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Former Ofwat chair Jonson Cox has said the water sector has lost public legitimacy and warned company executives to “publicly face into their performance shortfalls” in a letter to the head of the House of Lords committee conducting a probe into Ofwat’s work.
Cox recommended “exceptional returns” earned from asset bases be shared with customers to redress the “crisis of performance and public confidence”.
The former chair, who appeared before the Industry and Regulators Committee last month, wrote to Lord Hollick describing the current situation for the sector as “severe”, causing the loss of public legitimacy.
“It may be tempting to lay blame at the door of regulators,” Cox wrote. “But these are FTSE100/250 scale companies and need to take responsibility as the regulatory regime requires them to do.”
He called on chief executives and shareholders to “publicly face into their performance shortfalls and not hide behind their trade association, Water UK, or regulators.”
Cox previously highlighted the benefits highly geared companies could feel due to “unprecedented” inflation. He warned customers will see the indexing of asset bases as a windfall so suggested it was reasonable to ask companies to share “exceptional returns”.
He said: “The loss of public confidence in the sector will itself be a drag on company valuations, and rapid resolution of the environmental problems will itself improve investor confidence and valuations.”
Company boards should consider systemic breaches of environmental performance in the same vein as major safety failings when considering executive pay and remuneration, Cox suggested. He encouraged tighter alignment between performance and pay as a way to restore customer faith.
Storm overflows have been a focal point of the committee’s inquiry – reflecting public and political interest in river health. On these, Cox said the sector has “lost all public confidence” and called upon all organisations to ensure overflows are used only in storm conditions. He called for a “fast and thorough” review of permits by the Environment Agency.
“All parties need to recognise that the problem is not just ‘investment’, as is so often cited by companies,” Cox wrote, citing EA statistics that sewer maintenance caused around one third of overflow breaches.
“Operating performance is for companies to manage. They certify to Ofwat every year that they have the resources to operate and maintain their services to meet their legal obligations and failure to do that should be at their cost. If they don’t believe they have the resources to do their job, they should have appealed.”
Remedying problems, including any breaches brought to light in the EA and Ofwat investigation into wastewater treatment works, Cox said should be funded by companies and their shareholders. Meeting new standards of performance however could be factored into customer bills.
On leakage, the former chair recognised the progress made during AMP7 but said companies should go further during the period. “Any company not at, or near, the ‘frontier’ of performance needs to publicly commit to a higher target at its own cost now,” Cox added.
He advised that legislative support for large infrastructure schemes, such as on planning, could aid acceleration of water resources projects through the Regulators Alliance for Progressing Infrastructure Development (RAPID).
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