Enough isn’t enough

Judging by findings from Utility Week/Accent's latest Senior Executive Panel survey, the new version of the Water Bill should offer some comfort to the industry on resilience issues, but there is still a lot to be worked out. Karma Ockenden reports

The Water Bill introduced in the House of Commons on 27 June is likely to have given some comfort to water companies. It offered “improvements” on the draft Bill of 2012 in a number of areas, notably reducing the scope of upstream competition, limiting Ofwat’s discretion and – importantly, because this was one of the most criticised elements of the draft – beefing up proposals on resilience.

Resilience means ensuring there is enough water to meet demand without damaging the environment, and securing it became one of four key policy areas in the Bill. Chief among the proposals to deliver it is a new primary duty on Ofwat to secure long-term resilience of water and sewerage systems. Other proposals that fall broadly under the resilience banner include water trading, abstraction licensing reform, and progress on sustainable drainage.

Ahead of the new legislation’s introduction to ­Parliament, Utility Week and its research partner Accent polled members of our Senior Executive Panel – a group of industry movers and shakers, see box to join – on the resilience question. One-third of respondents felt the 2012 draft Bill neglected resilience. One says: “The Bill was too focused on market mechanisms, rather than specifying minimum resilience standards.” Twenty-seven per cent felt the draft did enough on resilience, with the remainder uncertain.

Only 40 per cent expected the draft Bill to be amended to focus more on resilience, of whom 83 per cent said they would support such a move. Presumably they can take some comfort from the latest iteration of the legislation, although much practical detail is still to be worked out.

One executive says greater provision for resilience was necessary because: “Consumers and businesses would be very seriously affected in the event of loss of mains water supply for an extended period. Where substantial risk reduction is available at modest cost, the government should be encouraging this.” Another comments: “Climate change means that we need more resilience in the UK, where many homes and businesses are vulnerable.”

On the flip-side, one executive believes: “This is a matter best dealt with by companies.”

We asked those who supported bolstering resilience via the Bill what specific measures they would like to see. One says: “The regulators should work together to facilitate better dialogue between water companies. This should be a legal requirement.” Another advises specific standards, such as maximum expected frequencies for standpipes or hosepipe bans.

Ofwat’s new primary duty “to secure the long-term resilience of water supply and sewerage systems against environmental pressures, population growth and changes in consumer behaviour” attracted majority support from our panellists. Just over half (53 per cent) agreed that the regulator should have this specific duty; 27 per cent felt it was unnecessary or undesirable.

One supporter comments: “[It’s] essential to long-term sustainability of water companies’ management of their assets and the delivery of an efficient water supply and sewerage services, and also [for] controlling both urban flooding (especially sewer flooding) and the impacts of floods on their assets.” Another agrees, saying resilience is important “because the economy is dependent on the infrastructure working and everyone has a stake in this. It is not just the customer who is affected by an interruption, but also everyone else who depends on that customer. Without a specific duty, it is possible the systemic benefits of resilience will not be fully captured”.

Clearly, what remains to be seen is how the new duty will sit alongside Ofwat’s existing duties and, most immediately, how it will play out in the upcoming price review. One executive raises this point: “The issue with resilience, particularly in the water industry, is that there is no suitable mechanism for including it within business plans. Currently it will only be included if, first, there is a legal requirement to meet – for example… to prevent a one-in-50-year event. Or second, it has customer support and they have a willingness to pay.”

A related issue that is yet to play out is how two branches of Water Bill policy – resilience and competition – will interact. Will the greater co-operation that resilience demands prove an uneasy bedfellow with the policy to promote more rivalry – and hence distance and secrecy – among water firms?

The Bill before Parliament retreats from proposals in the draft to enable new entrants to bolt their own pipes and treatment assets on to incumbent networks, or to provide “last mile” infrastructure to business customers. It therefore leaves the operation of the network in incumbents’ hands.

However, it still provides both for retail competition for all business customers from 2017 and more limited upstream competition. It proposes amending the Water Supply Licensing regime so new entrants can supply water and wastewater services to business customers, and it replaces the costs principle with new rules on how incumbents can charge for use of their assets and resources.

Panellists had mixed views on the competition versus resilience issue. One says: “The reforms will need to be thought through very carefully but it doesn’t seem to me that there is any fundamental conflict.”

Another takes a less positive view: “Upstream competition will significantly detract from the focus on resilience. Greater resilience needs more co-operation and more investment. Competition would reduce investment and reduce co-operation.”

So while the new version of the Water Bill seems to point in the right direction on resilience as far as the industry is concerned, it and the regulations that will follow it, are work in progress rather than a polished solution – and aspects of the Bill could still change as it progresses through Parliament.

This article first appeared in Utility Week’s print edition of 12th July 2013.

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