Stopping customers using water - a daft idea

Photo source: Thames Water

The article by Thames Water suggesting that ladies should not shave their legs in the shower due to the water in wastes is already starting to backfire if the press comment is anything to go by. Typical reactions are “water companies should sort out their leaks before telling ladies how to shave” or “Thames Water wastes more water in 10 weeks that ladies across the whole of the UK use in shaving their legs in the shower”  

It is inconceivable that Tesco would suggest to its customers they should stop using its supermarket as it was making the shop too busy. Why do water companies think it is acceptable to suggest to their customers they should stop using their product? Customers want water at an affordable price and in the quantities they need. 

When we have just had a very wet August and when water leakage is still running at about 25%, the argument to stop using water will not wash.  Water companies keep stressing they are businesses that need to make a return to reward their shareholders, they also need to recognise that businesses are only successful if they satisfy customer needs.

Commission to investigate Thames Tunnel

Photo source: Hammersmith and Fulham Borough Council Lord Selbourne and Councillors at Commission launch

 An independent commission is to study the case for the massive Thames Tunnel. The tunnel is Thames Water’s preferred solution to reduce sewer discharges into the Thames and avoid EU fines. But it is hitting increasing opposition from local residents, councils and MPs.

The commission will be led by Lord Selbourne. He said: ”The key question is whether this multi – billion pound scheme is the best solution for making the Thames cleaner or whether there are sensible alternatives that are cheaper, greener and less disruptive”. Thames Water’s Chief Executive, Martin Baggs, recently revealed that the sewer’s initial £3.6 billion price tag  - initially costing customers £65 per year for life – was based on 2008 figures and ‘will inevitably increase’. 

The concern has to be that the Water Companies have a strong incentive to favour capital intensive rather than operating cost schemes. One of the reasons for this is that any new capital expenditure increases the Regulated Capital Value of the business and therefore increases returns to shareholders. This is one of the main reasons why investors like Mcquarie bank are able to achieve returns of nearly 12% for their shareholders. Ofwat is looking at the capital cost, operating cost balance and in the view of this blog needs to take action to redress the balance. 

Ofwat review backs slimmer regulation

Photo source: Thames Water - Beckton, Europe's largest treatment works

Defra has published David Gray’s review of Ofwat. The main conclusion is that the regulatory review process has worked well and that there is no need for major change. It does suggest that a lighter, less prescriptive approach is needed back by much clearer guidance from Government on the objectives.

The review has recognised the highly negative impact on the industry of the current 5 year roller coaster of investment and all the unnecessary costs this imposes on the supply chain.  The reviews recommendation to reduce the burden of reporting is to be welcomed.   

The concern is that the current regulatory process encourages capital intensive, end of pipe solutions and does not adequately address the need for the industry to become more sustainable and adapt to the challenges of climate change and population growth. Gray does recognize that currently there is an incentive for water companies to increase their regulatory capital valve and hence return to shareholders and suggests that there needs to be a review by Ofwat of the current rewards and penalties and framework of incentives. There is increasing concern in the industry that some current shareholders are only there for the short term gains – as evidenced by the bid for Northumbrian Water and that some water companies are selling key assets like buildings and then leasing them back – the model that ultimately led to the downfall of Southern Cross.

The industry has some massive challenges – especially the unprecedented growth in population and the uncertainty of climate change. Innovation and sustainable solutions like reuse of water and management of catchments must become the norm – it is disappointing that Gray has not taken this on board. Lets hope that Richard Benyon in the forthcoming water white paper rises to the challenge.    

Private sewer transfer goes ahead

Changes being introduced today (1^st July) by Defra mean that from October responsibility for private sewers will transfer to the water companies. This change has been a long time happening and will remove the uncertainty and risk from householders. For water companies it means a doubling in the length of sewers for which they are responsible and also a massive increase in workload.

The change may have unexpected consequences for the water companies. The condition and repair history of the sewers being transferred is not known. Currently repair work has been done on a short term fix basis with no incentive to solve the underlying long term issues. This is where the real benefit to society lies. Hopefully wasteful repeat visits to repair reoccurring blockages will become a thing of the past. Finding and justifying long term solutions wont be easy given the complete lack of knowledge of the private sewer system and the lack of historic records. There may be significant opportunity for the water companies to reduce repair costs but until a repair history is established this may be hard to justify.

There will certainly be a huge increase the number of calls with customers. Managing this well will be crucial if water companies are not to see their Service Incentive ratings plummet. As yet no one knows what the cost of all this will be. it is likely that some water companies will push for an interim determination and that may bring fresh problems. 

Failed Italian water privatisation

Picture source: Thames Water - long term investment in 1920's

The news that Italians had rejected in a referendum a new law that would have required cost recovery pricing across the Italian water sector and allow privatisation of water operating companies was not a surprise. Turkeys don’t wont for Christmas! But it only puts off a problem that wont go away. Greece is already suffering from a lack of investment in its water infrastructure. Water shortages are becoming more common. They may get a temporary reprieve if as seems likely their economy collapses and demand for water falls. But this only postpones the inevitable need for investment.

This political stalemate over water pricing is common across the world. Close to home it’s the key issue facing Northern Ireland Water as the winter water supply failure starkly highlighted. It means that if long term solutions are so unpalatable to the politicians then crisis management will become the order of the day.  Water tankers, and bowsers will become a regular feature. It will create market opportunities for quick fixes like portable desal plants and may drive up the cost of water. But it will only lead to a more unstable world. Putting off important decisions on water investment will mean that the options open to solve the problem will be more limited and expensive and make the economic situation for Governments worse.   

UK water sector drought - opportunity or threat?

The news this week that parts of the UK were suffering from drought came as no surprise to those living in the south west or east and it was closely followed by the wettest day for months! But one wet day does not change the seriousness of the long run of exceptionally dry weather.

One strand of Thames Water’s strategy to answer water shortages was to construct its  £270m desalination at Beckton. In its first year the controversial Thames Water desalination plant ran for only three days – proving trials only - as there was insufficient demand to justify running this very expensive way of producing water. This must make the water produced some of the most expensive in the world!

It does sharply question whether having highly capital intensive and expensive desalination plant on standby is really the best way to tackle the growing water shortages. Water leakage in London is still around 25% and in some areas much higher still. Investment in replacing the 100 plus year old water network has increased but still the rate of replacement assumes much of the existing old pipework will last another 100 years. Other European countries have shown that achieving leakage rates of 5% is feasible albeit it would require massive investment. Would it not be better to increase investment in pipe replacement if we are to have a sustainable solution? 

Water White paper delayed further

It is disappointing to report that Defra have announced the water white paper has been delayed further. As this blog reported it was delayed to the autumn and has now gone back to December. Having raised expectations for water customers in the South West that their bills would be reduced it is not surprisingly proving difficult to find a resolution to how to have a more equitable charging system.