John Roberts: They're turning off the taps on water prices but the glass remains half full

While the boss of United Utilities can't push the boat out on charges and investment, he still hopes to get the regulator to row back, he tells Tim Webb
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The Independent Online

John Roberts, chief executive of United Utilities, is having an arduous August. He is still wading through a 230-page report, issued earlier this month by water regulator Philip Fletcher, which tells water firms how much they can charge customers over the next five years. Roberts, who lists scuba-diving as a hobby, has postponed his summer holiday until next month so he can finish the Ofwat tome and come up for air.

John Roberts, chief executive of United Utilities, is having an arduous August. He is still wading through a 230-page report, issued earlier this month by water regulator Philip Fletcher, which tells water firms how much they can charge customers over the next five years. Roberts, who lists scuba-diving as a hobby, has postponed his summer holiday until next month so he can finish the Ofwat tome and come up for air.

Dealing with such racy subjects as "cost of capital" and requirements for sewage treatment, it is hardly ideal summer reading. But for the man who oversees United Utilities Water (formerly called North West Water), there is no dodging it.

Fletcher's draft report, which will be set in stone in December, has set prices for the company's seven million water customers, and specified how much it can invest to upgrade the water network and implement the new environmental improvements required under EU law. Roberts, like other water company chiefs, will write to the regulator next month to give his formal response. "It's too early to say what we think now," he says. "You have to work through the detail to understand it."

While he is giving little away, it is clear that he hopes to persuade Fletcher to concede some ground.

Roberts, who has been chief executive of United Utilities since 1999, is an engineer and accountant by training. He has spent his entire career in the utility sector. You get the feeling he is a good man to handle the delicate negotiations with the regulator, who is under pressure both from consumer groups and the Government, mindful of an impending election, to keep water bills low.

United Utilities' business plan, for 2005-10, asked the regulator to allow the company to increase prices by 7.8 per cent on average per year, plus inflation, to pay for a £3.2bn investment programme in the water and sewage treatment network. Fletcher said instead that he could only raise prices by an average of 3.5 per cent a year plus inflation, cutting the investment from £3.2bn to £2.4bn. On average, companies were told they could increase prices by around half the level that they had requested, cutting the total £22bn investment programme outlined by the industry to £15.7bn.

Fletcher's report prompted howls from some companies that they could protest to the European Commission.

Roberts is more sanguine. "It's substantially different to what we submitted," he says. "We are at an early stage of a long process. If we fail to get agreement, the next stage would be the Competition Commission."

Some commentators have hailed the regulator's draft report as a masterstroke which has managed to pacify consumer groups by limiting price rises, at the same time as satisfying the water companies' shareholders, who had feared an even harsher report.

Ever the diplomat, Roberts chooses his words carefully when asked if he agrees. "He [Fletcher] has produced a set of proposals which have achieved broad acceptance by stakeholders. But we are only part way through this process."

On the plus side, Roberts praises the regulator for only pricing in half the efficiency targets being set. This means that if companies hit these targets, which he admits are challenging, they keep half the money rather than all the savings being used to keep bills lower or to invest in the network. But overall, you get the sense that there was more gnashing of teeth than rejoicing at the company's Warrington headquarters when the draft review was announced.

Fletcher has been through each project proposed by the companies for their investment programmes. "There are grey areas where the regulator is asking whether some things represent value for money," says Roberts. For example, a limit of £120,000 has been set for the amount of money that companies should spend on each residential property at risk from sewers flooding, recommending that they spend £710m overall on measures to combat overflowing, rather than the £1.47bn requested by the companies.

Of the £3.2bn investment programme proposed by United Utilities, £1.5bn has been earmarked for maintaining the network, and £1.5bn for improving drinking water and the treatment of waste water. The remaining £200m, it was envisaged, would be spent on "extras", such as cutting down on the smell coming from sewage works. These additional projects could be the first to be axed if the regulator sticks with his proposed spending cuts. Roberts admits: "The tests for these are slightly more subjective. These are things customers have asked for. They are not driven by specific legislation."

There is a broad acceptance that water bills must go up. Roberts recalls that Britain was the "dirty man of Europe", with polluted beaches, when the water companies were privatised - largely debt free - 15 years ago. The £50bn investment since then has been funded by raising debt, and prices have only increased marginally.

"What was not foreseen was that investment standards set by the EU would be constantly raised," he continues. "The capacity of industry to fund this by raising debt and becoming more efficient has been exhausted. We must look to customers to pay for some of this."

He adds that it is getting increasingly expensive to make improvements.

Water bills are not the only charges under review. United Utilities also owns a distribution network in the North-west that delivers electricity to 2.3 million customers. The charges made by the distributors, which make up a third of customers' electricity bills, are currently being reviewed by energy regulator Ofgem.

Surprise, surprise, United Utilities asked to increase prices - by 4.1 per cent on average, plus inflation, until 2010 - but the regulator has told the company, like most of the industry, to cut charges instead. Roberts is coy on negotiations with Ofgem, saying only: "There are issues."

A past member of the Royal Commission on Environmental Pollution who also sits on advisory panels for renewable energy, Roberts is clearly passionate about power. "What is the policy objective of energy?", he asks rhetorically. Environmentalists might want greener energy but, if this costs more, consumers might oppose it. "It's a lot harder to decide than objectives for education or health, for example. There is no easy, instant solution."

He argues that companies, and consumers, should become much more energy efficient. But this enthusiasm for conservation does not extend to telling people not to have baths, unlike the one-time chief of Yorkshire Water who once boasted that he had not had a soak for months during a summer drought. He was later caught in a tub when he visited his parents in another county. Roberts is too smart to get involved in a soap opera like that.

BIOGRAPHY

Age: 58.

Education: Oldershaw grammar school, Cheshire; degree in electrical engineering at Liverpool University; qualified as a certified accountant.

Career (1967-95): joined electricity distribution firm Manweb as a commercial engineer, going on to serve as chief accountant, finance director, managing director and chief executive.

1996-99: joined utility group Hyder as chief executive of South Wales Electricity. He became chief of Hyder in 1997.

1999 to now: chief executive of United Utilities.

Appointments: member of the Government's Renewables Advisory Board; non-executive director of electricals group Volex; chairman of the Manchester Investment & Development Agency Service; chairman of Northwest Energy Council; chairman of the North West Business Leadership Team; member of the Merseyside Partnership; member of the Manchester Enterprise Board.

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