All Water Companies accept price limits except Bristol Water

All the water companies except Bristol Water have accepted the Final Decision. Why was this when early signals were that number including Thames and Southern were very unhappy with the Draft and Final Determination?

The step change came in December when Ofgem published its decision on pricing in the electricity and gas market called Distribution Price Control Review 5. This allowed a cost of capital going forward of 4% post tax compared with the 4.5% allowed by Ofwat. The blog understands that this was the major factor in influencing the water companies to accept Ofwat’s Final Determination. None except Bristol were willing to risk the Competition Commission and the chance it might say the cost of capital should be reduced! 

Bristol Water are appealing because they believe the risk to customers implicit in the Ofwat determination is too high. They are particularly concerned at the low level of asset replacement equating to a water main life of 300 years. The other major factor is the fallout from the loss of water supply for 2 weeks in Gloucester after the 2007 floods. For several major population centres Bristol Water is dependent on a single source of supply and is consequently concerned about the impact on customers of a major failure.

Bid for Northumbrian Water Group

Northumbrian Water shares leap today after the Sunday Times broke the news that Ontario Teachers’ Pension Plan may bid 1.7 billion pounds for the water utility. Northumbrian jumped almost 13% and Severn Trent plc and United Utilities both gained about 5%.

The Canadian Teachers Pension Fund already owns 27% of Northumbrian Water putting it in a strong position. Despite the tough Ofwat ruling water companies are attractive to pension companies as they offer very stable, low risk income streams. The Canadian Pension Plan is a major stakeholder in Anglian Water Group. 

Infrastructure funds and pension groups are good partners for water companies as they tend to be long term investors content to let management run the business provided they deliver stable cash generation. The certainty they provide encourages long term decision making and investment where it will protect or enhance the asset base. The evidence from Anglian Water and Yorkshire Water is that having a pension company as stakeholder does not inhibit innovation instead it encourages investment where there is a clear return to stakeholders and high operational performance.

Ireland water network investment

The problems with leakage caused by the severe winter have brought Ireland’s lack of investment in its water network into sharp focus. Water losses have run at 16% to a massive 58%. With water supply being rationed in Dublin and other cities the Government is being forced to act.

Ireland’s problems are two fold. Since water charges were scrapped in 1997 water losses have escalated and the funds have not be available to invest in maintaining the network or replacing aging water mains.

Now Environment Minister John Gormley has announced 300m Euro investment over the next five years in replacing water mains. But this is not new money instead it is being redirected from elsewhere in the Department of Environment budget. Alongside this plans to install water metering to 1.2 million homes have been announced as a means of reducing water consumption.

Suppliers hoping for a boom in work should be cautious. Although metering has been agreed in principle there has been no agreement on what water charges will be introduced. The experience in Northern Ireland demonstrates the huge political difficulties of introducing charges. This means that there is a significant risk that investment will be held back due to lack of funds  

Most Water Companies accept Ofwat Final Decision on price limits

To date only one water only company – Bristol Water - has announced it will be referring Ofwat’s Final Decision on water pricing to the Competition Commission. Eight out of the ten water and sewage companies have accepted as well but the two outstanding Thames Water and Southern Water had some of the toughest decisions. Companies have until Tuesday 26^th January if they want to appeal.

Environment Agency warns of cost of floods

The devastating floods of summer 2007 cost the country £3.2 bn claims a report issued today by the Environment Agency. The report published some two months after the devastating Cumbria floods in November, illustrates the wide ranging and substantial costs of flooding.

Its release coincides with an excellent report that should be required reading. Retreating inland, creating habitable defence structures and building out into the sea are three options proposed to cope with the extremities of rising sea levels, in a futuristic project released today by the Royal Institute of British Architects’ (RIBA) think tank Building Futures and the Institution of Civil Engineers (ICE).

The think-piece Facing up to Rising Sea Levels: Retreat, Defend, Attack? warns that the future of our coastal cities is in jeopardy due to rising sea levels, sinking landmasses and an increase in storm frequency. With over 12,000 km of coastline, radical thinking is urgently needed to protect the UK’s at-risk communities from extreme flooding. 

It challenges planners, the public, built environment professionals and the government to be radical and take extreme measures to tackle an extreme problem. Chair of the ICE steering group Ben Hamer said: “A proactive and united, almost war-like approach is needed if we are to win the battle against what is set to be our biggest challenge in the next century, the ‘water invasion’.

 “Some very difficult decisions need to be made in the near future, and to do this we need integrated thinking. The UK must urgently change the way it plans, builds and designs at-risk communities.

The blog endorses the view that: “This requires a strategic vision at local and national level, more co-ordination and improved communication between stakeholders, and some very creative thinking about how solutions can be developed to be financially sustainable.”   

Cold snap hits water companies

The current cold snap affecting most of the UK will have a significant impact on the water industry. In the short term it’s the logistical problems of getting around and maintaining operation in sub zero temperatures. Longer term the problems will come from the thaw – when pipes burst and damage to buried mains from frozen ground will emerge. With luck the snow covering will have helped to insulate the ground buts its inevitable that water leakage will increase.

The cold snap has coincided with the introduction of an innovative scheme by the Mayor of London. From today gas, electricity and water companies must buy a permit if they want to dig up the streets in a pioneering new scheme to reduce traffic congestion.

The permits cost £240 and tough fines of up to £2500 will be impose if the strict conditions are broken. The aim – to reduce the number and duration of road works and to reduce traffic congestion – must be applauded. This is a first step as it does not as yet prioritse the busiest roads. It may also lead to higher costs for consumers unless utilities are able to be clever in sharing trenches.

Mayor of London's draft water strategy

Consultation is underway on the Mayor of London’s draft water strategy for the capital. London may have been ahead of the world when the Victorians designed the water system but now it has major problems of both securing water supplies and disposing of sewage in the face of a steadily growing population, a more competitive global business environment and a changing climate. This report promotes a number of proposals to reduce water consumption and use it more wisely while also tackling the investment needed to upgrade the water and sewage infrastructure.

The availability of water is likely to be a key issue for many parts of the world over the next decade. London is an excellent microcosm of the problems that many major urban conurbations will face. The draft report contains many valuable ideas and is well worth reading.

The main messages of the report are ones that many would do well to heed. It advocates that becoming waterwise is common sense for both individuals and for the health and wealth of the city as a whole. The clear choice articulated of either making the available water go further or paying for prohibitively expensive ways to secure water is one that many cities and indeed countries will have to face.