into local government and into state government because we're an authority that can help attract investment into the region., and we link really strongly to all the employment statistics for our region, either directly employing people.

Skilling up people into the region or having a relationship to the organization. I work for in terms of our service provision.

[00:04:35] Piers Clark: Brilliant. Brilliant. I get all the good reasons why it's great to have industrial clients. There are of course some fairly significant operational challenges Let's uh, let's touch on those as well now So what are the things that keep you awake at night when you're dealing with industrial clients?

[00:04:52] Sarah Cummings: Yeah, I think one of the reasons you end up with someone like me with my background in this particular managing director role is we inherited from, our predecessors and the state government, various legacy arrangements. that were extremely challenging, um, and things that required significant negotiation abilities to be able to get us onto a level playing field with these large major customers.

And then you've also got the challenge of industry transition. So we've got regional structural change. All the caring with all of our large customers. So of our five majors, every one of them has a plan to either fully close or at least partially close over this next two decades. And so that means a huge amount of our revenue will be gone and we've got to be in those conversations about how is this region going to transition and how can we play a really proactive role in that transition,

[00:05:54] Piers Clark: right? Can we just pause on that? Because what you said was absolutely terrifying, um, your 5 biggest customers. are all going through a transition which results in them partially or completely closing the operations that are the backbone of your supply.

Is that, is that what I heard?

[00:06:13] Sarah Cummings: That's right and so those clients like in terms of wastewater treatment, they have the two largest volumes of wastewater that's treated in the state and was on the water side where they had to close it with the second and third largest water users in our state. Um, the first one has Reduced by half so they've got closure in place and then, you know, the others are following over this Victoria's transition away from coal, um, powered energy source is well known and that all occurs in the Latrobe Valley, which is one of our service areas.

[00:06:51] Piers Clark: All right, we'll talk a bit later about what might be replacing them, but I assume there's also, because you've got industrial clients, you've also not just got this volatility of the amount of water and wastewater services they're procuring, but also there's some special, some special chemicals that inevitably are going to be being discharged and things like that that you've got to deal with.

Is that, is that also a problem?

[00:07:12] Sarah Cummings: Oh, yeah, there's there's complexity on both sides. So there's complexity in, um, certainly in the waste streams around, you know, legacy contamination and making sure that everything's done to the right standards and we're really proactive in that space. But then we'll have legacy infrastructure as well.

So everything we've got is sized for these massive industrial contracts that will cease in the future. And so we've still got to maintain those contracts or maintain those, those assets, and be able to keep our bills stable and affordable for our residential customer base.

[00:07:48] Piers Clark: Yeah, and what has your bills to either residential customer base look like over the last 5 10 years?

[00:07:54] Sarah Cummings: So ours have been stable and slightly falling. So we've been able to position ourselves relatively well through the big changes so far. But that's because we sat back initially. You know, this is happening. How on earth are we going to do with this strategically? And so our focus on strategic planning and really the sort of long term focus, it's been very deliberate and our investment in parts of our business where we might not have had that sophisticated sort of lens, we've been deliberately saving money and reinvesting in the sorts of skills that are going to set us up for the future.

So over 10 years has been consistently lowering our cost to serve every year and our plan going 10 years forward is exactly the same. So that's, if, if we can actually manage through this transition well, it is possible that we actually are not going to follow the trend of the rest of Australia where we expect to see rising water utility bills over time and maybe, just maybe we'd be able to do stable for them.

[00:08:56] Piers Clark: I, I love that response. You've outlined the opportunities, you've outlined the nightmare scenario of some of your biggest clients, uh, just dropping away and it being outside of your control. Yet you've got this, uh, this steady viewpoint that you believe you can keep that cost to serve low. And I think I know how, why your confidence on that is, and it's where I want to now move to, because one of the things Gippsland's done is develop a couple of really interesting non regulated businesses that are, I think, market leaders in the region.

You serve, you stretch outside of your region, and I think some of that is because you've had the infrastructure that's been related to the, uh, the large industrial clients that you serve, and some of that is actually due to the mindset that you've created inside the organization. So can we talk a bit about those two?

There's two businesses in particular I'd like you to touch on. I think you know that which the two are. Can you fill us in?

[00:09:52] Sarah Cummings: We're probably, we're quite different, not just because of our customers, but because we run two reasonably large commercial businesses, both for profit, one for much more substantial profit.

And probably the one that's really worth focusing on is our, what we call, Gippsland Regional Organics. So we run the state's largest organics recycling facility, and this is one of the benefits, I suppose, of having the challenges that we've got is one of our big industrial customers has a waste stream that was causing us enormous damage.

And we found a way of being able to manage that waste stream and value add. So that's where our organics business grew out of. Um, and it's a business that makes a significant profit and helps us manage both our operating costs down, but also pay down our debt.

[00:10:45] Piers Clark: And just to be clear, because you're a publicly owned authority, the profit that's made in that organics business is then used to cross subsidise and enable you to keep the cost to serve for your domestic customers as low as possible.

Is that correct?

[00:11:03] Sarah Cummings: Yeah, so we use it both to offset operating costs and pay down debt. And the debt that we're paying down is largely related to the residential customer base. So yeah, we use it for the benefit of our broader customer base.

[00:11:17] Piers Clark: Now, I know you wanted to, you've talked about the organics business and you sort of cast over the second business, but I, the reason I want to mention you to talk about both of them is because having one is almost lucky.

Having two shows that there's a cultural approach that you have inside the organization. And so I think it's, it's really good to just touch briefly on the second business as well, if you could.

[00:11:41] Sarah Cummings: Sure, so the second business is our Gippsland Regional Agribusiness and we run 12 farms across the Gippsland region.

We've primarily got the land to serve disposal of wastewater at the most efficient way. So that business on its own saves us nearly 2 million in operating costs a year because we can treat that wastewater. To a, to a lower standard than if it was being, you know, put into waterways and so on. Um, but the business also has significant cropping enterprises.

We also manage some of the state's largest plantations. Um, so it's quite a diverse business. business and it's got lots of flexibility to really do what it needs in order to generate a profit for, for our broader customer benefit.

[00:12:27] Piers Clark: See what I like about that is, is you've taken the organization, what it's doing, you've understood the, the core water and wastewater business, and then you found these aligned businesses.

They're not, they're not quite in the core business, but they're very close. They're aligned, To what you would normally do organics recycling or a bit of, um, the irrigation and the forestry stuff. It's not a million miles away from, uh, from the, the core water and wastewater business. So let's, um, let's finish with talking about the future.

What do you, uh, what do you, what are your plans for the coming five, 10

[00:13:04] Sarah Cummings: Look, overall, it's really around contributing to this transition that we've got happening. There's mine real rehabilitation. Coming through, which may be a water based solution and will be, if that is, will be part of that, um, service offering.

Um, it's also other large industrial users potentially coming to our region. So that for us gives the opportunity to then, again, sell water, but also contribute to, employment in the region. Um, but ultimately, you know, there's a couple of other big projects we've got on our agenda at the moment. We've got that significant organics waste stream.

There's an opportunity to do a waste to energy, facility at an organics facility. So that's, that's currently in its business case phase and we're working with significant, international proponents potentially have a large scale or medium scale, which is working out what's best wind farm on one of those properties as well, because unique and quite remote location.

Yeah, we're going to be, we're always running a few things in parallel to work out where, where our money is best spent.

[00:14:12] Piers Clark: All right. We always finish with the question of, uh, what's the best advice you've been given or what advice would you give a young Sarah Cumming?

[00:14:21] Sarah Cummings: It's an interesting question.

Like, sometimes I think about like, whatever you do, You've got to make it meaningful and you have to have fun along the way. But then if I transition it to a Gippsland water context, and maybe some of the other work I've done, there's something in, like I've always found in my career, that the challenges you face, like the bigger the challenges, the better the critical thinking that goes into responding to those challenges.

And I think that's what makes like a job like mine so exciting. And, I'm constantly surprised that I'm still in this role seven years on and I feel so fresh. You know, in my role.

[00:14:57] Piers Clark: Embrace the challenge. When something difficult is there, run towards it, not away. Thank you very much. You have been listening to The Exec Exchange with Piers Clark.

I've been talking to Sarah Cumming, Managing Director for Gippsland Water. Please join us next time. Thank you very much, Sarah.