January 2022 issue

This website includes excerpts from the latest edition of THE WATER REPORT

Full coverage is available only in the print and digital editions of the magazine. SUBSCRIBE HERE

PUBLISHED BY

KEW PLACE

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The water sector must deal with storm overflows, to rescue its reputation rather than rivers. 

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Sink or swim

When should sentiment rather than science govern how a situation is managed? It’s been a relevant question over Christmas, with public repugnance at the idea of further restrictions over the festive period winning out over medics’ and scientists’ advice to put the breaks on Omicron transmission.

According to results from the latest The Water Report Expert Forum survey, the water sector is grappling with the question too in respect of storm overflows (SOs).

 

While there was a spread of views on how important an issue SO pollution is for the water sector in terms of the harm being caused to the water environment, a whopping 85% said the issue is very important in terms of legitimacy and reputation. One respondent put this bluntly in observing: “Absolutely [a] crisis moment for the industry. No longer socially acceptable, and the whole industry is at high risk of losing its licence to operate. Reputation is in the ditch.”

The industry is at high risk of losing its licence to operate. Reputation is in the ditch.”

It's all over

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All strategic water resource schemes in the RAPID programme have cleared the first hurdle, and RAPID is consulting on the regulatory and commercial issues that accompany complex infrastructure. 

It's all over

The Regulators’ Alliance for Progressing Infrastructure Development (RAPID) has allowed all of the industries strategic water resource scheme proposals to clear the first checkpoint in the new process set up to ensure major projects involving multiple water companies are shovel-ready in the next AMP.

Last month, all proposed projects progressed through Gate 1 of the standard process, most without any intervention from RAPID. It found all schemes to be efficient in expenditure terms and did not impose any incentive penalties. 

Director of stakeholders and programme at RAPID, Margaret Read, puts the decision into context: “The gated process is primarily about money and the decisions about which solutions get taken forward will be taken via the planning process,” she explains.

 

“Gate 1 is a really early gate just to identify showstoppers that can’t be mitigated. None of those were identified and consequently all of the solutions went through Gate 1 in draft and then we opened a period of representations and all of the solutions bar one…have gone through as final decisions.”

Watts: a crisis 

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Janet Wood evaluates how water companies are weathering this winter’s power price rises.

Gas prices have been increasing in leaps since the summer and increases show no sign of stopping. Instead of “a few tens of pounds,” forward gas prices for the late winter are up to ten times that. Electricity prices have followed the trend, because while there is an increasing proportion of low-cost renewables in the system, much of the electricity price is set by marginal gas generation.

Water utilities are on the front line. They have large energy demands – across the industry, energy represents 9% of water company costs. They may have a few hours of flexibility in when, for example, they pump water. But there is no flexibility in customers’ need for water

Water companies cannot pass on any responsibility for their energy costs.”

and wastewater services.  Water companies cannot pass on any responsibility for their energy costs as was tested when energy prices previously became a point of contention between the water companies and Ofwat.

 

In 2020 some water companies argued that their business plans should be automatically adjusted to allow for changes in energy prices – known as a real price effect (RPE) adjustment) as happens for some other cost items such as labour or chemicals.

 

The request was part of a Competition and Markets Authority (CMA) referral by four companies – Northumbrian Water, Yorkshire Water, Bristol Water and Anglian Water – in 2020. But the CMA dismissed that part of the referral, saying that because companies have tools to manage their energy costs, they should not automatically be able to collect extra revenue to cover rising prices. 

Demand demands

Nicci Russell sets out why – and how – demand reduction should be elevated as an urgent priority. 

Waterwise managing director, Nicci Russell, didn’t mince her words when she wrote to government, regulators and industry to issue an urgent call for action to cut water demand, to tackle a growing water deficit and support the net zero agenda.

She was acting in her capacity as independent chair of the multi-stakeholder Senior Water Demand Reduction Group (SWDRG)  which was established by ministers to track progress on water demand reductions in England and to recommend if and when more action is needed to stay on track.

Russell clarifies that she drew on discussions in the group in composing the letter, but says the views expressed are hers rather than issued on behalf of the group.

The aim of the demand target is to leave more
water in the environment, despite pressures of climate change and population and economic growth” Nicci Russell
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“Everyone agrees we need more ambition,” she explains, but there were “varying levels of comfort” with Russell’s clear ambition. Her determination to “strike while the iron’s hot” in policy terms is driven by urgency as key planks of potentially supportive policy are being crafted imminently – including PR24 methodology, the demand target consultation, Defra’s Strategic Policy Statement for Ofwat, the government’s roadmap for homes on water efficiency, and regional water resource plans.

The letter is an urgent call to action to address a widening gap between what is needed on demand management and where demand is heading. 

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There were lots of challenges, and not a lot of collaboration”.                        Peter Drake

Ten years of teaming up

Peter Drake marks the milestone of WIF’s tenth anniversary by reflecting on its decade of facilitating collaboration. 

This month, the Water Industry Forum (WIF) celebrates its ten-year anniversary. Executive director Peter Drake says the real cause for celebration is the decade of “facilitated collaboration” that WIF has enabled, helping the water sector to advance and to work through some challenging issues that needed multi-stakeholder input.

 

WIF’s greatest attributes, he explains, are its neutrality, independence and not-for-profit status, which have served to provide a place where water companies, supply chain, academia, government and regulators can come together confidently to explore the art of the possible.

Drake launched WIF in January 2012, after taking early retirement from Yorkshire Water. His vision for a neutral stakeholder forum and information hub involved emerged from tallying the challenges facing the water industry then – ageing assets, climate impacts, population growth and environmental needs – with active participants in the space. This showed there were “lots of challenges, and not a lot of collaboration,”  What was needed, he recalls, was a “neutral space in the middle” and a multi-stakeholder approach. 

Will there be a way?

CCW reports positive early findings from its work to pilot some of the actions set out in its Affordability Review. 

CCW’s Summer 2021 Affordability Review was broad and wide ranging, taking in everything from debt to data sharing, and communications to making processes more customer friendly. Most of the headlines were grabbed by the recommendation for a single national social tariff, but there were ten key recommendations in all, underpinned by 40 specific actions.

Senior policy manager, Andy White, says CCW is planning to publish a full one-year-on report this summer. But in the meantime, he shares that the watchdog is really delighted with how the review was received and is being acted on by stakeholders, including Defra, the Welsh government, Ofwat and the industry.

For example, the UK and Welsh governments have set up groups to explore a single national social tariff further, and Ofwat has consulted on a review of its debt guidelines. The industry has engaged enthusiastically too in considering the half of the 40 actions identified that are in companies’ control.

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On the front line are ten water companies who are working hand in glove with CCW on a series of pilots to explore nine actions from the review. The intention is to share findings with the rest of the sector, to encourage widespread take up of proven initiatives. 

keep on top of the threats and opportunities in retail and upstream.

It's the eye on the competition.

Lift the

Four show

Ofwat’s State of the Market report for year four depicts a stagnating, Covid-hit market.

Only 7% of business customers had a problem paying their
water bill as a result
of the pandemic.”

Ofwat’s fourth State of the Market report on the situation of the business retail market in England – delayed until December from its usual Summer publication – paints a picture of customers

hit by Covid, and a market that has progressed little and – in many areas deteriorated –

since the third report.

 

As businesses continue to battle Covid impacts – most recently staff absence due

to Omicron – Ofwat reported that in 2020-21, 63% of business customers’ ability

to operate had been hit by the pandemic, while 61% said Covid had also had

an impact on their water consumption.

 

Various measures were deployed  throughout the year to help businesses

cope, including use of a temporary vacancy flag early on.

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Thinking caps

The regulator noted significant success here: “Despite the financial impact of the pandemic on their businesses, our customer research found that only 7% of all business customers had a problem paying their water bill as a result of the pandemic, although this varied by customer size with only 1% of large customers stating they had problems paying their bill due to Covid-19 measures.”

Ofwat is reviewing REC price caps, and intends to mount efficiency challenges to retailer costs.

Ofwat has indicated it will focus on efficiency, while taking account of the actual costs retailers are incurring, as it reviews retail price caps to take effect from April 2023.

The regulator is consulting until 31 January on the price and non price protections afforded to business customers who have not actively negotiated and/or agreed new contract terms with their retailer, as covered by the Retail Exit Code. This is around 91% of customers in the market, representing around 43% of market consumption.

Little change is proposed to the existing form of controls or margins.

 

Ofwat is clear in its view that smaller customers will continue to need protection as the market hits six years old: “Based on evidence from our market monitoring (set out in more detail in our most recent State of the Market Report, the business retail market is not yet functioning as efficiently or effectively as it could.” 

WICS is looking for someone to check on the health of Scotland’s water market, to stimulate competition on more than price.

Healthy     option

It is coming up to 14 years since Scotland opened the world’s first non household retail water market. The Water Industry Commission for Scotland (WICS) has monitored performance and progress throughout, including through audits and even a root-and-branch review in 2020. But it has now decided that it’s time to press the button on a different, and very innovative, appraisal in the form of a ‘Market Health Check’ (MHC).

WICS consulted on the introduction of a MHC – a market-wide process that would encourage market participants to demonstrate high standards of conduct – as part of the 2020 review. Working with licensed providers (LPs), it has now developed the principles that will underpin the health check process. In a nutshell, this will involve  the appointment by WICS of an independent third party market health         checker, who will contract with each LP that opts in and undertake        a check. The check will involve LPs demonstrating high                       standards of conduct and good behaviours such as: treating              customers responsibly; upholding their service commitments;           offering contract terms that are fair and easy to understand; and communicating clearly and transparently. Through a light-touch approach, the checker will advise WICS of the outcome and WICS will publicly share which retailers have secured the accreditation. 

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THE
WATER REPORT
UNDILUTED

Thompson: "personalised service" to members.

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