Getting more for less

The cost of living debate has emphasised the need for water firms to get value for their customers’ money, says Tony Ballance.

The central challenge faced by utility companies in the UK today is how to keep bills low at the same time as improving services and contributing to a healthier environment.
Energy companies estimate that so-called green levies add £112 to an average customer’s energy bill each year.
In the case of the water sector, the legislative framework for the environmental improvements we need to make is provided by the Water Framework Directive (WFD). We have previously estimated that the cost of meeting the more stringent WFD standards could push up customers’ bills by around 20 per cent between 2010 and 2030.
At Severn Trent we know that many of our eight million customers have seen their incomes squeezed in recent years. Despite us offering the lowest average water and sewerage bills in the country, around 9 per cent of our customers spend more than 5 per cent of their disposable incomes on water.
We need to keep prices down because there is a limit to what people can afford.
We also need to keep prices down to maintain public confidence. If the public believe their money is being misspent, or if utility companies are not behaving responsibly, it will jeopardise our ability to make the long-term investments necessary to cope with climate change, population growth and renewing our Victorian infrastructure.
While our customers want us to keep our bills as low as possible, we also know they generally want us to play our part in continuing to improve our rivers and water courses.
Our customers like the fact that, according to the Environment Agency, our rivers are now in better health than at any time since the industrial revolution, largely because of the improvements made by water companies over the past 20 years.
We believe it is possible to keep water bills low and also deliver significant environmental improvements.
We have set out what we believe needs to be done in Changing Course through the Sustainable Implementation of the Water Framework Directive. The report makes three key recommendations.
First, ministers should set clear priorities for investment, prioritising the improvement of poorer rivers over making marginal improvements to already generally healthy rivers. This will make the most practical difference for the funds available.
Second, ministers should ensure the affordability of environmental improvements by setting an appropriate pace and scale for investment.
It is the responsibility of water companies to ensure the investments we make deliver maximum value for our customers’ money. But it is rightly the responsibility of elected officials to make the judgement about the appropriate scale and pace of investment.
It is also right that these decisions are not made in isolation. We welcome the report the National Audit Office published on 13 November 2013 recommending that government departments consider the cumulative impact on utility bills when implementing new policies or legislation.
Third, water companies should develop innovative, better value solutions for making improvements to the health of our rivers.
Water companies need to play their part by constantly seeking new and better ways of doing things, but they need to be supported by regulators willing to provide the flexibility necessary to encourage the experimentation necessary to drive innovation.
Our customers want their water bills to be as low as possible. They also want us to contribute to a healthier environment. We can and must do both by implementing the WFD in a sustainable way.
Dr Tony Ballance, director, strategy & regulation, Severn Trent
Download the full report at: http://www.severntrent.com/water-framework-directive.