False economy and the acceptable face of monopoly

Water UK issued a rather uncharacteristic criticism of Ofwat last week. Boldly stating ‘Price proposals are false economy‘, Water UK went on to stress that Ofwat’s determinations for 2010 to 2015 represent ‘short-term decision-making on prices’ that ‘could affect service quality and be a poor bargain for customers’. Water UK further expressed the view that Ofwat’s position would ‘put at risk capital expenditure needed for the sustainability of water services’, ‘delay service improvements consumers have requested and expect to be delivered’ and ‘reduce investors’ confidence in the financial stability of the sector leading to higher prices in the medium-term’.

There are a number of problems with this Water UK statement. Firstly, why is there no mention that innovative options could of course be used to achieve the same ends for less? I must admit I’m reminded of Daniel Libeskind’s attitude here when a significant chunk was cut from his budget to build our nearby Imperial War Museum North. The sums of money involved are of course vastly different, but it’s his approach that stands out. He didn’t complain or blame anyone. He simply revised his plans and achieved what he originally set out to do with fewer funds.

Where’s this philosophy in the case of the water industry? It’s hard to find. However it is there, we believe. Indeed Roger and I had a brief taster of it only a few months back when we took part in a strategy day with the board of one of the water companies. It provided signal proof that there are people inside the water companies who are willing to take risks, to do things differently, and even to re-think what the whole sector should or could be about, right from the ground up (or should that be ‘from the ground down’ in a sector with billions of pounds worth of ‘invisible’ underground assets?).

What constrains this kind of blue skies thinking these days in the water industry? I feel one board member neatly summed it up during this very strategy day. It’s that fine line between either being hammered for plain inefficiency and underperformance or else being criticised for any experimentation and radical approaches that can easily get misconstrued (by shareholders and the public alike) as the water company losing sight of its ‘core business’. Inside a still politically sensitive setting where the water companies remain natural monopolies, it’s all about defining and enforcing the boundaries of ‘the acceptable face of monopoly’.

In short no one really seems willing to be an outlier or to challenge received wisdoms about water industry business. Against this background, should we really believe that the plans originally proposed by the water companies even before they were cut – and containing as they doubtless did, very orthodox, traditional and incremental ‘solutions’ to ongoing concerns – would have been a real victory for ‘sustainability’ if funded in full? Can we possibly interpret this knee jerk response from the industry’s ‘common voice’ body as evidence of an innovative sector bristling with new ideas and approaches yet tragically thwarted by a short sighted regulator? Sadly, I think there is simply no way we can!

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

Duncan Thomas

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