Last year's Yorkshire Water fiasco threatened the social fabric; an inquiry next month seeks to identify a 'smoking tap'. But are the forces of capitalism quite as ineffective as they seem?
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The Independent Culture
IMAGINE this; it nearly happened. It is winter after a year of drought, and water rationing is introduced to a cluster of English cities. It takes the form of "rota cuts", which means 24 hours with the mains supply on, followed by 24 hours off, different districts having water on different days. At first people see it as just a bearable nuisance; after a few days they think otherwise.

Industrial companies which require a lot of water try at first to operate on alternate days, but the disruption proves too great and they send their workers home. Factories which require relatively pure water - textile factories, for example, since this is Yorkshire - shut down, since the frequent switching on and off of the mains introduces bacteria and other contaminants. Offices, too, have to close since they can no longer rely on their sprinkler systems for fire safety. Supermarkets, butchers' shops, hairdressers' and laundrettes all close. Within two or three weeks, orders are lost, firms go out of business and people are made redundant.

At schools, meanwhile, emergency water tanks are vandalised, and with the fire service warning that it cannot guarantee its ability to fight a major fire, governors decide to send the children home. Doctors' surgeries are closed for hygiene reasons, and so the hospitals, which are exempt from the cuts, are overrun. Chronically ill and disabled people being cared for in the community arrive seeking the security of round-the-clock nursing.

There is no work and no school. It is cold, and central heating systems are failing. The first deaths directly attributable to the water rationing are soon reported. People are fed up, and worse: whenever a water company official appears on the streets, he has police protection.

This scenario is not merely speculative, for something of the kind came very close only three months ago in west Yorkshire. Detailed plans were laid, information packs were printed, and all the necessary legal steps were taken to impose rota cuts on half a million people in and around Halifax and Huddersfield. The description of the likely results is drawn from a report by a Department of Environment inspector, Stuart Nixon, who took evidence from concerned parties in the area last November. Rota cuts, Mr Nixon said, "would have the most undesirable and potentially dangerous consequences for the economic and social fabric". There might ultimately be no alternative, he conceded, but such cuts should be "the last of last resorts".

Next month in Leeds a public inquiry will start to examine west Yorkshire's close shave. How did it come about that a normally wet part of a normally wet county ran so short of water? Were consumers neglected in the interests of profit? Was the appropriate action taken at every stage? What can be done to prevent it from happening again? The inquiry will in all likelihood be a rancorous affair. Yorkshire Water's miserable six-year record in the public sector, its chairman, its managing director, its board, its senior engineers, its public relations department, its accounts, its priorities and its strategies will be subjected to the most hostile scrutiny. The firm will be on trial. As Alice Mahon, Labour MP for Halifax, put it last November: "I have not known such anger about anything since the poll tax. When this is over we must have a day of reckoning."

TO MOST of us, both inside and outside the county, last year's events in Yorkshire unfolded like an outrageous pantomime. We watched bemused as a company that was already unpopular tackled a growing crisis like a fireman spraying petrol on a burning house. There was the letter to local businesses suggesting that they might help conserve water by transferring production out of the county. There was the spokesman who remarked tetchily that "people seem to be culturally ignorant about the value of water". There was the announcement, as drought set in, of a 17 per cent jump in profits to pounds 200m and a 21 per cent jump in dividends to shareholders (scarcely mitigated by a pounds 10 rebate to customers). There was the denial that Yorkshire exported water to any other region, followed by the revelation that it did (albeit not much). There was the admission that this company demanding conservation from customers wasted a quarter of its water through leaks, followed by the chairman's remark that the leaks could be fixed, but "somebody's got to pay for it".

Then there was the rehearsal of standpipe procedures before television cameras in the streets of Bradford, which enraged the locals and gave the rest of the country the impression that the cuts had begun when they had not. There was, on the very same day, the appointment of a new senior spokeswoman, Margaret Stewart, at a salary of pounds 80,000, a sum equivalent to 400 average water bills. Most memorably of all, perhaps, there was the managing director's reported claim not to have taken a bath since the crisis began, followed swiftly by the revelation that he had bathed frequently at the homes of relations outside Yorkshire, and while on holiday in Tenerife.

For decades to come, this clumsy catalogue will be cited in business schools and public relations courses as the perfect case study in needlessly alienating the customer. Little wonder that at the height of the drought, one bitter customer scrawled on a Halifax wall: "Get your own back - turn the taps on."

Trevor Newton OBE was the managing director who won national fame for his bathing habits. After 20 years in the water business, Mr Newton is perhaps more a very comfortable cat than a true fat cat, his salary of pounds 140,000 being a mere 85 per cent higher than before privatisation. That money must be poor recompense for the loathing he endures, and you would imagine that by now, if only for his own sake, he would have mastered a certain tact. Yet ask him about the public relations disasters and you get a curiously provocative answer. "Yes," he says, looking back to mid- 1995, "we were concerned about that. We had not run our PR effectively since privatisation. It was probably the only area that we got badly wrong."

We are in Yorkshire Water's modest, modern headquarters behind the railway station in central Leeds. Outside, winter is busy not doing its job. A bitterly cold wind scythes across an enormous NCP car park, but the pale clouds overhead carry no menace. It didn't rain yesterday and it won't rain today. Inside, Mr Newton's office is warm and spacious but plain, with no obvious personal touches; the wall is decorated with a diagram of the company's pipeline grid and the table is covered with sheets of gloomy reservoir statistics. Sitting with us is Margaret Stewart, who for all her famously large salary is conspicuously failing to restrain her boss.

One by one he brings up his betes noires, and one by one he wallops them. Ofwat, the industry regulator? "Well if I have a bitch about the regulatory regime it is this..." The EU directive on waste water? "Nobody, but nobody, has the vaguest idea what that's about." The press? "I frankly don't know what their motives are." Stuart Nixon and his report? "We're quite puzzled how Mr Nixon came to that conclusion..." Critical MPs? "I would say this to them: You want to come and do this? Fine." As the words rattle out, his head goes down and he looks slightly upwards at you, like a rugby hooker heading into a scrum.

I ask him about the bath fiasco and he swats at the media - "It was blown up out of all proportion". He was presenting some water conservation tips at a press conference, he says, and a reporter questioned whether people could seriously be asked to go without baths. "I said, 'Well I haven't had a bath or a shower at home since this started.' That was true." Well, up to a point. What he actually said - and was filmed saying - was: "I haven't had a bath or a shower now for three months." The difference is significant, given that within 24 hours it was known that he had taken baths, albeit not at home.

And what does he think about the calls for a "day of reckoning"? This: "A reckoning for what? At the end of the day we actually came through this situation, which was the most difficult that any UK water utility has experienced, and none of our customers was disconnected."

He warms to his theme: "That wasn't because we were lucky, it was because we took all the necessary action in order to prevent rota cuts. Our critics obviously want to personalise this - and I accept I am fair game - but they seem to forget that we've got 3,500 people in this business who worked their socks off, came up with great ideas, implemented them and actually saved the day. I think the day of reckoning will come when people actually understand what our people have managed to deliver here."

Mr Newton manages, every now and then, to say sorry, but not a we-got- it-wrong sorry, or an OK-it-was-a-mess-but-we'll-do-better-in-future sorry; something slightly different. If Richard Nixon in Watergate invented the "non-denial denial" which gave the impression of rebuttal without actually addressing the accusation, Yorkshire Water has given us the non-sorry apology, which contains no hint of remorse. Mr Newton is "sorry for the fact that a lot of people have been very worried". On the baths business, he says: "I regret the way it was dealt with."

This man, you will have gathered, is unrepentant. Courting popularity is not on his agenda, Ms Stewart notwithstanding. On our way out after the interview she tells me, by way of explanation: "He's very committed. He feels a great frustration at the difficulty of getting the message across."

The view is widely held in Yorkshire that it is not Mr Newton's commitment that makes him talk like this, but the fact that the good opinions of his customers do not matter much to him. His job depends on the shareholders, about 80 per cent of whom are financial institutions, and he is putting a good deal of effort into pleasing them, not with charm but with hefty dividends. But this is another view he naturally rejects, and even if it contained some truth it would not be the whole story, for this mood of rawness and defiance seems to be shared widely in the company, far below board level.

Yorkshire Water's employees are, in fact, every bit as angry and aggrieved as their customers, and they are, as a company, virtually without friends. In a manner unusual for officialdom, bodies such as the police and the National Rivers Authority no longer think twice before contradicting Yorkshire Water in public. Last month, for example, the firm said there had been only one road accident involving their tankers. When the Yorkshire Evening Post put this to the police, a spokeswoman declared that she personally knew of four and "there could well have been more". Personally, the staff feel the pressure. One senior executive told me that a day or two earlier he had been asked who he worked for and after only a brief hesitation he had lied. "That's bloody awful, isn't it?" he said, shaking his head.

Yet they retain, if not quite an absolute confidence in their case, a determination not to yield an inch. They no longer expect a fair hearing from politicians or the media, but they are damned if they will take the blame for something which they insist they did not do (indeed something they believe they prevented from happening). It is their critics, they feel, who should be apologising for stirring up panic and slinging around cruel and false accusations.

The critics are certainly not pulling punches. Penny Ward, chair of the environmental pressure group Yorkshire Waterwatch, has called the company "liars, cheats and con merchants". Diana Scott, a consumer activist who has stood unsuccessfully for the Yorkshire Water board, says they are "bloody-minded and obstinate". John Ward, of the Confederation of British Wool Textiles, has called the company board "a set of idiots". Frank Dobson, the Labour Party's environment spokesman, has denounced the "gross incompetence" of the Yorkshire Water management and said in the Commons: "It has shown that it is simply not up to the job." Chambers of Commerce and elected local councils have passed motions condemning the company. Even the Princess Royal has had a go, although she did not single out Yorkshire Water by name. Speaking of last year's shortages, she said: "I cannot help feeling that there must have been inefficiency and incompetence."

Perhaps the most effective critic of all was Marjorie Cass, a Bradford woman of 77 who saw the standpipe trials underway there last August and decided to take a company official to task on the spot. "Cut off our supplies and I'll have your guts for garters," she told him. "This is a damned disgrace. We suffer and it's the shareholders who gain. Everyone works blasted hard to pay their water rates. It should never have come to this. It's a disgrace." These thoughts, delivered impromptu and with undisguised rage by a diminutive pensioner, featured largely on that night's national television news.

When the public inquiry gets to grips with last year's crisis, it is likely to uncover longstanding resentment against Yorkshire Water. Although other privatised utility companies have been noted for worse excesses, its performance in customer service since privatisation six years ago has been abysmal and its rate of complaints the highest in the industry. It was unsympathetic to poorer householders who struggled to pay their rising bills; it was slow to repair leaks and it seemed to impose hosepipe bans every year. Ofwat, the national regulator, was particularly concerned about the soaring numbers of Yorkshire people who found their water supply cut off for more than 12 hours without warning. From 7,000 households in 1989-90, this rose to almost 20,000 in 1994-5. The management, meanwhile, was remarkably efficient at boosting profits by cutting costs - the workforce, for example, fell by a quarter in six years - with the result that last year it was able to report operating profits equivalent to 25 per cent of turnover, quite a score for a dull utility.

The high profits and dividends were resented, the more so when a share of it was invested in businesses abroad, and in a shopping mall in Leeds, rather than in its leaking pipes. The record of poor customer service and bad public relations slowly turned this resentment to hostility. Nostalgia is a rare thing in the world of reservoirs and sewers, but many Yorkshire people drew a contrast with the Victorian city fathers - now cast as righteous models of public service - who brought piped water to the west Yorkshire cities in the last century; not forgetting Alderman Gadey, who in the Thirties endowed Bradford with a grand chain of reservoirs running up into the Pennines and justified the expense with a promise that the city "would never want for water again".

Ofwat maintains a Customer Service Committee in the region whose job is to represent the interests of consumers, and year after year its annual report has noted a high level of public hostility to Yorkshire Water. Diana Scott, who was chairman from 1989 to 1993, recalls: "The complaint level was always above the national trend and the company's response only aggravated matters. It always said it knew best and that customers should be ever so grateful for what they were getting." Eric Wilson, the current chairman, says: "Right back at the beginning of 1994, long before the drought, it was clear that Yorkshire Water was unpopular even by the standards of water companies." Though the company, under some pressure from the committee, was working to improve its image, even in ideal conditions it would have taken some years to turn things around.

When drought came, then, the public was in no mood to give Yorkshire Water the benefit of the doubt, and if you are trying to justify a shortage of water in west Yorkshire, the benefit of the doubt is what you need.

THE weather last year, as the company always insists with complete accuracy, was one of nature's freaks. The year began with the wettest winter of the century and when spring began the reservoirs and rivers were full. What followed was a drought of unprecedented length, continuing right into 1996.

The water companies, and before them the water authorities, have always operated to what are called "standards of service". When it comes to droughts, they are required to maintain their supply systems to a standard that will cope with a one in 100 event - in other words, water rationing should happen no more than once a century. Yorkshire Water says that by last autumn in west Yorkshire they were dealing with a one in 500 or even a one in 1,000 event, so far outside the weather norms that it would actually have been unreasonable and wasteful to prepare for it.

The company's many critics insist, to the contrary, that there were plenty of warning signs. Yorkshire Waterwatch argues that a worse drought was seen as recently as 1975-76. Eric Wilson of the Ofwat customers' committee points out that in the years since 1976, rainfall has been below the long- term average 15 times. Last year, in other words, was neither so exceptional nor so surprising as the company suggests, and it should have been ready. In any case, given the frequency with which we have seen freak conditions in recent years - the warmest month on record, the driest, the wettest, the coldest and so forth - it might have been assumed that any big company that depended on the weather would have been concerned.

Worries about future supply difficulties had been in the air for some time. In 1985 a Labour MP, William O'Brien, pointed out to a Commons committee: "Even now there are areas of Yorkshire which are subject to concern in drought conditions - the industrial side in the west where the rivers are polluted." In 1989 the company itself acknowledged in its prospectus that it had concerns about "local imbalances between supply and demand" in the mid-Nineties. Its strategy then was to develop a new source from an underground lake in the Vale of York, although this alone would not have been sufficient to cover the shortfall. That project, however, was blocked by the National Rivers Authority on environmental grounds.

The company and its critics both had another idea of how to improve supply: plug the leaks. Yorkshire Water currently loses 26 per cent of all the water it collects through leaks in its pipes (the figure in west Yorkshire is 32 per cent), and the losses have probably been at that level for many years. It used to be optimistic about reducing this: an Ofwat report in 1991 records: "Yorkshire Water intends to reduce the figure to around 18 per cent by 1992." Nowadays, however, it is very vague about bringing the figure down. With old pipes, hilly terrain and corrosive water, the company points out that high leakage is inevitable. A question to be resolved by the inquiry is whether, in the years 1989 to 1995, it had done enough about it. Investment was rising, from an initial pounds 5m a year to pounds 11m, but the principal effect seems to have been to provide a fuller picture of the problem, rather than to reduce leakage.

Low rainfall and high leakage were not alone responsible for last year's crisis. Demand was exceptionally high. As gardens dried up in the spring, the sprinklers were turned on, and water consumption shot up and stayed high. Short peaks in demand had been seen before, but high consumption week after week was new. It was, as Mr Newton recalls with something like horror, "a 90-day peak". Drastically lower water supplies combined with drastically higher demand to suck the reservoirs virtually dry. Even when people responded to the hosepipe ban, the damage to stocks had been done.

Could this have been predicted? Mr Nixon reported to the Department of Environment that the combination of exceptional drought and exceptional demand made the circumstances doubly unusual, but this is an odd view. Demand was high because it was dry, a link that should have come as no surprise to a company which has imposed hosepipe bans in five of the last seven years. A multiplying effect was also at work: water supplies fell because of the lack of rain, so water consumption rose for the same reason, which meant water supplies came under even greater pressure. This process seems eminently predictable, and should surely have figured in any computer model of water resources. That, at least, is what hindsight suggests; it will be for the inquiry to hear the evidence.

The inquiry is to be chaired by John Uff, a Fellow of the Royal Academy of Engineering who is also a QC and a Professor of Law at London University - he specialises in the arbitration of construction disputes. The Professor's first and greatest challenge will be to establish his independence, for he was appointed, and his inquiry is being funded, by none other than Yorkshire Water itself. It seems that, though there was universal agreement an inquiry was needed, no one else - not Ofwat, not the local authorities, not the Government - was prepared to pay for it.

ONE lesson has already been learnt, before Professor Uff begins his task. It was learnt late last year as west Yorkshire drifted towards rota cuts, and it was this: such a thing cannot be allowed to happen, whether it be a one in 100 event or a one in 1,000 event.

For months Yorkshire Water, placing its confidence in experience and mathematical probability, had assumed that the next day or the next week, or at the very least the next month, would bring rain. Whether or not it could have been described as complacent, that was its underlying belief. The dry spring and the dry summer had gone, and the dry autumn was underway before the consequences of over-reliance on this belief became clear. By then even the Government had begun to panic. David Curry, a junior environment minister and a Yorkshire MP, paid a call to the company's headquarters and had a chat with Mr Newton. He said afterwards: "We made it absolutely clear to Yorkshire Water that they had to take all measures irrespective of cost and effort - reasonable measures - to deliver supplies to Yorkshire, and particularly to Halifax and Bradford."

The company's confidence evaporated in the enduring heat. The department responsible for fixing leaks was told to forget its budget and plug every hole it could find, whatever the cost. But that would never be enough, so they called in the tankers. First 200, then 400, then 700 road tankers, some of them brought in from continental Europe, were hired to transport 70,000 tonnes of water a day into the stricken areas. The convoys rolled almost round the clock, pounding back and forth across the county to dribble their loads one by one into the reservoirs until, together, they made a difference. No operation on such a scale had ever been seen in this country before. Along the route, at times, the lorries were thundering by at a rate of one every 45 seconds; new stretches of road were laid almost overnight, like carpets being rolled out, to improve access to reservoirs and speed up turnarounds. Some roadside residents were given free holidays in Whitley Bay or Lytham St Anne's to get them away from the noise. The cost of the operation may have exceeded pounds 40m, but when January came, with the help of a little snow and rain, the worst had been avoided. Rota cuts were unnecessary.

By then, however, another terror had taken hold, for though winter rains had come, they were nothing like enough to replenish stocks. The reservoir that serves Halifax, for example, was only 22 per cent full at the end of January where normally it has reached 70 per cent by that time of year. The prospect of drought in 1996 loomed large, but this time the company was ahead of events. In November, it approved another extraordinary emergency operation.

It is laying two new pipeline systems across the county with a combined length of more than 40 miles and installing pumping equipment capable of pushing water from rivers to the east uphill towards the dry towns. This is being done at speeds never before imagined in British water engineering. At Arthington on the River Wharfe, for example, a pounds 3m pumping station capable of shifting 100,000 cubic metres of water a day was built in eight weeks where normally it would take 18 months. The pipe stretching westward from here towards Bradford was laid at a rate of almost two miles a week. Ten squads worked every daylight hour, seven days a week from early December, ripping up the countryside, sinking the pipe and covering it, ripping, sinking and covering.

I watched one squad close to Leeds-Bradford airport: three diggers and three or four men, with an engineer in charge. Behind them the muddy line curved across country towards the great open trench where the machines were now busily clawing at the earth. Beyond, a line of marker poles stretched around the hillside, with sections of pipe laid alongside in readiness. By tomorrow, they would not be visible from this spot. Even then it was muddy work, and this was one bunch of Yorkshire Water employees who were praying it didn't rain.

Britain's entire capacity to manufacture these large plastic pipes was swallowed up, and more were bought abroad. Yorkshire Water elbowed its way to the front of the queue for every available water pump. ("The other water companies are extremely pissed off with us," said one of the project managers.) Four years' work was being done in four months. And that is not all: red tape has been not so much sliced through as tunnelled under. Four of the pumping stations, for example, have been built without planning permission. In its pounds 100m dash to fix the supply problem, the firm is shooting first and asking questions afterwards.

Barring an even greater freak of the weather than 1995 (and February has finally brought some rain), west Yorkshire should have its water this year. But what all the desperate activity means, what all the tankering and the new pipelines demonstrate, is that the company has abandoned the notion that it can gamble with water supplies. The standards of service meant just that: a one in 100 chance was still a chance, and they and other companies were happy to take it. Others would say that the odds in west Yorkshire were much shorter, and that a reckless gamble was taken in order to curb costs and protect profits. Either way, the gambling is over. John Layfield, Yorkshire Water's Director of Production, is ready to say so: "Rationing is not acceptable. It doesn't matter about the standards of service. We understand that now."

It was an extreme case: a record of poor customer service, some terrible PR, a shortage of the product and a sustained surge in demand. But although it seemed to happen in slow motion, no regulator stepped in to prevent the crisis, and neither did the Government. It took the threat of Mr Nixon's "undesirable and potentially dangerous consequences" to produce action costing in excess of pounds 140m. In the end, in other words, the customer had his say and what he said was simple and crude: do something or there will be trouble. Perhaps this was what John Gummer, the Environment Secretary, meant when he said of Yorkshire Water last month: "The company... is now subject to public control. Privatisation subjects companies to public control." If so, it is a form of public control that no privatised utility will risk encountering for a very long time. !