Here's a water scheme that's too good to waste

Comment

When they privatised the water industry the Conservatives accepted that instilling real competition would be a bit like trying to push the stuff uphill. It is not a commodity that lends itself readily to market forces. For one thing, it is a natural monopoly, for another it is expensive and difficult to transport, as Yorkshire Water demonstrated during its little local difficulties two summers ago.

Instead they hit upon the concept of "comparative competition" - the idea that the most efficient suppliers would set the standard for the rest and so bring down prices for everyone. It never worked, as rising bills, leakage rates and water shortages have shown.

Today, however, Ian Byatt, the industry regulator, has a golden opportunity to prove that where there is a will there is a way. Mr Byatt will be asked to approve a scheme that will allow nearly 2,000 homes and businesses on the Kings Mill development near Maidstone to get their water not from the local monopoly, Mid Kent Water, but from Envirologic, a rival supplier.

Envirologic is promising all sorts of goodies such as zero leakage rates, a way of saving on consumption by flushing the toilet with "grey water" (don't ask) and, best of all, at least 5 per cent and perhaps as much as 50 per cent off the bills that householders in nearby Tonbridge pay. Even Mid Kent does not lose out since the water for Kings Mill will be bought from it at a commercial price which reflects the incumbent supplier's own cost base.

This is not the first application that Mr Byatt has received from Envirologic. It has 25 other schemes in the pipeline all still awaiting the go-ahead, none has yet been given the Ofwat seal of approval. It is not alone. Since the necessary legislation was passed five years ago Ofwat has approved only one application to substitute an incumbent supplier - Anglian Water is now supplying a chicken farm in Suffolk which is outside its franchise area.

The snag is that Mr Byatt does not really like this form of competition as a means of delivering better service and value to consumers. In fact, he doesn't even regard it as proper competition but sees it merely as water brokering. Instead Ofwat is working on its grand price review which promises to deliver one-off reductions in bills in 2000. In itself this is fine (even though history shows that regulators invariably underestimate the amount that privatised utilities can afford to hand back).

In the meantime he only seems interested in competition that results from rival suppliers actually developing their own water resources. In an industry where the word "drought" never seems far from anyone's lips, this is more easily said than done. In the case of Mid Kent, where the only way to tap new water sources is to dig another reservoir, it is a non-starter.

But, as Kings Mill shows, there is an answer. What better way of achieving keener prices and greater efficiency from incumbent suppliers than offering one set of customers 50 per cent off their bills?

Sir Des wins a victory of sorts

Ahem. We, the undersigned, being of sound mind and body and in no way intimidated by the executive chairman, wish to make the following statement: Sir Desmond Pitcher will continue to run United Utilities until such time as he, sorry we, see fit. It is a decision for us, the board, not you, the shareholders. In this, we are "wholly unanimous", in case you missed the point.

Its casual butchery of the English language aside, the statement that emanated from yesterday's "unscheduled" meeting of the United Utilities board was designed to buy time.

Sir Desmond should have been given his marching orders yesterday. Instead the uncertainty will linger on until the autumn since the outcome of the boardroom bust-up that has kept us so entertained this summer will not be known until the interims in November.

Perhaps it was too much to expect the non-executives to take their courage in their hands and lance this particular boil by telling Sir Desmond to stand down. Perhaps they realised they would be made to look silly, having backed Sir Desmond just three weeks ago when he ousted his only serious rival, Brian Staples. Perhaps they calculated that to lose an executive chairman so soon after parting company with a chief executive would leave them exposed to a more serious accusation than mere carelessness.

The subtext of yesterday's statement is that the concerns of institutional shareholders have been heard and that results will be forthcoming.

Sir Desmond, the institutions presume, will still go. But it will be according to his timetable, not a knee-jerk response to institutional bloodlust.

Sir Desmond has proved himself a doughty fighter in the past. Yesterday a combination of his own cunning and the pusillanimous performance of his non-executives gave him a victory of sorts again.

But unless this autumn's review comes up with an early departure date for Sir Desmond, the institutions must act. While they are at it, they might reinforce the ranks of the non-execs as well.

Outlook for rates is driving the market

Inflation rose to its highest level for two years yesterday. It was also flat and possibly lower too, depending on what you choose to exclude from the calculation. That's the beauty of having so many measures of the cost of living - there's grist for everyone's mill in these figures.

Despite the rise in both the headline rate of inflation and RPI-X, the measure that excludes home loans and which most people focus on when interest rates on rising, yesterday's data actually offered some reassurance that inflation is pretty subdued.

Stripping out higher taxes on booze and petrol and the damage caused to crops by the recent heavy rain, the rise in the cost of what's left was unchanged at a fairly harmless 2.2 per cent. On the high street, shoppers are driving a pretty hard bargain, even with the windfalls they got for free. That provides some hope that the Bank of England was right last week when it attempted to talk the pound down by hinting that interest rates were now consistent with its 2.5 per cent inflation target. Of course, the trouble with monetary policy is that you don't know for a year or so, by which time it's too late.

Attention will now shift to sifting the entrails of the Bank of England's quarterly report on inflation later today which ought to be a landmark, the Old Lady's first assessment of the outlook for prices since it was set free to determine monetary policy. Although, last week's unusual hint to the markets has pre-empted the report to some extent, the market is hyper-sensitive to any statement from the Bank and, in the absence of any corporate news, it is the outlook for rates that is driving the market through this quiet holiday season.

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