Big water firm failures have tarred the sector, says Ofwat chair

Jonson Cox renews criticism of “highly complex, offshore capital structures” in the water sector.

Ofwat chairman Jonson Cox has said that failures in service delivery and financial transparency from some big water firms have “cast doubt over every other company”.

Speaking at Utility Week Congress, Cox said while overall, the sector has improved its delivery for customers massively over the past few decades, the “behaviour of a handful of the big water companies has cast doubt over every other company”.

“Customers often trust their local water company, but when firms construct highly complex, offshore capital structures, they do so at a cost to customer trust,” he told delegates.

This is not the first time that Cox has levelled criticism at the financial over-engineering of some water firms. Earlier this year, Ofwat’s chairman wrote publicly to Thames Water asking it to reform its approach to service delivery and the transparency it offers around its financial structure.

Cox also said the regulator has been hearing some of the “usual moaning” from companies in response to the forthcoming price review, PR19.

“We have the usual host of representations. Some are effectively made, some, I think, perhaps not effectively made.

“But we are very clear where we are going. Where we’re going is a world where [the] management of water companies need to step up in the same way that companies in the normal world do,” added Cox.

“We are absolutely up for further consideration of resilience – operational resilience, resilience of reputation with customers and resilience of corporate and financial structures. All of that is important but none of us should believe the easy answer is to go and throw money at it,” he told the conference.

“There will be plenty of examples where the answer is to step up investment, but there will be some interesting scrutiny.”

“Are there other ways of driving resilience? Are there other more innovative ways of driving more for less?” he said

“It’s not a blank cheque for resilience argument. The really important thing for me is that’s all easy to talk about, what I’m really worried about is corporate and financial resilience.”

He also went on to discuss the recent debate of nationalisation of the water sector.

“I find it fascinating and really despairing that in this debate we have had about nationalisation recently, I have not heard anyone in this sector stand up in response to the criticisms and the proposed nationalisation and say ‘we hear it, we understand that 82 per cent of the public would see water nationalised’. That’s the highest proportion for any sector, above rail and electricity,” said Cox.

Liv Garfield, chief executive of Severn Trent Water, responded: “It’s fair that as a sector we need to speak, equally it’s also fair that we need a chance to mull over what we are going to say. I think what you’ll find in the next few weeks is more voices.”

Cox added: “I’m not hearing issues about price of water, service levels, operational performance. I’ve not heard anything on that. What I hear about is distrust of offshore structures, distrust of high leverage, distrust of very high dividend pay-out ratios, inevitably distrust of management pay.

“Well, if our customers don’t trust water companies because some have brought about those conditions, that’s not resilience. This isn’t a question of putting it off for two years until the review, this is a here and now question.”

He suggested water companies should avoid just talking about how good they have been in the past.

“Customers don’t give a damn about that,” he said. “That’s what they expect.”