Update 02/08/18: United Utilities has announced its hosepipe ban, planned to start Sun 5th Aug, has now been called off. The BBC’s article about the news has some other interesting facts:

  • The aborted ban would have been ‘first hosepipe ban of the summer’;
  • ‘The long range forecast from the Met Office is one of relatively dry weather into the autumn, so future restrictions are still a possibility if more rain doesn’t arrive’ (Dr Martin Padley, UU Water Services Director);
  • Customers are still ‘urged’ to ‘continue taking steps to save water in their homes and gardens’;
  • The Consumer Council for Water says, ‘Consumers deserve great credit for the way they’ve responded to the call to use water wisely’;
  • UU has stated, ‘The first half of the summer in the UK has been the driest since 1961’;
  • UU’s ‘drought plan says its “minimum level of service” permits bans no more than once in 20 years, on average’;
  • UU ‘last imposed a ban in 2010’;
  • UU’s now ‘called off ban would have been’ only ‘the third in the company’s 23-year history’; and
  • In 2017 Ofwat ‘handed the company an £8m “underperformance” penalty’.

For various reasons I needed to take a short break from Waterstink. In a blink that break turned into a three-month hiatus! Now I’m back. Unusually for the UK water industry a lot happened in this relatively short period. This post will give a quick recap, plus a framing about ‘legitimacy’ for it all that I’ve been meaning to post up to position myself in some on-going debates.

Ofwat in over-drive…

To start us off in our recap, we see that Ofwat has been particularly busy these past few months:

  • First, it delivered its verdict on how (badly) most of the England and Wales privatised water companies dealt with network resilience issues and engaged with customers during the so-called ‘beast from the East’ cold spell back from 24th February to 18th March this year. (Ofwat released a 19 June 2018 report ‘Out in the cold‘. The accompanying press release calls out Thames Water, Severn Trent, Southern Water and South East Water, in particular. The key problems were around ‘poor preparation and planning’ for this forecast weather, ‘lack of coordination’, ‘limited or inaccurate data’ on problems, ‘inconsistent approach’ for vulnerable customers, and ‘poor communication with customers and stakeholders’.)
  • Second, it handed down possibly the largest ever fine in UK water industry history to Thames Water – £120 million – for Thames’ failure to tackle leakage reduction requirements. (The press release states that ‘an Ofwat investigation … found that Thames Water’s Board did not have sufficient oversight and control of the company’s leakage performance’ and that the £120 million is made up of £55 million in ‘automatic penalties incurred by the company for missing the commitment it made to customers to cut leaks’ and an additional £65 million agreement, meaning that ‘each Thames customer will get a total rebate of approximately £15 over the next two years’. Previous large fines I could find reports on included: £8.5 million fine for Thames for ‘failing to stop leaks’ [BBC, June 2017]; £20 million fine for Thames for ‘allowing more than a billion litres of raw sewage to flow into the Thames’ [BBC, March 2017]; £2 million fine for Southern Water for ‘polluting beaches after a pumping station failed during heavy storms’ [BBC, December 2016]; £1.1 million fine for Yorkshire Water for ‘sewage discharge near York’ [BBC, April 2016]; £36 million fine for Severn Trent for ‘orchestrating one of the largest customer overcharging scandals ever perpetrated in the UK’ including leakage issues [The Independent, April 2008]; £20 million fine for Southern Water for ‘poor service and reporting misleading data’ [BBC, February 2008]; )
  • Third, it continued repeatedly to voice concerns about and to promise to review long-standing issues of poor post-privatisation legitimacy in customers’ eyes, due to perceptions around water companies’ overseas/tax ‘avoidance’ structures and executive pay excesses. (E.g. ‘PN 16/18: Ofwat sets out agenda of reforms to bring water sector back in balance’ – with Ofwat Chairman Jonson Cox saying ‘Some water companies appear to be focused too much on financial engineering at the expense of public service’; ‘PN 18/18: Ofwat calls on water companies to share more financial gains and open up on dividends and executive pay’; ‘PN 30/18: Ofwat consults on revisions to Board Leadership, Transparency & Governance Principles’; ‘PN32/18: Water companies with high debt to share gains with customers’. Jonson Cox also gave a speech in March 2018 where he highlighted, ‘the fundamental and high-profile challenges to the legitimacy of the sector’.)
  • Fourth, in the wake of the June/July 2018 UK heat wave Ofwat threw down the gauntlet (in a 23 July 2018 Tweet) to the water companies it regulates, challenging them to reduce leakage levels so as to save 170 billion litres of water a year or ‘enough to meet the yearly needs of everyone in the cities of Birmingham, Leeds, Manchester, Liverpool and Cardiff combined – 3.1 million people’:

Water companies in the spotlight… again…

Water companies have separately been in the spotlight, mainly it seems due to United Utilities wishing to issue a drought-related hosepipe ban. (The 17 July 2018 BBC story covering it stated the ‘temporary ban’ would affect ‘seven million people in the north-west of England from 5 August’.) Unfortunately this came just as the heat wave was broken by numerous thunderous downpours (accompanied by lighting that brought much of the UK’s already stressed train infrastructure to a standstill in recent days).

I saw a great post about how important demand-reduction is for the UK water industry:

Here Claire Hoolohan mentioned how public/customer responses to drought-related water restrictions should not only focus on how the companies are handling leakage but also the bigger picture of supply/demand balance:

‘Immediate reactions often centre on leakage, and there is no doubt that leakage is part of the challenge. But water companies in England and Wales have strategic targets to reduce leakage in a way that is economically and environmentally sensible. … But leakage is only one part of the challenge. Water shortage, or water scarcity, is about how much water is available at any given time, and how water is used by people and by businesses.

Though it is tempting to focus on leakage, we need a much broader discussion about how to change the ways that water is used in every sector of society. In all likelihood the pressures on our water supplies are going to increase. Climate change means we’re likely to experience hotter, drier summers across the UK, and that the north west of England, like many regions, will become more susceptible to water shortages. That means less water available in our rivers and reservoirs. If we don’t change the way we use water, it also means higher demand as water is part and parcel of how we celebrate hot and sunny weather. Population growth is also a challenge, set to increase demand by 15% by 2065.’

It is good to emphasise how there has been a gradual rise in demand, due to various causes, and to problematise how we expect to use water and what we use it for (i.e. not just talk about numbers, but social and cultural uses and meanings of water that get embedded over time, often go unacknowledged – particularly by water companies – and can be difficult to change).

At the same time, we must remember that there is a lot more potential innovation around leakage detection and reduction that is not fully harnessed by the UK water sector, and that the way leakage has been measured over the years is not consistent, so trends have to be treated with due caution… (I’ve written more about that previously.)

Additionally I think public ‘leakage’ concerns are a window into broader dimensions of the ‘legitimacy’ of the water companies in the eyes of customers, and how current strong feelings by people may have come about. So that’s explore that for a moment…

Leakage just part of the story…

Many people – for instance on Twitter/social media – did not just call out water companies for their (perceived) poor track record over leakage reduction, when they heard about potential hosepipe ban restrictions. As a sample of Tweets in response to United Utilities’ PR team show, people also called out a number of important other things. Given this setting, I feel it could be very hard for water companies and customers to engage together to work harmoniously on demand management:

Tweet: UU announces ‘a #hosepipban will be introduced’.

Tweet: A response highlights the water used by fracking, and that ‘corporate customers’ seem ‘more important than domestic’ customers to UU, ‘as usual’.

Tweet: Another response mentions high profits and UU ‘telling us not to use water which we’ve paid for’, as well as telling UU to ‘fix your leaks and stop getting rid of reservoirs’, probably to mobilise the fact that ‘it’s p*ssed down for the last 6 months before this heatwave FFS!’. 

Tweet: Yet another response calls out their perceived priority order of ‘shareholder dividends, management remuneration’ and ‘profits’ for water companies – as well as calling for ‘new reservoirs’, ‘replacing ageing pipes’ and ‘fixing leaks’. 

Tweet: A more direct response calls the company a ‘profit focussed disgrace of an organisation who operate in a competition free monopoly’ – clearly not just discussing leakage.

Tweet: A different response links to a Manchester Evening News news article about apparent £12 million payments to UU’s CEO…

(At the same time, kudos to UU for leaving this whole remarkably long and visceral thread up and uncensored!)

Seasonal pricing for UK water…?

In a different, earlier Twitter thread by Water UK, I thought there was a particularly amusing but also insightful response to a similar call for demand reduction (2 July 2018):

Tweet: A response says the UK water industry can ‘f*ck off’ from someone who feels that as they pay for water they can use it.

This Tweet, although it may at first seem a bit flippant and incendiary, is quite a profound reminder that there’s not really been any major engagement with the idea of seasonal water pricing in the UK (for metered usage, primarily, would be best). I recall some Ofwat consultations about it here and there over the years. But these never gained much traction.

Pay-to-use seems a legitimate response, in economic perspectives on water pricing. My colleague Prof Dale Whittington is my expert authority on this (a link to a video on this topic is below). Water pricing can serve to send signals about the value of water. If it is priced higher when demand is high and supply is low (e.g. during summer) then this can reduce demand and related peak-demand infrastructure needs:

YouTube: The subsequent videos 3.1, 3.2, 3.3 and 3.4 are also relevant on water pricing.

Subjects and sources of legitimation

Leakage and pricing though were not the only concerns voiced in the Tweet-storms I saw about hosepipe bans in England. There was a lot of anger about private ownership, tax arrangements, and executive pay too, among other things.

Borrowing some concepts from something I was working on with a Norwegian colleague these past few weeks, this makes me think about ‘subjects’ and ‘sources’ of legitimation for the privatised UK water companies.

Abridging Deephouse & Suchman (2008, see below) considerably, ‘subjects’ of legitimation here would be arguments, data, indicators, and other evidence mobilised by the water companies to demonstrate that their levels of performance and activities since privatisation are ‘legitimate’. Examples here might include, how many £ billion the water companies have spent/invested between 2015 and 2020; by how many % leakage has been reduced from post-privatisation levels etc. etc.

Tweet: Example of UU using some ‘subjects of legitimation’ – i.e. indicators it would use discussing these matters with the regulator, and stressing its performance against ‘leakage targets’ ‘set by the regulator Ofwat’.

By contrast ‘sources’ of legitimation are the audiences this evidence is meant to convince that things are ‘legitimate’. Typically here internal and external audiences are mentioned. I would make the argument here that the structure and focus of the UK water industry since privatisation has pretty much set things up that the internal audiences are the regulators (economic, environmental, quality), shareholders, financiers, the supply chain and so on. I’m certainly not alone here in making the point that the water industry, for many years after privatisation, focused on delivering – and some would claim ‘gaming’ – the indicators proposed internally by the regulatory framework.

Customers/the public: An external audience…?

There is a bit of a transition seemingly underway, with new emphasis on customer challenge and customer engagement. For example Ofwat has highlighted its:

‘ongoing work to make sure that water companies put customers at the heart of everything they do’

However I would still currently frame customers/citizens/the public as an external audience for water companies, in terms of legitimation for its behaviours. This has not traditionally been an ‘audience’ the companies have sought legitimation from.

You can see this, I believe, in how the water companies respond to customer concerns – like those from the above hosepipe ban-related Tweets – by trying to present the same indicators they use to convince regulators/shareholders they are on the right track, to the public. For example, they may cite impressive sounding levels of investment or percentage reductions in leakage. Perhaps they then wonder why these pronouncements seem to fall on deaf ears, and do not sate the criticisms voiced on social media and elsewhere:

Tweet: UU response highlighting formal levels of investment in £XXX million terms (see also the leakage reduction/Ofwat Tweet above).

Re-framing ‘legitimacy’?

Overall I think it’s true to say there’s a ‘crisis of confidence‘ (Jonson Cox, March 2018) or legitimacy in the UK water industry. It seems to call for a re-framing of from whom water companies are seeking their sense of ‘legitimacy’. In my opinion, they need to look more to somewhere they seemingly have up to now seen as their ‘external’ audience – i.e. customers, the public. I think as the above Twitter contributions show, I can’t see much progress ahead just to continue to try to marshal ‘stronger’ arguments by trumpeting hard data/indicators already used to sway their ‘internal’ audience of regulators and investors (and Ofwat now seems to be turning a corner too, away from this previous legitimation).

Perhaps ideas being generated in the non-domestic water market evolution may be helpful here, as customers have switched and experienced more service levels and providers (e.g. see Ofwat’s 10 July 2018 review of the first year of this new market).

Whatever the source of new ways to re-frame and re-focus on a different audience, here’s hoping these kinds of ideas will at least be picked up and explored as the industry tries to move forward…

Duncan Thomas

References

Deephouse, D.L.; Suchman, M. 2008. Legitimacy in organizational institutionalism. In R. Greenwood, C. Oliver, & R. Suddaby (eds.), The Sage Handbook of Organizational Institutionalism: 49–77. Los Angeles, CA: Sage.

One comment

  1. There is a ‘crisis of legitimacy’ in the both water & farming sectors (and much else besides …). In the case of the water & farming sectors it is because of a lack of really basic regulation in the public interest, of really huge proportions .. not just one but many ‘elephants’ in the room all being ignored.

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