We must focus on the big picture, says Anglian man
As the water industry faces a year of change, one of its leaders asks Ofwat to avoid micromanagement
Sunday 05 June 2011
This is the most important year for the water industry "since privatisation", according to the boss of the sector's biggest utility by area, Anglian Water.
The water sector is facing a series of major revamps, including a review of the regulator Ofwat, expected later this month, and an autumn White Paper into the impact of climate change.
In an interview with The Independent on Sunday, Peter Simpson, managing director at Anglian, called on Ofwat to focus on major issues rather than micromanaging the industry as part of its reforms.
He believes the current regulatory regime is the "most successful" in the world, but said that Ofwat had started to focus too heavily on minor issues. "The opportunity is for them to go up a level, which means stopping thinking about the specifics. Sometimes you lose the bigger picture."
He gave an example of how utilities' customer service used to be judged. This included looking at how many rings a call-centre worker took to answer a call. A new system has been introduced that simply asks customers how well their complaints have been dealt with. "We realised that it matters more what the customer thinks of the service itself [rather than minor details]," said Mr Simpson.
He also called for a more balanced regulatory regime. At present, Ofwat sets key parts of utilities' budgets, such as what to invest in infrastructure, over a five-year period.
Mr Simpson said that certain areas, including capital maintenance, "don't lend themselves to a five-year period". So, for instance, improving pipelines should be considered over a longer period, but it might still make sense to enforce a limit on price increases to customers over a five-year timeframe.
A big issue in the industry surrounds arguments that utilities, which control large geographic areas, should trade water more readily to meet droughts in certain parts of the country. This idea is gaining support as the impacts of climate change become more acute. About £1bn of Anglian's investment programme over the next 25 years is related to the phenomenon, focusing on matters such as flood prevention.
However, water trading is problematic and a relatively small part of the business – just 12 per cent of Anglian's water is traded – due to fierce accounting standards.
Currently, any water traded is treated as an operating cost, making the transaction costly. Mr Simpson would like ring-fenced accounts that would not add to the cost of trading, and would help the industry combat droughts in periods of hot weather, as is expected this summer.
"There is a lot of high-faluting theory," he says. "but there are simple, practical steps that could be taken. If you want free trading, why not have a surrogate, ring-fenced account for water buying? That will encourage more trading."
The financial markets are willing to lend to the sector at low rates due to its stability, exemplified by its consistent returns. Water utilities would trade more if the cost of doing so was easier to predict, enabling it to retain its reputation in the capital markets.
Mr Simpson said that Anglian's talk of climate change had led at least one major business to consider leaving the region for an area perceived to have more water. Nestlé asked him whether there was a secure enough supply to support its factory in Wisbech in Cambridgeshire, which employs 650 people. He reassured the company that Anglian's investment will be enough to maintain supplies.
Mr Simpson is, however, leading a campaign to persuade people to reduce their water consumption. At present, it takes a huge amount of water to produce even the simplest items that Britons consume. For example, once issues like transportation are considered, it takes 11,000 litres to produce just one pair of jeans.
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