Penrose: water operating licences should be auctioned every five to ten years

(by Karma Loveday)

Water company operating licences should be auctioned every five to ten years. That’s according to John Penrose, pro-market champion and former MP, and now chair of the Conservative Policy Forum.

Writing for the Centre for Policy Studies’ CapX publication, Penrose argued: “The results of these auctions would be electric. Today’s slow, expensive, complicated negotiations between Ofwat and water firms would vanish, to be replaced by a quicker, cheaper, simpler process that would instantly uncover who could deliver cleaner lakes and rivers for the smallest customer bills.” He said the process would hold companies to account without micromanagement, and more effectively than fines that can end up being passed through to customers anyway.

Penrose sketched out the following vision: “Rival firms would bid for the right to supply water and sewerage to customers in each area while delivering all the tough new water standards at the same time, and the one who promised the cheapest customer bills would win. The bid contracts would include a small pre-set lease or rent payment for using pre-installed equipment like pipes, pumps or water treatment plants in each area, so current owners wouldn’t lose out. The new licence holders would have to maintain the equipment to make sure the tough new water standards are delivered properly as they promised in their auction bids, and they would earn shares in the equipment ownership for every new piece of kit they added too. Any firm that failed to deliver what it had promised in its bid, whether in too-high bills or dirty lakes and rivers, would lose their license which would be re-auctioned instead.”

Elsewhere in his article on How to create a functional water regulator, Penrose argued ministers should give the new integrated water regulator “a very short list of tough standards it has to enforce… If the list is longer than three or four goals, the regulator will pick and choose which ones come first, which means some of them won’t happen.”

And ministers should “force the new water super-regulator to be humble, by making sure they aren’t given any legal powers to tell farmers, water companies, house-builders or anyone else how to do their jobs”. Penrose foresaw innovations and cost savings emerging, “if the regulator is confined to checking the results afterwards, instead of approving them in advance.”