Expert analysis of the UK water sector
Excerpts from the latest edition of The UK Water Report.
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Pathway to public control
Water Bill to remove cap on government ownership of company stakes.
By Karma Loveday
“Water is a symbol of what has gone wrong with Britain. A service where the shareholders never lose and the public never win. From which some have syphoned out easy money while the public picked up the bill for the sewage in our seas. It stinks. I will not allow it to continue like this.”
So said prime minister Andy Burnham to the Labour Party conference in Liverpool, as he announced that the centrepiece of a strengthened Water Bill will be “the repeal of Margaret Thatcher’s ideological ban on public ownership of water companies”.
The legislation will remove the current limits set out in the Water Act 1989 on government ownership of shares in the major water and sewerage companies in England, and the associated restriction on government acquiring shares in those companies. The exact limits vary by company but are below 3% in each case.
The move enables public ownership, but not make it a certain destination. Burnham said: “Where private companies serve the public interest, we will support them. But the consequences will be clear for those who do not, including taking back control or public ownership.”
Defra confirmed: “The Government recognises that securing the long-term future of England’s water sector relies on continued private sector investment. Removing the cap does not change that. We will continue to work with investors, regulators and companies to secure the best outcomes for consumers and the environment.
“This announcement gives the Government flexibility to consider a wide range of possible future interventions, including on ownership models, and provide support where it is needed. We are committed to delivering these reforms within the fiscal rules – which the chancellor and prime minister have been clear will be met at Budget, with a buffer against uncertainty.”
"Where private companies serve the public interest, we will support them. But the consequences will be clear for those who do not, including taking back control or public ownership."
Regulation: friend or foe?
Regulatory relationships warm up.
By Karma Loveday
Judging by a panel discussion at the Institute of Water’s annual conference last month, adversarial regulation has really run its course. The exam question was essentially: regulation – friend or foe? While panellist views were nuanced, the direction of travel for sentiment between regulator and regulated was towards warmer climes.
Addressing the question head on, Drinking Water Inspectorate chief inspector Marcus Rink said: “We're neither a friend or foe... We work together for the same purpose. We're not buddies. We're not adversaries. We want the same outcome.”
He argued that the regulatory relationship “works best when we are independent, when we're evidence-based, and when we're focused on the outcomes rather than the process”. He championed the DWI’s engagement, transparency, pragmatism and technical knowledge as core strengths, especially in the context of public and political scrutiny “that can entrap the regulator, can capture the regulator to try and play to the arena that we work within. We have to be incredibly careful not to be captured in that way.”
He continued: “But ultimately, at the bottom of it, we provide independent assurance that public health is protected and the statutory obligations are met.” That is harder, he said, where technical standards are absent, such as in the spheres of sufficiency and water recycling.
Ofwat’s chief executive Chris Walters said that operating within such a complicated system of economic regulation – one that has “really grown by accretion over many price reviews, has become very complex indeed" — has tended towards a culture in which company proposals "were treated with a degree of scepticism, as if they were looking for loopholes.”
Walters set out five critical success factors for regulatory reform, all of which are progressing in positive directions, he said: a clearer government steer on balancing ambition, affordability, investability and deliverability; streamlining gaps and overlaps between regulators; embedding five-year cycles within ten and 25-year investment horizons; an integrated, catchment-based approach to water and wastewater capital planning; and moving away from “a system that has been too one-size-fits-all in the past, and that culture of being more collaborative and less adversarial, I think, is part of that”.
Underpinning all of it, he argued, is public consent: "If we want the public to trust us, we have to start delivering the improvements that they're paying for.”
"We're not buddies. We're not adversaries. We want the same outcome."
Even better together
Peter Perry says Spring has cut its teeth as a centre of innovation excellence – but needs funding certainty to really fulfil its potential and lean in to sector reform.
By Karma Loveday
For a little over a year, Peter Perry – formerly chief executive of Welsh Water – has been chair of Spring. While not as full-on as having day-to-day operational command of a large water company, the job carries responsibility of a different kind. As the water sector’s centre of innovation excellence and centralised innovation intelligence, Spring is critical – and innovation is very much needed across almost every challenge the industry faces. He intends to maximise the value of his experience as a water company CEO to further Spring’s ambition and the sector’s achievements.
AMP8 kicked off three months before Perry joined, and Spring responded by honing its focus on strategic coordination: convening collaborative efforts to lean in to large-scale sector challenges. High on the list are environmental performance, PFAS, water resources and leakage. "Doing something abstract from those priorities would be disastrous,” he shares. “This is a classic case of we're better together.”
While individual companies can also plough their own furrows, a central function with proven credibility has lots of advantages. “The idea of 17 organisations doing this individually — yes, companies can innovate, and it's their absolute right to do that. But as an industry, when we come together, Spring can do that so much more effectively and so much more efficiently.” Over five years on from its creation, Spring also has a track record to prove its value.
Despite all of this positive progress, Perry is keen to point out that Spring could do much, much more with one key ingredient: sustainable funding. To date, its core funding has come from the water companies and hand-picked supply chain partners, but this is typically agreed for one or two year stretches. The fix under discussion with Water UK and company chief executives is what Perry calls an "evergreen" arrangement — a rolling funding cycle, similar to the model used by UKWIR.
"The idea of 17 organisations doing this individually…Spring can do that so much more effectively and so much more efficiently."
Tunnels and vision
Ofwat approves c£500m cost uplift for five fold expansion of Havant Thicket capacity, as pipeline tunnelling work gets underway.
By Verity Mitchell
Ofwat has approved draft funding to enable a five-fold expansion of the capacity of the Havant Thicket reservoir, and recognised that the forecast operational date needs to be pushed back from 2029 to 2034 to accommodate changes to the original design.
Under the regulator’s draft decision, the original allowed totex of £339m would be increased to £823m, under the second cost adjustment mechanism (CAM2) to the Havant Thicket price control. This is £26m less than Portsmouth Water pitched for in its submission. Portsmouth is building the reservoir as a resource to supply Southern Water’s customers.
The uplift recognises:
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Cost increases associated with Southern Water’s Hampshire Water Transfer and Water Recycling (HWTWR) scheme.
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Unforeseen ground conditions, which were identified in autumn 2023. These have necessitated a major redesign of the reservoir embankment, causing material impact on project costs and the delivery timeline.
Ofwat said: “Taken together, these developments mean that the project is now larger, more complex and expected to take longer to deliver than assumed at PR19.”
The news came as Portsmouth Water hosted a community event last month to mark the start of tunnelling work to house the pipelines that will take water to and from the new reservoir.
"These developments mean that the project is now larger, more complex and expected to take longer to deliver than assumed at PR19."
From water security to resilience
Neil Pendle says it’s time to shift focus from counting volumes to incentivising value in where, when and how water is used.
By Neil Pendle, Pallant Consulting
This is an argument for a new direction, not a narrower one. Water policy has spent the last two years fighting on separate fronts: growth versus water constraint, environmental recovery versus economic activity, efficiency versus almost everything else. Treated as competing claims on a fixed resource, none of those fights end well. Treated as a single problem, they resolve into one question: what would it take to make growth, environmental recovery and the way every consumer, household and business relates to water all point in the same direction?
The old question, inherited from the 1976 drought, was security: never let Britain run short again. Through successive rounds of regulation, planning and investment, that objective has largely been met. There have not been standpipes in the streets since.
The Environment Agency (EA) now projects a shortfall in public water supply of five billion litres a day by 2055 without further action. More than 60% of that gap will need to be closed through demand management and leakage reduction. Security bought us headroom. It never told us what to do with it.
That's the gap this piece addresses. The objective should be water value: a single framework capable of rewarding growth-compatible use, environmental recovery and genuine value to the consumer in the same terms, rather than treating them as three separate arguments to be won one at a time.
"What would it take to make growth, environmental recovery and the way every consumer, household and business relates to water all point in the same direction?"
The market needs a voice in water reform
In a country ravaged by drought and with a pro-industry PM, it feels time for the business market to move more centre-stage in water policy. The Strategic Panel explored the issues at its Open Forum.
By Karma Loveday
The Strategic Panel is preparing to update its 2024 Roadmap to a flourishing market in light of two interlinked developments, both crystallising over the summer.
The first is the change of government. While the non-household market is far from front and centre of whatever the Burnham administration has in store for water, nor is it separate from it.
In fact there is growing recognition that businesses, as consumers of a third of public water supplies, need to be much more integrated into policy thinking. As chair Trisha McAuley told the Strategic Panel’s Open Forum last month, “this market needs a voice” in wider reform.
The second development is what independent Strategic Panel member Rick Hill graphically described at the Forum as the “burned, brown landscape” of drought and wildfire that developed on the back of persistent low rainfall and super-hot temperatures. “Momentum has really increased,” McAuley observed, for commercial users to play a dynamic and proactive part in the national response to climate change and weather extremes.
The Strategic Panel is set on responding to the situation the market finds itself in, and pursuing improvements. The Roadmap's approach of identifying granular actions with named owners has been successful, as last month’s progress report made clear. So the plan now is to keep the architecture, but refresh some of the content to deliver a market framework that is “fit for the future,” McAuley said.
"Momentum has really increased for commercial users to play a dynamic and proactive part in the national response to climate change and weather extremes."
High users, willing movers
Water efficient large businesses are willing to do more to support the water scarcity response and to build resilience. But they need early involvement, clearer communication and better funding mechanisms to unlock their potential.
By Karma Loveday
Waterscan’s annual Water Matters conference always offers an interesting fusion of perspectives. Large customers who care about water get a voice alongside policymakers, regulators, industry and others who might inspire water action.
This year, a much greater sense of urgency was palpable from all sides – the whole market having lived through summer supply disturbances driven by prolonged hot, dry weather and soaring demand.
The customer contributions at Water Matters powerfully dispelled any lazy assumptions that might be made, that big business is not interest in water.
But costs and funding pose a major challenge. Many customer water efficiency activities to date have been self-funded, through the likes of R&D pots, because they are linked to decarbonisation missions, or because they have commercial sense in their own right. This limits activity, especially where the payback period is extended. The speakers had compelling messages for policymakers keen to encourage businesses to lean in to water management:
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Large users that have already made extensive water efficiency efforts are open to working in partnership to deliver more.
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Tariffs should recognise current levels of efficiency, and incentives would help businesses go further.
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A centralised funding pot for projects would increase access and uptake.
"Costs and funding pose a major challenge."
CONTENTS
This month's articles
Report
Pathway to public control - Water Bill to remove cap on government ownership of company stakes
4
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Report
Businesses back fast-track reservoir delivery - new coalition calls for Critical National Priority status for White Horse Reservoir
7
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Report
Tunnels and vision - Ofwat approves c£500m cost uplift for five-fold expansion of Havant Thicket capacity
8
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Feature
Regulation: friend or foe? - regulatory relationships warm up
10
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Interview
Even better together - Peter Perry, chair of Spring, on innovation excellence and the need for funding certainty
14
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Industry Comment
From meters to megalitres - smart meter data needs to be acted on, not just collected
17
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Industry Comment
Implement it, don't ditch it! - lessons from 25 years of the WFD's economic provisions
22
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News Review
Green groups defend Habitats Regulations
24
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Industry Comment
Tackling PFAS across the UK water cycle - monitoring, reporting, treatment and prevention
25
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Industry Comment
From water security to resilience - Neil Pendle on incentivising value over volumes
28
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Report
High users, willing movers - Waterscan's Water Matters finds large businesses ready to do more on water efficiency
33
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Report
Money talks - higher bills drive complaints and expectations through the roof
6
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Report
West and east could enter spring still in drought - wet autumn and winter needed to alleviate nationwide concern
7
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Report
Losing less through the cracks - Ofwat consults on changing its leakage reporting methodology
9
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Industry Comment
Tomorrow never dies - Dr Scott Reid on why rethinking how we charge for depreciation is key to keeping water assets forever
12
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Industry Comment
Innovation broadside - Ian Small on why it's time for Ofwat to stop the broad calls for innovation proposals
16
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Analysis
Measuring what goes in and what goes out - David Lloyd Owen immerses in demand management data
18
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News Review
First EDP targets nutrient pollution in Norfolk
24
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News Review
Fire chiefs sound alarm over water availability and access for firefighting
24
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Feature
All systems Glasgow! - a quick reference guide to the World Water Congress
26
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Report
The market needs a voice in water reform - the Strategic Panel's Open Forum on updating the Roadmap to a flourishing market
30
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