Performance penalties to be used to fund retail market improvement projects

From the new year, the penalties paid by trading parties who fall short of expected standards in the business retail market could be used to fund market improvement projects, rather than be recycled back to wholesalers and retailers. Ofwat has approved code change proposal CPM018, to be implemented from 1 January 2020, which deals with the treatment of Market Performance Standards (MPS) and Operating Performance Standards (OPS) charges. While currently these are redistributed back to trading parties in the same proportion as they shared market operator charges in that financial year, from the New Year a new system will operate: • by default, 100% of the charges will be redistributed to tradi

Ofwat nudges wholesalers and retailers to support MOSL’s plan for 2020-21

Ofwat has confirmed its support of MOSL’s business plan for 2020-21. The move – what seems like a clear signal to wholesalers and retailers to get on board with MOSL’s agenda rather than try to frustrate it – came in a public letter from Ofwat chief executive Rachel Fletcher to MOSL chief executive Sarah McMath, published on Thursday. Fletcher (pictured) wrote: “I wholeheartedly support your vision of making the business retail market an easier place to do business in. I believe the market needs a market operator that can work collaboratively and decisively with industry to resolve market frictions and help to create an environment that facilitates rather than frustrates innovation. This is

Nature-based solutions should be prioritised to tackle climate change

Nature-based solutions should be at the forefront of international efforts to tackle climate change. That was a key conclusion of a new paper – a collaboration between Natural England, UK Centre for Ecology and Hydrology, British Trust for Ornithology, RSPB, Climate Resilience and the University of Stellenbosch – which scrutinised how we should evaluate and measure success of climate change adaptation and mitigation in terrestrial ecosystems. Lead author and climate change expert at Natural England Dr Mike Morecroft said: “Natural forests, peatlands and other wild places need to be protected and restored to stop greenhouse gas emissions and take carbon dioxide out of the atmosphere. The grea

Hotel group applies for self supply licence

Village Hotels has applied for a self supply Water Supply and Sewerage Licence. The hospitality chain currently has 30 hotels across the UK with more to open over the next few years. Ofwat’s consultation on the licence application says water is crucial to the day to day running of the business, including its swimming pools, restaurants and gyms. It reported that Village Hotels expanded its sustainability plan in 2019 to include water reducing processes, and the majority of its sites already have AMR devices. Self supply would help: “Currently it feels like it has little control over water, and this would ensure it is focusing more on become more water efficient at its sites.” Village Hotels

Environment Bill in the Queen’s Speech

The Environment Bill made a comeback in the Queen’s Speech on Friday. This features provisions on water resource management as well as air quality, nature recovery and waste/resource efficiency. Her Majesty said: “My Government will continue to take steps to meet the world-leading target of net zero greenhouse gas emissions by 2050. It will continue to lead the way in tackling global climate change, hosting the COP26 Summit in 2020. To protect and improve the environment for future generations, a bill will enshrine in law environmental principles and legally-binding targets, including for air quality. It will also ban the export of polluting plastic waste to countries outside the Organisatio

Consumption consultation responses set for the end of January

DEFRA has announced it will publish a summary of responses to its 2019 consultation on personal water use by 31 January 2020. It received 324 responses from a wide range of stakeholders to the paper which considered various measures to reduce water consumption and sought views on setting “an ambitious but appropriate” target for personal water use by 2050.

Moody’s flags multi-notch downgrade risk as it puts 14 firms on review post PR19

On Friday, Moody’s put 12 water companies and two water holding companies on review for downgrade following the publication of Ofwat’s PR19 final determinations last Monday. It warned that some companies could face a downgrade in excess of one notch. Moody’s identified the following three factors as relevant to its review decision: 1. “The significant cut in allowed cash returns to ca. 2.42% for the wholesale activities at the start of the new period, which incorporates the regulator's decision to link half of the regulatory assets to the Consumer Prices Index adjusted for housing costs (CPIH), with the rest remaining linked to the Retail Prices Index (RPI). As the share of regulatory assets

Unspent apprentice levy funds thwarting utility bid to address skills demand

A “significant under spend” of funds available under a government initiative to boost UK apprenticeships is thwarting water industry efforts to meet its growing demand for new, skilled workers according to a report by membership group, Energy & Utility Skills. A funding gap predicted in the report, Test and Adjust should be meet by greater public funding coupled with lowering the payroll threshold to below £3m for employers who contribute to the Apprenticeship Levy according to its author, former chief of the National Apprentice Service, Professor David Way. Based on an estimate the report found that only about two thirds of funds raised under the government’s Apprenticeship Levy was being

Ofwat tightens cost of capital to 2.96% in Final Determination package

Ofwat this morning unveiled a PR19 final determination package featuring a lower cost of capital than at the draft determination stage, teamed with an expanded investment programme, and some moderation of the performance expectations it had targeted. The regulator settled on an allowed return on capital at 2.96% for the whole business, and 2.92% for wholesale controls, compared to the 3.19% and 3.08% for wholesale used in July. It had signalled in summer a further fall was likely at this point. At £51bn, the overall investment package allowed was £2bn higher than at the draft determination stage and included £13bn on resilience spending. While some performance targets remained unchanged from

Consumer watchdog consults on draft forward look programme

The Consumer Council for Water has launched a consultation on its draft Forward Work Programme in England and Wales for 2020-23. The watchdog has laid out three “strategic ambitions”: fair charges that everyone can afford – with top of the list, “balancing fair and affordable bills with investment and maintenance”; outstanding services that are always delivered right first time, including “excellent service for consumers, that reflect consumers’ views and experiences with zero tolerance of failure”; and a safe, reliable service now and for the future including “the water industry manages the known challenges and prepares for the unknown challenges of our changing climate.” CC Water said it

South East Water appoints new chief

South East Water has appointed David Hinton as chief executive officer Hinton (pictured) is currently asset and regulation director and will take up his new post from 1 August 2020. He succeeds Paul Butler who has announced his retirement.

Water Framework Directive gets "mixed" fitness check verdict

The European Commission has arrived at a “mixed” verdict on the fitness of purpose of the Water Framework Directive (WFD) along with the Groundwater Directive, the Environmental Quality Standards Directive and Floods Directive. After a so-called fitness check on the the WFD and the other three directives, the Commission concluded: “In sum the directives are fit for purpose, with some scope to improve." It said chemical pollution was “the key area where there was room to improve." In its summary report the Commission said the WFD has been successful in setting up a governance framework for integrated water management for 110,000 water bodies in the European Union, slowing down the deteriora

Glas Cymru appoints new non executive director

Welsh Water parent Glas Cymru, has appointed Debra Bowen Rees to non-executive director to start on1st January 2020. She succeeds Menna Richards who retired in June following nine years in the role and after being a senior independent director since 2014. Bowen Rees (pictured) is chief executive of Cardiff Airport and a board member for the Airport Operators Association. She said: “Having led the Cardiff Airport team since 2014, I have overseen a period of huge transformation in a tightly regulated industry; all experience that I can now bring to Glas Cymru over the coming years.” Chairman of Glas Cymru, Alastair Lyons, said: “[Bowen Rees'] experience of managing substantial and ambitious c

Water firms' "aggressive" business style turns suppliers off sector

Current “aggressive procurement approaches” are turning infrastructure contractors off the water sector and putting under threat much-needed development in UK water networks according to a report by contractor Balfour Beatty. In its “thought leadership white paper”, Two sides of a coin, Balfour Beatty said supply chain resilience required “new contracting models and an understanding that traditional, aggressive procurement approaches have damaged the supply chain.” It added: “Failing to address these issues will hold the industry back and put at risk the delivery of the network customer’s needs and deserve at a price they can afford.” It went on to say tier 1 contractors were choosing not t

Yorkshire appoints Galliford Try to AMP7 framework

Yorkshire Water has appointed Galliford Try to its infrastructure framework for AMP7 in a five-year deal worth about £30m with an option for extension into AMP 8. Under the deal Galliford Try, with its design partner, GHD, will cover the clean water and sewerage networks, focusing on the rehabilitation and replacement of below-ground assets. It will, said Galliford Try, enable Yorkshire to achieve performance commitments including reducing leakage, water supply interruptions and flooding as well as improving drinking water quality. Yorkshire, last summer, allocated to Galliford Try to its £1bn “complex civils” framework covering the design, build and refurbishment of clean and wastewat

Karma Loveday in British Water thought leadership interview

Last week, British Water released a video of its chief executive Lila Thompson interviewing THE WATER REPORT editor, Karma Loveday (pictured) on topics including PR19, social contracting, and challenges and opportunities for the sector. View the interview HERE

The sighs of the General Election result

Labour’s defeat in last week's General Election may have been more to do with Brexit policy and an unpopular leader, but the result also swept away the prospect of re-nationalisation. For that, it was water sector sighs of relief all round. Policy wise, it seems pretty clear Brexit will get done. The water industry’s preparations (for continuity of treatment chemical supplies in particular) have attracted praise. Now "no deal" is unlikely, it will hopefully be able to put those preparations into practice without much of a hitch. The former government’s Environment Bill will no doubt now make a comeback. It had its critics but passed the Second Reading stage unopposed, so we can expect the w

Interim chair for Market Performance Committee as Sisman steps down

Nigel Sisman will step down as chair of the retail market’s Market Performance Committee (MPC) at the end of the month, a position he has held since April 2017. Elsa Wye, currently an independent panel member and chair of the Trading Disputes Committee (TDC) will act as interim chair until 31 March 2020, while a permanent successor is found. Part of her remit will be to continue work announced earlier this year to develop a strategic roadmap to evolve the Market Performance Framework. MOSL said it had appointed consultancy, Economic Insight, to provide detailed analysis to this end. It shared early outputs with the Panel on 10 December and plans to present a final version of the roadmap to O

Severn Trent consults customers on its social purpose intentions

Severn Trent Water has issued a consultation for customers to have their say on the measures it is taking, or plans to take, to become socially purposeful “by asking what proposals have we got right, what could be improved and how? Is there anything we are missing?” The company said the consultation, in a partnership with The Purposeful Company, was the latest step on its journey to becoming a socially purposeful company. Chief executive, Liv Garfield (pictured), said:“I’m really excited by this new consultation we’ve launched, with support from The Purposeful Company, to understand how we can best support the communities we serve, now and for many years to come. To make sure we get it absol

Moody’s forecasts spending cuts as firms battle credit quality deterioration

Ahead of the publication today of Ofwat’s PR19 Final Determinations (FDs), Moody’s cautioned last week that the UK water industry could experience the largest deterioration in credit quality since privatisation. The warning was based on the ratings agency’s predictions of: a 20 basis point reduction on draft determination returns; a large gap remaining between Ofwat’s view and companies’ views on base cost allowances; and looming operational performance penalties. It said the FDs would kick in in April 2020 regardless of whether companies appeal to the Competition and Markets Authority. Moody’s predicted companies would reduce or defer spending and focus their efforts on avoiding operational