Excerpts from THE WATER REPORT
January 2022 issue 78
FULL STORIES AVAILABLE ONLY IN THE MAGAZINE IN PRINT AND PDF
CONTENTS full contents of the magazine
THE WATER REPORT EXPERT FORUM Solutions for storm overflows.
REPORT RAPID's Gate 1 decisions and regulatory consultation.
INDUSTRY COMMENT USS on Thames investment.
REPORT Financial resilience in the frame.
FEATURE CCW’s affordability pilots.
INTERVIEW Nicci Russell pushes for water efficiency ambition.
NEWS REVIEW Service delivery performance.
REPORT Baringa on cost / service connections.
FEATURE Energy price impacts for water.
NEWS REVIEW Storm overflow reduction timetable.
INTERVIEW Peter Drake on ten years of the WIF.
INDUSTRY COMMENT The promise of a single national water price.
INDUSTRY COMMENT Echo on Gen Z customers.
In contrast, the Forum pointed to data suggesting harm to the water environment from SOs is minor: “According to Environment Agency (EA) data on Reasons for Not Achieving Good, combined sewer overflows (CSOs) are a minor cause of harm to river health whilst much larger sources of pollution remain unaddressed.” Another said: “It’s really disappointing that this issue is being driven by pseudo science and assumptions, and that the regulator is doing almost nothing to untangle the mess. The impact of agriculture is massively underplayed – and ignored. The water industry has a role to play, for sure –but even if we spent every AMP8 penny on CSOs, rivers would still be failing.”
Another remarked: “As the EA has not bothered to get data on any counterfactual or baseline, no one knows how much harm is caused. [SOs are] an important reputational issue that they have mismanaged by pretending it did not exist rather than informing the ill-informed campaigners of the reality.”
The four disputing companies argued that energy costs were not fully reflected in the inflation index. Bristol Water said that management had options to protect against short-term fluctuations but not the long-term trend of rising energy prices. Others thought past actions should count in their favour: Northumbrian Water took the view that it was an "industry leader" in managing demand flexibility, energy production from sludge and procurement of energy, so it said it had less scope to improve.
A survey of half-yearly results from water companies shows them all to be concerned by sharply-rising energy and power costs. At this stage of the year – while gas and power costs had increased, but before extended high prices going into winter were apparent – companies were already being affected to differing extents.
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. “The National Framework (NF) Senior Steering Group heard last month that the expected need for water has increased markedly from the original NF estimates in 2020, that demand management plays a very important role in reducing the national deficit (around 2,000 Ml/d by 2050) and that non-delivery of these demand reductions presents a ‘significant risk of worsening supply deficits and security of supply’. And yet, the latest data, collated by Defra for the SWDRG, shows very clearly that overall water consumption has increased since 2019 and that we are not on track against Ministers’ ambitions.” Russell commented: “It’s really sobering…We need a lot more demand reduction.”
Fast forward ten years, and WIF has around 600 member organisations spanning five categories, ranging from senior partners who pay full fees to associate members who do not contribute financially but “provide the reach” for Forum activities. Fletcher chairs a strong board of industry leaders which, along with Drake, features Professors Ian Barker and Tony Conway, Jean Spencer and Margaret Read. There is also now a small executive team.
Drake says the Forum has taken a “challenge-led” approach to its work and has tackled issues including: innovation, asset management, people issues, research, business processes, technology, the environment and the supply chain.
The ‘bar one’ is what is formally known now as the South East Strategic Reservoir Option (SESRO), but better known as the Abingdon Reservoir. Read explains it is a procedural matter that held that decision up rather than anything material – essentially, the consultant involved over-redacted its submission, and stakeholders needed a little more time than the December decision date scheduled to consider and respond to the unreacted material, particularly the environmental appendices. On 5 January, RAPID announced that SESRO, like the other schemes, had cleared Gate 1 with no issues or penalties.
A way continued
White explains that with the review being so wide ranging, there was a lot of choice on what exactly to pilot at this initial stage. The projects now in train have been arrived at collaboratively. He says many where company-proposed, for instance where an action fitted with an existing company priority or interest area. CCW proposed others. Some actions are popular, with more than one company involved.
It’s early days, projects are at different stages and so far, only one pilot has been completed with the results in. But White says the mood is positive across the board and emerging findings are already suggesting the value of the exploratory work.
However, data on customer engagement with the market itself was pretty bleak. Awareness levels decreased, with 43% of business customers aware that they have a choice of retailer compared to 58% in 2019-20 and 53% in 2018-19.
The number of customers that were active in the last 12 months (defined as switched or re-negotiated, actively considered switching or re-negotiating, those that have tried to switch or re-negotiate, those in the process of switching, and those who had considered switching or re-negotiating but had decided not to) was virtually flat at 9% compared to 8% in 2019-20.
Indicators on switching and renegotiation rates depend on the information source. However, overall rates seem to have fallen slightly compared to the third year. Ofwat noted: “It is possible the effects of Covid-19 may have impacted the level of switching and renegotiation that occurred in the early part of 2020-21 however the extent of this impact is unclear.”
But there seems to be room for change in terms of allowed retail costs, based on the evidence accumulated since market opening. This may give some hope to struggling retailers who in summer 2021 called for an urgent review of the REC on the back of an independent study by Economic Insight, commissioned by the UK Water Retailer Council, which found the market has been loss making since it opened and is causing serious customer harms.
The headline recommendations involved Ofwat taking immediate action to correct cost allowances and margins, or risk locking in the market’s underperformance for many customers – or worse, systemic retailer failure.
Beyond making prompter adjustments to take in Covid-related bad debt costs, Ofwat stuck to its planned timetable to change the REC in time for April 2023, rather than before. Work is now getting underway in earnest to assess the situation.
The Scottish market is well regarded and has delivered clear benefits since its creation in 2008, including lower prices, more tailored services for customers, and water savings of 20%, with the adjacent carbon reductions.
There are around 20 active LPs offering different levels of service, payment terms and prices to c.160,000 non-household customers. So why does WICS think the market will benefit from a check-up right now? Assistant director Andrea Mancini explains there are a couple of factors in play including altered behaviours in the market as it has matured, Covid-19 related exposures, and a change of approach at WICS itself.