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Water: UK House of Commons debate on the water industry

    • Energy and infrastructure - Water

    14-11-2013

    On 5 November 2013, a lengthy debate took place in the House of Commons on the water industry, and what reforms, if any, should be introduced. The debate, which was secured by Charlie Elphicke, MP for Dover, was wide-ranging, covering numerous topics, although not necessarily in an ordered manner.

    This short note highlights some of the comments made during the debate, and allocates those comments to one of five prominent themes.

    It is interesting to gain an insight to Parliamentary thinking on key issues, and some comments demonstrate a thorough knowledge of the water sector; in relation to certain contributions to the debate however, one is left thinking, if only it were that simple!

    Regulation/reform/governance

    Charlie Elphicke (Dover) (Con)

    The issue about debt is that water companies are often leveraged to 100% and then say that they cannot fund infrastructure improvements.

    We need to look at how we can beef up Ofwat and give it greater powers in the Water Bill to say, “There’s been a favourable adjustment, so we can adjust and revisit the settlement on an ongoing basis”.

    It would also be worth looking at allowing Ofwat to give guidance to the water industry on appropriate and responsible corporate governance.

    Richard Benyon (Newbury) (Con)

    …the industry is long overdue a tweaking – in fact, more than a tweaking; a serious reform…

    Jonson Cox, the chairman of Ofwat, came into my office shortly after his appointment and said he was keen to ensure that the industry took more notice of customers’ needs. To summarise, I said: “Good. That is precisely what the Government hope you will do in this price review – more power to your elbow – but we want you to do much more. We want you not only to keep household bills down, but to keep investment up and ensure that water companies play their part in improving the environment.” We must accept, however, that sometimes those three things conflict. 

    Simon Hughes (Bermondsey & Old Southwark) (Lib Dem)

    …………. we could introduce a water levy on highly geared water companies, which would take away the incentive to introduce risk by increasing gearing and removing financial flexibility.………. we could ask the Government to look at  ………….the tax treatment of debt in highly geared companies ………..we could legislate …………to make sure that water companies make the interests of the consumer much more central in their organisations, either through a consumer representative on the board or by placing a duty on the non-executive directors to report on how best to serve the consumer interest, or both.………. we should amend the Bill to introduce mandatory annual customer meetings, where customers can hold management to account in companies that do not currently have annual general meetings in the UK.

    I would also hope to change the law through the Bill, so that, when restructuring companies which have going into special administration, the regulator must always first consider non-profit companies, rather than putting them straight back into the private sector………

    I hope that the Government will also look at how different models of corporate ownership have impacted on the water industry, as they have not all been satisfactory.

    I hope that Ofwat will also do four things – and soon. First, I hope it will report on all the companies in England…….to establish whether modest dividend and financial policies would have allowed them to have enough money to spend and to reduce bills. Secondly, it should look at how price cuts could be implemented at the next price review. Thirdly, it should change the licence conditions of companies to impose London stock exchange disclosure requirements on non-stock market-listed companies. Lastly, picking up the point made by the right hon. Member for Holborn and St Pancras, Ofwat should change the licence conditions to require public disclosure of all intermediate holding companies, ultimate controlling companies and all the beneficiaries of those companies, so that we know exactly where the benefits that go in dividends to shareholders end up in those many companies behind many of this country’s water companies.

    Andrew Percy (Brigg and Goole) (Con)

    We need either beefed-up powers for Ofwat, or the creating of further bodies to deal with water companies that are making huge profits while not investing in communities such as mine which are particularly prone to flooding.

    Dan Rogerson (North Cornwall) (Under Secretary of State for Water)

    …….. a clear message to Ofwat and particularly to the water companies that consumers expect more now. They want a fairer deal to cope with the cost of living and to reflect the fact that the water companies have had some good years.

    As a Government, we are supporting Ofwat and providing political cover. If Ofwat is looking for a deal from water companies that more accurately reflects current circumstances, it has the political back-up to do that. I welcome the signs that Ofwat is indeed doing that.

    The companies that take a more responsible attitude to engaging with consumers, feeding back their information and being open about what they do can be regulated in a way that reflects that, and those that refuse to engage with that progress will be the ones that Ofwat will want to investigate much more closely and have close conversations with in future.

    Our approach in the Water Bill is to look to update the structure of the industry to deal with some of the problems we have heard about, but not to try to step in and do what Ofwat is there to do. It is the regulator.

    A stable, independent regulatory system is vital in keeping bills affordable.

    Investment/infrastructure

    Charles Walker (Broxbourne) (Con)

    We need to build more reservoirs, not waste money transporting water around the country.

    John Redwood (Wokingham) (Con)

    Surely anyone, under a suitably liberated regime, could build a reservoir or drill a borehole and provide their water to the customer through a piped system.

    Richard Benyon

    …….. the Water Bill will make it easy for new entrants to do precisely what my right hon. Friend the Member for Wokingham (Mr Redwood) suggested, by giving them access to a market that is currently denied them so that they can provide these infrastructure assets.

    Frank Dobson (Holborn & St Pancras) (Lab)

    We must not allow the water industry to get away with all sorts of technical explanations for why it cannot do its job properly and reasonably cheaply, because it has a simple task. It gets its raw material free: it is called rain. It collects the rainwater and pumps it along pipes to its customers. It then charges them for using the water.

    Charles Walker

    That is exactly the problem. Our water companies are lousy at collecting water. When it is at its most abundant, they wave it down the rivers into the sea. That is why they need to be building more reservoirs.

    Frank Dobson

    The private sector has not increased reservoir capacity in this country since privatisation in 1989-90.

    Richard Benyon

    The challenges include continuing to ensure investment to deal with leakage and other concerns, and to ensure that new infrastructure is built. We must also address the challenges of affordability and the credibility of the industry among its customers. An important matter for our constituents is that the companies address the question of resilience. They must be able to keep the water flowing from the taps in a time of changing climate.

    Dan Rogerson

    The important point is that we still see companies investing in the infrastructure to put it (leakage) right and get a better solution to the problems. That is why in all our discussions on price we must ensure that we get the balance right so that we can continue to see that investment.

    Competition

    Richard Benyon

    The competition that will exist in the non-household sector must, in time, be introduced in the household sector as well, ……

    John Redwood

    I have talked to some of the Scottish businesses that have to deal with the water industry. They say that the great breakthrough in Scotland as a result of competition was the fact that they could get a much better service.

    Dan Rogerson

    We hope to see some benefits through retail competition, but we want to do that carefully.

    ………… we want first to move towards allowing businesses, charities and so on to have the benefit of competition.

    Disconnection

    Thomas Docherty (Dunfermline & West Fife) (Lab)

    If we are going to have competition for households, we would have to have disconnection.

    Robert Buckland (South Swindon) (Con)

    I do not follow that argument; it does not apply in other sectors and I do not see why it needs to apply in this one.

    Dan Rogerson

    We heard an interesting exchange between (Robert Buckland) and (Thomas Docherty) on household disconnections. It was not clear to me whether (Thomas Docherty) was recommending that water companies should have that power. I hope that that was not the case, because it is certainly not something the Government want to reopen.

    Charges/profits/tax

    Charlie Elphicke

    We must consider whether it is possible to tackle the excess profits and excess returns seen over the last period and return that money to hard-working families in the next period, and to drive a fair and equitable settlement whereby investors can get appropriate returns but customers can get a better deal.

    Rehman Chishti (Gillingham & Rainham) (Con)

    Given the big profits made by these companies, surely they have a moral responsibility to help those people at the bottom end with the debts they have incurred.

    Charlie Elphicke

    ………….. there is the question of how we tackle tax avoidance. The unacceptable, even antisocial, tax avoidance culture in the water industry has meant that many companies have not paid tax for years.

    Robert Buckland

    ………………it is now up to the industry to act swiftly on social tariffs ……………..

    In conclusion

    The extent to which these views will influence policy and have an impact on the sector will become more apparent as the Water Bill continues its journey through Parliament. Speaking at a recent conference, Water Minister Dan Rogerson stated that the Bill’s second reading in the House of Commons will take place very soon. He confirmed that Government supports regulatory independence and stability, and prefers an approach of regulation only where it is needed.

    What the debate does illustrate however is that the water sector is once again becoming a political football, a position that it has not occupied for a number of years. That will only change when the industry’s legitimacy with its customers increases, which in turn will require an increased level of acceptance that the balance between customers and shareholders/owners has been properly struck. Until then, the water sector, along with other utility sectors, should expect its critics to remain vocal.

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