Ofwat: ‘Poodle’ of the water companies or becoming a ‘Rottweiler’?

On 23 July Ofwat published its draft determination for AMP5. The press release was characteristically strongly worded with the headline:

  • ‘Proposed average bill to go down by £14 by 2015
  • Investment of almost £21 billion over five years’

Below this headline were guarantees that the although they were cutting back on what the water companies had asked for they would still be able to spend money to ensure that all the good things that had been achieved in the first 20 years of privatisation would be preserved!

  • Companies will still be able to invest extensively. Almost £21 billion will be pumped into helping maintain and improve services to consumers. The proposals will build on the progress made over the last 20 years since privatisation, allowing companies to carry on delivering a safe, reliable supply.’

Extreme weather events were mentioned as this was something that was clearly of concern to many customers who had suffered flooding in the last few years.

  • ‘Flooding in 2007 highlighted the risk extreme weather conditions pose to water supplies. The proposed investment will see this risk reduced for around ten million people.’

The environment gets a mention with a specific mention of those areas receiving publicity at present notably the preservation of the wetlands.

  • ‘More than £4 billion will be invested in maintaining and improving drinking water quality, as well as protecting the environment. This will help deliver cleaner wetlands, rivers and beaches.’

The extent and breadth of the problems brought into these paragraphs particularly as they also must include flooding protection for which a financial figure is not given makes the £4 billion look quite small compared with the £17 billion the water companies are being given to spend on their own assets.

All this appears to indicate that Ofwat is striking a good deal for the consumer if we hadn’t seen this all before. The damage as always is in the detail rather than the headlines. In fact if we look at what Ofwat further into its press release argues are the benefits that have been delivered in the last 20 years one has to ask why are we continuing to invest at the same level as in the first twenty years when they suggest that many of the problems have been addressed to what must be regarded as an acceptable level:

  • Ofwat’s draft proposals will allow companies to build on the successes of the last 20 years. Since privatisation, £80 billion of investment across England and Wales has seen significant improvements in service delivered. These include:
  • Leakage down by around a third since its peak in the mid-1990s.
  • Around 339,000 fewer customers at risk of lower pressure – a reduction of 99% since 1989.
  • The proportion of properties at highest risk of sewer flooding has reduced by more than 75% in the last 10 years – more than 20,000 properties.
  • Drinking water quality in England and Wales is comparable with the best in Europe. In 2008 99.96% of drinking water met quality standards.
  • In 1990, only around 78% of England and Wales’s bathing waters met the minimum standards. In 2008 this figure had risen to 97%.

The truth is this is a real example of ‘cherry picking’ facts. There is absolutely no indication how efficiently any of this was achieved and given that the recent report by Martin Cave indicated that the water industry had an abysmal record in the area of technical innovation; what has been achieved has almost certainly cost dearly and it looks as if the situation will continue during the next five years.

Almost nothing is spoken about making the companies invest in more efficient, sustainable and cost effective assets. The examples quoted for investment in renewable resources are miniscule particularly when taken over a 5-year period and particularly when it is realized that these water companies, combined, are the largest users of electricity in the UK.

Sorry Ofwat but although at first sight it looks as if you have really got to grips with the problem of uncontrolled poorly conceived capital investment by the water companies I am afraid on deeper inspection this determination is very like any of your other draft determinations. There is no real pressure being applied to the companies to get their houses in order. Given also that Ofwat has a history of conceding to the water companies in the review period this might be as good as it gets. By November it even might be regarded as the ‘tough determination’ that never was!

However as Ms Finn says in her final quote:

  • ‘But it doesn’t stop here. Once we finalise prices in November, we will continue to hold companies to account by making sure they deliver on their investment promises. Should they fail to do so we will take action.’

Surely this was what was supposed to happen over the last 20 years? Unfortunately the ‘poodle’ never barked. So we have purchased £80 billion of assets many of which are only just fit for purpose and certainly will not be able to address the problems of water and energy limitation we are already beginning to face.

Update (16/11/2016): Featured image added from this source.

Roger Ford

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