Water sector should ‘transfer between regions’

Ofwat’s chief executive has expressed disappointment that water companies are not collaborating enough to tackle problems such as climate change and population growth.

Rachel Fletcher, who took the top job at the water regulator earlier this year, told MPs on the environment, food and rural affairs select committee that “very little” water is transferred between the different regional companies.

Presenting evidence to the committee’s inquiry into the regulation of the water industry, she said the proportion of water traded is “pretty stable” at four per cent.

The National Infrastructure Commission earlier this week recommended that companies should be doing more to boost supply by transferring water and building reservoirs.

Fletcher said: “We need as a sector to think about the bigger picture about transferring water from one region to another.

“It’s really important that when you have an emergency situation that companies are not thinking about this as a commercial transaction. We’re not seeing quite enough collaboration.

“There’s not enough evidence that companies are taking the real challenges around growing population seriously enough.”

Quizzed on the concerns that water suppliers have been making excess returns, Fletcher said Ofwat would not set a figure on the proportion of profits that should be ploughed into investment.

“It’s not appropriate for us to set a number but to set principles, which is that companies look first and foremost to serve customers.”

But she said companies taking on high levels of debt had to convince Ofwat that by doing so they are not “endangering” their financial resilience.

“We’ve been clear with companies that if a high level of debt is impacting on financial resilience they should be bringing down their gearing.

“Where high levels of debt are bringing benefits companies should be sharing those with customers.”

Fletcher also rejected the suggestion from MPs that the pay of senior executives should be capped but said that suppliers must take heed of public concern surrounding pay levels.

“It’s right that customers expect a different type of behaviour and higher standards than you might see in other sectors of the economy. It’s not our role to set pay levels but made it clear that executive incentives should be linked to service performance and less to financial performance. It will drive executives to focus on the right things.”

Tony Smith, chief executive of the Consumer Council for Water, said: “Companies must take responsibility. Otherwise regulatory and political risk will increase dramatically and creates a really bad impression.”

Fletcher also said that while there were “promising signs” from the first year of open competition for non-domestic customers, “huge work” is still needed for that market to reach its “full potential”.

She said feedback from business suggests that one of the biggest benefits was being able to have one bill across all of their sites rather than with separate suppliers.

The regulator is “keeping a close eye” on a potential fragmentation of the market as a result of the non-domestic market’s liberalisation, she said.