Utility Week expert view: Karma Ockenden

“Government policy and regulatory delivery are as much a part of the problem as a part of the solution for some environmental ambitions.”

Today, 2 May, is the deadline for any non-fast-tracked water company that wants to be considered for a mid-speed draft PR14 determination – June, as opposed to August – to get its new evidence to Ofwat. Such a company would presumably have spent the past few months sprucing up its business plan for 2015-20, in line with the shortfalls identified by the regulator.

So how might the business plans landing on Ofwat’s desk today – or in June in the case of companies going for an August draft determination – have changed from the original December versions? Green groups are keeping their fingers crossed that the revisions will deliver more for the environment.

Last month, environmental coalition Blueprint for Water (which counts WWF, Waterwise, the RSPB and the Marine Conservation Society among its members) published a traffic light-style scoresheet on how well each water firm’s original December plan fared against ten environmental outcomes it considered desirable for PR14. It said it hoped “those companies with reds and ambers will look closely at what their ‘greener’ peers are doing as they develop and implement plans with Ofwat approval”.

But that looks like wishful thinking, not least because it’s not just water companies at the controls. A close read of the scoresheet and accompanying report, Blueprint for PR14, makes that much clear.

First up, Blueprint for Water gives credit where credit’s due. It notes the industry’s plans for the coming five years promise £8.8 billion of investment to reduce damage and enhance the environment, all the while keeping bills in line with inflation. This, it says, is evidence of “a water industry that is planning more than ever before to address its impact on the water environment”.

Moreover, it singles out good performers for praise – notably Affinity Water, Wessex Water and United Utilities, which all get blanket green lights except for one amber each. And it celebrates the ambition of the industry on several outcomes including: reducing point source pollution; managing catchments to protect raw water quality and doing more than the statutory minimum to help water bodies achieve good ecological status.

Nonetheless, it insists more should be done, particularly because the extensive customer engagement work water companies did to prepare their plans returned a “loud and clear” message: that “despite the economic climate, customers do not want water companies to pollute and damage the environment”.

In some respects, this ball is in the industry’s court. On water pricing, for instance, the coalition calls for tariffs for metered customers that encourage water efficiency. While most firms have plans for social tariffs, Blueprint for PR14 says only Thames Water and Wessex Water plan to trial price structures that encourage customers to use less.

However, where plans fail to cater adequately for some of the other outcomes desired by green groups, it is government and regulators that are in the frame for blame.

Take managing operations to take less water from environmentally sensitive sources. Blueprint for Water is “extremely disappointed” by industry performance on this measure, saying that only a third of companies are progressing it with any real vigour. This is “an inevitable consequence of Ofwat’s decision to make the abstraction incentive mechanism [a new incentive for PR14 to reward/penalise reduced/increased abstraction at sensitive sites] a reputational incentive instead of a financial incentive as originally proposed”. Ofwat says current data is not robust enough to set national financial incentives; clearly green groups have little faith that reputation alone will drive behaviour change.

Metering is also out of the industry’s hands. The coalition supports a target of 80 per cent meter penetration by 2021. However, it calls this target “unachievable” because of “the Environment Agency’s and Natural Resources Wales’ latest, inexplicable revision of the Serious Water Stress designations”. At present, companies can’t introduce universal metering without the secretary of state’s approval on grounds of serious water stress.

So anyone holding their breath waiting for greener revised business plans might soon be blue in the face. Government policy and regulatory delivery are as much a part of the problem as a part of the solution for some environmental ambitions. Ofwat’s agenda in this price round has been first and foremost to hold down bills, so more investment to protect the environment seems unlikely.

The upcoming Water Bill contains a number of policies to bolster environmental protection, including: ending the right of companies to be compensated for the withdrawal or amendment of damaging abstraction licences; moves to encourage bulk supply trading and a competitive upstream market; and a resilence duty for Ofwat.

It will be interesting to see the extent to which the regulator’s current focus on affordability and low bills survives in PR19 once it has a duty to deliver a resilient sector – and how much attention environmental protection gets then.

Blueprint for PR14 is available at www.wcl.org.uk/blueprintforwater.asp