Water wars

The blog has just returned from visiting South Africa – what an amazing country but with huge challenges and a startling divide between the rich and poor. Water is a big issue. Still about 20% of the population struggles to obtain clean water despite some parts of the country being extremely affluent. 

Elections are forthcoming and in riots over water supplies to a township, one protestor was shot dead by the police. This was an isolated incident but is indicative of the huge social problems lack of water and sanitation cause. 

Water charging based on volume is established but a majority of the population struggle to afford the cost. It was clear insufficient investment is occurring and progress in improving water supply and sanitation appears to have stalled.       

Public subsidy to cut water bills

The blog was delighted to hear in today’s budget that the Chancellor announced help for South West Water customers. SWW customers pay for the upkeep of 30% of England’s coastline, even though they account for only 3% of the population. They have some of the highest water bills in the country and were due to face a 5.1% increase in April.

The announcement by the Government will help to reduce the inequality and is welcomed. But an announcement like this may have unintended consequences, it will certainly increase the focus on water bills. 

Information revolution will drive up water quality

The advent of so many computers and intelligence built into the systems that make our modern world work like cars, appliances, mobile phones and water networks is making available a vast source of data that could transform how we run our cities and built environment. IBM has recognized this in its Smarter Planet’s initiative.

Imaginative new Apps are being developed by IBM like Creek Watch. This is a simple application on an iphone that enables anyone to quickly and easily take a photograph and send a simple report on the water quality in their local stream, river or brook.  It means that rather than having to send inspectors out the Environment Agency or water company can get site specific data on the quality of local water courses and identify pollution incidents much quicker.

The Environment Agency is taking this a step further by a new scheme its about to launch that will require water companies to text surfers whenever sewage is about to be pumped into the sea. The Environment Agency will also announce on Thursday that it is publishing profiles on all designated bathing spots. All this information and the power it brings to people to understand what is going on at their local bathing spot will undoubtedly increase pressure on the water companies to take further action to improve water quality. 

It will  ensure that we have a much better understanding of where the real pollution hotspots are ensuring investment is targeted where it will make a real difference, That is in everyone’s interest, water companies, water bill payers and bathing water users.

Push, pull, nudge to save water

Photo source: Ofwat

Ofwat’s new focus report on reducing water consumption is to be welcomed if it promotes debate. It suggests various ideas to reduce the consumption of water. While the environmental case to reduce water usage is clear the financial case from the viewpoint of the customer is not.

Water suffers from two main problems, its too cheap and most of the costs are fixed not variable. Ofwat proposes that there should be much greater use of metering but is this really going to change behavior? In most cases water meters are installed in the pavement outside the property boundary so it is impossible for the customer to read them even if they wanted to.

Smart meters may help but so far it is far from certain these will influence consumption and the cost is currently excessive.

What about nudging behaviour and persuading customers to buy appliances that use less water. Here again the low cost of water is the issue. Typically a dishwasher that uses less water costs considerably more, perhaps £100 yet the annual water saving is at best £5, hardly a compelling financial investment case. Instead the trend of consumers to install power showers is continuing unabated. There needs to be some realism in the debate and a recognition that most customers lives are far too busy to want to worry about water consumption. Other solutions need to be found such as improving social housing by installing showers in houses that only have baths.

Resilience, clarity and reassurance in the water sector

Photo source: South West Water

Increasing resilience is one of several challenges facing the water industry highlighted by Caroline Spelman in her recent keynote speech to Water UK’s annual city conference. It is clear the recent water shortages in Northern Ireland and the floods in Cornwall last autumn have raised awareness of the issues.

Underlying this is the more difficult issue of how to ensure affordability. Here there is no easy answer. Public disquiet over the cost of water is increasing especially in the South West where water bills are highest.  Increasing resilience and improving sustainability is expensive. The answer has to be innovation, thinking outside of the traditional boundaries to find new solutions.

One of the keys is to think about root causes and the old but still very valid adage “prevention rather than cure”. Here the pioneering work of Philip Crosby in his book “Quality is Free” and the philosophy behind Total Quality Management (TQM) can still offer much to the water industry.

A good example of this thinking being applied is the pioneering work done by several water companies on abstraction and catchment management for example, South West Water’s Upstream project. Stopping pollutants getting into our rivers, perhaps by working with farmers to avoid the use of fertilizers close to river banks or restoring dried out peat so that it acts as a sponge to absorb pollutants can be a lot cheaper than massive downstream investment to remove the pollutants from our rivers. A lot more thinking like this is needed in the water industry to find affordable solutions to the twin challenges of rising demand and increasing variability in our climate.

Water retail competition is a distraction

One of the subjects in the forthcoming water White Paper expected this summer is bound to be competition, especially after retail competition was proposed by both Ofwat and the independent Cave Review. This week Deloitte published a new report on retail competition. This confirmed what many of those in the industry already thought, that introducing competition is an expensive process and that the benefits are very limited so it fails the cost benefit test.

Competition may have worked in other industries like energy and telecoms but water is a very different market. It does not have a national network that allows physical transfer, secondly it would need major consolidation from the twentyone current businesses into about six if benefits are to be achieved.

What is far more important to the sector is securing low cost finance for the massive investment needed. Here any move to retail competition could cause debt and equity investors to lose confidence. Any resultant increase in finance costs would dwarf savings from retail competition. Secondly the new Service Incentive Mechanism puts a heavy premium on customer complaints and handling. The experience in the energy sector shows that competition is far from universally popular and certainly wont decrease the number of complaints. Rather than worrying over competition it would be much better to focus on innovation and finding ways to delivery the capital programme more cost effectively.     

Water regulatory cycle likely to be extended

“Thoughtful change” and “we need to be careful not to spook investors” as well as “we need to get it right” were key messages from the Minister for Natural Environment Richard Benyon’s keynote speech last night at the British Water House of Lords reception. Roughly translated this means that we should not expect significant new policies in the water and environment White Papers due this summer.

It does seem at last that the message on how much harm the five year regulatory cycle inflicts on the water sector is getting through. Water company Chief Executives alongside key suppliers all lined up together to make this message very clear. The Minister did promise action on this. But it is equally clear that there is firm support for having an independent regulator. All the positive lobbying by British Water backed up by hard quantification of the cost and some imaginative ideas on possible solutions have had the desired effect. It is equally clear that there is firm support for having an independent regulator. 

The climate has changed. Consultation is now key in Government and there is real opportunity to shape the future direction of the water industry. But is does require a real commitment to engaging with Government and senior civil servants. and actively working to shape the forthcoming white paper. The water sector can learn a lot from how effectively other sectors have managed this.